<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, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------
COMMISSION FILE NUMBER 0-12628
CML GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2451745
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
524 MAIN STREET, ACTON, MASSACHUSETTS 01720
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (508) 264-4155
<TABLE>
Securities registered pursuant to Section 12(b) of the Act:
<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 $295,806,194 based on the closing price of the
Common Stock as reported on the New York Stock Exchange on October 18, 1995.
Number of shares of Common Stock outstanding as of October 18, 1995: 49,324,691
shares.
Page 1 of 48 Pages
Exhibit Index Begins at Page 41
<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, 1995 to be filed with the
Securities and Exchange Commission on
or about November 2, 1995 pursuant to
Reg. 240.14a-6(b) under the Securities
Exchange Act of 1934.
</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 and (ii)
nature-, gardening-, music- and science-related gifts and accessories. The
Company markets its products primarily through direct response advertising in
print and on television, through its mail order catalogs and through its own
specialty retail stores and kiosks. At July 31, 1995, the Company operated 263
retail stores (excluding 113 stores operated by Britches of Georgetowne) and 90
mall kiosks and had proprietary mail order customer lists containing
approximately 3 million names. The Company's principal specialty retailing
operations are conducted under the trade names NordicTrack(R),
NordicAdvantage(TM), The Nature Company(TM), Smith & Hawken(R) and Hear Music.
As part of its strategy to focus its resources on businesses which have
the greatest growth prospects and offer the greatest potential return on
investment, the Company decided during fiscal 1995 to sell its men's apparel
subsidiary, Britches of Georgetowne ("Britches"). Britches conducts its
operations under the trade names Britches of Georgetowne(R) and Britches Great
Outdoors(TM). Although the Company has retained an investment banking firm to
assist in the sale of the subsidiary, no assurance can be given that a sale will
occur. See Note 3 of Notes to Consolidated Financial Statements for additional
information.
On February 25, 1993, the Company acquired certain assets and assumed
certain liabilities of the gardening business of Smith & Hawken, Ltd., a
specialty retailer of gardening products and accessories located in Mill
Valley, California. See Note 2 of Notes to Consolidated Financial Statements
for additional information. During fiscal 1992, the Company decided to sell
certain parts of its Britches for Women and Mason & Sullivan divisions and to
liquidate the remaining assets and liabilities.
CML's continuing operations consist of four subsidiaries operating in
two industry segments: (i) NordicTrack designs, manufactures and markets high
quality aerobic and anaerobic exercise equipment to consumers primarily through
direct response advertising in print and on television, its own mail order
catalogs and retail stores and kiosks operated by its wholly-owned subsidiary,
NordicAdvantage and (ii) the Nature Company segment ("NC Segment") includes The
Nature Company which markets a wide range of products that enhance observation,
understanding and appreciation of nature through its own retail stores and
catalogs; Smith & Hawken, a leading marketer of gardening tools, plants and
accessories, acquired in February 1993; and an early stage retail concept, Hear
Music that sells music-related merchandise through its own retail stores.
3
<PAGE> 4
Information on the Company's industry segments is presented in Note 11 -
Industry Segments of Notes to Consolidated Financial Statements.
For the fiscal year ended July 31, 1995, approximately 55.1% of the
Company's total revenues from continuing operations were derived from retail
stores and mall kiosks compared to approximately 49.7% in fiscal 1994 and 46.8%
in fiscal 1993. In fiscal 1995, direct response and mail order sales accounted
for approximately 44.9% of total revenues compared to 50.3% in fiscal 1994 and
53.2% in fiscal 1993.
NordicTrack
- -----------
NordicTrack designs, manufactures and markets high quality aerobic and
anaerobic exercise equipment to consumers primarily through direct response
advertising in print and on television and through its own mail order catalogs.
NordicTrack also sells its products to its wholly-owned subsidiary,
NordicAdvantage which operates specialty retail stores and kiosks located
primarily in the United States and Canada. NordicTrack's products are designed
to provide efficient, non-jarring exercise at home.
NordicTrack's principal aerobic products consist of several models of
cross country ski exercisers at prices ranging from $300 to $1,500, several
models of a non-motorized treadmill product marketed under the WalkFit(TM)
tradename at prices ranging from $400 to $600 and a rider product marketed under
the NordicRider(TM) tradename at a price of $300. NordicTrack introduced its
first cross country ski exerciser in 1976, the WalkFit treadmill in November
1993 and the NordicRider in October 1995. NordicTrack's cross country ski
exercisers utilize a flywheel mechanism which, in conjunction with an upper body
resistance mechanism, replicates the non-jarring motion of cross country skiing
and provides a complete upper and lower body workout.
NordicTrack's principal anaerobic product, the NordicFlex Gold(TM), was
introduced in December 1991. The NordicFlex Gold, which sells for $800,
incorporates a unique isokinetic resistance device which provides resistance in
relation to the force exerted. The NordicFlex Gold provides users with the
upper and lower body exercise needed to maintain strength, tone and flexibility,
and allows the user to tailor an individual fitness program with 32 different
exercises.
During fiscal 1995, approximately 45.3% of NordicTrack's net sales was
derived from NordicAdvantage's retail operations, and the remaining 54.7% was
derived from its direct response and mail order operations. NordicAdvantage
opened 26 retail stores during fiscal 1995 compared to 41 and 29 stores opened
during fiscal 1994 and 1993, respectively. At the end of fiscal 1995,
NordicAdvantage operated 114 stores compared to 88 stores at July 31, 1994 and
47 stores at July 31, 1993. NordicAdvantage plans to open approximately 20
stores during fiscal 1996. These stores, which vary in size from 936 to 4,303
square feet and average approximately 1,724 square feet in size, are generally
located in high traffic urban and suburban malls in affluent areas and in
discount outlet malls. A portion of NordicAdvantage's retail sales comes from
seasonal kiosks which are open for only a portion of the year. The stores and
kiosks have allowed NordicAdvantage to reach that portion of the fitness market
which does not traditionally purchase by direct response or mail order.
NordicTrack operates a retail store in Germany and a retail store, kiosk
and marketing facility in the United Kingdom. To date, international sales have
not been significant.
4
<PAGE> 5
NordicTrack's operations, including personnel, stores, purchasing,
manufacturing, distribution, order fulfillment, accounting and management
information systems, are separate and distinct from the Company's other
operations.
The Nature Company Segment
- --------------------------
The NC Segment includes The Nature Company which creates, sources and
sells products that enhance the observation, understanding and appreciation of
the natural world; Smith & Hawken, a leading marketer of gardening tools, plants
and accessories, acquired in February 1993; and an early stage retail concept,
Hear Music which sells music-related merchandise. The Nature Company's
merchandise categories include books, gifts, children's educational toys, music,
clothing, accessories, backyard and garden items, minerals, sculpture, posters,
optics, paper products, instruments, nature video and audio tapes and CD-ROM's,
and limited edition prints. Smith & Hawken's merchandise categories include
garden furniture, gardening tools, plants, garden-related accessories, books,
housewares and gifts and clothing. Hear Music sells a limited selection of
compact discs and tapes targeted primarily at customers older than those
targeted by most music stores.
During fiscal 1995, approximately 78.8% of the NC Segment's sales was
derived from its retail operations, and the remaining 21.2% was derived from its
mail order operations. The NC Segment opened 15 stores during fiscal 1995
compared to 22 stores opened during fiscal 1994. At the end of fiscal 1995, the
NC Segment operated 148 stores compared to 133 stores at the end of fiscal 1994.
The segment's retail stores, which vary in size from 1,290 square feet to 7,649
square feet and average 3,032 square feet, are located in tourist festival
marketplaces, high traffic urban and suburban malls in affluent areas and
affluent main street areas in the United States and Canada and the United
Kingdom. The NC Segment plans to open approximately 12 stores during fiscal
1996.
The NC Segment mailed approximately 26 million catalogs during fiscal
1995 and generated $44.2 million in total mail-order revenues in fiscal 1995.
The companies included in the NC Segment currently share real estate
services, order processing services, fulfillment and distribution services and
management information services and systems. The NC Segment's operations,
including personnel, stores, purchasing, merchandising, distribution, order
fulfillment, accounting and management information systems, are separate and
distinct from the Company's other industry segment.
Britches for Men
- ----------------
During fiscal 1995, the Company decided to sell its men's apparel
subsidiary, Britches of Georgetowne. Britches sells men's sportswear and casual
outdoor clothing, designed for casual weekend living, through stores in urban
and suburban locations primarily in the mid-Atlantic, the northeast, upper
midwest and southeastern states and Washington, D.C. operating under the trade
name Britches Great Outdoors ("BGO"). Britches also sells men's tailored
professional clothing through stores concentrated in the mid-Atlantic and
southeastern states and Washington, D.C. operating under the trade name Britches
of Georgetowne ("BGT"). Merchandise sold by BGT consists primarily of tailored
natural fiber suits, sport coats, trousers, shirts and neckties with traditional
yet fashion-forward styling.
BGO stores are located in university towns, high traffic malls and main
street areas in affluent urban and suburban areas. BGO stores vary in size from
2,075 square feet to 7,254 square feet and average 3,506 square feet. Britches
opened 16 new BGO stores during fiscal
5
<PAGE> 6
1995 compared to 27 BGO stores opened during fiscal 1994. At the end of fiscal
1995, Britches operated 99 BGO stores compared to 83 stores at the end of
fiscal 1994. The Company plans to open 3 BGO stores during fiscal 1996.
BGT stores, which vary in size from 3,114 square feet to 7,536 square
feet and average 5,111 square feet, are primarily located in major high traffic
shopping malls and main street areas in affluent urban and suburban areas.
Britches operated 14 BGT stores at July 31, 1995 and 1994. The Company does not
plan to open or close any BGT stores during fiscal 1996.
Britches' operations, including personnel, stores, purchasing,
merchandising, distribution, order fulfillment, accounting and management
information systems, are separate and distinct from the Company's other
operations.
Trade Names
- -----------
The Company believes that the names under which it conducts its business are of
significant value because they are established, well-known and respected.
<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 18
NordicAdvantage, Inc. (TM) Over 4
The Nature Company(TM) Over 15
Smith & Hawken(R) Over 10
Hear Music Over 4
Britches Great Outdoors(TM) Over 20
Britches of Georgetowne(R) Over 25
</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 also sells certain products to its wholly-
owned subsidiary, NordicAdvantage, which resells the products through its
retail stores and kiosks. The NC Segment's products are shipped by its
suppliers to its distribution center in Florence, Kentucky and reshipped by the
NC Segment to stock its retail stores and to fill its mail orders. Britches'
products are shipped by its suppliers to its distribution center in Herndon,
Virginia, from which Britches supplies its retail stores.
6
<PAGE> 7
Suppliers
- ---------
The Company has many domestic and foreign suppliers, none of which
accounts for more than 10% of its purchases. Generally, the Company is not
dependent upon any single source for any raw materials or items of merchandise.
Each specialty retailing operation generally contracts with one or more printers
and paper suppliers for its direct response and mail order catalogs.
Manufacturing
- -------------
The Company's principal manufacturing activity consists of the
production of NordicTrack physical fitness exercise equipment, primarily at two
facilities comprising approximately 345,000 square feet located in the cities of
Glencoe and Belle Plaine, Minnesota. The materials required for the Company's
manufacturing operations are generally available from a wide variety of
suppliers.
Competition
- -----------
The markets in which the Company is engaged are highly competitive.
NordicTrack competes with several companies which design, manufacture
and distribute physical fitness and exercise equipment, including ICON, Inc.,
Road Master Industries, Inc., Diversified Products Corp., Health Rider, Inc.,
Soloflex, Inc. and Consumer Direct, Inc. During the past five years,
NordicTrack's competitors have introduced several new and competitive products
at competitive prices.
Many of the competitors of The Nature Company, Smith & Hawken and Hear
Music are larger companies with greater financial resources, a greater
selection of merchandise and nationwide distribution, including a large number
and wide variety of specialty retail stores, discount stores and department
stores. The Nature Company primarily competes with Natural Wonders, Inc., a
large specialty retailer located in the San Francisco Bay Area with retail
stores throughout the United States and with smaller specialty retailers in
local markets selling clothing, educational toys for children, books, posters
and other similar items. In addition, The Nature Company competes with other
companies with mail order catalogs and retail stores that sell items similar to
those sold by The Nature Company. These competitors include department stores,
book stores, jewelry stores, clothing stores and outdoor stores.
Smith & Hawken competes with mail order catalogs which sell
gardening-related merchandise such as Gardener's Eden, David Kay, Calyx &
Corolla and Gardener's Supply. Smith & Hawken also competes with independent
garden stores and plant nurseries in towns and cities throughout the United
States.
Hear Music competes with larger companies selling pre-recorded music on
compact discs and tapes which have greater financial resources, a greater
selection of merchandise and nationwide distribution. Hear Music also competes
with smaller local and regional music stores.
The men's tailored professional clothing and sportswear and casual wear
businesses are highly competitive. BGT and BGO compete with larger companies
with greater financial resources, a greater selection of merchandise and
nationwide distribution. BGT's competitors include but are not limited to
Nordstrom and Brooks Brothers. BGO's competitors include but are not limited to
Eddie Bauer, L.L. Bean, J. Crew, The Gap, Banana Republic, Structure,
7
<PAGE> 8
Abercrombie and Fitch and Land's End. BGT and BGO also compete with smaller,
generally regional specialty stores.
Competition in the direct response and mail order business has
intensified in recent years due to increases in the number of competitors, the
number of catalogs mailed and the number of competitors using direct response
advertisements in both print and television media.
<TABLE>
Seasonality
- -----------
The Company's businesses are seasonal with significant amounts of retail
sales in the second and third fiscal quarters. The following table shows the
approximate percentage of consolidated sales from continuing operations in each
quarter of fiscal 1995:
<CAPTION>
Percentage
Fiscal Quarter Ended of Sales
-------------------- --------
<S> <C>
October 18%
January 39%
April 25%
July 18%
----
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 42% and 52% of the Company's working capital
assets, excluding cash and cash equivalents and net assets of business held for
sale, at July 31, 1995 and 1994, respectively. Inventory purchases are based on
future anticipated sales and typically reach their highest levels of the year in
the fall in anticipation of the Christmas holiday season.
Backlog, Contracts and Research
- -------------------------------
Backlog is not a significant factor in the Company's business.
The Company does not have any material contracts which are subject to
renegotiation. The Company's research and development activities primarily
consist of the design and development of new products and the improvement of
existing products at NordicTrack, The Nature Company and Smith & Hawken.
Environmental Matters
- ---------------------
On June 3, 1991, the Company received from the United States
Environmental Protection Agency ("EPA") a Special Notice Letter containing a
formal demand on the Company as a Potentially Responsible Party ("PRP") for
reimbursement of the costs incurred and expected to be incurred in response to
environmental problems at a so-called "Superfund" site in Conway, New
Hampshire. The EPA originally estimated the costs of remedial action and
future maintenance and monitoring programs at the site at about $7.3 million.
The
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<PAGE> 9
Superfund site includes a vacant parcel of land owned by a subsidiary of the
Company as well as adjoining property owned by a third party. No manufacturing
or other activities involving hazardous substances have ever been conducted by
the Company or its affiliates on the Superfund site in Conway. The
environmental problems affecting the land resulted from activities by the owners
of the adjoining parcel. Representatives of the Company have engaged in
discussions with the EPA regarding responsibility for the environmental problems
and the costs of cleanup. The owners of the adjoining parcel are bankrupt. The
EPA commenced cleanup activities at the site in July 1992.
The EPA expended approximately $1.4 million for the removal phase of the
site cleanup, which has now been completed. The EPA had estimated that the
removal costs would exceed $3.0 million, but only a small portion of the solid
waste removed from the site was ultimately identified as hazardous waste.
Therefore, the EPA's actual response costs for the removal phase were less than
the EPA originally estimated. The EPA has begun to implement the groundwater
phase of the cleanup, which the EPA originally estimated would cost
approximately $4.0 million.
The Company believes that the EPA's estimated cost for cleanup,
including the proposed remedial actions, is excessive and involves unnecessary
actions. In addition, a portion of the proposed remedial cost involves cleanup
of the adjoining property that is not owned by the Company or any of its
affiliates. Therefore, the Company believes it is not responsible for that
portion of the cleanup costs. The Company has reserves and insurance coverage
(from its primary insurer) for environmental liabilities at the site in the
amount of approximately $2.3 million. The Company also believes that it is
entitled to additional insurance from its excess insurance carriers. However, if
excess liability coverage is not available to the Company and the ultimate
liability substantially exceeds the primary insurance amount and reserves, the
liability would have a material adverse effect upon the Company's operating
results for the period in which the resolution of the claim occurs, but would
not have a material adverse effect upon the Company's financial condition.
In June 1992, the EPA notified the Company it may be liable for the
release of hazardous substances by the Company's former Boston Whaler
subsidiary at a hazardous waste treatment and storage facility in Southington,
Connecticut. The EPA has calculated the Company's volumetric contribution at
less than two tenths of one percent. The EPA has not completed its Remedial
Investigation/Feasibility Study and, therefore, an estimate of cleanup costs is
not available.
Employees
- ---------
During fiscal 1995, the Company employed, on average, approximately
6,800 people, including full-time, part-time and seasonal employees. The
Company from time to time employs a large number of part-time employees because
of the seasonality of the Company's sales. The Company considers its employee
relations to be good.
9
<PAGE> 10
Foreign and Domestic Operations
- -------------------------------
To date, international sales, licensing revenues and export sales have
accounted for less than five percent of the Company's total annual sales. The
Company's NordicTrack subsidiary operates a retail store in Germany and a retail
store, kiosk and marketing facility in the United Kingdom. The Nature Company
has licensed the right to use its name and trademarks and generally to copy its
design concept, trade dress and merchandise to a licensee in Japan. At July 31,
1995, the Japanese licensee operated 11 retail stores.
Sales between the Company's operating units are not significant.
Item 2. Properties
----------
Most of the Company's facilities, including its retail stores, are
leased from third parties. However, its principal NordicTrack manufacturing,
administrative and telemarketing facilities are owned by the Company. The
Company also owns its corporate offices in Acton, Massachusetts.
<TABLE>
Shown below is a summary of the Company's principal facilities at July
31, 1995, excluding Britches of Georgetowne.
<CAPTION>
Square Feet
-----------------------------
Owned Leased Total
------- ----------- ---------
<S> <C> <C> <C>
Distribution Facilities
for Direct Response, Mail
Order and Retail Operations 85,500 421,500 507,000
Retail Selling Space 8,958 648,027 656,985
Manufacturing Space 206,500 45,000 251,500
Office and Administrative
Space 226,500 85,000 311,500
------- --------- ---------
Total 527,458 1,199,527 1,726,985
======= ========= =========
</TABLE>
The leases covering the Company's distribution and manufacturing
facilities expire at various dates over the next 15 years. Most of the retail
store leases have initial terms ranging from five to ten years, with options to
renew in certain cases. Retail store leases generally provide for a minimum or
base rent; additional expenses for common area maintenance charges and
additional rent calculated as a percentage of sales in excess of specified
levels. Rental expense under all leases for fiscal 1995 was approximately $47.4
million. For additional information regarding the Company's lease obligations,
see Note 8- Commitments and Contingencies of Notes to Consolidated Financial
Statements.
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Item 3. Legal Proceedings
-----------------
In May 1994, ICON, Inc. commenced a civil suit against NordicTrack in
the United States District Court for the District of Utah alleging infringement
of three patents of ICON, Inc. arising out of NordicTrack's design of its
WalkFit treadmill and certain other similar products. Discovery is nearly
complete and NordicTrack's motion for summary judgement is currently pending
before the court.
In January 1995, an individual, William Wilkinson, filed a demand for
arbitration and statement of claim alleging that NordicTrack breached the terms
of a licensing and product development agreement by failing to compensate him
with royalties for certain design features of its WalkFit treadmill and certain
similar products. This case is still in the discovery stage. The results of an
arbitration hearing scheduled for early December 1995 in Chicago, Illinois will
be binding on both parties.
While the Company believes it has meritorious defenses, no assurance can
be given of a favorable outcome in either the ICON lawsuit or the Wilkinson
claim. An unfavorable outcome in both matters could have a material adverse
effect on the Company's financial condition. An unfavorable decision in either
matter could also adversely affect the operating results for the period or
periods in which such decision occurs.
On October 25, 1994, four stockholders, owning an aggregate of 2,400
shares of CML Group, Inc. Common Stock, filed a class action lawsuit in U.S.
District Court for the District of Massachusetts against the Company and its
Chairman, Charles M. Leighton, and President, G. Robert Tod. The complaint
alleged that the Company failed to properly disclose the extent of its
NordicTrack advertising expenditures and the impact of those expenditures on its
future operating results, thereby violating federal securities laws. On
December 19, 1994, the defendants filed a motion to dismiss the complaint, and
on April 7, 1995, the plaintiffs responded by filing an amended complaint which
added an allegation that Messrs. Leighton and Tod violated the securities laws
by selling CML stock in the Spring of 1994. The Company believes the amended
complaint is without merit and intends to vigorously contest the lawsuit. In
April 1995, the defendants filed a motion which is currently pending before the
Court to dismiss this lawsuit.
The Company is involved in various other legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome of
such proceedings will not have a material adverse impact on the Company's
financial condition or results of operations.
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Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended July 31, 1995.
<TABLE>
Executive Officers of the Company
- ---------------------------------
The executive officers of the Company are as follows:
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Charles M. Leighton 60 Chairman of the Board of Directors and Chief Executive Officer
G. Robert Tod 56 President, Chief Operating Officer and Director
Robert J. Samuelson 42 Senior Vice President, Chief Financial Officer
Glenn E. Davis 41 Vice President and Controller
</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 and New England
Investment Companies, Inc.
Mr. Tod, a founder of the Company, has been a member of the Board of
Directors and President and Chief Operating Officer since the incorporation of
the Company in 1969. Mr. Tod is a director of SCI Systems, Inc. and EG&G, Inc.
Mr. Samuelson has been Senior Vice President and Chief Financial Officer
since November 1989. From September 1988 to November 1989 he was Vice
President, Corporate Development. Mr. Samuelson is a director of Duracraft,
Inc.
Mr. Davis has been Controller of the Company since May 1984 and a Vice
President since November 1989.
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<PAGE> 13
PART II
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
--------------------------------------------------------------------
The Company's common stock is traded on the New York Stock Exchange
under the symbol "CML".
<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 1995 Fiscal 1994
----------- -----------
Quarter High Low High Low
------- ---- --- ---- ---
<S> <C> <C> <C> <C>
First $11.88 $8.88 $32.38 $19.33
Second 11.38 9.50 32.12 16.75
Third 10.75 7.00 22.50 13.50
Fourth 9.12 7.00 15.12 8.50
</TABLE>
The Company declared cash dividends of $0.09 and $0.08 per share on its
Common Stock during fiscal 1995 and fiscal 1994, respectively.
The number of shareholders of record of the Company's Common Stock as of
October 6, 1994 was 6,032.
<TABLE>
<CAPTION>
Item 6. Selected Financial Data
-----------------------
(in thousands, except per share data)
<CAPTION>
Year Ended July 31,
---------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $712,613 $655,791 $539,992 $386,646 $229,529
Income from continuing
operations before extra-
ordinary gain and cumulative
effect of accounting change 15,906 50,563 56,072 41,408 21,812
Income per share from
continuing operations before extra-
ordinary gain and cumulative
effect of accounting change 0.32 0.98 1.07 0.80 0.49
Cash dividends declared per share 0.09 0.08 0.06 0.03 --
Working capital 116,533 103,742 101,191 26,456 16,923
Total assets 340,081 384,663 340,171 218,806 163,734
Noncurrent liabilities 69,021 84,356 80,719 25,431 72,462
Stockholders' equity 188,552 219,237 184,250 130,017 49,678
</TABLE>
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<PAGE> 14
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
---------------------------------------------------------------
INTRODUCTION
During 1995, in order to focus its resources on businesses which offer the
greatest growth prospects and highest rates of return on investment, the
Company decided to sell its Britches of Georgetowne subsidiary ("Britches") and
has accounted for Britches as a discontinued operation in the accompanying
consolidated financial statements. The Company's continuing operations
encompass two industry segments: (i) NordicTrack markets physical fitness and
exercise equipment and other health-related products through direct response
advertising in print and on television and through specialty stores and kiosks
operated by its wholly-owned subsidiary, NordicAdvantage and (ii) The Nature
Company segment includes The Nature Company which markets a wide range of
products through catalogs and its own retail stores that enhance the
observation, understanding and appreciation of nature; Smith & Hawken, a
leading marketer of gardening tools, plants and accessories, acquired in
February 1993; and Hear Music, an early stage retail concept that sells
music-related merchandise. Industry segment information is presented in Note
11 of Notes to Consolidated Financial Statements.
RESULTS OF CONTINUING OPERATIONS - FISCAL 1995 AND 1994
CML Consolidated
Net sales increased by $56.8 million to $712.6 million, or 8.7% over 1994.
Income from continuing operations was $15.9 million in 1995 compared to $50.6
million in 1994, a decrease of 68.5%.
Retail store sales increased by $66.9 million to $392.9 million, or 20.5%,
over 1994. The increase in retail store sales was primarily attributable to
new stores at NordicAdvantage, Smith & Hawken and Hear Music. During 1995,
NordicAdvantage, The Nature Company, Smith & Hawken and Hear Music opened 26,
1, 9 and 5 new stores, respectively. The percentage of the Company's total
sales derived from retail store sales increased to 55.1% in 1995 from 49.7% in
1994 primarily due to the opening of new retail stores.
Direct response and mail order sales in 1995 decreased $10.1 million, or
3.1% , over the prior year to $319.7 million. The decrease in direct response
and mail order sales was primarily attributable to lower direct response sales
at NordicTrack partially offset by higher mail order sales within The Nature
Company segment.
The Company expects future sales growth will primarily result from a
growth in retail sales due to the opening of NordicAdvantage and Smith & Hawken
stores. The Company's international operations were not significant during
1995 and are not expected to be significant for the next several years.
Cost of goods sold increased as a percentage of sales from 35.9% in 1994
to 39.8% in 1995. Selling, general and administrative expenses increased as a
percentage of sales from 51.8% in 1994 to 56.5% in 1995. The increase in cost
of goods sold as a percentage of sales was primarily due to the re-design or
discontinuation of certain unprofitable products and writedowns of related
surplus and obsolete inventories, high refurbishment costs resulting from the
increased returns of a treadmill product introduced during 1995 and higher
markdowns recorded by The Nature Company segment as part of a strategy to
re-merchandise The Nature Company concept.
The increase in selling, general and administrative expenses as a
percentage of sales was primarily due to higher direct marketing expenses and
reduced advertising efficiencies at NordicTrack, fixed costs at stores which
experienced a decrease in comparable store sales during 1995 and costs
resulting from organizational changes at NordicTrack and The Nature Company.
Interest expense decreased to $1.1 million, or 0.2% of sales, in 1995
compared to interest expense of $2.0 million, or 0.3% of sales in 1994. The
decrease in interest expense was due
14
<PAGE> 15
primarily to higher interest expense attributable to Britches which has been
accounted for as a discontinued operation in the accompanying consolidated
financial statements. The provision for income taxes increased as a percentage
of pretax income from 36.1% in 1994 to 37.4% in 1995.
NordicTrack
Net sales increased from $455.6 million in 1994 to $504.1 million in
1995, or 10.6%. Retail store and kiosk sales increased $59.8 million, or 35.4%,
to $228.6 million in 1995 compared to $168.8 million in 1994. Direct response
and mail order sales decreased $11.3 million, or 3.9%, to $275.5 million in 1995
from $286.8 million in 1994. The increase in retail sales was primarily due to
26 new retail stores opened during 1995 and a greater number of kiosks.
Comparable store sales decreased by 12.3% during 1995. During 1995, NordicTrack
accounted for approximately 70.7% and over 100.0% of the Company's consolidated
sales and operating income from continuing operations before corporate expenses,
respectively. In 1994, approximately 69.5% of the Company's consolidated sales
and 95.9% of the Company's consolidated operating income before corporate
expenses were attributable to NordicTrack.
NordicTrack's gross margin decreased to 64.9% in 1995 from 69.0% in 1994
primarily due to the re-design or discontinuation of certain unprofitable
products and writedowns of related surplus and obsolete inventories and higher
refurbishment costs resulting from increased returns of a treadmill product
introduced during 1995. Selling, general and administrative expenses increased
as a percentage of sales from 50.4% in 1994 to 55.7% in 1995 primarily due to
higher direct marketing expenses, reduced advertising efficiencies, fixed costs
at stores which experienced a decrease in comparable store sales during 1995
and costs resulting from organizational changes.
NordicTrack's operating income decreased $38.5 million, or 45.4%, to $46.3
million in 1995 from $84.8 million in 1994. Operating income decreased as a
percentage of sales from 18.6% in 1994 to 9.2% in 1995 due to lower gross
margins and higher selling, general and administrative expenses.
NordicTrack expects to continue opening new stores and developing and
marketing new physical fitness exercise equipment and other related products.
NordicTrack expects to spend approximately $14.0 million in 1996 for new retail
stores and additional equipment for its manufacturing, distribution and
telemarketing facilities. The Company believes that new stores opened in 1996
will, on average, contribute positively in 1996 and future years.
The Nature Company Segment
Net sales increased by 4.1% from $200.2 million in 1994 to $208.5 million
in 1995 due to the opening of 15 new retail stores. Retail store sales
increased $7.1 million, or 4.5%, to $164.3 million in 1995 compared to $157.2
million in 1994. Mail order sales increased $1.2 million to $44.2 million, or
2.8%, from $43.0 million in 1994 due to an increase in mail order sales at
Smith & Hawken. Comparable store sales for The Nature Company segment
decreased 7.5% during 1995.
The Nature Company segment's gross margin decreased to 48.9% in 1995 from
53.2% in 1994 due to higher markdowns resulting from a strategy to
re-merchandise The Nature Company concept. The Nature Company segment's
selling, general and administrative expenses increased as a percentage of sales
from 51.4% in 1994 to 55.2% in 1995 primarily due to fixed costs at stores
which experienced a decrease in comparable store sales during 1995 and costs
resulting from organizational changes at The Nature Company. The Nature
Company segment incurred an operating loss of $13.2 million during 1995
compared with operating income of $3.6 million in 1994. The decrease in
operating income was attributable primarily to lower gross margins and higher
selling, general and administrative expenses.
The Nature Company and Smith & Hawken expect to continue developing and
marketing proprietary products. The Company also plans to continue testing its
music and science concepts which are not expected to contribute significantly
to the Company's overall results of operations for the next several years. The
Nature Company segment expects to spend approximately $14.5 million in 1996 for
new retail stores and additional equipment for
15
<PAGE> 16
its data processing, distribution and telemarketing facilities. The Company
believes that new stores opened in 1996 will, on average, contribute positively
in 1996 and future years.
RESULTS OF CONTINUING OPERATIONS - FISCAL 1994 AND 1993
CML Consolidated
Net sales increased by $115.8 million to $655.8 million, or 21.4% over
1993. Income from continuing operations was $50.6 million in 1994 compared to
$56.1 million in 1993, a decrease of 9.8%.
Retail store sales in 1994 increased $73.1 million, or 28.9%, over 1993
to $326.0 million. The increase in retail store sales was attributable to new
stores at NordicAdvantage and The Nature Company segment. During 1994,
NordicTrack and The Nature Company segment opened 41 and 22 new stores,
respectively.
Direct response and mail order sales in 1994 increased $42.7 million, or
14.9%, over the prior year to $329.8 million. The increase in direct response
and mail order sales was primarily attributable to higher direct response sales
at NordicTrack and mail order sales at Smith & Hawken, acquired in February
1993. The percentage of the Company's total sales derived from direct response
and mail order decreased to 50.3% in 1994 from 53.2% in 1993.
Cost of goods sold decreased as a percentage of sales to 35.9% in 1994
from 36.9% in 1993. Selling, general and administrative expenses increased as
a percentage of sales from 45.6% in 1993 to 51.8% in 1994. The decrease in
cost of goods sold as a percentage of sales was primarily due to improved
manufacturing efficiencies at NordicTrack and higher initial markons at The
Nature Company. The increase in selling, general and administrative expenses
as a percentage of sales was primarily due to higher advertising expenses at
NordicTrack and lower sales at stores open more than a year.
Interest expense increased $0.8 million, or 66.7%, from 1993 to $2.0
million in 1994 primarily due to the inclusion for an entire year of interest
on the $57.5 million of 5-1/2% convertible subordinated debentures which were
issued during 1993. Interest expense increased from 0.2% of sales in 1993 to
0.3% of sales in 1994. The provision for income taxes decreased as a percentage
of pretax income from 39.8% in 1993 to 36.1% in 1994 primarily due to the
carrryback to prior years of capital losses.
NordicTrack
Net sales increased from $377.8 million in 1993 to $455.6 million in 1994,
or 20.6%. Retail store and kiosk sales increased $51.0 million, or 43.3%, to
$168.8 million in 1994 compared to $117.8 million in 1993. Direct response and
mail order sales increased $26.8 million or 10.3% to $286.8 million in 1994
from $260.0 million in 1993. The increase in retail sales was primarily due to
the opening of 41 retail stores. Comparable store sales increased by 0.9%
during 1994. In 1993, approximately 70.0% of the Company's consolidated sales
and approximately 94.2% of the Company's consolidated operating income before
corporate expenses were attributable to NordicTrack.
NordicTrack's gross margin increased to 69.0% in 1994 from 68.3% in 1993
primarily due to increased manufacturing efficiencies and higher sales of
established products. Selling, general and administrative expenses increased
as a percentage of sales from 41.8% in 1993 to 50.4% in 1994 primarily due to
higher advertising and other marketing expenses and costs associated with
settlement of a lawsuit. Operating income decreased $15.4 million or 15.4% to
$84.8 million in 1994 from $100.2 million in 1993. Operating income decreased
as a percentage of sales from 26.5% in 1993 to 18.6% in 1994 due primarily to
higher selling, general and administrative expenses.
NordicTrack spent approximately $22.7 million on capital expenditures
during 1994 primarily for new retail stores and additional manufacturing,
distribution and telemarketing facilities and related equipment.
The Nature Company Segment
Net sales increased by 23.4% from $162.2 million in 1993 to $200.2 million
in 1994 primarily due to the opening of 22 new retail stores and the inclusion
of Smith & Hawken,
16
<PAGE> 17
acquired in February 1993, for an entire year. Retail store sales increased
$22.0 million or 16.3% to $157.2 million in 1994 compared to $135.2 million
in 1993. Mail order sales increased $16.0 million to $43.0 million in 1994 from
$27.0 million in 1993 primarily due to the inclusion of Smith & Hawken for an
entire year. Comparable store sales decreased by 4.7% during 1994.
The Nature Company segment's gross margin increased to 53.2% in 1994 from
51.0% in 1993 due to higher initial markons and higher sales of proprietary
products which have higher gross margins.
The Nature Company segment's selling, general and administrative expenses
increased as a percentage of sales from 47.2% in 1993 to 51.4% in 1994
primarily due to fixed costs at stores which experienced a decrease in
comparable store sales during 1994. Operating income decreased from $6.2
million, or 3.8% of sales, in 1993 to $3.6 million, or 1.8% of sales, in 1994
due to the increase in selling, general and administrative expenses.
The Nature Company segment spent approximately $23.3 million on capital
expenditures during 1994 primarily for new retail stores and data processing
facilities and related equipment.
LIQUIDITY
Cash Flows from Operating Activities
The Company has used internally generated funds, bank borrowings and
proceeds from the sale of securities to finance its operations and growth. In
1995, net cash provided by operating activities was $30.6 million compared with
$45.5 million in 1994 and $70.9 million in 1993. The decrease in 1995 was
primarily due to lower operating results partially offset by higher
depreciation and amortization. Depreciation and amortization has increased
from $18.8 million in 1993 to $24.2 million in 1994 to $30.7 million in 1995
primarily as a result of the Company's investment in additional retail stores,
manufacturing, distribution and data processing facilities. The loss on
disposal of property, plant and equipment during 1995 of $4.5 million was
primarily due to dispositions of equipment at NordicTrack and Britches. The
Company's investment in working capital decreased $8.4 million in 1995 (before
accounting for Britches as a discontinued operation) after increasing $34.7
million and $8.5 million in 1994 and 1993, respectively.
Cash Flows from Investing Activities
In 1995, net cash used in investing activities was $36.3 million compared
with $61.0 million in 1994 and $59.6 million in 1993.
Capital expenditures funded by the Company's operations were $36.3 million
in 1995, $61.1 million in 1994 and $44.4 million in 1993. NordicTrack and The
Nature Company segment spent approximately $11.9 million and $16.2 million,
respectively, on capital expenditures during 1995 primarily for new retail
stores and additional telemarketing and data processing facilities and related
equipment.
In February 1993, the Company acquired certain assets and assumed certain
liabilities of the gardening business of Smith & Hawken, Ltd. for a net cash
purchase price of $15.1 million.
Cash Flows from Financing Activities
The Company used $14.9 million and $19.6 million of cash for financing
activities in 1995 and 1994, respectively, and generated $49.2 million of cash
from financing activities in 1993. At July 31, 1995, $10.0 million was
borrowed under the Company's revolving credit agreement to finance seasonal
working capital requirements. The Company repurchased $8.4 million, $16.3
million and $4.4 million of its common stock in 1995, 1994 and 1993,
respectively. During 1995, the Company spent $12.0 million to repurchase a
portion of the $57.5 million of 5-1/2% convertible subordinated debentures
which it issued during 1993. The Company repaid $1.2 million of an economic
development loan during 1995. In addition, the Company increased the dividends
paid on its common stock from $2.7 million in 1993 to $4.0 million in 1994 and
$4.2 million in 1995.
17
<PAGE> 18
Capital Resources
During 1995, the Company amended its revolving credit agreement. The new
agreement which expires July 31, 1997, provides for a revolving credit of
$100.0 million through December 29, 1995 and $70.0 million thereafter. The
agreement also provides for a reduction in the revolving credit commitment for
net cash proceeds received from the sale of assets not in the ordinary course
of business or the issuance of subordinated debt or equity securities. The
Company believes a sale of its Britches subsidiary would have a positive effect
on the Company's capital resources. At July 31, 1995, letters of credit
totalling $19.8 million and advances totalling $10.0 million were outstanding
under the agreement. Total bank borrowings averaged $4.1 million during 1995
and $8.0 million during 1993. The Company did not borrow under the revolving
credit agreement during 1994. See Note 4 of Notes to Consolidated Financial
Statements for additional information on long-term debt.
The Company believes that internally generated funds, available bank lines
of credit and proceeds from the sale of certain assets, including Britches,
will be sufficient to meet its current and long-term operating needs and
anticipated capital expenditures.
Inflation has not had a significant effect on the Company's operations.
The Company is involved in various legal proceedings and claims and two
former subsidiaries of the Company are involved in two separate environmental
matters. See Note 8 of Notes to Consolidated Financial Statements for
additional information on commitments and contingencies.
The Company plans to adopt Statement of Financial Accounting Standard
("SFAS") No. 121 in 1996. The Company does not expect SFAS No. 121 will have a
significant effect on its consolidated financial statements.
18
<PAGE> 19
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
See Index to the Company's Financial Statements and the accompanying
financial statements, notes and schedules which are filed as part of this Form
10-K following the signature page.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
---------------------------------------------------------------
Not applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
---------------------------------------------------
The response to this item is contained in part under the caption
"Executive Officers of the Company" in Part I hereof, and the remainder is
incorporated by reference to the Company's Proxy Statement for the Annual
Meeting of Stockholders to be held on December 1, 1995 (the "1995 Proxy
Statement") at "Election of Directors."
Item 11. Executive Compensation.
-----------------------
The response to this item is incorporated herein by reference to the
Company's 1995 Proxy Statement at "Election of Directors,""Compensation
Committee Report on Executive Compensation,""Compensation Committee Interlocks
and Insider Participation,""Summary Compensation,""Stock Option
Grants,""Year-End Option Table" and "Comparative Stock Performance."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
---------------------------------------------------------------
The response to this item is incorporated herein by reference to the
Company's 1995 Proxy Statement at "Security Ownership of Certain Beneficial
Owners and Management."
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
The response to this item is incorporated herein by reference to the
Company's 1995 Proxy Statement at "Election of Directors -- Certain
Transactions."
19
<PAGE> 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
-----------------------------------------------------------------
(a) Documents filed as a part of this Form 10-K.
--------------------------------------------
1. FINANCIAL STATEMENTS. The Financial Statements listed in the
Index to Financial Statements and Financial Statement Schedules
are filed as part of this Annual Report on Form 10-K.
2. FINANCIAL STATEMENT SCHEDULE. The Financial Statement
Schedule listed in the Index to Financial Statements and
Financial Statement Schedule is filed as part of this
Annual Report on Form 10-K.
3. EXHIBITS. The Exhibits listed in the Exhibit Index immediately
preceding such Exhibits are filed as part of this Annual
Report on Form 10-K.
(b) Reports on Form 8-K.
--------------------
None.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CML GROUP, INC.
By: /s/Charles M. Leighton
------------------------------------
Charles M. Leighton
Chairman and Chief Executive Officer
Date: October 30, 1995
------------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
- ---------------------- ------------------------------- --------------------
<S> <C> <C>
Chairman of the Board of )
Directors and Chief Executive )
/s/Charles M. Leighton Officer (Principal Executive )
- ----------------------- Officer) )
Charles M. Leighton )
)
Senior Vice President and )
/s/Robert J. Samuelson Chief Financial Officer )
- ----------------------- (Principal Financial Officer) )
Robert J. Samuelson )
)
/s/Glenn E. Davis Vice President and Controller )
- ----------------------- (Principal Accounting Officer) )
Glenn E. Davis )
)
/s/G. Robert Tod President, Chief Operating ) October 30, 1995
- ----------------------- Officer and Director )
G. Robert Tod )
)
/s/Howard H. Callaway Director )
- ----------------------- )
Howard H. Callaway )
)
Director )
- ----------------------- )
Thomas H. Lenagh )
)
/s/Homer L. Luther, Jr. Director )
- ----------------------- )
Homer L. Luther, Jr. )
)
Director )
- ----------------------- )
Roy W. Menninger, MD )
)
/s/Alison Taunton-Rigby Director )
- ----------------------- )
Alison Taunton-Rigby )
)
/s/Lauren M. Tyler Director )
- ----------------------- )
Lauren M. Tyler )
)
/s/Ralph F. Verni Director )
- ----------------------- )
Ralph F. Verni )
</TABLE>
21
<PAGE> 22
<TABLE>
INDEX TO FINANCIAL STATEMENTS,
SUPPLEMENTARY DATA
AND
FINANCIAL STATEMENT SCHEDULE
OF
CML GROUP, INC.
<CAPTION>
Page No.
--------
<S> <C>
Financial Statements:
Independent Auditors' Report 23
Consolidated Statements of Operations - Years Ended
July 31, 1995, 1994 and 1993 24
Consolidated Balance Sheets - July 31, 1995
and July 31, 1994 25-26
Consolidated Statements of Cash Flows -
Years Ended July 31, 1995, 1994 and 1993 27-28
Consolidated Statements of Changes in
Stockholders' Equity - Years Ended July 31,
1995, 1994 and 1993 29
Notes to Consolidated Financial Statements 30-38
Supplementary Data:
Selected Quarterly Financial Data 39
Financial Statement Schedule:
Schedule II - Valuation and Qualifying Accounts 40
</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.
22
<PAGE> 23
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Stockholders and Directors of CML Group, Inc.:
We have audited the accompanying consolidated balance sheets of CML Group, Inc.
and its subsidiaries as of July 31, 1995 and 1994, and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the years in the three-year period ended July 31, 1995. Our audits
also included the financial statement schedule listed in the Index at Item 14.
These financial statements and the financial statement schedule are the
responsibility of the management of CML Group, Inc. Our responsibility is to
express an opinion on the financial statements and the financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of CML Group, Inc. and its
subsidiaries at July 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the years in the three-year period ended July 31,
1995, in conformity with generally accepted accounting principles. Also, in
our opinion, the financial statement schedule, when considered in relation to
the basic consolidated financial statements taken as a whole, presents fairly in
all material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
September 27, 1995
23
<PAGE> 24
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Statements of Operations
<CAPTION>
Year Ended July 31,
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $712,613,000 $655,791,000 $539,992,000
- --------------------------------------------------------------------------------------------------------------------
Less costs and expenses:
Cost of goods sold 283,338,000 235,247,000 199,380,000
Selling, general and administrative expenses 402,732,000 339,420,000 246,200,000
Interest expense 1,134,000 1,995,000 1,239,000
- --------------------------------------------------------------------------------------------------------------------
687,204,000 576,662,000 446,819,000
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes
and extraordinary gain 25,409,000 79,129,000 93,173,000
Provision for income taxes (Note 6) 9,503,000 28,566,000 37,101,000
- --------------------------------------------------------------------------------------------------------------------
Income from continuing operations before extraordinary gain 15,906,000 50,563,000 56,072,000
- --------------------------------------------------------------------------------------------------------------------
Income (loss) from discontinued operations (Note 3):
Income (loss) from operations, net of income taxes (1,346,000) 1,156,000 1,861,000
Provision for loss on disposal of discontinued operations,
net of income tax benefit (35,678,000) -- --
- --------------------------------------------------------------------------------------------------------------------
(37,024,000) 1,156,000 1,861,000
- --------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary gain (21,118,000) 51,719,000 57,933,000
Extraordinary gain, net of income taxes of $1,313,000 (Note 5) 2,198,000 -- --
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $(18,920,000) $ 51,719,000 $ 57,933,000
- --------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share (Note 1):
Income from continuing operations
before extraordinary gain
Primary $0.32 $0.98 $1.08
Fully diluted $0.32 $0.98 $1.07
Income (loss) before extraordinary gain
Primary $(0.42) $1.00 $1.11
Fully diluted $(0.42) $1.00 $1.11
Net income (loss)
Primary $(0.38) $1.00 $1.11
Fully diluted $(0.38) $1.00 $1.11
- --------------------------------------------------------------------------------------------------------------------
Weighted average number of shares 50,381,718 51,590,758 51,995,494
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements.
24
<PAGE> 25
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
July 31,
- ---------------------------------------------------------------------------------------------------
Assets 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 8,338,000 $ 28,929,000
Accounts receivable - trade, less allowance for
doubtful accounts of $2,141,000 in 1995 and
$1,402,000 in 1994 51,949,000 42,075,000
Prepaid income taxes (Notes 1 and 6) 8,710,000 6,688,000
Inventories (Note 1):
Raw materials 12,970,000 12,617,000
Work in process 3,096,000 3,552,000
Finished goods 49,378,000 64,564,000
- ---------------------------------------------------------------------------------------------------
Total inventories 65,444,000 80,733,000
Other current assets (Note 1) 30,286,000 26,387,000
Net assets of business held for sale (Note 3) 34,314,000 --
- ---------------------------------------------------------------------------------------------------
Total current assets 199,041,000 184,812,000
- ---------------------------------------------------------------------------------------------------
Property, plant and equipment
(Notes 1 and 8):
Land and buildings 19,865,000 20,172,000
Machinery and equipment 77,522,000 79,228,000
Leasehold improvements 80,710,000 113,910,000
- ---------------------------------------------------------------------------------------------------
178,097,000 213,310,000
Less accumulated depreciation 65,057,000 65,705,000
- ---------------------------------------------------------------------------------------------------
Property, plant and equipment, net 113,040,000 147,605,000
- ---------------------------------------------------------------------------------------------------
Goodwill (Notes 1 and 2) 12,521,000 34,889,000
Other assets 15,479,000 17,357,000
- ---------------------------------------------------------------------------------------------------
$340,081,000 $384,663,000
===================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
25
<PAGE> 26
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
July 31,
- -----------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt (Note 4) $ 203,000 $ 226,000
Accounts payable 35,156,000 33,868,000
Accrued compensation 6,905,000 8,423,000
Accrued advertising 4,381,000 5,302,000
Accrued sales returns 4,572,000 3,161,000
Accrued income taxes (Note 6) 1,892,000 483,000
Other accrued expenses 29,399,000 29,607,000
- -----------------------------------------------------------------------------------------------------
Total current liabilities 82,508,000 81,070,000
- -----------------------------------------------------------------------------------------------------
Noncurrent liabilities:
Long-term debt (Note 4) 10,082,000 1,292,000
Convertible subordinated debentures (Note 5) 41,593,000 57,500,000
Other noncurrent liabilities (Note 8) 17,346,000 25,564,000
- -----------------------------------------------------------------------------------------------------
Total noncurrent liabilities 69,021,000 84,356,000
- -----------------------------------------------------------------------------------------------------
Commitments and contingencies (Note 8)
- -----------------------------------------------------------------------------------------------------
Stockholders' equity (Notes 1, 7 and 9):
Common stock par value $.10 per share
Authorized - 120,000,000 shares
Issued - 52,076,674 shares in 1995 and 51,851,180 shares in 1994 5,207,000 5,185,000
Additional paid-in capital 79,805,000 78,736,000
Retained earnings 140,444,000 163,825,000
- -----------------------------------------------------------------------------------------------------
225,456,000 247,746,000
Less treasury stock, at cost, 2,797,791 shares in 1995
and 1,865,941 shares in 1994 36,904,000 28,509,000
- -----------------------------------------------------------------------------------------------------
188,552,000 219,237,000
- -----------------------------------------------------------------------------------------------------
$340,081,000 $384,663,000
=====================================================================================================
</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,
- ------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $(18,920,000) $ 51,719,000 $57,933,000
- ------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Gain on acquisition of convertible subordinated debentures (3,511,000) -- --
Depreciation and amortization 30,723,000 24,156,000 18,777,000
Provision for doubtful notes receivable -- -- 650,000
Restructuring charges -- -- (1,000,000)
Provision for loss on disposal of discontinued operations 40,988,000 -- --
Loss on disposal of property, plant and equipment 4,475,000 2,864,000 2,617,000
Writeoff of goodwill -- -- 472,000
Changes in assets and liabilities:
Accounts receivable - trade (10,865,000) (18,191,000) (8,658,000)
Prepaid income taxes (2,022,000) 439,000 765,000
Inventories (3,759,000) (12,240,000) (9,159,000)
Other current assets (5,391,000) (13,139,000) (2,990,000)
Accounts payable and accrued expenses (410,000) 11,209,000 5,506,000
Accrued income taxes (572,000) (2,772,000) 5,943,000
Other assets and noncurrent liabilities (181,000) 1,459,000 82,000
- ------------------------------------------------------------------------------------------------------------
Total adjustments 49,475,000 (6,215,000) 13,005,000
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 30,555,000 45,504,000 70,938,000
- ------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Acquisitions of property, plant and equipment (36,291,000) (61,126,000) (44,362,000)
Acquisition of Smith & Hawken, Ltd., net of cash acquired -- -- (15,459,000)
Increase in notes receivable -- -- (366,000)
Reduction in notes receivable -- 109,000 591,000
- ------------------------------------------------------------------------------------------------------------
Net cash used in investing activities $(36,291,000) $(61,017,000) $(59,596,000)
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(Continued)
27
<PAGE> 28
<TABLE>
CML Group, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
Year Ended July 31,
- --------------------------------------------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Increase in long-term debt $ 10,000,000 $ -- $ --
Reduction in long-term debt (1,233,000) (314,000) (3,846,000)
Proceeds from sale of convertible debentures -- -- 57,500,000
Dividends paid (4,236,000) (4,045,000) (2,673,000)
Exercise of stock options and employee stock purchase rights 1,000,000 1,079,000 2,522,000
Acquisition of convertible subordinated debentures (11,991,000) -- --
Acquisition of treasury shares (8,395,000) (16,288,000) (4,352,000)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (14,855,000) (19,568,000) 49,151,000
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (20,591,000) (35,081,000) 60,493,000
Cash and cash equivalents at beginning of year 28,929,000 64,010,000 3,517,000
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 8,338,000 $ 28,929,000 $64,010,000
====================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,302,000 $ 3,535,000 $ 1,062,000
- --------------------------------------------------------------------------------------------------------------------
Income taxes $ 17,580,000 $ 37,417,000 $33,029,000
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
(Concluded)
The Company recorded tax benefits of $91,000, $1,781,000 and $1,882,000 during
1995, 1994 and 1993, respectively, resulting from the exercise of stock
options.
During 1993, the purchaser of Boston Whaler's net assets exercised a warrant to
purchase 2,400,000 shares of common stock at $5.2083 per share. In accordance
with the terms of the warrant, the Company withheld 657,895 shares in payment
of the exercise price.
See Notes to Consolidated Financial Statements.
28
<PAGE> 29
<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, 1992 32,654,450 $3,265,000 $67,684,000 $ 61,234,000 416,738 $ 2,166,000
Exercise of stock purchase warrant 1,600,000 160,000 12,340,000 -- 438,597 12,500,000
Exercise of stock options 123,132 12,000 (4,799,000) -- (352,173) (5,884,000)
Employee stock purchase plan sales -- -- (49,000) -- (71,862) (1,477,000)
Tax benefit from exercise
of stock options -- -- 1,882,000 -- -- --
Issuance of deferred compensation
plan shares 9,152 1,000 13,000 -- -- --
Acquisition of treasury shares -- -- -- -- 161,231 5,086,000
Cash dividends $(0.06 per share) -- -- -- (3,031,000) -- --
Stock split, three-for-two 17,193,364 1,720,000 (1,724,000) -- 296,267 --
Net income -- -- -- 57,933,000 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1993 51,580,098 5,158,000 75,347,000 116,136,000 888,798 12,391,000
Exercise of stock options 219,110 22,000 995,000 -- -- --
Employee stock purchase plan sales 51,972 5,000 613,000 -- -- --
Tax benefit from exercise
of stock options -- -- 1,781,000 -- -- --
Acquisition of treasury shares -- -- -- -- 977,143 16,118,000
Cash dividends $(0.08 per share) -- -- -- (4,030,000) -- --
Net income -- -- -- 51,719,000 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1994 51,851,180 5,185,000 78,736,000 163,825,000 1,865,941 28,509,000
Exercise of stock options 172,470 17,000 645,000 -- -- --
Employee stock purchase plan sales 53,024 5,000 333,000 -- -- --
Tax benefit from exercise
of stock options -- -- 91,000 -- -- --
Acquisition of treasury shares -- -- -- -- 931,850 8,395,000
Cash dividends $(0.09 per share) -- -- -- (4,461,000) -- --
Net loss -- -- -- (18,920,000) -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, July 31, 1995 52,076,674 $5,207,000 $79,805,000 $140,444,000 2,797,791 $36,904,000
===================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
29
<PAGE> 30
CML Group, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements include the accounts of CML Group, Inc.
and its wholly-owned subsidiaries (the "Company"). All significant
intercompany transactions and balances are eliminated.
Cash Equivalents
The Company considers all highly liquid debt instruments with purchased
remaining maturities of three months or less to be cash equivalents. Cash
equivalents consist primarily of money market mutual funds.
Inventories
Inventories are stated at the lower of cost or market with cost being
determined by either the first-in, first-out or average cost methods.
Direct Response and Catalog Costs
Costs of direct response and catalogs are amortized in proportion to the sales
they generate over periods not exceeding three months and six months,
respectively. Direct response and catalog costs are included in other current
assets.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated using the
straight-line method over their estimated useful lives which range from three
to forty years or over the terms of the related leases, if such periods are
shorter.
Goodwill
Goodwill is amortized on a straight-line basis over various periods not
exceeding forty years. On an annual basis, the Company reviews the carrying
value of goodwill against projections of undiscounted cash flows to evaluate
the propriety of its amortization period. Accumulated amortization was
$1,495,000 and $7,113,000 at July 31, 1995 and 1994, respectively. During
fiscal 1995, the Company wrote-off the goodwill and accumulated amortization
relating to Britches of Georgetowne (Note 3).
Income Taxes
Prepaid income taxes reflect the tax effects of temporary differences between
financial reporting and income tax reporting which result principally from the
valuation of finished goods inventories, the treatment of prepaid and accrued
expenses, net operating losses and depreciation methods.
Earnings Per Share
Primary earnings per share are calculated using the weighted average number of
common and common equivalent shares outstanding during the year. Fully diluted
earnings per share assume that the convertible subordinated debentures were
converted at the beginning of the year or the time of issuance, whichever is
later, and net income was adjusted for the resultant reduction in interest
costs, net of tax.
New Accounting Standards
The Company plans to adopt Statement of Financial Accounting Standards ("SFAS")
No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived
Assets to be Disposed Of" in 1996. The Company does not expect that SFAS No.
121 will have a significant effect on the Company's consolidated financial
statements when adopted in 1996.
Reclassifications
Certain fiscal 1994 and 1993 amounts have been reclassified to conform to the
fiscal 1995 presentation.
30
<PAGE> 31
Note 2 - Acquisition
On February 25, 1993, the Company acquired certain assets and assumed certain
liabilities of the gardening business of Smith & Hawken, Ltd. for a cash
purchase price of $15,136,000. The acquisition has been accounted for as a
purchase. The Company has recorded $9,512,000 of goodwill resulting from the
acquisition which is being amortized over forty years.
Note 3 - Discontinued Operations
During the third quarter of fiscal 1995, the Company decided to sell its
Britches of Georgetowne subsidiary ("Britches") and, therefore, has accounted
for the planned divestiture of Britches as a discontinued operation in the
accompanying consolidated financial statements. As a result of its decision to
sell Britches, the Company recorded a provision for loss on disposal of
$35,678,000, net of an income tax benefit of $5,310,000. The pretax provision
for loss on disposal includes the write-off of goodwill, the write-down of
Britches' net assets to estimated net realizable value and Britches' estimated
operating losses until disposal, which is anticipated to occur in 1996.
Britches' net sales were $127,034,000, $116,606,000 and $105,476,000 in fiscal
1995, 1994 and 1993, respectively. Britches' results of operations for fiscal
1995 are shown net of an income tax benefit of $627,000 and fiscal 1994 and
1993 results are shown net of income tax expense of $907,000 and $1,522,000,
respectively.
<TABLE>
Note 4 - Long-Term Debt
Long-term debt consisted of the following at July 31:
<CAPTION>
1995 1994
- --------------------------------------------------------------------------
<S> <C> <C>
Revolving credit loan $10,000,000 $ --
Note payable 199,000 1,352,000
Obligations under capital
leases (Note 8) 86,000 166,000
- --------------------------------------------------------------------------
10,285,000 1,518,000
Less current portion 203,000 226,000
- --------------------------------------------------------------------------
Long-term debt $10,082,000 $1,292,000
==========================================================================
</TABLE>
Revolving Credit Agreement
The Company's revolving credit agreement, which expires July 31, 1997, allows
the Company to borrow up to $100,000,000 through December 29, 1995 and
$70,000,000 thereafter. The total commitment, which is secured by the shares
and guarantees of the Company's subsidiaries, includes provisions relating to
certain operating and financial requirements and conditions and requires the
balance outstanding be repaid for a period of ninety consecutive days each
year. The Company is required to pay a facility fee of four-tenths of one
percent of the total commitment. The agreement also provides for a reduction
in the revolving credit commitment for net cash proceeds received from the sale
of assets not in the ordinary course of business or the issuance of
subordinated debt or equity securities. The interest rate on advances
outstanding under the revolving credit agreement approximates the prime rate.
At July 31, 1995, the prime rate was 8.75%.
During fiscal 1995, borrowings under the revolving credit agreement averaged
$4,066,000 with a maximum of $24,700,000 outstanding at any time. The average
interest rate on advances outstanding during the year was 7.4% and the average
effective rate, after giving effect to commitment fees was 11.5%. The Company
did not borrow under the revolving credit agreement during 1994.
Note Payable
The note payable, which bears interest at 2%, is due in monthly installments of
approximately $6,000 through June 1998.
31
<PAGE> 32
Note 5 - Convertible Subordinated Debentures
On January 20, 1993, the Company issued $57,500,000 of 51/2% convertible
subordinated debentures due January 15, 2003. During fiscal 1995, the Company
repurchased $15,907,000 principal amount of the debentures and recorded an
extraordinary gain of $2,198,000, net of income taxes of $1,313,000. Interest
on the debentures outstanding is payable semi-annually in arrears on January 15
and July 15 of each year. The debentures are convertible into shares of the
Company's common stock at a conversion price of $25.917 per share, subject to
adjustment under certain circumstances. The debentures are redeemable at the
option of the Company, in whole or in part, at redemption prices which decrease
from 102-1/2% in 1996 to par in 1998 except that until January 15, 1996, the
debentures cannot be redeemed unless the closing price of the Company's common
stock shall have attained a certain specified level for a specified period of
time. The estimated fair value of the convertible subordinated debentures as
of July 31, 1995 was $32,027,000, based upon quoted market prices. All other
financial instruments are carried at amounts that approximate fair value.
<TABLE>
Note 6 - Income Taxes
The provision for income taxes consists of the following:
<CAPTION>
Year Ended July 31,
- ------------------------------------------------------------------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 9,311,000 $25,154,000 $30,651,000
State and foreign 1,856,000 3,351,000 6,687,000
- ------------------------------------------------------------------------------------
11,167,000 28,505,000 37,338,000
Deferred
Federal (1,555,000) 243,000 146,000
State and foreign (109,000) (182,000) (383,000)
- ------------------------------------------------------------------------------------
Total $ 9,503,000 $28,566,000 $37,101,000
- ------------------------------------------------------------------------------------
Continuing operations $ 9,503,000 $28,566,000 $37,101,000
Discontinued operations (5,937,000) 907,000 1,522,000
Extraordinary gain (Note 5) 1,313,000 -- --
- ------------------------------------------------------------------------------------
Total $ 4,879,000 $29,473,000 $38,623,000
====================================================================================
</TABLE>
32
<PAGE> 33
<TABLE>
The sources of prepaid and deferred income taxes and the related tax effect are as follows:
<CAPTION>
Year Ended July 31,
- ------------------------------------------------------------------------------------------------
1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Inventories $ 4,325,000 $ 4,416,000
Settlement expenses -- 1,400,000
Compensation expenses 1,190,000 697,000
Occupancy expenses 107,000 383,000
Receivable reserves 2,595,000 1,905,000
Discontinued operations 2,408,000 --
Other 3,100,000 2,850,000
Less valuation allowance (2,267,000) (1,610,000)
- ------------------------------------------------------------------------------------------------
11,458,000 10,041,000
- ------------------------------------------------------------------------------------------------
Noncurrent Assets
Depreciation and amortization 836,000 2,272,000
Net operating losses 1,553,000 2,114,000
Compensation expenses 675,000 909,000
Occupancy expenses 1,756,000 2,377,000
Loss on investments 329,000 494,000
Other 2,309,000 1,213,000
Less valuation allowance (1,255,000) (1,394,000)
- ------------------------------------------------------------------------------------------------
6,203,000 7,985,000
- ------------------------------------------------------------------------------------------------
Total assets $17,661,000 $18,026,000
- ------------------------------------------------------------------------------------------------
Current Liabilities
Catalog costs $826,000 $497,000
Advertising costs 1,606,000 1,789,000
Other 316,000 1,067,000
- ------------------------------------------------------------------------------------------------
2,748,000 3,353,000
- ------------------------------------------------------------------------------------------------
Noncurrent Liabilities
Goodwill 1,381,000 1,118,000
Other -- 1,077,000
- ------------------------------------------------------------------------------------------------
1,381,000 2,195,000
- ------------------------------------------------------------------------------------------------
Total liabilities $ 4,129,000 $ 5,548,000
- ------------------------------------------------------------------------------------------------
Total net prepaid tax $13,532,000 $12,478,000
================================================================================================
</TABLE>
The valuation allowance at July 31, 1995 of $3,522,000 includes a net increase
during the current year of $518,000 due primarily to foreign losses. The
valuation allowance relates primarily to future deductible amounts of a capital
nature and net operating loss carryforwards that may not be realized. Net
operating loss carryforwards begin expiring in 2000.
<TABLE>
A reconciliation of the statutory federal income tax rate to the effective tax
rate for continuing operations is as follows:
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and foreign income taxes
net of federal tax effect 5.1 2.8 4.2
Amortization of goodwill 0.2 0.1 0.2
Realization of capital losses -- (2.4) --
Benefit of foreign sales corporation (1.0) -- --
Research and development credits (0.8) (0.6) (0.3)
Other (1.1) 1.2 0.7
- -------------------------------------------------------------
Effective tax rate 37.4% 36.1% 39.8%
=============================================================
</TABLE>
33
<PAGE> 34
Note 7 - Stock Options, Stock Purchase Plan and Employee Benefit Plans
Stock Option Plans
At July 31, 1995, there were 889,098 and 2,663,650 shares reserved for issuance
pursuant to the Company's 1982 and 1991 Stock Option Plans, respectively. The
terms of both Plans generally provide for options to be granted at fair market
value as of the date of grant for a term of no longer than ten years. The
options generally become exercisable over the first five years. At July 31,
1995, options to purchase 889,098 shares and 437,111 shares were exercisable
under the 1982 and 1991 Plans, respectively.
<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, 1992 63,750 2,231,448
Granted 417,400 --
Exercised $(1.77-$18.83 per share) (16,650) (761,358)
Terminated (2,400) (88,932)
- ---------------------------------------------------------------------------------------
Options outstanding, July 31, 1993 462,100 1,381,158
Granted 404,225 --
Exercised $(2.17-$20.42 per share) (19,700) (199,410)
Terminated (1,700) (74,580)
- ---------------------------------------------------------------------------------------
Options outstanding, July 31, 1994 844,925 1,107,168
Granted 383,472 --
Exercised $(2.21-$7.12 per share) -- (172,470)
Terminated (142,300) (45,600)
- ---------------------------------------------------------------------------------------
Options outstanding, July 31, 1995 1,086,097 889,098
=======================================================================================
</TABLE>
The average exercise price of options outstanding under the 1982 Stock Option
Plan at July 31, 1995, 1994 and 1993 was $3.72, $3.88 and $3.87, respectively.
The average exercise price of options outstanding under the 1991 Stock Option
Plan at July 31, 1995, 1994 and 1993 was $12.69, $16.03 and $18.10,
respectively.
During 1993, the Company reserved 90,000 shares for issuance pursuant to the
1993 Director Option Plan which provides for options to be granted to
non-employee directors at fair market value as of the date of grant for a term
of ten years. The options vest in three equal annual installments beginning on
the first anniversary of the date of grant. A total of 63,000 options had been
granted to non-employee directors and were outstanding at July 31, 1995 at an
average exercise price of $18.85 per option. At July 31, 1995 options to
purchase 33,000 shares were exercisable.
Employee Stock Purchase Plans
The Company's 1993 Employee Stock Purchase Plan authorizes the issuance of
900,000 shares in three annual offerings. The first offering which ended June
14, 1994, resulted in the issuance of 51,972 shares to 595 employees at a price
of $11.90 per share. The second offering ended June 14, 1995, and resulted in
the issuance of 53,024 shares to 290 employees at a price of $6.38 per share.
Under the third offering which ends June 14, 1996, 977 employees have elected
to receive 302,849 shares.
Employee Benefit Plans
The Company maintains defined contribution benefit plans covering substantially
all of its employees. The Company makes annual contributions to the plans
based on a percentage of employee compensation or at the discretion of the
Board of Directors as provided by the terms of each plan. Contributions by the
Company to the various plans charged to operations in 1995, 1994 and 1993 were
$2,113,000, $2,735,000 and $1,804,000, respectively.
34
<PAGE> 35
Note 8 - Commitments and Contingencies
Leases
The Company leases certain manufacturing and distribution facilities, retail
space and vehicles and equipment under agreements expiring over the next 15
years. Most of the leases for retail space provide for renewal options,
contain normal escalation clauses and require the Company to pay real estate
taxes and other expenses.
<TABLE>
Properties under capital leases consist of machinery and equipment and are as follows:
<CAPTION>
July 31,
1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Machinery and equipment $144,000 $1,529,000
Less accumulated amortization 88,000 1,430,000
- ---------------------------------------------------------------------------------------------------
Machinery and equipment, net $ 56,000 $ 99,000
===================================================================================================
</TABLE>
<TABLE>
Future minimum lease payments under leases that have initial or remaining
noncancelable lease terms in excess of one year at July 31, 1995 are as
follows:
<CAPTION>
Capital Operating
Leases Leases
- --------------------------------------------------------------------
<S> <C> <C>
Year ending July 31:
1996 $ 54,000 $ 40,099,000
1997 13,000 38,326,000
1998 8,000 35,594,000
1999 25,000 32,488,000
2000 -- 29,792,000
Thereafter -- 112,359,000
- --------------------------------------------------------------------
Total minimum lease payments 100,000 288,658,000
Less portion representing interest 14,000 --
- --------------------------------------------------------------------
$ 86,000 $288,658,000
====================================================================
</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 1995, 1994 and 1993 was $47,415,000,
$39,944,000 and $28,657,000, respectively. Contingent rentals were
approximately $5,406,000 in 1995, $4,414,000 in 1994 and $2,499,000 in 1993.
Included in other noncurrent liabilities at July 31, 1995 and 1994 are store
construction credits of $8,499,000 and $13,831,000, respectively, and deferred
rent liabilities of $3,730,000 and $6,760,000, respectively.
Litigation
In May 1994, ICON, Inc. commenced a civil suit against NordicTrack in federal
court alleging patent infringement arising out of NordicTrack's design of its
WalkFit treadmill and certain similar products. Discovery has been
substantially completed and NordicTrack's motion for summary judgement is
currently pending before the court.
In January 1995, an individual, William Wilkinson, filed a demand for
arbitration and statement of claim alleging that NordicTrack breached the terms
of a licensing and product development agreement by failing to compensate him
for certain design features of its WalkFit treadmill and certain similar
products. This case is still in the discovery stage.
35
<PAGE> 36
While the Company believes that it has meritorious defenses, no assurance can
be given of a favorable outcome in either the ICON lawsuit or the Wilkinson
claim. An unfavorable outcome in both matters could have a material adverse
effect on the Company's financial condition. An unfavorable outcome in either
or both matters could also adversely affect the operating results for the
period or periods in which such outcome occurs.
On October 25, 1994, four stockholders, owning an aggregate of 2,400 shares of
CML Group, Inc. Common Stock, filed a class action lawsuit in federal court
against the Company and two of its officers. The complaint alleged that
the Company failed to properly disclose the extent of its NordicTrack
advertising expenditures and the impact of those expenditures on its future
operating results, thereby violating federal securities laws. On December 19,
1994, the defendants filed a motion to dismiss the complaint, and on April 7,
1995, the plaintiffs responded by filing an amended complaint which added an
allegation that the two officers violated the securities laws by selling CML
stock in the Spring of 1994. The Company believes the amended complaint is
without merit and intends to vigorously contest the lawsuit. In April 1995,
the defendants filed a motion which is currently pending before the court to
dismiss this lawsuit.
The Company is involved in various other legal proceedings and claims which
have arisen in the ordinary course of business. Management believes the
outcome of such proceedings will not have a material adverse impact on the
Company's financial condition or results of operations.
Environmental Matters
On June 3, 1991, the Company received from the United States Environmental
Protection Agency ("EPA") a Special Notice Letter containing a formal demand on
the Company as a Potentially Responsible Party ("PRP") for reimbursement of the
costs incurred and expected to be incurred in response to environmental
problems at a so-called "Superfund" site in Conway, New Hampshire. The EPA
originally estimated the costs of remedial action and future maintenance and
monitoring programs at the site at about $7.3 million. The Superfund site
includes a vacant parcel of land owned by a subsidiary of the Company as well
as adjoining property owned by a third party. No manufacturing or other
activities involving hazardous substances have ever been conducted by the
Company or its affiliates on the Superfund site in Conway. The environmental
problems affecting the land resulted from activities by the owners of the
adjoining parcel. Representatives of the Company have engaged in discussions
with the EPA regarding responsibility for the environmental problems and the
costs of cleanup. The owners of the adjoining parcel are bankrupt. The EPA
commenced cleanup activities at the site in July 1992.
The EPA expended approximately $1.4 million for the removal phase of the site
cleanup, which has now been completed. The EPA had estimated that the removal
costs would exceed $3.0 million, but only a small portion of the solid waste
removed from the site was ultimately identified as hazardous waste. Therefore,
the EPA's actual response costs for the removal phase were less than the EPA
originally estimated. The EPA has begun to implement the groundwater phase of
the cleanup, which the EPA originally estimated would cost approximately $4.0
million.
The Company believes that the EPA's estimated cost for cleanup, including the
proposed remedial actions, is excessive and involves unnecessary actions. In
addition, a portion of the proposed remedial cost involves cleanup of the
adjoining property that is not owned by the Company or any of its affiliates.
Therefore, the Company believes it is not responsible for that portion of the
cleanup costs. The Company has reserves and insurance coverage (from its
primary insurer) for environmental liabilities at the site in the amount of
approximately $2.3 million. The Company also believes that it is entitled to
additional insurance from its excess insurance carriers. However, if excess
liability coverage is not available to the Company and the ultimate liability
substantially exceeds the primary insurance amount and reserves, the liability
would have a material adverse effect upon the Company's operating results for
the period in which the resolution of the claim occurs, but would not have a
material adverse effect upon the Company's financial condition.
36
<PAGE> 37
In June 1992, the EPA notified the Company it may be liable for the release of
hazardous substances by the Company's former Boston Whaler subsidiary at a
hazardous waste treatment and storage facility in Southington, Connecticut.
The EPA has calculated the Company's volumetric contribution at less than two
tenths of one percent. The EPA has not completed its Remedial
Investigation/Feasibility Study and, therefore, an estimate of clean-up costs
is not available.
Letters of Credit
At July 31, 1995, the Company was contingently liable for outstanding letters
of credit in the amount of $19,817,000.
Note 9 - Preferred Stock Rights and Preference Stock
Preferred Stock Rights
On June 22, 1988, the Company's Board of Directors declared a dividend of one
sixth of a preferred stock purchase right for each share of common stock
outstanding at the close of business on July 22, 1988. Under certain
circumstances, a right may be exercised to purchase one one-hundredth of a
share of Series A Junior Participating Preferred Stock of the Company at an
exercise price of $92.00. The rights become exercisable only if an entity has
acquired 20% or more of the Company's common stock, or announces an offer which
would result in such entity acquiring 30% or more of the Company's common
stock. After the rights become exercisable, if the Company is a party to
certain merger or business combination transactions or transfers 50% or more of
its assets or earnings power, or if the acquirer engages in certain
self-dealing transactions, each right not owned by a 20% or more stockholder
enables its holder to purchase for $92.00 that number of shares of common stock
of the acquiring or surviving entity (or of the Company in certain instances)
which equals the exercise price of the right divided by one-half of the current
market price of the common stock of the acquiring or surviving entity (or of
the Company), as applicable, at the date of the occurrence of the event. The
rights expire July 22, 1998 and may be redeemed by the Company at $.02 per
right in certain circumstances.
Preference Stock
The Company has 2,000,000 shares, $.10 par value, of preference stock
authorized, none of which was issued and outstanding at July 31, 1995.
Note 10 - Related Party Transactions
In conjunction with the acquisition of a subsidiary, the Company leases certain
retail and distribution facilities from the subsidiary's former owners. During
1995, the Company signed a new lease expiring in 1999 which covers the
distribution facility. Rent paid to the former owners of the subsidiary during
1995, 1994 and 1993 was $1,990,000, $2,006,000 and $2,267,000, respectively.
Minimum annual rentals total $1,853,000 in 1996 and average approximately
$1,159,000 from 1997 through 1999 and $196,000 annually thereafter through
2003.
37
<PAGE> 38
Note 11 - Industry Segments
During fiscal 1995, the Company decided to sell its Britches of Georgetowne
subsidiary ("Britches") and, accordingly has treated Britches as a discontinued
operation in the accompanying consolidated financial statements. As a result,
the Company operates in two industry segments: (i) The Nature Company segment,
which includes Smith & Hawken, sells nature, gardening, music and science
related items; and (ii) NordicTrack sells physical fitness exercise products.
Sales between segments are not significant. The following table summarizes the
Company's continuing operations by industry segment.
<TABLE>
The Nature Company's operating results include amortization of goodwill
recorded on the books of the corporate office.
<CAPTION>
Year Ended July 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
NordicTrack $504,105,000 $455,597,000 $377,822,000
The Nature Company 208,508,000 200,194,000 162,170,000
- ----------------------------------------------------------------------------------------------------
$712,613,000 $655,791,000 $539,992,000
====================================================================================================
Operating Income (Loss):
NordicTrack $ 46,284,000 $ 84,827,000 $100,164,000
The Nature Company (13,224,000) 3,645,000 6,216,000
- ----------------------------------------------------------------------------------------------------
33,060,000 88,472,000 106,380,000
Interest and Corporate
Expenses (7,651,000) (9,343,000) (13,207,000)
- ----------------------------------------------------------------------------------------------------
$ 25,409,000 $ 79,129,000 $ 93,173,000
====================================================================================================
Identifiable Assets at July 31:
NordicTrack $137,113,000 $134,189,000 $ 88,640,000
The Nature Company 131,653,000 130,630,000 110,887,000
Discontinued Operations 34,314,000 81,537,000 68,871,000
Corporate and Other 37,001,000 38,307,000 71,773,000
- ----------------------------------------------------------------------------------------------------
$340,081,000 $384,663,000 $340,171,000
====================================================================================================
Depreciation and Amortization:
NordicTrack $ 9,949,000 $ 6,997,000 $ 4,759,000
The Nature Company 12,879,000 10,804,000 7,973,000
Discontinued Operations 7,316,000 5,843,000 5,582,000
Corporate and Other 579,000 512,000 463,000
- ----------------------------------------------------------------------------------------------------
$ 30,723,000 $ 24,156,000 $ 18,777,000
====================================================================================================
Capital Expenditures:
NordicTrack $ 11,941,000 $ 22,657,000 $ 19,860,000
The Nature Company 16,178,000 23,274,000 16,368,000
Discontinued Operations 8,079,000 14,988,000 7,489,000
Corporate and Other 93,000 207,000 645,000
- ----------------------------------------------------------------------------------------------------
$ 36,291,000 $ 61,126,000 $ 44,362,000
====================================================================================================
</TABLE>
38
<PAGE> 39
<TABLE>
CML Group, Inc. and Subsidiaries
Selected Quarterly Financial Data (Unaudited)
(In thousands, except per share data)
<CAPTION>
Fiscal 1995, Quarter Ended Fiscal 1994, Quarter Ended
--------------------------------------- ---------------------------------------
Oct. 29, Jan. 28, Apr. 29, July 31, Oct. 30, Jan. 29, Apr. 30, July 31,
1994 1995 1995 1995 1993 1994 1994 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $129,198 $278,992 $179,525 $124,898 $110,348 $249,355 $176,775 $119,313
- --------------------------------------------------------------------------------------------------------------------------
Gross profit 81,544 176,364 108,527 62,840 72,569 161,146 117,621 69,208
- --------------------------------------------------------------------------------------------------------------------------
Income (loss) before
extraordinary gain 881 40,553 (40,703) (21,849) 7,141 38,302 17,062 (10,786)
Net income (loss) 881 41,678 (39,630) (21,849) 7,141 38,302 17,062 (10,786)
- --------------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share:
Income (loss) before
extraordinary gain $0.02 $0.78 $(0.82) $(0.44) $0.14 $0.72 $0.33 $(0.21)
Net income (loss) per share $0.02 $0.80 $(0.80) $(0.44) $0.14 $0.72 $0.33 $(0.21)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
During the third quarter of fiscal 1995, the Company recorded a provision for
loss on disposal of $40,988,000 before income taxes as a result of the decision
to sell its Britches of Georgetowne subsidiary.
The fourth quarter of fiscal 1994 includes a pre-tax charge of $4,000,000 to
settle a lawsuit with Soloflex, Inc.
39
<PAGE> 40
<TABLE>
Schedule II
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, 1993 829,000 592,000 784,000 637,000
Year Ended July 31, 1994 637,000 1,639,000 874,000 1,402,000
Year Ended July 31, 1995 1,402,000 6,734,000 5,995,000 2,141,000
Allowance for Doubtful Notes Receivable:
Year Ended July 31, 1993 397,000 650,000 -- 1,047,000
Year Ended July 31, 1994 1,047,000 -- 993,000 54,000
Year Ended July 31, 1995 54,000 -- 45,000 9,000
Accrual for Loss on Disposal and Restructuring Costs:
Year Ended July 31, 1993 12,235,000 (1,000,000) 4,942,000 6,293,000
Year Ended July 31, 1994 6,293,000 -- 1,804,000 4,489,000
Year Ended July 31, 1995 4,489,000 40,988,000 39,201,000 6,276,000
</TABLE>
40
<PAGE> 41
<TABLE>
EXHIBIT INDEX
<CAPTION>
Page No.
--------
<S> <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>
41
<PAGE> 42
<TABLE>
<CAPTION>
Page No.
--------
<S> <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>
42
<PAGE> 43
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
10(h) -- Purchase and Sale Agreement, dated as of July 30, 1990, as amended, among
Carroll Reed, Inc., the Company, CR Acquisitions, Inc., Encomium Ltd., and
The Eagle's Eye International Limited is incorporated herein by reference to
Exhibits 2.1 and 2.2 to the Company's Current Report on Form 8-K dated
August 24, 1990. --
10(i) -- Purchase and Sale Agreement by and among OCR, Inc., the Company, CRSS Ski &
Sport, Inc., and Frederick L. Leighton, dated September 20, 1990, is incorporated
herein by reference to Exhibit 10(z) to the Company's Annual Report on Form 10-K
filed October 29, 1990. --
*10(j) -- Employment Agreement among the Company and James Bostic, dated February 5, 1990, is
incorporated herein by reference to Exhibit 10(aa) to the Company's Annual Report on
Form 10-K filed October 29, 1990. --
*10(k) -- 1991 Stock Option Plan and Forms of Option Agreements are incorporated herein by reference
to Exhibit 10(m) to the Company's Annual Report on Form 10-K filed October 21, 1992, as
amended by the Company's Form 8 filed October 28, 1992. --
*10(l) -- Form of Split Dollar Life Insurance Policy for the Benefit of Certain Executive Officers
is incorporated herein by reference to Exhibit 10(n) to the Company's Annual Report on
Form 10-K filed October 21, 1992, as amended by the Company's Form 8 filed
October 28, 1992. --
*10(m) -- 1993 Director Option Plan is incorporated herein by reference to Exhibit 10(n) to the
Company's Annual Report on Form 10-K filed October 29, 1993. --
</TABLE>
43
<PAGE> 44
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
*10(n) -- 1993 Employee Stock Purchase Plan is incorporated herein by reference to Exhibit 10(o)
to the Company's Annual Report on Form 10-K filed October 29, 1993. --
10(o) -- Subscription Agreement, dated as of January 12, 1993, among the Company, Lehman
Brothers International (Europe), Deutsche Bank A.G. London, Lombard Odier
International Underwriters, S.A., Swiss Bank Corporation and S.G. Warburg Securities
is incorporated herein by reference to Exhibit 19.1 to the Company's Quarterly
Report on Form 10-Q filed March 16, 1993. --
10(p) -- Fiscal Agency Agreement, dated as of January 20, 1993, between the Company and
Chemical Bank is incorporated herein by reference to Exhibit 19.2 to the Company's
Quarterly Report on Form 10-Q filed March 16, 1993. --
11 -- Statement Regarding Computation of Fully Diluted Earnings Per Share. 45
21 -- Subsidiaries of the Registrant. 46
23 -- Consent of Deloitte & Touche LLP. 47
27 -- Financial Data Schedule. 48
<FN>
- -----------------
* Management contract or compensatory plan or arrangement filed
herewith in response to Item 14(a)(3) of the instructions to Form 10-K.
</TABLE>
44
<PAGE> 1
<TABLE>
Exhibit 11
----------
CML GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<CAPTION>
Year Ended July 31,
-----------------------------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary earnings (loss) per share:
Weighted average number of shares
outstanding:
Common 49,659,991 50,468,396 50,076,241
Shares deemed outstanding from
the assumed exercise of stock
options and a warrant and from
deferred compensation awards 721,727 1,122,362 1,919,253
------------ ----------- -----------
Total 50,381,718 51,590,758 51,995,494
Net income (loss) $(18,920,000) $51,719,000 $57,933,000
============ =========== ===========
Primary earnings (loss) per share $(0.38) $1.00 $1.11
====== ===== =====
Fully diluted earnings (loss) per share:
Weighted average number of shares
outstanding, as above 50,381,718 51,590,758 51,995,494
Shares deemed outstanding from
the assumed conversion of
convertible subordinated
debentures 1,919,411 2,218,649 1,109,325
Additional shares deemed
outstanding from the assumed
exercise of stock options 10,651 26,855 122,628
------------ ----------- -----------
Total 52,311,780 53,836,262 53,227,447
============ =========== ===========
Additional income from the
elimination of the interest cost of
the convertible subordinated
debentures, net of income tax effect $ 1,821,709 $ 2,134,000 $ 1,065,000
Fully diluted earnings (loss) per share $(0.38) $1.00 $1.11
====== ===== =====
</TABLE>
45
<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
NordicEdge, Inc. Minnesota
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>
46
<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 27, 1995 appearing in this Annual Report on Form 10-K of CML Group,
Inc. and its subsidiaries for the year ended July 31, 1995.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
October 30, 1995
47
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CML GROUP, INC. FOR THE TWELVE MONTHS ENDED
JULY 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JUL-31-1995
<CASH> 8,338,000
<SECURITIES> 0
<RECEIVABLES> 54,090,000
<ALLOWANCES> 2,141,000
<INVENTORY> 65,444,000
<CURRENT-ASSETS> 199,041,000
<PP&E> 178,097,000
<DEPRECIATION> 65,057,000
<TOTAL-ASSETS> 340,081,000
<CURRENT-LIABILITIES> 82,508,000
<BONDS> 41,593,000
<COMMON> 5,207,000
0
0
<OTHER-SE> 183,345,000
<TOTAL-LIABILITY-AND-EQUITY> 340,081,000
<SALES> 712,613,000
<TOTAL-REVENUES> 712,613,000
<CGS> 283,338,000
<TOTAL-COSTS> 283,338,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,734,000
<INTEREST-EXPENSE> 1,134,000
<INCOME-PRETAX> 25,409,000
<INCOME-TAX> 9,503,000
<INCOME-CONTINUING> 15,906,000
<DISCONTINUED> (37,024,000)
<EXTRAORDINARY> 2,198,000
<CHANGES> 0
<NET-INCOME> (18,920,000)
<EPS-PRIMARY> (0.38)
<EPS-DILUTED> (0.38)
</TABLE>