<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 28, 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 of Incorporation) (IRS Employer Identification Number)
524 Main Street, Acton, Massachusetts 01720
- ------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (508) 264-4155
--------------
Not Applicable
---------------------------------------------------
(Former name, former address and former fiscal year
if changed since last report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- -------
Number of shares outstanding of each of the issuer's classes of common stock:
49,127,903 shares of common stock, $.10 par value, as of December 5, 1995.
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Page 1 of 30 Pages
Exhibit Index Begins on Page 14
<PAGE> 2
<TABLE>
CML GROUP, INC. AND SUBSIDIARIES
--------------------------------
Form 10-Q
Index
-----
Page
----
<S> <C> <C>
Part I: Financial Information
Item 1: Financial Statements
Consolidated Condensed Balance Sheets as of
October 28, 1995 and July 31, 1995 3 - 4
Consolidated Condensed Statements of Operations
for the three-month periods ended
October 28, 1995 and October 29, 1994 5
Consolidated Condensed Statements of Cash
Flows for the three-month periods ended
October 28, 1995 and October 29, 1994 6
Notes to Consolidated Condensed Financial Statements 7 - 9
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 11
Part II: Other Information 12 - 13
Signatures 13
Exhibit Index 14
</TABLE>
2
<PAGE> 3
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
<TABLE>
ASSETS
<CAPTION>
October 28, 1995 July 31, 1995
---------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,099,000 $ 8,338,000
Accounts receivable 47,965,000 51,949,000
Prepaid income taxes 20,406,000 8,710,000
Inventories:
Raw materials 13,063,000 12,970,000
Work in process 3,196,000 3,096,000
Finished goods 72,774,000 49,378,000
------------ ------------
Total inventories 89,033,000 65,444,000
Other current assets 23,291,000 30,286,000
Net assets of business held for sale 34,963,000 34,314,000
------------ ------------
Total current assets 217,757,000 199,041,000
------------ ------------
Property, plant and equipment, at cost:
Land and buildings 19,907,000 19,865,000
Machinery and equipment 81,693,000 77,522,000
Leasehold improvements 83,034,000 80,710,000
------------ ------------
184,634,000 178,097,000
Less accumulated depreciation 70,461,000 65,057,000
------------ ------------
114,173,000 113,040,000
------------ ------------
Goodwill 12,431,000 12,521,000
Other assets 14,551,000 15,479,000
------------ ------------
$358,912,000 $340,081,000
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
October 28, 1995 July 31, 1995
---------------- -------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 204,000 $ 203,000
Accounts payable 39,966,000 35,156,000
Accrued compensation 6,821,000 6,905,000
Accrued advertising 6,352,000 4,381,000
Accrued sales returns 2,746,000 4,572,000
Accrued income taxes 303,000 1,892,000
Other accrued expenses 26,439,000 29,399,000
------------ ------------
Total current liabilities 82,831,000 82,508,000
------------ ------------
Noncurrent liabilities:
Long-term debt 44,855,000 10,082,000
Convertible subordinated debentures 41,593,000 41,593,000
Other noncurrent liabilities 18,444,000 17,346,000
------------ ------------
Total noncurrent liabilities 104,892,000 69,021,000
------------ ------------
Stockholders' equity:
Common stock, par value $.10 per share
Authorized - 120,000,000 shares
Issued - 52,097,794 shares and
52,076,674 shares 5,209,000 5,207,000
Additional paid-in capital 79,898,000 79,805,000
Retained earnings 124,193,000 140,444,000
------------ ------------
209,300,000 225,456,000
Less treasury stock, at cost, 2,969,891 shares
and 2,797,791 shares 38,111,000 36,904,000
------------ ------------
171,189,000 188,552,000
------------ ------------
$358,912,000 $340,081,000
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Operations
-----------------------------------------------
For the periods ended October 28, 1995
and October 29, 1994
<TABLE>
<CAPTION>
Three Months
--------------------------
1995 1994
------------- ------------
<S> <C> <C>
Net sales $108,865,000 $129,198,000
------------- ------------
Less costs and expenses:
Cost of goods sold 48,595,000 50,309,000
Selling, general and administrative expenses 84,039,000 75,860,000
Interest expense 532,000 577,000
------------- ------------
133,166,000 126,746,000
------------- ------------
Income (loss) from continuing operations
before income taxes (24,301,000) 2,452,000
Provision (benefit) for income taxes (9,283,000) 920,000
------------- ------------
Income (loss) from continuing operations
before extraordinary credit (15,018,000) 1,532,000
------------- ------------
Discontinued operations:
Income (loss) from operations, net of
income taxes -- (651,000)
------------- ------------
-- (651,000)
------------- ------------
Net income (loss) ($15,018,000) $881,000
============= ============
Earnings (loss) per share:
Income (loss) from continuing operations
Primary ($0.30) $0.03
============= ============
Fully diluted ($0.30) $0.03
============= ============
Net income (loss):
Primary ($0.30) $0.02
============= ============
Fully diluted ($0.30) $0.02
============= ============
Weighted average number of shares outstanding 49,771,232 50,804,437
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
-----------------------------------------------
<TABLE>
<CAPTION>
For the Three Months
---------------------------------
October 28, 1995 October 29, 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) ($15,018,000) $ 881,000
------------- ------------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 8,123,000 7,122,000
Loss on disposal of property, plant and equipment 808,000 620,000
Increase in working capital items (24,725,000) (32,343,000)
(Increase) decrease in other assets 180,000 (339,000)
Increase in other noncurrent liabilities 854,000 381,000
------------ ------------
Total adjustments (14,760,000) (24,559,000)
------------ ------------
Net cash used in operating activities (29,778,000) (23,678,000)
------------- ------------
Cash flows from investing activities:
Additions to property, plant and equipment (8,902,000) (9,242,000)
Reduction in notes receivable 12,000 10,000
------------ ------------
Net cash used in investing activities (8,890,000) (9,232,000)
------------ ------------
Cash flows from financing activities:
Increase in long-term debt 34,774,000 12,342,000
Dividends paid (1,233,000) (1,000,000)
Exercise of stock options 95,000 34,000
Acquisition of treasury stock (1,207,000) --
------------ ------------
Net cash provided by financing activities 32,429,000 11,376,000
------------ ------------
Net decrease in cash and cash equivalents during the period (6,239,000) (21,534,000)
Cash and cash equivalents at the beginning of the period 8,338,000 28,929,000
------------ ------------
Cash and cash equivalents at the end of the period $ 2,099,000 $ 7,395,000
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
6
<PAGE> 7
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
- ----------------------------------------------------
Note 1
- ------
The accompanying consolidated condensed financial statements and
notes should be read in conjunction with the financial statements
contained in the Company's Annual Report on Form 10-K. In the
opinion of management, the accompanying consolidated condensed
financial statements include all adjustments necessary for a fair
presentation of the results of the interim periods presented and all
such adjustments are of a normal recurring nature. The retail
industry is seasonal in nature and the results of operations for the
interim periods presented may not be indicative of the results for a
full year.
Certain 1995 amounts have been reclassified to conform to the 1996
presentation.
<TABLE>
Note 2 - Long-term Debt
- -----------------------
Consolidated long-term debt is summarized as follows:
<CAPTION>
October 28, 1995 July 31, 1995
---------------- -------------
<S> <C> <C>
Revolving credit loan $44,800,000 $10,000,000
Note payable 174,000 199,000
Obligations under capital leases 85,000 86,000
----------- -----------
45,059,000 10,285,000
Less current portion 204,000 203,000
----------- -----------
Long-term debt $44,855,000 $10,082,000
=========== ===========
</TABLE>
Note 3 - Contingencies
- ----------------------
Litigation
----------
In May 1994, ICON Health & Fitness, 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 has been completed. In November 1995, the Court granted
NordicTrack's Motion for Summary Judgment relating to one of ICON's three
patent infringement claims. ICON's other two claims have been scheduled for
trial during the summer of 1996.
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 January 1996 in Chicago, Illinois
will be binding on both parties.
7
<PAGE> 8
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 have a material adverse effect on 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 to dismiss this lawsuit. The hearing
on this motion is scheduled for mid-December 1995.
The Company is involved in various other legal proceedings which have
arisen in the ordinary course of business. Management believes the outcome
of such proceedings will not have a material adverse impact on the
Company's financial condition or results of operations.
Environmental Matters
---------------------
On June 3, 1991, the Company received from the United States Environmental
Protection Agency ("EPA") a Special Notice Letter containing a formal demand on
the Company as a Potentially Responsible Party ("PRP") for reimbursement of the
costs incurred and expected to be incurred in response to environmental
problems at a so-called "Superfund" site in Conway, New Hampshire. The EPA
originally estimated the costs of remedial action and future maintenance and
monitoring programs at the site at about $7.3 million. The Superfund site
includes a vacant parcel of land owned by a subsidiary of the Company as well
as adjoining property owned by a third party. No manufacturing or other
activities involving hazardous substances have ever been conducted by the
Company or its affiliates on the Superfund site in Conway. The environmental
problems affecting the land resulted from activities by the owners of the
adjoining parcel. Representatives of the Company have engaged in discussions
with the EPA regarding responsibility for the environmental problems and the
costs of cleanup. The owners of the adjoining parcel are bankrupt. The EPA
commenced cleanup activities at the site in July 1992.
The EPA expended approximately $1.4 million for the removal phase of the
site cleanup, which has now been completed. The EPA had estimated that the
removal costs would exceed $3.0 million, but only a small portion of the solid
waste removed from the site was ultimately identified as hazardous waste.
Therefore, the EPA's actual response costs for the removal phase were less than
the EPA originally estimated. The EPA has implemented the groundwater phase of
the cleanup, which the EPA originally estimated would cost approximately $4.0
million.
8
<PAGE> 9
The Company believes that the EPA's estimated cost for cleanup,
including the proposed remedial actions, is excessive and involves unnecessary
actions. In addition, a portion of the proposed remedial cost involves cleanup
of the adjoining property that is not owned by the Company or any of its
affiliates. Therefore, the Company believes it is not responsible for that
portion of the cleanup costs. The Company has reserves and insurance coverage
(from its primary insurer) for environmental liabilities at the site in the
amount of approximately $2.3 million. The Company also believes that it is
entitled to additional insurance from its excess insurance carriers. However,
if excess liability coverage is not available to the Company and the ultimate
liability substantially exceeds the primary insurance amount and reserves, the
liability would have a material adverse effect upon the Company's operating
results for the period in which the resolution of the claim occurs, but would
not have a material adverse effect upon the Company's financial condition.
In June 1992, the EPA notified the Company it may be liable for the
release of hazardous substances by the Company's former Boston Whaler
subsidiary at a hazardous waste treatment and storage facility in Southington,
Connecticut. The EPA has calculated the Company's volumetric contribution at
less than two tenths of one percent. The EPA has not completed its Remedial
Investigation/Feasibility Study and, therefore, an estimate of cleanup costs is
not available.
Tax Matters
-----------
The Internal Revenue Service ("IRS") has been engaged in an
examination of the Company's tax returns for the fiscal years 1987
through 1991. The Company has been advised by the IRS that the
examination will be completed in the near future. Although the Company
has not received an official notice, based on recent discussions with
IRS personnel, the Company expects that the IRS will propose certain
adjustments which, if sustained by the IRS, would be material and
result in a tax deficiency for the years under examination. The
adjustments expected to be proposed by the IRS primarily relate to:
(i) the disallowance of deductions taken by the Company with respect
to incentive compensation payments made to the former owners of
NordicTrack (acquired in June 1986) and to the former owners of
Britches of Georgetowne (acquired in August 1983); and (ii) the
valuation of certain assets acquired in connection with the
acquisition of Britches.
The Company believes that the tax deductions taken were valid
and in accordance with the Internal Revenue Code. However, at this
stage no assurance can be given of a favorable outcome on these
matters. If the IRS proposed adjustments are sustained, any back taxes
owed and associated interest could have a material adverse effect on
the operating results for the period in which such issues are finally
resolved and could also have a material adverse effect on the
Company's financial condition.
Note 4 - Dividends
- ------------------
On October 3, 1995, the Company's Board of Directors declared a cash dividend
of $0.025 per share, payable December 14, 1995 to shareholders of record as of
November 28, 1995. On December 1, 1995, the Board of Directors declared a cash
dividend of $0.025 per share, payable March 21, 1996 to shareholders of record
as of March 6, 1996.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations.
-------------
Financial Condition
- -------------------
Stockholders' equity at October 28, 1995 decreased $17.4 million to $171.2
million from $188.6 million at July 31, 1995. The Company's working capital
increased to $134.9 million at October 28, 1995 from $116.5 million at July 31,
1995 primarily due to the normal seasonal increase in inventories. During the
first quarter of fiscal 1996, the Company spent approximately $8.9 million on
additions to property, plant and equipment. The Company's long-term
debt-to-equity ratio was 0.5 to 1 at October 28, 1995 compared to 0.3 to 1 at
July 31, 1995 reflecting seasonal borrowings under the Company's revolving
credit agreement to finance the seasonal increase in working capital. The
Company's available cash decreased from $8.3 million at July 31, 1995 to $2.1
million at October 28, 1995 due primarily to capital expenditures for new
retail stores and normal seasonal working capital requirements. Total unused
borrowing capacity under the Company's revolving credit agreement was
approximately $34.4 million at October 28, 1995 compared to $40.2 million at
July 31, 1995.
Results of Operations
- ---------------------
As a result of the Company's decision to sell its Britches of Georgetowne
subsidiary, the Company's continuing operations consist of NordicTrack and
The Nature Company segment (which includes Smith & Hawken). During the first
quarter of fiscal 1996, net sales of the Company's continuing operations
decreased by $20.3 million to $108.9 million, or 15.7%, over the first quarter
of fiscal 1995. The Company incurred a loss of $15.0 million from continuing
operations during the first quarter of fiscal 1996 compared with income of $1.5
million from continuing operations during the first quarter of fiscal 1995. The
decrease in income from continuing operations is primarily due to a decrease in
sales and gross margins and an increase in selling, general and
administrative expenses.
Total retail store sales from continuing operations increased by $7.4 million
to $69.4 million, or 11.9%, over the first quarter of fiscal 1995 primarily due
to the addition of new Nordic Advantage, Smith & Hawken and Nature Company
stores. During the first quarter of fiscal 1996, comparable store sales
decreased by 20.5%. Direct response and mail order sales decreased by $27.6
million to $39.5 million, or 41.1%, over the first quarter of fiscal 1995
primarily due to lower direct response sales at NordicTrack and within the
Nature Company segment.
Cost of goods sold increased as a percentage of sales from 38.9% of sales in
the first quarter of fiscal 1995 to 44.6% of sales in the first quarter of
fiscal 1996 primarily due to increased sales promotions offered by NordicTrack
and The Nature Company segment in response to a more competitive environment,
higher costs at NordicTrack due to increases in materials prices, higher labor
costs at NordicTrack due to lower production volumes and an increase in the
proportion of NordicTrack's sales which are accounted for by products with
lower gross margins. Selling, general and administrative expenses increased as
a percentage of sales from 58.7% of sales in the first quarter of fiscal 1995
to 77.2% of sales in the first quarter of fiscal 1996 primarily due less
efficient advertising at NordicTrack, fixed costs at stores which experienced a
decrease in comparable store sales, higher operating expenses attributable to
the
10
<PAGE> 11
increased number of mall kiosks and costs related to the administration and
collection of consumer installment receivables at NordicTrack.
Interest expense was $0.5 million, or 0.5% of sales, in the first quarter of
fiscal 1996 compared to $0.6 million, or 0.5% of sales, in the first quarter of
fiscal 1995. The Company recorded an income tax benefit of 38.2% during the
first quarter of fiscal 1996 compared with a provision for income taxes of
37.5% during the first quarter of fiscal 1995.
During the first quarter of fiscal 1996, NordicTrack's total sales decreased by
$18.4 million to $72.9 million, or 20.2%, over the first quarter of fiscal
1995. Approximately 54.3% of NordicTrack's total sales during the first
quarter of fiscal 1996 were accounted for by sales at its NordicAdvantage
subsidiary which operates retail stores and mall kiosks. NordicAdvantage's
retail sales increased from $32.7 million in the first quarter of fiscal 1995
to $39.6 million in the first quarter of fiscal 1996 primarily due to the
opening of new mall kiosks. During the first quarter of fiscal 1996,
NordicAdvantage opened 9 retail stores and 157 seasonal mall kiosks and at the
end of the quarter operated 123 retail stores and 248 seasonal mall kiosks.
NordicAdvantage's comparable store sales decreased 30.3% during the first
quarter of fiscal 1996. NordicTrack's direct response sales decreased $25.3
million during the first quarter of fiscal 1996 to $33.3 million, or 43.2%,
over the first quarter of fiscal 1995.
The Nature Company segment includes The Nature Company, Smith & Hawken, and two
early stage retail concepts, Hear Music and Scientific Revolution. During the
first quarter of fiscal 1996, The Nature Company segment's sales decreased by
$1.9 million to $36.0 million, or 5.1%, over the first quarter of fiscal 1995.
The Nature Company segment's retail sales increased by $0.4 million, or 1.4%,
to $29.8 million compared to $29.4 million in the first quarter of fiscal 1995
primarily due to the opening of new retail stores. During the first quarter of
fiscal 1996, The Nature Company segment opened 6 retail stores and at the end
of the quarter operated 155 retail stores. The Nature Company segment's
comparable store sales decreased 11.1% during the first quarter of fiscal 1996.
During the first quarter of fiscal 1996, The Nature Company segment's mail
order sales decreased $2.3 million to $6.2 million, or 27.1%, over the first
quarter of fiscal 1995 due primarily to a reduction in the number of catalogs
mailed and later mailing dates in fiscal 1996 compared with fiscal 1995.
During the first quarter of fiscal 1996, Britches' sales decreased $0.8 million
to $29.1 million, or 2.5%, primarily due to a decrease in comparable store
sales. Overall, comparable store sales decreased 11.1% during the first
quarter of fiscal 1996. Sales of the company's professional men's clothing
division, Britches of Georgetowne, were unchanged at $6.0 million and sales of
the company's casual men's clothing division, Britches Great Outdoors,
decreased $0.8 million to $23.1 million.
11
<PAGE> 12
PART II: OTHER INFORMATION
Item 1: Legal Proceedings.
Environmental Matters
---------------------
Note 3 of Notes to Consolidated Condensed Financial Statements in
Item 1 of Part I hereof is hereby incorporated by reference for
information concerning environmental matters.
Litigation
----------
In May 1994, ICON Health & Fitness, 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 has been completed. In
November 1995, the Court granted NordicTrack's Motion for Summary
Judgment relating to one of ICON's three patent infringement claims.
ICON's other two claims have been scheduled for trial during the
summer of 1996.
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 January 1996 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 have a material adverse effect on 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 to dismiss this lawsuit. The hearing on this motion
is scheduled for mid-December 1995.
12
<PAGE> 13
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.
Tax Matters
-----------
The Internal Revenue Service ("IRS") has been engaged in an
examination of the Company's tax returns for the fiscal years 1987
through 1991. The Company has been advised by the IRS that the
examination will be completed in the near future. Although the Company
has not received an official notice, based on recent discussions with
IRS personnel, the Company expects that the IRS will propose certain
adjustments which, if sustained by the IRS, would be material and
result in a tax deficiency for the years under examination. The
adjustments expected to be proposed by the IRS primarily relate to:
(i) the disallowance of deductions taken by the Company with respect
to incentive compensation payments made to the former owners of
NordicTrack (acquired in June 1986) and to the former owners of
Britches of Georgetowne (acquired in August 1983); and (ii) the
valuation of certain assets acquired in connection with the
acquisition of Britches.
The Company believes that the tax deductions taken were valid
and in accordance with the Internal Revenue Code. However, at this
stage no assurance can be given of a favorable outcome on these
matters. If the IRS proposed adjustments are sustained, any back taxes
owed and associated interest could have a material adverse effect on
the operating results for the period in which such issues are finally
resolved and could also have a material adverse effect on the
Company's financial condition.
Items 2-5: None.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K:
None.
Signatures
- ----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CML GROUP, INC.
---------------
(Registrant)
Date: December 11,1995 /s/ Glenn E. Davis
---------------- ------------------
Glenn E. Davis
Vice President and Controller
Principal Accounting Officer
13
<PAGE> 14
EXHIBIT INDEX
Page No.
--------
<TABLE>
<S> <C> <C> <C>
10(a) -- Fourth Amendment to the Company's Third Amended
and Restated Revolving Credit Agreement dated as of
July 31, 1993 by and among CML Group, Inc., Citibank N.A.,
BayBank Boston, N.A. and The First National Bank of Boston 15 - 28
11 -- Statement Regarding Computation of Earnings (Loss) Per Share 29
27 -- Financial Data Schedule 30
</TABLE>
14
<PAGE> 1
Exhibit 10(a)
-------------
FOURTH AMENDMENT AGREEMENT
--------------------------
FOURTH AMENDMENT AGREEMENT (this "AMENDMENT AGREEMENT") dated as of July
31, 1995 by and among (1) CML Group, Inc. (the "BORROWER"), (2) Citibank, N.A.
("CITIBANK"), BayBank Boston, N.A. ("BAYBANK") and The First National Bank of
Boston ("FNBB") as lenders (collectively, the "LENDERS" and individually, a
"LENDER"), and (3) Citibank as agent (the "AGENT") for the Lenders, amending a
certain Third Amended and Restated Revolving Credit Agreement dated as of July
31, 1993 among the Borrower, the Lenders and the Agent (the "ORIGINAL LOAN
AGREEMENT"), as amended by a certain Amendment Agreement dated as of May 15,
1994 (the "FIRST AMENDMENT"), as further amended by a certain Second Amendment
Agreement dated as of June 1, 1994 (the "SECOND AMENDMENT"), as further amended
by a certain Third Amendment Agreement dated as of April 28, 1995 (the "THIRD
AMENDMENT")(the Original Loan Agreement, the First Amendment, the Second
Amendment and the Third Amendment are collectively referred to as the "LOAN
AGREEMENT"). All capitalized terms used herein which are defined in the Loan
Agreement shall have the same meanings herein as therein.
W I T N E S S E T H:
WHEREAS, pursuant to the terms of the Loan Agreement, the Lenders may make
Advances to the Borrower in the original principal amount of up to $60,000,000;
and
WHEREAS, pursuant to the Loan Agreement, the Borrower executed and
delivered the following: (i) a Third Amended and Restated Revolver Note dated
as of July 31, 1993 in the original principal amount of up to $25,716,000 in
favor of Citibank (the "CITIBANK NOTE"); (ii) a Third Amended and Restated
Revolver Note dated as of July 31, 1993 in the original principal amount of up
to $17,142,000 in favor of BayBank (the "BAYBANK NOTE"); and (iii) a Third
Amended and Restated Revolver Note dated as of July 31, 1993 in the original
principal amount of up to $17,142,000 in favor of FNBB (the "FNBB NOTE") (the
Citibank Note, the BayBank Note and the FNBB Note are collectively referred to
herein as the "NOTES"); and
WHEREAS, the Borrower has requested that the Lenders and Agent amend
certain provisions of the Loan Agreement as further set forth herein; and
WHEREAS, the Borrower, the Lenders and the Agent have agreed to modify the
Loan Agreement pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
Section 1. DEFINITIONS. Capitalized terms used herein without definition
that are defined in the Loan Agreement shall have the same meanings herein as
therein.
15
<PAGE> 2
Section 2. RATIFICATION OF EXISTING AGREEMENTS. All of the Borrower's
obligations and and liabilities to the Lenders and the Agent as evidenced by or
otherwise arising under the Loan Agreement, the Notes and the other Loan
Documents, except as otherwise expressly modified in this Amendment Agreement
upon the terms set forth herein, are, by the Borrower's execution of this
Amendment Agreement, ratified and confirmed in all respects. In addition, by
the Borrower's execution of this Amendment Agreement, the Borrower represents
and warrants that no counterclaim, right of set-off or defense of any kind
exists or is outstanding with respect to such obligations and liabilities. The
Borrower acknowledges and agrees that this Amendment Agreement shall be
included in the definition of Loan Documents under the Loan Agreement.
Section 3. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by the Borrower in the Loan Agreement, the Notes and the other
Loan Documents are true and correct on the date hereof as if made on and as of
the date hereof, except to the extent that any of such representations and
warranties relate by their terms to a prior date.
Section 4. CONDITIONS PRECEDENT. (a) The effectiveness of the amendments
contemplated hereby shall be subject to the satisfaction on or before September
28, 1995 hereof of each of the following conditions precedent:
(i) REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties made by the Borrower herein, whether directly or
incorporated by reference, shall be true and correct on the date hereof, except
as provided in Section 3 hereof.
(ii) PERFORMANCE; NO EVENT OF DEFAULT. The Borrower shall have
performed and complied in all material respects with all terms and conditions
herein required to be performed or complied with by it prior to or at the time
hereof, and there shall exist no Default or Event of Default or condition
which, with either or both the giving of notice or the lapse of time, would
result in an Event of Default upon the execution and delivery of this Amendment
Agreement.
(iii) DELIVERY. The parties hereto shall have executed and
delivered this Amendment Agreement together with Fourth Amended and Restated
Notes executed in favor of each of the Lenders, each in form and substance
satisfactory to the Lenders and Agent.
(iv) FEES AND EXPENSES. The Borrower shall have paid to the
Agent in immediately available funds a non-refundable amendment fee equal to
$150,000 for the accounts of the Lenders in accordance with their respective
Commitment Percentages proposed to be in effect on the Commitment Effective
Date pursuant to Section 5.2 hereof. In addition, the Borrower shall have paid
all fees and expenses incurred by the Agent in connection with this Amendment
Agreement, the Loan Agreement or the other Loan Documents on or prior to the
date hereof.
(b) In addition to the conditions precedent set forth in clause (a) of
Section 4 above, the effectiveness of the Amendments contemplated by Section
5.1, 5.2, and clauses (f) and (h) of Section 5.14 hereof shall be subject to
the satisfaction prior to the effectiveness thereof to each of the following
conditions precedent:
16
<PAGE> 3
(i) CORPORATE ACTION. The Agent shall receive evidence satisfactory
to it that all requisite corporate action necessary for the valid execution,
delivery and performance by the Borrower and its Subsidiaries of this Amendment
Agreement and all other instruments and documents delivered by the Borrower and
its Subsidiaries in connection therewith shall have been duly and effectively
taken.
(ii) The Agent shall have received from Hale & Dorr, counsel to the
Borrower, a favorable opinion addressed to the Agent and the Lenders in form
and substance satisfactory to the Agent.
5. AMENDMENTS TO THE LOAN AGREEMENT.
---------------------------------
5.1 Section 1.01(b) of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
"(b) COMMITMENT TO LEND. Subject to the terms and
conditions set forth in this Agreement, each of the Lenders
severally agrees to lend to the Borrower and the Borrower
may borrow, repay, and reborrow from time to time between
the Effective Date and the Final Maturity Date upon notice
by the Borrower to the Agent given in accordance with
Section 1.02 hereof, such sums as are requested by the
Borrower up to a maximum aggregate amount Outstanding (after
giving effect to all amounts requested) at any one time
equal to such Lender's Commitment MINUS such Lender's
Commitment Percentage of the sum of the Maximum Drawing
Amount and all Unpaid Reimbursement Obligations; PROVIDED
that the sum of the Outstanding amount of the Advances
(after giving effect to all amounts requested) PLUS the
Maximum Drawing Amount and all Unpaid Reimbursement
Obligations shall not at any time exceed the Total
Commitment. The Advances shall be made PRO RATA in
accordance with each Lender's Commitment Percentage. Each
request for an Advance hereunder shall constitute a
representation and warranty by the Borrower that the
conditions set forth in Section 4.01 and Section 4.02 have
been satisfied on the date of such request. Each Borrowing
of a Base Rate Advance under this Section 1.01(a) shall be
in an aggregate amount of $500,000 or an integral multiple
thereof. Each Borrowing of a Eurodollar Rate Advance under
this Section 1.01(a) shall be in the aggregate amount of
$5,000,000 or an integral multiple thereof. Each Borrowing
under this Section 1.01(a) shall consist of Advances made on
the same day by each Lender ratably according to the
respective Commitment Percentages of the Lenders. Within
the limits of each Lender's Commitment, the Borrower may
borrow, prepay pursuant to Section 1.08, and reborrow under
this Section 1.01(a)."
5.2. Section 1.01(c) of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
17
<PAGE> 4
"(c) (i) During the period beginning on July 31, 1995 and
ending on the Commitment Effective Date, each Lender's
Commitment Percentage shall be as follows:
<TABLE>
<S> <C>
Lender Commitment Percentage
-------- ---------------------
Citibank 42.86%
BayBank 28.57%
FNBB 28.57%
Total 100.00%
</TABLE>
(ii) During the period beginning on the Commitment
Effective Date and ending on December 29, 1995, each
Lender's Commitment Percentage shall be as follows:
<TABLE>
<S> <C>
Lender Commitment Percentage
-------- ---------------------
Citibank 40.00%
BayBank 30.00%
FNBB 30.00%
Total 100.00%
</TABLE>
(iii) From and after December 30, 1995, each Lender's
Commitment Percentage shall be as follows:
<TABLE>
<S> <C>
Lender Commitment Percentage
-------- ---------------------
Citibank 42.86%
BayBank 28.57%
FNBB 28.57%
Total 100.00%
</TABLE>
(iv) On and as of the date of any increase of the
Total Commitment or change in the respective Commitment
Percentages of the Lenders pursuant to the terms of this
Agreement, the Lenders shall make such assignments and
assumptions of Loans and Commitments as shall be necessary
in the opinion of the Agent to effectuate any such increase
or change."
18
<PAGE> 5
5.3. Section 1.05 of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
"1.05. Reduction of Total Commitment.
-----------------------------
(a) The Total Commitment shall be immediately and
irrevocably reduced by an amount equal to (i) one hundred
percent (100%) of any Net Cash Proceeds in an aggregate
amount on a cumulative basis of up to and including eight
million dollars ($8,000,000) received by the Borrower or any
Subsidiary after the date hereof in connection with any
sales of its properties and assets not in the ordinary
course of business (any such sales being referred to herein
as "REDUCTION SALES"), (ii) zero percent (0%) of any Net
Cash Proceeds in excess of eight million dollars
($8,000,000) in the aggregate on a cumulative basis but less
than or equal to eighteen million dollars ($18,000,000) in
the aggregate on a cumulative basis received by the Borrower
or any Subsidiary after the date hereof in connection with
Reduction Sales, (iii) fifty percent (50%) of any Net Cash
Proceeds in excess of eighteen million dollars ($18,000,000)
in the aggregate on a cumulative basis received by the
Borrower or any Subsidiary after the date hereof in
connection with Reduction Sales constituted of sales of the
properties and assets of any of the First Tier Companies not
in the ordinary course of business (to the extent permitted
by the Majority Lenders), excluding any sales of NordicTrack
accounts receivable ("NordicTrack Receivables"), (iv) fifty
percent (50%) of any Net Cash Proceeds in excess of eighteen
million dollars ($18,000,000) in the aggregate on a
cumulative basis received by the Borrower or any Subsidiary
after the date hereof in connection with Reduction Sales
constituted of sales of NordicTrack Receivables and any of
the other properties and assets of the Borrower and its
Subsidiaries (other than the properties and assets of any of
the First Tier Companies) not in the ordinary course of
business (to the extent permitted by the Majority Lenders)
until such time as the Total Commitment is equal to or less
than $55,000,000, (v) zero percent (0%) of any Net Cash
Proceeds received by the Borrower or any Subsidiary from the
sales of those assets and properties subject to the
operation of clause (iv) hereof to the extent the Total
Commitment would not be required to be reduced in connection
therewith pursuant to the operation of clause (iv) hereof
(to the extent such sales are permitted by the Majority
Lenders) and (vi) eighty-five percent (85%) of the Net Cash
Proceeds of any Senior Debt Securities issued by the
Borrower or any Subsidiary after the date hereof, provided
that nothing set forth in this Section 1.05(a) shall alter
or modify the Borrower's obligations set forth in Section
6.02(e) or (j) hereof. Without limiting the generality of
the foregoing, for the purposes of calculating reductions of
the Total Commitment required by the operation of Section
1.05(a)(iv) the purchase by or assignment to any Person (a
"THIRD-PARTY CREDITOR") by the Borrower or any of its
Subsidiaries or the underwriting by a Third-Party Creditor
of credit extended to any retail purchasers of goods sold by
the Borrower or any of its Subsidiaries pursuant to an
ongoing underwriting arrangement facilitated by the Borrower
or any of
19
<PAGE> 6
its Subsidiaries (excluding so-called "credit card"
transactions carried out in the ordinary course of business
of the Borrower and its Subsidiaries and which are
consistent with past practices) shall be deemed to be the
sale of an asset not in the ordinary course of business and
trigger the commitment reduction obligations set forth in
Section 105(a)(iv), as applicable."
(b) The Borrower shall also have the right, upon at
least two (2) Business Days' notice to the Agent, to
terminate in whole or reduce ratably in part the unused
portions of the Total Commitment of the Lenders, PROVIDED
that each partial reduction shall be in an amount equal to
$5,000,000 or an integral multiple thereof.
(c) Upon the occurrence of a reduction in the Total
Commitment as contemplated by paragraphs (a) and (b) of this
Section 1.05, the respective Commitments of the Lenders
shall be reduced PRO RATA to an amount equal to their
respective Commitment Percentages of the Total Commitment in
effect immediately after such reduction.
(d) No reduction of the Total Commitment as
contemplated by paragraphs (a), (b) or (c) of this Section
1.05 may be reinstated.
(e) If at any time the sum of (i) the aggregate
principal amount of all Advances Outstanding PLUS (ii) the
Maximum Drawing Amount and all Unpaid Reimbursement
Obligations, exceeds the Total Commitment, then the Borrower
shall immediately pay the amount of such excess to the Agent
for the respective accounts of the Lenders for application
to the Advances.
(f) The Total Commitment shall be reduced to $0 and the
Advances shall become due and payable in full on the Final
Maturity Date."
5.4. Section 2.01(a) of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
"(a) Subject to the terms and conditions hereof, the
Issuing Bank, on behalf of the Lenders and in reliance on
the agreement of the Lenders set forth in Section 2.01(b)
hereof and upon the representations and warranties of the
Borrower contained herein and in the other Loan Documents,
agrees to issue, extend, and renew for the account of the
Borrower one or more standby and trade letters of credit
(individually, a "LETTER OF CREDIT" and collectively, the
"LETTERS OF CREDIT"), in such form as may be requested from
time to time by the Borrower and agreed to by the Issuing
Bank, from and including the Effective Date to the date
which is three (3) calendar months prior to the then
scheduled Final Maturity Date; PROVIDED, HOWEVER, that,
after giving effect to such request, the sum of (i) the
aggregate Maximum Drawing Amount, (ii) any Unpaid
Reimbursement Obligations and (iii) the aggregate
Outstanding Advances shall not exceed at any time the Total
Commitment in effect at such time,
20
<PAGE> 7
and PROVIDED FURTHER that the Maximum Drawing Amount and any
Unpaid Reimbursement Obligations with respect to any Standby
Letters of Credit shall not exceed $5,000,000 at any time."
5.5. Section 3.01 of the Loan Agreement is hereby amended in its entirety
effective as of the date hereof to read as follows:
"Section 3.01. FACILITY FEE. The Borrower agrees to
pay to the Agent for the accounts of the Lenders in
accordance with their respective Commitment Percentages a
facility fee calculated on the basis of a 365/366 day year
and at a rate PER ANNUM equal to four-tenths of one percent
(.40%) per annum on the average daily Total Commitment
(whether used or unused) during each calendar quarter or
portion thereof from the date hereof to the Final Maturity
Date. The facility fee shall be payable quarterly in
arrears on the first day of each calendar quarter for the
immediately preceding calendar quarter commencing on the
first such date after July 31, 1995, with a final payment on
the Final Maturity Date or any earlier date on which the
Commitments shall terminate."
5.6. Section 6.01(k) of the Loan Agreement is hereby amended by deleting
the phrase "during the period commencing December 1 and ending July 1" and
inserting in lieu thereof the phrase "commencing during January of".
5.7. Section 6.02(e) of the Loan Agreement is hereby amended by deleting
the phrase "Advance Total Commitment" appearing in the sixth and seventh lines
thereof and substituting therefore "Total Commitment."
5.8. Section 6.02(g) of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
"(g) CAPITAL EXPENDITURES. Make, or permit any
Subsidiary to make, any expenditures for fixed or capital
assets which would cause the aggregate amount of such
expenditures made by the Borrower and the Subsidiaries to
exceed, on a Consolidated basis, (i) $75,000,000 in the
Fiscal Year ended July 31, 1995 (ii) $32,000,000 for the
Fiscal Year ending July 31, 1996, and (iii) $48,000,000 in
any Fiscal Year of the Borrower ending thereafter, PROVIDED
that each of the Capital Expenditure limits set forth above
shall be reduced to the extent of any loans or other
investments permitted to be made by Section 6.02(f)(iv)
hereof and actually made by the Borrower in such Fiscal
Year, and PROVIDED FURTHER that in the event that in any
Fiscal Year, the Capital Expenditure limit set forth above
for such Fiscal Year is greater than the sum of After-Tax
Income (Excluding Permitted Losses) for the prior Fiscal
Year PLUS depreciation for the prior Fiscal Year, the
Capital Expenditure limit shall be reduced to eliminate such
excess. For purposes of determining compliance with the
foregoing covenant, there shall be deducted from Capital
Expenditures (to the extent included therein) those amounts
comprised of construction allowances by landlords."
21
<PAGE> 8
<TABLE>
5.9. Section 6.02(i) of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
"(i) FIXED CHARGE RATIO. Permit the ratio of (i) the sum of
(A) Consolidated Earnings Before Interest and Taxes for any period of
four consecutive fiscal quarters ending on the dates set forth in the
table below, (B) depreciation and amortization for such period and
(C) Rental Obligations for such period to (ii) the sum of (A) Fixed
Charges for such period and (B) Rental Obligations for such period, to
be less than the amount set forth opposite such period in the table below.
<CAPTION>
Four Consecutive Fiscal Minimum Fixed
Quarter Period Ending Charges Ratio
----------------------- -------------
<S> <C>
October 31, 1995 1.1 to 1
January 31, 1996 1.1 to 1
April 30, 1996 1.2 to 1
Each Fiscal Quarter
ending thereafter 1.25 to 1"
</TABLE>
5.10. Section 6.02(j) of the Loan Agreement is hereby amended by deleting
the phrase "Advance Total Commitment" appearing in the last line thereof and
substituting therefore "Total Commitment."
5.11. Section 6.02(h) of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
"(h) LIABILITIES RATIO. Permit the ratio of (i) the sum of
(A) Indebtedness (including, without limitation, Subordinated
Indebtedness) as of the end of any fiscal quarter and (B) the result of
(w) Rental Obligations for the four fiscal-quarter period ending on such
date multiplied by (x) eight (8) to (ii) the sum of (A) Consolidated
Tangible Net Worth, (B) Indebtedness (including, without limitation,
Subordinated Indebtedness) and (C) the result of (y) Rental Obligations
for the four fiscal-quarter period ending on such date multiplied by
(z) eight (8), to be greater than .85 to 1."
5.12. Section 6.02(l) of the Loan Agreement is hereby amended in its
entirety effective as of the date hereof to read as follows:
"(l) OPERATIONS OF SUBSIDIARIES. (a) Cause or permit any
Subsidiary to have any pre-tax, pre-interest operating loss (Excluding
Permitted Losses and Excluding Management Fees) (i) in excess of
$11,047,000 for the four consecutive fiscal quarters of such Subsidiary
ending April 29, 1995, (ii) in excess of $12,000,000 for the four
consecutive fiscal quarters of such Subsidiary ending July 31, 1995, (iii)
22
<PAGE> 9
<TABLE>
in excess of $15,000,000 for the four consecutive fiscal
quarters of such Subsidiary ending October 31, 1995, (iv) in
excess of $12,000,000 for the four consecutive fiscal
quarters of such Subsidiary ending January 31, 1996 and (v)
in excess of $10,000,000 in any period consisting of four
consecutive fiscal quarters of such Subsidiary ending on or
after February 1, 1996, (b) cause or permit any or all
Subsidiaries to have any aggregate pre-tax, pre-interest
operating loss (Excluding Permitted Losses and Excluding
Management Fees) (i) in excess of $16,016,000 for the four
consecutive fiscal quarters of such Subsidiaries ending
April 29, 1995, (ii) in excess of $21,600,000 for the four
consecutive fiscal quarters of such Subsidiaries ending July
31, 1995, (iii) in excess of $20,000,000 for the four
consecutive fiscal quarters of such Subsidiaries ending
October 31, 1995 and (iv) in excess of $15,000,000 in any
period consisting of four consecutive fiscal quarters of
such Subsidiaries ending on or after November 1, 1995
(excluding from the calculations under subsection (b) hereof
the financial performance of any Subsidiary which had an
operating profit during such period), (c) cause or permit
NordicTrack, Inc. to have a pre-tax, pre-interest operating
deficit (Excluding Management Fees) for the fiscal quarter
of NordicTrack, Inc. ending on July 31, 1995 of greater than
$27,500,000, and (d) cause or permit NordicTrack, Inc. to
have a pre-tax, pre-interest operating profit (Excluding
Management Fees) of less than, or in the case of loss
(Excluding Management Fees), greater than, those amounts set
forth in the table below:
<CAPTION>
Profit Not to Loss Not to Four Fiscal
be less than be greater than Quarter Period Ending
- ------------- --------------- ---------------------
<S> <C> <C>
N/A ($15,000,000) October 31, 1995
$25,000,000 N/A January 31, 1996
$10,000,000 N/A April 30, 1996
N/A ($15,000,000) July 31, 1996
N/A ($15,000,000) October 31, 1996
$30,000,000 N/A January 31, 1997
$12,500,000 N/A April 30, 1997
N/A ($15,000,000) July 31, 1997"
</TABLE>
5.13. Paragraph (m) of Section 6.02 of the Loan Agreement is hereby
amended and restated in its entirety to read as follows:
"(m) STOCK REPURCHASE. Make, or permit any Subsidiary
to make, any repurchase of common stock, subordinated
debentures or other equity or subordinated debt securities;
PROVIDED that the Borrower may make, or permit any
Subsidiary to make, a repurchase of common stock so long as
no Default or Event of Default is continuing hereunder or
would occur as a result of such repurchase, and further
provided that (a) the aggregate amount of such repurchases
from and after August 1, 1995 shall not in any event exceed
$8,000,000 PLUS, on a cumulative basis, twenty
23
<PAGE> 10
five percent (25%) of positive Consolidated Net Income for each fiscal
quarter of the Borrower beginning with the fiscal quarter ending
October 31, 1995 and (b) the purchase price paid by the Borrower or such
Subsidiary to repurchase such common stock shall not in any event exceed
$8.25 per share for the first $8,000,000 of such repurchased common stock.
It is understood that the Borrower shall be permitted to convert to equity
in accordance with the terms thereof the convertible subordinated
debentures issued by the Borrower, in the original principal amount of
$57,500,000 due 2003."
5.14. AMENDMENTS TO EXHIBIT A.
(a) The definition of "Advance Commitment" appearing in EXHIBIT A
is hereby deleted.
(b) The definition of "Advance Total Commitment" appearing in
Exhibit A is hereby deleted.
(c) The definition of "Applicable Margin" appearing in EXHIBIT A is
hereby amended by deleting the phrase "three-eighths of one percent (3/8%)"
appearing in the second and third lines of subsection (a) thereof and
substituting therefore "three-quarters of one percent (3/4%)."
(d) The definition of "Commitment Percentage" appearing in Exhibit
A is hereby amended in its entirety to read as follows:
"COMMITMENT PERCENTAGE" means with respect to each
Lender, the percentage referred to in Section 1.01(c) as
such Lender's percentage of the Total Commitment."
(e) The definition of "Consolidated Earnings Before Interest and
Taxes" appearing in EXHIBIT A is hereby amended in its entirety to read as
follows:
"CONSOLIDATED EARNINGS BEFORE INTEREST AND TAXES" means
the combined and consolidated earnings (or deficit) from the
operations of the Borrower and its Subsidiaries, after all expenses
and other proper charges other than interest and taxes, determined in
accordance with generally accepted accounting principles, Excluding
Permitted Losses."
(f) The definition of "Final Maturity Date" appearing in EXHIBIT A
is hereby amended by deleting the date "September 30, 1996" in the first line
thereof and substituting therefore "July 31, 1997."
(g) The definition of "Letter of Credit Commitment" appearing in
EXHIBIT A is hereby deleted.
(h) The definition of "Total Commitment" appearing in EXHIBIT A is
hereby amended in its entirety to read as follows:
24
<PAGE> 11
"TOTAL COMMITMENT" means (i) during the period beginning on
The Commitment Effective Date and ending on December 29,
1995, $100,000,000 and (ii) during the period beginning on
December 30, 1995 and ending on the Final Maturity Date, an
amount equal (a) to the Total Commitment as in effect on
December 29, 1995 (after giving effect to any and all prior
reductions of the Total Commitment) minus (b) the result of
(1) $30,000,000 minus (2) Excess Reductions, as the same may
thereafter be reduced pursuant to Section 1.05 hereof."
(i) The following new definitions are hereby added to EXHIBIT A of
the Loan Agreement:
"CAPITALIZED LEASES" means leases under which the Borrower or
any of its Subsidiaries is the lessee or obligor, the discounted
future rental payment obligations under which are required to be
capitalized on the balance sheet of the lessee or obligor in
accordance with generally accepted accounting principles.
"COMMITMENT EFFECTIVE DATE" means the date on which the
conditions precedent set forth in Section 4(b)(i) and (ii) of the
Fourth Amendment Agreement to this Agreement dated as of July 31,
1995 are satisfied in full (as evidenced by a written confirmation
thereof by the Agent.
"DEBT SERVICE" means, for any fiscal period the amount of all
principal and Interest Charges, together with fees associated
therewith of the Borrower and its Subsidiaries on a consolidated
basis in respect of Indebtedness paid or scheduled to be paid
during such period. For the purposes of this definition,
"principal" shall in include the principal component of payments
for such period in respect of Capitalized Leases.
"DISTRIBUTION" means the declaration or payment of any
dividend on or in respect of any shares of any class of capital
stock of the Borrower or any of its Subsidiaries, other than
dividends payable solely in shares of common stock of the Borrower
or such Subsidiary; the purchase, redemption, or other retirement
of any shares of any class of capital stock of the Borrower or any
Subsidiary, directly or indirectly through a Subsidiary of the
Borrower, such Subsidiary or otherwise; the return of capital by
the Borrower or any Subsidiary to its respective shareholders as
such; or any other distribution on or in respect of any shares of
any class of capital stock of the Borrower or any Subsidiary.
"EXCESS REDUCTIONS" means an amount equal to the lesser of (a)
$30,000,000 and (b) the aggregate reductions of the Total
Commitment required pursuant to the operation of Section
1.05(a)(iv) on or prior to December 29, 1995 in excess of
$7,000,000.
"EXCLUDING MANAGEMENT FEES" means, with respect to a specified
calculation of income, the exclusion of Management Fees therefrom.
"EXCLUDING PERMITTED LOSSES" means, with respect to a
specified calculation of income, the exclusion of Permitted Losses
therefrom.
25
<PAGE> 12
"FIRST TIER COMPANIES" means NordicTrack, the Nature Company, a
California corporation and Smith & Hawken, Ltd., a Delaware
corporation.
"FIXED CHARGES" means, for any fiscal period, the sum for the
Borrower and its Subsidiaries on a consolidated basis with respect
to (i) Debt Service for such period, (ii) taxes paid during such
period and (iii) Distributions made during such period.
"MANAGEMENT FEES" means those management fees paid by any
Subsidiary of the Borrower to the Borrower or any other Subsidiary
of the Borrower.
"PERMITTED LOSSES" means pre-tax losses of up to $60,000,000
in the aggregate associated with the planned sale of Britches of
Georgetowne, Inc. and its Subsidiaries, PROVIDED THAT, the
aggregate amount of such losses shall be comprised of (i) up to
$45,000,000 of losses recognized by the Borrower and its
Subsidiaries in the third fiscal quarter of the Borrower's 1995
Fiscal Year and (ii) up to $15,000,000 of losses recognized by the
Borrower and its Subsidiaries after the third fiscal quarter of the
Borrower's 1995 Fiscal Year.
"RENTAL OBLIGATIONS" means all present or future obligations
of the Borrower or any of its Subsidiaries under any rental
agreements or leases of real or personal property, other than (i)
obligations that can be terminated by the giving of notice without
liability to the Borrower or such Subsidiary in excess of the
liability for rent due as of the date on which such notice is given
and under which no penalty or premium is paid as a result of any
such termination, (ii) obligations in respect of Capitalized Leases
and (iii) those obligations of the Borrower and its Subsidiaries to
pay rents which are calculated solely as a percentage of retail
store sales revenues.
Section 6. EXPENSES. The Borrower agrees to pay to the Agent upon demand
(a) an amount equal to any and all out-of-pocket costs or expenses (including
reasonable legal fees and disbursements and appraisal expenses) incurred or
sustained by the Agent in connection with the preparation of this Amendment
Agreement and related matters and (b) from time to time any and all
out-of-pocket costs or expenses (including commercial examiner fees and legal
fees and disbursements) hereafter incurred or sustained by the Agent and
Lenders in connection with the administration of credit extended by the Agent
and Lenders to the Borrower or the preservation of or enforcement of the
Lenders' and Agent's rights under the Loan Agreement, the Notes or the other
Loan Documents.
Section 7. MISCELLANEOUS PROVISIONS.
(a) Except as otherwise expressly provided by this Amendment
Agreement, all of the respective terms, conditions and provisions of the Loan
Agreement remain the same. It is declared and agreed by each of the parties
hereto that the Loan Agreement and the other Loan Documents, each as amended
hereby, shall continue in full force and effect, and that this Amendment
Agreement and the Loan Agreement and the other Loan Documents, as applicable,
be read and construed as one instrument, and all references in the Loan
Documents shall hereafter refer to the Loan Agreement and the other Loan
Documents, each as amended hereby. The Loan Agreement and the other Loan
Documents, each as amended hereby, shall continue to
26
<PAGE> 13
be secured (and the holders of the Obligations shall continue to have the
benefit of) the continuing liens and security interests and guarantees, created
by the Collateral Agreements.
(b) This Amendment Agreement is intended to take effect under,
and shall be construed according to and governed by, the laws of the State of
New York.
(c) This Amendment Agreement may be executed in any number of
counterparts, but all such counterparts shall together constitute but one
instrument. In making proof of this Amendment Agreement it shall not be
necessary to produce or account for more than one counterpart signed by each
party hereto by and against which enforcement hereof is sought.
27
<PAGE> 14
IN WITNESS WHEREOF, each of the parties hereto have caused this Amendment
Agreement to be executed in its name and behalf by its duly authorized officer
as of the date first written above.
CML GROUP, INC.
By: /s/Robert J. Samuelson
------------------------
Its: Senior Vice President
------------------------
CITIBANK, N.A.,
Individually,
As Agent and Issuing Bank
By: /s/Thomas D. Stott
------------------------
Its: Vice President
------------------------
BAYBANK BOSTON, N.A
By: /s/Tracy J. Burlock
------------------------
Its: Loan Officer (Special)
------------------------
THE FIRST NATIONAL BANK
OF BOSTON
By: /s/Thomas F. Farley, Jr.
------------------------
Its: Director
------------------------
28
<PAGE> 1
Exhibit 11
<TABLE>
CML GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
For the periods ended October 28, 1995
and October 29, 1994
<CAPTION>
Three Months Ended
---------------------------------
Oct. 28, 1995 Oct. 29, 1994
------------- -------------
<S> <C> <C>
Primary earnings (loss) per share:
Weighted average number of shares outstanding:
Common 49,224,104 49,985,787
Shares deemed outstanding from
the assumed exercise of stock
options and from deferred compensation awards 547,128 818,650
------------ -----------
Total 49,771,232 50,804,437
============ ===========
Net income (loss) $(15,018,000) $ 881,000
============ ===========
Primary earnings (loss) per share $ (0.30) $ 0.02
============ ===========
Fully diluted earnings (loss) per share:
Weighted average number of shares outstanding, as above 49,771,232 50,804,437
Shares deemed outstanding from
the assumed conversion of
convertible subordinated
debentures 1,604,877 2,218,649
Additional shares deemed
outstanding from the assumed
exercise of stock options --- ---
------------ -----------
Total 51,376,109 53,023,086
============ ===========
Additional income from the
elimination of the interest cost of
the convertible subordinated
debentures, net of income tax effect $ 374,067 $ 512,407
Fully diluted earnings (loss) per share $ (0.30) $ 0.02
============ ===========
</TABLE>
29
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF CML GROUP, INC. FOR THE THREE MONTHS ENDED
OCTOBER 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-28-1995
<CASH> 2,099,000
<SECURITIES> 0
<RECEIVABLES> 47,965,000
<ALLOWANCES> 1,988,000
<INVENTORY> 89,033,000
<CURRENT-ASSETS> 217,757,000
<PP&E> 184,634,000
<DEPRECIATION> 70,461,000
<TOTAL-ASSETS> 358,912,000
<CURRENT-LIABILITIES> 82,831,000
<BONDS> 41,593,000
<COMMON> 5,208,000
0
0
<OTHER-SE> 165,981,000
<TOTAL-LIABILITY-AND-EQUITY> 358,912,000
<SALES> 108,865,000
<TOTAL-REVENUES> 108,865,000
<CGS> 48,595,000
<TOTAL-COSTS> 48,595,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,633,000
<INTEREST-EXPENSE> 532,000
<INCOME-PRETAX> (24,301,000)
<INCOME-TAX> (9,283,000)
<INCOME-CONTINUING> (15,018,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,018,000)
<EPS-PRIMARY> (0.30)
<EPS-DILUTED> (0.30)
</TABLE>
