<PAGE> 1
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 JANUARY 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 or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
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 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
------ ------
Number of shares outstanding of each of the issuer's classes of common stock:
49,853,719 shares of common stock, $.10 par value, as of March 3, 1995.
===============================================================================
Page 1 of 17 Pages
Exhibit Index Begins at Page 15
<PAGE> 2
CML GROUP, INC. AND SUBSIDIARIES
--------------------------------
Form 10-Q
Index
-----
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Part I: Financial Information
Item 1: Financial Statements
Consolidated Condensed Balance Sheets as of
January 28, 1995 and July 31, 1994 3 - 4
Consolidated Condensed Statements of Income
for the three-month and six-month periods ended
January 28, 1995 and January 29, 1994 5
Consolidated Condensed Statements of Cash
Flows for the six-month periods ended
January 28, 1995 and January 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 - 12
Part II: Other Information 13 - 14
Signatures 14
Exhibit Index 15
</TABLE>
2
<PAGE> 3
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
ASSETS
<CAPTION>
January 28, 1995 July 31, 1994
---------------- -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 56,206,000 $ 28,929,000
Accounts receivable - trade 72,137,000 42,075,000
Prepaid income taxes 6,688,000 6,688,000
Inventories:
Raw materials 12,927,000 12,617,000
Work in process 7,695,000 3,552,000
Finished goods 61,323,000 64,564,000
------------ ------------
Total inventories 81,945,000 80,733,000
Other current assets 33,369,000 26,387,000
------------ ------------
Total current assets 250,345,000 184,812,000
------------ ------------
Property, plant and equipment, at cost:
Land and buildings 19,219,000 20,172,000
Machinery and equipment 85,604,000 79,228,000
Leasehold improvements 124,386,000 113,910,000
------------ ------------
229,209,000 213,310,000
Less accumulated depreciation 77,950,000 65,705,000
------------ ------------
151,259,000 147,605,000
------------ ------------
Goodwill 34,330,000 34,889,000
Other assets 19,347,000 17,357,000
------------ ------------
$455,281,000 $384,663,000
============ ============
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
<TABLE>
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
January 28, 1995 July 31, 1994
---------------- -------------
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 173,000 $ 226,000
Accounts payable 31,407,00 33,868,000
Accrued compensation 9,761,000 8,423,000
Accrued advertising 11,169,000 5,302,000
Accrued income taxes 26,781,000 483,000
Other accrued expenses 40,940,000 32,768,000
----------- -----------
Total current liabilities 120,231,000 81,070,000
----------- -----------
Noncurrent liabilities:
Long-term debt 224,000 1,292,000
Convertible subordinated debentures 49,712,000 57,500,000
Other noncurrent liabilities 27,212,000 25,564,000
----------- -----------
Total noncurrent liabilities 77,148,000 84,356,000
----------- -----------
Stockholders' equity:
Common stock par value $.10 per share
Authorized - 120,000,000 shares
Issued - 51,933,460 shares and
51,851,180 shares 5,193,000 5,185,000
Additional paid-in capital 79,010,000 78,736,000
Retained earnings 204,387,000 163,825,000
----------- -----------
288,590,000 247,746,000
Less treasury stock, at cost, 2,079,741
shares and 1,865,941 shares 30,688,000 28,509,000
----------- -----------
257,902,000 219,237,000
----------- -----------
$455,281,000 $384,663,000
=========== ===========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
<TABLE>
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Income
For the periods ended January 28, 1995
and January 29, 1994
<CAPTION>
Three Months Six Months
------------ ----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $327,368,000 $291,970,000 $486,438,000 $429,157,000
------------ ------------ ------------ ------------
Less costs and expenses:
Cost of goods sold 126,616,000 110,079,000 189,280,000 160,900,000
Selling, general and administrative
expenses 134,633,000 118,745,000 228,715,000 192,737,000
Interest expense 734,000 596,000 1,613,000 1,264,000
------------ ------------ ------------ ------------
261,983,000 229,420,000 419,608,000 354,901,000
------------ ------------ ------------ ------------
Income before provision for income
taxes and extraordinary credit 65,385,000 62,550,000 66,830,000 74,256,000
Provision for income taxes 24,832,000 24,248,000 25,396,000 28,813,000
------------ ------------ ------------ ------------
Income before extraordinary credit 40,553,000 38,302,000 41,434,000 45,443,000
Extraordinary credit - early
extinguishment of debt 1,125,000 -- 1,125,000 --
------------ ------------ ------------ ------------
Net income $ 41,678,000 $ 38,302,000 $ 42,559,000 $ 45,443,000
============ ============ ============ ============
Earnings per share:
Income before extraordinary credit:
Primary $0.80 $0.74 $0.82 $0.88
===== ===== ===== =====
Fully diluted $0.78 $0.72 $0.80 $0.86
===== ===== ===== =====
Net income:
Primary $0.82 $0.74 $0.84 $0.88
===== ===== ===== =====
Fully diluted $0.80 $0.72 $0.82 $0.86
===== ===== ===== =====
Weighted average number of shares
outstanding 50,680,233 51,827,986 50,743,006 51,895,280
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
5
<PAGE> 6
<TABLE>
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
-----------------------------------------------
<CAPTION>
For the Six Months Ended
-----------------------
January 28, 1995 January 29, 1994
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net income $42,559,000 $45,443,000
Adjustments to reconcile net income to net cash
provided by operating activities:
Gain on early extinguishment of debt (1,125,000) --
Depreciation and amortization 14,496,000 11,581,000
Loss on disposal of property, plant and equipment 2,939,000 477,000
Changes in working capital items (89,000) (4,006,000)
(Increase) decrease in other assets (2,476,000) 242,000
Increase in other noncurrent liabilities 1,648,000 1,250,000
----------- ----------
Net cash provided by operating activities 57,952,000 54,987,000
----------- ----------
Cash flows from investing activities:
Additions to property, plant and equipment (19,918,000) (33,748,000)
Reduction in notes receivable 40,000 40,000
----------- ----------
Net cash used in investing activities (19,878,000) (33,708,000)
----------- ----------
Cash flows from financing activities:
Decrease in long-term debt (1,121,000) (143,000)
Acquisition of convertible debentures (5,778,000) --
Dividends paid (2,001,000) (2,026,000)
Exercise of stock options 282,000 260,000
Acquisition of treasury stock (2,179,000) (7,868,000)
----------- ----------
Net cash used in financing activities (10,797,000) (9,777,000)
----------- ----------
Net increase in cash and cash equivalents during the period 27,277,000 11,502,000
Cash and cash equivalents at the beginning of the period 28,929,000 64,010,000
----------- ----------
Cash and cash equivalents at the end of the period $56,206,000 $75,512,000
=========== ===========
</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.
The Company does not own any securities covered by Statement of Financial
Accounting Standards ("SFAS") No. 115. Adoption of SFAS No. 119 would not
have a material effect on the Company's consolidated financial statements.
Certain 1994 amounts have been reclassified to conform to the 1995 presentation.
Note 2 - Long-term Debt
-----------------------
<TABLE>
Consolidated long-term debt is summarized as follows:
<CAPTION>
January 28, 1995 July 31, 1994
---------------- -------------
<S> <C> <C>
Note payable $268,000 $1,352,000
Obligations under capital leases 129,000 166,000
-------- ----------
397,000 1,518,000
Less current portion 173,000 226,000
-------- ----------
Long-term debt $224,000 $1,292,000
======== ==========
</TABLE>
During the second quarter of fiscal 1995, the Company recorded an extraordinary
gain of $1,814,000 before income taxes resulting from the repurchase of
$7,788,000 principal amount of the Company's 5 1/2% convertible subordinated
debentures due 2003.
Note 3 - Contingencies
----------------------
Litigation
----------
In October 1992, The Nature Company filed a lawsuit against Natural Wonders,
Inc. in federal court which seeks both damages and injunctive relief to remedy
alleged false representations, intellectual property infringement and unfair
competition by Natural Wonders. In November 1992, Natural Wonders responded by
filing counterclaims against The Nature Company alleging unfair competition,
interference with Natural Wonders' contractual relations and prospective
business advantage in violation of state and federal antitrust laws. The Nature
Company is vigorously opposing the counterclaim. This lawsuit is still in the
discovery stage and, while the Company believes that it will prevail, no
assurance can be given of a favorable outcome. The Company believes that an
unfavorable outcome would not have a material adverse effect on the Company's
financial condition but could adversely affect the operating results for the
period or periods in which such outcome occurs.
7
<PAGE> 8
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 alleges 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. The Company
believes the complaint is without merit and intends to vigorously contest the
lawsuit. On December 19, 1994, the Company filed a motion to dismiss this
lawsuit, which motion is currently pending before the Court.
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 ("Special Notice") containing
a formal demand on the Company as a Potentially Responsible Party ("PRP") for
reimbursement of the costs incurred and expected to be incurred in response to
environmental problems at a so-called "Superfund" site in Conway, New
Hampshire. The EPA originally estimated the costs of remedial action and future
maintenance and monitoring programs at the site at about $7.3 million. The
Superfund site includes a vacant parcel of land owned by a subsidiary of the
Company as well as adjoining property owned by others. No manufacturing or
other activities involving hazardous substances have ever been conducted by the
Company or its affiliates on the Superfund site in Conway. The environmental
problems affecting the land resulted from activities by the owners of the
adjoining parcel. Representatives of the Company have engaged in discussions
with the EPA regarding responsibility for the environmental problems and the
costs of cleanup. The owners of the adjoining parcel are bankrupt. The EPA
commenced cleanup activities at the site in July 1992.
The EPA has expended approximately $1.4 million for the removal phase of the
site cleanup, which has now been completed. The EPA had estimated that the
removal costs would exceed $3.0 million, but only a small portion of the solid
waste removed from the site was ultimately identified as hazardous waste.
Therefore, the EPA's actual response costs for the removal phase were less than
the EPA originally estimated. The EPA has begun implementing the groundwater
phase of the cleanup, which was originally estimated by the EPA to cost
approximately $4.0 million.
The Company believes that the EPA's estimated cost for cleanup, including the
proposed remedial actions, is excessive and involves unnecessary actions. In
addition, a portion of the proposed remedial cost involves cleanup of the
adjoining property that is not owned by the Company or any of its affiliates.
Therefore, the Company believes it is not responsible for that portion of the
cleanup costs. The Company has reserves and insurance coverage (from its
primary insurer) for environmental liabilities at the site in the amount of
approximately $2.3 million. The Company also believes that it is entitled to
additional insurance from its excess insurance carriers. However, if excess
liability coverage is not available to the Company and the ultimate liability
substantially exceeds the primary insurance amount and reserves, the liability
would have a material adverse effect upon the Company's operating results for
the period in
8
<PAGE> 9
which the resolution of the claim occurs, but would not have a material
adverse effect upon the Company's financial condition.
In June 1992, the EPA notified the Company it may be liable for the release of
hazardous substances by a former subsidiary at a hazardous waste treatment and
storage facility in Southington, Connecticut. The EPA has calculated the
Company's volumetric contribution at less than two tenths of one percent. The
EPA has not completed its Remedial Investigation/Feasibility Study and,
therefore, an estimate of cleanup costs is not available.
Note 4 - Dividend
-----------------
On December 1, 1994, the Company's Board of Directors declared a cash dividend
of $0.02 per share, payable March 16, 1995 to stockholders of record as of
March 1, 1995. On March 2, 1995, the Company's Board of Directors declared a
cash dividend of $0.025 per share, payable June 16, 1995 to stockholders of
record as of May 30, 1995.
9
<PAGE> 10
Item 2. Management's Discussion and Analysis of Financial Condition and
---------------------------------------------------------------
Results of Operations.
----------------------
Financial Condition
-------------------
Stockholders' equity increased by $38.7 million from $219.2 million at July 31,
1994 to $257.9 million at January 28, 1995 due primarily to net income of $42.6
million partially offset by the repurchase of $2.2 million of common stock and
dividends of $2.0 million. During the first six months of fiscal 1995, the
Company spent approximately $19.9 million on additions to property, plant and
equipment. The Company's ratio of long-term debt to equity decreased from 0.27
to 1 at July 31, 1994 to 0.19 to 1 at January 28, 1995 due to the increase in
stockholders' equity and a decrease in long-term debt. The decrease in long-
term debt was due primarily to the repurchase of $7.8 million principal amount
of the Company's 5 1/2% convertible subordinated debentures due 2003. The
Company's available cash increased from $28.9 million at July 31, 1994 to $56.2
million at January 28, 1995. Total unused borrowing capacity under the
Company's revolving credit agreement was approximately $52.1 million at January
28, 1995 compared to $52.3 million at July 31, 1994. Accounts receivable -
trade increased by $30.0 million from $42.1 million at July 31, 1994 to $72.1
million at January 28, 1995 due primarily to an increase in receivables arising
from the extended payment plans offered by NordicTrack. As part of the
Company's long-term planning process, the Company evaluates the performance and
strategic fit of the Company's business segments. Recently, the Company has
been engaged in discussions for the sale of certain assets. The discussions
have been very preliminary and there can be no assurance that any assets will
be sold.
Results of Operations
---------------------
During the second quarter of fiscal 1995, net sales increased by $35.4 million
to $327.4 million, or 12.1%, over the second quarter of fiscal 1994, while net
income increased by 8.9% to $41.7 million as compared to $38.3 million in
the second quarter of fiscal 1994. For the first six months of fiscal 1995,
net sales increased by $57.2 million to $486.4 million, or 13.3%, compared to
$429.2 million in the first six months of fiscal 1994 while net income
decreased by 6.2% to $42.6 million as compared to $45.4 million in the first
six months of fiscal 1994. Net income for the second quarter and first six
months of fiscal 1995 included an extraordinary gain of $1.1 million, after
income taxes, resulting from the repurchase of $7.8 million principal amount of
the Company's 5 1/2% convertible subordinated debentures.
Total retail store sales increased by $29.8 million in the second quarter of
fiscal 1995 to $209.2 million, or 16.6%, over the second quarter of fiscal
1994. During the second quarter of fiscal 1995, comparable store sales
decreased by 4.9%. For the first six months of fiscal 1995, total retail store
sales increased by $44.2 million to $301.1 million, or 17.2%, over the first
six months of fiscal 1994 and comparable store sales decreased by 6.8%. The
increase in total retail store sales for the second quarter and first six
months of fiscal 1995 was due primarily to the addition of new Nordic
Advantage, The Nature Company segment and Britches Great Outdoors stores.
Direct response and mail order sales increased by $5.6 million to $118.2
million, or 5.0%, over the second quarter of fiscal 1994 and by $13.0 million
to $185.3 million, or 7.5%, over the first six months of fiscal 1994. The
increase in direct response and mail order sales for the second
10
<PAGE> 11
quarter and first six months of fiscal 1995 was due primarily to higher direct
response sales at NordicTrack.
Cost of goods sold increased from 37.7% and 37.5% of sales in the second
quarter and first six months of fiscal 1994, respectively, to 38.7% and 38.9%
of sales in the second quarter and first six months of fiscal 1995,
respectively. The increase in cost of goods sold for the second quarter and
first six months of fiscal 1995 was due primarily to higher cost of goods sold
at NordicTrack and The Nature Company. The increase in cost of goods sold at
The Nature Company during the second quarter and first six months of fiscal
1995 was due primarily to higher promotional activity during the post-holiday
period to reduce slower moving merchandise.
Selling, general and administrative expenses increased from 40.7% and 44.9% of
sales in the second quarter and first six months of fiscal 1994, respectively,
to 41.1% and 47.0% of sales in the second quarter and first six months of
fiscal 1995, respectively. The increase in selling, general and administrative
expenses for the second quarter and first six months of fiscal 1995 was due
primarily to fixed costs at stores which experienced a decrease in comparable
store sales.
Interest expense increased to $0.7 million, or 0.2% of sales, in the second
quarter of fiscal 1995 compared to $0.6 million in the second quarter of
fiscal 1994. During the first six months of fiscal 1995, interest expense
increased to $1.6 million, or 0.3% of sales, compared to $1.3 million in the
first six months of fiscal 1994. The increase in interest expense during the
second quarter and first six months of fiscal 1995 was due primarily to higher
average bank borrowings and higher interest rates.
The provision for income taxes as a percentage of pretax income decreased from
38.8% in the second quarter and first six months of fiscal 1994 to 38.0% in the
second quarter and first six months of fiscal 1995. The increase in net income
during the second quarter of fiscal 1995 was due primarily to higher sales at
NordicTrack and the extraordinary gain from the repurchase of debentures. The
decrease in net income during the first six months of fiscal 1995 was due
primarily to higher cost of goods sold and higher selling, general and
administrative expenses during the first quarter.
During the second quarter of fiscal 1995, NordicTrack's sales increased by
$26.5 million to $188.4 million, or 16.4%, over the second quarter of fiscal
1994 due primarily to strong Walkfit[R] sales. Nordic Advantage's retail sales
increased by $20.6 million, or 30.5%, from $67.6 million in the second quarter
of fiscal 1994 to $88.2 million in the second quarter of fiscal 1995. Nordic
Advantage's comparable store sales decreased 9.6% and 11.5% during the second
quarter and first six months of fiscal 1995, respectively. NordicTrack's
direct response sales increased by $5.9 million during the second quarter of
fiscal 1995 to $100.2 million, or 6.3%, over the second quarter of fiscal 1994.
During the first six months of fiscal 1995, NordicTrack's sales increased by
$42.7 million to $279.7 million, or 18.0%, over the first six months of fiscal
1994. Nordic Advantage's retail sales increased $30.2 million, or 33.3%, from
$90.7 million in the first six months of fiscal 1994 to $120.9 million in the
first six months of fiscal 1995. During the first six months of fiscal 1995,
NordicTrack's direct response sales increased by $12.5 million to $158.8
million, or 8.5%, over the first six months of fiscal 1994. The increase in
retail sales at Nordic Advantage was due primarily to the opening of new
stores. Nordic Advantage operated 108 stores at the end of the second quarter
of fiscal 1995 compared to 70 stores at the end of the second quarter of fiscal
1994.
11
<PAGE> 12
The Nature Company segment includes The Nature Company, Smith & Hawken and two
early stage retail concepts, Hear Music and Scientific Revolution. During the
second quarter of fiscal 1995, The Nature Company segment's sales increased by
$3.1 million to $90.6 million, or 3.5%, over the second quarter of fiscal 1994.
The Nature Company segment's retail sales increased by $3.4 million, or 4.9%,
to $72.6 million compared to $69.2 million during the second quarter of fiscal
1994. The Nature Company segment's comparable store sales decreased 2.0%
during the second quarter of fiscal 1995. At the end of the second quarter of
fiscal 1995, The Nature Company segment operated 143 stores compared to 130
stores at the end of the second quarter of fiscal 1994. During the second
quarter of fiscal 1995, The Nature Company segment's mail order sales decreased
by $0.3 million to $18.0 million compared to $18.3 million during the second
quarter of fiscal 1994.
During the first six months of fiscal 1995, The Nature Company segment's sales
increased by $5.8 million to $128.5 million, or 4.7%, over the first six months
of fiscal 1994. The Nature Company segment's retail sales increased by $5.2
million, or 5.4%, to $101.9 million compared to $96.7 million in the first six
months of fiscal 1994. The Nature Company segment's comparable store sales
decreased 3.7% during the first six months of fiscal 1995. During the first
six months of fiscal 1995, The Nature Company segment's mail order sales
increased by $0.6 million to $26.6 million compared to $26.0 million during the
first six months of fiscal 1995
During the second quarter of fiscal 1995, Britches' sales increased by $5.8
million, or 13.6%, to $48.4 million compared to $42.6 million during the second
quarter of fiscal 1994. Sales of the company's casual men's clothing division,
Britches Great Outdoors, increased by $5.7 million, or 16.6%, during the second
quarter of fiscal 1995 to $40.1 million compared to $34.4 million during the
second quarter of fiscal 1994. Sales of the company's professional men's
clothing division, Britches of Georgetowne, increased by $0.1 million, or 1.2%,
during the second quarter of fiscal 1995 to $8.3 million compared to the second
quarter of fiscal 1994. Overall, Britches' comparable store sales decreased
4.1% during the second quarter of fiscal 1995. At the end of the second quarter
of fiscal 1995, Britches operated 98 and 14 Great Outdoors and Britches of
Georgetowne stores, respectively, compared to 71 and 14 Great Outdoors and
Britches of Georgetowne stores, respectively, at the end of the second quarter
of fiscal 1994.
During the first six months of fiscal 1995, Britches' sales increased $8.8
million, or 12.7%, to $78.3 million compared to $69.5 million during the first
six months of fiscal 1994. Sales of Britches Great Outdoors increased by $9.0
million to $64.0 million, or 16.4%, and sales of Britches of Georgetowne
decreased by $0.2 million to $14.3 million, or 1.4%, compared to the first six
months of fiscal 1994. Overall, Britches' comparable store sales decreased
6.3% during the first six months of fiscal 1995.
The Company does not own any securities covered by Statement of Financial
Accounting Standards ("SFAS") No. 115. Adoption of SFAS No. 119 would not have
a material effect on the Company's consolidated financial statements.
12
<PAGE> 13
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 October 1992, The Nature Company filed a lawsuit against Natural
Wonders, Inc. in the United States District Court for the Northern
District of California which seeks both damages and injunctive relief
to remedy alleged false representations, intellectual property
infringement and unfair competition by Natural Wonders. In November
1992, Natural Wonders responded by filing counterclaims against The
Nature Company alleging unfair competition, interference with Natural
Wonders' contractual relations and prospective business advantage in
violation of state and federal antitrust laws, and seeking damages
treble the amount to be proved at trial. The Nature Company is
vigorously opposing the counterclaim. This lawsuit is still in the
discovery stage and, while the Company believes that it will prevail,
no assurance can be given of a favorable outcome. The Company
believes that an unfavorable outcome would not have a material
adverse effect on the Company's financial condition but could
adversely affect the operating results for the period or periods in
which such outcome occurs.
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 alleges 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. The
Company believes the complaint is without merit and intends to
vigorously contest the lawsuit. On December 19, 1994, the Company
filed a motion to dismiss this lawsuit, which motion is currently
pending before the Court.
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.
13
<PAGE> 14
Items 2-3: None.
Item 4: Submission of Matters to a Vote of Security Holders:
The Company held its Annual Meeting of Stockholders on
December 1, 1994. At this meeting the stockholders of the Company
elected Charles M. Leighton as a Class A Director (by votes of
44,707,514 shares of Common Stock in favor and 326,412 shares of
Common Stock withheld), Thomas H. Lenagh as a Class A Director
(by votes of 44,696,987 shares of Common Stock in favor and 336,939
shares of Common Stock withheld) and Ralph F. Verni as a Class A
Director (by votes of 44,717,408 shares of Common Stock in favor
and 316,518 shares of Common Stock withheld). Each of Messrs.
Leighton, Lenagh and Verni is to serve for a term of three years.
The other directors of the Company whose terms of office as
directors continued after the meeting are Howard H. Callaway, Homer
L. Luther, Jr., Dr. Roy W. Menninger, G. Robert Tod and Alison
Taunton-Rigby.
At the Annual Meeting, stockholders holding 44,711,040 shares of
Common Stock voted to ratify the appointment of Deloitte & Touche
LLP as the Company's independent auditors for the 1995 fiscal year.
Stockholders holding 163,854 shares of Common Stock voted against
such ratification and stockholders holding 159,032 shares of Common
Stock abstained. No "broker non-votes" were recorded at the Annual
Meeting of Stockholders.
Item 5: Other Information:
None.
Item 6: Exhibits and Reports on Form 8-K.
(a) Exhibits - See Exhibit Index.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K, dated
November 4, 1994, announcing the filing of a class action
lawsuit in the United States District Court for the District of
Massachusetts aginst the Company and Charles M. Leighton and
G. Robert Tod, the Chairman and President of the Company,
respectively.
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: March 14, 1995 /s/Glenn E. Davis
-------------------- -----------------
Glenn E. Davis
Vice President and Controller
(Principal Accounting Officer)
14
<PAGE> 15
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C> <C>
11 -- Statement Regarding Computation of Earnings Per Share 16
27 -- Financial Data Schedule 17
</TABLE>
15
<PAGE> 1
<TABLE>
Exhibit 11
----------
CML GROUP, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Second Quarter Six Months
-------------- ----------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary earnings per share:
Weighted average number of shares
outstanding:
Common 49,870,036 50,608,727 49,928,177 50,601,622
Shares deemed outstanding from the
assumed exercise of stock options
and from deferred compensation
awards 810,197 1,219,259 814,829 1,293,658
----------- ----------- ----------- -----------
Total 50,680,233 51,827,986 50,743,006 51,895,280
=========== =========== =========== ===========
Net income $41,678,000 $38,302,000 $42,559,000 $45,443,000
=========== =========== =========== ===========
Primary earnings per share $ 0.82 $ 0.74 $ 0.84 $ 0.88
=========== =========== =========== ===========
Fully diluted earnings per share:
Weighted average number of shares
outstanding, as above 50,680,233 51,827,986 50,743,006 51,895,280
Shares deemed outstanding from the
assumed conversion of convertible
subordinated debentures 2,110,453 2,218,649 2,164,551 2,218,649
Additional shares deemed outstanding
from the assumed exercise of
stock options 7,926 -- 3,963 113,314
----------- ----------- ----------- -----------
Total 52,798,612 54,046,635 52,911,520 54,227,243
=========== =========== =========== ===========
Additional income from the elimination of
the interest cost of the convertible subord-
inated debentures, net of income tax effect $ 510,000 $ 512,000 $ 1,031,000 $ 1,026,000
Fully diluted earnings per share $ 0.80 $ 0.72 $ 0.82 $ 0.86
=========== =========== =========== ===========
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS OF CML GROUP, INC. FOR THE SIX
MONTHS ENDED JANUARY 28, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1995
<PERIOD-START> AUG-01-1994
<PERIOD-END> JAN-28-1995
<EXCHANGE-RATE> 1
<CASH> 56,206,000
<SECURITIES> 0
<RECEIVABLES> 75,219,000
<ALLOWANCES> 3,082,000
<INVENTORY> 81,945,000
<CURRENT-ASSETS> 250,345,000
<PP&E> 229,209,000
<DEPRECIATION> 77,950,000
<TOTAL-ASSETS> 455,281,000
<CURRENT-LIABILITIES> 120,231,000
<BONDS> 49,936,000
<COMMON> 5,193,000
0
0
<OTHER-SE> 283,397,000
<TOTAL-LIABILITY-AND-EQUITY> 455,281,000
<SALES> 486,438,000
<TOTAL-REVENUES> 486,438,000
<CGS> 189,280,000
<TOTAL-COSTS> 189,280,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,495,000
<INTEREST-EXPENSE> 1,613,000
<INCOME-PRETAX> 66,830,000
<INCOME-TAX> 25,396,000
<INCOME-CONTINUING> 41,434,000
<DISCONTINUED> 0
<EXTRAORDINARY> 1,125,000
<CHANGES> 0
<NET-INCOME> 42,559,000
<EPS-PRIMARY> .84
<EPS-DILUTED> .82
</TABLE>
