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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 29, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 0-12628
CML GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
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:
50,000,449 shares of common stock, $.10 par value, as of December 8, 1994.
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Page 1 of 16 Pages
Exhibit Index Begins at Page 14
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CML GROUP, INC. AND SUBSIDIARIES
Form 10-Q
Index
Page
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Part I: Financial Information
Item 1: Financial Statements
Consolidated Condensed Balance Sheets as of
October 29, 1994 and July 31, 1994 3-4
Consolidated Condensed Statements of Income
for the three-month periods ended
October 29, 1994 and October 30, 1993 5
Consolidated Condensed Statements of Cash
Flows for the three-month periods ended
October 29, 1994 and October 30, 1993 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
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Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
ASSETS
October 29, 1994 July 31, 1994
---------------- -------------
Current assets:
Cash and cash equivalents $ 7,395,000 $ 28,929,000
Accounts receivable 48,776,000 42,075,000
Prepaid income taxes 6,688,000 6,688,000
Inventories:
Raw materials 15,423,000 12,617,000
Work in process 5,253,000 3,552,000
Finished goods 91,827,000 64,564,000
------------ ------------
Total inventories 112,503,000 80,733,000
Other current assets 30,761,000 26,387,000
------------ ------------
Total current assets 206,123,000 184,812,000
------------ ------------
Property, plant and equipment, at cost:
Land and buildings 19,172,000 20,172,000
Machinery and equipment 82,626,000 79,228,000
Leasehold improvements 118,967,000 113,910,000
------------ ------------
220,765,000 213,310,000
Less accumulated depreciation 71,296,000 65,705,000
------------ ------------
149,469,000 147,605,000
------------ ------------
Goodwill 34,609,000 34,889,000
Other assets 17,587,000 17,357,000
------------ ------------
$407,788,000 $384,663,000
============ ============
See Notes to Consolidated Condensed Financial Statements.
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CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
LIABILITIES AND STOCKHOLDERS' EQUITY
October 29, 1994 July 31, 1994
---------------- -------------
Current liabilities:
Current portion of long-term debt $ 209,000 $ 226,000
Accounts payable 46,555,000 33,868,000
Accrued compensation 5,802,000 8,423,000
Accrued advertising 5,093,000 5,302,000
Accrued income taxes 3,168,000 483,000
Other accrued expenses 30,728,000 32,768,000
------------ ------------
Total current liabilities 91,555,000 81,070,000
------------ ------------
Noncurrent liabilities:
Long-term debt 13,651,000 1,292,000
Convertible subordinated debentures 57,500,000 57,500,000
Other noncurrent liabilities 25,930,000 25,564,000
------------ ------------
Total noncurrent liabilities 97,081,000 84,356,000
------------ ------------
Stockholders' equity:
Common stock par value $.10 per share
Authorized - 120,000,000 shares
Issued - 51,851,780 shares and 51,851,180
shares 5,185,000 5,185,000
Additional paid-in capital 78,770,000 78,736,000
Retained earnings 163,706,000 163,825,000
------------ ------------
247,661,000 247,746,000
Less treasury stock, at cost, 1,865,941 shares and
1,865,941 shares 28,509,000 28,509,000
------------ ------------
219,152,000 219,237,000
------------ ------------
$407,788,000 $384,663,000
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See Notes to Consolidated Condensed Financial Statements.
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CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Income
For the periods ended October 29, 1994
and October 30, 1993
Three Months
------------------------
1994 1993
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Net sales $159,070,000 $137,187,000
------------ ------------
Less costs and expenses:
Cost of goods sold 62,664,000 50,821,000
Selling, general and administrative expenses 94,082,000 73,992,000
Interest expense 879,000 668,000
------------ ------------
157,625,000 125,481,000
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Income before income taxes 1,445,000 11,706,000
Provision for income taxes 564,000 4,565,000
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Net income $ 881,000 $ 7,141,000
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Earnings per share:
Primary $ 0.02 $ 0.14
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Fully diluted $ 0.02 $ 0.14
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Weighted average number of shares outstanding 50,804,437 51,962,573
See Notes to Consolidated Condensed Financial Statements.
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CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
For the Three Months Ended
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October 29, 1994 October 30, 1993
---------------- ----------------
Cash flows from operating activities:
Net income $ 881,000 $ 7,141,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,122,000 5,353,000
Loss on disposal of property, plant and equipment 620,000 132,000
Increase in working capital items (32,343,000) (31,096,000)
(Increase) decrease in other assets (339,000) 202,000
Increase in other noncurrent liabilities 381,000 561,000
------------ ------------
Net cash used in operating activities (23,678,000) (17,707,000)
------------ ------------
Cash flows from investing activities:
Additions to property, plant and equipment (9,242,000) (17,835,000)
Reduction in notes receivable 10,000 234,000
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Net cash used in investing activities (9,232,000) (17,601,000)
------------ ------------
Cash flows from financing activities:
Increase (decrease) in long-term debt 12,342,000 (85,000)
Dividends paid (1,000,000) (1,012,000)
Exercise of stock options 34,000 205,000
Acquisition of treasury stock -- (3,081,000)
------------ ------------
Net cash provided by (used in) financing activities 11,376,000 (3,973,000)
------------ ------------
Net decrease in cash and cash equivalents during period (21,534,000) (39,281,000)
Cash and cash equivalents at beginning of period 28,929,000 64,010,000
------------ ------------
Cash and cash equivalents at end of period $ 7,395,000 $ 24,729,000
============ ============
See Notes to Consolidated Condensed Financial Statements.
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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 No. 115.
Certain 1994 amounts have been reclassified to conform to the 1995
presentation.
Note 2 - Long-term Debt
Consolidated long-term debt is summarized as follows:
October 29, 1994 July 31, 1994
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Revolving credit loan $12,400,000 $ -
Note payable 1,317,000 1,352,000
Obligations under capital leases 143,000 166,000
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13,860,000 1,518,000
Less current portion 209,000 226,000
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Long-term debt $13,651,000 $ 1,292,000
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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.
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 Nordic Track
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.
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The Company is involved in various other legal proceedings and claims which
have arisen in the ordinary course of business. Management believes the
outcome of such proceedings will not have a material adverse impact on the
Company's financial condition or results of operations.
Environmental Matters
On June 3, 1991, the Company received from the United States Environmental
Protection Agency ("EPA") a Special Notice Letter containing a formal demand on
the Company as a Potentially Responsible Party ("PRP") for reimbursement of the
costs incurred and expected to be incurred in response to environmental
problems at a so-called "Superfund" site in Conway, New Hampshire. The EPA
originally estimated the costs of remedial action and future maintenance and
monitoring programs at the site at about $7.3 million. The Superfund site
includes a vacant parcel of land owned by a subsidiary of the Company as well
as adjoining property owned by others. No manufacturing or other activities
involving hazardous substances have ever been conducted by the Company or its
affiliates on the Superfund site in Conway. The environmental problems
affecting the land resulted from activities by the owners ofthe adjoining
parcel. Representatives of the Company have engaged in discussions with the EPA
regarding responsibility for the environmental problems and the costs of
cleanup. The owners of the adjoining parcel are bankrupt. The EPA commenced
cleanup activities at the site in July 1992.
The EPA expended approximately $1.4 million for the removal phase of the
site cleanup, which has now been completed. The EPA had estimated that the
removal costs would exceed $3.0 million, but only a small portion of the solid
waste removed from the site was ultimately identified as hazardous waste.
Therefore, the EPA's actual response costs for the removal phase were less than
the EPA originally estimated. The EPA has begun to implement the
groundwater phase of the cleanup, which was originally estimated by the EPA to
cost approximately $4.0 million.
The Company believes that the EPA's estimated cost for cleanup, including the
proposed remedial actions, is excessive and involves unnecessary actions. In
addition, a portion of the proposed remedial cost involves cleanup of the
adjoining property that is not owned by the Company or any of its affiliates.
Therefore, the Company believes it is not responsible for that portion of the
cleanup costs. The Company has reserves and insurance coverage (from its
primary insurer) for environmental liabilities at the site in the amount of
approximately $2.3 million. The Company also believes that it is entitled to
additional insurance from its excess insurance carriers. However, if excess
liability coverage is not available to the Company and the ultimate liability
substantially exceeds the primary insurance amount and reserves, the liability
would have a material adverse effect upon the Company's operating results for
the period in which the resolution of the claim occurs, but would not have a
material adverse effect upon the Company's financial condition.
In June 1992, the EPA notified a former subsidiary of the Company that it may
be liable for the release of hazardous substances at a hazardous waste
treatment and storage facility in Southington, Connecticut. The EPA has
calculated the subsidiary's volumetric contribution at less than two tenths of
one percent. The EPA has not completed its Remedial Investigation/Feasibility
Study. Because an overall cleanup remedy has not yet been selected, an
accurate estimate of cleanup costs, or the Company's share thereof, is not
currently available.
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Note 4 - Dividends
On October 5, 1994, the Company's Board of Directors declared a cash dividend
of $0.02 per share, payable December 15, 1994 to shareholders of record as of
November 29, 1994. On December 1, 1994, the Board of Directors declared a cash
dividend of $0.02 per share, payable March 16, 1995 to shareholders of record
as of March 1, 1995.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Financial Condition
Stockholders' equity at October 29, 1994 was unchanged from $219.2 million at
July 31, 1994. The Company's working capital increased to $114.6 million at
October 29, 1994 from $103.7 million at July 31, 1994 primarily due to the
normal seasonal increase in inventories partially offset by a decrease in cash
and cash equivalents. During the first quarter of fiscal 1995, the Company
spent approximately $9.2 million on additions to property, plant and equipment.
The Company's long-term debt-to-equity ratio was 0.32 to 1 at October 29, 1994
compared to 0.27 to 1 at July 31, 1994. The Company's available cash decreased
from $28.9 million at July 31, 1994 to $7.4 million at October 29, 1994 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 $38.8 million at October
29, 1994 compared to $52.3 million at July 31, 1994.
Results of Operations
During the first quarter of fiscal 1995, net sales increased by $21.9 million
to $159.1 million, or 16.0%, over the first quarter of fiscal 1994, while net
income decreased to $0.9 million as compared to $7.1 million in the first
quarter of fiscal 1994. The decrease in net income is primarily due to increases
in cost of goods sold and selling, general and administrative expenses.
Total retail store sales increased by $14.4 million to $91.9 million, or 18.6%,
over the first quarter of fiscal 1994 primarily due to the addition of new
Nature Company, Smith & Hawken, Britches Great Outdoors and Nordic Advantage
stores. During the first quarter of fiscal 1995, comparable store sales
decreased by 10.9%. Direct response and mail order sales increased by $7.5
million to $67.2 million, or 12.6%, over the first quarter of fiscal 1994
primarily due to higher direct response sales at NordicTrack and Smith &
Hawken.
Cost of goods sold increased from 37.0% of sales in the first quarter of fiscal
1994 to 39.4% of sales in the first quarter of fiscal 1995 primarily due to
lower gross margins at NordicTrack, The Nature Company and Britches of
Georgetowne. Selling, general and administrative expenses increased from 53.9%
of sales in the first quarter of fiscal 1994 to 59.1% of sales in the first
quarter of fiscal 1995 primarily due to fixed costs at stores which
experienced a decrease in comparable store sales.
Interest expense was $0.9 million, or 0.6% of sales, in the first quarter of
fiscal 1995 compared to $0.7 million, or 0.5% of sales, in the first quarter of
fiscal 1994. The increase in interest expense was primarily due to interest
expense resulting from higher bank borrowings during the first quarter of
fiscal 1995.
The provision for income taxes as a percentage of pretax income was 39.0% in
the first quarter of fiscal 1995 and fiscal 1994, respectively.
During the first quarter of fiscal 1995, NordicTrack's total sales increased by
$16.2 million to $91.3 million, or 21.6%, over the first quarter of fiscal
1994. Nordic Advantage's retail sales increased from $23.2 million in the first
quarter of fiscal 1994 to $32.7 million in the first
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quarter of fiscal 1995 primarily due to the opening of new retail stores.
During the first quarter of fiscal 1995, Nordic Advantage opened 14 retail
stores and 63 seasonal mall kiosks and at the end of the quarter operated 102
retail stores and 83 seasonal mall kiosks. Nordic Advantage's comparable store
sales decreased 16.5% during first quarter of fiscal 1995. NordicTrack's
direct response sales increased $6.7 million during the first quarter of fiscal
1995 to $58.6 million, or 12.9%, over the first quarter of fiscal 1994.
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 1995, The Nature Company segment's sales increased by
$2.6 million to $37.9 million, or 7.4%, over the first quarter of fiscal 1994.
The Nature Company segment's retail sales increased by $1.9 million, or 6.9%,
to $29.4 million compared to $27.5 million in the first quarter of fiscal 1994
primarily due to the opening of new retail stores. During the first quarter of
fiscal 1995, The Nature Company segment opened 5 retail stores and at the end
of the quarter operated 138 retail stores. The Nature Company segment's
comparable store sales decreased 8.0% during the first quarter of fiscal 1995.
During the first quarter of fiscal 1995, The Nature Company segment's mail
order sales increased $0.7 million to $8.5 million, or 9.0%, over the first
quarter of fiscal 1994 due primarily to an increase in mail order sales at
Smith & Hawken.
Britches opened 10 new Britches Great Outdoors stores during the first quarter
of fiscal 1995 and at the end of the quarter operated 93 Britches Great
Outdoors stores and 14 Britches of Georgetowne stores. During the first
quarter of fiscal 1995, Britches' sales increased $3.0 million to $29.9
million, or 11.2%, primarily due to the opening of new stores. Overall,
comparable store sales decreased 9.8% during the first quarter of fiscal 1995.
Sales of the company's professional men's clothing division, Britches of
Georgetowne, decreased $0.3 million to $6.0 million, or 4.8% and sales of the
company's casual men's clothing division, Britches Great Outdoors, increased
$3.3 million to $23.9 million, or 16.0%.
The Company does not own any securities covered by Statement of Financial
Accounting Standards No. 115.
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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
Nordic Track 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.
The Company is involved in various other legal proceedings
which have arisen in the ordinary course of business. Management
believes the outcome of such proceedings will not have a material
adverse impact on the Company's financial condition or results of
operations.
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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.
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(Registrant)
Date: December 13,1994 /s/ Glenn E. Davis
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Glenn E. Davis
Vice President and Controller
Principal Accounting Officer
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EXHIBIT INDEX
Page No.
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11 -- Statement Regarding Computation of Earnings Per Share 15
27 -- Financial Data Schedule 16
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