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
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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
2
CML GROUP, INC. AND SUBSIDIARIES
--------------------------------
Form 10-Q
Index
-----
Page
----
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
2
3
Part I: FINANCIAL INFORMATION
Item 1. Financial Statements
--------------------
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
ASSETS
October 28, 1995 July 31, 1995
---------------- -------------
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
============ ============
See Notes to Consolidated Condensed Financial Statements.
3
4
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Balance Sheets
-------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
October 28, 1995 July 31, 1995
---------------- -------------
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
============ ============
See Notes to Consolidated Condensed Financial Statements.
4
5
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Operations
-----------------------------------------------
For the periods ended October 28, 1995
and October 29, 1994
Three Months
--------------------------
1995 1994
------------- ------------
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
See Notes to Consolidated Condensed Financial Statements.
5
6
CML GROUP, INC. & SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
-----------------------------------------------
For the Three Months
---------------------------------
October 28, 1995 October 29, 1994
---------------- ----------------
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
============ ============
See Notes to Consolidated Condensed Financial Statements.
6
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.
Note 2 - Long-term Debt
- -----------------------
Consolidated long-term debt is summarized as follows:
October 28, 1995 July 31, 1995
---------------- -------------
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
=========== ===========
Note 3 - Contingencies
- ----------------------
Litigation
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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
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
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
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
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.
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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 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
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
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EXHIBIT INDEX
Page No.
--------
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
14