-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S3gXbeuX3bj8OzouK1d4FsP9ycU3eFDsXQYYNFGfbLlDiYFPD6GWBh3IL7seYuWF S/3eCLWaInEavKByFCzHHQ== 0000025793-98-000005.txt : 19980814 0000025793-98-000005.hdr.sgml : 19980814 ACCESSION NUMBER: 0000025793-98-000005 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19980813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROSS A T CO CENTRAL INDEX KEY: 0000025793 STANDARD INDUSTRIAL CLASSIFICATION: PENS, PENCILS & OTHER ARTISTS' MATERIALS [3950] IRS NUMBER: 050126220 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06720 FILM NUMBER: 98684973 BUSINESS ADDRESS: STREET 1: ONE ALBION RD CITY: LINCOLN STATE: RI ZIP: 02865 BUSINESS PHONE: 4013331200 MAIL ADDRESS: STREET 1: ONE ALBION ROAD STREET 2: 50 KENNEDY PLAZA CITY: LINCOLN STATE: RI ZIP: 02865 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 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 June 30, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from __________ to __________ Commission File No. 1-6720 A. T. CROSS COMPANY (Exact name of registrant as specified in its charter) Rhode Island 05-0126220 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One Albion Road, Lincoln, Rhode Island 02865 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (401) 333-1200 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, and (2) has been subject to such filing requirements for the past 90 days. Yes X No______ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of June 30, 1998: Class A common stock - 14,721,394 shares Class B common stock - 1,804,800 shares PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30 December 31 1998 1997 (Unaudited) ASSETS (Thousands of Dollars) CURRENT ASSETS Cash and Cash Equivalents $ 27,607 $ 25,801 Short-Term Investments 21,570 21,607 Accounts Receivable 20,977 37,571 Inventories: Finished Goods 9,768 7,767 Work in Process 8,305 5,647 Raw Material 8,773 6,625 26,846 20,039 Other Current Assets 7,494 4,761 TOTAL CURRENT ASSETS 104,494 109,779 PROPERTY, PLANT AND EQUIPMENT 112,063 109,344 Less Allowances for Depreciation 73,376 69,588 38,687 39,756 INTANGIBLES AND OTHER ASSETS 9,312 8,484 $152,493 $158,019 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable, Accrued Expenses and Other Liabilities $ 17,985 $ 25,388 Note Payable to Bank 3,000 0 Compensation and Related Taxes 3,366 3,328 Cash Dividends Payable 0 1,320 Contributions Payable to Employee Benefit Plans 10,038 9,228 TOTAL CURRENT LIABILITIES 34,389 39,264 ACCRUED WARRANTY COSTS 5,971 5,821 SHAREHOLDERS' EQUITY Common Stock, Par Value $1 Per Share: Class A, Authorized 40,000,000 Shares; 15,321,562 Shares Issued and 14,721,394 Shares Outstanding at June 30, 1998 and 15,294,652 Shares Issued and 14,696,272 Shares Outstanding at December 31, 1997 15,322 15,295 Class B, Authorized 4,000,000 Shares; 1,804,800 Shares Issued and Outstanding at June 30, 1998 and December 31, 1997 1,805 1,805 Additional Paid-In Capital 12,219 11,959 Retained Earnings 92,516 93,503 Accumulated Other Comprehensive Loss (777) (703) 121,085 121,859 Treasury Stock, at Cost (8,952) (8,925) TOTAL SHAREHOLDERS' EQUITY 112,133 112,934 $152,493 $158,019 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1998 1997 1998 1997 (Thousands of Dollars Except per Share Data) Net Sales $34,693 $31,124 $66,218 $64,812 Cost of Goods Sold 17,757 17,136 34,887 34,365 Gross Profit 16,936 13,988 31,331 30,447 Selling, General and Administrative Expenses 15,701 16,629 30,824 30,594 Research and Development Expenses 1,220 820 2,226 1,762 Service and Distribution Costs 856 942 1,628 1,794 Operating Loss (841) (4,403) (3,347) (3,703) Interest and Other Income 856 444 1,411 883 Income(Loss)from Continuing Operations Before Income Taxes 15 (3,959) (1,936) (2,820) Income Taxes (Benefit) 4 (1,386) (620) (987) Income(Loss)from Continuing Operations 11 (2,573) (1,316) (1,833) Income(Loss) from Discontinued Operations (Net of Income Taxes) 1,653 (2,387) 1,653 (2,321) Net Income(Loss) $ 1,664 $(4,960) $ 337 $(4,154) Basic and Diluted Earnings (Loss) Per Share: Continuing Operations $ 0.00 $ (0.16) $ (0.08) $ (0.11) Discontinued Operations 0.10 (0.14) 0.10 (0.14) Net Income(Loss) Per Share $ 0.10 $ (0.30) $ 0.02 $ (0.25) Weighted Average Shares Outstanding: Denominator for Basic Earnings Per Share 16,523 16,495 16,515 16,495 Effect of Dilutive Securities: Employee Stock Options 119 - (A) - (A) - (A) Denominator for Diluted Earnings Per Share 16,642 16,495 16,515 16,495 Dividends Declared Per Share $ 0.08 $ 0.16 $ 0.08 $ 0.16 (A) No incremental shares related to stock options are included due to the loss from continuing operations. See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) SIX MONTHS ENDED JUNE 30 1998 1997 (Thousands of Dollars) Cash Provided By (Used In): Operating Activities: Net Cash Provided by Continuing Operations $ 1,774 $ 17,860 Net Cash Provided by Discontinued Operations 2,288 2,489 Net Cash Provided By Operating Activities 4,062 20,349 Investing Activities: Additions to Property, Plant and Equipment (2,825) (4,081) Purchase of Short-Term Investments (11,787) (1,505) Sale or Maturity of Short-Term Investments 11,824 1,120 Net Cash Used In Investing Activities (2,788) (4,466) Financing Activities: Cash Dividends Paid (2,643) (5,278) Repayment of Bank Borrowings 0 (6,000) Proceeds from Bank Borrowings 3,000 2,300 Other 261 45 Net Cash Provided by (Used In) Financing Activities 618 (8,933) Effect of Exchange Rate Changes on Cash and Cash Equivalents (86) (343) Increase in Cash and Cash Equivalents 1,806 6,607 Cash and Cash Equivalents at Beginning of Period 25,801 14,767 Cash and Cash Equivalents at End of Period $ 27,607 $ 21,374 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1998 NOTE A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the six months ended June 30, 1998, are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. The Company typically records its highest sales and earnings in the fourth quarter. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. NOTE B - Discontinued Operations In June 1997, the Company discontinued the distribution of quality leather goods and accessory products of its Manetti-Farrow, Inc. subsidiary. The Company recorded an after-tax loss of $2,387,000, or $0.14 per share, in the 1997 second quarter and an after tax loss $2,321,000, or $0.14 per share, for the six month period ended June 30, 1997. In the second quarter of 1998, the Company recorded after-tax income from discontinued operations of $1,653,000, or $0.10 per share. The Company reached a settlement with the U.S. Customs service regarding a claim filed on the amount of duty charged in prior years on the importation of certain products by its now discontinued Manetti-Farrow, Inc. subsidiary. After taxes and after expenses the settlement was approximately $1,116,000. In addition, the Company recorded after-tax income of approximately $537,000 in the quarter in connection with the final liquidation and disposition of Manetti-Farrow's remaining net assets. NOTE C - Comprehensive Income The Company adopted Statement of Financial Accounting Standards ("SFAS") No.130, "Reporting Comprehensive Income" in the first quarter of 1998. SFAS No.130 requires the reporting of comprehensive income which, in the case of the Company, is the combination of reported net income and the change in the cumulative translation adjustment which is a component of shareholders' equity. SFAS No.130 has no impact on the Company's reported net income. Comprehensive income for the second quarter and six months ended June 30, 1998 and 1997 follows: THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1998 1997 1998 1997 Net Income (Loss) $ 1,664 $(4,960) $ 337 $(4,154) Change in Cumulative Translation Adjustment (38) 169 (74) (305) Comprehensive Income (Loss) $ 1,626 $(4,791) $ 263 $(4,459) NOTE D - New Accounting Pronouncements The FASB has recently issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This SFAS will become effective for the Company for the year ending December 31, 2000. The Company is currently evaluating the impact that implementing this SFAS will have in its financial statements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Results of Operations Second Quarter 1998 Compared to Second Quarter 1997 Net sales for the second quarter ended June 30, 1998 increased 11.5% compared to the second quarter of 1997. Total writing instrument net sales for the quarter of $28.5 million were down 8.1% from the prior year. Domestic writing instrument net sales of $14.8 million were 6.7% lower than the prior year while foreign writing instrument net sales of $13.7 million declined 9.6% as compared to second quarter of 1997. Sales by the Pen Computing Group (PCG) during the second quarter of 1998 were $6.0 million compared to sales of $68,000 in 1997, the year in which PCG introduced its first products. Cross Timepiece revenues were $133,000 in the quarter as compared to $20,000 for the same period last year. Domestic writing instrument sales continue to be affected by changes in distribution methods, away from the mass market and catalog showroom channels to the growing office supply superstore accounts. The Company believes that demand for all quality writing instruments in the United States is flat. In the continuing effort to stimulate sales growth in the United States during the second half of the year, the Company will be launching 31 new writing instrument products in a variety of new styles and finishes. International sales continue to be adversely impacted by the deepening economic crisis in Asia and the Far East. Sales to Asian and Far East markets were down approximately 47% in the second quarter of 1998 as compared to the same quarter of 1997. Somewhat offsetting these declines were improved sales to Europe, the Middle East/Africa, Latin America and Canada. The second quarter of 1998 was the first full quarter of sales of the PCG division's newest product, CrossPad. CrossPad, a personal digital notepad, was developed jointly with IBM and was first shipped in late March. It is currently available only in the United States in approximately 2,300 locations, where it is being supported by an extensive advertising and promotional campaign. Sales of PCG products, which in addition to CrossPad primarily consist of iPenPro and DigitalWriter Duo, were $6.0 million in the second quarter and represented almost 29% of total domestic revenue for the period. Gross profit margins of 48.8% for the second quarter of 1998 were up 3.9 percentage points as compared to the second quarter of 1997. Total Company margins have improved as a result of higher writing instrument margins, primarily as a result of the cost reduction programs put in place during last year and the first six months of 1998. The writing instrument gross margin improvements were offset somewhat by lower PCG and Timepiece margins as these products, on average, generate lower margins than writing instruments. Included in the second quarter's cost of sales are royalty expenses related to PCG sales. These royalties are paid to suppliers of certain software and hardware components for both the iPen and CrossPad. Selling, general and administrative expenses (SG&A) for the second quarter of 1998 were $15.7 million, or 5.6% below the same 1997 period. Included in the quarter's results were PCG and Timepiece SG&A expenses of $3.0 million and $400,000, respectively. Writing Instrument SG&A for the quarter was 24.3% lower than the second quarter of 1997, partially as a result of the Company's strict cost control programs that are in effect. Research and development expenses (R&D) of $1.2 million were 48.8% higher than 1997, due almost entirely to the increased R&D expenditures on new product development by the PCG division. Due to the extensive product development and marketing support expenses required in 1998, it is expected that the Pen Computing Group will not be profitable in 1998. Interest and other income were higher in the second quarter of 1998 in part due to higher interest income as average investable funds and interest rates were higher. For a discussion of the Company's effective tax rate see Results of Operations Six Months Ended June 30, 1998. Results of Operations Six Months Ended June 30, 1998 Compared to June 30, 1997 Net sales for the six months ended June 30, 1998 were $66.2 million, or 2.2% higher than the same period in 1997. Total writing instruments net sales of $57.2 million were 11.6% lower than last year. Domestic writing instrument net sales of $28.8 million for the six months were down 5.7% versus the comparable period last year and foreign writing instrument net sales of $28.4 million were down 16.8% from 1997. Sales of PCG products were $8.7 million through June 1998 as compared to June 1997 revenue of $117,000. Sales of Cross Timepieces in the two U.S. test markets were $300,000 through the June 1998 period versus sales of $20,000 during the same period last year. Domestic writing instrument net sales remained below last year's levels. Sales through the mass market catalog showroom and carriage trade channels declined sharply from the prior year, offset somewhat as sales to the high volume office supply accounts were up substantially over the same period last year Internationally, year to date sales to the Company's Asian and the Far East markets declined from the prior year by 51.5% as the economic and fiscal conditions in these markets continue to deteriorate. Although disappointed with the current sales results, the Company is committed to the region and is in the process of establishing two new branch offices, one in Hong Kong and the other in Taiwan. These new branches, along with our established Japanese subsidiary, are intended to position the Company to take advantage of an eventual recovery in this region. Partially offsetting the declines in Asia were sales increases in Canada, Latin America, Europe and the Middle East/Africa. Gross profit margins for the first six months of 1998 were 47.3%, up 0.3 percentage points from the same period in 1997. Total Company margins have improved as a result of higher writing instrument margins, primarily as a result of the cost reduction programs put in place during last year and the first six months of 1998. The writing instrument gross margin improvements were offset somewhat by lower PCG and Timepiece margins as these products, on average, generate lower margins than writing instruments. Included in cost of sales are royalty expenses related to PCG sales. These royalties are paid to suppliers of certain software and hardware components for both the iPen and CrossPad. Selling, general and administrative expenses for the six months ended June 30, 1998 were 0.8% higher than the same period for 1997. SG&A expenses through June 1998 included $4.4 million and $800,000 for PCG and Timepieces, respectively. SG&A for writing instruments was 14.9% lower than 1997. Research and development expenses of $2.2 million were up from last year by 26.3%. Excluding PCG's R&D expenses of $1.3 million, writing instrument R&D was below 1997 levels by 11.3%. Service and distribution costs were below 1997 by 9.3% due largely to the lower writing instrument sales levels. Interest and other income increased 59.8% for the first six months of 1998, due in part to higher interest income. The Company recorded an income tax benefit of 32% on the loss from continuing operations for the six months ended June 30, 1998, as compared to the June 30, 1997 income tax benefit of 35%. Liquidity and Sources of Capital Cash, cash equivalents and short-term investments (i.e., "cash") increased $1.8 million from December 31, 1997 to $49.2 million at June 30, 1998. Cash available for domestic operations approximated $4.0 million while cash held off-shore approximated $45.2 million at June 30, 1998. Accounts receivable decreased since the end of 1997 by $16.6 million to $21.0 million primarily due to cash that was collected in January 1998 from customers who took advantage of the Company's 1997 extended dating program that allowed domestic customers to defer payments on certain 1997 purchases. This program was similar to extended dating programs that have been offered in past years. The Company has a $50 million line of credit available with a bank which provides an additional source of working capital on a short-term basis. At June 30, 1998 there was $3.0 million outstanding under this line. The Company believes that its current level of working capital, along with the funds available from the line of credit, will be sufficient to meet the Company's normal operating needs. Inventory of $26.8 million increased $6.8 million since December 31, 1997. The inventory increase in the first six months of 1998 was due largely to higher levels of pen computing and timepiece inventory. New Accounting Pronouncement The FASB has recently issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." This SFAS will become effective for the Company for the year ending December 31, 2000. The Company is currently evaluating the impact that implementing this SFAS will have in its financial statements. Year 2000 Compliance The Company will be required to modify significant portions of its software so that it will function properly in the year 2000. A substantial number of software programs have already been so modified and others are being updated on a routine ongoing basis. The Company is utilizing both internal and external resources to identify, correct and test the systems for year 2000 compliance. It is anticipated that all modifications will be completed by December 31, 1999, including the testing of the modified systems. This process also includes sending written correspondence to the Company's primary vendors and key customers to inquire about plans that are being developed or are already in place to address year 2000 compliance. There can be no assurances, however, that the systems of the Company's primary vendors and key customers will also be converted in a timely manner or that any such failure to convert by another company would not have an adverse material effect on the Company's systems. For further information refer to the footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1997. Forward Looking Statements Statements contained in this Form 10-Q that are not historical facts are forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, use of words such as "believes," "anticipates," "expects" and similar expressions are intended to identify forward-looking statements. The Company cautions that a number of important factors could cause actual results for 1998 and beyond to differ materially from those expressed in any forward-looking statements made by or on behalf of the Company. Such statements contain a number of risks and uncertainties, including, but not limited to, risks associated with consumer acceptance of the Company's new product lines, the successful development and performance of new technology in connection with such new products, the Company's dependence on certain suppliers, the Company's sensitivity to technological change and economic conditions, the Company's other strategic initiatives, and customer and consumer support for such initiatives and changes. See the Company's Form 10-K for a more detailed discussion of certain of these factors. The Company cannot assure that it will be able to anticipate or respond timely to changes which could adversely affect its operating results in one or more fiscal quarters. Results of operations in any past period should not be considered indicative of results to be expected in future periods. Fluctuations in operating results may result in fluctuations in the price of the Company's common stock. ITEM 3. QUANTITATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting on April 23, 1998 at its corporate headquarters in Lincoln, Rhode Island. The following are the matters submitted to a vote of the shareholders: a. Number of Directors The proposition to fix the total number of directors at nine, of which three shall be Class A directors and six shall be Class B directors. Approved by the vote of 11,978,494 Class A shares in favor, 561,043 against, 28,037 abstaining, and by the vote of 1,804,800 Class B shares in favor and none against. b. Election of Directors The following directors were elected by the Class A shareholders: For Withheld Terrence Murray 12,333,908 233,666 James C. Tappan 12,340,221 227,353 Andries van Dam 12,338,357 229,217 The following directors were elected by the unanimous vote of 1,804,800 Class B shares: Bradford R. Boss Russell A. Boss John E. Buckley Bernard V. Buonanno, Jr. H. Frederick Krimendahl II Edwin G. Torrance c. Appointment of Independent Auditors A proposal to ratify the appointment of Deloitte & Touche LLP as independent auditors for the Company for the year ending December 31, 1998 was approved by the unanimous vote of 1,804,800 Class B shares. d. Omnibus Incentive Plan A proposal to approve the adoption of the Company's Omnibus Incentive Plan as presented to the shareholders in the proxy was approved by the vote of 9,553,587 Class A shares in favor, 2,965,611 against and 48,376 abstaining, and by the vote of 1,804,800 Class B shares in favor and none against. ITEM 6. Exhibits and Reports on Form 8-K a) Exhibits Exhibit 27 Financial Data Schedule b) Reports on Form 8-K There were no reports on Form 8-K filed during the period covered by this report. SIGNATURES Pursuant to the requirement 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. A. T. CROSS COMPANY Date: August 12, 1998 By: JOHN E. BUCKLEY John E. Buckley Executive Vice President Chief Operating Officer Date: August 12, 1998 By: JOHN T. RUGGIERI John T. Ruggieri Senior Vice President Chief Financial Officer EX-27 2
5 This schedule contains summary financial information extracted from financial statements included in A. T. Cross Company form 10-Q for the quarterly period ended June 30, 1998 and is qualified in its entirety by reference to such financial statements. 1000 6-MOS DEC-31-1997 JUN-30-1998 49,177 0 22,595 1,618 26,846 104,494 112,063 73,376 152,493 34,389 0 0 0 17,127 95,006 152,493 66,218 67,681 34,887 0 34,574 104 52 (1,936) (620) (1,316) 1,653 0 0 337 0.02 0.02
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