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Proc-Type: 2001,MIC-CLEAR
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE For the quarterly period ended June 29, 2002 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 1-6720 A. T. CROSS COMPANY Rhode Island 05-0126220 One Albion Road, Lincoln, Rhode Island 02865 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 29, 2002: Class A common stock - 14,221,906 shares PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 29, 2002 December 29, 2001 (Unaudited) (In Thousands of Dollars) ASSETS CURRENT ASSETS Cash and Cash Equivalents $ 13,790 $ 12,651 Short-Term Investments 9,098 8,846 Accounts Receivable 19,047 27,924 Inventories: Finished Goods 7,178 6,143 Work in Process 5,934 5,051 Raw Materials 2,437 2,729 15,549 13,923 Deferred Income Taxes 5,303 5,281 Other Current Assets 4,525 4,064 TOTAL CURRENT ASSETS 67,312 72,689 PROPERTY, PLANT AND EQUIPMENT 124,638 121,568 Less Allowances for Depreciation 95,727 91,524 28,911 30,044 GOODWILL 3,944 3,944 DEFERRED INCOME TAXES 2,428 2,379 INTANGIBLES, NET 682 731 OTHER ASSETS 1,401 1,446 TOTAL ASSETS $ 104,678 $ 111,233 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable, Accrued Expenses and Other Liabilities $ 15,953 $ 17,238 Accrued Compensation and Related Taxes 3,005 4,352 Contributions Payable to Employee Benefit Plans 7,202 7,586 Restructuring Liabilities 1,571 2,173 Income Taxes Payable 0 622 TOTAL CURRENT LIABILITIES 27,731 31,971 ACCRUED WARRANTY COSTS 4,686 4,687 COMMITMENTS AND CONTINGENCIES (NOTE H) - - SHAREHOLDERS' EQUITY Common Stock, Par Value $1 Per Share: Class A, Authorized 40,000,000 Shares; 16,005,387 Shares Issued and 14,221,906 Shares Outstanding at June 29, 2002 and 15,967,549 Shares Issued and 14,657,868 Shares Outstanding at December 29, 2001 16,005 15,968 Class B, Authorized 4,000,000 Shares; 1,804,800 Shares Issued and Outstanding at June 29, 2002 and December 29, 2001 1,805 1,805 Additional Paid-In Capital 15,669 15,481 Unearned Stock-Based Compensation ( 39 ) ( 68 ) Retained Earnings 57,134 56,855 Accumulated Other Comprehensive Loss ( 1,271 ) ( 1,710 ) 89,303 88,331 Treasury Stock, at Cost ( 17,042 ) ( 13,756 ) TOTAL SHAREHOLDERS' EQUITY 72,261 74,575 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 104,678 $ 111,233 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001 (In Thousands, Except per Share Data) Net Sales $ 27,491 $ 27,332 $ 54,971 $ 57,524 Cost of Goods Sold 13,193 12,466 26,347 27,110 Gross Profit 14,298 14,866 28,624 30,414 Selling, General and Administrative Expenses 13,708 13,350 25,916 26,012 Research and Development Expenses 553 516 1,117 1,003 Service and Distribution Costs 862 699 1,580 1,244 Restructuring Charges 0 ( 40 ) ) Operating (Loss) Income ( 825 ) 341 11 2,227 Interest and Other 325 ( 5,727 ) 418 ( 5,353 ) (Loss) Income from Continuing Operations Before Income Taxes ( 500 ) ( 5,386 ) 429 ( 3,126 ) Income Tax (Benefit) Expense ( 175 ) ( 2,085 ) 150 ( 1,407 ) (Loss) Income from Continuing Operations ( 325 ) ( 3,301 ) 279 ( 1,719 ) Income from Discontinued Operations (Net of Income Taxes) 0 30 0 30 Net (Loss) Income $ ( 325 ) $ ( 3,271 ) $ 279 $ ( 1,689 ) Basic and Diluted (Loss) Earnings Per Share: Continuing Operations $( 0.02 ) $( 0.19 ) $ 0.02 $( 0.10 ) Discontinued Operations 0.00 0.00 0.00 0.00 Net (Loss) Income Per Share $( 0.02 ) $( 0.19 ) $ 0.02 $( 0.10 ) Weighted Average Shares Outstanding: Denominator for Basic Earnings (Loss) Per Share 16,028 16,753 16,129 16,768 Effect of Dilutive Securities: Common Stock Equivalents - ( A ) - ( A ) 239 - ( A ) Denominator for Diluted Earnings (Loss) Per Share 16,028 16,753 16,368 16,768 (A) No incremental shares related to options or restricted stock granted 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 Six Months Ended Ended June 29, 2002 June 30, 2001 (In Thousands of Dollars) Cash Provided by (Used in): Operating Activities: Net Cash Provided by (Used in) Continuing Operations $ 7,030 $ ( 3,236 ) Net Cash Provided by Discontinued Operations 0 30 Net Cash Provided by (Used in) Operating Activities 7,030 ( 3,206 ) Investing Activities: Additions to Property, Plant and Equipment ( 2,975 ) ( 3,177 ) Purchase of Short-Term Investments ( 5,909 ) ( 6,599 ) Sale or Maturity of Short-Term Investments 5,773 10,264 Net Cash (Used in) Provided by Investing Activities ( 3,111 ) 488 Financing Activities: Proceeds from Bank Borrowings 0 3,000 Repayment of Bank Borrowings 0 ( 1,000 ) Purchase of Treasury Stock ( 3,286 ) ( 683 ) Proceeds from Sale of Class A Common Stock 225 348 Net Cash (Used in) Provided by Financing Activities ( 3,061 ) 1,665 Effect of Exchange Rate Changes on Cash and Cash Equivalents 281 ( 347 ) Increase (Decrease) in Cash and Cash Equivalents 1,139 ( 1,400 ) Cash and Cash Equivalents at Beginning of Period 12,651 13,800 Cash and Cash Equivalents at End of Period $ 13,790 $ 12,400 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES NOTE A - Basis of Presentation NOTE B - Restructuring Charges There was no change in the estimated expenses related to the restructuring plan in 2002. The following is a tabular presentation of the restructuring liabilities: (In Thousands) Severance Professional & Related Fees Contractual Expenses & Other Obligations Total Balances at December 29, 2001 $ 947 $ 117 $ 1,109 $ 2,173 Foreign Exchange Effects ( 5 ) 0 ( 16 ) ( 21 ) Cash Payments ( 253 ) ( 63 ) 0 ( 316 ) Balances at March 30, 2002 689 54 1,093 1,836 Foreign Exchange Effects 26 0 151 177 Cash Payments ( 395 ) ( 47 ) 0 ( 442 ) Balances at June 29, 2002 $ 320 $ 7 $ 1,244 $ 1,571 NOTE C - Comprehensive Income (Loss) Three Months Three Months Six Months Six Months (In Thousands) Ended Ended Ended Ended June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001 Net (Loss) Income $ ( 325 ) $ ( 3,271 ) $ 279 $ ( 1,689 ) Other Comprehensive Income (Loss) (Net of Tax): Unrealized (Loss) Gain on Investment ( 17 ) 100 ( 11) 426 Foreign Currency Translation Adjustments 552 97 450 ( 308 ) Comprehensive Income (Loss) $ 210 $ ( 3,074 ) $ 718 $ ( 1,571 ) NOTE D - Segment Information NOTE E - Line of Credit NOTE F - New Accounting Pronouncements (In Thousands, Except per Share Amounts) Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 29, 2002 June 30, 2001 June 29, 2002 June 30, 2001 Reported Net (Loss) Income $ ( 325 ) $ ( 3,271 ) $ 279 $ ( 1,689 ) Add Goodwill Amortization 0 55 0 110 Adjusted Net (Loss) Income $ ( 325 ) $ ( 3,216 ) $ 279 $ ( 1,579 ) Reported Basic and Diluted (Loss) Earnings per Share $( 0.02 ) $( 0.19 ) $ 0.02 $( 0.10 ) Add Goodwill Amortization per Share 0.00 0.00 0.00 0.01 Adjusted Basic and Diluted (Loss) Earnings per Share $( 0.02 ) $( 0.19 ) $ 0.02 $( 0.09 ) Other intangibles consisted of the following: (In Thousands) June 29, 2002 December 29, 2001 Gross Other Gross Other Carrying Accumulated Intangibles, Carrying Accumulated Intangibles, Amount Amortization Net Amount Amortization Net Patents $ 1,934 $ 1,564 $ 370 $ 1,782 $ 1,489 $ 293 Trademarks 5,402 5,090 312 5,395 4,957 438 Other Intangibles $ 7,336 $ 6,654 $ 682 $ 7,177 $ 6,446 $ 731 The Company amortizes other intangibles over an average five-year life. Amortization expense was approximately $200,000 for the six months ended June 29, 2002 and June 30, 2001. The estimated future amortization expense for other intangibles remaining as of June 29, 2002 is as follows: (In Thousands) Remainder of 2002 $ 93 2003 222 2004 187 2005 115 2006 65 Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that opinion). SFAS No. 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions than were included under the previous standards. The adoption of SFAS No. 144 had no material effect on the Company's consolidated financ
ial position or results of operations. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 amends, among other things, the financial accounting and reporting for extinguishment of debt obligations and certain lease modifications. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002 with regard to extinguishment of debt obligations and is effective for transactions occurring after May 15, 2002 with regard to certain lease modifications. The remaining provisions are effective for financial statements issued on or after May 15, 2002. The adoption of SFAS No. 145 had no material effect on the Company's consolidated financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," and nullified EITF Issue No. 94-3. SFAS No.146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No 94-3 had recognized the liability at the commitment date to an exit plan. The Company is required to adopt the provisions of SFAS No. 146 effective for exit or disposal activities initiated after December 31, 2002. The Company is currently evaluating the impact of adoption of this statement. NOTE G - Stock Repurchase Plan NOTE H - Contingencies On June 30, 2000, the Company filed a Motion to Dismiss the action in the United States District Court in Rhode Island. The United States District Court for the District of Rhode Island granted the Company's Motion to Dismiss in June 2001. In July 2001, the Plaintiff filed an appeal with the First Circuit Court of Appeals. On March 20, 2002, the Court of Appeals for the First Circuit issued a judgment affirming the dismissal of all claims asserted against the W. Russell Boss Jr. Trust A, W. Russell Boss Jr. Trust B and W. Russell Boss Jr. Trust C and reversing the District Court's dismissal of the claims asserted against the Company and the named individual defendants. The Court of Appeals' ruling was limited to a finding that the plaintiff's complaint had satisfied the pleading requirements of the Private Securities Litigation Reform Act of 1995; the Court did not opine on the merits of plaintiff's claims. The Company maintains that the claims are without merit and continues to vigorously defend the litigation. In 1998, the Company received a Letter of Responsibility ("LOR") from the Rhode Island Department of Environmental Management ("DEM"). The LOR stated that analytical results indicated elevated levels of volatile organic compounds at several sites on the Company's property and requested that the Company conduct a site investigation to identify the source. The Company retained an environmental consulting firm to perform the site investigation and develop remedial action alternatives. The DEM has accepted these proposals and remediation activities began in 2001. In 2000, the Company was advised by its environmental consultants that elevated levels of certain contaminants were found in soil and groundwater at the Company's Irish facility. These conditions have been reported to the regulatory authorities in Ireland and additional investigation is ongoing. A proposed remediation program was developed and presented to the Irish Environmental Protection Agency ("EPA") in 2001. This program was approved by the Irish EPA in the second quarter of 2002 and implementation is ongoing. Results will be subject to Irish EPA approval. At June 29, 2002, there was approximately $900,000 in accrued expenses and other liabilities for these remediation programs. The Company is involved in various litigation and legal matters that have arisen in the ordinary course of business. To its knowledge, management believes that the ultimate resolution of any existing matter will not have a material adverse effect on the Company's consolidated financial results. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Second Quarter 2002 Compared to Second Quarter 2001 Net sales for the second quarter of 2002 were $27.5 million, an increase of 0.6%, as compared to the second quarter of 2001. Total Quality Writing Instrument ("QWI") sales for the quarter of $27.5 million increased 2.1% from the prior year. Domestic writing instrument sales of $14.9 million increased 11.8% as compared to the second quarter of 2001, while international writing instrument sales of $12.6 million decreased 7.3% as compared to the 2001 period. The Company significantly downsized the Pen Computing Group in 2001 and more closely aligned its efforts with the QWI research and development department. Therefore, effective for 2002, pen computing results are no longer reported as a separate segment. There was no significant pen computing activity in the second quarter of 2002. Pen computing segment revenue was $402,000 in the second quarter of 2001. The second quarter increase in domestic writing instrument sales was due to higher retail division sales and Original Equipment Manufacturer ("OEM") revenue. Retail sales were 11.2% higher than the second quarter of 2001, due primarily to increased sales to office supply mega-stores. OEM revenue, which consists of sales of non-Cross branded writing instruments, increased to $1.1 million in the quarter compared to $483,000 in the prior year period due to the addition of a new customer. Domestic corporate gift division sales decreased 1.4% in the quarter. The second quarter decrease in international writing instrument sales was the result of an 18.1% decrease in Asian markets and a 3.3% decrease in the Europe, Middle East and Africa ("EMEA") region. The decline in Asian revenue was generally due to adverse economic conditions, particularly Japan, affecting the region's corporate gift and duty free sales. The EMEA decrease was due to a slowdown in corporate gift business and the continued instability in Middle East markets. Sales in the international Americas, consisting of Canada and Latin America, increased by 1.8% compared to the second quarter of 2001. The gross profit margin for the second quarter of 2002 was 52.0%, 2.4 percentage points lower than the 54.4% margin for the comparable period last year. Writing instrument margins declined 3.9 percentage points to 52.0% due to the effect of product mix and relatively higher fixed manufacturing expenses. SG&A expenses for the second quarter of 2002 were 2.7% higher than the second quarter of 2001 due to increased marketing and selling support expenses. Marketing and selling support for writing instruments increased $1 million or 12.3% in the quarter due to the Company's decision to investment spend in this area, while all other SG&A decreased 12.4% due to continued cost reduction efforts. Research and development ("R&D") expenses were higher than the 2001 second quarter by $37,000 or 7.2%. Service and distribution ("S&D") expenses were higher than the 2001 second quarter by 23.3%. As a result of the closure of the Company's manufacturing and distribution facility in Ireland during 2001, all QWI products are now distributed entirely from the U.S. In the second quarter of 2002, interest and other was $325,000 of income as compared to $5.7 million of expense in the second quarter of 2001. Interest income was lower in the second quarter of 2002 as compared to the second quarter of 2001 as interest rates were substantially below the prior year level. In addition, there were unrealized gains on trading securities in the second quarter of 2002 of $166,000 compared to unrealized gains in the second quarter of 2001 of $4,000. Included in the second quarter of 2001 was a $5.9 million write down of the Company's investments in Digital Convergence Corporation Inc. ("DCCI") and NeoMedia. The Company recorded an income tax benefit of 35% on the loss from continuing operations in the second quarter of 2002, compared to a 38.7% benefit on the loss from continuing operations in the same period of 2001. Results of Operations Six Months Ended June 29, 2002 Compared to June 30, 2001 Net sales for the six month period ended June 29, 2002 were $55.0 million, a decrease of 4.4% as compared to the same period in 2001. Total QWI sales of $55.0 million decreased 1.8% over the prior year. Domestic writing instrument sales were $28.4 million for the first six months, 8.5% higher than the comparable period last year. International writing instrument sales of $26.6 million were 10.9% lower than the comparable period in 2001. Effective for 2002, pen computing results are no longer reported as a separate segment. For the six months ended June 29, 2002, there was no significant pen computing activity, while sales in the 2001 period were $1.5 million. The increase in domestic writing instrument sales was due primarily to retail division growth and additional OEM revenue. Sales by the retail division increased 4.7% for the first six months of 2002 as compared to the first six months of 2001. OEM revenue was $2.8 million for the six months ended June 29, 2002, compared to $881,000 in the comparable period of 2001 due to the addition of a new customer. Business gift sales declined by 6.5% in 2002 compared to 2001. International revenues decreased as a result of the lower sales in the Asia and EMEA markets. Asia revenue declined 18.5% for the six months ended June 29, 2002. This decline was due to the continuing adverse economic conditions in Asia, particularly in Japan, that are affecting the region's corporate gift and duty free sales. Excluding the impact of unfavorable exchange rates, Asian sales would have decreased by 14.8%. EMEA sales for the first six months of 2002 declined 8.9% as compared to the first six months of 2001. EMEA revenue has also been adversely affected by a decline in business gift sales. Excluding the effect of favorable exchange rates, EMEA sales would have decreased by 14.2%. Canada and Latin America sales were relatively flat as compared to 2001. The gross profit margin for the first six months of 2002 was 52.1%, 0.8 percentage points lower than the 52.9% gross margin reported for the comparable period last year. QWI gross margins were lower by 2.9 percentage points due to product mix as well as the effect of fixed manufacturing expenses on the lower sales volume. SG&A expenses for the first six months of 2002 were about even with the prior year. Marketing and selling support expenses for writing instruments increased 4.7% due to the Company's decision to investment spend in this area, while all other SG&A expenses were 7.7% lower due to continued cost reduction efforts. R&D expenses in the first six months of 2002 were higher than the same 2001 period by 11.4%. This was due to increased expenditures for the development of new QWI products. S&D expenses were 27.1% above the same period last year, as all distribution into the European markets is now from the U.S. instead of from Ireland. Interest and other for the first six months of 2002 was income of $418,000 as compared to expense of $5.4 million in 2001. Interest income was 42.1% lower than 2001, due primarily to lower interest rates. The 2001 expense was due almost entirely to activity relating to the Company's investments. In the second quarter of 2001, the Company recorded a loss of approximately $5.9 million, due to the decline in value of DCCI and NeoMedia. The Company recorded income tax expense of 35% on the income from continuing operations in the first six months of 2002, which is the Company's best estimate of the effective tax rate for the full year. The Company recorded an income tax benefit of 45% on the loss from continuing operations for the first six months of 2001. Liquidity and Sources of Capital Cash, cash equivalents and short-term investments ("STI") ("cash and STI") increased approximately $1.4 million from December 29, 2001 to $22.9 million at June 29, 2002. Cash and STI available for domestic operations approximated $4.8 million, while cash and STI held offshore approximated $18.1 million at June 29, 2002. In 1999, the Company determined that approximately $15 million in undistributed foreign earnings were no longer considered invested indefinitely and recorded a provision for deferred taxes of approximately $5.3 million. This represented the estimated tax associated with these undistributed earnings. As of June 29, 2002, approximately $9.4 million of these earnings had been repatriated to the U.S. At present, management continues to believe that the unremitted foreign earnings for which deferred taxes have not been provided will continue to be permanently invested in the growth of business outside of the U.S.; hence, no additional deferred taxes were recorded during the first six month
s of 2002. Accounts receivable decreased since the end of 2001 by approximately $8.9 million to $19.0 million, primarily due to cash collected in January 2002 from customers who took advantage of the Company's 2001 extended dating program. This program allowed domestic customers to defer payments on certain 2001 purchases to 2002. This program was similar to holiday season dating programs that have been offered in prior years. Included in other assets is the net book value of the Irish facility, approximately $1.0 million, which was closed as part of the Company's restructuring plan and is classified as an asset held for sale. A deposit and letter of intent have been received from a potential buyer of this property and negotiations are in progress. The Company currently has available a $25 million unsecured line of credit with a bank that provides an additional source of working capital on a short-term basis. At June 29, 2002 there was no amount outstanding under this line of credit, at June 30, 2001, there was $2.0 million outstanding. In the second quarter of 2002, $442,000 of restructuring charges were paid. Total cash payments to date through June 29, 2002, related to the restructuring plan, approximated $13.7 million. The total cash portion of the restructuring is expected to approximate $15.3 million. The Company expects that cash payments for restructuring will be substantially completed by the end of 2002. On April 26, 2001, the Company's Board of Directors authorized the repurchase of up to 10% of the Company's outstanding Class A common stock. The Company plans to purchase up to approximately 1.5 million shares of stock on the open market, from time to time, depending on market conditions. Repurchased shares will be held as treasury stock and will be available for general corporate purposes. In the second quarter of 2002, the Company repurchased 243,000 shares of stock for approximately $1.7 million. At June 29, 2002, the Company had repurchased 1,097,400 shares of stock for approximately $7.4 million under this plan. Subsequent to June 29, 2002, up to the date of this filing, the Company repurchased an additional 281,867 shares of stock for approximately $2,030,000. The Company believes that existing cash and funds from operations, supplemented, as appropriate, by the Company's short-term borrowing arrangements, will be adequate to finance its foreseeable operating and capital requirements, the remaining requirements of the restructuring plan and the stock repurchase plan. Should operating cash flows in 2002 not materialize as projected, the Company has a number of alternatives to ensure that it will have sufficient cash to meet its operating needs. These alternatives include implementation of strict cost controls on discretionary spending, delaying non-critical research and development and capital projects and delaying the completion of the stock repurchase plan. New Accounting Pronouncements Effective January 1, 2002, the Company adopted FASB SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Goodwill and certain intangible assets deemed to have indefinite lives will remain on the balance sheet and not be amortized. Goodwill will be tested for impairment annually or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, and write downs may be necessary. Testing goodwill impairment under SFAS No. 142 is a two-step process. The first step is a comparison of the reporting unit's fair value to its carrying amount. If the fair value exceeds the carrying value, no impairment would be recognized. If, however, the carrying value of the reporting unit exceeds the fair value, the goodwill may be impaired. This first step must be completed within six months of adoption. The second step of
SFAS No. 142, determining the amount of the impairment, if any, must be performed no later than December 28, 2002. The Company has performed the first step of testing goodwill for impairment and has determined that there is no impairment. At June 29, 2002, the carrying value of goodwill was approximately $3,944,000. Amortization of goodwill was $55,000 in the second quarter of 2001. Effective January 1, 2002, the Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," for the disposal of a segment of a business (as previously defined in that opinion). SFAS No. 144 requires that one accounting model be used for long-lived assets to be disposed of by sale, whether previously held and used or newly acquired, and broadens the presentation of discontinued operations to include more disposal transactions than were included under the previous standards. The adoption of SFAS No. 144 had no material effect on the Company's consolidated financial position or results of opera
tions. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." SFAS No. 145 amends, among other things, the financial accounting and reporting for extinguishment of debt obligations and certain lease modifications. The provisions of SFAS No. 145 are effective for fiscal years beginning after May 15, 2002 with regard to extinguishment of debt obligations and is effective for transactions occurring after May 15, 2002 with regard to certain lease modifications. The remaining provisions are effective for financial statements issued on or after May 15, 2002. The adoption of SFAS No. 145 had no material effect on the Company's consolidated financial position or results of operations. In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," and nullified EITF Issue No. 94-3. SFAS No.146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred, whereas EITF No 94-3 had recognized the liability at the commitment date to an exit plan. The Company is required to adopt the provisions of SFAS No. 146 effective for exit or disposal activities initiated after December 31, 2002. The Company is currently evaluating the impact of adoption of this statement. Forward-Looking Statements Statements contained in this Form 10-Q that are not historical fact are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 (including but not limited to the expected results of litigation, the anticipated benefits of strict cost controls and statements related to available working capital). In addition, use of words such as "believes," "anticipates," "expects," "will" and similar expressions are intended to identify forward-looking statements. The Company cautions that a number of important factors could cause actual results for fiscal 2002 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements contain a number of risks and uncertainties, including, but not limited to, risks associated with the uncertainty of the domestic and foreign economies, the inherent uncertainty of foreign markets, the uncertainty related to
litigation, consumer acceptance of the Company's new and existing product lines, the successful development and performance of new technology in connection with certain of such new products, 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 QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to the Company's annual report on Form 10-K for the twelve month period ended December 29, 2001 for a complete discussion of the Company's market risk. There have been no material changes to the market risk information included in the Company's 2001 annual report on Form 10-K. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On or about April 21, 2000, the Company, certain officers and directors of the Company and others were named as defendants in an action filed in the United States District Court for the District of Rhode Island. The suit, which is brought by a purchaser of the Company's Class A common stock, alleges that the defendants violated Federal securities laws by making material misstatements and omissions in the Company's public filings and statements relating to the Company's PCG business. The suit seeks class action status including all purchasers of the Company's Class A common stock between September 17, 1997 and April 22, 1999. The damages sought are unspecified. On June 30, 2000, the Company filed a Motion to Dismiss the action in the United States District Court in Rhode Island. The United States District Court for the District of Rhode Island granted the Company's Motion to Dismiss in June 2001. In July 2001, the Plaintiff filed an appeal with the First Circuit Court of Appeals. On March 20, 2002, the Court of Appeals for the First Circuit issued a judgment affirming the dismissal of all claims asserted against the W. Russell Boss Jr. Trust A, W. Russell Boss Jr. Trust B and W. Russell Boss Jr. Trust C and reversing the District Court's dismissal of the claims asserted against the Company and the named individual defendants. The Court of Appeals' ruling was limited to a finding that the plaintiff's complaint had satisfied the pleading requirements of the Private Securities Litigation Reform Act of 1995; the Court did not opine on the merits of plaintiff's claims. The Company maintains that the claims are without merit and continues to vigorously defend the litigation. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting on April 25, 2002 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 12,947,062 Class A shares in favor, 411,355 against, 14,821 abstaining, and by the vote of 1,804,800 Class B shares in favor and none against or abstaining. b. Election of Directors The following directors were elected by the Class A shareholders: For Withheld Galal P. Doss 13,226,296 146,942 Andrew J. Parsons 13,224,179 149,059 James C. Tappan 13,223,746 149,492 The following directors were elected by the unanimous vote of 1,804,800 Class B shares: Bradford R. Boss Russell A. Boss David G. Whalen John E. Buckley Bernard V. Buonanno, Jr. Terrence Murray 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 28, 2002 was approved by the unanimous vote of 1,804,800 Class B shares. ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits Exhibit 99
Washington, DC 20549
SECURITIES EXCHANGE ACT OF 1934
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(IRS Employer Identification No.)
(Address of principal executive offices)
(Zip Code)
Class B common stock -
1,804,800 shares
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 29, 2002
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for 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 29, 2002 are not necessarily indicative of the results that may be expected for the twelve months ending December 28, 2002. The Company has historically recorded its highest sales in the fourth quarter. Certain prior year amounts have been reclassified in order to conform to the current year presentation. 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 29, 2001.
In 2000, the Company's Board of Directors approved a plan to restructure the Company's domestic and international quality writing instrument operations. As part of this restructuring plan, the Company consolidated writing instrument manufacturing and distribution at its headquarters in Lincoln, Rhode Island, closed its Irish manufacturing and distribution facility and reorganized its European operations.
Comprehensive income (loss) for the three and six month periods ended June 29, 2002 and June 30, 2001 follows:
The Company has one reportable segment, Quality Writing Instruments ("QWI"). In 2001, the Company significantly downsized the Pen Computing Group and more closely aligned its efforts with the QWI research and development department. Therefore, effective for 2002, pen computing results are no longer reported as a separate segment. For further information, refer to notes A and L in the Company's annual report on Form 10-K for the year ended December 29, 2001.
The Company currently has a $25 million unsecured line of credit with a bank. The Company is required to meet certain liquidity levels and covenants. The most restrictive covenant is to maintain a consolidated cash, cash equivalents and short-term investments balance of not less than $15 million at the end of each quarter. There is also a restriction on the Company's ability to grant a security interest in its assets. Any amounts borrowed under this agreement are payable on demand and bear interest at either the bank's prime lending rate or at one percent per annum in excess of the London Interbank Offering Rate. At June 29, 2002 there was no amount outstanding under this line of credit. At June 30, 2001, there was $2.0 million outstanding.
Effective January 1, 2002, the Company adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 changes the accounting for goodwill from an amortization method to an impairment-only approach. Goodwill and certain intangible assets deemed to have indefinite lives will remain on the balance sheet and not be amortized. Goodwill will be tested for impairment annually or when an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount, and write downs may be necessary. Testing goodwill impairment under SFAS No. 142 is a two-step process. The first step is a comparison of the reporting unit's fair value to its carrying amount. If the fair value exceeds the carrying value, no impairment would be recognized. If, however, the carrying value of the reporting unit exceeds the fair value, the goodwill may be impaired
. The first step of the initial assessment must be completed within six months of adoption. The second step of SFAS No. 142, determining the amount of the impairment, if any, must be performed no later than December 28, 2002. The Company has performed the first step of testing goodwill for impairment and has determined that there is no impairment. At June 29, 2002, the carrying value of goodwill was approximately $3,944,000. A reconciliation of reported net (loss) income and basic and diluted (loss) earnings per share to the amounts adjusted for the exclusion of goodwill amortization follows:
On April 26, 2001, the Company's Board of Directors authorized the repurchase of up to 10% of the Company's outstanding Class A common stock. The Company plans to purchase up to approximately 1.5 million shares of stock on the open market, from time to time, depending on market conditions. Repurchased shares will be held as treasury stock and will be available for general corporate purposes. In the second quarter of 2002, the Company repurchased 243,000 shares of stock for approximately $1.7 million. At June 29, 2002, the Company had repurchased 1,097,400 shares of stock for approximately $7.4 million under this plan.
On or about April 21, 2000, the Company, certain officers and directors of the Company and others were named as defendants in an action filed in the United States District Court for the District of Rhode Island. The suit, which is brought by a purchaser of the Company's Class A common stock, alleges that the defendants violated Federal securities laws by making material misstatements and omissions in the Company's public filings and statements relating to the Company's Pen Computing Group ("PCG") business. The suit seeks class action status including all purchasers of the Company's Class A common stock between September 17, 1997 and April 22, 1999. The damages sought are unspecified.
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
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 9, 2002 |
By: DAVID G. WHALEN |
Date: August 9, 2002 |
By: JOHN T. RUGGIERI |
Exhibit 99
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of A.T. Cross Company, a Rhode Island corporation (the "Company"), does hereby certify, to such officer's knowledge, that:
The Quarterly Report on Form 10-Q for the quarter ended June 29, 2002 (the "Form 10-Q") of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.
Dated: |
August 9, 2002 |
DAVID G. WHALEN |
Chief Executive Officer |
||
Dated: |
August 9, 2002 |
JOHN T. RUGGIERI |
Chief Financial Officer |
The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of a separate disclosure document.