-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, MJgZ/78fXqexYpv+h4fkR2n1fyTcN7p1DcHQq+vYywBC3YJ0rEavtK1A5/nChAww VvcZqRTjcZwLa//4JusT8w== 0000025793-94-000010.txt : 19940816 0000025793-94-000010.hdr.sgml : 19940816 ACCESSION NUMBER: 0000025793-94-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940630 FILED AS OF DATE: 19940810 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CROSS A T CO CENTRAL INDEX KEY: 0000025793 STANDARD INDUSTRIAL CLASSIFICATION: 3950 IRS NUMBER: 050126220 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06720 FILM NUMBER: 94542542 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 Page 11 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 [FEE REQUIRED] For the quarterly period ended June 30, 1994 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [NO FEE REQUIRED] 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, 1994: Class A common stock - 15,151,001 shares Class B common stock - 1,804,800 shares PART I. FINANCIAL INFORMATION A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30 December 31 1994 1993 1993 ASSETS (Thousands of Dollars) CURRENT ASSETS Cash and Cash Equivalents $ 32,308 $ 36,810 $ 52,822 Short-Term Investments 45,708 38,349 18,312 Accounts Receivable 22,587 18,926 36,960 Inventories-Note B 19,353 21,331 18,964 Other Current Assets 4,529 6,145 3,068 TOTAL CURRENT ASSETS 124,485 121,561 130,126 PROPERTY, PLANT AND EQUIPMENT 80,329 74,713 77,493 Less Allowances for Depreciation 48,649 44,794 45,363 31,680 29,919 32,130 INTANGIBLES AND OTHER ASSETS 16,751 13,606 16,738 $172,916 $165,086 $178,994 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable, Accrued Expenses and Other Liabilities $ 18,103 $ 15,775 $ 21,243 Compensation and Related Taxes 6,436 5,358 6,647 Cash Dividends Payable 0 0 2,709 Contributions Payable to Employee Benefit Plans 8,976 7,136 8,632 Income Taxes Payable 190 (3,294) 995 TOTAL CURRENT LIABILITIES 33,705 24,975 40,226 ACCRUED WARRANTY COSTS 4,759 4,109 4,609 SHAREHOLDERS' EQUITY Common Stock, Par Value $1 Per Share: Class A, Authorized 40,000,000 Shares; Issued 15,182,801 Shares and Outstanding 15,151,001 Shares in 1994, Issued and Outstanding 15,121,654 and 15,125,982 Shares in June and December, 1993, respectively 15,183 15,122 15,126 Class B, Authorized 4,000,000 Shares; Issued and Outstanding 1,804,800 Shares 1,805 1,805 1,805 Additional Paid-In Capital 10,176 9,220 9,389 Retained Earnings 107,495 109,928 108,162 Accumulated Foreign Currency Translation Adjustment 303 (73) (323) 134,962 136,002 134,159 Treasury Stock, at Cost; 31,800 Shares (510) - - TOTAL SHAREHOLDERS' EQUITY 134,452 136,002 134,159 $172,916 $165,086 $178,994 A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1994 1993 1994 1993 (Thousands of Dollars Except per Share Data) Net Sales $40,620 $ 37,294 $75,813 $ 73,769 Cost of Goods Sold 21,897 21,194 40,404 42,397 Gross Profit 18,723 16,100 35,409 31,372 Selling, General and Administrative Expenses 16,485 16,135 29,781 28,710 Service and Distribution Costs 1,075 1,153 2,180 2,600 Research and Development Expenses 626 255 1,094 815 Restructuring Charges-Note E - 9,610 - 9,610 Operating Income (Loss) from Continuing Operations 537 (11,053) 2,354 (10,363) Interest and Other Income 760 547 1,347 1,273 Income (Loss) from Continuing Operations Before Income Taxes 1,297 (10,506) 3,701 (9,090) Income Taxes 608 (3,720) 1,651 (3,249) Income (Loss) from Continuing Operations 689 (6,786) 2,050 (5,841) Loss from Discontinued Operations, less Income Tax Benefit-Note D Loss from Operations - (728) - (1,500) Loss on Disposal - (2,500) - (2,500) Net Income (Loss) $ 689 $(10,014) $ 2,050 $ (9,841) Income (Loss) Per Share:-Note C From Continuing Operations $0.04 $(0.40) $0.12 $(0.34) From Discontinued Operations - (0.19) - (0.24) Net Income (Loss) Per Share $0.04 $(0.59) $0.12 $(0.58) Dividends Declared Per Share $0.16 $ 0.32 $0.16 $ 0.32 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30 1994 1993 (Thousands of Dollars) Cash Provided By (Used In): Operating Activities: Net Cash Provided by Continuing Operations $15,620 $ 20,308 Net Cash Provided by Discontinued Operations - 84 Net Cash Provided By Operating Activities 15,620 20,392 Investing Activities: Proceeds From Sale of Assets - 4,750 Additions to Property, Plant and Equipment (2,849) (4,317) Additional Acquisition Payment (275) (208) Purchase of Short-Term Investments (43,779) (27,255) Sale or Maturity of Short-Term Investments 16,383 31,710 Net Cash Provided By (Used In) Investing Activities (30,520) 4,680 Financing Activities: Cash Dividends Paid (5,426) (10,831) Purchase of Treasury Stock (510) - Other 104 126 Net Cash Used in Financing Activities (5,832) (10,705) Effect of Exchange Rate Changes on Cash and Cash Equivalents 218 37 Increase (Decrease)in Cash and Cash Equivalents (20,514) 14,404 Cash and Cash Equivalents at Beginning of Period 52,822 22,406 Cash and Cash Equivalents at End of Period $32,308 $ 36,810 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1994 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. In the three and six month periods ended June 30, 1993, the Company used the gross profit method to determine approximately half of its interim inventories. Operating results for the three and six month periods ended June 30, 1994 are not necessarily indicative of the results that may be expected for the year ending December 31, 1994. 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, 1993. NOTE B - Inventories The components of inventory at June 30, 1994 and December 31, 1994 were as follows: June 30 December 31 1994 1993 Raw materials $ 3,697 $ 4,223 Work in process 3,356 3,004 Finished products 12,300 11,737 $19,353 $18,964 NOTE C - Net Income Per Share Net income per share has been determined based upon the weighted average number of Class A and Class B common shares outstanding of 16,977,000 and 16,979,857 for the second quarter and six months ended June 30, 1994, respectively and 16,926,204 and 16,924,703 for the second quarter and six months ended June 30, 1993, respectively. Common stock equivalents related to outstanding stock options have not been included in the calculations of earnings per share because the result is not dilutive. NOTE D - Discontinued Operations On June 30, 1993, the Company completed the sale of the Mark Cross trademark and selected assets of its wholly owned subsidiary Mark Cross, Inc. and discontinued its retail business. The Company recorded an after- tax loss of $3,228,000 and $4,000,000 in the second quarter and six months ended June 30, 1993, respectively, in connection with the operation and disposal of this discontinued operation. NOTE E - Restructuring and Other Charges In the second quarter of 1993, the Company recorded a $9.6 million restructuring charge ($6.2 million after-tax) in connection with consolidating its production and distribution facilities, restructuring its corporate organization and the discontinuance of certain product lines. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Second Quarter 1994 Compared to Second Quarter 1993 Net sales for the second quarter ended June 30, 1994 increased by $3.3 million or 8.9% from the second quarter of 1993. Domestic sales were 4.7% higher than last year while foreign sales were 16.9% improved over the same period in 1993. The higher domestic sales this quarter reflect the positive consumer response to many of the Company's new products and marketing initiatives, including the new wider-girth Townsend line and the introduction of several traditional narrow-girth products in impulse packaging to domestic mass merchandisers. The increase in foreign sales is due, in part, to working closely with foreign distributors to enhance the image of the Cross brand and to control product distribution and inventory levels. Gross profit margins for the second quarter of 1994 were 46.1%, compared to 43.2% for the second quarter of 1993. The gross margin improvement was due largely to lower average costs this year as compared to the same period in 1993, resulting from the widespread changes to the manufacturing process completed over the last two years. The benefit of these cost reductions was more significant in the last half of 1993 than in the earlier part of the year. Therefore, in comparison to last year, the Company does not expect the increase in margins experienced in the last six months of 1994 to be as pronounced as in the first six months. Selling, general and administrative expenses and service and distribution costs remained at nearly the same level as 1993. Research and Development expenses were more than double the expenditures for the same period last year. The increase in R&D was due largely to a planned higher investment in new product development this year. Interest and other income improved over 1993 by 38.9% as a result of higher average investments combined with slightly higher average yields. The effective tax rate on income (loss) from continuing operations for the second quarter of 1994 was 46.9% as compared to a 35.4% credit for the second quarter of 1993. The tax rate for 1994 was higher than the tax credit in 1993 due to changes in the U.S. tax laws that have resulted in the taxation of income earned by the Company's subsidiary in Ireland at the higher U.S. rate as compared to the 10% effective rate in 1993. The effective income tax rate differs from the U.S. statutory rate of 35% principally because of the effect of the limited benefits generated from certain foreign operations sustaining losses. Results of Operations Six Months Ended June 30, 1994 Compared to June 30, 1993 Net sales for the six months ended June 30, 1994 were $75.8 million, or 2.8% higher than the same period in 1993. Domestic sales of $44.4 million were 8.3% lower, but foreign sales were up 23.8% over the same period in 1993. Domestic sales, which were adversely affected by inventory reduction programs of certain major customers early in the year, recovered significantly in the second quarter as customers responded favorably to many of the Company's products and marketing initiatives. Internationally, sales continue to be strong in the Asia/Pacific Rim and other key markets as the Company's new wide-girth line, Townsend, has been very successful and has helped to bring renewed excitement and vitality to the entire range of Cross products. In addition, as noted in the discussion of the second quarter results, the increase in foreign sales is also attributable to working closely with foreign distributors to enhance the image of the Cross brand and to control product distribution and inventory levels. Gross profit margins for the six months were 46.7%, as compared to 42.5% for 1993. The gross margin improvement was due largely to lower average costs this year as compared to the same period in 1993. As noted above, the lower costs are the result of numerous manufacturing initiatives implemented over the past several years. In comparison to last year, the Company does not expect the increase in margins experienced in the last six months of 1994 to be as pronounced as in the first six months. Selling, general and administrative expenses for the six months ended June 30, were 3.7% higher than the same period for 1993. The minor increase was due primarily to higher advertising expenditures combined with general inflation. Service and distribution costs are 16.2% lower than last year and reflect the lower overhead costs resulting from the consolidation of the manufacturing and distribution functions from two locations into one, as well as a lower volume of products returned for service. Research and Development expenses are up over last year by 34.2% and are consistent with the Company's projected total increase for the year of approximately 40%. Included in the second quarter and six month results for 1993 was a $9.6 million restructuring charge. The charge was comprised of a provision for loss on the sale of the Company's distribution center, costs of consolidating manufacturing operations in connection with cost-reducing manufacturing initiatives, expenses associated with an early retirement program and employee separation program, and a provision for inventory write-downs for certain discontinued product lines. Interest and other income increased by 5.8% for the first six months of 1994 due to higher levels of investments and a slightly higher interest rate. The effective tax rate on income/(loss) from continuing operations for the six months ended June 30, 1994 was 44.6% as compared to the 35.7% credit for the 1993 six month period. As mentioned in the second quarter discussion above, the higher 1994 rate as compared to the 1993 credit was due primarily to changes in U.S. tax laws relating to U.S. companies with international operations. Liquidity and Sources of Capital Cash, cash equivalents and short-term investments increased $6.9 million from December 31, 1993 to $78.0 million at June 30, 1994. Most of this increase, and the corresponding decrease in accounts receivable, resulted from cash collected in January 1994 from customers who took advantage of the 1993 special holiday promotion. This promotion, which allowed qualifying domestic customers to defer payments on their 1993 purchases, was similar to the programs that have been offered in past years. Cash available for domestic operations approximated $22.9 million while cash held off-shore approximated $55.1 million. The Company has available a $50 million line of credit with Fleet National Bank which provides an additional source of working capital on a short term basis. No funds were borrowed under this line of credit in either 1994 or 1993. On April 28, 1994, the Company's Board of Directors authorized a repurchase of up to 1,000,000 shares of its outstanding Class A common stock, the timing and price to be at the discretion of management. As of June 30, 1994, 31,800 shares had been repurchased at a cost of approximately $510,000. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting on April 28, 1994 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 12,881,096 Class A shares in favor, 209,116 against, 43,152 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 12,928,649 204,715 James C. Tappan 13,069,139 64,225 Thomas C. McDermott 12,931,306 202,058 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 Edward M. Watson c. Appointment of Independent Auditors A proposal to ratify the appointment of Ernst & Young as independent auditors for the Company for the year ending December 31, 1994 was approved by the unanimous vote of 1,804,800 Class B shares. Item 6. No reports have been filed on Form 8-K pursuant to item 6(b) and no other items are applicable for six months ended June 30, 1994. 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 5, 1994 By: JOHN E. BUCKLEY John E. Buckley Executive Vice President Chief Operating Officer Date: August 5, 1994 By: MICHAEL EL-HILLOW Michael El-Hillow Vice President, Finance, Treasurer Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----