-----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, B2hLoHrSm5pME6pHXs4qhUw65sujHW0s0HQMPbVsj8evWsd1ziQtCH5UCqvT1I41 O596ZCAIO7FVleeLNGmxoQ== 0000025793-99-000015.txt : 19991115 0000025793-99-000015.hdr.sgml : 19991115 ACCESSION NUMBER: 0000025793-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991002 FILED AS OF DATE: 19991112 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: 99749672 BUSINESS ADDRESS: STREET 1: ONE ALBION RD CITY: LINCOLN STATE: RI ZIP: 02865 BUSINESS PHONE: 4013331200 MAIL ADDRESS: STREET 1: ONE ALBION ROAD 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 October 2, 1999 [ ] 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 October 2, 1999: Class A common stock - 15,232,166 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 October 2, December 31, 1999 1998 (Unaudited) ASSETS (Thousands of Dollars) CURRENT ASSETS Cash and Cash Equivalents $ 12,918 $ 22,781 Short-Term Investments 21,970 21,717 Accounts Receivable 23,862 34,274 Inventories: Finished Goods 6,151 7,521 Work in Process 5,833 5,646 Raw Material 9,379 6,662 21,363 19,829 Other Current Assets 11,988 7,283 TOTAL CURRENT ASSETS 92,101 105,884 PROPERTY, PLANT AND EQUIPMENT 121,266 115,343 Less Allowances for Depreciation 82,942 76,719 38,324 38,624 INTANGIBLES AND OTHER ASSETS 16,289 11,829 TOTAL ASSETS $146,714 $156,337 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Note Payable to Bank $ 8,300 $ 6,000 Accounts Payable, Accrued Expenses and Other Liabilities 22,286 27,417 Accrued Compensation and Related Taxes 2,729 2,746 Contributions Payable to Employee Benefit Plans 10,272 10,096 TOTAL CURRENT LIABILITIES 43,587 46,259 ACCRUED WARRANTY COSTS 5,821 5,821 SHAREHOLDERS' EQUITY Common Stock, Par Value $1 Per Share: Class A, Authorized 40,000,000 Shares; 15,843,232 Shares Issued and 15,232,166 Shares Outstanding at October 2, 1999 and 15,344,162 Shares Issued and 14,743,096 Shares Outstanding at December 31, 1998 15,843 15,344 Class B, Authorized 4,000,000 Shares; 1,804,800 Shares Issued and Outstanding at October 2, 1999 and December 31, 1998 1,805 1,805 Additional Paid-In Capital 14,848 12,433 Unearned Compensation on Restricted Stock (442) 0 Retained Earnings 73,838 84,087 Accumulated Other Comprehensive Income (Loss) 441 (446) 106,333 113,223 Treasury Stock, at Cost (9,027) (8,966) TOTAL SHAREHOLDERS' EQUITY 97,306 104,257 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $146,714 $156,337 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 13 Weeks 3 Months 39 Weeks 9 Months Ended Ended Ended Ended October 2, September 30, October 2, September 30, 1999 1998 1999 1998 (Thousands of Dollars Except Per Share Data) Net Sales $30,895 $33,429 $85,951 $99,316 Cost of Goods Sold 17,281 18,740 50,290 53,451 Gross Profit 13,614 14,689 35,661 45,865 Selling, General and Administrative Expenses 14,316 18,153 46,556 48,157 Research and Development Expenses 1,114 1,146 2,463 3,372 Service and Distribution Costs 661 805 2,497 2,433 Operating Loss (2,477) (5,415) (15,855) (8,097) Interest and Other Income 493 679 1,406 2,090 Loss from Continuing Operations Before Income Taxes (1,984) (4,736) (14,449) (6,007) Income Tax Benefit (516) (1,515) (3,757) (1,922) Loss from Continuing Operations (1,468) (3,221) (10,692) (4,085) Income (Loss) from Discontinued Operations (Net of Income Taxes) (903) (1,196) 443 5 Net Loss $(2,371) $(4,417) $(10,249) $(4,080) Basic and Diluted Earnings (Loss) Per Share: Continuing Operations $ (0.10) $ (0.20) $ (0.65) $ (0.25) Discontinued Operations (0.05) (0.07) 0.03 0.00 Net Loss Per Share $ (0.15) $ (0.27) $ (0.62) $ (0.25) Weighted Average Shares Outstanding: Denominator for Basic Earnings Per Share 16,655 16,548 16,622 16,530 Effect of Dilutive Securities: Employee Stock Options - (A) - (A) - (A) - (A) Denominator for Diluted Earnings Per Share 16,655 16,548 16,622 16,530 Dividends Declared Per Share $ 0.00 $ 0.08 $ 0.00 $ 0.16 (A) No incremental shares are included due to the net loss. See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 39 Weeks Ended 9 Months Ended October 2, 1999 September 30, 1998 (Thousands of Dollars) Cash Provided By (Used In): Operating Activities: Net Cash Used In Continuing Operations $(9,287) $(2,895) Net Cash Provided By (Used In) Discontinued Operations 1,407 (180) Net Cash Used In Operating Activities (7,880) (3,075) Investing Activities: Additions to Property, Plant and Equipment (6,010) (4,113) Purchase of Short-Term Investments (10,289) (14,694) Sale or Maturity of Short-Term Investments 10,036 14,466 Net Cash Used In Investing Activities (6,263) (4,341) Financing Activities: Cash Dividends Paid 0 (3,967) Proceeds from Bank Borrowings 10,300 7,000 Repayment of Bank Borrowings (8,000) (2,000) Other 2,222 497 Net Cash Provided By Financing Activities 4,522 1,530 Effect of Exchange Rate Changes on Cash and Cash Equivalents (242) 109 Decrease in Cash and Cash Equivalents (9,863) (5,777) Cash and Cash Equivalents at Beginning of Period 22,781 25,801 Cash and Cash Equivalents at End of Period $12,918 $20,024 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS October 2, 1999 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 nine months ended October 2, 1999, are not necessarily indicative of the results that may be expected for the full year ending January 1, 2000. The Company has historically recorded its highest sales 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, 1998. NOTE B - Change of Accounting Periods To facilitate the implementation of a standardized worldwide reporting system, as of January 1, 1999 the Company changed from a calendar quarter and year end closing schedule to a 4-4-5 week quarter-end close and a 52/53 week fiscal close. This change did not have a material impact on sales or results of operations in the third quarter and first nine months of 1999 as compared to the third quarter and first nine months of 1998. NOTE C - Discontinued Operations: Timepieces During the third quarter of 1999, the Company discontinued operations of its timepiece segment when it entered into a license agreement with SBIamerica for the worldwide distribution of the Cross brand of timepieces. The following table sets forth summary information relating to timepieces, (in thousands). 13 Weeks 3 Months 39 Weeks 9 Months Ended Ended Ended Ended October 2, September 30, October 2, September 30, 1999 1998 1999 1998 Net Sales $(211) $ 422 $ 14 $ 754 Costs and Expenses 760 2,181 1,187 3,178 Operating Loss Before Taxes (971) (1,759) (1,173) (2,424) Income Tax Benefit Related to Operations (253) (563) (305) (776) Operating Loss (718) (1,196) (868) (1,648) Loss on Disposal Before Income Taxes (250) 0 (250) 0 Income Tax Benefit Related to Loss on Disposal (65) 0 (65) 0 Loss on Disposal (185) 0 (185) 0 Loss From Discontinued Operations $(903) $(1,196) $(1,053) $(1,648) Manetti-Farrow, Inc. In the first quarter of 1999, the Company recorded after-tax income from discontinued operations of $1,496,000. The Company reached a settlement in 1998 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 discontinued subsidiary, Manetti-Farrow, Inc., which payments continued into 1999. In the second quarter of 1998, the Company recorded after-tax income from discontinued operations of $1,653,000. 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 discontinued subsidiary, Manetti-Farrow, Inc. 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 D - Comprehensive Income (Loss) Comprehensive income (loss) for the third quarter and first nine months of 1999 and 1998 follows: 13 Weeks 3 Months 39 Weeks 9 Months Ended Ended Ended Ended October 2, September 30, October 2, September 30, 1999 1998 1999 1998 Net Loss $(2,371) $(4,417) $(10,249) $(4,080) Other Comprehensive Income (Loss): Foreign Currency Translation Adjustment 406 194 (89) 120 Unrealized Gain on Investment, (Net of Tax) 976 0 976 0 Comprehensive Loss $ (989) $(4,223) $ (9,362) $(3,960) NOTE E - New Accounting Pronouncements During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 was not required to be implemented until fiscal year 2000. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities- Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133." SFAS No. 137 delayed the original implementation date of SFAS No. 133 by one year. This will require that the Company implement this statement in fiscal year 2001. Since its requirements are complex and its scope far reaching, the Company has not completed its evaluation of the impact of this standard on its consolidated financial statements. NOTE F - Segment Information The timepiece segment was discontinued during the third quarter of 1999 (see Note C to the Financial Statements). The Company now has two reportable segments: quality writing instruments and pen-based computing products. The Company evaluates segment performance based upon profit or loss from continuing operations before income taxes. For further information, refer to footnotes A and G included in the Company's annual report on Form 10-K for the year ended December 31, 1998. Below is the segment information for the Company for the third quarter and year-to-date periods ended October 2, 1999 and September 30, 1998: 13 Weeks 3 Months 39 Weeks 9 Months Ended Ended Ended Ended October 2, September 30, October 2, September 30, 1999 1998 1999 1998 Revenues from External Customers: Quality Writing Instruments $ 30,191 $ 26,279 $ 83,240 $ 83,469 Pen-Based Computing Products 704 7,150 2,711 15,847 Total $ 30,895 $ 33,429 $ 85,951 $ 99,316 Segment Profit (Loss): Quality Writing Instruments $ 2,081 $ (2,437) $ 2,124 $ (720) Pen-Based Computing Products (4,065) (2,299) (16,573) (5,287) Total $ (1,984) $ (4,736) $(14,449) $ (6,007) Segment Assets: Pen-Based Computing Products $ 12,100 (1) (1) The $2.3 million decrease in Pen Computing Group ("PCG") segment assets since December 31, 1998 was due largely to a reduction in trade accounts receivable and lower inventories offset somewhat by the investment in NeoMedia Technologies, Inc.(see Note H to the Financial Statements). NOTE G - Line of Credit During the first quarter of 1999, the Company and its financial institution renegotiated the Company's existing line of credit from $50 million to $25 million, to more appropriately reflect the Company's needs. Any amounts borrowed under this agreement are payable on demand and bear interest at one percent (1.0%) per annum in excess of the London Interbank Offering Rate. NOTE H - Investment in NeoMedia Technologies, Inc.("NeoMedia") In the second quarter of 1999, the Company entered into an Agreement with NeoMedia Technologies, Inc. pursuant to which Cross has the exclusive right, in certain market segments, to bundle and sell NeoMedia's NeoLink software with the Cross NetPen. NetPen is a pen-based scanning application that will scan and store specifically coded data found in a variety of print media. The NetPen, bundled with the NeoLink software, will form an information retrieval system to quickly download previously scanned web sites directly to a personal computer without the need for search engines or complex Uniform Resource Locators (URLs). Pursuant to the Agreement with NeoMedia, Cross agreed to advance $2 million to NeoMedia in exchange for a convertible promissory note. Pursuant to the terms of the promissory note, the Company had the option to convert the note into shares of NeoMedia common stock. During the third quarter of 1999, the Company converted the $2 million promissory note into approximately 500,000 shares of NeoMedia common stock at the agreed upon conversion price of four dollars per share. The Company is holding these shares as available for sale and has recorded them in Other Current Assets. At October 2, 1999, the market value of these securities was approximately $3.5 million. The unrealized gain on this investment has been recorded, net of tax, as part of Accumulated Other Comprehensive Income(Loss). As additional consideration, NeoMedia issued to the Company warrants to purchase 200,000 shares of NeoMedia common stock, at prices ranging from $5 to $7 per share, exercisable for a period of five years following February 18, 1999. NOTE I - Acquisition of Selected Assets of C&J Jewelry During the third quarter of 1999, the Company completed the acquisition of selected assets of C&J Jewelry Company, Inc. ("C&J"). The acquired assets will be primarily utilized for the manufacture of writing instruments for a well known luxury goods retailer. The acquisition is part of a strategy to leverage the Company's core manufacturing capabilities as an Original Equipment Manufacturer of writing instruments. In consideration, the Company assumed $2.8 million of C&J indebtedness and issued approximately 381,000 shares of the Company's Class A common stock. Of these, approximately 349,000 shares are to be held in escrow over the next 12 and 24 months until certain restrictions lapse. The excess of the purchase price (approximately $4.5 million) over the fair value of the assets acquired (approximately $600,000, consisting primarily of inventory and fixed assets) will be amortized on a straight line basis over a 20 year period. The results of this business are not material to the Company's 1999 consolidated results of operations, and accordingly, pro forma data has been omitted. NOTE J - Subsequent Events Due to the continued and significant losses by PCG, the board of directors authorized a review of strategic alternatives for the CrossPad product line which could include outside funding and/or the possible sale or discontinuance of the CrossPad line. On October 21, 1999, the board of directors decided that the Company's future role in the pen computing business should be that of a contract manufacturer. The Company is selectively pursuing such opportunities, including contract manufacturing for the CrossPad line. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Recent Developments During the third quarter of 1999, the Company discontinued operations of its timepiece segment when it entered into a license agreement with SBIamerica for the worldwide distribution of the Cross brand of timepieces. The operating results of the Pen Computing Group were negatively impacted by the change in strategic focus for the CrossPad product line as well as pricing actions taken on the product during the third quarter (see Note J to the Financial Statements). Due to the continued and significant losses by PCG, on July 22, 1999, the board of directors authorized a review of strategic alternatives for the CrossPad product line. On October 21, 1999 the board decided that the Company's future role in the pen computing business should be that of a contract manufacturer. If this strategy proves successful, Cross would use its expanded manufacturing competencies to produce pen-based electronic products at a profit while leaving the business-to-business and consumer marketing and sales to others. The Company expects that PCG's 1999 revenues will be significantly less than 1998 revenues and its 1999 operating loss will be significantly greater than the prior year's loss. Results of Operations Third Quarter 1999 Compared to Third Quarter 1998 Net sales for the third quarter ended October 2, 1999 of $30.9 million decreased 7.6% compared to the third quarter of 1998. Total writing instrument net sales for the quarter were $30.2 million, up 14.9% from the prior year. Domestic writing instrument net sales were $16.2 million or 17.0% higher than the prior year and foreign writing instrument net sales of $14.0 million increased 12.5% as compared to third quarter of 1998. Net sales by PCG during the third quarter of 1999 were $704,000, a decrease of 90.2% compared to the third quarter of 1998. The higher domestic writing instrument sales was due to an increase in the Retail Division's sales. In addition, the Company began manufacturing and shipping writing instrument products for third parties as an Original Equipment Manufacturer ("OEM") in the quarter as part of its efforts to leverage its core manufacturing capabilities. Sales by the Company's Special Markets Division, i.e., sales of personalized products to corporate accounts, were 5.6% lower than the prior year's quarter due, in part, to the increased popularity of competitive gift alternatives available with which to recognize and motivate employees. The increase in international sales during the third quarter of 1999 was due largely to the 96.3% sales increase in Asia as this region continues to recover from poor economic conditions. Sales in Canada and Latin America were higher in the third quarter of 1999 as compared to the same period last year, offset by a sales decline in Europe, the Middle East and Africa which continue to suffer from generally weaker economic conditions and a stronger U.S. dollar. PCG net sales during the third quarter were down approximately 90% from the prior year due to a significant reduction in volume and pricing actions taken by the Company (see Recent Developments). Gross profit margins for the third quarter of 1999 were 44.1%, up 0.2 percentage points from the 43.9% for the comparable period last year. The increase was largely attributable to higher writing instruments margins. This improvement in writing instrument margins was due, in part, to lower unit cost of sales, and the favorable effect of fixed manufacturing costs on the increased sales volume. The increase in writing instrument margins was almost entirely offset by the results of the PCG segment which generated a negative gross margin in the third quarter. Included in the 1999 third quarter's results for PCG was the unfavorable effect of relatively fixed expenses on the significantly lower sales volume. Selling, general and administrative ("SG&A") expenses for the third quarter of 1999 were 21.1% lower than last year. This decrease was primarily due to lower expenditures for PCG as the Company reviewed its strategic alternatives for the CrossPad product line. Writing instrument SG&A was 9.0% lower than the prior year's third quarter due to continuing cost control measures. Research and development ("R&D") expenses were less than 1998's third quarter by 2.8%, due entirely to lower R&D expenditures for the development of PCG products this year (see Recent Developments). Interest and other income for the third quarter of 1999 was 27.4% less than the comparable period last year primarily due to lower average levels of invested funds and somewhat lower average interest rates. The Company recorded an income tax benefit of 26.0% on the loss from continuing operations in the third quarter of 1999 as compared to the 1998 third quarter income tax benefit of 32.0%. This change was due, in part, to a shift in the mix of domestic and foreign results. Results of Operations Thirty Nine Weeks Ended October 2, 1999 Compared to Nine Months Ended September 30, 1998 Net sales for the thirty nine week period ended October 2, 1999 were $86.0 million, or 13.5% lower than the nine month period in 1998. Total writing instrument net sales of $83.2 million were 0.3% lower than the comparable period last year. Domestic writing instrument net sales of $41.0 million for the thirty nine weeks were down 3.8% from the comparable period last year and foreign writing instrument net sales of $42.2 million were 3.4% above 1998. Sales of PCG products were $2.7 million through October 2, 1999, a decrease of 82.9% from the $15.8 million for the comparable 1998 period. Domestic writing instrument sales remained below last year's levels largely due to a 17.4% decrease in sales by the Special Market's Division. Internationally, year-to-date sales to the Company's Asian markets increased from the prior year by approximately 57% as the economic and fiscal conditions in these markets continue to recover. Offsetting the increase in Asia were lower sales in Latin America caused by a number of distributor changes that took place during the year and the effect of unstable economies in several key markets. In Europe, sales were lower than the prior year due to generally weaker economic conditions and the adverse effects of a somewhat stronger U.S. dollar. PCG's net sales for the thirty nine weeks ended October 2, 1999 were lower than last year by approximately 83% due to a significant reduction in volume and pricing actions taken by the Company (see Recent Developments). Gross profit margins for the first three quarters of 1999 were 41.5%, down 4.7 percentage points from the same period in 1998. The decline in margin was entirely attributable to the PCG segment which generated a negative gross margin for the period ended October 2, 1999. Included in the year-to-date PCG results were the effects of inventory reserves established for CrossPad and CrossPadXP and the effect of rebates offered to dealers in order to lower the selling price of CrossPad products to consumers. Writing instrument margins for the period improved over the comparable period last year primarily due to lower unit costs, a result of the continuing cost reduction programs. SG&A expenses for the year to date October 2, 1999 period were 3.3% lower than the same period for 1998. SG&A expenses for writing instruments were 4.6% less than the prior year due to continuing cost controls. Through October 2, 1999, SG&A expenses for PCG were 2.8% higher as compared to 1998, due, in part, to a mail in rebate promotion. R&D expenses of $2.5 million were lower than last year by 27.0% as a result of decreased R&D expenditures for the development of PCG products this year. Writing instrument R&D expenditures were 1.5% below last year's levels for the nine months ended October 2, 1999. The Company expects 1999 R&D expenditures to be lower than in 1998 (see Recent Developments). Interest and other income decreased 32.7% for the first three quarters of 1999 largely due to lower interest income as average investable funds and the average interest rate were lower than the same period of the prior year. The Company recorded an income tax benefit of 26% on the loss from continuing operations for the period ended October 2, 1999, as compared to the period ended September 30, 1998 income tax benefit of 32%. This change was due, in part, to a shift in the mix of domestic and foreign results. Liquidity and Sources of Capital Cash, cash equivalents and short-term investments (i.e., "cash") decreased $9.6 million from December 31, 1998 to $34.9 million at October 2, 1999. Cash available for domestic operations approximated $2.3 million while cash held off-shore approximated $32.6 million at October 2, 1999. While it is not the Company's current intention to do so, if the Company ever determines that the cash held offshore was not necessary for international operations, it may repatriate some or all of such cash for use in domestic operations. However, repatriated offshore funds would be subject to additional federal and state income taxes. Accounts receivable decreased since the end of 1998 by $10.4 million to $23.9 million primarily due to cash that was collected in January 1999 from customers who took advantage of the Company's 1998 extended dating program that allowed domestic customers to defer payments on certain 1998 purchases. This program was similar to extended dating programs that have been offered in past years. The Company currently has available a $25 million line of credit with a bank which provides an additional source of working capital on a short-term basis (see Note G to the Financial Statements). At October 2, 1999, there was $8.3 million outstanding under this line. In conjunction with the acquisition of selected assets of C&J Jewelry Company, Inc. (see Note I to the Financial Statements) the Company assumed $2.8 million in debt under the line of credit. 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 and working capital needs. The Company eliminated its quarterly cash dividend on common stock as of December 8, 1998. New Accounting Pronouncements During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities". SFAS No. 133 was not required to be implemented until fiscal year 2000. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities- Deferral of the Effective Date of FASB Statement No. 133 - an amendment of FASB Statement No. 133." SFAS No. 137 delayed the original implementation date of SFAS No. 133 by one year. This will require that the Company implement this statement in fiscal year 2001. Since its requirements are complex and its scope far reaching, the Company has not completed its evaluation of the impact of this standard on its consolidated financial statements. Year 2000 Compliance The Year 2000 issue refers to a condition where computer programs were written so that when reading a date entered as a two digit year, i.e., "00", they could not distinguish between the year 1900 and the year 2000. If not corrected, this problem could lead to system failures or miscalculations, possibly causing disruptions of business processes. The Company started to address this problem early in 1997 when it formed a cross-functional team to manage the Company's compliance process. One of the first tasks undertaken was to identify and inventory information technology and non-information technology systems and hardware that would need to be replaced or upgraded. Since then, the Company has been modifying and upgrading significant portions of its software and hardware so that it will function properly in the year 2000. Substantially all of the Company's business applications have been remediated and are believed to be Year 2000 compliant. The Company is utilizing both internal and external resources to identify, correct and test the systems for Year 2000 compliance and engaged the services of an independent consulting firm to review the Company's Year 2000 remediation plan. Testing of the modified systems has been ongoing as non-compliant systems are replaced or upgraded. Testing of critical business applications has been completed. The cost of the Company's Year 2000 compliance program is currently estimated to be approximately $1.3 million, of which approximately $500,000 was spent in fiscal year 1998 and approximately $800,000 is planned for fiscal year 1999. These remediation costs are being funded through current operating cash flows and are not material to the Company's operating results. The Company has not deferred any information technology projects to address the Year 2000 issue. The Company has also been sending written correspondence to its primary vendors and key customers to inquire about their plans 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 a material adverse effect on the Company's systems. The most reasonably likely worst case scenario is that a short-term disruption will occur with a small number of customers or suppliers. Contingency plans have been developed and are being implemented to ensure that certain key materials will be available. While the Company's contingency plans address certain broad supplier issues, such as electrical supply, the Company is dependent on the infrastructures within all the countries in which it has operations; therefore, the failure of these infrastructures could adversely affect the Company's operations. The cost of remediation and completion dates are based upon management's best estimates and may be updated as additional information becomes available. 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 1999 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 and existing 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 QUALITATIVE DISCLOSURES ABOUT MARKET RISK Refer to the Company's annual report on Form 10-K for the year ended December 31, 1998 for a complete discussion of the Company's market risk. There have been no material changes to the market risk information included therein. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION On April 22, 1999, Russell A. Boss, President and C.E.O. of A.T. Cross Company, announced his plan to retire from the position of President and C.E.O. The Board of Directors formed a search committee, of which Mr. Boss was a member, to appoint a successor. On November 8, 1999, the Company announced that David G. Whalen will join the Company as President and Chief Executive Officer. Mr. Whalen was most recently President-North America of Ray-Ban Sun Optics, a division of Luxottica Group s.p.a. He will join the Company on November 15, 1999. At that time, Russell A. Boss will assume the position of Chairman of the Board and Bradford R. Boss will become Chairman Emeritus. Upon his arrival, Mr. Whalen will also join Cross' Board of Directors, and Mr. Andries van Dam will resign from the board. Mr. van Dam will continue to provide advice and consultation on the Company's efforts in pen computing. 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: November 12, 1999 By: JOHN E. BUCKLEY John E. Buckley Executive Vice President Chief Operating Officer Date: November 12, 1999 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 the A. T. Cross Company Form 10-Q for the quarterly period ended October 2, 1999 and is qualified in its entirety by reference to such financial statements. 1000 9-MOS DEC-31-1998 OCT-2-1999 34,888 0 25,418 1,556 21,363 92,101 121,266 82,942 146,714 43,587 0 0 0 17,648 79,658 146,714 85,951 87,554 50,290 0 51,358 158 197 (14,449) (3,757) (10,692) 443 0 0 (10,249) (0.62) (0.62)
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