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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
