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 September 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 September 30, 1994:
Class A common stock - 14,966,625 shares
Class B common stock - 1,804,800 shares
PART I. FINANCIAL INFORMATION
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 30 December 31
1994 1993 1993
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 25,031 $ 40,684 $ 52,822
Short-Term Investments 49,671 31,981 18,312
Accounts Receivable 30,691 26,074 36,960
Inventories-Note B 16,496 16,393 18,964
Other Current Assets 3,228 5,274 3,068
TOTAL CURRENT ASSETS 125,117 120,406 130,126
PROPERTY, PLANT AND EQUIPMENT 82,352 77,728 77,493
Less Allowances for Depreciation 50,289 46,636 45,363
32,063 31,092 32,130
INTANGIBLES AND OTHER ASSETS 16,680 14,340 16,738
$173,860 $165,838 $178,994
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Accrued Expenses and
Other Liabilities $ 21,481 $ 15,833 $ 21,243
Compensation and Related Taxes 6,527 5,217 6,647
Cash Dividends Payable 0 0 2,709
Contributions Payable to Employee
Benefit Plans 7,685 7,572 8,632
Income Taxes Payable 1,885 (2,741) 995
TOTAL CURRENT LIABILITIES 37,578 25,881 40,226
ACCRUED WARRANTY COSTS 4,834 4,159 4,609
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
Issued 15,191,625 Shares and Outstanding
14,966,625 Shares in 1994, Issued and
Outstanding 15,125,982 Shares in September
and December, 1993, respectively 15,192 15,126 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 10,292 9,279 9,389
Retained Earnings 107,468 109,578 108,162
Accumulated Foreign Currency
Translation Adjustment 330 10 (323)
135,087 135,798 134,159
Treasury Stock, at Cost; 225,000 Shares (3,639) - -
TOTAL SHAREHOLDERS' EQUITY 131,448 135,798 134,159
$173,860 $165,838 $178,994
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1994 1993 1994 1993
(Thousands of Dollars Except per Share Data)
Net Sales $45,928 $ 40,096 $121,741 $113,865
Cost of Goods Sold 24,322 22,535 64,726 64,932
Gross Profit 21,606 17,561 57,015 48,933
Selling, General and
Administrative Expenses 16,496 13,252 46,277 41,962
Service and Distribution Costs 992 1,014 3,172 3,614
Research and Development Expenses 343 553 1,437 1,368
Restructuring Charges-Note E - - - 9,610
Operating Income (Loss) From
Continuing Operations 3,775 2,742 6,129 (7,621)
Interest and Other Income 1,052 749 2,399 2,022
Income (Loss) From Continuing
Operations Before Income Taxes 4,827 3,491 8,528 (5,599)
Income Taxes (Benefit) 2,153 1,133 3,804 (2,116)
Income (Loss) From
Continuing Operations 2,674 2,358 4,724 (3,483)
Loss from Discontinued Operations,
Less Income Tax Benefit-Note D
Loss From Operations - - - (1,500)
Loss On Disposal - - - (2,500)
Net Income (Loss) $ 2,674 $ 2,358 $ 4,724 $ (7,483)
Income (Loss) Per Share:-Note C
From Continuing Operations $0.16 $ 0.13 $ 0.28 $(0.21)
From Discontinued Operations - - - (0.24)
Net Income (Loss) Per Share $0.16 $ 0.13 $ 0.28 $(0.45)
Dividends Declared Per Share $0.16 $ 0.16 $ 0.32 $ 0.48
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30
1994 1993
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities:
Net Cash Provided by Continuing Operations $20,209 $ 24,175
Net Cash Used in Discontinued Operations - (201)
Net Cash Provided By Operating Activities 20,209 23,974
Investing Activities:
Proceeds From Sale of Assets - 5,650
Additions to Property, Plant and Equipment (4,902) (7,450)
Additional Acquisition Payment (481) (365)
Acquisition of Minority Interest in Subsidiary - (985)
Purchase of Short-Term Investments (49,060) (29,199)
Sale or Maturity of Short-Term Investments 17,701 40,022
Net Cash Provided By (Used In)
Investing Activities (36,742) 7,673
Financing Activities:
Cash Dividends Paid (8,128) (13,540)
Purchase of Treasury Stock (3,639) -
Other 228 190
Net Cash Used in Financing Activities (11,539) (13,350)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 280 (19)
Increase (Decrease)in Cash and Cash Equivalents (27,792) 18,278
Cash and Cash Equivalents at Beginning of Period 52,822 22,406
Cash and Cash Equivalents at End of Period $25,031 $ 40,684
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine month periods ended September 30, 1993, the Company used the
gross profit method to determine approximately half of its interim
inventories. Operating results for the three and nine month periods ended
September 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 September 30, 1994 and December 31, 1993
were as follows:
September 30 December 31
1994 1993
Raw materials $ 3,857 $ 4,223
Work in process 2,247 3,004
Finished products 10,392 11,737
$16,496 $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 16,852,929 and
16,937,083 for the third quarter and nine months ended September 30, 1994,
respectively and 16,929,371 and 16,926,276 for the third quarter and nine
months ended September 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 $ $4,000,000 in the nine month period ended September 30, 1993
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 Third Quarter 1994 Compared to Third Quarter 1993
Net sales for the third quarter ended September 30, 1994 increased by $5.8
million or 14.5% from the third quarter of 1993. Domestic sales were 15.1%
higher than last year while foreign sales were 13.4% improved over the same
period in 1993. The higher domestic sales this quarter reflect the
continued favorable consumer response to many of the Company's new products
and marketing initiatives. The new wider girth Townsend line has not only
created new excitement at the prestige end of the high priced writing
instrument line, but has also stimulated interest in the traditional narrow
girth Century products. A new low cost resin based writing instrument was
launched during the quarter. This new line, designated Solo, is targeted
at the high volume, low cost Mass Merchandisers. The increase in foreign
sales was due, in part, to working closely with foreign distributors to
enhance the image of the Cross brand, several new product introductions and
an aggressive promotional campaign.
Gross profit margins for the third quarter of 1994 were 47.0%, compared to
43.8% for the same quarter of 1993. The gross margin improvement was due,
in part, to lower average costs this year as compared to the same period in
1993, as a result of the widespread changes to the manufacturing process
that were put in place over the last two years. Additionally, a price
increase of approximately 4.0%, effective July 1, 1994, had a favorable
affect on the quarter to quarter gross margins.
Selling, general and administrative expenses increased 24.5% over last
year's third quarter as a result of increased promotional spending in
support of the greater number of new product and packaging initiatives
launched this year. Service and distribution expenses were essentially
equal to last year's levels and research and development expenses were
approximately 38% less than the third quarter of 1993 due to the timing of
expenditures for new product development.
Interest and other income improved over 1993 by 40.5% as a result of
slightly higher interest income and gains on disposal of fixed assets.
The effective tax rate on income from continuing operations for the third
quarter of 1994 was 44.6% as compared to 32.5% for the third quarter of
1993. The tax rate for 1994 was higher than 1993's rate 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 Nine Months Ended September 30, 1994 Compared to
September 30, 1993
Net sales for the nine months ended September 30, 1994 were $121.7 million,
or 6.9% higher than the same period in 1993. Domestic sales of $75.9
million were 1.3% above last year's volume while foreign sales were up
20.3% over the same period in 1993. Domestic sales rebounded strongly in
the third quarter as many customers that had been reducing inventory levels
earlier in the year, responded positively to the many new products and
packaging initiatives offered by the Company. Internationally, sales
remained strong in the Asia/Pacific Rim, Latin America, and Canadian
markets as the Company's new wide-girth Townsend line was expanded and has
helped to bring renewed excitement and vitality to the entire range of
Cross products.
Gross profit margins for the first nine months of 1994 were 46.8%, an
improvement of 3.8PP as compared to the 43.0% margin for the same period
last year. The gross margin improvement was due in part to the price
increase implemented on July 1, 1994 and to the 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 improvement in
gross margins experienced during the first nine months of 1994 is greater
than the expected improvement in the fourth quarter or the full year.
Selling, general and administrative expenses for the nine months ended
September 30, were 10.3% higher than the same period for 1993. The
increase was due primarily to the higher level of marketing expenditures in
support of the improved sales, as well as the timing of expenditures
combined with the effects of general inflation increases. Service and
distribution costs are 12.2% lower than last year and reflect the lower
costs resulting from the consolidation of the manufacturing and
distribution functions from two locations into one.
Included in the nine 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 18.6% for the nine months of 1994
due to higher interest income as a result of higher levels of investments
and slightly higher interest rates and from gains recorded on disposal of
certain of the Company's fixed assets.
The effective tax rate on income/(loss) from continuing operations for the
nine months ended September 30, 1994 was 44.6% as compared to the 37.8%
credit for the 1993 nine month period. As mentioned in the third quarter
discussion above, the higher 1994 rate as compared to 1993 was due
primarily to changes in U.S. tax laws relating to certain U.S. companies
with international operations.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments increased $3.6 million
from December 31, 1993 to $74.7 million at September 30, 1994. There was a
substantial increase in cash, and a corresponding decrease in accounts
receivable, as a result of 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. A comparable program has been offered this year, and it is expected
that accounts receivable will increase during the last quarter of the year
as well. Offsetting this increase was a cash outflow of $3.6 million for
the repurchase of Treasury stock(see below). Cash available for domestic
operations approximated $19 million while cash held off-shore approximated
$56 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
1993 or through the first nine months of 1994. Management expects to
borrow not more than $5,000,000 under this line in the fourth quarter of
1994.
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 September
30, 1994, 225,000 shares had been repurchased at a cost of approximately
$3,600,000.
PART II. OTHER INFORMATION
Item 6. No reports have been filed on Form 8-K pursuant to item 6(b) and no
other items are applicable for nine months ended September 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: November 14, 1994 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: November 14, 1994 By: MICHAEL EL-HILLOW
Michael El-Hillow
Vice President, Finance, Treasurer
Chief Financial Officer
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