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, 1995
[ ] 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, 1995:
Class A common stock - 14,717,036 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
1995 1994 1994
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 28,369 $ 32,308 $ 15,690
Short-Term Investments 33,256 45,708 56,331
Accounts Receivable 26,684 22,587 37,436
Inventories-Note B 25,117 19,353 16,725
Other Current Assets 6,191 4,529 4,545
TOTAL CURRENT ASSETS 119,617 124,485 130,727
PROPERTY, PLANT AND EQUIPMENT 89,279 80,329 84,979
Less Allowances for Depreciation 54,787 48,649 51,029
34,492 31,680 33,950
INTANGIBLES AND OTHER ASSETS 15,663 16,751 15,692
$169,772 $172,916 $180,369
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Accrued Expenses and
Other Liabilities $ 19,089 $ 18,103 $ 26,599
Compensation and Related Taxes 5,750 6,436 5,158
Cash Dividends Payable 0 0 2,644
Contributions Payable to Employee
Benefit Plans 8,007 8,976 8,055
Income Taxes Payable 1,824 190 4,302
TOTAL CURRENT LIABILITIES 34,670 33,705 46,758
ACCRUED WARRANTY COSTS 5,059 4,759 4,909
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
Issued 15,202,636 Shares and Outstanding
14,717,036 Shares in June 1995, Issued
15,182,801 Shares and Outstanding
15,151,001 Shares in June 1994 and
Issued 15,194,293 Shares and Outstanding
14,719,293 Shares in December 1994 15,203 15,183 15,194
Class B, Authorized 4,000,000 Shares;
Issued and Outstanding 1,804,800 Shares 1,805 1,805 1,805
Additional Paid-In Capital 10,827 10,176 10,722
Retained Earnings 108,514 107,495 107,959
Accumulated Foreign Currency
Translation Adjustment 1,157 303 328
137,506 134,962 136,008
Treasury Stock, at Cost (7,463) (510) (7,306)
TOTAL SHAREHOLDERS' EQUITY 130,043 134,452 128,702
$169,772 $172,916 $180,369
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
(Thousands of Dollars Except per Share Data)
Net Sales $44,883 $40,620 $80,290 $75,813
Cost of Goods Sold 23,215 21,897 41,025 40,404
Gross Profit 21,668 18,723 39,265 35,409
Selling, General and
Administrative Expenses 17,983 16,485 32,436 29,781
Service and Distribution Costs 1,093 1,075 2,114 2,180
Research and Development Expenses 639 626 1,267 1,094
Operating Income 1,953 537 3,448 2,354
Interest and Other Income 682 760 1,673 1,347
Income Before Income Taxes 2,635 1,297 5,121 3,701
Income Taxes 988 608 1,920 1,651
Net Income $ 1,647 $ 689 $ 3,201 $ 2,050
Net Income Per Share - Note C $0.10 $0.04 $0.19 $0.12
Dividends Declared Per Share $0.16 $ 0.16 $0.16 $ 0.16
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30
1995 1994
(Thousands of Dollars)
Cash Provided By(Used In):
Operating Activities $(1,291) $ 15,620
Investing Activities:
Additions to Property, Plant and Equipment (4,118) (2,849)
Additional Acquisition Payment 0 (275)
Purchase of Short-Term Investments (34,812) (43,779)
Sale or Maturity of Short-Term Investments 57,887 16,383
Net Cash Provided By(Used In)Investing Activities 18,957 (30,520)
Financing Activities:
Cash Dividends Paid (5,289) (5,426)
Purchase of Treasury Stock (157) (510)
Other 114 104
Net Cash Used in Financing Activities (5,332) (5,832)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 345 218
Increase(Decrease)in Cash and Cash Equivalents 12,679 (20,514)
Cash and Cash Equivalents at Beginning of Period 15,690 52,822
Cash and Cash Equivalents at End of Period $28,369 $ 32,308
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1995
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 three and six month periods ended June 30, 1995 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1995. 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, 1994.
NOTE B - Inventories
The components of inventory at June 30, 1995 and December 31, 1994 were as
follows:
June 30 December 31
1995 1994
Finished goods $ 13,762 $ 9,612
Work in process 5,790 2,832
Raw Materials 5,565 4,281
$25,117 $16,725
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 16,531,149 and
16,529,497 for the second quarter and six months ended June 30, 1995,
respectively and 16,977,000 and 16,979,857 for the second quarter and six
months ended June 30, 1994, 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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations Second Quarter 1995 Compared to Second Quarter 1994
Net sales for the second quarter ended June 30, 1995 increased by $4.3
million or 10.5% from the second quarter of 1994. Domestic sales were 5.1%
higher than last year while foreign sales were 19.7% improved over the same
period in 1994. The higher domestic sales this quarter are due in part to
the continued success of the wider-girth Townsend product line. A new
Townsend case quality with a lapis lazuli finish was introduced this
quarter. The elegant and distinctive look of this new product added
excitement and interest to the entire line.. In late May, the Company began
the worldwide introduction of its two new resin-based Solo products -- a
lower-priced line with black appointments and a Classic line with gold
electroplated appointments. Their debut had a positive effect on sales in
the last few weeks of the quarter, although the introduction was later than
planned and was not a major factor in the spring gift-giving occasions,
such as Father's Day, Mother's Day and Graduation. The Solo and Solo
Classic lines will be widely distributed prior to the important fall
selling season. The increase in foreign sales was also the result of the
continued demand for the exclusive Townsend product line and the
introduction of Solo. The weaker U.S. dollar in the second quarter of 1995
as compared to the second quarter of 1994 also contributed to the foreign
sales increase. A price increase on July 1, of last year positively
affected both domestic and foreign sales this quarter in comparison to last
year.
Gross profit margins for the second quarter of 1995 were 48.3%, compared to
46.1% for the second quarter of 1994. The gross margin improvement was due
largely to favorable changes in product mix compared to the same period in
1994 and the effect of the previously noted price increase.
Selling, general and administrative expenses increased 9.1% to $18.0
million in the second quarter as a result of planned increases in Marketing
Support expenditures and the effect of the weaker U. S. dollar on the
Company's foreign operations.
Interest and other income was 10.3% lower than 1994 due largely to lower
non-recurring other income this period. Interest income alone was 22.7%
improved as a result higher average yields, offset by lower average
investments.
The effective tax rate on income for the second quarter of 1995 was 37.5%
as compared to 46.9% for the second quarter of 1994. The Company
implemented a reorganization of certain of its European Operations at the
end of 1994 to lower its overall effective corporate income tax rate.
Results of Operations Six Months Ended June 30, 1995 Compared to June 30,
1994
Net sales for the six months ended June 30, 1995 were $80.3 million, or
5.9% higher than the same period in 1994. Domestic sales of $45.5 million
were 2.4% higher, and foreign sales were up 10.8% over the same period in
1994. The factors affecting sales results for the second quarter had a
similar affect on year to date sales. Both domestic and foreign sales were
higher due to the continued strength of Townsend, aided by the introduction
of the lapis lazuli finish, and by the introduction of Solo. Foreign
results were also favorably affected by a weaker U. S. dollar in the first
six months of 1995 compared to the same period last year.
Gross profit margins for the six months of 1995 were 48.9%, as compared to
46.7% for the same period in 1994. As was the case in the second quarter,
the gross margin improvement was largely due to favorable changes in
product mix this year as compared to the same period in 1994 and the affect
of the July 1, 1994 price increase.
Selling, general and administrative expenses for the six months ended June
30 were 8.9% higher than the same period for 1994. The increase was due
primarily to planned higher Marketing Support expenditures combined with
the effect of a weaker U.S. dollar on foreign locations. Research and
Development expenses were up over last year by 15.8% as a result of the
timing of new projects in 1995 compared to 1994.
Interest and other income increased by 24.2% for the first six months of
1995 primarily due to higher interest income as average rates are slightly
higher than last year.
The effective tax rate on income for the six months ended June 30, 1995 was
37.5% as compared to 44.6% for the 1994 six month period. As mentioned in
the second quarter discussion above, the lower 1995 rate as compared to the
1994 rate was due primarily to a restructuring of the Company's European
operations.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments decreased $10.4 million
from December 31, 1994 to $61.6 million at June 30, 1995. Cash available
for domestic operations approximated $7.9 million while cash held off-shore
approximated $53.7 million. Contributing to the decrease in cash was the
increase in inventory and the repayment of $2 million in short term loans
which were outstanding at the end of 1994. The company has a $50 million
line of credit with Fleet National Bank which provides an additional source
of working capital on a short term basis. Accounts receivable decreased
$10.8 million from December 31, 1994 due to collections in 1995 from
customers who took advantage of the 1994 special holiday promotion which,
similar to previous years, allowed qualifying domestic customers to defer
payments on their 1994 purchases. The increase in inventory since December
31, 1994 is in support of new product introductions. Cash from operations
in 1995 is approximately $17 million less through the first six months of
1995 compared to the same period of 1994 due to the increase in inventory
combined with an increase in accounts receivable compared to June 30, 1994,
due to higher shipments late in the quarter.
In the second half of 1994, the Company repurchased 475,000 shares of its
common stock at a cost of $7.3 million. While only 10,600 shares have been
repurchased in 1995, the Company is authorized to repurchase an additional
614,400 shares at management's discretion.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on April 27, 1995 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 12,197,093 Class A shares in favor, 683,357
against, 48,501 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 12,729,851 199,100
James C. Tappan 12,619,844 309,107
Thomas C. McDermott 12,711,108 217,843
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
Edwin G. Torrance
c. Appointment of Independent Auditors
A proposal to ratify the appointment of Ernst & Young LLP as
independent auditors for the Company for the year ending December 31,
1995 was approved by the unanimous vote of 1,804,800 Class B shares.
d. Approval of the Company's Non-Qualified Stock Option Plan, as
amended and restated
A proposal to approve the Company's Non-Qualified Stock Option Plan,
as amended and restated, was approved by the affirmative vote of
9,842,244 Class A shares in favor, 2,973,634 against and
113,073 abstaining, and 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 the six months ended June 30, 1995.
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, 1995 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: August 9, 1995 By: MICHAEL EL-HILLOW
Michael El-Hillow
Vice President, Finance, Treasurer
Chief Financial Officer
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