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, 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 September 30, 1995:
Class A common stock - 14,717,650 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
1995 1994 1994
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 26,198 $ 25,031 $ 15,690
Short-Term Investments 31,587 49,671 56,331
Accounts Receivable 29,931 30,691 37,436
Inventories-Note B 25,486 16,496 16,725
Other Current Assets 6,811 3,228 4,545
TOTAL CURRENT ASSETS 120,013 125,117 130,727
PROPERTY, PLANT AND EQUIPMENT 92,076 82,352 84,979
Less Allowances for Depreciation 56,437 50,289 51,029
35,639 32,063 33,950
INTANGIBLES AND OTHER ASSETS 15,494 16,680 15,692
$171,146 $173,860 $180,369
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Accrued Expenses and
Other Liabilities $ 17,279 $ 21,481 $ 26,599
Compensation and Related Taxes 6,961 6,527 5,158
Cash Dividends Payable 0 0 2,644
Contributions Payable to Employee
Benefit Plans 8,682 7,685 8,055
Income Taxes Payable 3,678 1,885 4,302
TOTAL CURRENT LIABILITIES 36,600 37,578 46,758
ACCRUED WARRANTY COSTS 5,134 4,834 4,909
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
Issued 15,208,250 Shares and Outstanding
14,717,650 Shares in September 1995, Issued
15,191,625 Shares and Outstanding
14,966,625 Shares in September 1994 and
Issued 15,194,293 Shares and Outstanding
14,719,293 Shares in December 1994 15,208 15,192 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 10,903 10,292 10,722
Retained Earnings 108,621 107,468 107,959
Accumulated Foreign Currency
Translation Adjustment 410 330 328
136,947 135,087 136,008
Treasury Stock, at Cost (7,535) (3,639) (7,306)
TOTAL SHAREHOLDERS' EQUITY 129,412 131,448 128,702
$171,146 $173,860 $180,369
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
(Thousands of Dollars Except per Share Data)
Net Sales $44,859 $45,928 $125,149 $121,741
Cost of Goods Sold 23,199 24,322 64,224 64,726
Gross Profit 21,660 21,606 60,925 57,015
Selling, General and
Administrative Expenses 16,540 16,496 48,976 46,277
Service and Distribution Costs 959 992 3,073 3,172
Research and Development Expenses 748 343 2,015 1,437
Operating Income 3,413 3,775 6,861 6,129
Interest and Other Income 989 1,052 2,662 2,399
Income Before Income Taxes 4,402 4,827 9,523 8,528
Income Taxes 1,651 2,153 3,571 3,804
Net Income $ 2,751 $ 2,674 $ 5,952 $ 4,724
Net Income Per Share - Note C $0.17 $0.16 $0.36 $0.28
Dividends Declared Per Share $0.16 $ 0.16 $0.32 $ 0.32
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30
1995 1994
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities $ 726 $ 20,210
Investing Activities:
Additions to Property, Plant and Equipment (7,052) (4,902)
Additional Acquisition Payment 0 (481)
Purchase of Short-Term Investments (37,867) (49,060)
Sale or Maturity of Short-Term Investments 62,611 17,701
Net Cash Provided By (Used In)Investing Activities 17,692 (36,742)
Financing Activities:
Cash Dividends Paid (7,932) (8,128)
Purchase of Treasury Stock (229) (3,639)
Other 195 228
Net Cash Used in Financing Activities (7,966) (11,539)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents 56 280
Increase (Decrease)in Cash and Cash Equivalents 10,508 (27,791)
Cash and Cash Equivalents at Beginning of Period 15,690 52,822
Cash and Cash Equivalents at End of Period $ 26,198 $ 25,031
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine month periods ended September 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 September 30, 1995 and December 31, 1994
were as follows:
September 30 December 31
1995 1994
Finished goods $ 13,582 $ 9,612
Work in process 7,491 2,832
Raw materials 4,413 4,281
$ 25,486 $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 16,521,489 and
16,526,798 for the third quarter and nine months ended September 30, 1995,
respectively and 16,852,929 and 16,937,083 for the third quarter and nine
months ended September 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 Third Quarter 1995 Compared to Third Quarter 1994
Net sales for the third quarter ended September 30, 1995 decreased by $1.1
million or 2.3% from the third quarter of 1994. Domestic sales were 8.8%
lower than last year, while foreign sales were 11.8% improved over the same
period in 1994. The lower domestic sales this quarter are due to the delay
in introducing the Company's new low-priced Solo line and to a change in
the ordering patterns of certain larger domestic customers. The Company had
planned to introduce Solo early in the second quarter to take advantage of
the major spring gift giving occasions but the product was not available
until the end of the second quarter. This delay negatively impacted the
momentum of the launch of this new product during a key selling period,
resulting in lower sales in both the second and third quarters. The change
in customer ordering patterns was influenced in part by a change in the
Company's annual holiday season program which offers extended payment terms
to certain qualifying domestic customers. Unlike 1994, the revised program
did not require that customers accept shipment by the end of September in
order to qualify for extended payment terms. Similar to the U.S., foreign
sales of the wider-girth Townsend line remained strong and, along with the
Solo introduction, made up a large part of the quarter to quarter foreign
sales increase. The weaker U.S. dollar in the third quarter of 1995 as
compared to the third quarter of 1994 also contributed to the foreign sales
increase.
Gross profit margins for the third quarter of 1995 were 48.3%, compared to
47.0% for the third quarter of 1994. The gross margin improvement was due
largely to favorable changes in product mix compared to the same period in
1994.
Selling, general and administrative expenses of $16.5 million in the third
quarter were even with the prior year. Research and development expenses
were up over last year by 118.1% mainly as a result of the Company's
emphasis on new product development.
Interest and other income was 6.0% lower than 1994 due largely to lower non-
recurring other income this period. Interest income alone was 13.3%
improved as a result of higher average yields, offset by lower average
investments.
The effective tax rate on income for the third quarter of 1995 was 37.5% as
compared to 44.6% for the third quarter of 1994. The Company implemented a
reorganization of certain of its European Operations at the end of 1994 to
reflect a change in its operating philosophy in that market which lowered
the Company's overall effective corporate income tax rate.
Results of Operations Nine Months Ended September 30, 1995 Compared to
September 30, 1994
Net sales for the nine months ended September 30, 1995 were $125.1 million,
or 2.8% higher than the same period in 1994. Domestic sales of $74.2
million were 2.2% lower, but foreign sales were up 11.1% over the same
period in 1994. As discussed above, the decline in domestic sales was
primarily due to the delay in the first half of the year in introducing the
new lower-priced Solo line and to a significant change in the ordering
patterns of certain larger domestic customers. New products and packaging
variations of the existing products continue to be well received. The
wider-girth Townsend line continues to perform well in the United States.
Impulse packaging of the Century writing instruments has helped to renew
interest in this older line. The increase in foreign sales was also the
result of the continuing strong performance of Townsend, as well as the
introduction of the Solo and Solo Classic lines. In addition, foreign
results were favorably affected by a weaker U. S. dollar in the first nine
months of 1995 compared to the same period last year.
Gross profit margins for the nine months of 1995 were 48.7%, as compared to
46.8% for the same period in 1994. The gross margin improvement was
largely due to favorable changes in product mix this year as compared to
1994 and the affect of the mid-year 1994 price increase.
Selling, general and administrative expenses for the nine months ended
September 30 were 5.8% higher than the same period for 1994. The increase
was due primarily to higher marketing support expenditures combined with
the effect of the weaker U.S. dollar on the results of foreign operations.
Research and Development expenses were up over last year by 40.2% mainly as
a result of the new product development efforts.
Interest and other income increased by 11.0% for the first nine months of
1995 largely due to higher interest income as average rates are slightly
higher than last year.
The effective tax rate on income for the nine months ended September 30,
1995 was 37.5% as compared to 44.6% for the same period in 1994. As
mentioned in the third quarter discussion above, the lower 1995 rate
compared to the 1994 rate was primarily due to a restructuring of the
Company's European operations.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments decreased $14.2 million
from December 31, 1994 to $57.8 million at September 30, 1995. Cash
available for domestic operations approximated $5.6 million while cash held
off-shore approximated $52.2 million. Contributing to the decrease in cash
was the increase in inventory and the repayment of $2.0 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 $7.5 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. As the Company continues to expand its product lines, it is
probable that it will also need to maintain inventories at a higher level
than it has had over the last several years. It is the Company's intention
to meet certain stringent inventory turnover ratios once the new products
have established themselves in the market place and the ordering patterns
become more predictable. Cash from operations in 1995 is approximately $19
million less through the first nine months of 1995 compared to the same
period of 1994 due largely to the increase in inventory combined with lower
accounts payable and the repayment of the short-term borrowing discussed
above.
Through September 1995 the Company has repurchased 490,600 shares of its
common stock at a cost of $7.5 million. The Company is authorized to
repurchase up to one million shares at management's discretion.
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 the nine months ended September 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: November 13, 1995 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: November 13, 1995 By: MICHAEL EL-HILLOW
Michael El-Hillow
Vice President, Finance, Treasurer
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1995
<CASH> 3,189
<SECURITIES> 54,596
<RECEIVABLES> 31,722
<ALLOWANCES> 1,791
<INVENTORY> 25,486
<CURRENT-ASSETS> 120,013
<PP&E> 92,076
<DEPRECIATION> 56,437
<TOTAL-ASSETS> 171,146
<CURRENT-LIABILITIES> 36,600
<BONDS> 0
<COMMON> 17,013
0
0
<OTHER-SE> 112,399
<TOTAL-LIABILITY-AND-EQUITY> 171,146
<SALES> 125,149
<TOTAL-REVENUES> 127,942
<CGS> 64,224
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 53,889
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 131
<INCOME-PRETAX> 9,523
<INCOME-TAX> 3,571
<INCOME-CONTINUING> 5,952
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,952
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
