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, 1996
[ ] 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, 1996:
Class A common stock - 14,762,344 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
1996 1995 1995
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 18,986 $ 28,369 $ 32,469
Short-Term Investments 31,989 33,256 21,427
Accounts Receivable 27,572 26,684 48,017
Inventories-Note B 38,327 25,117 29,465
Other Current Assets 7,868 6,191 3,765
TOTAL CURRENT ASSETS 124,742 119,617 135,143
PROPERTY, PLANT AND EQUIPMENT 99,844 89,279 95,589
Less Allowances for Depreciation 61,064 54,787 57,352
38,780 34,492 38,237
INTANGIBLES AND OTHER ASSETS 15,758 15,663 15,982
$179,280 $169,772 $189,362
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Accrued Expenses and
Other Liabilities $ 18,894 $ 19,089 $30,155
Note Payable to Bank 7,100 0 0
Compensation and Related Taxes 5,550 5,750 5,309
Cash Dividends Payable 0 0 2,648
Contributions Payable to Employee
Benefit Plans 9,578 8,007 9,443
Income Taxes Payable 1,398 1,824 4,884
TOTAL CURRENT LIABILITIES 42,520 34,670 52,439
ACCRUED WARRANTY COSTS 5,359 5,059 5,209
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
Issued 15,258,444 Shares and Outstanding
14,762,344 Shares in June 1996, Issued
15,202,636 Shares and Outstanding
14,717,036 Shares in June 1995 and
Issued 15,243,316 Shares and Outstanding
14,747,216 Shares in December 1995 15,258 15,203 15,243
Class B, Authorized 4,000,000 Shares;
Issued and Outstanding 1,804,800 Shares 1,805 1,805 1,805
Additional Paid-In Capital 11,504 10,827 11,320
Retained Earnings 110,542 108,514 110,743
Accumulated Foreign Currency
Translation Adjustment (95) 1,157 216
139,014 137,506 139,327
Treasury Stock, at Cost (7,613) (7,463) (7,613)
TOTAL SHAREHOLDERS' EQUITY 131,401 130,043 131,714
$179,280 $169,772 $189,362
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
1996 1995 1996 1995
(Thousands of Dollars Except per Share Data)
Net Sales $41,524 $44,883 $77,577 $80,290
Cost of Goods Sold 21,788 23,215 39,941 41,025
Gross Profit 19,736 21,668 37,636 39,265
Selling, General and
Administrative Expenses 17,643 17,983 32,159 32,436
Research and Development Expenses 557 685 1,203 1,358
Service and Distribution Costs 928 1,093 1,839 2,114
Operating Income 608 1,907 2,435 3,357
Interest and Other Income 614 728 1,336 1,764
Income Before Income Taxes 1,222 2,635 3,771 5,121
Income Taxes 428 988 1 320 1,920
Net Income $ 794 $ 1,647 $ 2,451 $ 3,201
Net Income Per Share - Note C $0.05 $0.10 $0.15 $ 0.19
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
1996 1995
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities $ 6,714 $ (1,291)
Investing Activities:
Additions to Property, Plant and Equipment (4,236) (4,118)
Purchase of Short-Term Investments (30,032) (34,812)
Sale or Maturity of Short-Term Investments 19,470 57,887
Net Cash Provided By (Used In) Investing Activities (14,798) 18,957
Financing Activities:
Cash Dividends Paid (5,300) (5,289)
Purchase of Treasury Stock 0 (157)
Other 199 114
Net Cash Used In Financing Activities (5,101) (5,332)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (298) 345
Increase (Decrease) in Cash and Cash Equivalents (13,483) 12,679
Cash and Cash Equivalents at Beginning of Period 32,469 15,690
Cash and Cash Equivalents at End of Period $ 18,986 $ 28,369
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
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, 1996 are not
necessarily indicative of the results that may be expected for the year
ending December 31, 1996. 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, 1995.
NOTE B - Inventories
The components of inventory at June 30, 1996 and December 31, 1995 were as
follows:
June 30 December 31
1996 1995
Finished goods $20,002 $14,499
Work in process 8,767 7,837
Raw materials 9,558 7,129
$38,327 $29,465
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 16,561,264 and
16,558,579 for the second quarter and six months ended June 30, 1996,
respectively and 16,531,149 and 16,529,497 for the second quarter and six
months ended June 30, 1995, 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 OPERATION
Results of Operations Second Quarter 1996 Compared to Second Quarter 1995
Net sales for the second quarter ended June 30, 1996 decreased 7.5%
compared to the second quarter of 1995. Domestic sales of $22.4 million
were 17.0% lower than last year, while foreign sales of $19.1 million
improved 7.0% over 1995. The decline in Domestic writing instrument sales
was primarily caused by lower sales of the Company's Century and Solo lines
to certain mass market retailers as these retailers attempt to balance
inventory levels with expected consumer demand. Leather sales were also
down for the quarter due to lower purchases from a major customer. The
overall decline in domestic sales was offset somewhat by the continued
success of Townsend and Solo Classic and by the 1996 launch of the new
Metropolis line, a contemporary styled product featuring polished lacquered
caps and fluted-metal barrels, offered generally in the middle to upper
price range of the Century line. The foreign sales increase is
attributable to the launch of the Century Restage line in Europe, the
Middle East and Africa, as well as to strong sales of Townsend and Solo
Classic. A 1996 price increase in certain lines had a slightly favorable
effect on both domestic and foreign sales as well, while the stronger
dollar in 1996 unfavorably affected foreign sales in comparison to the
second quarter of 1995.
The gross profit margin for the second quarter of 1996 decreased slightly
to 47.5%, compared to 48.3% for the second quarter of 1995, due primarily
to product mix and lower sales. Selling, general and administrative
expenses for the second quarter of 1996 were down 1.9% from the prior year
resulting from cost containment efforts taken as a result of lower than
expected sales. Research and Development expenses were 18.7% lower than
the same period of 1995 due to the timing of projects under development.
Service and Distribution costs were 15.1% less than last year due in part
to lower costs of product repairs under the Company's warranty, and to
overall lower sales.
Interest and other income decreased 15.7% for the second quarter of 1996
due to lower interest income resulting from both lower average investable
funds and lower interest rates than in the second quarter of 1995.
The effective income tax rate for the second quarter of 1996 was 35.0%,
lower than the 37.5% rate for the same period last year, but more in line
with the full year 1995 rate of 34.0%. The change in the rate in the 1996
compared to the 1995 second quarter was primarily due to relative changes
in the levels of domestic and foreign income comprising total income.
Results of Operations Six Months Ended June 30, 1996 Compared to June 30,
1995
Net sales for the six months ended June 30, 1996 were $77.6 million, or
3.4% lower than the same period in 1995. Domestic sales of $41.2 million
were 9.5% lower, while foreign sales of $36.4 million were up 4.6% over the
same period in 1995. For the most part, the factors affecting sales
results for the second quarter had a similar affect on year-to-date sales:
Lower Century and Solo sales were offset somewhat by the continued success
of the higher-priced, wider-girth Townsend line and the early positive
results for Metropolis, Solo Classic and Century Restage. A 1996 price
increase had a slightly favorable effect on sales as well. Although
foreign sales increased, they were unfavorably affected by a stronger U. S.
dollar in the first six months of 1996 compared to the same period last
year.
Gross profit margins for the first six months of 1996 were 48.5%, as
compared to 48.9% for the same period in 1995 due primarily to product mix
and lower sales. Selling, general and administrative expenses for the six
months ended June 30 were 0.9% lower than the same period for 1995.
Research and Development expenses were down from last year by 11.4% while
Service and Distribution expenses decreased 13.0%. The factors affecting
the quarterly results in these areas, discussed above, also are applicable
to the six month results.
Interest and other income decreased by 24.3% for the first six months of
1996 primarily due to lower interest income as average investable funds and
interest rates were lower than last year.
The effective tax rate on income for the six months ended June 30, 1996 was
35.0% as compared to 37.5% for the 1995 six month period and 34.0% for the
full year 1995. As mentioned in the second quarter discussion above, the
lower 1996 rate as compared to the six month June 30, 1995 rate was due to
relative changes in the levels of domestic and foreign income comprising
total income.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments decreased $2.9 million
from December 31, 1995 to $51.0 million at June 30, 1996. Accounts
receivable decreased from year-end by $20.4 million to $27.6 million as
cash was collected in January 1996 from customers who took advantage of the
1995 promotion that allowed qualifying domestic customers to defer payments
on certain 1995 purchases. This promotion was similar to programs that
have been offered in past years. Cash available for domestic operations
approximated $3.4 million while cash held off-shore approximated $47.6
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. At June 30, 1996 there was $7.1 million outstanding
under this line. The Company also has available a $7 million multi-
currency credit arrangement with a bank to meet short-term foreign currency
needs. There were no outstanding amounts under this agreement as of June
30, 1996 and 1995 and December 31, 1995.
Inventory of $38.3 million increased $8.9 million since December 31, 1995.
The higher inventory is the result of new product introductions and
expanded packaging variations. 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. Also, more of the materials used in the Company's newer
products are foreign sourced and require longer lead times, resulting in
the need for higher inventory levels of these materials.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its annual meeting on April 25, 1996 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 12,164,437 Class A shares in favor, 340,073
against, 26,455 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 11,948,109 582,856
James C. Tappan 12,115,356 415,609
Thomas C. McDermott 12,123,956 407,009
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
Item 6. Exhibits and Reports on Form 8-K
A report on Form 8-K dated July 16, 1996 was filed by the Company, stating
that a change in the Company's independent certifying accountants had
occurred due to the dismissal of Ernst & Young LLP. The report noted that
Ernst & Young LLP did not issue any adverse or qualified opinions on the
Company's financial statements for the preceding two fiscal years, nor did
any disagreement arise prior to the dismissal of Ernst & Young LLP which,
if not resolved, would have required a comment in connection with its
report. The Company also reported it has retained Deloitte & Touche LLP as
its new independent certifying accountants. Holders of all Class B shares
approved by unanimous consent vote dated July 16, 1996 the appointment of
Deloitte & Touche as independent auditors for the year ending December 31,
1996.
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 13, 1996 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: August 13, 1996 By: MICHAEL EL-HILLOW
Michael El-Hillow
Vice President, Finance, Treasurer
Chief Financial Officer
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN A. T. CROSS COMPANY FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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