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, 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 September 30, 1996:
Class A common stock - 14,686,312 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
1996 1995 1995
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 12,555 $ 26,198 $ 32,469
Short-Term Investments 31,947 31,587 21,427
Accounts Receivable 33,737 29,931 48,017
Inventories-Note B 37,350 25,486 29,465
Other Current Assets 7,022 6,811 3,765
TOTAL CURRENT ASSETS 122,611 120,013 135,143
PROPERTY, PLANT AND EQUIPMENT 101,689 92,076 95,589
Less Allowances for Depreciation 62,971 56,437 57,352
38,718 35,639 38,237
INTANGIBLES AND OTHER ASSETS 15,678 15,494 15,982
$177,007 $171,146 $189,362
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Accrued Expenses and
Other Liabilities $ 19,353 $ 17,279 $ 30,155
Note Payable to Bank 6,000 0 0
Compensation and Related Taxes 5,549 6,961 5,309
Cash Dividends Payable 0 0 2,648
Contributions Payable to Employee
Benefit Plans 9,059 8,682 9,443
Income Taxes Payable 2,170 3,678 4,884
TOTAL CURRENT LIABILITIES 42,131 36,600 52,439
ACCRUED WARRANTY COSTS 5,434 5,134 5,209
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
Issued 15,282,412 Shares and Outstanding
14,686,312 Shares in September 1996, Issued
15,208,250 Shares and Outstanding
14,717,650 Shares in September 1995 and
Issued 15,243,316 Shares and Outstanding
14,747,216 Shares in December 1995 15,282 15,208 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 11,838 10,903 11,320
Retained Earnings 109,524 108,621 110,743
Accumulated Foreign Currency
Translation Adjustment (117) 410 216
138,332 136,947 139,327
Treasury Stock, at Cost (8,890) (7,535) (7,613)
TOTAL SHAREHOLDERS' EQUITY 129,442 129,412 131,714
$177,007 $171,146 $189,362
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
1996 1995 1996 1995
(Thousands of Dollars Except per Share Data)
Net Sales $43,053 $44,859 $120,630 $125,149
Cost of Goods Sold 22,789 23,199 62,730 64,224
Gross Profit 20,264 21,660 57,900 60,925
Selling, General and
Administrative Expenses 16,346 16,540 48,505 48,976
Research and Development Expenses 725 794 1,928 2,152
Service and Distribution Expenses 1,086 959 2,925 3,073
Operating Income 2,107 3,367 4,542 6,724
Interest and Other Income 386 1,035 1,722 2,799
Income Before Income Taxes 2,493 4,402 6,264 9,523
Income Taxes 872 1,651 2,192 3,571
Net Income $ 1,621 $ 2,751 $ 4,072 $ 5,952
Net Income Per Share - Note C $0.10 $0.17 $0.25 $0.36
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
1996 1995
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities $ 5,813 $ 726
Investing Activities:
Additions to Property, Plant and Equipment (6,026) (7,052)
Purchase of Short-Term Investments (30,494) (37,867)
Sale or Maturity of Short-Term Investments 19,974 62,611
Net Cash Provided By (Used In) Investing Activities (16,546) 17,692
Financing Activities:
Cash Dividends Paid (7,939) (7,932)
Purchase of Treasury Stock (1,277) (229)
Other 332 195
Net Cash Used in Financing Activities (8,884) (7,966)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (297) 56
Increase (Decrease)in Cash and Cash Equivalents (19,914) 10,508
Cash and Cash Equivalents at Beginning of Period 32,469 15,690
Cash and Cash Equivalents at End of Period $ 12,555 $ 26,198
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine month periods ended September 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 September 30, 1996 and December 31, 1995
were as follows:
September 30 December 31
1996 1995
Finished goods $19,776 $14,499
Work in process 7,549 7,837
Raw materials 10,025 7,129
$37,350 $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 16,508,235 and
16,545,194 for the third quarter and nine months ended September 30, 1996,
respectively and 16,521,489 and 16,526,798 for the third quarter and nine
months ended September 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 Third Quarter 1996 Compared to Third Quarter 1995
Net sales for the third quarter ended September 30, 1996 decreased 4.0%
compared to the third quarter of 1995. Domestic writing instrument sales
of $23.3 million were 5.3% lower than last year, while foreign sales of
$16.9 million improved 5.1% over 1995. Underlying the decline in domestic
writing instrument sales was a sharp reduction, almost 35%, in sales to
mass market retailers. The Company's Century and Solo product lines were
the most negatively affected by the fall off in business to this
distribution channel. Sales of the Company's new Metropolis and Solo
Classic lines, particularly to the office mega stores as well as to
department, gift and jewelry stores (i.e., the "carriage trade"), helped to
partially offset the Century and Solo decreases. Leather sales were also
down for the quarter, $1.3 million or 31.7%, due to the lack of
availability of newer, more popularly priced styles of Fendi products. 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 relatively 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 against most other currencies in 1996 unfavorably
affected foreign sales in comparison to the third quarter of 1995.
The gross profit margin for the third quarter of 1996 decreased to 47.1%,
compared to 48.3% for the third quarter of 1995, due primarily to product
mix and lower sales. Selling, general and administrative expenses for the
third quarter of 1996 were down 1.2% from the prior year resulting from
cost containment efforts taken as a result of lower than expected sales.
Research and Development expenses were 8.7% lower than the same period of
1995, due to postponing certain projects in light of the lower sales
results, while service and distribution costs were higher than last year by
$127,000 or 13.2%.
Interest and other income decreased 62.7% for the third quarter of 1996 due
to lower interest income resulting from both lower average investable funds
and lower interest rates than in the third quarter of 1995. In addition,
interest income in 1995 included approximately $200,000 of interest income
on a state income tax refund claim, while other income included
approximately $100,000 relating to the sale of a building.
The effective income tax rate for the third 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 third quarter was primarily due to relative changes in
the levels of domestic and foreign income comprising total income.
Results of Operations Nine Months Ended September 30, 1996 Compared to
September 30, 1995
Net sales for the nine months ended September 30, 1996 were $120.6 million,
or 3.6% lower than the same period in 1995. Domestic sales of $67.3
million were 9.4% lower, while foreign writing instrument sales of $53.3
million were up 4.8% over the same period in 1995. Similar to the third
quarter, year-to-date sales to mass market retailers declined significantly
from the prior year, almost 43%, which contributed to the decline in the
Century and Solo product lines. Further contributing to lower Century sales
was a decline of almost 9% in sales to advertising specialty counselors,
supplied by the Company's Special Markets division. Lower sales to mass
market retailers was offset to a large extent by higher sales to office
supply stores and the Carriage Trade, driven by the introduction of the new
Metropolis and Solo Classic lines. 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 relatively strong sales of Townsend
and Solo Classic. A 1996 price increase had a slightly favorable effect on
both domestic and foreign sales as well. Although foreign sales increased,
they were unfavorably affected by a stronger U. S. dollar in the first nine
months of 1996 compared to the same period last year.
Gross profit margins for the first nine months of 1996 were 48.0%, as
compared to 48.7% for the same period in 1995, due primarily to product mix
and lower sales. Selling, general and administrative expenses for the nine
months ended September 30 were 1.0% lower than the same period for 1995.
Research and development expenses were down from last year by 10.4% while
Service and Distribution expenses decreased 4.8%. The factors affecting
the quarterly results in these areas, discussed above, also are applicable
to the nine month results.
Interest and other income decreased by 38.5% for the first nine months of
1996 primarily due to lower interest income as average investable funds and
interest rates were lower than last year. In addition, as mentioned in the
third quarter discussion above, interest income in 1995 included
approximately $200,000 of interest income on a state income tax refund
claim, while other income included approximately $100,000 relating to the
sale of a building.
The effective tax rate on income for the nine months ended September 30,
1996 was 35.0% as compared to 37.5% for the 1995 nine month period and
34.0% for the full year 1995. As mentioned in the third quarter discussion
above, the lower 1996 rate as compared to the nine month September 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 $9.4 million
from December 31, 1995 to $44.5 million at September 30, 1996. Accounts
receivable decreased from year-end by $14.3 million to $33.7 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 $6.1 million while cash held off-shore approximated $38.4
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 September 30, 1996 there was $6.0 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
September 30, 1996 and 1995 and December 31, 1995.
Inventory of $37.4 million increased $7.9 million since December 31, 1995.
The higher inventory is partially attributable to a build up of certain new
products in order to meet expected high demand in the fourth quarter. Also
contributing to higher inventories is the overall expansion in product
offerings and packaging variations. In addition, 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.
Changes in other current assets and in accounts payable, accrued expenses
and other liabilities are primarily due to timing of payments.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
No reports have been filed on Form 8-K pursuant to item 6(b) and no other
items are applicable for the three months ended September 30, 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: November 14, 1996 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: November 14, 1996 By: MICHAEL EL-HILLOW
Michael El-Hillow
Vice President, Finance, Treasurer
Chief Financial Officer
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN A. T. CROSS COMPANY FORM 10-Q FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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