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 [NO FEE REQUIRED]
For the quarterly period ended March 31, 1997
[ ] 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 March 31, 1997:
Class A common stock - 14,691,679 shares
Class B common stock - 1,804,800 shares
PART I. FINANCIAL INFORMATION
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
1997 1996 1996
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 22,881 $ 20,552 $ 16,171
Short-Term Investments 27,395 30,409 27,290
Accounts Receivable 27,062 27,411 44,970
Inventories-Note B 27,107 37,481 26,174
Other Current Assets 5,289 5,559 4,767
TOTAL CURRENT ASSETS 109,734 121,412 119,372
PROPERTY, PLANT AND EQUIPMENT 105,958 97,440 104,459
Less Allowances for Depreciation 65,981 59,193 64,134
39,977 38,247 40,325
INTANGIBLES AND OTHER ASSETS 15,360 15,837 15,494
$165,071 $175,496 $175,191
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Accrued Expenses and
Other Liabilities $ 17,280 $ 18,375 $ 21,653
Note Payable to Bank 0 0 6,000
Compensation and Related Taxes 3,153 4,545 2,783
Cash Dividends Payable 0 0 2,639
Contributions Payable to Employee
Benefit Plans 8,872 10,061 8,228
Income Taxes Payable 2,991 3,981 1,588
TOTAL CURRENT LIABILITIES 32,296 36,962 42,891
ACCRUED WARRANTY COSTS 5,584 5,284 5,509
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
Issued 15,288,042 Shares and Outstanding
14,691,679 Shares in March 1997, Issued
15,251,777 Shares and Outstanding
14,755,677 Shares in March 1996 and
Issued 15,282,412 Shares and Outstanding
14,686,049 Shares in December 1996 15,288 15,252 15,282
Class B, Authorized 4,000,000 Shares;
Issued and Outstanding 1,804,800 Shares 1,805 1,805 1,805
Additional Paid-In Capital 11,900 11,427 11,838
Retained Earnings 107,587 112,401 106,781
Accumulated Foreign Currency
Translation Adjustment (495) (22) (21)
136,085 140,863 135,685
Treasury Stock, at Cost (8,894) (7,613) (8,894)
TOTAL SHAREHOLDERS' EQUITY 127,191 133,250 126,791
$165,071 $175,496 $175,191
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED
MARCH 31
1997 1996
(Thousands of Dollars
Except per Share Data)
Net Sales $36,796 $36,053
Cost of Goods Sold 19,090 18,153
Gross Profit 17,706 17,900
Selling, General and Administrative Expenses 15,132 14,516
Research and Development Expenses 942 646
Service and Distribution Costs 852 911
Operating Income 780 1,827
Interest and Other Income 460 722
Income Before Income Taxes 1,240 2,549
Income Taxes 434 892
Net Income $ 806 $ 1,657
Net Income Per Share - Note C $0.05 $0.10
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
MARCH 31
1997 1996
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities $ 17,164 $ 1,519
Investing Activities:
Additions to Property, Plant and Equipment (1,515) (1,857)
Purchase of Short-Term Investments (1,205) (14,659)
Sale or Maturity of Short-Term Investments 1,100 5,677
Net Cash Used In Investing Activities (1,620) (10,839)
Financing Activities:
Cash Dividends Paid (2,639) (2,648)
Repayment of Bank Borrowings (6,000) 0
Other 68 115
Net Cash Used In Financing Activities (8,571) (2,533)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (263) (64)
Increase/(Decrease) in Cash and Cash Equivalents 6,710 (11,917)
Cash and Cash Equivalents at Beginning of Period 16,171 32,469
Cash and Cash Equivalents at End of Period $ 22,881 $ 20,552
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1997
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 months ended March 31, 1997, are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997. 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, 1996.
NOTE B - Inventories
The components of inventory at March 31, 1997 and December 31, 1996 were as
follows:
March 31 December 31
1997 1996
Finished goods $15,157 $14,226
Work in process 5,408 5,449
Raw materials 6,542 6,499
$27,107 $26,174
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 16,494,602 and
16,555,892 for the first quarter ended March 31, 1997 and 1996,
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.
In March 1997, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards (SFAS) No. 128, "Earnings per Share",
which the Company will adopt in the fourth quarter of 1997. Had SFAS No.
128 been effective for the quarters ended March 31, 1997 and 1996, reported
earnings per share would have been unchanged.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Results of Operations
Net sales for the first quarter ended March 31, 1997 increased 2.1%
compared to the first quarter of 1996. Foreign writing instrument sales of
$19.0 million improved 9.6% over 1996, while domestic writing instrument
sales of $14.7 million were 5.3% lower than last year. Leather sales by the
Company's Manetti-Farrow subsidiary were down 2.9% from the prior year.
Internationally, sales improved in most major foreign countries as the
Company continues to increase brand awareness and distribution in countries
where its products are less established. In particular, sales to Latin
America and Canada improved significantly, as did sales to Europe and the
Middle East. The improvement in Canadian sales is the result of a change
in the method of distribution in this market, from sales to a distributor
to direct sales to Canadian retail customers. The 1997 increase is
magnified since Canadian sales deteriorated in the first quarter of 1996
due to the financial difficulties experienced by the Company's distributor
at that time. Sales to Europe and the Middle East continued to improve due
to the Company's on-going efforts to develop this lucrative quality writing
instrument market. Although actual sales in Yen improved over last year,
reported Japanese sales in dollars were lower this quarter due to further
weakening of the Yen.
The Company believes that the decline in domestic sales, entirely in the
Retail Division, was the result of low consumer awareness of the Company's
newer product lines. Somewhat offsetting the overall decline in retail
sales were the strong business and institutional sales by the Special
Markets Division in the quarter.
The gross profit margin for the first quarter of 1997 was 48.1%, down
slightly from last year's gross margin of 49.6%. The decline in margin was
largely attributable to changes in product mix and promotional sales of
certain discontinued products, and unfavorable foreign exchange. Selling,
general and administrative expenses for the first quarter of 1997 were 4.2%
higher than last year, partly due to higher expenses associated with
selling directly to customers in Canada instead of through a distributor,
and to the continued growth in key European markets. The higher expenses
in 1997 include the cost of operating the Company's recently established
subsidiary in Italy. Research and development expenses, which exceeded
the 1996 first quarter by $296,000, or 45.8%, included expenditures
associated with certain new writing instrument products and the development
of the Pen Computing Group line of products.
Interest and other income decreased 36.3% for the first three months of
1997 primarily due to lower interest income. This decrease was due mostly
to lower average investable funds in the first quarter of 1997 offset by
slightly higher interest rates.
The effective income tax rate for the first quarter of 1997 was 35.0%,
unchanged from the first quarter of 1996.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments (i.e., "cash")increased
$6.8 million from December 31, 1996 to $50.3 million at March 31, 1997.
Cash available for domestic operations approximated $12.5 million while
cash held off-shore approximated $37.8 million at March 31, 1997. Accounts
receivable decreased since the end of 1996 by $17.9 million to $27.1
million as cash was collected in January 1997 from customers who took
advantage of the 1996 extended dating program that allowed domestic
customers to defer payments on certain 1996 purchases. This program was
similar to extended dating programs that have been offered in past years.
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. 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 either agreement as of March 31, 1997. A
$6.0 million balance on the Fleet line as of December 31, 1996 was paid off
during the first quarter.
Inventory of $27.1 million increased $0.9 million since December 31, 1996.
Since the end of March 1996, inventory levels have been reduced in excess
of $10 million. This decrease was the result of inventory reduction
efforts undertaken in the second half of 1996.
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 three months ended March 31, 1997.
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: May 13, 1997 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: May 13, 1997 By: JOHN T. RUGGIERI
John T. Ruggieri
Senior Vice President
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 MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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