UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL AND TRANSITIONAL REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] 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 Number 1-6720
A. T. CROSS COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0126220
(State or other jurisdiction of (I.R.S. 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered:
Class A Common Stock ($1. Par Value) American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10-K. [ X ]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1997:
Class A common stock - $154,431,900
(For this purpose all directors have been treated as affiliates).
The number of shares outstanding of each of the issuer's classes of common
stock as of February 28, 1997:
Class A common stock - 14,691,679 shares
Class B common stock - 1,804,800 shares
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to shareholders for the year ended December
31, 1996 are incorporated by reference into Parts I, II and IV. Portions
of the definitive proxy statement for the 1997 annual meeting of
shareholders are incorporated by reference into Part III.
PART I
Item 1. BUSINESS
A. T. Cross Company (the "registrant") currently operates predominantly in
one business segment, the manufacture and sale of high quality writing
instruments.
The registrant manufactures fine writing instruments consisting of ball-
point and fountain pens, Selectip roller-ball pens (which also accommodate
a porous point refill), mechanical pencils, desk sets and ball-point
refills. The registrant's writing instruments are offered in a variety of
styles and materials, including the traditional, narrow girth Century line
and the wider girth Townsend line, both fabricated primarily in metal, the
Solo and Solo Classic lines, fabricated in resin, and the new Metropolis
line, also fabricated in metal, introduced in the United States and certain
foreign markets in 1996. The registrant also markets certain writing
instrument accessories. The registrant continues to be the leading company
in the United States in fine writing instruments priced from $10 to $50.
Products in this price range include Century, Solo and Solo Classic and
Metropolis. The Townsend collection has given the registrant a notable
presence in the $55 to $250 price range of products. The registrant
emphasizes styling, craftsmanship and quality control in the design and
production of its products. All of the registrant's writing instruments
carry a full warranty of unlimited duration against mechanical failure.
The registrant's writing instruments are packaged and sold as individual
units or in matching sets. The registrant also sells single and double
unit desk sets with bases made of various materials such as onyx, marble
and wood.
The registrant's writing instrument products are distributed throughout the
United States by approximately 40 manufacturer's agents or representatives
to about 7,300 active retail and wholesale accounts. Retail accounts
include gift stores, department stores, jewelers, stationery and office
supply stores, mass merchandisers and catalogue showrooms. The wholesale
accounts distribute the registrant's products to retail outlets which
purchase in smaller quantities.
Advertising specialty representatives market the registrant's writing
instruments in the United States to business and industry. Typically, such
products are engraved or carry the purchaser's name or emblem and are used
for gifts, sales promotions, incentive purposes or advertising. The
registrant also sells its products to United States military post
exchanges, service centers and central buying operations.
Sales of the registrant's writing instrument products outside the United
States during 1996 were made by the registrant and by its wholly-owned
subsidiaries to foreign distributors and to retailers principally in
Canada, Latin America, Europe, Africa, the Middle East, Asia, and the Far
East.
The registrant also markets fine quality leather goods (primarily ladies
handbags) and accessories through its wholly-owned subsidiary, Manetti-
Farrow, Incorporated. Manetti-Farrow is the exclusive wholesale
distributor for Fendi and Echo brands of leather products and fashion
accessories in the United States.
Raw Materials:
Most raw materials for production of writing instruments in the United
States are obtained domestically. Some desk set base materials, some
fountain pen nibs and front sections, certain finished caps and barrels,
and some lacquer coating of metal shells are imported from Germany and
France. Complete pencil mechanisms, some porous point refill components
and leads, resin caps and barrels and some fountain pen nibs and front
sections are imported from Japan. Raw materials for production of writing
instruments in Ireland are obtained largely from Ireland, Germany, Japan
and the United States.
Patents and Trademarks:
The registrant, directly and through its subsidiaries, has certain
trademark registrations in the United States and many foreign countries,
including but not limited to, its principal trademark "CROSS", and related
trademarks, and the frustoconical top of its writing instruments. The
principal trademark "CROSS" and related goodwill is of fundamental
importance to the business. The registrant also holds certain United
States and foreign patents covering its desk set units, Townsend series
writing instruments, Solo and Solo Classic series writing instruments,
Metropolis series writing instruments, Signature series writing
instruments, fountain pens, mechanical pencil mechanisms, ball-point pen
mechanisms, and fountain pen cartridges, and has filed United States and
foreign patent applications on certain of the foregoing writing instruments
and related items. While the registrant pursues a practice of seeking
patent protection for novel inventions or designs, the Company's business
is not significantly dependent upon obtaining and maintaining patents.
In 1993, the registrant sold its Mark Cross trademark and selected assets
of its wholly-owned subsidiary, Mark Cross, Inc. and discontinued its Mark
Cross retail business. However, under the terms of that sale, the
registrant retained the right to use the CROSS trademark in certain non-
writing instruments categories, without challenge by the purchaser of the
Mark Cross trademark.
Seasonal Business:
Retail demand for the registrant's products is traditionally highest
immediately prior to Christmas and other gift-giving occasions. However,
seasonal fluctuations have not materially affected continuous production of
writing instrument products. The Company generates approximately one third
of its annual sales in the fourth quarter.
Working Capital Requirements:
Inventory balances tend to be highest in anticipation of new product
launches and just before peak selling seasons. Production for some
products which have longer lead times or for which production capacity is
limited is proportionately greater earlier in the year, and inventory
balances are relatively higher, to assure adequate supply is available for
the peak selling season. The registrant has offered in the past, and may
offer in the future, extended payment terms to domestic customers at
certain points during the year, usually September through November. See
the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the registrant's annual report to
shareholders for the year ended December 31, 1996 (filed herewith as
Exhibit 13 and hereinafter referred to as the "1996 Annual Report"), which
section is incorporated by reference herein.
Customers:
The registrant is not dependent for a material part of its business upon
any single customer or a small number of customers.
Backlog of Orders:
The backlog of orders is not a significant factor in the registrant's
business.
Government Contracts:
Sales of the registrant's writing instrument products are made to military
post exchanges and service centers, but no contracts are entered into which
are subject to renegotiation or termination by the United States
Government.
Competition:
The writing instrument field is highly competitive. In particular,
competition is strong with respect to product quality and brand
recognition. There are numerous manufacturers of ball-point, roller-ball
and fountain pens and mechanical pencils in the United States and abroad.
Many of such manufacturers produce lower priced writing instruments than
those produced by the registrant. Although the registrant is a major
producer of ball-point, roller-ball and fountain pens and mechanical
pencils in the $10 to $50 price range, other writing instrument companies
have significantly higher sales volumes from a broader product line across
a wider range of prices or have greater resources as divisions of larger
corporations.
Research and Development:
The registrant had expenditures for research and development of new
products and improvement of existing products of approximately $2,877,000
in 1996, $2,991,000 in 1995, and $2,036,000 in 1994.
Environment:
The registrant believes it is in substantial compliance with all Federal,
State and local environmental laws and regulations. It is believed that
future capital expenditures for environmental control facilities will not
be material.
Employees:
The registrant had approximately 1,200 employees at December 31, 1996, of
which 255 were employed by foreign subsidiaries or branches.
Foreign Operations and Export Sales:
Approximately 45% of the registrant's sales in 1996 were in foreign
markets. The registrant's primary foreign markets are in Europe and the
Far East. Sales of writing instrument products to foreign distributors are
subject to import duties in many countries although sales by the
registrant's wholly-owned manufacturing and distribution facilities in
Ireland into European Common Market countries are duty free. The
operations of the registrant's foreign subsidiaries and branches are
subject to the effects of currency fluctuations, to the availability of
dollar exchange, to exchange control and to other restrictive regulations.
Undistributed earnings of the foreign manufacturing and marketing
subsidiaries prior to the Revenue Reconciliation Act of 1993 (i.e., the
"1993 Act") generally are not subject to current United States federal
income and state income taxes. However, repatriation to the registrant of
the accumulated earnings of foreign subsidiaries would subject such
earnings to United States federal and state income taxes. It is not the
intention of the registrant to repatriate these earnings. The 1993 Act
added Internal Revenue Code Section 956A which had the effect of subjecting
a portion of current foreign earnings (i.e., earnings generated subsequent
to the 1993 Act) to United States federal taxation. See Note F to the
registrant's financial statements included in the 1996 Annual Report, which
note to such financial statements is incorporated by reference herein. See
geographic information and export sales data in Note G to the registrant's
financial statements included in the 1996 Annual Report, which note to such
financial statements is hereby incorporated by reference.
___________________________________________________________________________
See the first paragraph under the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the 1996 Annual
Report incorporated herein by reference. In addition to statements in this
document that may be construed as forward-looking statements, there may be
statements in other documents of the registrant and oral statements by
representatives of the registrant to security analysts or investors that
may be construed as forward-looking statements about the business and new
products, sales and expenses, and operating and capital requirements. Any
such statements are subject to risks that could cause the actual results or
needs to differ materially, including but not limited to the ability of the
Company to generate consumer acceptance of various new products recently
introduced and or planned for introduction in the coming months; increases
in the cost of, or limitations in the supply of, raw materials (including
prices of precious metals used in the Company's products); changes in
political and economic conditions in the United States and other countries
in which the Company operates; interest and currency rate fluctuations;
competitive product and pricing pressures; and inflation. These risks are
discussed in the section referred to above.
Item 2. PROPERTIES
The registrant currently occupies approximately 269,000 square feet of
manufacturing, warehouse and office space in its facility in Lincoln, Rhode
Island. The registrant's wholly-owned subsidiary, A. T. Cross Limited,
owns and operates an approximately 64,000 square foot manufacturing and
distribution facility in Ballinasloe, County Galway, Ireland.
Substantially all of these facilities, which are well maintained and in
good repair, are currently being utilized in either a manufacturing,
distribution or administrative capacity. The productive capacity of these
facilities is sufficient to meet the registrant's needs for the foreseeable
future. The registrant also owns an approximately 130,000 square foot
facility in Lincoln, formerly the site of the registrant's distribution
center and certain administrative offices, which it is offering for sale,
and which currently is partially rented.
The registrant's operations in Germany, Japan, France, Italy, the United
Kingdom, Spain and Hong Kong, all lease their administrative offices and
warehouse space.
Manetti-Farrow leases administrative office space in New York, New York and
warehouse and office space in Oakland, California.
Item 3. LEGAL PROCEEDINGS
No material legal proceedings are pending by or against the registrant or
any of its subsidiaries which would have a material effect upon the
consolidated business and financial condition.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
See the "Market and Dividend Information" section of the 1996 Annual
Report, which section is incorporated by reference herein.
Item 6. SELECTED FINANCIAL DATA
See the "Five-Year Summary" section of the 1996 Annual Report, which
section is incorporated by reference herein.
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
See the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the 1996 Annual Report, which section is
incorporated by reference herein.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements of the registrant and its
subsidiaries and the report of its independent auditors thereon for the
audit of the consolidated financial statements for the year ended December
31, 1996, set forth in the 1996 Annual Report, are incorporated herein by
reference.
The report of the Company's independent auditors for the year ended
December 31, 1995 and 1994 are included in Item 14 (a)(1).
Quarterly Results of Operations in Note I of the registrant's financial
statements included in the 1996 Annual Report are incorporated herein by
reference.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
At a meeting held on July 11, 1996 the Audit Committee of the Company's
Board of Directors recommended, and the Board of Directors approved, the
engagement of Deloitte & Touche LLP as its independent auditors for the
year ending December 31, 1996 to replace the firm of Ernst & Young LLP, who
were dismissed as auditors of the Company effective July 11, 1996. The
appointment of Deloitte & Touche LLP as the Company's independent
accountants for 1996 was effective upon the dismissal of Ernst & Young LLP,
subject to the approval of the Company's Class B shareholders which was
obtained on July 16, 1996.
The reports of Ernst & Young LLP on the Company's financial statements
for the past two years did not contain an adverse opinion or a disclaimer
of opinion and were not qualified or modified as to uncertainty, audit
scope, or accounting principles.
In connection with the audits of the Company's financial statements
for each of the two years ended December 31, 1995, and in the subsequent
interim period, there were no disagreements with Ernst & Young LLP on any
matters of accounting principles or practices, financial statement
disclosure, or auditing scope and procedures which, if not resolved to the
satisfaction of Ernst & Young LLP, would have caused Ernst & Young LLP to
make reference to the matter in its report.
During the Company's two most recently completed years and the
subsequent interim period preceding the engagement of Deloitte & Touche LLP
through the present date, there were no reportable events (as defined in
item 304 of Regulation S-K) with Ernst & Young LLP and during such periods
the Company did not consult with Deloitte & Touche LLP regarding the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered
on the Company's financial statements.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
In addition to the directors and executive officers listed on pages 5 and 6
of the registrant's definitive proxy statement for the 1997 annual meeting
of shareholders, which pages are incorporated by reference herein, the
following are executive officers of the registrant (each of whom serves
until his or her successor is elected and has qualified):
Year in Which
Name Age Title First Held Office
Joseph F. Eastman 60 Vice President-Human Resources 1981
David A. Rogers (1) 48 Vice President-U.S. Marketing
and Sales 1995
Michael El-Hillow 45 Vice President-Finance; Treasurer; 1990
Chief Financial Officer
Donald W. Reilly 38 Corporate Controller 1992
Chief Accounting Officer
Tina C. Benik (2) 37 Vice President-Legal, General 1993
Counsel and Corporate Secretary
Steven T. Henick (3) 54 Vice President- 1996
Worldwide Marketing and Sales
J. John Lawler (4) 59 Vice President- 1993
Worldwide Tax and Duty Free
John T. Ruggieri (5) 40 Vice President- 1993
Corporate Development and Planning
Stephen A. Perreault (6) 49 Vice President-Manufacturing 1995
David J. Arthur (7) 38 Vice President, Engineering 1996
(1) Prior to becoming the Vice President-U.S. Marketing and Sales in 1995,
David A. Rogers was the Vice President of U.S. Sales.
(2) Prior to becoming Vice President-Legal, General Counsel and Corporate
Secretary, Tina C. Benik was the general counsel of the registrant from
1989 to 1991 and corporate secretary from 1991 to 1993.
(3) Prior to becoming Vice President-International Marketing and Sales in
1996, Steven T. Henick was the Vice President-Worldwide Marketing and Sales
from 1993 to 1996. Prior to 1993, Mr. Henick held various senior executive
positions in large multi-national consumer goods companies, including
Procter & Gamble, Inc., Tambrands, Inc., and Del International
Incorporated.
(4) Prior to becoming Vice President-Worldwide Tax and Duty Free in 1993,
J. John Lawler was the Vice President International of the registrant.
(5) Prior to becoming Vice President-Corporate Development and Planning in
1993, John T. Ruggieri was the Executive Vice President of the registrant's
wholly-owned subsidiary Mark Cross, Inc.
(6) Prior to becoming Vice President-Manufacturing in 1995, Stephen A.
Perreault held various senior executive positions in the jewelry,
cosmetics, and gift manufacturing and distribution companies, including
Weingeroff Enterprises, Inc., Lantis Corporation, Swarovski Jewelry U.S.
Ltd., and Avon Products, Inc.
(7) Prior to becoming Vice President, Engineering in 1996, David J. Arthur
was the Director of Engineering of the registrant from 1995 to 1996, and
the Manager, New Business Development of the registrant from 1994 to 1995.
From 1991-1994 Mr. Arthur was Group Manager, Corporate R&D and Product Line
Manager, Composite Materials Division, at Rogers Corporation.
Item 11. EXECUTIVE COMPENSATION
See pages 7 through 13 of the registrant's definitive proxy statement for
its 1997 annual meeting of shareholders, which pages are incorporated by
reference herein.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See pages 3 and 4 of the registrant's definitive proxy statement for the
1997 annual meeting of shareholders, which pages are incorporated by
reference herein.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See pages 5 and 6 of the registrant's definitive proxy statement for the
1997 annual meeting of shareholders, which pages are incorporated by
reference herein.
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2) - The response to this portion of Item 14 is submitted
as a separate section of this report.
(3) Listing of Exhibits
(3) Restated Articles of Incorporation and By-laws
(incorporated by reference to Exhibit (3) to the
registrant's report on Form 10-K for the year ended
December 31, 1980); Amendment to Restated Articles
of Incorporation (incorporated by reference to Exhibit
(3) to the registrant's report on Form 10-K for the
year ended December 31, 1994), Amendment to By-laws
adopted December 2, 1988 (incorporated by reference to
Exhibit (3) to the registrant's report on Form 10-K
for the year ended December 31, 1989); Amendment to
By-laws adopted February 6, 1992 (incorporated by
reference to Exhibit (3) to the registrant's report on
Form 10-K for the year ended December 31, 1991)
(10.1) A. T. Cross Company Executive Compensation Program
Performance Cash Plan, January 1, 1995 (incorporated by
reference to Exhibit (10.1) to the registrant's report
on Form 10-K for the year ended December 31, 1994)*
(10.2) A. T. Cross Company Executive Compensation Program
Annual Incentive Plan, January 1, 1995 (incorporated by
reference to Exhibit (10.2) to the registrant's report
on Form 10-K for the year ended December 31, 1994)*
(10.3) A. T. Cross Company Non-Qualified Stock Option Plan,
1975 (as amended and restated February 4, 1988, as
amended December 10, 1991, as amended October 21, 1993,
and as further amended and restated December 6, 1994)
(incorporated by reference to Exhibit (10.3) to the
registrant's report on Form 10-K for the year ended
December 31, 1995)*
(10.4) A. T. Cross Company Incentive Stock Option Plan, 1981
(as amended February 6, 1992 and as further amended
April 28, 1994) (incorporated by reference to Exhibit
(10.4) to the registrant's report on Form 10-K for the
year ended December 31, 1994)*
(10.5) A. T. Cross Company Deferred Compensation Plan
(incorporated by reference to Exhibit (10.5) to the
registrant's report on Form 10-K for the year ended
December 31, 1994)*
(10.6) A. T. Cross Company Unfunded Excess Benefit Plan (as
amended) (incorporated by reference to Exhibit (10.6)
to the registrant's report on Form 10-K for the year
ended December 31, 1994)*
(10.7) A. T. Cross Company Restricted Stock Plan (incorporated
by reference to Exhibit (10.7) to the registrant's
report on Form 10-K for the year ended December 31,
1995)*
(11) Statement Re: Computation of Per Share Earnings
(13) Annual Report to Shareholders for the year ended
December 31, 1996. Filed only in respect to the
portions expressly incorporated by reference in this
Form 10-K.
(21) Subsidiaries - incorporated by reference to the
"Subsidiaries and Branches" section of the registrant's
1996 Annual Report
(23.1) Consent of Deloitte & Touche LLP
(23.2) Consent of Ernst & Young LLP
(27) Financial Data Schedules - filed electronically
* Management contract, compensatory plan or arrangement
(b) No reports on Form 8-K were filed in the fourth quarter of 1996.
(c) Exhibits--See Item (a)(3) above
(d) Financial Statement Schedules--The response to this portion of
Item 14 is submitted as a separate section of this report.
SIGNATURES
Pursuant to the requirements of Section 13 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
By: BRADFORD R. BOSS
Bradford R. Boss
Chairman
Dated: March 25, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities and on the dates indicated:
Signature Title Date
BRADFORD R. BOSS Chairman & Director March 25, 1997
(Bradford R. Boss)
RUSSELL A. BOSS President & Director March 25, 1997
(Russell A. Boss) (Chief Executive Officer)
JOHN E. BUCKLEY Executive Vice President March 25, 1997
(John E. Buckley) & Director
(Chief Operating Officer)
MICHAEL EL-HILLOW Vice President, Finance March 18, 1997
(Michael El-Hillow) Treasurer
(Chief Financial Officer)
DONALD W. REILLY Corporate Controller March 25, 1997
(Donald W. Reilly) (Chief Accounting Officer)
BERNARD V. BUONANNO, JR. Director March 25, 1997
(Bernard V. Buonanno, Jr.)
H. FREDERICK KRIMENDAHL, II Director March 25, 1997
(H. Frederick Krimendahl, II)
THOMAS C. MCDERMOTT Director March 25, 1997
(Thomas C. McDermott)
TERRENCE MURRAY Director March 25, 1997
(Terrence Murray)
JAMES C. TAPPAN Director March 25, 1997
(James C. Tappan)
EDWIN G. TORRANCE Director March 25, 1997
(Edwin G. Torrance)
ANNUAL REPORT ON FORM 10-K
ITEM 14 (a)(1) and (2), (c) and (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED DECEMBER 31, 1996
A. T. CROSS COMPANY
LINCOLN, RHODE ISLAND
FORM 10-K - ITEM 14(a)(1) and (2)
A. T. CROSS COMPANY AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of A. T. Cross Company and
its subsidiaries, included in the annual report of the registrant to its
shareholders for the year ended December 31, 1996, are incorporated by
reference in Item 8:
Consolidated Balance Sheets - December 31, 1996 and December 31, 1995
Consolidated Statements of Income and Retained Earnings - Years Ended
December 31, 1996, 1995 and 1994
Consolidated Statements of Cash Flows - Years Ended December 31, 1996,
1995 and 1994
Notes to Consolidated Financial Statements - December 31, 1996
Independent Auditors Report for the year ended December 31, 1996
The independent public accountants report for the years ended December 31,
1995 and 1994 are included herein.
The following consolidated financial statement schedule of A. T. Cross
Company and its subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
The report of independent public accountant on Financial Statement Schedule
II for the year ended December 31, 1996 is included herein. The report of
independent public accountant on the consolidated financial statements, and
on Financial Statement Schedule II, for the years ended December 31, 1995
and 1994, are included herein. All other schedules for which provision is
made in the applicable accounting regulation of the Securities and Exchange
Commission are not required under the related instructions, or the
information required therein has otherwise been disclosed in the
consolidated financial statements referred to above, or are inapplicable,
and therefore have been omitted.
<TABLE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
A. T. CROSS COMPANY AND SUBSIDIARIES
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
Additions
(A)
Balance at Charged to Charged to Balance
Beginning Costs and Other Accounts Deductions at End of
DESCRIPTION of Period Expenses Describe Describe Period
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
Deducted from asset account:
Allowance for doubtful
accounts $1,745,000 $342,977 $535,977(A) $1,552,000
Year Ended December 31, 1995
Deducted from asset account:
Allowance for doubtful
accounts $1,828,000 $360,755 $443,755(A) $1,745,000
Year Ended December 31, 1994
Deducted from asset account:
Allowance for doubtful
accounts $1,632,000 $405,592 $209,592(A) $1,828,000
(A) Uncollectible accounts written off.
</TABLE>
Item 14 (d)
Report of Deloitte & Touche LLP
Independent Auditors
To the Shareholders of
A.T. Cross Company:
We have audited the consolidated financial statements of A.T. Cross Company and
subsidiaries as of December 31, 1996 and for the year then ended, and have
issued our report thereon dated February 10, 1997; such consolidated financial
statements and report are included in your 1996 Annual Report to Shareholders
and are incorporated herein by reference. Our audit also included the
consolidated financial statement schedule of A.T. Cross Company, listed in Item
14. This consolidated financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audit. In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, presents fairly in all material respects the information set forth
therein.
Deloitte & Touche LLP
Boston, Massachusetts
February 10, 1997
Report of Ernst & Young LLP
Independent Auditors
To the Shareholders of
A.T. Cross Company:
We have audited the accompanying consolidated balance sheets of A.T. Cross
Company and subsidiaries as of December 31, 1995, and the related consolidated
statements of income and retained earnings, and cash flows for each of the two
years in the period ended December 31, 1995. Our audits also included the
financial statement schedule listed in the Index at item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of A.T. Cross
Company and subsidiaries at December 31, 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.
ERNST & YOUNG LLP
Providence, Rhode Island
January 30, 1996
EXHIBIT 11--STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
A. T. CROSS COMPANY AND SUBSIDIARIES
Year Ended December 31
1996 1995 1994
Earnings per common share:
Weighted average shares outstanding 16,531,488 16,528,876 16,872,505
Net income $ 6,605,926 $13,365,353 $10,533,922
Per share amount * $0.40 $ 0.81 $0.62
Primary:
Weighted average shares outstanding 16,531,488 16,528,876 16,872,505
Dilutive stock options--based on the
treasury stock method using average
market price 31,115 77,320 78,315
TOTAL 16,562,603 16,606,196 16,950,820
Net income $ 6,605,926 $13,365,353 $10,533,922
Per share amount $0.40 $ 0.80 $0.62
Fully diluted:
Weighted average shares outstanding 16,531,488 16,528,876 16,872,505
Dilutive stock options--based on the
treasury stock method using the market
price at the end of each quarter,
if higher than average market price 31,325 77,659 78,477
TOTAL 16,562,813 16,606,535 16,950,982
Net income $ 6,605,926 $13,365,353 $10,533,922
Per share amount $ 0.40 $ 0.80 $0.62
* Stock options are not included in the computation of per share earnings
as the effect is not material.
A.T. CROSS COMPANY
1996 ANNUAL REPORT
THE A.T. CROSS COMPANY IS A MAJOR INTERNATIONAL MANUFACTURER OF FINE
WRITING INSTRUMENTS WHICH ARE SOLD TO THE CONSUMER MARKET THROUGH FINE
STORES WORLDWIDE, AND TO THE BUSINESS GIFT MARKET VIA A NETWORK OF
COMPANIES SPECIALIZING IN RECOGNITION AND AWARDS PROGRAMS. CROSS
PRESENTLY MARKETS FIVE LINES OF WRITING INSTRUMENTS: CENTURY_, CROSS
TOWNSEND_, SOLO_, SOLO CLASSIC_, AND METROPOLIS_. EACH SERIES IS
DESIGNED TO MEET THE PREFERENCES AND TASTES OF A PARTICULAR AUDIENCE.
EACH OFFERS DISTINCTIVE STYLES, APPOINTMENTS AND FINISHES _ FROM
PRECIOUS METALS TO COMPOSITE RESIN _ AND IS PRICED TO MEET SPECIFIC
MARKET REQUIREMENTS. CROSS ALSO PRODUCES DESK SETS WHICH FEATURE BASES
CRAFTED FROM WALNUT, ONYX, CHERRY AND MARBLE. LEATHER AND GIFT
BUSINESS IS CONDUCTED BY MANETTI-FARROW, INCORPORATED. BASED IN NEW
YORK CITY, THIS WHOLLY-OWNED SUBSIDIARY OF THE A.T. CROSS COMPANY
DISTRIBUTES FENDI AND ECHO BRAND LEATHER PRODUCTS AND FASHION
ACCESSORIES IN THE U.S. UNDER EXCLUSIVE AGREEMENTS.
Five-Year Summary, Market & Dividend Information . . . . . . . . . . 1
Shareholders Report . . . . . . . . . . . . . . . . . . . . . . 2-3
Cross Highlights . . . . . . . . . . . . . . . . . . . .. . . . .4-9
Financial Statements . . . . . . . . . . . . . . .. . . . . . 10-19
Report of Deloitte & Touche LLP . . . . . . . . . . . . . . .. . . .20
Management's Discussion and Analysis . . . . . . . . . . . . . . 20-23
Corporate Directors & Officers. . . . . . . . . . . . . . . . . . . .24
Corporate Information . . . . . . . . . . . . . . . Inside Back Cover
<TABLE>
Five-Year Summary
<CAPTION>
(Thousands of Dollars) 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
OPERATIONS:
Net Sales From Continuing Operations $179,203 $191,090 $177,136 $164,606 $187,130
Income From Continuing Operations
Before Income Taxes 9,378 20,253 19,016 1,618 19,012
Income Taxes 2,772 6,888 8,482 1,099 6,239
Income From Continuing Operations 6,606 13,365 10,534 519 12,773
Loss From Discontinued Operations, net _ _ _ (4,000) (1,955)
Net Income (Loss) 6,606 13,365 10,534 (3,481) 10,818
Cash Dividends Declared 10,568 10,581 10,738 13,544 21,648
Capital Expenditures 9,135 10,839 7,662 8,494 4,603
DEPRECIATION 7,024 6,578 5,899 5,495 5,000
(Thousands of Dollars)
FINANCIAL POSITION:
Current Assets 119,372 135,143 130,727 130,126 143,632
Current Liabilities 42,891 52,439 46,758 40,226 39,831
Total Assets 175,191 189,362 180,369 178,994 194,455
Working Capital 76,481 82,704 83,969 89,900 103,801
Net Property, Plant and Equipment 40,325 38,237 33,950 32,130 40,162
Shareholders' Equity (Net Worth) 126,791 131,714 128,702 134,160 150,616
(Dollars)
PER SHARE DATA:
Income (Loss):
From Continuing Operations 0.40 0.81 0.62 0.03 0.76
From Discontinued Operations _ _ _ (0.24) (0.12)
Net Income (Loss) 0.40 0.81 0.62 (0.21) 0.64
CASH DIVIDENDS DECLARED 0.64 0.64 0.64 0.80 1.28
Shareholders' Equity (Book Value) 7.69 7.96 7.79 7.92 8.90
</TABLE>
<TABLE>
Market & Dividend Information
The Company's Class A common stock is traded on the American Stock
Exchange. At December 31, 1996, there were approximately 1,900
shareholders of record of the Company's Class A common stock and 2
shareholders of record of Class B common stock. The weighted average
numbers of shares outstanding were 16,531,488 and 16,528,876 during
1996 and 1995, respectively. High and low stock prices and dividends
for the last two years were:
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CASH CASH
DIVIDENDS DIVIDENDS
QUARTER HIGH LOW DECLARED QUARTER HIGH LOW DECLARED
1996 1995
First 16 1/4 14 $.00 First 15 1/4 13 1/8 $.00
Second 18 15 .16 Second 17 1/4 14 1/4 .16
Third 17 1/2 11 1/4 .16 Third 17 1/4 14 1/2 .16
Fourth 12 10 1/2 .32* Fourth 16 7/8 14 .32*
*One-half paid in the fourth quarter and balance paid in the subsequent
year first quarter.
SHAREHOLDERS REPORT
To the Shareholders of A.T. Cross Company
After two years of higher sales and earnings, 1996 was very
disappointing for the A.T. Cross Company, as it was for many companies
in the quality writing instrument sector. For the year ended December
31, 1996, net sales dropped 6.2% to $179.2 million from $191.1 million
in 1995, and net income decreased 50.6% to $6.6 million, or 40 cents
per share, from $13.4 million, or 81 cents per share in 1995.
For the year, domestic writing instrument sales decreased 9.5% to $86.3
million from 1995, while foreign writing instrument sales were up 0.4%
to $80.6 million. Leather sales were $12.3 million for the year, down
20.5% from last year.
In Europe, the largest quality writing instrument market in the world,
our sales increased approximately 9.0%, continuing a trend begun in
1994, and the Middle East and Africa showed 18.5% growth. Our Century
Restage products, particularly our fountain pens, have proven very
successful in these markets. It is gratifying to see that we have
continued to grow share in these important markets since we are
relatively new to the fountain pen business.
Our remaining international markets were down approximately 6.6%,
primarily because of declines in Japan, our largest foreign market, and
Canada. The weakness of the Japanese yen resulted in a significant
decline in consolidated sales after translating the yen to dollars, a
problem faced by many U.S. companies in 1996. On a positive note, our
local currency sales in Japan were on plan, showing the continued
vitality of Cross in this top international market. The expansion of
large U.S. based office mega-store retailers into Canada required us to
change to direct distribution from the U.S. Sales in 1996 were
negatively impacted during this transition, but should rebound as we
better serve this market in the future.
We have made tremendous strides in the fast growing tax and duty free
market, admittedly from a fairly small base. Our Cross Townsend Lapis
Lazuli writing instrument was given the Star Product of the Year Award
for 1996 by Frontier Magazine, one of the leading international
publications covering the tax and duty free industry.
In the United States, market research shows that less than 20 percent
of consumers who purchase quality writing instruments realize that
Cross offers a broad range of products, even though more than 90
percent of those same consumers are aware of the Cross brand. To most
consumers, Cross continues to be synonymous with our traditional
Century line. In 1997, we will work to change this perception through
marketing programs _ advertising, point-of-sale materials, displays and
promotions _ which focus on the Company's full line of products. While
there can be no assurance that such a strategy will increase consumer
awareness and purchases overnight, we know consumers recognize the
quality and reliability of Cross products. Once they are adequately
informed about the variety of products, we believe they will find a
Cross writing instrument that fits their needs, whether for personal
use or as a gift.
While writing instruments remain the core of our operations, Cross has
begun to look into other avenues for potential revenue growth. Watches,
like pens, are both functional items and fashion accessories used by
both men and women. We will be testing a line of Cross watches in the
U.S. in the fall to determine whether Cross' reputation for quality can
be transferred to another quality gift and personal item. Our Pen
Computing Group is continuing the development of products that combine
the functionality and beauty of our distinctive writing instrument
products with state-of-the-art technology to meet the needs of the fast
growing electronic communications market; and we expect to have some
sales in the second half of 1997.
As we enter 1997, Cross has the broadest product line in its history:
traditional slim-line Century and wider-bodied Cross Townsend, offered
in metals, epoxies and luxurious lacquers; our resin-based products
Solo and Solo Classic, the former with vibrant colors and black
appointments, the latter with more traditional colors and gold plated
appointments; and the contemporary Metropolis, with its fluted barrel
and lacquered cap.
Our new products have enabled Cross to regain prestige with our
carriage trade accounts in the U.S. These retailers tell us that we are
bringing excitement into the quality writing instrument category. Our
goal for 1997 and beyond is to implement marketing programs that
generate similar enthusiasm among consumers, including many who might
not have been attracted to, or looked beyond, the Century line.
While 1996 was not a banner year for Cross or our industry, all Cross
employees are excited about our most diverse line of products ever and
the opportunities available to us in writing instruments, watches,
leather and pen computing.
Cordially yours,
Bradford R. Boss Russell A. Boss
Chairman President
February 14, 1997
CROSS
TOWNSEND
& METROPOLIS
Throughout the world, the name A.T. Cross continues to stand for
quality and reliability. As we have expanded our product lines, we have
also developed a reputation for style and innovation. The Cross writing
instruments of today have distinctive personalities, geared to the
tastes and preferences of our various target audiences.
For Cross Townsend and Metropolis, luxury and style are key.
Prospective buyers shop in the finest stores and select only the best.
For them, writing instruments must not only function beautifully, but
be recognized as symbols of good taste and elegance. Cross Townsend's
strong yet familiar silhouette, coupled with opulent finishes, appeals
to a more mature audience. Metropolis, with its architectural
detailing, is the choice for the younger, more trend setting, group.
IN 1996, WE EXPANDED THE CROSS TOWNSEND LINE WITH THE INTRODUCTION OF
A STERLING SILVER PRODUCT, A FITTING CHOICE FOR OUR 150TH ANNIVERSARY
YEAR. THE STRIKING CROSS TOWNSEND LAPIS LAZULI WAS HAILED AS "A
CONTEMPORARY CLASSIC" AND NAMED STAR PRODUCT OF THE YEAR BY FRONTIER,
THE LEADING INTERNATIONAL TRAVEL RETAILING MONTHLY. METROPOLIS, WITH
ITS URBAN APPEAL, IS DESIGNED TO ATTRACT A NEW CONSUMER TO CROSS
QUALITY WRITING INSTRUMENTS.
CENTURY & SOLO CLASSIC
For Century and Solo Classic, traditional design and reasonable price
are of primary importance. Buyers of these lines shop in a broad range
of retail outlets. They expect value for their dollar and view quality
writing instruments as a sign of achievement and refinement. Century
remains the first choice of those many consumers who favor a slim
silhouette. It continues to be popular for gift-giving occasions and is
often used, with a company emblem, for business functions. Solo
Classic, with its wider body and deep colors, is specifically designed
to appeal to a broad range of consumers. It is also well- suited for
promotional applications, since it offers the space necessary for
clear, easy-to-read imprinting.
ACCOMPLISHMENT AND GOOD TASTE ARE KEY TO THE MARKETING OF CENTURY AND
SOLO CLASSIC FOR BOTH THE GENERAL CONSUMER AND BUSINESS MARKETS. THEY
PLAY AN IMPORTANT ROLE IN THE SPECIAL MARKETS DIVISION, WHERE THEY ARE
EXCELLENT CHOICES FOR PROMOTIONS WHERE QUALITY AND REPUTATION MUST BE
ASSURED AT A REASONABLE PRICE.
HALLMARK
MAGLITE
& RICHARTZ
Hallmark, Maglite and Richartz all build upon the popularity of Cross
products as personal and business gifts. For Hallmark, we've developed
a collection of Cross writing instruments using well-known Hallmark
designs. For holidays and special occasions, these include Solo
writing instruments with silk-screened popular Hallmark designs which
are also featured on the gift packaging.
The pairing of Maglite and Solo is aimed at a broad consumer audience
as well as customized presentations for business and promotional
purposes. Known for its rugged dependability, the Maglite name is a
great opportunity to merchandise to manufacturers and the trades.
Richartz, Germany's premier line of pocket knives, adds breadth to our
Special Markets product line. They offer a high level of quality and
craftsmanship, allowing for interesting promotions with Cross quality
writing instruments.
SYNERGY IS KEY FOR NEW PROMOTIONS WHICH PAIR CROSS WITH OTHER WELL
RECOGNIZED, HIGH- QUALITY NAMES. THE HALLMARK PROGRAM OFFERS NEW GIFT-
GIVING OPPORTUNITIES. THE CROSS AND MINI MAGLITE PROMOTION REACHES A
BROAD AUDIENCE
WHICH MIGHT NOT USUALLY PURCHASE A QUALITY
WRITING INSTRUMENT. THE RICHARTZ KNIVES PROGRAM WAS LAUNCHED, WITH
GOOD RESPONSE, AT THE CHICAGO PREMIUM SHOW IN OCTOBER 1996.
</TABLE>
<TABLE>
Consolidated Balance Sheets
DECEMBER 31
<CAPTION>
<S> <C> <C>
ASSETS 1996 1995
Current Assets
Cash and cash equivalents $ 16,170,955 $ 32,469,549
Short-term investments 27,290,051 21,426,585
Accounts receivable, less allowances for doubtful accounts of
$1,552,000 in 1996 and $1,745,000 in 1995 44,970,281 48,017,341
Inventories
Finished goods 14,225,830 14,499,263
Work in process 5,449,050 7,837,532
Raw materials 6,498,693 7,128,544
26,173,573 29,465,339
Other current assets 4,767,023 3,764,664
Total Current Assets 119,371,883 135,143,478
Property, Plant and Equipment
Land and land improvements 1,274,453 1,256,426
Buildings 17,485,386 16,359,227
Machinery and equipment 85,698,610 77,973,736
104,458,449 95,589,389
Less allowances for depreciation 64,133,753 57,352,065
Net Property, Plant and Equipment 40,324,696 38,237,324
Intangibles and Other Assets 15,493,956 15,981,397
$175,190,535 $189,362,199
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable to bank $ 6,000,000 $ _
Accounts payable 5,992,132 12,275,420
Accrued compensation and related taxes 2,782,905 5,308,445
Accrued expenses and other liabilities 15,660,701 17,879,607
Cash dividends payable 2,638,536 2,648,323
Contributions payable to employee benefit plans 8,228,537 9,443,292
Income taxes payable 1,587,799 4,883,640
Total Current Liabilities 42,890,610 52,438,727
Accrued Warranty Costs 5,509,000 5,209,000
Shareholders' Equity
Common stock, par value $1 per share: Class A _ authorized
40,000,000 shares, 15,282,412 shares issued and 14,686,049
shares outstanding in 1996, and 15,243,316 shares issued
and 14,747,216 shares outstanding in 1995 15,282,412 15,243,316
Class B _ authorized 4,000,000 shares, 1,804,800 shares
issued and outstanding 1,804,800 1,804,800
Additional paid-in capital 11,837,534 11,319,614
Retained earnings 106,781,204 110,743,135
Accumulated foreign currency translation adjustment (20,876) 215,950
135,685,074 139,326,815
Treasury stock, at cost, 596,363 shares in 1996 and
496,100 shares in 1995 (8,894,149) (7,612,343)
Total Shareholders' Equity 126,790,925 131,714,472
$175,190,535 $189,362,199
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Income & Retained Earnings
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
<S> <C> <C> <C>
Revenues
Net sales $179,203,443 $191,090,409 $177,135,770
Interest and other income 2,091,054 3,617,193 3,943,234
181,294,497 194,707,602 181,079,004
Costs and Expenses
Cost of goods sold 94,092,978 94,422,106 88,691,081
Selling, general and
administrative expenses 70,627,432 72,553,706 66,794,430
Research and development expenses 2,876,756 2,990,745 2,035,568
Service and distribution costs 4,319,405 4,487,692 4,542,003
171,916,571 174,454,249 162,063,082
Income Before Income Taxes 9,377,926 20,253,353 19,015,922
Provision for income taxes 2,772,000 6,888,000 8,482,000
Net Income 6,605,926 13,365,353 10,533,922
Retained earnings at beginning of year 110,743,135 107,958,596 108,162,260
117,349,061 121,323,949 118,696,182
Cash dividends declared
(per share: $0.64 in 1996, 1995 and 1994) 10,567,857 10,580,814 10,737,586
Retained Earnings at End of Year $106,781,204 $110,743,135 $107,958,596
Net Income Per Share $0.40 $0.81 $0.62
Weighted Average Shares Outstanding 16,531,488 16,528,876 16,872,505
See notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
<CAPTION>
YEAR ENDED DECEMBER 31
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN): 1996 1995 1994
Operating Activities:
Net income $ 6,605,926 $ 13,365,353 $ 10,533,922
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 7,463,842 7,012,931 6,346,690
Provision for losses on accounts receivable 342,977 360,755 405,592
Deferred income taxes 792,000 (287,000) 458,000
Provision for warranty costs 685,183 1,050,103 1,195,595
Changes in operating assets and liabilities:
Accounts receivable 2,221,489 (11,141,399) (6,806)
Inventories 3,031,766 (12,855,331) 2,643,810
Other assets _ net (1,979,091) 773,518 (1,143,887)
Accounts payable (6,301,984) 5,354,448 2,733,123
Other liabilities _ net (8,530,170) 2,153,170 2,663,867
Warranty costs paid (385,183) (750,103) (895,595)
Foreign currency transaction (gain) loss 270,579 (194,763) (82,495)
Net Cash Provided by Operating Activities 4,217,334 4,841,682 24,851,816
Investing Activities:
Additions to property, plant and equipment (9,135,401) (10,839,460) (7,662,300)
Additional acquisition payment _ _ (687,086)
Purchase of short-term investments (26,373,158) (42,638,815) (86,088,263)
Sale or maturity of short-term investments 20,509,692 77,543,554 48,068,902
Net Cash Provided by (Used in)
Investing Activities (14,998,867) 24,065,279 (46,368,747)
Financing Activities:
Cash dividends paid (10,577,643) (10,576,346) (10,802,656)
Proceeds from bank borrowings 8,600,000 10,700,000 9,023,000
Repayment of bank borrowings (2,600,000) (12,700,000) (7,023,000)
Proceeds from sale of Class A common stock 316,826 647,225 262,033
Purchase of treasury stock (1,281,806) (306,606) (7,305,737)
Net Cash Used in Financing Activities (5,542,623) (12,235,727) (15,846,360)
Effect of exchange rate changes on cash
and cash equivalents 25,562 108,751 230,490
Increase (decrease) in cash and cash equivalents (16,298,594) 16,779,985 (37,132,801)
Cash and cash equivalents at beginning of year 32,469,549 15,689,564 52,822,365
Cash and Cash Equivalents at End of Year $ 16,170,955 $ 32,469,549 $ 15,689,564
See notes to consolidated financial statements.
</TABLE>
Notes to Consolidated Financial Statements
December 31, 1996
NOTE A _ SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements
include the accounts of the Company and all of its subsidiaries. Upon
consolidation, all material intercompany accounts and transactions are
eliminated.
ACCOUNTING FOR ESTIMATES: The preparation of financial statements in
accordance with generally accepted accounting principles requires the
Company to make assumptions that affect the estimates reported in these
consolidated financial statements. Actual results may differ from these
estimates.
INDUSTRY SEGMENT AND NATURE OF OPERATIONS: The Company predominately
operates in one industry segment, the manufacture, sale and
distribution of writing instruments, and sells to retailers and
wholesale distributors throughout the world, principally in North
America, Europe and the Far East/Asia.
CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS: The Company considers all
highly liquid investments with a remaining maturity of three months or
less when purchased to be cash equivalents. Short-term investments are
stated at cost, which approximates market, and consist of interest
bearing investments with a remaining maturity of greater than three
months when purchased. Cash equivalents and short-term investments are
placed only with high-credit quality financial institutions. At
December 31, 1996 and 1995, approximately 53% and 66%, respectively, of
the Company's cash, cash equivalents and short-term investments were
placed with one financial institution.
Short-term investments at December 31, 1996 and 1995 include time
deposits, certificates of deposit and certain municipal bonds ("Held-to-
Maturity" securities) and other municipal bonds ("Trading" securities)
which have a maturity greater than three months. The Company has the
positive intent and ability to hold its Held-to-Maturity securities
until maturity and has stated these investments at cost which
approximates market. Trading securities are stated at cost which
approximates fair market value.
INVENTORIES: Substantially all domestic inventories are priced at the
lower of last-in, first-out cost or market. The remaining inventories
are priced at the lower of first-in, first-out cost or market.
PROPERTY, PLANT AND EQUIPMENT, AND RELATED DEPRECIATION:
Property, plant and equipment are stated on the basis of cost.
Provisions for depreciation are computed using a combination of
accelerated and straight-line methods which are intended to depreciate
the cost of such assets over their estimated useful lives which range
from three to thirty years.
ASSETS HELD FOR SALE: The carrying value of the Company's former
distribution center in Lincoln, RI, which is held for sale, is included
in the balance sheet caption "Intangibles and Other Assets" at December
31, 1996 and 1995.
FOREIGN CURRENCY TRANSLATION: The Company has a program in place to
manage foreign currency risk. As part of that program, the Company has
entered into foreign currency exchange contracts to hedge anticipated
foreign currency transactions or commitments, primarily purchases of
materials and products from foreign suppliers, and certain foreign
currency denominated balance sheet positions. The terms of the
contracts generally correspond with the dates of the anticipated
foreign currency transactions. Realized and unrealized gains and
losses on those contracts intended to hedge specific foreign currency
transactions or commitments are deferred and accounted for as part of
the transaction, while gains and losses on other contracts are included
in net income. At December 31, 1996 and 1995, the Company held forward
exchange contracts approximating $10,497,000 and $12,828,000,
respectively. The face value of the outstanding contracts in both years
approximated market prices of comparable instruments at December 31,
1996 and 1995. The outstanding contracts at December 31, 1996 hedge
commitments becoming due at various dates through September 1997.
Foreign currency exchange gains (losses) are included in selling,
general and administrative expenses and approximated ($249,000),
$88,000 and $189,000 in 1996, 1995 and 1994, respectively.
GOLD PURCHASE CONTRACTS: To reduce its exposure to fluctuating gold
prices, the Company enters into gold purchase contracts with a bank.
The contracts, which do not have expiration dates, allow the Company to
purchase a specified quantity of gold bullion at a fixed price at any
time in the future. The contracts require the Company to pay a monthly
fee on the total value of each contract. The rate of the fee on each
contract is selected from a pool of available rates related to, for
example, the federal funds rate or the London Interbank Offering Rate
(LIBOR). At any point in time, the Company's outstanding gold purchase
contracts are generally sufficient to supply approximately twelve
months expected gold usage. At December 31, 1996, the total contract
prices of outstanding gold purchase commitments amounted to $6,481,200.
ADVERTISING COSTS: The costs of advertising are charged to expense as
incurred and amounted to $21,535,000, $22,245,000 and $20,718,000 for
the years ended December 31, 1996, 1995 and 1994, respectively.
WARRANTY COSTS: The Company's writing instruments are sold with a full
warranty of unlimited duration against mechanical failure. Estimated
warranty costs are accrued at the time of sale. Discretionary product
repair and replacement costs, not related to mechanical failure, are
classified as marketing costs and are included in selling, general and
administrative expenses.
NET INCOME PER SHARE: Net income per share is computed based upon the
weighted average number of shares of Class A and Class B common stock
outstanding during the year. The exercise of outstanding stock options
would not result in a material dilution of net income per share.
NOTE A _ SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING PRONOUNCEMENTS: In March 1995, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed of." In October
1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." The Company adopted both of these new accounting
principles in 1996, neither of which had a material impact on the
consolidated financial statements.
NOTE B _ INVENTORIES
Domestic inventories approximating $17,129,000 and $19,245,000 at
December 31, 1996 and 1995, respectively, are priced at the lower of
last-in, first-out (LIFO) cost or market. The remaining inventories are
priced at the lower of first-in, first-out cost or market.
If the first-in, first-out method of inventory valuation had been used
by the Company for those inventories priced using the last-in, first-
out method, inventories would have been approximately $14,547,000 and
$12,907,000 higher than reported at December 31, 1996 and 1995,
respectively. The Company believes the LIFO method of inventory
valuation ordinarily results in a more appropriate matching of its
revenues to their related costs since current costs are included in
cost of goods sold and distortions in reported income due to the effect
of changing prices are reduced
NOTE C _ COMMON STOCK
The Class A and Class B common stock are identical, except for
differences with respect to certain voting rights. They are entitled to
share equally in dividends that may be declared by the Board of
Directors and, upon liquidation, to share ratably in any assets which
remain available for distribution on the Class A and Class B common
stock. Holders of Class A common stock are entitled to elect one-third
of the number of directors.
Changes in Class A common stock and additional paid-in capital are
shown below (there were no changes in Class B common stock)
<TABLE>
<CAPTION>
CLASS A COMMON STOCK
NUMBER ADDITIONAL
OF PAID-IN
SHARES AMOUNT CAPITAL
<S> <C> <C> <C>
Balances at January 1, 1994 15,125,982 $15,125,982 $ 9,389,762
Stock option activity 10,753 10,753 523,766
Stock purchase plan 8,636 8,636 116,860
Issued to profit sharing trust 48,922 48,922 691,024
Balances at December 31, 1994 15,194,293 15,194,293 10,721,412
Stock option activity 40,984 40,984 484,808
Stock purchase plan 8,039 8,039 113,394
Balances at December 31, 1995 15,243,316 15,243,316 11,319,614
Stock option activity 15,334 15,334 189,488
Stock purchase plan 7,947 7,947 104,057
Restricted stock plan 15,815 15,815 224,375
Balances at December 31, 1996 15,282,412 $15,282,412 $11,837,534
</TABLE>
NOTE D _ STOCK OPTIONS AND STOCK PURCHASE PLANS
The Company has an incentive stock option plan and a non-qualified
stock option plan under which options to purchase shares of Class A
common stock may be granted to key employees. Options to purchase Class
A shares are automatically granted annually pursuant to formula under
the non-qualified plan to members of the Company's Board of Directors.
Under the incentive plan, the option price is the mean between the
high and low prices of the stock on the date that the option is
granted. Under its present terms, the plan will expire in 1998. The
term of each option is ten years or such shorter period as may be
determined by the Board of Directors.
The option price for options issued under the non-qualified plan is
the mean between the high and low price on the date of the grant. The
plan has no definite expiration date, but may be terminated by the
Board of Directors. The term of each option is ten years or such
shorter period as may be determined by the Board of Directors. The
number of shares of Class A common stock reserved for issuance under
the plan was increased by 675,000 by the Company's shareholders in
1995.
Options under both the incentive plan and the non-qualified plan vest
and become exercisable at such time or times, in installments or
otherwise, as may be determined by the Compensation Committee of the
Board of Directors and set forth in a written agreement evidencing the
grant of such option. Stock option activity during the three years
ended December 31, 1996 was as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE SHARES
Options Price Per Share Reserved
Incentive Stock Option Plan:
<S> <C> <C> <C>
Outstanding at January 1, 1994 405,470 $22.74 610,390
Granted 117,750 $14.92 _
Exercised (2,250) $13.21 (2,250)
Canceled (59,850) $22.61 _
Outstanding at December 31, 1994 461,120 $21.21 608,140
Granted 32,250 $15.75 _
Exercised (3,334) $15.44 (3,334)
Canceled (62,149) $22.10 _
Outstanding at December 31, 1995 427,887 $19.48 604,806
Granted 37,250 $14.95 _
Exercised (4,000) $15.44 (4,000)
CANCELED (73,887) $19.25 _
Outstanding at December 31, 1996 387,250 $19.90 600,806
</TABLE>
Approximately 354,000 (at a weighted average price of $20.51), 385,000
and 378,000 options outstanding were exercisable at December 31, 1996,
1995 and 1994, respectively. At December 31, 1996, exercise prices of
outstanding options ranged from $10.75 to $36.69 and outstanding
options
had a weighted average remaining contractual life of approximately six
years.
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Non-Qualified Stock Option Plan:
Outstanding at January 1, 1994 589,719 $17.20 795,300
Granted 176,860 $13.48 _
Exercised (8,503) $12.54 (8,503)
Canceled (53,069) $19.61 _
Outstanding at December 31, 1994 705,007 $16.53 786,797
Addition to shares reserved 675,000
Granted 677,226 $15.21 _
Exercised (37,650) $12.64 (37,650)
Canceled (83,993) $15.01 _
Outstanding at December 31, 1995 1,260,590 $16.10 1,424,147
Granted 11,182 $11.50 _
Exercised (11,334) $12.63 (11,334)
Canceled (86,317) $16.24 _
Outstanding at December 31, 1996 1,174,121 $15.91 1,412,813
</TABLE>
Approximately 603,000 (at a weighted average of price $16.47), 629,000
and 546,000 options outstanding were exercisable at December 31, 1996,
1995 and 1994, respectively. At December 31, 1996, exercise prices of
outstanding options ranged from $11.38 to $33.02 and outstanding
options had a weighted average remaining contractual life of approximately
seven years.
The Company also has an employee stock purchase plan allowing eligible
employees, other than officers and directors, to purchase shares of the
Company's Class A common stock at 10% less than the mean between the
high and low prices of the stock on the date of purchase. A maximum of
320,000 shares is available under the plan and the aggregate number of
shares reserved was 145,730, 153,677 and 161,716 at December 31, 1996,
1995 and 1994, respectively. In addition, the Company has a restricted
stock plan under which shares of the Company's Class A common stock may
be issued to certain executives representing a portion of their annual
incentive compensation in the event that such annual incentive
compensation is in excess of performance target levels. Shares granted
under the plan may not be sold, assigned, pledged or otherwise
encumbered during the restriction period which expires on December 31,
1999. If the Company fails to achieve certain operating targets during
the restriction period, shares granted under the plan will revert back
to the Company or will be canceled.
AS PROVIDED FOR IN SFAS NO. 123, THE COMPANY APPLIES ACCOUNTING
PRINCIPLES BOARD OPINION NO. 25 AND RELATED INTERPRETATIONS IN
ACCOUNTING FOR ITS STOCK OPTION PLANS. ACCORDINGLY, NO COMPENSATION
COST HAS BEEN RECOGNIZED IN CONNECTION WITH OPTIONS ISSUED. HAD
COMPENSATION COST FOR THE COMPANY'S STOCK OPTION PLANS BEEN DETERMINED
BASED ON THE FAIR VALUE OF THE OPTIONS USING THE BLACK SCHOLES OPTION
PRICING MODEL WITH AN ASSUMED RISK FREE INTEREST RATE OF 5%, AN
EXPECTED LIFE OF FIVE YEARS, VOLATILITY OF 25% AND AN ASSUMED DIVIDEND
RATE OF 4.2%, THE COMPANY'S EARNINGS PER SHARE FOR THE YEARS ENDED
DECEMBER 31, 1996 AND 1995 WOULD HAVE DECREASED BY LESS THAN $0.01 EACH
YEAR.
Note E _ Employee Benefit Plans
The Company has a noncontributory defined benefit pension plan, a
savings plan, a noncontributory profit sharing plan and a voluntary
employee beneficiary association (VEBA) plan which cover substantially
all domestic employees. Employees of non-U.S. subsidiaries generally
receive retirement benefits from company sponsored defined benefit or
defined contribution plans or from statutory plans administered by
governmental agencies in their countries. The Company does not provide
its employees any postretirement benefits other than those described
above.
Benefits under the defined benefit plans are based on the employee's
years of service and compensation, as defined. The Company's funding
policy is consistent with applicable local laws and regulations.
The savings plan, established under Section 401(k) of the Internal
Revenue Code, allows participants to contribute up to 10% of their
annual compensation. The Company will contribute 50% of the
participant's contribution, to a maximum of 3% of the participant's
salary and bonus.
The Company's annual accrual and contribution for both the savings and
profit sharing plans will not exceed the maximum amount deductible for
such year for federal income tax purposes.
The VEBA plan provides payment of health benefits to the Company's
employees and their beneficiaries.
The following table sets forth the defined benefit plans' combined
funded status and amounts recognized in the Company's consolidated
balance sheet at December 31 of each year:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation including vested
benefits of $17,869,000 in 1996, $16,331,000
in 1995, and $12,297,000 in 1994 $ 18,322,000 $ 16,877,000 $ 12,667,000
Projected benefit obligation $(25,280,000) $(23,023,000) $(18,383,000)
Plan assets at fair value (marketable securities
and short-term cash investments) 22,870,000 18,553,000 14,847,000
Projected benefit obligation in excess
of plan assets (2,410,000) (4,470,000) (3,536,000)
Unrecognized net gain (3,440,000) (1,316,000) (1,296,000)
Unrecognized prior service cost 185,000 174,000 161,000
Unrecognized net transition obligation,
net of amortization 486,000 421,000 327,000
Accrued pension cost included in contributions
payable to employee benefit plans $ (5,179,000) $ (5,191,000) $ (4,344,000)
</TABLE>
<TABLE>
NOTE E _ EMPLOYEE BENEFIT PLANS (CONTINUED)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
The principal assumptions used in computing
the amounts on the preceding page are
as follows:
Weighted average discount rate 7.00%-7.75% 7.00%-8.00% 8.00%-9.00%
Increase in future compensation 4.50%-5.00% 4.00%-6.00% 5.00%-7.00%
Expected long-term return on plan assets 8.00%-9.00% 8.00%-9.00% 8.00%-9.00%
Expenses for each of the employee benefit
plans are as follows:
Service cost _ benefits earned during the year $ 1,685,000 $ 1,316,000 $ 1,519,000
Interest cost on projected benefit obligation 1,666,000 1,590,000 1,389,000
Actual return on plan assets (2,966,000) (3,278,000) 131,000
Net amortization and deferral 1,339,000 1,893,000 (1,185,000)
Net pension cost of defined benefit plans 1,724,000 1,521,000 1,854,000
Savings plan 761,000 686,000 621,000
Profit sharing plan _ 1,000,000 1,000,000
Total $ 2,485,000 $ 3,207,000 $ 3,475,000
</TABLE>
NOTE F _ INCOME TAXES
The provision (benefit) for income taxes consists of the following:
1996 1995 1994
Currently payable:
Federal $ 1,866,000 $ 6,673,000 $ 5,349,000
State 19,000 414,000 637,000
Foreign 95,000 88,000 1,717,000
1,980,000 7,175,000 7,703,000
Deferred:
Federal 664,000 (236,000) 857,000
State 137,000 (60,000) 93,000
Foreign (9,000) 9,000 (171,000)
792,000 (287,000) 779,000
TOTAL $ 2,772,000 $ 6,888,000 $ 8,482,000
The reconciliation of income taxes computed at the statutory federal
income tax rate to the provision for income taxes from continuing
operations is as follows:
Statutory federal income tax $ 3,282,000 $ 7,089,000 $ 6,656,000
State income tax expense,
less federal tax benefit 101,000 230,000 475,000
Foreign operations 145,000 170,000 1,779,000
Benefit of Foreign Sales Corporation (457,000) (575,000) (553,000)
Miscellaneous (299,000) (26,000) 125,000
Provision for income taxes $ 2,772,000 $ 6,888,000 $ 8,482,000
NOTE F _ INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
December 31 are presented below:
1996 1995
DEFERRED TAX ASSETS:
Accounts receivable $ 378,000 $ 516,000
Additional costs inventoried for tax purposes and
inventory reserves not deductible for tax purposes 1,268,000 1,465,000
Excess benefit plan 1,086,000 874,000
Accrued warranty costs 2,138,000 2,021,000
Accrued pension costs 1,221,000 1,215,000
Intangible assets 639,000 575,000
Net operating loss carryforward 1,322,000 1,325,000
Other 529,000 636,000
8,581,000 8,627,000
Less: valuation allowance (1,322,000) (1,325,000)
Total deferred tax assets 7,259,000 7,302,000
DEFERRED TAX LIABILITIES:
Property, plant and equipment, principally
due to differences in depreciation (622,000) (174,000)
OTHER (398,000) (97,000)
Total deferred tax liabilities (1,020,000) (271,000)
Net deferred tax asset
(included in the balance sheet caption
"Intangibles and Other Assets") $6,239,000 $7,031,000
The Company's wholly-owned subsidiary, A. T. Cross Limited ("ATCL") is
not subject to the Republic of Ireland statutory income tax rate.
Through 2010, ATCL is subject to the 10% rate on profits from sales of
Irish manufactured goods, as defined. This lower tax rate reduced
income tax expense and increased net income by approximately $246,000
($0.01 per share) in 1996, $625,000 ($0.04 per share) in 1995, and
$1,692,000 ($0.10 per share) in 1994. Beginning in 1994, the earnings
of ATCL are subject to taxation in the United States pursuant to anti-
deferral legislation. This had the effect of decreasing net income by
approximately $215,000 ($0.01 per share) in 1996, $549,000 ($0.03 per
share) in 1995, and $1,375,000 ($0.08 per share) in 1994.
At December 31, 1996 and 1995 undistributed earnings of foreign
subsidiaries amounted to approximately $71,083,000 and $70,089,000
(including approximately $37 million in 1996 and $46 million in 1995 of
cash, cash equivalents and short-term investments). These earnings
could become subject to additional tax if they are remitted as
dividends, if foreign earnings are lent to the Company or a U.S.
affiliate, or if the Company should sell its stock in the subsidiaries.
Since it is generally the intention of the Company to invest the
undistributed earnings of foreign subsidiaries in the growth of
business outside the United States, deferred income taxes have not been
provided on such earnings. The amount of additional taxes that might be
payable on the foreign earnings approximates $21,920,000.
At December 31, 1996, net operating loss carryforwards for certain
foreign subsidiaries were approximately $3,693,000 for tax purposes.
These losses begin to expire in 1998.
Income taxes paid in 1996, 1995 and 1994 were approximately
$5,200,000, $7,275,000 and $4,533,000, respectively.
NOTE G _ GEOGRAPHIC INFORMATION
The following table sets forth geographic information for the Company:
1996 1995 1994
Sales to unaffiliated customers:
United States $123,853,010 $138,749,427 $132,177,946
Europe and Far East 55,350,433 52,340,982 44,957,824
Total $179,203,443 $191,090,409 $177,135,770
Income before income taxes:
United States $ 5,930,891 $ 15,507,613 $ 14,314,316
Europe and Far East 3,447,035 4,745,740 4,701,606
Total $ 9,377,926 $ 20,253,353 $ 19,015,922
Identifiable assets:
United States $ 79,422,307 $106,934,644 $ 96,145,653
Europe and Far East 95,768,228 82,427,555 84,223,452
Total $175,190,535 $189,362,199 $180,369,105
Identifiable assets outside the United States include cash, cash
equivalents and short-term investments of $37,363,000, $46,259,000 and
$54,178,000 at December 31, 1996, 1995 and 1994, respectively. United
States sales to unaffiliated customers include export sales of
approximately $25,252,000, $27,972,000 and $23,950,000 in 1996, 1995
and 1994, respectively.
NOTE H _ LINE OF CREDIT
The Company has an unsecured line of credit agreement with a bank under
which it may borrow up to $50,000,000. Any amounts borrowed under the
agreement are payable on demand and will bear interest at one half of
one percent (1/2 of 1%) per annum in excess of the London Interbank
Offering Rate (LIBOR). The agreement is cancelable at any time by the
Company or the bank. The highest amount borrowed at any time during the
year was $8,600,000.
The Company also has a multi-currency credit arrangement with a bank
under which it may borrow up to the equivalent of 7,000,000 U.S.
dollars to meet short-term foreign currency needs. This agreement is on
an "offering basis" in that the terms and conditions of any transaction
shall be mutually agreed upon at the time of each specific transaction.
There were no amounts outstanding under this agreement at any time in
1996
<TABLE>
NOTE I _ QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of
operations for the years ended December 31, 1996 and 1995:
(THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)
<CAPTION>
March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
1996:
Net sales $36,053 $41,524 $43,053 $58,573
Gross profit 17,900 19,736 20,264 27,210
Net income 1,657 794 1,621 2,534
Net income per share 0.10 0.05 0.10 0.15
1995:
Net sales $35,407 $44,883 $44,859 $65,941
Gross profit 17,597 21,668 21,660 35,743
Net income 1,554 1,647 2,751 7,413
Net income per share 0.09 0.10 0.17 0.45
</TABLE>
Report of Deloitte & Touche LLP
To the Shareholders of A.T. Cross Company
We have audited the accompanying consolidated balance sheet of A.T.
Cross Company & subsidiaries as of December 31, 1996 and the related
consolidated statements of income and retained earnings, and cash flows
for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
The consolidated financial statements of the Company for the years
ended December 31, 1995 and 1994 were audited by other auditors whose
report, dated January 30, 1996, expressed an unqualified opinion on
those statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, such 1996 consolidated financial statements present
fairly, in all material respects, the consolidated financial position
of the Company as of December 31, 1996, and the consolidated results of
their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 10, 1997
Management's Discussion & Analysis of Financial Condition and Results
of Operations
This section, as well as other portions of this document, includes
certain statements which are or may be construed as forward looking
about the Company's business and new products, sales and expenses, and
operating and capital requirements. Any such statements are subject to
risks that could cause the actual results or needs to vary materially.
These risks are discussed in this document and in the Company's 10-K
for its fiscal year ended December 31, 1996 filed with the Securities
and Exchange Commission.
RESULTS OF OPERATIONS
COMPARISON OF 1996 WITH 1995
Consolidated net sales decreased 6.2% or $11.9 million in 1996 compared
to 1995. Overall, the decrease is attributable to a decline in sales of
the Company's traditional, slim Century line, offset somewhat by sales
of the Company's newer products. Domestic net writing instrument sales
decreased by $9.0 million, or 9.5%, while foreign net writing
instrument sales were essentially even with 1995. Sales of Fendi
leather products by the Company's Manetti-Farrow subsidiary declined
20.5%, or $3.2 million.
The decline in Century sales was particularly notable in the United
States where this product line has been marketed for over 50 years. In
the last three years, the Company began offering new product lines to
complement the sagging Century line. For the most part, these new
products have been very well received. However, in 1996 new products
did not generate sufficient sales to completely offset the Century
decline. The Company attributes the less than expected new product
sales to a lack of consumer awareness of the Company's new products.
While the established Century line is well-known and quickly associated
by consumers with the Cross brand name, the Company has not
successfully transferred this high brand awareness to its other
products. The Company believes that a new, long-term marketing
strategy, to be developed in 1997, which emphasizes the family of Cross
products may stimulate interest in both the Century line and the newer
Cross offerings.
The decline in domestic writing instruments was most significant in
sales to mass market retailers which declined almost 40%. However, part
of the decline in sales to this distribution channel was the result of
the Company's decision to discontinue business with certain customers
whose merchandising strategies were incompatible with the Cross brand
image. The Company's Century line and its more recently introduced, low-
priced Solo line were the most negatively affected by the fall off in
business to mass market retailers. While 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, sales of these products were less than anticipated and
insufficient to offset the entire decline. Sales of Townsend products,
the Company's highest priced product line, were relatively flat
compared to 1995. Domestic sales in 1996 benefited somewhat from an
approximate 2% first quarter price increase.
Internationally, while sales in Asia and the Far East decreased
approximately 3% primarily due to the weaker Japanese yen compared to
1995, European sales increased significantly (9.0%). The Company's
largest sales growth in recent years has been in international markets,
where the Company has a much lower share of the writing instruments
market than in the United States, and the Company has taken steps to
increase its market share in these areas of the world. For example, in
Europe, the Company introduced a new line of Century products (Century
Restage) complete with unique finishes and designs developed
specifically for this market. The success of this new product,
especially the fountain pen, contributed to the higher European sales
in 1996.
The overall consolidated gross margin decreased to 47.5% in 1996 from
50.6% in 1995. Although cost controls have been effective at keeping
production cost increases to a minimum, lower sales combined with even
lower production levels in 1996 resulted in a much higher percentage of
indirect product costs (i.e., factory overhead) in relation to sales.
In addition, a number of the Company's newer products earn
incrementally lower margins than the Company's older, more mature
products.
Selling, general and administrative expenses decreased $1.9 million
(2.7%) in 1996 compared to 1995, and were 39.4% of net sales in 1996,
as compared to 38.0% in 1995. The lower expenses this year largely
resulted from the Company's cost containment efforts undertaken in
response to lower sales. Although the Company's overall cost structure
is higher due to the establishment in 1995 of a European Sales and
Marketing Headquarters facility in Paris, France, many discretionary
costs were reduced or eliminated in order to minimize the negative
impact on earnings associated with lower sales. The stronger dollar,
particularly with respect to the Japanese yen, also contributed to
lower expenses this year. Research and development expenses and service
and distribution costs were relatively unchanged in comparison to 1995.
Interest and other income decreased $1.5 million (42.2%) from 1995.
Interest income was lower due to lower interest rates earned on lower
average invested funds, and to interest earned in 1995 on a non-
recurring state income tax refund claim.
The effective income tax rate in 1996 was 29.6% as compared to the
1995 rate of 34.0%. The lower rate this year primarily resulted from
the utilization of foreign tax credits and increased tax benefits
derived from export sales. The Company expects its effective tax rate
in 1997 to approximate 33-35%.
COMPARISON OF 1995 WITH 1994
Consolidated net sales increased 7.9% in 1995 compared to 1994.
Overall, the increase was attributable to the favorable consumer
response to the Company's new product offerings.
Domestic net sales increased by $2.5 million, or 2.4%, while foreign
net sales were $11.4 million, or 16.6%, improved over the prior year.
The higher domestic sales were largely the result of new products
launched in 1995, in particular the Solo and Solo Classic lines, and
the continued success of the Townsend line, the Company's highest
priced product line. While overall domestic unit volume increased 6.2%,
most of this increase was derived from Solo which has lower average
selling prices than many of the Company's traditional products.
Aggressive promotional pricing on certain older products helped
maintain unit volume for those items. Domestic sales in 1995 benefited
somewhat from a modest mid-year price increase on selected products.
While foreign sales increased in nearly every major market, European
sales increased dramatically (20.9%), followed closely by Asia and the
Far East (15.0%). The Company has aggressively pursued opportunities to
increase its market share in these areas of the world. In addition to
new product offerings and promotions which have stimulated
international consumer recognition of and demand for Cross products,
over the last several years the Company has devoted significant effort
toward identifying and replacing poor performing international
distributors, and has worked more closely with its distributors to
improve the merchandising and promotion of the Cross brand.
International sales benefited further by higher marketing support
expenditures, consistent with the Company's efforts to increase market
share in key foreign markets. Overall, favorable foreign exchange rates
against the lower dollar, particularly in Japan, added to the
improvement in sales.
The overall consolidated gross margin increased to 50.6% in 1995 from
49.9% in 1994. As cost controls were effective at keeping production
cost increases low, the higher sales and production volume had a direct
and positive impact on the Company's worldwide margins in 1995.
Selling, general and administrative expenses increased $5.8 million
(8.6%) in 1995 compared to 1994, and were 38.0% of net sales in 1995,
as compared to 37.7% in 1994. The increase was due in part to higher
marketing support expenses of $1.5 million, as well as higher personnel
costs principally in the sales and marketing areas. Some of the
personnel costs, and certain other administrative costs, were
attributable to the establishment of a European Sales and Marketing
Headquarters facility in Paris, France, organized in connection with
the Company's efforts to maximize its growth opportunities in the
lucrative European writing instruments market. The weaker dollar also
contributed to higher expenses in 1995. Research and development
expenses increased $1.0 million or 46.9% from 1994, reflecting the
Company's commitment to developing new products and improving processes
and technologies. Service and distribution costs were 1.2% lower than
1994 due to ongoing cost reduction efforts in this area.
Interest and other income decreased $0.3 million (8.3%) from 1994.
Interest income was higher due to higher interest rates earned on lower
average invested funds, and to interest earned on a non-recurring state
income tax refund claim. The higher interest income was offset by lower
other income resulting from certain non-recurring gains recorded in the
prior year.
The effective income tax rate in 1995 was 34.0% as compared to the
1994 rate of 44.6%. The Company implemented a reorganization of certain
of its European operations at the end of 1994 to reflect a change of
functions performed by both its manufacturing and distribution
affiliates, and to more closely align the responsibilities of
management in each area to their operational objectives. These
operational changes had the effect of more closely conforming the
Company's effective tax rate with its historical tax rate of 31%
(average effective tax rate from 1988 to 1992).
LIQUIDITY AND CAPITAL RESOURCES
Cash, cash equivalents and short-term investments (i.e., "cash")
decreased $10.4 million in total in 1996 to $43.5 million. Among other
factors, expenditures for capital additions, dividends and treasury
stock acquisitions exceeded cash generated from operating activities
and bank borrowings, resulting in the overall decrease in cash.
Although net income decreased $6.8 million, lower inventories and
accounts receivable at the end of the year resulted in a relatively
minor decrease, $0.6 million, in cash generated from operations.
Accounts receivable decreased $2.2 million primarily due to the lower
sales volume in the last months of the year as compared to the same
months of 1995. The Company ordinarily offers domestic retail customers
a program whereby they may either delay payment on certain third and
fourth quarter purchases until January of the next year, or may earn a
greater discount on these purchases if payment is made earlier. As a
result, the Company's cash level is lowest at the end of the year when
accounts receivable are at their highest. Inventory decreased $3.0
million compared to 1995. The inventory reduction was the result of
significantly lower production this year, especially in the fourth
quarter.
Additions to property, plant and equipment were $9.1 million in 1996,
compared to $10.8 million in 1995. The Company expects capital
expenditures will approximate $6.5 million in 1997, as compared with
expected depreciation expense of approximately $7.0 million.
The Company's working capital was $76.5 million at the end of 1996, a
decrease of $6.2 million from 1995, and its current ratio increased to
2.78:1 at the end of 1996 from 2.58:1 at the end of 1995. The Company
has a $50.0 million bank line of credit to meet any temporary cash flow
shortages that may arise. Also, the Company has a multi-currency credit
arrangement under which it may borrow up to the equivalent of 7.0
million U.S. dollars to meet short-term foreign currency needs. The
Company believes that funds from operations and existing cash,
supplemented, as appropriate, by the Company's existing short-term
borrowing arrangements, will be adequate to finance its foreseeable
operating and capital requirements.
At the end of 1996, cash available for domestic operations amounted to
$6.1 million while cash held offshore for use in international
operations amounted to $37.4 million. While it is not the Company's
intention to do so, if in the future the Company determines that the
cash held offshore is not necessary for international operations, it
may repatriate such cash for use in domestic operations. However,
repatriated offshore funds will be subject to additional federal and
state income taxes of approximately 31% of the remitted amounts.
IMPACT OF INFLATION AND CHANGING PRICES
The Company's operations are subject to the effects of general
inflation as well as fluctuations in foreign currencies. In addition,
the Company is exposed to volatility in the price of gold and silver as
those precious metals are used in the manufacture of its products.
Policies and programs are in place to manage the potential risks in
these areas. The Company has generally been successful in controlling
cost increases due to precious metal fluctuations and due to general
inflation. For example, the Company reduced its number of suppliers in
order to obtain lower costs and higher quality on many of its materials
and purchased components, and has taken steps in recent years to reduce
excess manufacturing capacity.
Because of volatility in both the gold bullion and foreign currency
markets, the Company has followed the practice of making advance
commitments for approximately one year's projected requirements for its
gold needs and for a portion of its foreign currency needs. In
addition, the Company normally enters into foreign currency forward
exchange contracts to hedge that portion of its net financial position
that is exposed to foreign currency fluctuations. As noted above, the
Company has a multi-currency credit arrangement which may help the
Company meet some of its foreign currency needs and may serve as an
additional tool for hedging assets and liabilities exposed to foreign
currency fluctuations.
The Company has adopted accounting practices which tend to reflect
current costs in its income statement. Approximately 65% of total
inventories at the end of 1996 and 1995, and 54% at the end of 1994,
were accounted for using the last-in, first-out (LIFO) valuation
method. Normally under this method, the cost of goods sold reported in
the financial statements approximates current costs and, thus, helps
reduce distortions in reported income due to the effect of changing
prices.
Depreciation expense is based on historical costs and, therefore, is
lower than if based on the current cost of productive capacity.
However, the Company uses accelerated depreciation methods for most
assets, thereby reducing operating income by a greater amount than
would be the case if the more generally used straight-line method was
employed. Assets acquired in prior years will, of course, be replaced
at higher costs, but this will take place over many years. These new
assets will result in higher depreciation charges, but in many cases,
due to technological improvements, there quite likely will be operating
cost savings as well.
RISKS AND UNCERTAINTIES
The following section describes certain of the more prominent risks and
uncertainties inherent in the Company's operations. However, this
section does not intend to discuss all possible risks and uncertainties
to which the Company is subjected, nor can it be assumed necessarily
that there are no other risks and uncertainties which may be more
significant to the Company.
NEW PRODUCTS: The Company's ability to restore growth in sales depends
largely on consumer acceptance of various new products recently
introduced and planned for introduction in the coming months. While the
Company is optimistic about the prospects of favorable consumer
reaction to these new products, the market in which the Company sells
is highly competitive, and there is no assurance that such consumer
acceptance will be realized to the degree necessary to generate growth
in the Company's sales and earnings.
DEPENDENCE ON CERTAIN SUPPLIERS: To maintain the highest level of
product quality, the Company relies on a limited number of domestic and
foreign suppliers for certain raw materials and manufacturing
technologies. The Company may be adversely affected in the event that
these suppliers cease operations, or if pricing terms become less
favorable. The Company believes, but cannot be assured, that the raw
materials currently supplied by these vendors could be obtained from
other sources and that the manufacturing technologies could be
developed internally or that suitably similar technologies could be
located.
BOARD OF DIRECTORS
Bradford R. Boss
Chairman of the Board Class B Director.1,4
Russell A. Boss
President and Chief Executive Officer Class B Director.1,4
John E. Buckley
Executive Vice President Chief Operating Officer Class B Director. 1,4
Bernard V. Buonanno, Jr.
Partner, Edwards & Angell, Providence, Rhode Island Class B Director.
3
H. Frederick Krimendahl, II Limited Partner, The Goldman Sachs Group,
L.P., New York, New York
Class B Director. 3
Thomas C. McDermott
President and Chief Executive Officer, Goulds Pumps, Inc., Fairport,
New York Class A Director. 2
Terrence Murray
Chairman, President and Chief Executive Officer, Fleet Financial
Group, Inc., Boston, Massachusetts Class A Director. 3
James C. Tappan
President, Tappan Capital Partners, Hobe Sound, Florida Class A
Director. 2
Edwin G. Torrance
Partner, Hinckley, Allen & Snyder, Providence, Rhode Island Class B
Director. 2
CORPORATE OFFICERS
Bradford R. Boss
Chairman of the Board
Russell A. Boss
President Chief Executive Officer
John E. Buckley
Executive Vice President Chief Operating Officer
David J. Arthur Vice President, Engineering
Tina C. Benik
Vice President, Legal General Counsel and Corporate Secretary
Joseph F. Eastman
Vice President, Human Resources
Michael El-Hillow
Vice President, Finance Treasurer, Chief Financial Officer
Steven T. Henick
Vice President, International Marketing and Sales
J. John Lawler
Vice President, Worldwide Tax and Duty Free
Stephen A. Perreault
Vice President, Manufacturing
Donald W. Reilly
Corporate Controller
David A. Rogers Vice President, U.S. Marketing and Sales
John T. Ruggieri
Vice President, Corporate Development and Planning
Board Committees: 1. Executive; 2. Audit; 3. Compensation; 4.
Employee Benefits
CORPORATE INFORMATION
Corporate Headquarters
A.T. Cross Company
One Albion Road
Lincoln, Rhode Island 02865 U.S.A.
Tel. (401) 333-1200
Fax (401) 334-2861
Subsidiaries and Branches
ATX Marketing Company, Lincoln, Rhode Island
ATX International, Inc., Wilmington, Delaware
A.T. Cross Export Company Limited, St. Thomas, Virgin Islands
A.T. Cross Limited, Ballinasloe, Republic of Ireland
A.T. Cross Distribution, Ballinasloe, Republic of Ireland
A.T. Cross (Canada), Inc. Toronto, Ontario, Canada
ATX Ireland, Limited, Ballinasloe, Republic of Ireland
A.T. Cross Italia, S.r.l. Milan, Italy
A.T. Cross Company, French Branch Paris, France
A.T. Cross Company, Hong Kong Branch Hong Kong
A.T. Cross (U.K.) Limited, Luton, Bedfordshire, England
A.T. Cross (Europe), Limited, Luton, Bedfordshire, England
A.T. Cross Company, Spanish Branch Malaga, Spain
A.T. Cross Deutschland GmbH, Mainz, Federal Republic of Germany
Cross Company of Japan, Limited, Tokyo, Japan
Manetti-Farrow, Incorporated, New York, New York
Annual Meeting
The Annual Meeting of Shareholders of A.T. Cross Company will be held
on Thursday, April 24, 1997 at 10:00 a.m. at the offices of the
Company, One Albion Road, Lincoln, Rhode Island 02865
Legal Counsel
Hinckley, Allen & Snyder, Providence, Rhode Island 02903
Auditors
Deloitte & Touche LLP, Boston, Massachusetts 02110
Stock Symbol
American Stock Exchange Symbol: ATX.A
Transfer Agent and Registrar
Fleet National Bank of Rhode Island, Providence, Rhode Island 02903
10-K Report
A copy of the Company's report to the Securities and Exchange
Commission on Form 10-K will be furnished free of charge to any
security holder upon written request to the Vice President, Finance,
at One Albion Road, Lincoln, Rhode Island 02865
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in Post-Effective Amendment
Number 6 to Registration Statement No. 2-54429 on Form S-8, Post-Effective
Amendment Number 9 to Registration Statement No. 2-42388 on form S-8, and
Registration Statement Nos. 33-23709, 33-23710, 33-54176, 33-64729, and 33-
64731 of A.T. Cross Company on Forms S-8 of our reports dated February 10,
1997, appearing in and incorporated by reference in this Annual Report on
Form 10-K of A.T. Cross Company for the year ended December 31, 1996.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 21, 1997
EXHIBIT 23.2
Consent of Independent Auditors
We also consent to the incorporation by reference in Post-Effective
Amendment number 6 to Registration Statement number 2-54429 on Form S-8,
Post-Effective Amendment Number 9 to Registration Statement Number 2-42388
on Form S-8, Registration Statement Number 33-23709 on Form S-8,
Registration Statement Number 33-23710 on Form S-8, Registration Statement
Number 33-54176 on Form S-8, Registration Statement Number 33-64729 on Form
S-8, and Registration Statement Number 33-64731 on Form S-8 of our report
dated January 30, 1996, with respect to the consolidated financial
statements and schedule of A.T.Cross Company as of December 31, 1995, and
for each of the two years in the period ended December 31, 1995, included
in the Annual Report (Form 10-K) for the year ended December 31, 1996.
ERNST & YOUNG LLP
Providence, Rhode Island
March 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS INCLUDED IN THE A. T. CROSS COMPANY ANNUAL REPORT TO SECURITY HOLDERS
FOR THE YEAR ENDED DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 43,461,006
<SECURITIES> 0
<RECEIVABLES> 46,522,281
<ALLOWANCES> 1,552,000
<INVENTORY> 26,173,573
<CURRENT-ASSETS> 119,371,883
<PP&E> 104,458,449
<DEPRECIATION> 64,133,753
<TOTAL-ASSETS> 175,190,535
<CURRENT-LIABILITIES> 42,890,610
<BONDS> 0
0
0
<COMMON> 17,087,212
<OTHER-SE> 109,703,713
<TOTAL-LIABILITY-AND-EQUITY> 175,190,535
<SALES> 179,203,443
<TOTAL-REVENUES> 181,554,512
<CGS> 94,092,978
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 77,480,616
<LOSS-PROVISION> 342,977
<INTEREST-EXPENSE> 260,015
<INCOME-PRETAX> 9,377,926
<INCOME-TAX> 2,772,000
<INCOME-CONTINUING> 6,605,926
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,605,926
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
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