UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-6720
A. T. CROSS COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0126220
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Albion Road, Lincoln, Rhode Island 02865
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (401) 333-1200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of March 31, 1998:
Class A common stock - 14,710,393 shares
Class B common stock - 1,804,800 shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31 December 31
1998 1997
ASSETS (UNAUDITED)
CURRENT ASSETS (Thousands of Dollars)
Cash and Cash Equivalents $ 31,552 $ 25,801
Short-Term Investments 21,625 21,607
Accounts Receivable 21,919 37,571
Inventories:
Finished Goods 7,950 7,767
Work in Process 6,833 5,647
Raw Material 7,125 6,625
21,908 20,039
Other Current Assets 6,456 4,761
TOTAL CURRENT ASSETS 103,460 109,779
PROPERTY, PLANT AND EQUIPMENT 110,335 109,344
Less Allowances for Depreciation 71,537 69,588
38,798 39,756
INTANGIBLES AND OTHER ASSETS 8,461 8,484
$150,719 $158,019
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable, Accrued Expenses and
Other Liabilities $ 20,732 $ 25,388
Compensation and Related Taxes 2,640 3,328
Cash Dividends Payable 0 1,320
Contributions Payable to Employee
Benefit Plans 9,747 9,228
TOTAL CURRENT LIABILITIES 33,119 39,264
ACCRUED WARRANTY COSTS 5,896 5,821
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
15,310,561 Shares Issued and 14,710,393
Shares Outstanding at March 31, 1998 and
15,294,652 Shares Issued and 14,696,272
Shares Outstanding at December 31, 1997 15,310 15,295
Class B, Authorized 4,000,000 Shares;
1,804,800 Shares Issued and Outstanding
At March 31, 1998 and December 31, 1997 1,805 1,805
Additional Paid-In Capital 12,104 11,959
Retained Earnings 92,176 93,503
Accumulated Other Comprehensive Loss (739) (703)
120,656 121,859
Treasury Stock, at Cost (8,952) (8,925)
TOTAL SHAREHOLDERS' EQUITY 111,704 112,934
$150,719 $158,019
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
1998 1997
(In Thousands Except per Share Data)
Net Sales $31,525 $33,688
Cost of Goods Sold 17,130 17,229
Gross Profit 14,395 16,459
Selling, General and
Administrative Expenses 15,123 13,965
Research and Development Expenses 1,006 942
Service and Distribution Costs 772 852
Operating Income(Loss) (2,506) 700
Interest and Other Income 555 439
Income(Loss) from Continuing Operations
Before Income Taxes (1,951) 1,139
Income Tax Provision (Benefit) (624) 399
Income(Loss) from Continuing
Operations (1,327) 740
Income from Discontinued
Operations (Net of Income Taxes) 0 66
Net Income(Loss) $(1,327) $ 806
Basic and Diluted Earnings
(Loss) Per Share:
Continuing Operations $ (0.08) $ 0.05
Discontinued Operations (0.00) 0.00
Net Income(Loss) Per Share $ (0.08) $ 0.05
Weighted Average Shares Outstanding:
Denominator for Basic Earnings
Per Share 16,507 16,494
Effect of Dilutive Securities:
Employee Stock Options - (A) 1
Denominator for Diluted Earnings
Per Share 16,507 16,495
(A) No incremental shares related to stock options are
included due to the loss.
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31
1998 1997
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities:
Net Cash Provided by Continuing Operations $ 8,017 $ 16,366
Net Cash Used In Discontinued Operations 0 (439)
Net Cash Provided By Operating Activities 8,017 15,927
Investing Activities:
Additions to Property, Plant and Equipment (919) (1,500)
Purchase of Short-Term Investments (10,042) (1,205)
Sale or Maturity of Short-Term Investments 10,024 1,100
Net Cash Used In Investing Activities (937) (1,605)
Financing Activities:
Cash Dividends Paid (1,320) (2,639)
Repayment of Bank Borrowings 0 (6,000)
Other 134 68
Net Cash Used In Financing Activities (1,186) (8,571)
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (143) (263)
Increase in Cash and Cash Equivalents 5,751 5,488
Cash and Cash Equivalents at Beginning of Period 25,801 14,768
Cash and Cash Equivalents at End of Period $ 31,552 $ 20,256
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ending December
31, 1998. The Company typically records its highest sales and earnings in
the fourth quarter. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report on Form 10-K for the year ended December 31, 1997.
NOTE B - Discontinued Operations
In June 1997, the Company discontinued the distribution of quality leather
goods and accessory products and began to wind-down all operations of its
Manetti-Farrow subsidiary. The Company recorded an after-tax profit of
$66,000 in the first quarter of 1997 in connection with this subsidiary.
Certain amounts for 1997 have been restated to allow comparison with 1998.
NOTE C - Comprehensive Income
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No.130, "Reporting Comprehensive Income" in 1998. SFAS No.130 requires the
reporting of comprehensive income which, in the case of the Company, is the
combination of reported net income and the change in the cumulative
translation adjustment which is a component of shareholders' equity. SFAS
No.130 has no impact on the Company's reported net income. Comprehensive
income for the quarter ended March 31, 1998 and 1997 follows:
1998 1997
Net Income (Loss) $(1,327) $806
Change in Cumulative
Translation Adjustment (36) (474)
Comprehensive Income (Loss) $(1,363) $332
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION
Results of Operations First Quarter 1998 Compared to First Quarter 1997
Net sales for the first quarter ended March 31, 1998 decreased 6.4%
compared to the first quarter of 1997. Total writing instrument sales for
the quarter of $28.7 million were down 14.7% from the prior year. Domestic
writing instrument sales of $14.0 million were 4.6% lower than the first
quarter 1997 while foreign writing instrument sales of $14.7 million
declined 22.6% compared to 1997. Sales by the Pen Computing Group (PCG)
during the first quarter of 1998 were $2.6 million while last year there
were only minimal PCG sales in the first quarter. The continuation of the
test marketing of Cross Timepieces generated $200,000 of revenue in this
year's first quarter. There were no timepiece sales in the same period
last year.
The decline in domestic writing instrument sales was due to lower sales
through the mass market and catalog showroom channels. In addition, in the
first two months of 1997's first quarter, there were sales made in
anticipation of a March 1, 1997 price increase.
Internationally, the sales decrease in the quarter was due to continuing
declines in sales to our Asian markets. For the fourth consecutive
quarter, sales to the Asian markets were adversely affected by currency
devaluation in several key markets and the underlying related economic
weakness. Offsetting these declines somewhat were improved sales to Europe
and the Middle East, Latin America and Canada. Sales to Europe and the
Middle East continued to improve due largely to the Company's efforts to
develop those markets. The improvement in Canada was primarily
attributable to the continued strengthening of relationships with key
accounts after the 1997 change in the method of distribution in this
market.
In March 1998, the PCG division launched CrossPad, a portable digital
notepad that was developed jointly with IBM. First introduced at the
November 1997 Comdex show, the CrossPad has recently received extensive
national news coverage. A second-generation iPen (iPen Pro) with enhanced
software was introduced during the first quarter of 1998, as well as a dual-
function line of DigitalWriter, which includes an ink refill and a
polymeric tip stylus.
The gross profit margin for the first quarter of 1998 was 45.7%, down from
last year's gross margin of 48.9%. The decline in margin was partially
attributable to the effect of the higher percentage of indirect product
costs in relation to the overall lower sales volume in the first quarter.
In addition, 1998 first quarter margins were lower than the prior year due
to the greater proportion of PCG sales, which generate lower average
margins than writing instruments. Included in 1998's cost of sales are
royalty expenses related to PCG sales. These royalties are paid to
suppliers of certain software and hardware components for both the iPen and
CrossPad.
Selling, general and administrative expenses for the first quarter of 1998
were 8.3% higher than last year. This increase over the prior year was due
to the expenses incurred in the quarter for the continued support of the
PCG and Timepiece businesses. Research and development expenses exceeded
the 1997 first quarter by 6.8% due largely to the development of PCG
products. Service and distribution expenses were below prior year due to
the lower sales levels.
Interest and other income increased 26.4% for the first three months of
1998 primarily due to higher interest income. This increase was due mostly
to higher average levels of investable funds in the first quarter of 1998
combined with slightly higher interest rates.
The Company recorded an income tax benefit of 32.0% on the loss from
continuing operations, as compared to the 1997 first quarter income tax
provision of 35.0%, reflecting the benefit of lower state income taxes.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments (i.e., "cash") increased
$5.8 million from December 31, 1997 to $53.2 million at March 31, 1998.
Cash available for domestic operations approximated $10.4 million while
cash held offshore approximated $42.8 million at March 31, 1998. Accounts
receivable decreased since the end of 1997 by $15.7 million to $21.9
million as cash was collected in January 1998 from customers who took
advantage of the Company's 1997 extended dating program which allowed
domestic customers to defer payments on certain 1997 purchases to 1998.
This program was similar to holiday season extended dating programs that
have been offered in past years. The Company has available a $50 million
line of credit with a bank which provides an additional source of working
capital on a short-term basis. At March 31, 1998 there were no outstanding
amounts under this line. The Company also has available a $7 million multi-
currency credit arrangement with a bank to meet short-term foreign currency
needs. There were no outstanding amounts under this agreement as of March
31, 1998. The Company believes that its current level of working capital,
along with the funds available from the lines of credit, will be sufficient
to meet the Company's normal operating needs.
Inventory of $21.9 million increased $1.9 million since December 31, 1997.
The inventory increase in the first three months of 1998 was due largely to
higher levels of pen computing and timepiece inventory.
New Accounting Pronouncements
The FASB has issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" and SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits." Both
statements are effective and will be adopted by the Company in fiscal 1998.
The effect of adopting these standards is not expected to be material to
the Company's financial position or results of operations; however, they
both may require additional disclosure.
Forward Looking Statements
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. In addition, use of
words such as "believes," "anticipates," "expects" and similar expressions
are intended to identify forward-looking statements. The Company cautions
that a number of important factors could cause actual results for 1998 and
beyond to differ materially from those expressed in any forward-looking
statements made by or on behalf of the Company. Such statements contain a
number of risks and uncertainties, including, but not limited to, risks
associated with consumer acceptance of the Company's new product lines, the
successful development and performance of new technology in connection with
such new products, the Company's dependence on certain suppliers, the
Company's sensitivity to technological change and economic conditions, the
Company's other strategic initiatives, and customer and consumer support
for such initiatives and changes. See the Company's Form 10-K for a more
detailed discussion of certain of these factors. The Company cannot assure
that it will be able to anticipate or respond timely to changes which could
adversely affect its operating results in one or more fiscal quarters.
Results of operations in any past period should not be considered
indicative of results to be expected in future periods. Fluctuations in
operating results may result in fluctuations in the price of the Company's
common stock.
ITEM 3. QUANTITATIVE AND QUALATATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period covered by
this report.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
A. T. CROSS COMPANY
Date: May 13, 1998 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: May 13, 1998 By: JOHN T. RUGGIERI
John T. Ruggieri
Senior Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements included in A. T. Cross Company form 10-Q for the quarterly period
ended March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 53,177
<SECURITIES> 0
<RECEIVABLES> 23,545
<ALLOWANCES> 1,626
<INVENTORY> 21,908
<CURRENT-ASSETS> 103,460
<PP&E> 110,335
<DEPRECIATION> 71,537
<TOTAL-ASSETS> 150,719
<CURRENT-LIABILITIES> 33,119
<BONDS> 0
0
0
<COMMON> 17,115
<OTHER-SE> 94,589
<TOTAL-LIABILITY-AND-EQUITY> 150,719
<SALES> 31,525
<TOTAL-REVENUES> 32,104
<CGS> 17,130
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,883
<LOSS-PROVISION> 18
<INTEREST-EXPENSE> 24
<INCOME-PRETAX> (1,951)
<INCOME-TAX> (624)
<INCOME-CONTINUING> (1,327)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,327)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
