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 October 2, 1999
[ ] 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 October 2, 1999:
Class A common stock - 15,232,166 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
October 2, December 31,
1999 1998
(Unaudited)
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 12,918 $ 22,781
Short-Term Investments 21,970 21,717
Accounts Receivable 23,862 34,274
Inventories:
Finished Goods 6,151 7,521
Work in Process 5,833 5,646
Raw Material 9,379 6,662
21,363 19,829
Other Current Assets 11,988 7,283
TOTAL CURRENT ASSETS 92,101 105,884
PROPERTY, PLANT AND EQUIPMENT 121,266 115,343
Less Allowances for Depreciation 82,942 76,719
38,324 38,624
INTANGIBLES AND OTHER ASSETS 16,289 11,829
TOTAL ASSETS $146,714 $156,337
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note Payable to Bank $ 8,300 $ 6,000
Accounts Payable, Accrued Expenses and
Other Liabilities 22,286 27,417
Accrued Compensation and Related Taxes 2,729 2,746
Contributions Payable to Employee Benefit Plans 10,272 10,096
TOTAL CURRENT LIABILITIES 43,587 46,259
ACCRUED WARRANTY COSTS 5,821 5,821
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
15,843,232 Shares Issued and 15,232,166
Shares Outstanding at October 2, 1999 and
15,344,162 Shares Issued and 14,743,096
Shares Outstanding at December 31, 1998 15,843 15,344
Class B, Authorized 4,000,000 Shares;
1,804,800 Shares Issued and Outstanding
at October 2, 1999 and December 31, 1998 1,805 1,805
Additional Paid-In Capital 14,848 12,433
Unearned Compensation on Restricted Stock (442) 0
Retained Earnings 73,838 84,087
Accumulated Other Comprehensive Income (Loss) 441 (446)
106,333 113,223
Treasury Stock, at Cost (9,027) (8,966)
TOTAL SHAREHOLDERS' EQUITY 97,306 104,257
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $146,714 $156,337
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
13 Weeks 3 Months 39 Weeks 9 Months
Ended Ended Ended Ended
October 2, September 30, October 2, September 30,
1999 1998 1999 1998
(Thousands of Dollars Except Per Share Data)
Net Sales $30,895 $33,429 $85,951 $99,316
Cost of Goods Sold 17,281 18,740 50,290 53,451
Gross Profit 13,614 14,689 35,661 45,865
Selling, General and
Administrative Expenses 14,316 18,153 46,556 48,157
Research and Development Expenses 1,114 1,146 2,463 3,372
Service and Distribution Costs 661 805 2,497 2,433
Operating Loss (2,477) (5,415) (15,855) (8,097)
Interest and Other Income 493 679 1,406 2,090
Loss from Continuing Operations
Before Income Taxes (1,984) (4,736) (14,449) (6,007)
Income Tax Benefit (516) (1,515) (3,757) (1,922)
Loss from Continuing Operations (1,468) (3,221) (10,692) (4,085)
Income (Loss) from Discontinued
Operations (Net of Income Taxes) (903) (1,196) 443 5
Net Loss $(2,371) $(4,417) $(10,249) $(4,080)
Basic and Diluted Earnings
(Loss) Per Share:
Continuing Operations $ (0.10) $ (0.20) $ (0.65) $ (0.25)
Discontinued Operations (0.05) (0.07) 0.03 0.00
Net Loss Per Share $ (0.15) $ (0.27) $ (0.62) $ (0.25)
Weighted Average Shares Outstanding:
Denominator for Basic Earnings
Per Share 16,655 16,548 16,622 16,530
Effect of Dilutive Securities:
Employee Stock Options - (A) - (A) - (A) - (A)
Denominator for Diluted Earnings
Per Share 16,655 16,548 16,622 16,530
Dividends Declared Per Share $ 0.00 $ 0.08 $ 0.00 $ 0.16
(A) No incremental shares are included due to the net loss.
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
39 Weeks Ended 9 Months Ended
October 2, 1999 September 30, 1998
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities:
Net Cash Used In Continuing Operations $(9,287) $(2,895)
Net Cash Provided By (Used In)
Discontinued Operations 1,407 (180)
Net Cash Used In Operating Activities (7,880) (3,075)
Investing Activities:
Additions to Property, Plant and Equipment (6,010) (4,113)
Purchase of Short-Term Investments (10,289) (14,694)
Sale or Maturity of Short-Term Investments 10,036 14,466
Net Cash Used In Investing Activities (6,263) (4,341)
Financing Activities:
Cash Dividends Paid 0 (3,967)
Proceeds from Bank Borrowings 10,300 7,000
Repayment of Bank Borrowings (8,000) (2,000)
Other 2,222 497
Net Cash Provided By Financing Activities 4,522 1,530
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (242) 109
Decrease in Cash and Cash Equivalents (9,863) (5,777)
Cash and Cash Equivalents at Beginning of Period 22,781 25,801
Cash and Cash Equivalents at End of Period $12,918 $20,024
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 2, 1999
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 nine months
ended October 2, 1999, are not necessarily indicative of the results that may
be expected for the full year ending January 1, 2000. The Company has
historically recorded its highest sales 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, 1998.
NOTE B - Change of Accounting Periods
To facilitate the implementation of a standardized worldwide reporting system,
as of January 1, 1999 the Company changed from a calendar quarter and year end
closing schedule to a 4-4-5 week quarter-end close and a 52/53 week fiscal
close. This change did not have a material impact on sales or results of
operations in the third quarter and first nine months of 1999 as compared to
the third quarter and first nine months of 1998.
NOTE C - Discontinued Operations:
Timepieces
During the third quarter of 1999, the Company discontinued operations of its
timepiece segment when it entered into a license agreement with SBIamerica for
the worldwide distribution of the Cross brand of timepieces. The following
table sets forth summary information relating to timepieces, (in thousands).
13 Weeks 3 Months 39 Weeks 9 Months
Ended Ended Ended Ended
October 2, September 30, October 2, September 30,
1999 1998 1999 1998
Net Sales $(211) $ 422 $ 14 $ 754
Costs and Expenses 760 2,181 1,187 3,178
Operating Loss Before Taxes (971) (1,759) (1,173) (2,424)
Income Tax Benefit Related
to Operations (253) (563) (305) (776)
Operating Loss (718) (1,196) (868) (1,648)
Loss on Disposal Before
Income Taxes (250) 0 (250) 0
Income Tax Benefit Related
to Loss on Disposal (65) 0 (65) 0
Loss on Disposal (185) 0 (185) 0
Loss From Discontinued
Operations $(903) $(1,196) $(1,053) $(1,648)
Manetti-Farrow, Inc.
In the first quarter of 1999, the Company recorded after-tax income from
discontinued operations of $1,496,000. The Company reached a settlement in
1998 with the U.S. Customs Service regarding a claim filed on the amount of
duty charged in prior years on the importation of certain products by its
discontinued subsidiary, Manetti-Farrow, Inc., which payments continued into
1999.
In the second quarter of 1998, the Company recorded after-tax income from
discontinued operations of $1,653,000. The Company reached a settlement with
the U.S. Customs Service regarding a claim filed on the amount of duty charged
in prior years on the importation of certain products by its discontinued
subsidiary, Manetti-Farrow, Inc. After taxes and after expenses the
settlement was approximately $1,116,000. In addition, the Company recorded
after-tax income of approximately $537,000 in the quarter in connection with
the final liquidation and disposition of Manetti-Farrow's remaining net
assets.
NOTE D - Comprehensive Income (Loss)
Comprehensive income (loss) for the third quarter and first nine months of
1999 and 1998 follows:
13 Weeks 3 Months 39 Weeks 9 Months
Ended Ended Ended Ended
October 2, September 30, October 2, September 30,
1999 1998 1999 1998
Net Loss $(2,371) $(4,417) $(10,249) $(4,080)
Other Comprehensive
Income (Loss):
Foreign Currency Translation
Adjustment 406 194 (89) 120
Unrealized Gain on Investment,
(Net of Tax) 976 0 976 0
Comprehensive Loss $ (989) $(4,223) $ (9,362) $(3,960)
NOTE E - New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 was not required
to be implemented until fiscal year 2000. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133 - an amendment of
FASB Statement No. 133." SFAS No. 137 delayed the original implementation
date of SFAS No. 133 by one year. This will require that the Company
implement this statement in fiscal year 2001. Since its requirements are
complex and its scope far reaching, the Company has not completed its
evaluation of the impact of this standard on its consolidated financial
statements.
NOTE F - Segment Information
The timepiece segment was discontinued during the third quarter of 1999 (see
Note C to the Financial Statements). The Company now has two reportable
segments: quality writing instruments and pen-based computing products. The
Company evaluates segment performance based upon profit or loss from
continuing operations before income taxes. For further information, refer to
footnotes A and G included in the Company's annual report on Form 10-K for the
year ended December 31, 1998. Below is the segment information for the
Company for the third quarter and year-to-date periods ended October 2, 1999
and September 30, 1998:
13 Weeks 3 Months 39 Weeks 9 Months
Ended Ended Ended Ended
October 2, September 30, October 2, September 30,
1999 1998 1999 1998
Revenues from External
Customers:
Quality Writing Instruments $ 30,191 $ 26,279 $ 83,240 $ 83,469
Pen-Based Computing Products 704 7,150 2,711 15,847
Total $ 30,895 $ 33,429 $ 85,951 $ 99,316
Segment Profit (Loss):
Quality Writing Instruments $ 2,081 $ (2,437) $ 2,124 $ (720)
Pen-Based Computing Products (4,065) (2,299) (16,573) (5,287)
Total $ (1,984) $ (4,736) $(14,449) $ (6,007)
Segment Assets:
Pen-Based Computing Products $ 12,100 (1)
(1) The $2.3 million decrease in Pen Computing Group ("PCG") segment assets
since December 31, 1998 was due largely to a reduction in trade accounts
receivable and lower inventories offset somewhat by the investment in NeoMedia
Technologies, Inc.(see Note H to the Financial Statements).
NOTE G - Line of Credit
During the first quarter of 1999, the Company and its financial institution
renegotiated the Company's existing line of credit from $50 million to $25
million, to more appropriately reflect the Company's needs. Any amounts
borrowed under this agreement are payable on demand and bear interest at one
percent (1.0%) per annum in excess of the London Interbank Offering Rate.
NOTE H - Investment in NeoMedia Technologies, Inc.("NeoMedia")
In the second quarter of 1999, the Company entered into an Agreement with
NeoMedia Technologies, Inc. pursuant to which Cross has the exclusive right,
in certain market segments, to bundle and sell NeoMedia's NeoLink software
with the Cross NetPen. NetPen is a pen-based scanning application that will
scan and store specifically coded data found in a variety of print media. The
NetPen, bundled with the NeoLink software, will form an information retrieval
system to quickly download previously scanned web sites directly to a personal
computer without the need for search engines or complex Uniform Resource
Locators (URLs). Pursuant to the Agreement with NeoMedia, Cross agreed to
advance $2 million to NeoMedia in exchange for a convertible promissory note.
Pursuant to the terms of the promissory note, the Company had the option to
convert the note into shares of NeoMedia common stock. During the third
quarter of 1999, the Company converted the $2 million promissory note into
approximately 500,000 shares of NeoMedia common stock at the agreed upon
conversion price of four dollars per share. The Company is holding these
shares as available for sale and has recorded them in Other Current Assets.
At October 2, 1999, the market value of these securities was approximately
$3.5 million. The unrealized gain on this investment has been recorded, net
of tax, as part of Accumulated Other Comprehensive Income(Loss). As
additional consideration, NeoMedia issued to the Company warrants to purchase
200,000 shares of NeoMedia common stock, at prices ranging from $5 to $7 per
share, exercisable for a period of five years following February 18, 1999.
NOTE I - Acquisition of Selected Assets of C&J Jewelry
During the third quarter of 1999, the Company completed the acquisition of
selected assets of C&J Jewelry Company, Inc. ("C&J"). The acquired assets
will be primarily utilized for the manufacture of writing instruments for a
well known luxury goods retailer. The acquisition is part of a strategy to
leverage the Company's core manufacturing capabilities as an Original
Equipment Manufacturer of writing instruments. In consideration, the Company
assumed $2.8 million of C&J indebtedness and issued approximately 381,000
shares of the Company's Class A common stock. Of these, approximately 349,000
shares are to be held in escrow over the next 12 and 24 months until certain
restrictions lapse. The excess of the purchase price (approximately $4.5
million) over the fair value of the assets acquired (approximately $600,000,
consisting primarily of inventory and fixed assets) will be amortized on a
straight line basis over a 20 year period.
The results of this business are not material to the Company's 1999
consolidated results of operations, and accordingly, pro forma data has been
omitted.
NOTE J - Subsequent Events
Due to the continued and significant losses by PCG, the board of directors
authorized a review of strategic alternatives for the CrossPad product line
which could include outside funding and/or the possible sale or discontinuance
of the CrossPad line. On October 21, 1999, the board of directors decided
that the Company's future role in the pen computing business should be that of
a contract manufacturer. The Company is selectively pursuing such
opportunities, including contract manufacturing for the CrossPad line.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Recent Developments
During the third quarter of 1999, the Company discontinued operations of its
timepiece segment when it entered into a license agreement with SBIamerica for
the worldwide distribution of the Cross brand of timepieces.
The operating results of the Pen Computing Group were negatively impacted by
the change in strategic focus for the CrossPad product line as well as pricing
actions taken on the product during the third quarter (see Note J to the
Financial Statements). Due to the continued and significant losses by PCG, on
July 22, 1999, the board of directors authorized a review of strategic
alternatives for the CrossPad product line. On October 21, 1999 the board
decided that the Company's future role in the pen computing business should be
that of a contract manufacturer. If this strategy proves successful, Cross
would use its expanded manufacturing competencies to produce pen-based
electronic products at a profit while leaving the business-to-business and
consumer marketing and sales to others. The Company expects that PCG's 1999
revenues will be significantly less than 1998 revenues and its 1999 operating
loss will be significantly greater than the prior year's loss.
Results of Operations Third Quarter 1999 Compared to Third Quarter 1998
Net sales for the third quarter ended October 2, 1999 of $30.9 million
decreased 7.6% compared to the third quarter of 1998. Total writing
instrument net sales for the quarter were $30.2 million, up 14.9% from the
prior year. Domestic writing instrument net sales were $16.2 million or 17.0%
higher than the prior year and foreign writing instrument net sales of $14.0
million increased 12.5% as compared to third quarter of 1998. Net sales by
PCG during the third quarter of 1999 were $704,000, a decrease of 90.2%
compared to the third quarter of 1998.
The higher domestic writing instrument sales was due to an increase in the
Retail Division's sales. In addition, the Company began manufacturing and
shipping writing instrument products for third parties as an Original
Equipment Manufacturer ("OEM") in the quarter as part of its efforts to
leverage its core manufacturing capabilities. Sales by the Company's Special
Markets Division, i.e., sales of personalized products to corporate accounts,
were 5.6% lower than the prior year's quarter due, in part, to the increased
popularity of competitive gift alternatives available with which to recognize
and motivate employees.
The increase in international sales during the third quarter of 1999 was due
largely to the 96.3% sales increase in Asia as this region continues to
recover from poor economic conditions. Sales in Canada and Latin America were
higher in the third quarter of 1999 as compared to the same period last year,
offset by a sales decline in Europe, the Middle East and Africa which continue
to suffer from generally weaker economic conditions and a stronger U.S.
dollar.
PCG net sales during the third quarter were down approximately 90% from the
prior year due to a significant reduction in volume and pricing actions taken
by the Company (see Recent Developments).
Gross profit margins for the third quarter of 1999 were 44.1%, up 0.2
percentage points from the 43.9% for the comparable period last year. The
increase was largely attributable to higher writing instruments margins. This
improvement in writing instrument margins was due, in part, to lower unit cost
of sales, and the favorable effect of fixed manufacturing costs on the
increased sales volume. The increase in writing instrument margins was almost
entirely offset by the results of the PCG segment which generated a negative
gross margin in the third quarter. Included in the 1999 third quarter's
results for PCG was the unfavorable effect of relatively fixed expenses on the
significantly lower sales volume.
Selling, general and administrative ("SG&A") expenses for the third quarter of
1999 were 21.1% lower than last year. This decrease was primarily due to
lower expenditures for PCG as the Company reviewed its strategic alternatives
for the CrossPad product line. Writing instrument SG&A was 9.0% lower than
the prior year's third quarter due to continuing cost control measures.
Research and development ("R&D") expenses were less than 1998's third quarter
by 2.8%, due entirely to lower R&D expenditures for the development of PCG
products this year (see Recent Developments).
Interest and other income for the third quarter of 1999 was 27.4% less than
the comparable period last year primarily due to lower average levels of
invested funds and somewhat lower average interest rates.
The Company recorded an income tax benefit of 26.0% on the loss from
continuing operations in the third quarter of 1999 as compared to the 1998
third quarter income tax benefit of 32.0%. This change was due, in part, to a
shift in the mix of domestic and foreign results.
Results of Operations Thirty Nine Weeks Ended October 2, 1999 Compared to Nine
Months Ended September 30, 1998
Net sales for the thirty nine week period ended October 2, 1999 were $86.0
million, or 13.5% lower than the nine month period in 1998. Total writing
instrument net sales of $83.2 million were 0.3% lower than the comparable
period last year. Domestic writing instrument net sales of $41.0 million for
the thirty nine weeks were down 3.8% from the comparable period last year and
foreign writing instrument net sales of $42.2 million were 3.4% above 1998.
Sales of PCG products were $2.7 million through October 2, 1999, a decrease of
82.9% from the $15.8 million for the comparable 1998 period.
Domestic writing instrument sales remained below last year's levels largely
due to a 17.4% decrease in sales by the Special Market's Division.
Internationally, year-to-date sales to the Company's Asian markets increased
from the prior year by approximately 57% as the economic and fiscal conditions
in these markets continue to recover. Offsetting the increase in Asia were
lower sales in Latin America caused by a number of distributor changes that
took place during the year and the effect of unstable economies in several key
markets. In Europe, sales were lower than the prior year due to generally
weaker economic conditions and the adverse effects of a somewhat stronger U.S.
dollar.
PCG's net sales for the thirty nine weeks ended October 2, 1999 were lower
than last year by approximately 83% due to a significant reduction in volume
and pricing actions taken by the Company (see Recent Developments).
Gross profit margins for the first three quarters of 1999 were 41.5%, down 4.7
percentage points from the same period in 1998. The decline in margin was
entirely attributable to the PCG segment which generated a negative gross
margin for the period ended October 2, 1999. Included in the year-to-date PCG
results were the effects of inventory reserves established for CrossPad and
CrossPadXP and the effect of rebates offered to dealers in order to lower the
selling price of CrossPad products to consumers. Writing instrument margins
for the period improved over the comparable period last year primarily due to
lower unit costs, a result of the continuing cost reduction programs.
SG&A expenses for the year to date October 2, 1999 period were 3.3% lower than
the same period for 1998. SG&A expenses for writing instruments were 4.6%
less than the prior year due to continuing cost controls. Through October 2,
1999, SG&A expenses for PCG were 2.8% higher as compared to 1998, due, in
part, to a mail in rebate promotion.
R&D expenses of $2.5 million were lower than last year by 27.0% as a result of
decreased R&D expenditures for the development of PCG products this year.
Writing instrument R&D expenditures were 1.5% below last year's levels for the
nine months ended October 2, 1999. The Company expects 1999 R&D expenditures
to be lower than in 1998 (see Recent Developments).
Interest and other income decreased 32.7% for the first three quarters of 1999
largely due to lower interest income as average investable funds and the
average interest rate were lower than the same period of the prior year.
The Company recorded an income tax benefit of 26% on the loss from continuing
operations for the period ended October 2, 1999, as compared to the period
ended September 30, 1998 income tax benefit of 32%. This change was due, in
part, to a shift in the mix of domestic and foreign results.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments (i.e., "cash") decreased
$9.6 million from December 31, 1998 to $34.9 million at October 2, 1999. Cash
available for domestic operations approximated $2.3 million while cash held
off-shore approximated $32.6 million at October 2, 1999. While it is not the
Company's current intention to do so, if the Company ever determines that the
cash held offshore was not necessary for international operations, it may
repatriate some or all of such cash for use in domestic operations. However,
repatriated offshore funds would be subject to additional federal and state
income taxes.
Accounts receivable decreased since the end of 1998 by $10.4 million to $23.9
million primarily due to cash that was collected in January 1999 from
customers who took advantage of the Company's 1998 extended dating program
that allowed domestic customers to defer payments on certain 1998 purchases.
This program was similar to extended dating programs that have been offered in
past years.
The Company currently has available a $25 million line of credit with a bank
which provides an additional source of working capital on a short-term basis
(see Note G to the Financial Statements). At October 2, 1999, there was $8.3
million outstanding under this line. In conjunction with the acquisition of
selected assets of C&J Jewelry Company, Inc. (see Note I to the Financial
Statements) the Company assumed $2.8 million in debt under the line of credit.
The Company believes that its current level of working capital, along with the
funds available from the line of credit, will be sufficient to meet the
Company's normal operating and working capital needs. The Company eliminated
its quarterly cash dividend on common stock as of December 8, 1998.
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 was not required
to be implemented until fiscal year 2000. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133 - an amendment of
FASB Statement No. 133." SFAS No. 137 delayed the original implementation
date of SFAS No. 133 by one year. This will require that the Company
implement this statement in fiscal year 2001. Since its requirements are
complex and its scope far reaching, the Company has not completed its
evaluation of the impact of this standard on its consolidated financial
statements.
Year 2000 Compliance
The Year 2000 issue refers to a condition where computer programs were written
so that when reading a date entered as a two digit year, i.e., "00", they
could not distinguish between the year 1900 and the year 2000. If not
corrected, this problem could lead to system failures or miscalculations,
possibly causing disruptions of business processes.
The Company started to address this problem early in 1997 when it formed a
cross-functional team to manage the Company's compliance process. One of the
first tasks undertaken was to identify and inventory information technology
and non-information technology systems and hardware that would need to be
replaced or upgraded. Since then, the Company has been modifying and
upgrading significant portions of its software and hardware so that it will
function properly in the year 2000. Substantially all of the Company's
business applications have been remediated and are believed to be Year 2000
compliant. The Company is utilizing both internal and external resources to
identify, correct and test the systems for Year 2000 compliance and engaged
the services of an independent consulting firm to review the Company's Year
2000 remediation plan. Testing of the modified systems has been ongoing as
non-compliant systems are replaced or upgraded. Testing of critical business
applications has been completed.
The cost of the Company's Year 2000 compliance program is currently estimated
to be approximately $1.3 million, of which approximately $500,000 was spent in
fiscal year 1998 and approximately $800,000 is planned for fiscal year 1999.
These remediation costs are being funded through current operating cash flows
and are not material to the Company's operating results. The Company has not
deferred any information technology projects to address the Year 2000 issue.
The Company has also been sending written correspondence to its primary
vendors and key customers to inquire about their plans to address Year 2000
compliance. There can be no assurances, however, that the systems of the
Company's primary vendors and key customers will also be converted in a timely
manner or that any such failure to convert by another company would not have a
material adverse effect on the Company's systems. The most reasonably likely
worst case scenario is that a short-term disruption will occur with a small
number of customers or suppliers. Contingency plans have been developed and
are being implemented to ensure that certain key materials will be available.
While the Company's contingency plans address certain broad supplier issues,
such as electrical supply, the Company is dependent on the infrastructures
within all the countries in which it has operations; therefore, the failure of
these infrastructures could adversely affect the Company's operations.
The cost of remediation and completion dates are based upon management's best
estimates and may be updated as additional information becomes available.
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 1999 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 and existing 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 QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's annual report on Form 10-K for the year ended December
31, 1998 for a complete discussion of the Company's market risk. There have
been no material changes to the market risk information included therein.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
On April 22, 1999, Russell A. Boss, President and C.E.O. of A.T. Cross
Company, announced his plan to retire from the position of President and
C.E.O. The Board of Directors formed a search committee, of which Mr. Boss
was a member, to appoint a successor. On November 8, 1999, the Company
announced that David G. Whalen will join the Company as President and Chief
Executive Officer. Mr. Whalen was most recently President-North America of
Ray-Ban Sun Optics, a division of Luxottica Group s.p.a. He will join the
Company on November 15, 1999. At that time, Russell A. Boss will assume the
position of Chairman of the Board and Bradford R. Boss will become Chairman
Emeritus. Upon his arrival, Mr. Whalen will also join Cross' Board of
Directors, and Mr. Andries van Dam will resign from the board. Mr. van Dam
will continue to provide advice and consultation on the Company's efforts in
pen computing.
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: November 12, 1999 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: November 12, 1999 By: JOHN T. RUGGIERI
John T. Ruggieri
Senior Vice President
Chief Financial Officer
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This schedule contains summary financial information extracted from financial
statements included in the A. T. Cross Company Form 10-Q for the quarterly
period ended October 2, 1999 and is qualified in its entirety by reference to
such financial statements.
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