UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF
1934
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 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 27, 1999:
Class A common stock - $80,071,000
Class B common stock - $ 0
(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 27, 1999:
Class A common stock - 14,747,203 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,
1998 are incorporated by reference into Parts I, II and IV. Portions of the
definitive proxy statement for the 1999 annual meeting of shareholders are
incorporated by reference into Parts I and III.
PART I
Item 1. BUSINESS
A.T. Cross Company (the "registrant" or the "Company") was first established in
1846 and is America's oldest manufacturer of fine writing instruments. The
Company was incorporated under the laws of the State of Rhode Island in 1916 and
became a publicly held corporation in 1971.
Business:
The Company has three reportable business segments: high quality writing
instruments, pen-based computing products and a branded line of Swiss-made
timepieces. For certain financial information with respect to these three
segments, see Note G to the registrant's financial statements included in the
annual report to shareholders for the year ended December 31, 1998 (filed
herewith as Exhibit 13 and hereinafter referred to as the "1998 Annual Report"),
which note to such financial statements is hereby incorporated by reference.
The registrant manufactures fine writing instruments consisting of ball-point
and fountain pens, Selectip rolling 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. The registrant also markets certain writing instrument accessories.
The registrant continues to be a leader in the United States in fine writing
instruments priced from approximately $10 to $50. Products in this price range
include Century, Century II, Radiance, Solo and Metropolis. The Townsend and
Pinnacle lines have given the registrant a presence in the $55 to $400 price
range. 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 sold throughout the United
States by manufacturer's agents or representatives to about 6,300 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 1998 were made by the registrant and by its wholly-owned subsidiaries to
foreign distributors and to retailers in Canada, Latin America, Europe, Africa,
the Middle East, Asia and Japan.
The registrant also manufactures, markets and sells pen-based computing products
through its Pen Computing Group (PCG) primarily in the United States. The
CrossPad, and smaller sized CrossPadXP, are personal digital notepads that allow
the user to take handwritten notes using a digital pen and traditional paper on
an electronic notepad and to capture these notes as "digital ink". These notes
can then be uploaded to a PC for electronic filing, faxing, and e-mailing. In
addition, PCG pen-based products are used to facilitate electronic communication
via the use of a special, patented refill in a Cross pen (DigitalWriter) with a
personal digital assistant or as an alternative to the traditional mouse input
device for use with a personal computer (iPen). The Company's PCG products are
primarily sold in the United States to retailers, such as office supply
superstores and consumer electronic stores, to distributors, by mail order and
via the internet.
In an effort to leverage the Cross brand name, the Company has been test
marketing a line of branded, Swiss-made timepieces in the United States. At
this time, the Company is currently investigating a possible licensing
alternative for the watch business.
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.
Raw materials for the production of PCG products are obtained principally from
China.
Finished timepieces and timepiece movements are obtained from vendors in
Switzerland.
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.
Patents, Licenses and Trademarks:
The registrant, directly and through its subsidiaries, has certain writing
instrument and PCG trademark registrations, and pending trademark applications,
in the United States and many foreign countries, including but not limited to,
its principal trademark "CROSS" and the frustoconical top of its writing
instruments. The principal trademark "CROSS" is of fundamental importance to
the business. The registrant holds certain United States and foreign writing
instrument patents, and/or has filed U.S. and foreign patent applications,
covering its desk set units, Townsend series writing instruments, Solo and Solo
Classic series writing instruments, Metropolis series writing instruments,
Signature series writing instruments, Pinnacle series writing instruments,
fountain pens, mechanical pencil mechanisms, and ball-point pen mechanisms. The
registrant also holds certain United States patents, and has filed United States
and foreign patent applications, covering certain of its PCG pen-based computer
products. 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.
The manufacture and distribution of certain of the Company's electronic products
are dependent on licensing arrangements (some of which are non-exclusive) for
varying lengths of time with third parties for the use of their intellectual
property.
Seasonal Business:
Retail demand for the registrant's writing instrument products is highest prior
to Christmas and other gift-giving occasions. However, seasonal fluctuations
have not materially affected continuous production of writing instrument
products. The Company historically has generated approximately one third of its
annual sales in the fourth quarter.
Working Capital Requirements:
Writing instrument and PCG inventory balances tend to be highest in anticipation
of new product launches and before peak selling seasons. The registrant has
offered in the past, and may offer in the future, extended payment terms to
domestic writing instrument 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 1998 Annual Report
incorporated by reference herein.
Customers:
The registrant is not dependent for a material part of its business upon any
single customer.
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.
The consumer electronics market for hand held devices is highly competitive.
The PCG division's competitors have broader product lines and greater financial
and technological resources.
See also the "New Products" and the "Technological Change-Intellectual Property"
sections of the "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of the 1998 Annual Report incorporated by
reference herein.
Research and Development:
The registrant had expenditures for research and development of new products and
improvement of existing products of approximately $4,360,000 in 1998, $3,367,000
in 1997, and $2,877,000 in 1996.
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 1,000 employees at December 31, 1998, of which
approximately 300 were employed by foreign subsidiaries or branches.
Foreign Operations and Export Sales:
Approximately 43% of the registrant's sales in 1998 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 1998 Annual Report, which note to such financial statements is
incorporated by reference herein. See segment information in Note G to the
registrant's financial statements included in the 1998 Annual Report, which note
to such financial statements is hereby incorporated by reference. For the
effect of foreign sales on the Company's results of operations, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of the 1998 Annual Report incorporated herein by reference.
Forward-Looking Statements:
See "Risks and Uncertainties; Forward-Looking Statements" under the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section of the 1998 Annual Report incorporated herein by reference.
Statements contained herein that are not historical fact are forward-looking
statements that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. In addition, words such as
"believes," "anticipates," "expects" and similar expressions are intended to
identify forward-looking statements. 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 securities 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; 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 and incorporated herein by
reference.
Executive Officers of the Registrant:
In addition to the directors and executive officers listed in the "Election of
Directors" section of the registrant's definitive proxy statement for the 1999
annual meeting of shareholders, which section is 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 62 Vice President, Human Resources 1981
John T. Ruggieri (1) 42 Senior Vice President, Treasurer 1997
and Chief Financial Officer
Gary S. Simpson (2) 47 Corporate Controller 1997
Chief Accounting Officer
Tina C. Benik (3) 39 Vice President, Legal, General 1993
Counsel and Corporate Secretary
J. John Lawler (4) 61 Vice President, Writing Instruments, 1993
Worldwide Tax and Duty Free
Stephen A. Perreault (5) 51 Vice President, Operations, 1995
Writing Instruments
Joseph V. Bassi (6) 46 Finance Director 1997
Robert J. Byrnes, Jr. (7) 49 President and Chief Executive 1997
Officer, Pen Computing Group
Robin Boss Dorman (8) 33 Vice President, Writing Instruments, 1999
Sales and Marketing, North America
(1) Prior to becoming Senior Vice President, Treasurer, and Chief Financial
Officer in 1997, John T. Ruggieri was Vice President, Corporate Development
and Planning, from 1993 to 1997, and from 1989 to 1993 was Executive Vice
President of the registrant's wholly-owned subsidiary Mark Cross, Inc.
(2) Prior to becoming Corporate Controller in 1997, Gary S. Simpson was the
Controller, Lincoln Operations, of the registrant from 1992 to 1997.
(3) 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.
(4) Prior to becoming Vice President, Writing Instruments, Worldwide Tax and
Duty Free in 1993, J. John Lawler was the Vice President, International of the
registrant from 1979 to 1993.
(5) Prior to becoming Vice President, Operations, Writing Instruments 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.
(6) Prior to becoming Finance Director in 1997, Joseph V. Bassi was the
Manager, Financial Planning of the registrant from 1996 to 1997, and the
Manager, Budgeting and Financial Planning of the registrant from 1987 to 1996.
(7) Prior to becoming President and Chief Executive Officer, Pen Computing
Group in 1997, Robert J. Byrnes, Jr. was the Executive Vice President and
General Manager of the NEC Computer Systems Division of Packard Bell NEC Inc.
from 1996 to 1997. From 1993 to 1996 Mr. Byrnes was the Executive Vice
President of NEC Technology.
(8) Prior to becoming Vice President, Writing Instruments, Sales and Marketing,
North America, in 1999, Robin Boss Dorman was the Director, Corporate Marketing
of the registrant from 1997 to 1999. From 1992 to 1997, Ms. Dorman was Product
Manager, Worldwide Writing Instruments of the registrant. Ms. Dorman is the
niece of Bradford R. Boss, Chairman of the Board of the registrant, and is the
daughter of Russell A. Boss, President and Chief Executive Officer of the
registrant.
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. These facilities, which are
well maintained and in good repair, are currently being utilized in either a
manufacturing, distribution or administrative capacity for the writing
instrument and PCG segments. The productive capacity of these facilities is
sufficient to meet the registrant's needs for the foreseeable future.
The registrant's operations in France, the United Kingdom, Spain, Germany,
Italy, Japan, Taiwan, Hong Kong, New Jersey, and Miami, all lease their
administrative offices and/or warehouse space.
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 registrant's
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 1998 Annual Report,
which section is incorporated by reference herein.
Item 6. SELECTED FINANCIAL DATA
See the "Five-Year Summary" section of the 1998 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 1998 Annual Report, which section is incorporated
by reference herein.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See the "Quantitative and Qualitative Disclosures about Market Risk" section of
the 1998 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, set forth in the 1998 Annual
Report, are incorporated by reference herein.
Quarterly Results of Operations (Unaudited) in Note L of the registrant's
financial statements included in the 1998 Annual Report are incorporated by
reference herein.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
See "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting
Compliance" of the registrant's definitive proxy statement for the 1999 annual
meeting of shareholders, which sections are incorporated by reference herein.
See also "Item 1. Business - Executive Officers of the Registrant."
Item 11. EXECUTIVE COMPENSATION
See "Executive Compensation" of the registrant's definitive proxy statement for
its 1999 annual meeting of shareholders, which section is incorporated by
reference herein. Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
See "Security Ownership of Certain Beneficial Owners" and "Security Ownership of
Management" of the registrant's definitive proxy statement for the 1999 annual
meeting of shareholders, which sections are incorporated by reference herein.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Election of Directors" of the registrant's definitive proxy statement for
the 1999 annual meeting of shareholders, which section is 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 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)*
(10.4) 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)*
(10.5) 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)*
(10.6) A. T. Cross Company Executive Life Insurance Program
(incorporated by reference to Exhibit (10.8) to the
registrant's report on Form 10-K for the year ended
December 31, 1997)*
(10.7) A. T. Cross Company Omnibus Incentive Plan *
(11) Statement Re: Computation of Per Share Earnings -
(incorporated by reference to the "Consolidated
Statements of Operations and Retained Earnings"
section of the registrant's 1998 Annual Report)
(13) Annual Report to Shareholders for the year ended
December 31, 1998. Filed only in respect to the
portions expressly incorporated by reference in this
Form 10-K.
(21) Subsidiaries - incorporated by reference to the
"Subsidiaries, Branches and Divisions" section of
the registrant's 1998 Annual Report
(23) Consent of Deloitte & Touche LLP
(27) Financial Data Schedules
* Management contract, compensatory plan or arrangement
(b) No reports on Form 8-K were filed in the fourth quarter of 1998.
(c) Exhibits--See Item (a)(3) above
(d) Financial Statement Schedule--Schedule II Valuation and Qualifying
Accounts
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 /s/BRADFORD R. BOSS
Bradford R. Boss
Chairman
Dated: March 23,1999
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
/s/BRADFORD R. BOSS Chairman & Director March 23, 1999
(Bradford R. Boss)
/s/RUSSELL A. BOSS President & Director March 23, 1999
(Russell A. Boss) (Chief Executive Officer)
/s/JOHN E. BUCKLEY Executive Vice President March 23, 1999
(John E. Buckley) & Director
(Chief Operating Officer)
/s/JOHN T. RUGGIERI Senior Vice President March 23, 1999
(John T. Ruggieri) (Chief Financial Officer)
/s/GARY S. SIMPSON Corporate Controller March 23, 1999
(Gary S. Simpson ) (Chief Accounting Officer)
/s/BERNARD V. BUONANNO, JR. Director March 23, 1999
(Bernard V. Buonanno, Jr.)
/s/H. FREDERICK KRIMENDAHL II Director March 23, 1999
(H. Frederick Krimendahl II)
/s/ANDRIES VAN DAM Director March 23, 1999
(Andries van Dam)
/s/TERRENCE MURRAY Director March 23, 1999
(Terrence Murray)
Director March , 1999
(James C. Tappan)
/s/EDWIN G. TORRANCE Director March 23, 1999
(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 SCHEDULE
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULE
YEAR ENDED DECEMBER 31, 1998
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 SCHEDULE
The following consolidated financial statements of A. T. Cross Company and
subsidiaries, included in the 1998 Annual Report, are incorporated by reference
in Item 8:
Consolidated Balance Sheets - December 31, 1998 and 1997
Consolidated Statements of Operations and Retained Earnings- Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Comprehensive Income (Loss)- Years
Ended December 31, 1998, 1997 and 1996
Consolidated Statements of Cash Flows - Years Ended December 31, 1998,
1997 and 1996
Notes to Consolidated Financial Statements
Independent Auditors' Report
The following consolidated financial statement schedule of A. T. Cross Company
and subsidiaries is included in Item 14(d):
Schedule II - Valuation and Qualifying Accounts
The independent auditors' report on Financial Statement Schedule II is 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
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, 1998
Deducted from asset account:
Allowance for doubtful
accounts $1,624,000 $ 41,580 $114,580(A) $1,551,000
Year Ended December 31, 1997
Deducted from asset account:
Allowance for doubtful
accounts $1,388,000 $648,140 $412,140(A) $1,624,000
Year Ended December 31, 1996
Deducted from asset account:
Allowance for doubtful
accounts $1,244,000 $325,064 $181,064(A) $1,388,000
<FN>
(A) Uncollectible accounts written off.
</FN>
</TABLE>
Independent Auditors' Report Item 14(d)
To the Board of Directors and Shareholders of
A.T. Cross Company
Lincoln, Rhode Island
We have audited the consolidated financial statements of A.T. Cross Company and
subsidiaries (the "Company") as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31,1998, and have issued our report
thereon dated February 11, 1999; such consolidated financial statements and
report are included in the Company's 1998 Annual Report to Shareholders and are
incorporated herein by reference. Our audits also included the consolidated
financial statement schedule of the Company, listed in Item 14(d). This
consolidated financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
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 11, 1999
Exhibit 10.7
A.T. Cross Company
Omnibus Incentive Plan
On April 23, 1998 the shareholders adopted the Company's Omnibus Incentive Plan
(the "OI Plan") which replaced the Company's Non-Qualified Stock Option Plan and
Incentive Stock Option Plan. The OI Plan permits the Compensation Committee to
grant various long-term incentive awards, generally equity based, to officers
and key employees from one pool of reserved shares. The OI Plan provides for
grants of awards, including but not limited to, Incentive Stock Options, at not
less than the full market value on the date of grant (except in the case of a
shareholder possessing more than 10% of the total combined voting power of all
classes of Company stock, in which case the exercise price shall be not less
than 110% of the fair market value on the date of grant) and Non-Qualified Stock
Options, at an exercise price determined by the Compensation Committee; Stock
Appreciation Rights, which are rights to receive an amount equal to the
increase, between the date of grant and the date of exercise, in the fair market
value of the number of shares of common stock subject to the Stock Appreciation
Right; shares of Restricted Stock, which are common shares which have certain
conditions attached to them which must be satisfied in order to have
unencumbered rights to the Restricted Stock; and Performance Awards, which are
awards in common shares or cash. The OI Plan has no definite expiration date,
but may be terminated by the Board of Directors; however, no Incentive Stock
Options shall be granted for a term longer than ten years from the date of grant
(five years in the case of a shareholder possessing more than 10% of the total
combined voting power of all classes of Company stock).
A.T. CROSS 1998 ANNUAL REPORT
A.T. CROSS COMPANY PROFILE
The A.T. Cross Company is a major international manufacturer of fine writing
instruments and distributor of quality gift products. Cross presently markets
six styles of writing instruments. Each series offers distinctive designs,
appointments and finishes - from precious metals to composite resin - created to
meet the preferences of particular audiences at prices that meet specific market
requirements. These fine writing instruments are sold to the consumer market
through upscale stores worldwide and to the business gift market via a network
of companies specializing in recognition and awards programs. The Pen Computing
Group is a division of the A. T. Cross Company that designs, manufactures and
markets electronic pen products.
Table of Contents
Five-Year Summary, Market & Dividend Information . page 1
Shareholders' Report . pages 2-3
Consolidated Balance Sheets . page 4
Consolidated Statements of Operations & Retained Earnings . page 5
Consolidated Statements of Comprehensive Income (Loss) . page 5
Consolidated Statements of Cash Flows . page 6
Notes to Consolidated Financial Statements . pages 7-16
Report of Deloitte & Touche LLP . page 16
Management's Discussion & Analysis . pages 17-20
Directors, Officers & Corporate Information . inside back cover
Shown on our cover, the new Alhambra, featuring a patterned lacquer finish
accented with 22 karat gold plated appointments.
<TABLE>
Five-Year Summary
A.T. Cross Company & Subsidiaries
<CAPTION>
(Thousands of Dollars) 1998 1997 1996 1995 1994
Operations:
<S> <C> <C> <C> <C> <C>
Net Sales From Continuing Operations $153,725 $154,716 $166,889 $175,610 $161,821
Income (Loss) From Continuing Operations
Before Income Taxes (10,920) (6,703) 8,075 18,645 16,832
Provision (Benefit) For Income Taxes (3,822) (2,346) 2,163 6,082 7,554
Income (Loss) From Continuing Operations (7,098) (4,357) 5,912 12,563 9,278
Income (Loss) From Discontinued Operations, Net 1,653 (2,321) 694 802 1,256
Net Income (Loss) (5,445) (6,678) 6,606 13,365 10,534
Cash Dividends Declared 3,971 6,600 10,568 10,581 10,738
Capital Expenditures 6,461 7,471 8,983 10,494 7,469
Depreciation 7,642 7,820 6,799 6,338 5,709
<CAPTION>
(Thousands of Dollars) 1998 1997 1996 1995 1994
Financial Position:
<S> <C> <C> <C> <C> <C>
Current Assets 105,750 109,779 118,303 130,647 127,208
Current Liabilities 46,259 39,264 41,822 47,943 43,239
Total Assets 156,337 158,019 174,122 184,867 176,849
Working Capital 59,491 70,515 76,481 82,704 83,969
Accrued Warranty Costs 5,821 5,821 5,509 5,209 4,909
Net Property, Plant and Equipment 38,624 39,756 39,703 37,543 33,362
Shareholders' Equity 104,257 112,934 126,791 131,714 128,702
<CAPTION>
(Dollars)
Per Share Data: 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Basic and Diluted Earnings (Loss) Per Share:
From Continuing Operations (0.43) (0.26) 0.36 0.76 0.55
From Discontinued Operations 0.10 (0.14) 0.04 0.05 0.07
Net Income (Loss) (0.33) (0.40) 0.40 0.81 0.62
Cash Dividends Declared 0.24 0.40 0.64 0.64 0.64
</TABLE>
<TABLE>
Market & Dividend Information
The Company's Class A common stock is traded on the American Stock Exchange
(symbol: ATX). At December 31, 1998, there were approximately 1,700 shareholders
of record of the Company's Class A common stock and 2 shareholders of record of
the Company's Class B common stock. The weighted average numbers of shares
outstanding were 16,534,143 and 16,497,687 during 1998 and 1997, respectively.
High and low stock prices and dividends for the last two years were:
<CAPTION>
CASH CASH
DIVIDENDS DIVIDENDS
QUARTER HIGH LOW DECLARED QUARTER HIGH LOW DECLARED
1998 1997
<S> <C> <C> <C> <S> <C> <C> <C> <C>
First 12 1\4 10 1\8 $.00 First 12 1\2 10 1\4 $.00
Second 14 1\4 10 1\16 .08 Second 12 3\4 9 3\4 .16
Third 13 7\16 7 .08 Third 12 7\16 8 1\2 .08
Fourth 8 1\2 4 7\8 .08 Fourth 11 1\8 9 1\16 .16 *
<FN>
* One-half paid in the fourth quarter and balance paid in the subsequent year
first quarter.
</FN>
</TABLE>
Shareholders' Report
To The Shareholders of A. T. Cross Company
1998 was not an easy year for A. T. Cross shareholders or management. As the Pen
Computing Group continued to work on the well-received CrossPad and other high-
tech products, our core business remained adversely affected by difficulties in
the writing instrument market. Last year, similar to 1997, sales were down in
the U.S. and Asia. In the rest of the Americas and Europe, however, sales
advanced. Our ongoing cost reduction efforts proved successful in 1998,
improving writing instrument profitability in spite of declining sales. At the
end of the year, however, our sales of $153.7 million were essentially flat,
resulting in a net loss of $5.4 million, or $0.33 per share. This loss is solely
attributable to investment spending in the Pen Computing Group and timepiece
businesses. Additionally, as you are aware, the directors eliminated the
dividend in December to concentrate funds on the investment requirements of the
Pen Computing Group ("PCG").
Asia, with its fiscal and economic troubles, continued to have a major impact
on writing instrument sales, lowering them by a total of $22 million over the
previous two years. These markets will rebound eventually, so we have taken the
steps necessary to strengthen our long-term position. We made a number of
distributor changes and opened Cross branches in Hong Kong and Taiwan. Together,
these activities will strengthen our marketing and sales efforts in this region.
In the U.S., competition heated up as Asian and European exporters of writing
instruments in the $10 - $25 price range enhanced their share of the U.S.
business to the detriment of the well-established brand leaders. In particular,
Asian exporters made significant headway in the mass market and office mega
store accounts. To combat this competition, the U.S. pen marketplace became a
giveaway grab bag at retail; "buy one-get one free" became the norm with many at
the lower end of the quality writing instrument market.
Our special markets business, i.e., sales to corporate accounts, also declined
in the U.S. and Asia. Businesses have a growing list of alternatives to writing
instruments as they seek to recognize and motivate employees and provide
business gifts to others. We need to stimulate renewed interest in writing
instruments through increased communications and promotions.
Looking at Cross writing instruments, our newer product lines, Pinnacle and
Townsend, performed reasonably well while Metropolis failed to meet expectations
and is being phased out. In the fall, we introduced Century II, a line of mid-
girth diameter pens that takes its cue from the classic Century line, but is
wider and has a "cap over barrel" fit. Along with a new resin line, Radiance,
and enhancements to the Solo Classic line, all three lines were well received by
the trade.
Watch sales in the second year of test marketing improved substantially. Led
by the launch of the Sonoma series, they were up 50% from 1997. Overall results,
however, were well below internal expectations. We are discussing the licensing
of the brand for watches with several potential licensees as part of a broader
strategic effort. We continue to believe the Cross brand can be selectively
extended to other personal accessory categories. Licensing the watch business
will allow us to focus our financial resources on writing instruments and the
Pen Computing Group.
The 1998 spring introduction of CrossPad was a success for Cross. This
product, jointly developed by IBM and Cross, has been marketed under the Cross
name to leading computer retailers in the U.S. and Canada. A number of computer
publications have praised this product and it has won numerous awards for its
design, packaging and functionality. The product allows you to take notes on a
regular pad of paper, then upload instantly to your PC, where you can search
notes by keyword or date.
The 8 1/2" x 11" model was introduced, on time, in March of 1998. The
CrossPadXP, a 6" x 9" version, was launched in September, again on time. Users
have been positive about the CrossPad's note-taking and note-management
capabilities, while their desire for easy conversion of handwritten notes into
text has generally not been satisfied. In accordance with our longer-term
strategy and reflective of our ability to lower product costs, we announced
significant price reductions for both the CrossPad and the CrossPadXP effective
February 1, 1999. We believe this will make the product appeal to an even
broader market of note takers, especially college students.
Last year we stated that we expected the Pen Computing Group would contribute
to sales and earnings in 1998. Unfortunately, achieving the sales target of $25
million required greater marketing support and technical development than
planned, which resulted in a loss for Pen Computing operations. Nevertheless, we
continue to have positive expectations for this group and its products. In
December, IBM and Cross launched the CrossPad in Japan. A note-taking product
that handles Asian languages certainly opens broad market opportunities, and we
believe it will be of significant interest to consumers. We are also developing
CrossPad models designed specifically for the forms processing market and feel
this could be another area for expansion.
Our websites, cross.com and cross-pcg.com, had more than a million visitors
last year. In October, we began selling on our Pen Computing Group site and we
are very pleased with the initial results. In 1999, we will continue that
effort, offering a selection of both writing instruments and PCG products. This
is obviously an important site for the Pen Computing Group, which will continue
to oversee its development and expansion.
Looking forward, our balance sheet remains strong. We believe the business in
Asia is stabilizing, putting us in a better position to take advantage of our
strengthened distribution in our larger Asian markets. This will make us better
prepared for the expected recovery in that region. Europe was our strongest
foreign market in 1998, and we expect it to continue; sales in the U.S. need to
be stabilized. In writing instruments, we will continue to lower our cost of
operations as we return writing instruments to more acceptable profit levels.
We want to thank all Cross employees for their constant attention to the
tasks asked of them. We want to assure shareholders that the board and
management are committed to returning Cross to acceptable profitability in
writing instruments and to continuing our advance into the high-tech field of
pen computing. As new products are added to complement the CrossPad, Pen
Computing Group will become an important component of our Company.
Cordially yours,
BRADFORD R. BOSS RUSSELL A. BOSS
Bradford R. Boss Russell A. Boss
Chairman President and CEO
February 12, 1999
<TABLE>
Consolidated Balance Sheets
A.T. Cross Company & Subsidiaries
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 22,781,212 $ 25,800,777
Short-term investments 21,717,182 21,607,293
Accounts receivable, less allowances for doubtful accounts
of $1,551,000 in 1998 and $1,624,000 in 1997 34,535,372 37,571,319
Inventories
Finished goods 9,886,714 7,767,465
Work in process 5,646,038 5,646,732
Raw materials 6,662,166 6,624,593
22,194,918 20,038,790
Other current assets 4,521,440 4,760,845
Total Current Assets 105,750,124 109,779,024
Property, Plant and Equipment
Land and land improvements 1,274,453 1,274,453
Buildings 17,849,947 17,727,945
Machinery and equipment 96,218,911 90,341,414
115,343,311 109,343,812
Less allowances for depreciation 76,719,081 69,588,036
Net Property, Plant and Equipment 38,624,230 39,755,776
Intangibles and Other Assets 11,962,242 8,484,563
Total Assets $156,336,596 $158,019,363
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Note payable to bank $ 6,000,000 $ -
Accounts payable 6,170,111 6,247,870
Accrued compensation and related taxes 2,745,844 3,328,581
Accrued expenses and other liabilities 21,246,344 19,139,838
Cash dividends payable - 1,320,379
Contributions payable to employee benefit plans 10,096,195 9,227,698
Total Current Liabilities 46,258,494 39,264,366
Accrued Warranty Costs 5,821,000 5,821,000
Commitments and Contingencies (Notes A and K)
Shareholders' Equity
Common stock, par value $1 per share:
Class A-authorized 40,000,000 shares, 15,344,162
shares issued and 14,743,096 shares outstanding at
December 31, 1998, and 15,294,652 shares issued and
14,696,272 shares outstanding at December 31, 1997 15,344,162 15,294,652
Class B-authorized 4,000,000 shares, 1,804,800 shares
issued and outstanding at December 31, 1998 and 1997 1,804,800 1,804,800
Additional paid-in capital 12,433,190 11,958,670
Retained earnings 84,087,256 93,502,930
Accumulated other comprehensive income (446,730) (702,273)
113,222,678 121,858,779
Treasury stock, at cost, 601,066 shares in 1998 and
598,380 shares in 1997 (8,965,576) (8,924,782)
Total Shareholders' Equity 104,257,102 112,933,997
Total Liabilities and Shareholders' Equity $156,336,596 $158,019,363
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Consolidated Statements of Operations & Retained Earnings
A.T. Cross Company & Subsidiaries
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Revenues
Net sales $153,725,243 $154,715,676 $166,888,830
Interest and other income 2,509,692 1,958,920 2,030,901
156,234,935 156,674,596 168,919,731
Costs and Expenses
Cost of goods sold 85,245,934 81,269,291 86,852,638
Selling, general and administrative expenses 74,038,612 74,693,999 66,795,543
Research and development expenses 4,359,587 3,366,683 2,876,756
Service and distribution costs 3,510,952 4,048,081 4,319,405
167,155,085 163,378,054 160,844,342
Income (Loss) from Continuing Operations Before Income Taxes (10,920,150) (6,703,458) 8,075,389
Provision (benefit) for income taxes (3,822,000) (2,346,000) 2,163,627
Income (Loss) from Continuing Operations (7,098,150) (4,357,458) 5,911,762
Discontinued Operations, Less Income Taxes (Benefit)
Income from operations - 18,366 694,164
Income (loss) on disposal 1,653,307 (2,339,366) -
Income (Loss) from Discontinued Operations 1,653,307 (2,321,000) 694,164
Net Income (Loss) (5,444,843) (6,678,458) 6,605,926
Retained earnings at beginning of year 93,502,930 106,781,204 110,743,135
Cash dividends declared (per share: $0.24 in 1998,
$0.40 in 1997 and $0.64 in 1996) 3,970,831 6,599,816 10,567,857
Retained Earnings at End of Year $ 84,087,256 $ 93,502,930 $106,781,204
Basic and Diluted Earnings (Loss) Per Share:
From Continuing Operations $(0.43) $(0.26) $0.36
From Discontinued Operations 0.10 (0.14) 0.04
Net Income (Loss) Per Share $(0.33) $(0.40) $0.40
Weighted Average Shares Outstanding:
Denominator for Basic Earnings Per Share 16,534,143 16,497,687 16,531,488
Effect of Dilutive Securities:
Employee Stock Options -(A) -(A) 31,325
Denominator for Diluted Earnings Per Share 16,534,143 16,497,687 16,562,813
<FN>
(A) No incremental shares related to options are included due to the net loss.
</FN>
</TABLE>
<TABLE>
Consolidated Statements of Comprehensive Income (Loss)
A.T. Cross Company & Subsidiaries
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Net Income (Loss) $(5,444,843) $(6,678,458) $ 6,605,926
Other Comprehensive Income (Loss):
Foreign Currency Translation Adjustments 255,543 (681,397) (236,826)
Comprehensive Income (Loss) $(5,189,300) $(7,359,855) $ 6,369,100
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
A.T. Cross Company & Subsidiaries
<CAPTION>
Year Ended December 31,
1998 1997 1996
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN):
Operating Activities:
Income (loss) from continuing operations $(7,098,150) $(4,357,458) $ 5,911,762
Adjustments to reconcile income (loss)
from continuing operations to net cash
provided by operating activities:
Depreciation and amortization 8,377,953 8,226,180 7,077,275
Provision for losses on accounts receivable 41,580 648,140 325,064
Deferred income taxes (3,495,323) (564,540) 583,036
Provision for warranty costs 330,910 742,764 685,183
Changes in operating assets and liabilities:
Accounts receivable 3,558,152 3,843,952 2,673,074
Inventories (3,216,128) (1,360,758) 5,232,610
Other assets - net 259,158 (247,476) (2,251,131)
Accounts payable (143,182) 433,057 (5,041,381)
Other liabilities - net 1,595,244 4,862,623 (6,363,466)
Warranty costs paid (330,910) (430,764) (385,183)
Foreign currency transaction loss 19,418 927,356 270,579
Net Cash Provided by (Used in) Continuing Operations (101,278) 12,723,076 8,717,422
Discontinued operations:
Income (loss) from discontinued operations 1,653,307 (2,321,000) 694,164
Changes in operating assets and liabilities 635,666 12,610,378 (4,839,265)
Net Cash Provided by (Used in) Discontinued Operations 2,288,973 10,289,378 (4,145,101)
Net Cash Provided by Operating Activities 2,187,695 23,012,454 4,572,321
Investing Activities:
Additions to property, plant and equipment (6,460,646) (7,470,742) (8,982,743)
Proceeds from sale of building - 4,200,000 -
Purchase of short-term investments (19,410,316) (10,098,309) (26,373,158)
Sale or maturity of short-term investments 19,300,427 15,779,983 20,509,692
Net Cash Provided by (Used in)Investing Activities (6,570,535) 2,410,932 (14,846,209)
Financing Activities:
Cash dividends paid (5,291,210) (7,917,972) (10,577,643)
Proceeds from bank borrowings 11,000,000 12,400,000 8,600,000
Repayment of bank borrowings (5,000,000) (18,400,000) (2,600,000)
Proceeds from sale of Class A common stock 323,861 102,743 316,826
Purchase of treasury stock - - (1,281,806)
Net Cash Provided by (Used in) Financing Activities 1,032,651 (13,815,229) (5,542,623)
Effect of exchange rate changes on cash and cash equivalents 330,624 (574,863) 25,562
Increase (decrease) in cash and cash equivalents (3,019,565) 11,033,294 (15,790,949)
Cash and cash equivalents at beginning of year 25,800,777 14,767,483 30,558,432
Cash and Cash Equivalents at End of Year $22,781,212 $25,800,777 $14,767,483
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
Notes to Consolidated Financial Statements
A.T. Cross Company & Subsidiaries
December 31, 1998
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The consolidated financial statements include the
accounts of A. T. Cross Company and its subsidiaries (the "Company"). Upon
consolidation, all material intercompany accounts and transactions are
eliminated.
Reclassification of Prior Years' Financial Statements: Certain amounts in prior
years have been reclassified in order to permit comparison to 1998.
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 Segments and Nature of Operations: During 1998, the Company adopted
the provisions of Statement of Financial Accounting Standards ("SFAS") No. 131,
"Disclosures about Segments of an Enterprise and Related Information." Under
this statement, the Company determined that it has three reportable segments,
quality writing instruments, pen-based computing products, and a line of
branded, Swiss-made timepieces. The Company manufactures quality writing
instruments, principally ball-point pens, fountain pens, selectip rolling ball
pens and mechanical pencils, and sells and distributes them to retailers and
wholesale distributors throughout the world. Pen-based computing products are
manufactured and distributed, principally in the United States, through the
Company's Pen Computing Group. Cross timepieces are being test marketed on a
limited basis in the United States. The accounting policies of these segments
are the same as those described in the summary of significant accounting
policies. The Company evaluates segment performance based upon profit or loss
from operations before income taxes. Interest and other income is included in
the quality writing instruments segment. The Company's reportable segments are
strategic business units that offer different product lines. They are managed
separately because each unit requires different marketing strategies as well as
different technologies.
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, 1998 and 1997, approximately 47% and 50%,
respectively, of the Company's cash, cash equivalents and short-term investments
were placed with one financial institution.
Short-term investments at December 31, 1998 and 1997 include time deposits,
certificates of deposit, municipal bonds and U.S. Government Agency bonds and
treasury notes ("trading securities") which have a maturity greater than three
months. Trading securities are stated at cost which approximates fair market
value.
Inventories: Domestic writing instrument inventories 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 ("FIFO") 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.
Barter Transactions: The Company periodically enters into barter transactions
for advertising credits. The advertising credits are valued at the lower of the
net book value or fair market value of the assets exchanged or the fair market
value of the advertising credits received and are included in Other current
assets. Barter transactions totaled approximately $1,300,000 in 1998.
Derivatives: 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 (Loss). Foreign
currency exchange losses are included in Selling, general and administrative
expenses and approximated $599,000, $1,060,000 and $710,000 in 1998, 1997 and
1996, respectively.
Commitments: To reduce its exposure to fluctuating gold prices, the Company
enters into gold purchase commitments with a third party. The contracts require
the Company to purchase a specified quantity of gold bullion at a fixed price in
the future, and 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 the federal funds rate or the London Interbank
Offering Rate (LIBOR). At December 31, 1998, the total contract prices of
outstanding gold purchase commitments amounted to approximately $4,300,000.
The Company incurs royalty expense related to the sale of PCG products. These
royalties are paid to suppliers of certain software and hardware components,
principally for iPen, CrossPad and CrossPadXP.
Marketing Support Costs: The costs of marketing support (including advertising)
are charged to expense as incurred and amounted to $26,742,000, $24,620,000 and
$21,359,000 for the years ended December 31, 1998, 1997 and 1996, respectively.
Accrued marketing support expenses were $6,200,000 and $6,400,000 at 1998 and
1997, respectively, and are included in Accrued expenses and other liabilities.
Warranty Costs: The Company's writing instruments are sold with a full warranty
of unlimited duration against mechanical failure, while PCG products are sold
with a one-year limited warranty. Estimated warranty costs are accrued at the
time of sale. Discretionary product repair and replacement costs, not related to
mechanical failure, are included in Service and distribution costs.
Net Income (Loss) Per Share: Net Income (Loss) Per Share is computed based upon
the weighted average number of shares of Class A and Class B common stock
outstanding during the year. Basic and Diluted Earnings (Loss) Per Share are
presented in accordance with SFAS No. 128, "Earnings per Share." Prior years'
earnings per share have been restated to give effect to SFAS No. 128.
Comprehensive Income: During 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." 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. The adoption of SFAS No. 130 had no impact on
the Company's results of operations.
Long-Lived Assets: The Company evaluates the carrying value of its long-lived
assets relying on a number of factors, including operating results, future
anticipated cash flows, business plans and certain economic projections. In
addition, the Company's evaluation considers non-financial data such as changes
in the operating environment, competitive information, market trends and
business relationships.
New Accounting Pronouncement: The Financial Accounting Standards Board has
recently issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." SFAS No. 133 will become effective for the Company for the year
ending December 31, 2000. The Company is currently evaluating the impact that
implementing this SFAS will have on its financial statements.
NOTE B - INVENTORIES
Domestic writing instrument inventories, approximating $5,022,000 and
$6,909,000 at December 31, 1998 and 1997, respectively, are priced at the lower
of LIFO cost or market. The remaining inventories are priced at the lower of
FIFO cost or market. If the FIFO method of inventory valuation had been used by
the Company for those inventories priced using the LIFO method, inventories
would have been approximately $11,788,000 and $13,978,000 higher than reported
at December 31, 1998 and 1997, respectively. During 1998 inventory quantities
were reduced resulting in a liquidation of LIFO inventory quantities carried at
lower costs prevailing in prior years as compared with the cost of current
purchases. The effect of this liquidation was to reduce the net loss by
approximately $450,000 or $0.03 per share, basic and diluted. 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. Shareholders 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.
<TABLE>
Changes in Class A common stock and additional paid-in capital are as follows
(there were no changes in Class B common stock):
<CAPTION>
CLASS A COMMON STOCK
NUMBER ADDITIONAL
OF PAID-IN TREASURY
SHARES AMOUNT CAPITAL STOCK
<S> <C> <C> <C> <C>
Balances at January 1, 1996 15,243,316 $15,243,316 $11,319,614 $(7,612,343)
Purchase of treasury stock - - - (1,281,806)
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 (8,894,149)
Conversion of restricted stock - - - (30,633)
Other shares issued 2,926 2,926 32,810 -
Stock purchase plan 9,314 9,314 88,326 -
Balances at December 31, 1997 15,294,652 15,294,652 11,958,670 (8,924,782)
Conversion of restricted stock - - - (40,794)
Stock option activity 27,168 27,168 258,767 -
Stock purchase plan 7,342 7,342 71,378 -
Restricted stock plan 15,000 15,000 144,375 -
Balances at December 31, 1998 15,344,162 $15,344,162 $12,433,190 $(8,965,576)
</TABLE>
NOTE D - OMNIBUS INCENTIVE PLAN
On April 23, 1998 the shareholders adopted the Company's Omnibus Incentive
Plan (the "OI Plan") which replaced the Company's Non-Qualified Stock Option
Plan and Incentive Stock Option Plan and increased the number of Class A common
shares reserved for issuance under the OI Plan by 200,000. The OI Plan permits
the Compensation Committee to grant various long-term incentive awards,
generally equity based, to officers and key employees from one pool of reserved
shares. The OI Plan provides for grants of awards, including but not limited to,
Incentive Stock Options, at not less than the full market value on the date of
grant (except in the case of a shareholder possessing more than 10% of the total
combined voting power of all classes of Company stock, in which case the
exercise price shall be not less than 110% of the fair market value on the date
of grant) and Non-Qualified Stock Options, at an exercise price determined by
the Compensation Committee; Stock Appreciation Rights, which are rights to
receive an amount equal to the increase, between the date of grant and the date
of exercise, in the fair market value of the number of shares of common stock
subject to the Stock Appreciation Right; shares of Restricted Stock, which are
common shares which have certain conditions attached to them which must be
satisfied in order to have unencumbered rights to the Restricted Stock; and
Performance Awards, which are awards in common shares or cash. The OI Plan has
no definite expiration date, but may be terminated by the Board of Directors;
however, no Incentive Stock Options shall be granted for a term longer than ten
years from the date of grant (five years in the case of a shareholder possessing
more than 10% of the total combined voting power of all classes of Company
stock). There were no awards granted under the OI Plan in 1998, except for Stock
Options, as described below.
<TABLE>
Stock Option activity during the three years ended December 31, 1998 was as
follows:
<CAPTION>
WEIGHTED AVERAGE SHARES
OPTIONS PRICE PER SHARE RESERVED
<S> <C> <C> <C>
Stock Option Plan:
Outstanding at January 1, 1996 1,688,477 $17.08 2,028,953
Granted 48,432 $14.67 -
Exercised (15,334) $13.20 (15,334)
Canceled (160,204) $17.92 -
Outstanding at December 31, 1996 1,561,371 $17.01 2,013,619
Granted 809,406 $ 9.91 -
Canceled (982,033) $16.50 -
Outstanding at December 31, 1997 1,388,744 $16.28 2,013,619
Additional Shares Reserved - - 200,000
Granted 585,762 $ 7.82 -
Exercised (27,168) $10.49 (27,168)
Canceled (202,153) $14.27 -
Outstanding at December 31, 1998 1,745,185 $13.27 2,186,451
</TABLE>
At December 31, 1998, exercise prices of all outstanding options ranged from
$6.06 to $33.88, of which approximately 1,155,000, with an average price of
$8.05, ranged from $6.06 to $9.97 with a weighted average remaining life of 9.4
years, 397,000, with an average price of $13.40, ranged from $10.00 to $15.44
with a weighted average remaining life of 6.6 years and 193,000, with an average
price of $21.42, ranged from $16.75 to $33.88 with a weighted average remaining
life of 2.9 years. Options exercisable at December 31, 1998 were approximately
1,294,000, of which 741,000 were priced from $6.06 to $9.97 with an average
price of $8.97, 360,000 were priced from $10.00 to $15.44 with an average price
of $13.63 and 193,000 were priced from $16.75 to $33.88 with an average price of
$21.42.
The Company also has an Employee Stock Purchase Plan, (the "ESP 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 ESP Plan and the aggregate number of
shares reserved was 129,074, 136,416 and 145,730 at December 31, 1998, 1997 and
1996, respectively. In addition, the Company has a Restricted Stock Plan, (the
"RS 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 RS Plan may not be sold,
assigned, pledged or otherwise encumbered during the restriction period. If the
Company fails to achieve certain operating targets during the restriction
period, shares granted under the RS Plan will revert back to the Company or will
be canceled. At December 31, 1998, 25,849 shares were outstanding under the
restricted stock plans.
The Company applies Accounting Principles Board Opinion No. 25 to account for
its stock option plans. Accordingly, pursuant to the terms of the stock option
plans, no compensation cost has been recognized. However, if the Company had
determined compensation cost for stock option grants issued during 1998, 1997
and 1996 under the provisions of SFAS No. 123, the Company's earnings (loss) and
earnings (loss) per share would have been impacted by approximately $778,000
($0.05 per share) in 1998, $1,485,000 ($0.09 per share) in 1997, and $93,000
($0.00 per share) in 1996.
<TABLE>
The fair value of each stock option granted in 1998, 1997 and 1996 under the
Company's stock option plans was estimated on the date of grant using the Black-
Scholes option-pricing model. The following key assumptions were used to value
grants issued for each year:
<CAPTION>
WEIGHTED
AVERAGE AVERAGE DIVIDEND
RISK FREE RATE EXPECTED LIFE VOLATILITY YIELD
<S> <C> <C> <C> <C>
1998 5.00% 5.0 Years 41.50% 3.3%
1997 5.00% 5.0 years 34.70% 3.0%
1996 5.00% 5.0 years 29.00% 4.6%
</TABLE>
The weighted average fair values per share of stock options granted during
1998, 1997 and 1996 were $2.05, $2.85 and $2.84, respectively. It should be
noted that the option-pricing model used was designed to value readily tradable
stock options with relatively short lives. The options granted to employees are
not tradable and have contractual lives of up to ten years. However, management
believes that the assumptions used and the model applied to value the awards
yields a reasonable estimate of the fair value of the grants made under the
circumstances.
NOTE E - EMPLOYEE BENEFIT PLANS
During 1998, the Company adopted the provisions of SFAS No. 132, "Employer's
Disclosures about Pensions and Other Postretirement Benefits." The Company has
a non-contributory defined benefit pension plan and a defined contribution
retirement plan (consisting of a savings plan and a non-contributory profit
sharing plan), which cover substantially all domestic employees. The Company's
contribution to the savings plan was $673,000 in 1998, $720,000 in 1997 and
$761,000 in 1996. There were no profit sharing plan contributions during that
three year period. The Company also maintains an unfunded excess benefit plan
for certain key executives. 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.
<TABLE>
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:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Change in Projected Benefit Obligation
Benefit obligation at end of prior year $30,402,000 $26,546,000 $24,310,000
Service cost 1,793,000 1,795,000 1,810,000
Interest cost 1,995,000 1,943,000 1,758,000
Participant contributions 18,000 16,000 18,000
Actuarial loss/(gain) 145,000 737,000 (757,000)
Benefits paid (708,000) (635,000) (593,000)
Benefit obligation at end of year $33,645,000 $30,402,000 $26,546,000
Change in Plan Assets
Fair value of plan assets at end of prior year $29,099,000 $22,870,000 $18,553,000
Actual return on plan assets 6,014,000 6,040,000 2,966,000
Employer contributions 1,009,000 808,000 1,925,000
Participant contributions 18,000 16,000 18,000
Benefits paid (708,000) (635,000) (592,000)
Fair value of plan assets at end of year $35,432,000 $29,099,000 $22,870,000
Funded Status
Excess (deficiency) of plan assets
over projected benefit obligation $ 1,787,000 $(1,303,000) $(3,676,000)
Unrecognized net transition obligation 467,000 387,000 447,000
Unrecognized prior service cost 542,000 548,000 634,000
Unrecognized net actuarial gain (10,165,000) (6,443,000) (4,102,000)
Accrued pension cost (included in Contributions
payable to employee benefit plans) $(7,369,000) $(6,811,000) $(6,697,000)
Components of Net Periodic Benefit Cost
Service cost $ 1,754,000 $ 1,831,000 $ 1,820,000
Interest cost 1,976,000 1,973,000 1,744,000
Expected return on plan assets (2,137,000) (1,856,000) (1,582,000)
Amortization of net transition obligation (53,000) (50,000) (48,000)
Amortization of prior service cost 43,000 43,000 44,000
Recognized net actuarial gain (34,000) (9,000) (39,000)
Net periodic benefit cost $ 1,549,000 $ 1,932,000 $ 1,939,000
Weighted Average Assumptions
Discount rate 6.75% 7.00% 7.75%
Expected return on plan assets 9.00% 9.00% 9.00%
Rate of compensation increase 4.00% 4.00% 4.50%
</TABLE>
NOTE F - INCOME TAXES FROM CONTINUING OPERATIONS
<TABLE>
The provision (benefit) for income taxes consists of the following:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Currently (receivable) payable:
Federal $(1,919,778) $(2,430,277) $ 1,549,354
State - - (63,763)
Foreign 476,368 648,817 95,000
(1,443,410) (1,781,460) 1,580,591
Deferred:
Federal (4,015,786) 274,454 502,383
State 1,637,196 (838,994) 89,653
Foreign - - (9,000)
(2,378,590) (564,540) 583,036
Total $(3,822,000) $(2,346,000) $ 2,163,627
</TABLE>
<TABLE>
The reconciliation of income taxes computed at the statutory federal income
tax rate to the provision (benefit) for income taxes from continuing operations
is as follows:
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Statutory federal income tax expense (benefit) $(3,822,052) $(2,346,210) $ 2,826,113
State income tax expense (benefit), less federal tax benefit 1,064,178 (545,346) 16,430
Foreign operations 506,779 1,411,973 145,000
Benefit of Foreign Sales Corporation (1,160,285) (506,000) (457,000)
Miscellaneous (410,620) (360,417) (366,916)
Provision (benefit) for income taxes $(3,822,000) $(2,346,000) $ 2,163,627
</TABLE>
<TABLE>
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:
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Additional costs inventoried for tax purposes and inventory
reserves not deductible for tax purposes $ 3,087,815 $ 875,629
Excess benefit plan 1,441,137 1,170,141
Accrued warranty costs 2,383,117 2,258,694
Accrued pension costs 1,873,122 1,347,835
Intangible assets 751,072 700,572
Alternative minimum tax credit carryforward 448,957 -
Net operating loss carryforward 3,240,595 1,708,261
Other 777,004 974,690
14,002,819 9,035,822
Less: valuation allowance (3,651,959) (1,165,000)
Total deferred tax assets 10,350,860 7,870,822
Deferred tax liabilities:
Property, plant and equipment, principally due to
differences in depreciation (1,681,589) (1,683,967)
Other (352,741) (248,915)
Total deferred tax liabilities (2,034,330) (1,932,882)
Net deferred tax asset (included in the consolidated
balance sheet caption Intangibles and Other Assets) $ 8,316,530 $ 5,937,940
</TABLE>
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 changed net income
(loss) by approximately $161,000 ($0.01 per share) in 1998, $730,000 ($0.04 per
share) in 1997, and $246,000 ($0.01 per share) in 1996.
At December 31, 1998 and 1997 undistributed earnings of foreign subsidiaries
amounted to approximately $69,267,000 and $73,436,000 (including approximately
$38 million in 1998 and $40 million in 1997 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 undistributed foreign earnings
approximates $20,702,000 at December 31, 1998.
At December 31, 1998, the Company had Federal net operating loss carryforwards
of $2,165,046 which expire in 2018. State net operating loss carryforwards of
$18,998,533 begin to expire in 2005. The Company also has Federal alternative
minimum tax credit carryforwards of $448,957 which will carry forward to future
taxable years with no expiration. In addition, for Federal income tax purposes
the Company has foreign tax credit carryforwards of $141,997 which expire in
2003. Net operating loss carryforwards for certain foreign subsidiaries were
approximately $4,105,000 for tax purposes. These losses begin to expire in 1999.
Income taxes (refunded) paid, net, in 1998, 1997 and 1996 were approximately
($1,886,000), $279,000 and $4,860,000, respectively.
NOTE G - SEGMENT INFORMATION
<TABLE>
The following table sets forth segment information for the Company for the
years ended December 31, 1998, 1997 and 1996:
<CAPTION>>
(Thousands of Dollars)
QUALITY PEN-BASED
WRITING COMPUTING
INSTRUMENTS PRODUCTS TIMEPIECES TOTAL
<S> <C> <C> <C> <C>
1998:
Revenues from external customers $ 127,935 $ 24,848 $ 942 $ 153,725
Depreciation and amortization 7,735 609 34 8,378
Segment profit (loss) 2,291 (9,355) (3,856) (10,920)
Segment assets 139,210 14,366 2,761 156,337
Expenditures for long-lived assets 5,550 1,605 166 7,321
1997:
Revenues from external customers $ 152,429 $ 1,657 $ 630 $ 154,716
Depreciation and amortization 8,133 93 - 8,226
Segment profit (loss) 1,286 (5,728) (2,261) (6,703)
Segment assets 150,295 5,276 1,812 157,383
Expenditures for long-lived assets 6,751 1,790 - 8,541
1996:
Revenues from external customers $ 166,889 $ - $ - $ 166,889
Depreciation and amortization 7,077 - - 7,077
Segment profit (loss) 8,075 - - 8,075
Segment assets 160,876 - - 160,876
Expenditures for long-lived assets 9,774 - - 9,774
<CAPTION>
Reconciliations
1998 1997 1996
<S> <C> <C> <C>
Assets:
Total assets from reportable segments $ 156,337 $ 157,383 $ 160,876
Other assets from discontinued operations - 636 13,246
Total consolidated assets $ 156,337 $ 158,019 $ 174,122
<CAPTION>
Geographic Information 1998 1997 1996
<S> <C> <C> <C>
Revenues:
United States $ 88,329 $ 79,642 $ 86,286
Foreign countries 65,396 75,074 80,603
Total consolidated revenues $ 153,725 $ 154,716 $ 166,889
<FN>
Revenues are attributed to countries based on the location of customers.
</FN>
<CAPTION>
1998 1997 1996
Long-Lived Assets:
<S> <C> <C> <C>
United States $ 31,821 $ 33,464 $ 33,565
Ireland 7,674 7,369 6,391
Other foreign countries 1,099 727 848
Total consolidated long-lived assets $ 40,594 $ 41,560 $ 40,804
</TABLE>
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 bear interest at one half of one percent per annum in
excess of the LIBOR, (5.07% at December 31, 1998). The agreement is cancelable
at any time by the Company or the bank. The highest amount borrowed at any time
during the year was $9,000,000. Interest paid and expensed in 1998, 1997 and
1996 was $246,000, $177,000 and $248,000, respectively, and is included in
Interest and other income.
NOTE I - FINANCIAL INSTRUMENTS
<TABLE>
The table below details the U.S. dollar equivalent of foreign exchange
contracts as of December 31, 1998 and 1997, along with maturity dates and net
unrealized gain (loss) deferred.
<CAPTION>
(Thousands of Dollars)
CONTRACT AMOUNT MATURITY UNREALIZED GROSS NET UNREALIZED
U.S.$ EQUIVALENT DATE GAIN (LOSS) GAIN (LOSS)DEFERRED
<S> <C> <C> <C> <C>
December 31, 1998
French Francs $ 787 1999 $ - $ -
Spanish Pesetas 2,915 1999 - -
Italian Lira 1,480 1999 - -
Japanese Yen 3,982 1999 - -
Canadian Dollars 454 1999 - -
Hong Kong Dollars 1,667 1999 (11) -
Taiwan Dollars 1,207 1999 (35) -
Total $ 12,492 $ (46) $ -
December 31, 1997
French Francs $ 995 1998 $ - $ -
Pounds Sterling 1,660 1998 - -
Spanish Pesetas 2,607 1998 - -
German Marks 283 1998 - -
Japanese Yen 3,736 1998 290 -
Italian Lira 563 1998 - -
Total $ 9,844 $ 290 $ -
</TABLE>
The fair value of cash, cash equivalents, short-term investments and notes
payable to bank approximates its recorded amount. The fair value of forward
foreign exchange contracts was approximately $(46,000) and $290,000 at December
31, 1998 and 1997, respectively.
NOTE J - DISCONTINUED OPERATIONS
In 1997, the Company discontinued the distribution of quality leather goods
and accessory products of its Manetti-Farrow, Inc. subsidiary. The Company
recorded a loss on disposal before income taxes of approximately $3,600,000 and
an income tax benefit related to the disposal of $1,261,000 for the year ended
December 31, 1997. The Company recorded an after tax loss of $2,321,000, or
$0.14 per share, in the six month period ended June 30, 1997. Sales from the
measurement date, June 30, 1997, to December 31, 1997 were approximately
$8,800,000.
<TABLE>
The following table sets forth summary information relating to Manetti-Farrow:
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996
<S> <C> <C>
Net sales $ 5,579,330 $ 12,314,613
Costs and expenses 5,550,020 11,012,076
Operating income before income tax benefit 29,310 1,302,537
Income tax relating to operations 10,944 608,373
Operating income $ 18,366 $ 694,164
</TABLE>
In the second quarter of 1998, the Company recorded after-tax income from
discontinued operations of $1,653,000, or $0.10 per share. 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
Manetti-Farrow subsidiary. 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 connection with the final liquidation and disposition
of Manetti-Farrow's remaining net assets.
NOTE K - CONTINGENCIES
On December 21, 1998, the Company received a Letter of Responsibility (LOR)
from the Rhode Island Department of Environmental Management. The LOR states
that recent analytical results indicate elevated levels of volatile organic
compounds in a well located on the Company's property and requests that the
Company conduct a site investigation to identify the source. The Company has
retained an environmental consulting firm to perform the site investigation. At
this time, the Company is not able to determine its responsibility, if any, for
the well contamination or future remediation costs.
The Company is involved in various litigation and legal matters which have
arisen in the ordinary course of business. Management believes that the ultimate
resolution of any existing matter will not have a material adverse effect on the
Company's consolidated financial results.
NOTE L - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
<TABLE>
The following is a tabulation of the unaudited quarterly results of operations
for the years ended December 31, 1998 and 1997:
<CAPTION>
(Thousands of Dollars, Except Shares and Per Share Data)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
1998:
Net sales $31,525 $34,693 $33,852 $53,655
Gross profit 14,395 16,936 14,850 22,298
Net income (loss) from:
Continuing operations (1,327) 11 (4,417) (1,365)
Discontinued operations - 1,653 - -
Net income (loss) $(1,327) $ 1,664 $(4,417) $(1,365)
Basic and diluted earnings (loss) per share:
Continuing operations $(0.08) $0.00 $(0.27) $(0.08)
Discontinued operations 0.00 0.10 0.00 0.00
Net income (loss) per share $(0.08) $0.10 $(0.27) $(0.08)
Weighted average shares outstanding:
Denominator for basic earnings per share 16,507,145 16,522,981 16,547,566 16,547,896
Effect of dilutive securities:
Employee stock options -(A) 118,994 -(A) -(A)
Denominator for diluted earnings per share 16,507,145 16,641,975 16,547,566 16,547,896
<FN>
(A) No incremental shares related to options are included due to the net loss in
the quarter.
</FN>
<CAPTION>
(Thousands of Dollars, Except Shares and Per Share Data)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
<S> <C> <C> <C> <C>
1997:
Net sales $33,688 $31,124 $36,626 $53,278
Gross profit 16,459 13,988 17,542 25,458
Net income (loss) from:
Continuing operations 740 (2,573) (588) (1,936)
Discontinued operations 66 (2,387) - -
Net income (loss) $ 806 $(4,960) $ (588) $(1,936)
Basic and diluted earnings (loss) per share:
Continuing operations $0.05 $(0.16) $(0.04) $(0.11)
Discontinued operations 0.00 (0.14) 0.00 0.00
Net income (loss) per share $0.05 $(0.30) $(0.04) $(0.11)
Weighted average shares outstanding:
Denominator for basic earnings per share 16,494,602 16,495,206 16,499,604 16,501,241
Effect of dilutive securities:
Employee stock options 501 -(A) -(A) -(A)
Denominator for diluted earnings per share 16,495,103 16,495,206 16,499,604 16,501,241
<FN>
(A) No incremental shares related to options are included due to the net loss in
the quarter.
</FN>
</TABLE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
A.T. Cross Company
Lincoln, Rhode Island
We have audited the accompanying consolidated balance sheets of A.T. Cross
Company and subsidiaries (the "Company") as of December 31, 1998 and 1997, and
the related consolidated statements of operations and retained earnings,
comprehensive income (loss), and cash flows for each of the three years in the
period ended December 31, 1998. 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 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, such consolidated financial statements present fairly, in all
material respects, the financial position of the companies as of December 31,
1998 and 1997, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1998 in conformity with
generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 11, 1999
MANAGEMENT'S DISCUSSION & ANALYSIS OF FINANCIAL CONDITION & RESULTS OF
OPERATIONS
Results of Operations
Comparison of 1998 with 1997
Consolidated net sales of $153.7 million decreased 0.6% or $1.0 million in
1998 as compared to 1997. Writing instrument net sales of $127.9 million
were lower than the prior year by $24.5 million or 16.1%. Domestic writing
instrument sales decreased by $14.0 million, or 18.1%, while foreign writing
instrument sales were lower by $10.5 million or 14.0% as compared to 1997.
Domestic writing instrument volume continued to be unfavorably impacted by
declining consumer demand for all quality writing instruments in the United
States. Sales through the carriage trade (department, gift and jewelry stores)
and mass market (discount retailers) accounts, which were down 26.0% and 58.5%,
respectively, from the prior year, were only partially offset by a 3% sales
increase in the high volume office supply accounts. In an effort to stimulate
domestic writing instrument sales growth, especially during the peak gift-giving
holiday season, the Company launched a number of new writing instrument products
in a variety of new styles and finishes. The launch of Radiance, an addition to
the resin based Solo line, and Lumina, in the traditional slim Century line,
added six new products aimed at all distribution channels of the U.S. writing
instrument market. New offerings to the carriage trade accounts included
Alhambra, an addition to the wider girth Century II line in three lacquer
finishes, two new colors that were added to the Townsend line, and a new
Bordeaux finish introduced in the higher priced Pinnacle line. In addition, the
Company repeated its extended dating program that allowed domestic retail
customers to defer payments on certain third and fourth quarter 1998 purchases
until January 1999.
International writing instrument sales were affected by the continuing Asian
economic crisis. Sales in the key Asian market were down approximately 47% from
a year ago. The Company, however, remains committed to this region and
established two new branch offices in 1998, one in Hong Kong and the other in
Taiwan. These new branches, along with the existing Japanese subsidiary, are
intended to position the Company to take advantage of the eventual recovery in
this region. Somewhat offsetting the sales decline in Asia were improved results
in Europe and Latin America.
The Pen Computing Group achieved its first, full year revenue target of
approximately $25 million and the distribution goal for PCG products of
approximately 3,000 points of sale was reached during the year. PCG's innovative
CrossPad, launched in late March 1998, received substantial media coverage
during the year. The full-sized CrossPad was followed up later in the year by
CrossPadXP which holds a 6" by 9" note pad and was aimed at those users who
prefer taking notes with a smaller pad. CrossPadXP features a redesigned lighter
weight digital pen and the latest upgrade of IBM's Ink Manager software to
enhance note management.
The test marketing of a branded line of Swiss-made timepieces began in 1997
and continued throughout 1998. The product line was enhanced and upgraded to
include a new line of chronographs. The sales volume improved by 50% over the
prior year to approximately $1 million. While the Company believes that the
Cross brand can be extended to other personal accessories, due to the financial
demands of the PCG division, the Company is currently investigating a possible
licensing alternative for the watch business.
The consolidated gross profit margin decreased 3 percentage points in 1998 to
44.5% from 47.5% in 1997. The entire decline in gross margin was attributable to
the lower gross margins from the sale of PCG products and timepieces which, on
average, generate a lower gross margin than writing instruments. Included in
PCG's cost of sales for the year were royalty expenses which were paid to
suppliers of certain software and hardware components. Writing instrument
margins in 1998 were up slightly over 1997, primarily as a result of the
Company's stringent cost reduction programs that were first put in place in 1997
and continued in 1998.
Consolidated selling, general and administrative ("SG&A") expenses of $74.0
million were approximately 1.0% lower than the prior year and were 48.2% of net
sales in 1998 as compared to 48.3% in 1997. Quality writing instrument SG&A
expenses, which reflect strict cost controls put in place in 1997 and maintained
throughout 1998, were reduced by $11 million, or 16.2%, from the prior year. PCG
expenses of $13.3 million were up from the prior year's expense of $4.8 million
and Cross timepiece expenses of $4.3 million were up from the prior year's $2.5
million, as the Company continued to establish these businesses. The Company
expects timepiece expenses to decline significantly in 1999.
Research and development expenses were 29.5% above last year due entirely to
the increased spending for the development of the new lines of PCG products.
Service and distribution costs were 13.3% lower in comparison to 1997 largely
due to the lower writing instrument sales volume and cost reductions.
Interest and other income increased 28.1% from 1997 as interest income was
higher than last year due to slightly higher average invested funds and average
rates that were higher than the prior year.
In 1998 and 1997 the Company recorded an income tax benefit of 35.0% on the
loss from continuing operations. For an analysis of the effective tax rate, see
Note F to the Company's consolidated financial statements.
In 1998 the Company recorded after-tax income from discontinued operations of
$1,653,000, part of which was due to a settlement the Company reached with the
U.S. Customs Service regarding a claim filed on the amount of duty charged on
the importation of certain products. For a full analysis of discontinued
operations see Note J to the Company's consolidated financial statements.
As a result of the foregoing, the consolidated net loss in 1998 was
$5,445,000, ($0.33 loss per share, basic and diluted) as compared to the 1997
net loss of $6,678,000, ($0.40 loss per share, basic and diluted), while the
loss from continuing operations in 1998 was $7,098,000, ($0.43 loss per share,
basic and diluted) as compared to the 1997 loss from continuing operations of
$4,357,000 ($0.26 loss per share, basic and diluted).
Comparison of 1997 with 1996
Consolidated net sales decreased 7.3% or $12.2 million in 1997 compared to
1996. Domestic writing instrument sales decreased by $8.9 million, or 10.4%,
while foreign writing instrument sales were lower by $5.5 million or 6.9% as
compared to 1996.
Domestic writing instrument sales continued to be affected by changes in
distribution channels. Sales through the mass market accounts and catalog
showrooms have declined over the previous two years as quality writing
instruments have become less important to this class of trade. In response,
Cross introduced new products to enhance its image and gain market share at the
upper end of the writing instrument market. The new Pinnacle line and Townsend
Jade were introduced to the carriage trade, while a wider girth Century 2000
line was targeted to the office mega stores. In an attempt to increase the
awareness of the various products, finishes and girths Cross offers, a new
advertising campaign was introduced in 1997. Television advertising was also
used during the all-important holiday season. These ads featured many of the
newer Cross offerings along with the well recognized, traditional Century line.
Internationally, sales results were mixed. Sales to European markets were up
by almost 5% and sales to Canada and Latin America exceeded 1996 levels. In
Europe, new product introductions and finishes in the Century line and wider-
girth Townsend line as well as a large, one-time business gift order helped to
offset the effects of an overall stronger U.S. dollar. Sales in Asia and the Far
East decreased approximately 27% for the full year due to the severe economic
downturn in this key market during 1997. In addition, the weaker Japanese yen as
compared to 1996 unfavorably affected sales by just over 2%.
In 1997, PCG introduced its first two products, DigitalWriter and the iPen,
to the retail trade. Due to the heavy start-up costs associated with this new
initiative, PCG had an after-tax loss of $3.7 million in 1997 ($0.23 per share,
basic and diluted).
Additionally, in order to test the transferability of the Cross brand to other
high quality gift and self-purchase products, the Company introduced a line of
Swiss-made timepieces which it began to sell on a limited, test market basis in
1997. The expenses associated with timepieces resulted in a $1.5 million after-
tax loss in 1997 ($0.09 per share, basic and diluted).
The overall consolidated gross margin decreased to 47.5% in 1997 from 48.0% in
1996. Although cost reduction programs were implemented in 1997, the lower sales
volume in 1997 resulted in a higher percentage of indirect product costs (i.e.,
factory overhead) in relation to sales. Lower margins also resulted from the
first partial year of PCG sales and from the test marketing of Cross timepieces
which generated margins lower than writing instruments.
SG&A expenses increased $7.9 million, or 11.8%, in 1997 as compared to 1996,
and were 48.3% of net sales in 1997 as compared to 40.0% in 1996. Excluding the
costs associated with PCG and Cross timepieces of $4.8 million and $2.5 million,
respectively, and $0.8 million of expenses relating to the cost reduction plan,
writing instrument's SG&A expenses were below 1996 levels. The lower writing
instrument expenses this year largely resulted from the Company's cost
containment efforts in response to declining sales. The stronger dollar,
particularly with respect to the Japanese yen and German mark, also contributed
to lower expenses this year. Research and development expenses were 17.0% above
1996 levels due entirely to the increased spending for the development of PCG
products. Service and distribution costs were 6.3% lower in comparison to 1996
largely due to the lower sales volume.
Interest and other income decreased 3.5% from 1996 as interest income was
slightly less than last year due to lower average invested funds.
In 1997 the Company recorded an income tax benefit of 35.0% on the loss from
continuing operations as compared to the 1996 tax provision of 26.8%. For an
analysis of the changes in the effective tax rate, see Note F to the Company's
consolidated financial statements.
The contract between the Company's Manetti-Farrow subsidiary and Fendi
Diffusione, whereby the Company distributed Fendi leather products in the United
States, expired on December 31, 1997. In June 1997, the Company and Fendi agreed
that the distribution agreement would not be renewed, and consequently, the
Company decided to discontinue the distribution of quality leather goods and
accessory products and to wind down the operations of its Manetti-Farrow
subsidiary. The Company recorded an after-tax loss of $2.3 million in connection
with the discontinuation of this business in 1997.
As a result of the foregoing, the net loss in 1997 was $6,678,000, ($0.40 loss
per share, basic and diluted) as compared to the 1996 net income of $6,606,000,
($0.40 income per share, basic and diluted), while the loss from continuing
operations in 1997 was $4,357,000, ($0.26 loss per share, basic and diluted) as
compared to the 1996 income from continuing operations of $5,912,000 ($0.36
income per share, basic and diluted).
Liquidity and Capital Resources
Cash, cash equivalents and short-term investments (i.e., "cash") of $44.5
million at the end of 1998 declined $2.9 million from the prior year end. The
decline in cash was due largely to the loss from continuing operations during
the year. The effect of higher inventory and an increase in other assets,
primarily an increase in deferred income taxes, was offset by depreciation and
amortization expense and lower accounts receivable balances. Accounts receivable
decreased $3.0 million, primarily due to the lower writing instrument sales
volume in the last months of the year as compared to the same months of 1997.
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 higher. Total inventory of $22.2
million increased by $2.2 million as compared to 1997's level. This was due to
increases in PCG and timepiece inventories of $3.4 and $1.0 million,
respectively, offset by a decline in writing instrument inventories of $2.2
million from the prior year end.
Additions to property, plant and equipment were $6.5 million in 1998 as
compared to $7.5 million in 1997. In 1999 the Company expects capital
expenditures and depreciation to be somewhat lower than 1998 levels.
The Company expects research and development expenses to be somewhat lower in
1999.
The Company's working capital was $59.5 million at the end of 1998, a decrease
of $11.0 million from year end 1997, and its current ratio at the end of 1998
was 2.3:1, as compared to 2.8:1 at the end of 1997. The Company has a $50
million bank line of credit to meet any temporary borrowing needs. There was
$6.0 million outstanding on this line of credit at year end 1998. The Company is
currently negotiating with the bank to lower the amount of the line of credit to
$25 million to more appropriately reflect the Company's needs. The Company
believes that funds from operations and existing cash, supplemented, as
appropriate, by the Company's short-term borrowing arrangements, will be
adequate to finance its foreseeable operating and capital requirements.
In December 1998, the Company eliminated the quarterly cash dividend in order
to support the investment requirements of PCG.
At the end of 1998, cash available for domestic operations amounted to $6.8
million while cash held offshore for international operations amounted to $37.7
million. 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 of approximately 31% of the remitted
amounts.
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. At the end of 1998, approximately 95% of the
Company's total systems were 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 has engaged the services of an independent
consulting firm to review the Company's Year 2000 remediation plan. Remediation
of all fundamental business systems is expected to be completed by the end of
June, 1999. Testing of these modified systems has been an ongoing process as
non-compliant systems are replaced or upgraded. Substantial testing of critical
business applications began in the fourth quarter of 1998 and will continue
throughout all of 1999.
The cost of the Company's Year 2000 compliance program is currently estimated
to be approximately $1.1 million, with spending in 1998 of $500,000 and $600,000
planned in 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 an
adverse material 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 are currently under review
to ensure that certain key materials will be available and it is expected that
replacement suppliers could be located in a reasonable time period should this
prove necessary. In addition, the Company is dependent on the infrastructures
within all the countries 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.
New Accounting Pronouncement
The Financial Accounting Standards Board ("FASB") has recently issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No.
133 will become effective for the Company for the year ending December 31, 2000.
The Company is currently evaluating the impact that implementing this SFAS will
have in its financial statements.
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. The Company continues to review 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 the current year to further reduce operating
costs in its manufacturing operations.
Because of volatility in the gold bullion market, the Company has followed the
practice of making advance commitments for its future gold 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 (See Note I to the consolidated financial statements).
The Company has adopted accounting practices which tend to reflect current
costs in its consolidated statements of operations. A portion of total
inventories at the end of 1998, 1997 and 1996, were accounted for using the 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.
Euro
Effective January 1, 1999, the European Monetary Union created a single
currency, the euro, for its member countries. A transition period, from
January 1, 1999 through December 31, 2001, will allow the member countries to
methodically eliminate their local currencies and to convert them to the euro.
During this transition period, either the euro or a member country's present
currency will be accepted as legal tender.
In 1998, the Company formed a task force to study the requirements of
conversion to the euro and the related impact on the Company. The task force
reviewed technology requirements, pricing and competitive implications, banking,
the impact on hedging programs, and the timing and costs related to each of
these.
The Company believes that the impact on operations of the adoption of the
euro will be minimal in 1999 and is not expected to have a material impact on
the consolidated financial statements.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to changes in interest rates and foreign currency
exchange, primarily in its short-term investments, note payable to bank, and
foreign currency transactions.
The Company's investment portfolio consists primarily of high grade
investments with the majority maturing in less than five years. As such, this
portfolio does not subject the Company to material market risk.
The Company has an unsecured line of credit with a bank. Borrowings under
this line bear interest at variable rates based on the LIBOR (See Note H to the
consolidated financial statements). The Company believes that changes in
interest rates would not be material to its operations due to its level of
borrowings. The Company had no long-term debt obligations at December 31, 1998
and 1997.
The Company enters into purchase commitments with a third party bank to reduce
its exposure to fluctuating gold prices. As a result, the Company believes that
it has no material market risk.
The Company's foreign exchange exposure is generated primarily from its
foreign operating subsidiaries. The Company seeks to minimize the impact of
foreign currency fluctuations by hedging certain foreign currency denominated
balance sheet positions with foreign currency forward exchange contracts. These
contracts are short-term, generally expire in one month and do not subject the
Company to material market risk.
Risks and Uncertainties; Forward-Looking Statements
Statements contained herein that are not historical fact are forward-looking
statements that are made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. In addition, 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 the Company's 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. Forward-looking statements involve a number of 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. The markets in which the Company sells is highly competitive,
and there is no assurance that 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.
Technological Change - Intellectual Property: The Company's new electronic
products may be subject to technological change, new product introductions and
enhancements and evolving industry standards that may render existing products
obsolete. As a result, the Company's position in its existing market or other
markets that it may enter could be eroded rapidly by technological advancements.
If the Company is unable to develop and introduce products in a timely manner in
response to changing market conditions or customer requirements, management's
expectations may not be met. In addition, the manufacture and distribution of
certain of the Company's electronic products are dependent on licensing
arrangements (some of which are non-exclusive) for varying lengths of time with
third parties for the use of their intellectual property.
Sensitivity to Economic Conditions: Sales of the Company's products may be
adversely affected by adverse economic conditions in its various international
markets.
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
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
Andries van Dam
Professor of Computer Science,
Brown University,
Providence, Rhode Island
Class A Director. 2
Board Committees: 1. Executive; 2. Audit; 3. Compensation; 4. Employee
Benefits.
Corporate Officers
Bradford R. Boss
Chairman of the Board
Russell A. Boss
President and Chief Executive Officer
John E. Buckley
Executive Vice President
Chief Operating Officer
John T. Ruggieri
Senior Vice President,
Treasurer and Chief Financial Officer
Joseph V. Bassi
Finance Director
Tina C. Benik
Vice President, Legal
General Counsel and Corporate Secretary
Robert J. Byrnes, Jr.
Pen Computing Group
President and CEO
Robin Boss Dorman
Vice President,
Writing Instruments Sales and Marketing
North America
Joseph F. Eastman
Vice President, Human Resources
J. John Lawler
Vice President, Writing Instruments,
Worldwide Tax and Duty Free
Stephen A. Perreault
Vice President, Operations,
Writing Instruments
Gary S. Simpson
Corporate Controller
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
websites: cross.com
cross-pcg.com
Subsidiaries, Branches and Divisions
ATX International, Inc.,
Lincoln, Rhode Island
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 (Asia Pacific) Limited,
Hong Kong Branch
Hong Kong Special Administrative Region,
People's Republic of China
A.T. Cross (Asia Pacific) Limited,
Taiwan Branch
Taipei, Taiwan, Republic of China
A.T. Cross (U.K.) 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
Cross Pen Computing Group,
A Division of A. T. Cross Company,
Lincoln, Rhode Island
Annual Meeting
The Annual Meeting of Shareholders of A.T. Cross Company will be held on
Thursday, April 22, 1999 at 10:00 a.m. at the offices of the Company,
One Albion Road, Lincoln, Rhode Island 02865.
Independent Auditors
Deloitte & Touche LLP,
Boston, Massachusetts 02110
Stock Symbol
American Stock Exchange Symbol: ATX
Transfer Agent and Registrar
State Street Bank and Trust Company
c/o EquiServe, Limited Partnership
Boston, Massachusetts 02266
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 Senior Vice President, Treasurer and Chief Financial Officer, at
One Albion Road, Lincoln, Rhode Island 02865.
Printed in the U.S.A. on recycled paper.
EXHIBIT 23
Independent Auditors' Consent
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, 33-64731, 333-42915 and
333-66031 of A.T. Cross Company on Forms S-8 of our reports dated February 11,
1999, 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, 1998.
DELOITTE & TOUCHE LLP
Boston, Massachusetts
March 23, 1999
<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, 1998 AND IN QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 44,498,394
<SECURITIES> 0
<RECEIVABLES> 36,086,372
<ALLOWANCES> 1,551,000
<INVENTORY> 22,194,918
<CURRENT-ASSETS> 105,750,124
<PP&E> 115,343,311
<DEPRECIATION> 76,719,081
<TOTAL-ASSETS> 156,336,596
<CURRENT-LIABILITIES> 46,258,494
<BONDS> 0
0
0
<COMMON> 17,148,962
<OTHER-SE> 87,108,140
<TOTAL-LIABILITY-AND-EQUITY> 156,336,596
<SALES> 153,725,243
<TOTAL-REVENUES> 156,502,831
<CGS> 85,245,934
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 81,867,571
<LOSS-PROVISION> 41,580
<INTEREST-EXPENSE> 267,896
<INCOME-PRETAX> (10,920,150)
<INCOME-TAX> (3,822,000)
<INCOME-CONTINUING> (7,098,150)
<DISCONTINUED> 1,653,307
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<NET-INCOME> (5,444,843)
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