UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
ACT OF 1934
For the transition period from __________ to __________
Commission File No. 1-6720
A. T. CROSS COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0126220
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One Albion Road, Lincoln, Rhode Island 02865
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (401) 333-1200
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No______
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of July 3, 1999:
Class A common stock - 14,847,203 shares
Class B common stock - 1,804,800 shares
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
July 3, December 31,
1999 1998
(Unaudited)
ASSETS (Thousands of Dollars)
CURRENT ASSETS
Cash and Cash Equivalents $ 13,771 $ 22,781
Short-Term Investments 21,969 21,717
Accounts Receivable 17,078 34,535
Inventories:
Finished Goods 8,650 9,887
Work in Process 5,401 5,646
Raw Material 6,998 6,662
21,049 22,195
Other Current Assets 8,634 4,522
TOTAL CURRENT ASSETS 82,501 105,750
PROPERTY, PLANT AND EQUIPMENT 118,873 115,343
Less Allowances for Depreciation 80,853 76,719
38,020 38,624
INTANGIBLES AND OTHER ASSETS 11,813 11,963
TOTAL ASSETS $132,334 $156,337
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Note Payable to Bank $ 0 $ 6,000
Accounts Payable, Accrued Expenses and
Other Liabilities 17,249 27,417
Accrued Compensation and Related Taxes 2,620 2,746
Contributions Payable to Employee
Benefit Plans 10,654 10,096
TOTAL CURRENT LIABILITIES 30,523 46,259
ACCRUED WARRANTY COSTS 5,821 5,821
SHAREHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share:
Class A, Authorized 40,000,000 Shares;
15,458,269 Shares Issued and 14,847,203
Shares Outstanding at July 3, 1999 and
15,344,162 Shares Issued and 14,743,096
Shares Outstanding at December 31, 1998 15,458 15,344
Class B, Authorized 4,000,000 Shares;
1,804,800 Shares Issued and Outstanding
at July 3, 1999 and December 31, 1998 1,805 1,805
Additional Paid-In Capital 12,975 12,433
Unearned Compensation on Restricted Stock (490) 0
Retained Earnings 76,210 84,087
Accumulated Other Comprehensive Loss (941) (446)
105,017 113,223
Treasury Stock, at Cost (9,027) (8,966)
TOTAL SHAREHOLDERS' EQUITY 95,990 104,257
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $132,334 $156,337
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
July 3,1999 June 30,1998 July 3,1999 June 30,1998
(Thousands of Dollars Except per Share Data)
Net Sales $26,762 $34,693 $55,281 $66,218
Cost of Goods Sold 16,526 17,757 33,096 34,887
Gross Profit 10,236 16,936 22,185 31,331
Selling, General and
Administrative Expenses 17,990 15,701 32,581 30,824
Research and Development Expenses 816 1,220 1,349 2,226
Service and Distribution Costs 926 856 1,836 1,628
Operating Loss (9,496) (841) (13,581) (3,347)
Interest and Other Income 368 856 914 1,411
Income(Loss) from Continuing
Operations Before Income Taxes (9,128) 15 (12,667) (1,936)
Income Taxes (Benefit) (2,374) 4 (3,294) (620)
Income(Loss) from Continuing
Operations (6,754) 11 (9,373) (1,316)
Income from Discontinued
Operations(Net of Income Taxes) - 1,653 1,496 1,653
Net Income(Loss) $(6,754) $ 1,664 $(7,877) $ 337
Basic and Diluted Earnings
(Loss) Per Share:
Continuing Operations $ (0.40) $ 0.00 $ (0.56) $ (0.08)
Discontinued Operations 0.00 0.10 0.09 0.10
Net Income(Loss) Per Share $ (0.40) $ 0.10 $ (0.47) $ 0.02
Weighted Average Shares Outstanding:
Denominator for Basic Earnings
Per Share 16,655 16,523 16,606 16,515
Effect of Dilutive Securities:
Employee Stock Options - (A) 119 - (A) - (A)
Denominator for Diluted Earnings
Per Share 16,655 16,642 16,606 16,515
Dividends Declared Per Share $ 0.00 $ 0.08 $ 0.00 $ 0.08
(A) No incremental shares related to stock options are included due to the
net loss.
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
26 Weeks Ended 6 Months Ended
July 3,1999 June 30,1998
(Thousands of Dollars)
Cash Provided By (Used In):
Operating Activities:
Net Cash Provided by Continuing Operations $ 52 $ 1,774
Net Cash Provided by Discontinued Operations 1,496 2,288
Net Cash Provided By Operating Activities 1,548 4,062
Investing Activities:
Additions to Property, Plant and Equipment (3,670) (2,825)
Purchase of Short-Term Investments (10,288) (11,787)
Sale or Maturity of Short-Term Investments 10,036 11,824
Net Cash Used In Investing Activities (3,922) (2,788)
Financing Activities:
Cash Dividends Paid 0 (2,643)
Repayment of Bank Borrowings (6,000) 0
Proceeds from Bank Borrowings 0 3,000
Other (36) 261
Net Cash Provided by (Used In)
Financing Activities (6,036) 618
Effect of Exchange Rate Changes on
Cash and Cash Equivalents (600) (86)
Increase (Decrease) in Cash and Cash Equivalents (9,010) 1,806
Cash and Cash Equivalents at Beginning of Period 22,781 25,801
Cash and Cash Equivalents at End of Period $ 13,771 $ 27,607
See notes to condensed consolidated financial statements.
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
July 3, 1999
NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six months
ended July 3, 1999, are not necessarily indicative of the results that may be
expected for the full year ending January 1, 2000. The Company has
historically recorded its highest sales in the fourth quarter. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report on Form 10-K for the year
ended December 31, 1998.
NOTE B - Change of Accounting Periods
To facilitate the implementation of a standardized worldwide reporting system,
as of January 1, 1999 the Company changed from a calendar quarter and year end
closing schedule to a 4-4-5 week quarter-end close and a 52/53 week fiscal
close. This change did not have a material impact on sales or results of
operations in the second quarter and first six months of 1999 as compared to
the second quarter and first six months of 1998.
NOTE C - Discontinued Operations
In the first quarter of 1999, the Company recorded after-tax income from
discontinued operations of $1,496,000, or $0.09 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 discontinued subsidiary, Manetti-Farrow, Inc.
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 discontinued subsidiary, Manetti-Farrow, Inc. After taxes and
after expenses the settlement was approximately $1,116,000. In addition, the
Company recorded after-tax income of approximately $537,000 in the quarter in
connection with the final liquidation and disposition of Manetti-Farrow's
remaining net assets.
NOTE D - Comprehensive Income (Loss)
Comprehensive income(loss) for the second quarter and first six months of 1999
and 1998 follows:
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
July 3,1999 June 30,1998 July 3,1999 June 30,1998
Net Income (Loss) $(6,754) $ 1,664 $(7,877) $ 337
Other Comprehensive Loss:
Foreign Currency Translation
Adjustment (160) (38) (495) (74)
Comprehensive Income (Loss) $(6,914) $ 1,626 $(8,372) $ 263
NOTE E - New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 was not required
to be implemented until fiscal year 2000. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133 - an amendment of
FASB Statement No. 133." SFAS No. 137 delayed the original implementation
date of SFAS No. 133 by one year. This will require that the Company
implement this statement in fiscal year 2001. Since its requirements are
complex and its scope far reaching, the Company has not completed its
evaluation of the impact of this standard on its consolidated financial
statements.
NOTE F - Segment Information
The Company has three reportable segments: quality writing instruments, pen-
based computing products, and a line of branded, Swiss-made timepieces. The
Company evaluates segment performance based upon profit or loss from
operations before income taxes. For further information, refer to footnotes A
and G included in the Company's annual report on Form 10-K for the year ended
December 31, 1998. Below is the segment information for the Company for the
second quarter and year-to-date periods ended July 3, 1999 and June 30, 1998:
13 Weeks 3 Months 26 Weeks 6 Months
Ended Ended Ended Ended
July 3,1999 June 30,1998 July 3,1999 June 30,1998
Revenues from external
customers:
Quality Writing Instruments $ 25,797 $ 28,512 $ 53,049 $ 57,190
Pen-Based Computing Products 928 6,048 2,007 8,697
Timepieces 37 133 225 331
Total $ 26,762 $ 34,693 $ 55,281 $ 66,218
Segment Profit (Loss):
Quality Writing Instruments $ (915) $ 2,025 $ 43 $ 1,717
Pen-Based Computing Products (8,213) (1,659) (12,508) (2,988)
Timepieces 0 (351) (202) (665)
Total $ (9,128) $ 15 $(12,667) $ (1,936)
Segment Assets:
Quality Writing Instruments $119,800 (1)
Pen-Based Computing Products $ 10,000 (2)
(1) The decrease in segment assets since December 31, 1998 was due largely to
a reduction in trade accounts receivable from the higher sales in the fourth
quarter of 1998. Collections of accounts receivable were then used to payoff
the Note payable to bank and pay other accrued liabilities.
(2) The decrease in segment assets since December 31, 1998 was due largely to
a reduction in trade accounts receivable and lower inventories offset somewhat
by the investment in NeoMedia Technologies, Inc.(see Note H to the Financial
Statements).
NOTE G - Line of Credit
During the first quarter of 1999, the Company and its financial institution
renegotiated the Company's existing line of credit from $50 million to $25
million, to more appropriately reflect the Company's needs. Any amounts
borrowed under this agreement are payable on demand and bear interest at one
percent (1.0%) per annum in excess of the London Interbank Offering Rate.
NOTE H - Advances to NeoMedia Technologies, Inc.("NeoMedia")
As of the end of the second quarter of 1999, the Company had made advances of
$2 million to NeoMedia as part of a joint agreement to bundle NeoMedia's
NeoLink software with the Cross NetPen. NetPen is a pen-based scanning
application that will scan and store specifically coded data found in a
variety of print media. The NetPen, bundled with the NeoLink software, will
form an information retrieval system to quickly download previously scanned
web sites directly to a personal computer without the need for search engines
or complex Uniform Resource Locators (URLs). These advances bear interest at
one percent (1.0%) per year compounded annually. The advances made are
convertible into NeoMedia common stock at an exercise price of four dollars
per share: $1 million convertible on or before February 18, 2000 and $1
million convertible on or before June 2, 2000. As additional consideration
for the advances, NeoMedia issued to the Company warrants to purchase 200,000
shares of NeoMedia common stock exercisable for a period of five years
following February 18, 1999. These advances are recorded in Other Current
Assets.
NOTE I - Subsequent Events
On July 14, 1999, the Company completed the acquisition of selected assets of
C&J Jewelry Company, Inc. ("C&J"). The acquired assets will be primarily
utilized for the manufacture of writing instruments for a well known luxury
goods retailer. The acquisition is part of a strategy to leverage the
Company's core manufacturing capabilities as an Original Equipment
Manufacturer of writing instruments. The purchase price of $5.2 million is
comprised of $2.8 million of C&J indebtedness assumed by the Company and
approximately 381,000 shares of the Company's Class A common stock. Of these,
approximately 349,000 shares are to be held in escrow until certain
restrictions over the next 12 and 24 months lapse. It is expected that this
business will contribute to revenue and profits in the third quarter although
it will not be material to 1999's results.
Due to the continued and significant losses by PCG, on July 22, 1999, the
board of directors authorized a review of strategic alternatives for the
CrossPad product line which include outside funding and/or the possible sale
or discontinuance of the CrossPad line.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
Results of Operations Second Quarter 1999 Compared to Second Quarter 1998
Net sales for the second quarter ended July 3, 1999 of $26.8 million decreased
22.9% as compared to the second quarter of 1998. Total writing instrument net
sales for the quarter were $25.8 million, down 9.5% from the prior year.
Domestic writing instrument net sales of $12.8 million were 13.9% lower than
the prior year while foreign writing instrument net sales of $13.0 million
declined 4.8% as compared to second quarter of 1998. Sales by the Pen
Computing Group ("PCG") during the second quarter of 1999 were $928,000, a
decrease of 84.7% compared to the second quarter of 1998. Timepiece revenues
were $37,000 in the quarter, a decrease of 72.2% compared to the same period
last year.
The decline in domestic writing instrument sales was due to continued weakness
in the overall U.S. writing instrument market. The Company's Retail Sales
Division reported lower sales in the office supply and catalog showroom
accounts as an office supply customer has been actively reducing its inventory
levels as part of a change to its distribution methods. In addition, another
customer, having financial difficulties, significantly reduced its purchases
in the second quarter of 1999 as compared to the same period of 1998. Sales
by the Company's Special Markets Division, i.e., sales of personalized
products to corporate accounts, were lower than the prior year due to the fact
that there are now a number of competitive gift alternatives to chose from
besides writing instruments with which to recognize and motivate employees.
In an effort to stabilize the U.S. writing instrument business over the second
half of the year, new product development efforts are continuing. In
addition, a new marketing support initiative was recently implemented that
placed, as a test, Cross product kiosks in five U.S. shopping malls to
increase awareness of Cross products. These staffed kiosks have the full line
of Cross products on display.
The decrease in international sales in the second quarter of 1999 was due, in
part, to generally weaker economic conditions in Europe. In addition, the
stronger U.S. dollar resulted in lower reported results during the quarter.
Sales in Latin America were 39% lower than last year's sales. Revenues were
adversely impacted by a number of distributor changes in the first half of the
year as well as unstable economic conditions in several key markets in the
region. Somewhat offsetting the declines in Europe and Latin America was the
continuing recovery of Asian markets.
PCG net sales during the second quarter were down approximately 85% from the
prior year. We believe retailers have significantly reduced their purchases
as they reduce their current inventory levels of CrossPads and CrossPadXPs.
To help stimulate sales through the channel, the Company offered a mail-in
rebate promotion during the quarter.
The gross profit margins for the second quarter of 1999 were 38.2%, down from
48.8% for the comparable period last year. The decline in margins was largely
attributable to the PCG segment which generated a negative gross margin in the
second quarter. Included in the 1999 second quarter's results for PCG were
the effects of higher inventory reserves established for CrossPad and
CrossPadXP. Writing instrument margins in the 1999 second quarter were lower
than the same period last year primarily due to the effect of relatively fixed
manufacturing costs on the lower sales volume.
Selling, general and administrative ("SG&A") expenses for the second quarter
of 1999 were 14.6% higher than last year. This increase was primarily due to
higher PCG SG&A expenditures as a mail-in rebate promotion was offered to
consumers during the quarter to reduce channel inventory at the retail level.
Writing instrument SG&A was up slightly over the prior year second quarter as
expenditures were made to support the test placement of the five mall kiosks
and the development of the Cross web site to allow for full e-commerce
capability.
Research and development ("R&D") expenses were less than 1998's second quarter
by 33.1%, due to significantly lower R&D expenditures for the development of
PCG products this year.
Interest and other income for the second quarter of 1999 were significantly
below the same period last year due to lower average levels of invested funds,
somewhat lower average interest rates and the effect of timing of other income
items.
The Company recorded an income tax benefit of 26.0% on the loss from
continuing operations in the second quarter of 1999 as compared to the 1998
second quarter income tax rate of 32.0%. This change was due, in part, to a
shift in the mix of domestic and foreign sourced income.
Due to the continued and significant losses by PCG, on July 22, 1999, the
board of directors authorized a review of strategic alternatives for the
CrossPad product line which include outside funding and/or the possible sale
or discontinuance of the CrossPad line. The Company expects that PCG's 1999
revenues will be substantially less than 1998 revenues and its 1999 operating
loss will be significantly greater than the prior year's loss.
Results of Operations Twenty Six Weeks Ended July 3, 1999 Compared to Six
Months ended June 30, 1998
Net sales for the twenty six week period ended July 3, 1999 were $55.3
million, or 16.5% lower than the six month period in 1998. Total writing
instrument net sales of $53.0 million were 7.2% lower than last year.
Domestic writing instrument net sales of $24.8 million for the twenty six
weeks were down 13.7% from the comparable period last year and foreign writing
instrument net sales of $28.2 million were down 0.6% from 1998. Sales of PCG
products were $2.0 million through July 3, 1999, a decrease of 76.9% from the
$8.7 million for the 1998 comparable period. Timepiece revenues were $225,000
through the July 3, 1999 period, a decrease of 32.0% from the sales of
$331,000 during the comparable period last year.
Domestic writing instrument net sales remained below last year's levels as
both Retail and Special Markets Divisions reported lower sales than a year
ago. The Retail Division's sales through the catalog showroom and mass market
accounts declined sharply from the prior year. For additional details see the
discussion in the Results of Operations Second Quarter 1999 Compared to Second
Quarter 1998.
Internationally, year-to-date sales to the Company's Asian markets increased
from the prior year by 45.1% as the economic and fiscal conditions in these
markets continue to recover. Offsetting the increase in Asia were lower sales
results in Latin America due to a number of distributor changes that took
place during the year and the effect of unstable economies in several key
markets. Sales were lower than the prior year in Europe due to generally
weaker economic conditions and to the adverse effects of a somewhat stronger
U.S. dollar.
PCG's net sales were lower than last year by approximately 77% for the six
months ended July 3, 1999, as the Company lowered the price of CrossPad and
CrossPadXPs in the first quarter of 1999 and issued rebates to dealers. In
addition, we believe that retailers have significantly reduced their purchases
as they reduce their inventory levels of CrossPads and CrossPadXPs.
Gross profit margins for the first half of 1999 were 40.1%, down 7.2
percentage points from the same period in 1998. The decline in margin was
entirely attributable to the PCG segment which generated a negative margin for
the period ended July 3, 1999. Included in the year-to-date PCG results were
the effects of inventory reserves established for CrossPad and CrossPadXP and
the effect of rebates offered to dealers to lower the selling price of
CrossPad products to consumers. Writing instrument margins in the period
improved over the same period last year primarily due to lower unit costs as a
result of the cost reduction programs put in place, offset somewhat by the
effect of fixed manufacturing expenses on the lower sales volume.
SG&A expenses for the first half of 1999 were 5.7% higher than the same period
for 1998. SG&A expenses for writing instruments were 2.3% less than the prior
year as the strict cost controls put in place were partially offset by
spending on the new marketing initiatives. Through July 3, 1999, SG&A
expenses for PCG and Timepieces were $7.2 million and $340,000, respectively,
as compared to $4.4 million and $820,000, respectively, in the same period
last year. The PCG SG&A increase in 1999 as compared to the same period of
1998 was largely due to the effect of the rebate promotions.
R&D expenses of $1.3 million were lower than last year by 39.4% due to the
lower R&D expenditures for the development of PCG products this year. Writing
instrument R&D expenditures were slightly below last year's levels for the
first six months of 1999. The Company expects R&D expenditures to be lower
this year than in 1998.
Interest and other income decreased 35.2% for the first half of 1999 due, in
part, to lower interest income as average investable funds and the average
interest rate were lower than the same period of the prior year.
The Company recorded an income tax benefit of 26.0% on the loss from
continuing operations for the period ended July 3, 1999, as compared to the
period ended June 30, 1998 income tax benefit of 32.0%. This change was due,
in part, to a shift in the mix of domestic and foreign sourced income.
Due to the continued and significant losses by PCG, on July 22, 1999, the
board of directors authorized a review of strategic alternatives for the
CrossPad product line which include outside funding and/or the possible sale
or discontinuance of the CrossPad line. The Company expects that PCG's 1999
revenues will be substantially less than 1998 revenues and its 1999 operating
loss will be significantly greater than the prior year's loss.
Liquidity and Sources of Capital
Cash, cash equivalents and short-term investments (i.e., "cash") decreased
$8.8 million from December 31, 1998 to $35.7 million at July 3, 1999. Cash
available for domestic operations approximated $2.3 million while cash held
off-shore approximated $33.4 million at July 3, 1999. While it is not the
Company's current intention to do so, if the Company ever determines that the
cash held offshore was not necessary for international operations, it may
repatriate some or all of such cash for use in domestic operations. However,
repatriated offshore funds would be subject to additional federal and state
income taxes.
Accounts receivable decreased since the end of 1998 by $17.5 million to $17.1
million primarily due to cash that was collected in January 1999 from
customers who took advantage of the Company's 1998 extended dating program
that allowed domestic customers to defer payments on certain 1998 purchases.
This program was similar to extended dating programs that have been offered in
past years.
The Company currently has available a $25 million line of credit with a bank
which provides an additional source of working capital on a short-term basis.
At July 3, 1999 there were no outstanding amounts under this line.
The Company believes that its current level of working capital, along with the
funds available from the line of credit, will be sufficient to meet the
Company's normal operating and working capital needs and to complete the
acquisition of selected assets of C&J Jewelry Company, Inc. (see Note I to the
Financial Statements). The Company eliminated its quarterly cash dividend on
common stock as of December 8, 1998.
New Accounting Pronouncements
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 was not required
to be implemented until fiscal year 2000. In June 1999, the FASB issued SFAS
No. 137, "Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133 - an amendment of
FASB Statement No. 133." SFAS No. 137 delayed the original implementation
date of SFAS No. 133 by one year. This will require that the Company
implement this statement in fiscal year 2001. Since its requirements are
complex and its scope far reaching, the Company has not completed its
evaluation of the impact of this standard on its consolidated financial
statements.
Year 2000 Compliance
The Year 2000 issue refers to a condition where computer programs were written
so that when reading a date entered as a two digit year, i.e., "00", they
could not distinguish between the year 1900 and the year 2000. If not
corrected, this problem could lead to system failures or miscalculations,
possibly causing disruptions of business processes.
The Company started to address this problem early in 1997 when it formed a
cross-functional team to manage the Company's compliance process. One of the
first tasks undertaken was to identify and inventory information technology
and non-information technology systems and hardware that would need to be
replaced or upgraded. Since then, the Company has been modifying and
upgrading significant portions of its software and hardware so that it will
function properly in the year 2000. Substantially all of the Company's
business applications have been remediated and are believed to be year 2000
compliant; most of the remaining systems are planned to be in compliance by
the end of the third quarter of 1999, with the remaining, less significant
systems planned to be in compliance by year end. The Company is utilizing
both internal and external resources to identify, correct and test the systems
for Year 2000 compliance and engaged the services of an independent consulting
firm to review the Company's Year 2000 remediation plan. Testing of the
modified systems has been ongoing as non-compliant systems are replaced or
upgraded. 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 approximately
$500,000 and approximately $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 a
material adverse effect on the Company's systems. The most reasonably likely
worst case scenario is that a short-term disruption will occur with a small
number of customers or suppliers. Contingency plans have been developed and
are being implemented to ensure that certain key materials will be available.
While the Company's contingency plans address certain broad supplier issues,
such as electrical supply, the Company is dependent on the infrastructures
within all the countries in which it has operations; therefore, the failure of
these infrastructures could adversely affect the Company's operations.
The cost of remediation and completion dates are based upon management's best
estimates and may be updated as additional information becomes available.
Forward Looking Statements
Statements contained in this Form 10-Q that are not historical facts are
forward-looking statements made pursuant to the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. In addition, use of words
such as "believes," "anticipates," "expects" and similar expressions are
intended to identify forward-looking statements. The Company cautions that a
number of important factors could cause actual results for 1999 and beyond to
differ materially from those expressed in any forward-looking statements made
by or on behalf of the Company. Such statements contain a number of risks and
uncertainties, including, but not limited to, risks associated with consumer
acceptance of the Company's new and existing product lines, the successful
development and performance of new technology in connection with such new
products, the Company's dependence on certain suppliers, the Company's
sensitivity to technological change and economic conditions, the Company's
other strategic initiatives, and customer and consumer support for such
initiatives and changes. See the Company's Form 10-K for a more detailed
discussion of certain of these factors. The Company cannot assure that it
will be able to anticipate or respond timely to changes which could adversely
affect its operating results in one or more fiscal quarters. Results of
operations in any past period should not be considered indicative of results
to be expected in future periods. Fluctuations in operating results may
result in fluctuations in the price of the Company's common stock.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Refer to the Company's annual report on Form 10-K for the year ended December
31, 1998 for a complete discussion of the Company's market risk. There have
been no material changes to the market risk information included in the
Company's 1998 annual report on Form 10-K.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting on April 22, 1999 at its corporate
headquarters in Lincoln, Rhode Island. The following are the matters
submitted to a vote of the shareholders:
a. Number of Directors
The proposition to fix the total number of directors at nine, of which
three shall be Class A directors and six shall be Class B directors.
Approved by the vote of 12,442,118 Class A shares in favor, 245,108
against, 56,354 abstaining, and by the vote of 1,804,800 Class B
shares in favor and none against or abstaining.
b. Election of Directors
The following directors were elected by the Class A shareholders:
For Withheld
Terrence Murray 12,421,193 322,387
James C. Tappan 12,424,894 318,686
Andries van Dam 12,418,312 325,268
The following directors were elected by the unanimous vote of
1,804,800 Class B shares:
Bradford R. Boss
Russell A. Boss
John E. Buckley
Bernard V. Buonanno, Jr.
H. Frederick Krimendahl II
Edwin G. Torrance
c. Appointment of Independent Auditors
A proposal to ratify the appointment of Deloitte & Touche LLP as
independent auditors for the Company for the year ending January 1 ,
2000 was approved by the unanimous vote of 1,804,800 Class B shares.
ITEM 5. OTHER INFORMATION
On April 22, 1999, Russell A. Boss, President and C.E.O. of A.T. Cross
Company, announced his plan to retire from the position of President and
C.E.O. The Board of Directors has formed a search committee to appoint a
successor. Mr. Boss will remain President and C.E.O. of the Company until
such time as a successor is appointed. Furthermore, Mr. Boss is a member of
the search committee and intends to remain a Director of the Company after his
retirement.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27 Financial Data Schedule
b) Reports on Form 8-K
There were no reports on Form 8-K filed during the period covered by
this report.
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
A. T. CROSS COMPANY
Date: August 13, 1999 By: JOHN E. BUCKLEY
John E. Buckley
Executive Vice President
Chief Operating Officer
Date: August 13, 1999 By: JOHN T. RUGGIERI
John T. Ruggieri
Senior Vice President
Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from financial
statements included in the A.T. Cross Company Form 10-Q for the quarterly
period ended July 3, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUL-3-1999
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<RECEIVABLES> 18,584
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<COMMON> 17,263
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