CROSS A T CO, 10-Q, 2000-11-13

CROSS A T CO
10-Q, 2000-11-13
PENS, PENCILS & OTHER ARTISTS' MATERIALS

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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 September 30, 2000 or
[	]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 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 (State or other jurisdiction of incorporation or organization)				05-0126220 (IRS Employer Identification No.)
One Albion Road, Lincoln, Rhode Island (Address of principal executive offices)						02865 (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 September 30, 2000:
			Class A common stock - Class B common stock -		15,240,205 shares 1,804,800 shares

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

					September 30, 2000		January 1, 2000
					(Unaudited)
				(In Thousands of Dollars)
ASSETS
CURRENT ASSETS
	Cash and Cash Equivalents			$ 10,568			$ 12,843
	Short-Term Investments			14,626			20,485
	Accounts Receivable			22,390			28,361
	Inventories:
			Finished Goods	9,745			5,277
			Work in Process	7,382			4,257
			Raw Material	5,116			7,216
				22,243			16,750
	Deferred Income Taxes			8,738			8,685
	Other Current Assets			9,423			6,173
			TOTAL CURRENT ASSETS	87,988			93,297

PROPERTY, PLANT AND EQUIPMENT				123,114			121,925
	Less Allowances for Depreciation			91,441			85,229
				31,673			36,696
DEFERRED INCOME TAXES				974			974
INTANGIBLES AND OTHER ASSETS				5,467			5,755
TOTAL ASSETS				$ 126,102			$ 136,722

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
	Note Payable to Bank			$ 1,500			$ 8,300
	Accounts Payable, Accrued Expenses and Other Liabilities			24,106			22,497
	Accrued Compensation and Related Taxes			3,570			2,813
	Contributions Payable to Employee Benefit Plans			10,618			10,474
	Income Taxes Payable			-			396
		TOTAL CURRENT LIABILITIES		39,794			44,480

ACCRUED WARRANTY COSTS				5,821			5,821
COMMITMENTS AND CONTINGENCIES (NOTE I)
SHAREHOLDERS' EQUITY
	Common Stock, Par Value $1 Per Share:
	Class A, Authorized 40,000,000 Shares;
		15,899,620 Shares Issued and 15,240,205
			Shares Outstanding at September 30, 2000 and
		15,893,232 Shares Issued and 15,267,166
		Shares Outstanding at January 1, 2000		15,900			15,893
	Class B, Authorized 4,000,000 Shares;
			1,804,800 Shares Issued and Outstanding
			at September 30, 2000 and January 1, 2000	1,805			1,805
	Additional Paid-In Capital			15,140			15,027
	Deferred Stock Based Compensation			( 359		)	( 616	)
	Retained Earnings			58,546			63,974
	Accumulated Other Comprehensive Loss			( 1,066		)	( 475	)
				89,966			95,608
	Treasury Stock, at Cost			( 9,479		)	( 9,187	)
			TOTAL SHAREHOLDERS' EQUITY	80,487			86,421
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY				$ 126,102			$ 136,722


See notes to condensed consolidated financial statements.

A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

		13 Weeks Ended		13 Weeks Ended		39 Weeks Ended		39 Weeks Ended
		September 30,		October 2,		September 30,		October 2,
		2000		1999		2000		1999

		(In Thousands, Except Per Share Data)

Net Sales		$ 31,227		$ 30,895		$ 88,011		$ 85,951
Cost of Goods Sold		16,356		17,281		43,676		50,290
Gross Profit		14,871		13,614		44,335		35,661

Selling, General and Administrative Expenses		11,482		14,316		37,472		46,556
Research and Development Expenses		548		1,114		1,364		2,463
Service and Distribution Costs		513		661		1,581		2,497
Restructuring Charges		( 555	)	0		14,745		0
Operating Income (Loss)		2,883		( 2,477	)	( 10,827	)	( 15,855	)

Interest and Other		524		493		4,717		1,406

Income (Loss) from Continuing Operations
Before Income Taxes		3,407		( 1,984	)	( 6,110	)	( 14,449	)

Income Tax Expense (Benefit)		1,292		( 516	)	( 611	)	( 3,757	)

Income (Loss) from Continuing Operations		2,115		( 1,468	)	( 5,499	)	( 10,692	)

Income (Loss) from Discontinued Operations
(Net of Income Taxes)		15		( 903)		71		443

Net Income (Loss)		$ 2,130		$ ( 2,371	)	$ ( 5,428	)	$ ( 10,249	)


Basic and Diluted Earnings (Loss) Per Share:
	Continuing Operations	$ 0.13		$( 0.10	)	$( 0.33	)	$( 0.65	)
	Discontinued Operations	0.00		( 0.05	)	0.00		0.03
Net Income (Loss) Per Share		$ 0.13		$( 0.15	)	$( 0.33	)	$( 0.62	)


Weighted Average Shares Outstanding:
Denominator for Basic Earnings Per Share		16,719		16,655		16,628		16,622
Effect of Dilutive Securities:
Common Stock Equivalents		138		- ( A	)	- ( A	)	- ( A	)
Denominator for Diluted Earnings Per Share		16,857		16,655		16,628		16,622


(A) No incremental shares related to options or restricted stock granted are included due to the loss from continuing operations.

See notes to condensed consolidated financial statements.

A. T. CROSS COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

			39 Weeks Ended		39 Weeks Ended
			September 30, 2000		October 2, 1999

			(In Thousands of Dollars)
Cash Provided by (Used in):

Operating Activities:
	Net Cash Provided by (Used in) Continuing Operations		$ 2,718		$ ( 9,287	)
	Net Cash Provided by Discontinued Operations		92		1,407
		Net Cash Provided by (Used in) Operating Activities	2,810		( 7,880	)

Investing Activities:
	Proceeds from Sale of NeoMedia Shares		5,062		0
	Exercise of NeoMedia Warrants		( 1,200	)	0
	Purchase of Shares in DigitalConvergence.:Com Inc.		( 5,000	)	0
	Additions to Property, Plant and Equipment		( 2,819	)	( 6,010	)
	Purchase of Short-Term Investments		0		( 10,289	)
	Sale or Maturity of Short-Term Investments		6,057		10,036
		Net Cash Provided by (Used in) Investing Activities	2,100		( 6,263	)

Financing Activities:
	Proceeds from Bank Borrowings		0		10,300
	Repayment of Bank Borrowings		( 6,800	)	( 8,000	)
	Other		120		2,222
		Net Cash Provided by (Used in) Financing Activities	( 6,680	)	4,522

Effect of Exchange Rate Changes on Cash and Cash Equivalents			( 505	)	( 242	)

Decrease in Cash and Cash Equivalents			( 2,275	)	( 9,863	)

Cash and Cash Equivalents at Beginning of Period			12,843		22,781

Cash and Cash Equivalents at End of Period			$ 10,568		$ 12,918


See notes to condensed consolidated financial statements.

A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000

NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America 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 accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring and restructuring accruals) considered necessary for a fair presentation have been included. Operating results for the thirty nine weeks ended September 30, 2000, are not necessarily indicative of the results that may be expected for the fifty two weeks ending December 30, 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 January 1, 2000.

NOTE B - Restructuring Charges
During the first quarter of 2000, the Company's Board of Directors approved a plan to restructure the Company's domestic and international writing instrument operations. During the first quarter, the Company recorded a $15.3 million pre-tax restructuring charge related to this plan in the Quality Writing Instruments segment. As part of the restructuring plan, the Company is consolidating all writing instrument manufacturing at its headquarters in Lincoln, Rhode Island. Of the total $15.3 million charge recorded in the first quarter for restructuring, approximately $9.8 million was for estimated payments of severance and related expenses, approximately $3.0 million related to the estimated losses associated with the disposal of assets, approximately $1.4 million for certain contractual obligations and approximately $1.1 million was for estimated professional fees and other expenses. During the third quarter, the Company reversed $555,000 reserved for certain components of the restructuring as estimates continue to be revised based on current factors. Cash payments made through the nine months, including approximately $3.4 million of third quarter restructuring payments, total approximately $5.6 million. The expected cash portion of the restructuring charge is expected to be approximately $11.2 million. The Company expects that the restructuring will be substantially completed by the end of the 2000 fiscal year. The Company is funding the restructuring plan from internal sources, ongoing operations and from the existing line of credit.

The following is a tabular presentation of the reserves as described above:

(In Thousands)		Severance		Professional
		& Related		Fees		Contractual
		Expenses		& Other		Obligations		Total
Balance at January 1, 2000		$ 0		$ 0		$ 0		$ 0
	Reserve for Restructuring	9,776		1,129		1,375		12,280
	Cash Payments in First Quarter 2000	( 583	)	( 34	)	0		( 617	)
Balance at April 1, 2000		9,193		1,095		1,375		11,663
	Cash Payments in Second Quarter 2000	( 1,397	)	( 155	)	0		( 1,552	)
Balance at July 1, 2000		7,796		940		1,375		10,111
	Changes in Estimate	(883	)	60		( 235	)	( 1,058	)
	Cash Payments in Third Quarter 2000	( 3,259	)	( 130	)	0		( 3,389	)
Balance at September 30, 2000		$ 3,654		$ 870		$ 1,140		$ 5,664

The above reserve is recorded in the Company's balance sheet line item "Accounts Payable, Accrued Expenses and Other Liabilities."

NOTE C - Comprehensive Income (Loss)
Comprehensive income (loss) for the thirteen and thirty nine week periods ended September 30, 2000 and October 2, 1999 follows:

(In Thousands)		13 Weeks Ended		13 Weeks Ended		39 Weeks Ended		39 Weeks Ended
		September 30,		October 2,		September 30,		October 2,
		2000		1999		2000		1999

Net Income (Loss)		$ 2,130		$ ( 2,371	)	$ ( 5,428	)	$ ( 10,249	)
Other Comprehensive Income (Loss):
	Foreign Currency Translation Adjustments	( 124	)	406		( 491	)	( 89	)
	Unrealized Gain (Loss) on Investment (Net of Tax)	86		976		( 100	)	976
Comprehensive Income (Loss)		$ 2,092		$ ( 989	)	$ ( 6,019	)	$ ( 9,362	)

NOTE D - Investments
During the first quarter of 2000, the Company sold 440,000 shares of NeoMedia Technologies, Inc. ("NeoMedia") common stock, generating approximately $5,062,000 of proceeds and a pre-tax gain of approximately $3,302,000. The gain from the sale of these shares is recorded in Interest and Other and is included in the Pen-Based Computing Products segment. In addition, during the first quarter, the Company exercised warrants to purchase 200,000 shares of NeoMedia common stock at an average price of $6 per share. At September 30, 2000, the Company has 261,897 shares of NeoMedia common stock, unchanged from July 1, 2000. At September 30, 2000, the market value of these securities was approximately $1,671,000. They are classified as a vailable-for-sale securities and are included in Other Current Assets. Unrealized gains and losses on the Company's investment in NeoMedia have been recorded, net of tax, as part of Accumulated Other Comprehensive Loss.

During the second quarter of 2000, the Company invested $5 million in DigitalConvergence.:Com Inc. ("DC"), a Delaware company, in exchange for 237,079 shares of DC's Series B Convertible Preferred Stock and 316,255 shares of DC's Series C Convertible Preferred Stock. DC's technology allows media companies, manufacturers and other organizations to link their products with particular web pages deep within their website. DC intends to make an initial public offering ("IPO") of its common stock and has filed an S-1 Registration Statement with the Securities and Exchange Commission on April 28, 2000 and an amendment to such Registration Statement on September 26, 2000. In the event that $75,000,000 is raised in the IPO and immediately prior to the closing of the IPO the aggregate market value of DC common stock (assuming conversion of all preferred stock) equals or exceeds $750,000,000, Cross' DC Series B and Series C Convertible Preferred shares will be converted into DC common stock on a one-for-one basis. The investment in DigitalConvergence.:Com Inc., is carried at cost and is recorded in Other Current Assets.

NOTE E - Segment Information
The Company has two reportable segments: quality writing instruments ("QWI") and pen-based computing products ("PCG"). 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 January 1, 2000. Following is the segment information for the Company for the third quarter and year to date periods ended September 30, 2000 and October 2, 1999:

(In Thousands)

13 Weeks Ended

13 Weeks Ended

39 Weeks Ended

39 Weeks Ended

September 30,

October 2,

September 30,

October 2,

2000

1999

2000

1999

Revenues from External Customers:

Quality Writing Instruments

$ 30,523

$ 30,191

$ 85,172

$ 83,240

Pen-Based Computing Products

704

704

2,839

2,711

Total

$ 31,227

$ 30,895

$ 88,011

$ 85,951

Segment Profit (Loss):

Quality Writing Instruments

$ 3,424

$ 2,081

$ ( 9,378

)

$ 2,124

Pen-Based Computing Products

( 17

)

( 4,065

)

3,268

( 16,573

)

Total

$ 3,407

$ ( 1,984

)

$ ( 6,110

)

$ ( 14,449

)

Segment Assets:

Quality Writing Instruments

$ 115,684

Pen-Based Computing Products

$ 9,399

The decrease in QWI segment assets since January 1, 2000 was due largely to a reduction in trade accounts receivable and PP&E, offset by higher inventory levels. Cash from the collection of accounts receivable was used to pay down the note payable to bank and pay restructuring charges. In addition, certain fixed assets were written down as part of the restructuring.

The increase in PCG segment assets since January 1, 2000 was due to the $5.0 million the Company invested in DigitalConvergence.:Com Inc. as well as a reclassification of the Company's investment in NeoMedia Technologies, Inc. from the QWI segment.

NOTE F - Line of Credit
The Company currently has a $25 million secured line of credit with a bank. The Company has provided the bank with a security interest in certain U.S. inventory, accounts receivable and machinery and equipment for the line of credit. In addition, the Company is now required to maintain certain covenants, the most restrictive of which limits the Company's ability to incur additional debt. Any amounts borrowed under this agreement are payable on demand and bear interest at one percent per annum (1.0%) in excess of the London Interbank Offering Rate.

NOTE G - 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. This statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains and losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Since the Company's use of derivatives is minimal, this statement is not expected to have a material impact on the Company's consolidated financial statements. Had this statement been effective for the third quarter, the Company would have recorded a pretax charge in the third quarter of approximately $70,000.

In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") 101, "Revenue Recognition in Financial Statements," which summarizes the staff's views regarding the application of accounting principals generally accepted in the United States of America to selected revenue recognition issues and is effective for the fourth quarter of 2000. The Company believes that the impact of SAB 101 will have no material effect on its consolidated financial statements.

NOTE H - Discontinued Operations
Timepieces:
During the third quarter of 1999, the Company discontinued operations of its timepiece segment when it entered into a license agreement with a third party for the worldwide distribution of the Cross brand of timepieces. The Company terminated this license agreement in the third quarter of 2000.

The following table sets forth summary information relating to timepieces:

(In Thousands)	13 Weeks Ended		13 Weeks Ended		39 Weeks Ended		39 Weeks Ended
	September 30,		October 2,		September 30,		October 2,
	2000		1999		2000		1999

Net Sales	$ 0		$ ( 211	)	$ 68		$ 14
Costs and Expenses	( 19	)	760		( 21	)	1,187
Operating Income (Loss) Before Income
Tax (Benefit)	19		( 971	)	89		( 1,173	)

Income Tax (Benefit) Related to Operations	4		( 253	)	18		( 305	)
Operating Income (Loss)	15		(718	)	71		( 868	)

Loss on Disposal Before Income Tax Benefit	0		( 250	)	0		( 250	)
Income Tax Benefit	0		65		0		65
Loss on Disposal	0		( 185	)	0		( 185	)

Income (Loss) from Discontinued Operations	$ 15		$ ( 903	)	$ 71		$ ( 1,053	)

Manetti-Farrow, Inc.:
In the first quarter of 1999, the Company recorded after-tax income from this discontinued operation of $1,496,000. The Company reached a settlement in 1998 with the U.S. Customs Service regarding a claim filed on the amount of duty charged in prior years on the importation of certain products by its discontinued subsidiary, Manetti-Farrow, Inc., which payments continued into 1999.

NOTE I - Contingencies
On or about April 21, 2000, the Company, certain officers and directors of the Company, and others were named as defendants in an action filed in the United States District Court for the District of Rhode Island. The suit, which is brought by a purchaser of the Company's Class A Common Stock, alleges that the defendants violated federal securities laws by making material misstatements and omissions in the Company's public filings and statements relating to the Company's Pen Computing Group business. The suit seeks class action status including all purchasers of the Company's Class A common stock between September 17, 1997 and April 22, 1999. The damages sought are unspecified.

On June 30, 2000, the Company filed a Motion to Dismiss the action in the Federal District Court in Rhode Island.

During the third quarter, the Plaintiffs amended the original Complaint and subsequently the Company filed an amended Motion to Dismiss.

While the action is in a preliminary stage, based on an initial review and after consultation with counsel, management believes that the accusations are without merit. The Company intends to defend this action vigorously.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations Third Quarter 2000 Compared to Third Quarter 1999

Net sales for the third quarter of 2000 were $31.2 million, an increase of 1.1%, as compared to the third quarter of 1999. Total Quality Writing Instrument ("QWI") sales for the quarter of $30.5 million increased 1.1% from the prior year. Domestic writing instrument sales of $15.3 million decreased 5.2% as compared to the third quarter of 1999, while international writing instrument sales of $15.2 million increased 8.3% as compared to the 1999 period. Sales by the Pen Computing Group ("PCG") during the third quarter of 2000 were approximately $704,000, equal to the 1999 third quarter.

Domestic writing instrument sales decreased due to the planned lower sales to warehouse club accounts, offset somewhat by new product introductions and increased sales to the large office supply store accounts.

International writing instrument sales increased in the third quarter of 2000 as a result of increased sales in all major regions. Asian sales increased over last year's third quarter by 20.4%, primarily due to a distributor change that positively affected several key markets. Sales in Canada and Latin America increased by 12.3% and 24.4%, respectively, due largely to the effect of new products that have been launched. Sales in Europe, the Middle East and Africa ("EMEA") increased 1.6% as compared to the 1999 third quarter due primarily to increased new product sales, in particular the ATX line. Excluding the unfavorable effect of exchange rates on sales, EMEA sales volume grew by approximately 12% in the quarter as compared to the third quarter of 1999.

Gross profit margins for the third quarter of 2000 were 47.6%, 3.5 percentage points higher than the 44.1% margins for the comparable period last year. The improvement in margins was due to the effect of improved PCG segment margins, which reported a positive gross margin in the third quarter of 2000 as compared to negative gross margins in 1999. QWI margins were lower than the prior year due, in part, to the effect of exchange rates and the mix of products sold in the third quarter of 2000 as compared to the third quarter of 1999.

Selling, general and administrative ("SG&A") expenses for the third quarter of 2000 were approximately 20% lower than last year. This decrease was due to the reduction in QWI SG&A expenses and PCG SG&A expenses that were significantly lower in 2000 as compared to the same period last year.

Research and development ("R&D") expenses were less than 1999's third quarter by approximately 51%. This was due largely due to the substantial reduction of R&D expenditures for the development of PCG products this year as compared to 1999. QWI R&D expenditures were 7.7% lower than the prior year.

Service and distribution ("S&D") expenses were approximately 22% less than the same period last year as both PCG and QWI S&D expenses were lower than 1999. QWI S&D expenses were less than last year due to the implementation of cost reduction initiatives.

During the third quarter, the Company reversed $555,000 reserved for certain components of the restructuring as estimates continue to be revised based on current factors. For additional discussion see "Results of Operations Nine Months Ended September 30, 2000 Compared to October 2, 1999."

The Company recorded income tax expense at a rate of 37.9% on income from continuing operations in the third quarter of 2000 as compared to a 26.0% income tax benefit on the loss from continuing operations in same period of 1999. The increase in the third quarter 2000 rate was due to a change in the full year's estimated tax benefit to 10%, down from the 20% benefit previously recorded. For additional discussion of income taxes see "Results of Operations Nine Months Ended September 30, 2000 Compared to October 2, 1999."

In the third quarter of 2000, the Company recorded after-tax income from its discontinued timepiece segment of $15,000 as compared to $903,000 of after tax loss in the comparable 1999 period.

Results of Operations Nine Months Ended September 30, 2000 Compared to October 2, 1999

Net sales for the nine month period ended September 30, 2000 were $88.0 million, an increase of 2.4%, as compared to the same period in 1999. Total QWI sales of $85.2 million increased 2.3% over the prior year as domestic writing instrument sales of $40.8 million for the first nine months were 0.6% less than the comparable prior year period, while international writing instrument sales of $44.4 million increased by 5.2%. Sales by PCG were $2.8 million through September 30, 2000, 4.7 % higher than the $2.7 million in the comparable 1999 period.

The relatively flat year to date domestic writing instrument sales performance was due to planned lower sales to warehouse club accounts, offset somewhat by the success of the Cross MorphÔ line, growth of OEM revenue and the launch of a licensed line of Bill Blass products.

Sales in Asia increased 8.9% year to date as this region continues to recover from the poor economic conditions. In addition, a distributor change affecting several key markets has had a favorable impact on revenue. The effect of exchange rates has also resulted in improved sales results. EMEA sales were higher by 1.8% over the prior year. This was due largely to the success of the new ATX line as well as the launch, late in the third quarter, of the Cross MorphÔ line, offset significantly by the effects of weaker foreign exchange rates.

Year to date, PCG sales increased 4.7% from the prior year primarily due to the fulfillment of an OEM order for CrossPads from existing inventory.

Gross profit margins for the first nine months of 2000 were 50.4%, 8.9 percentage points higher than the 41.5% gross margins reported for the comparable period last year. The higher margins were due almost entirely to the effect of improvement in the PCG segment, which reported positive gross margins in 2000 as compared to negative gross margins in 1999. QWI margins also improved slightly as compared to 1999.

SG&A expenses for the first nine months of 2000 were 19.5% lower than last year. This decrease was due primarily to the substantial reduction in SG&A expenses for the PCG segment in 2000 as compared to the same period last year.

R&D expenses were below 1999's first nine months by approximately 45%, as there were substantially lower R&D expenditures for the development of PCG products this year as compared to 1999.

S&D expenses were 36.7% below the same period last year. This reflects a reduction in PCG related S&D expenses. QWI S&D expenses were also less than the comparable prior year period due to the implementation of cost reduction initiatives.

During the first quarter of 2000, the Company's Board of Directors approved a plan to restructure the Company's domestic and international writing instrument operations. During the first quarter, the Company recorded a $15.3 million pre-tax restructuring charge related to this plan in the Quality Writing Instruments segment. As part of the restructuring plan, the Company is consolidating all writing instrument manufacturing at its headquarters in Lincoln, Rhode Island. Of the total $15.3 million charge recorded in the first quarter for restructuring, approximately $9.8 million was for estimated payments of severance and related expenses, approximately $3.0 million related to the estimated losses associated with the disposal of assets, approximately $1.4 million for certain contractual obligations and approximately $1.1 million was for estimated professional fees and other expenses. During the third quarter, the Company reversed $555,000 reserved for certain components of the restructuring as estimates continue to be revised based on current factors. Cash payments made through the nine months, including approximately $3.4 million of third quarter restructuring payments, total approximately $5.6 million. The expected cash portion of the restructuring charge is expected to be approximately $11.2 million. The Company expects that the restructuring will be substantially completed by the end of the 2000 fiscal year. The Company is funding the restructuring plan from internal sources, ongoing operations and from the existing line of credit. The Company believes that the restructuring plan should result in lower operating costs beginning in 2001.

Interest and other for the first nine months of 2000 included an approximate $3.3 million gain on the sale of a portion of the Company's investment in NeoMedia Technologies, Inc. Future gain or loss on the sale of the remaining 261,897 shares of NeoMedia common stock depends on market conditions and cannot be predicted. Interest income was 5.4% higher than 1999 due largely to interest on income tax refunds received in the second quarter of 2000.

The Company recorded an income tax benefit of 10% on the loss from continuing operations in the first nine months of 2000 as compared to the 1999 income tax benefit of 26%. This decrease was due in part to a shift in the estimated mix of domestic and foreign sourced income, or loss, as a significant portion of the restructuring charge was recorded in Ireland, which has a lower effective tax rate than other countries in which the Company operates.

The Company recorded after-tax income from its discontinued timepiece segment of $71,000 in the year to date period ended September 30, 2000. Income from discontinued operations in the year to date period ended October 2, 1999, was $443,000, resulting from income of $1,496,000 due to payments received as the result of a settlement the Company reached 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 Manetti-Farrow, Inc subsidiary, and a charge of $1,053,000 was the result of operations from the discontinued timepiece segment.

Liquidity and Sources of Capital

Cash, cash equivalents and short-term investments (i.e., "cash") decreased approximately $8.1 million from January 1, 2000 to $25.2 million at September 30, 2000. Cash available for domestic operations approximated $1.2 million, while cash held offshore approximated $24.0 million at September 30, 2000. At the end of 1999, the Company determined that approximately $15 million in undistributed foreign earnings were no longer considered invested indefinitely and recorded a provision for deferred taxes of approximately $5.3 million. This represented the estimated tax associated with these undistributed earnings. As of September 30, 2000, approximately $7.9 million of these earnings had been repatriated to the U.S. At present, management continues to believe that the unremitted foreign earnings for which deferred taxes have not been provided will continue to be permanently invested in the growth of business outside of the U.S., hence, no additional deferred taxes were recorded during the first nine months of 2000.

Accounts receivable decreased since the end of 1999 by approximately $6.0 million to $22.4 million, primarily due to cash that was collected in January 2000 from customers who took advantage of the Company's 1999 extended dating program. This program allowed domestic customers to defer payments on certain 1999 purchases to 2000. This program was similar to holiday season extended dating programs that have been offered in past years.

The Company currently has available a $25 million secured line of credit with a bank which provides an additional source of working capital on a short-term basis. At September 30, 2000, there was $1.5 million of borrowings outstanding under this line.

In the second quarter of 2000, the Company invested approximately $5 million in DigitalConvergence.:Com Inc., ("DC") a Delaware company, in exchange for 237,079 shares of DC's Series B Convertible Preferred Stock and 316,255 shares of DC's Series C Convertible Preferred Stock.

In the first quarter of 2000, approximately $3.9 million in cash was generated after the exercise of warrants and sale of shares of NeoMedia Technologies, Inc.

In the first nine months of 2000, approximately $5.6 million of restructuring charges have been paid.

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 needs and the cash requirements of the restructuring plan.

New Accounting Pronouncements

During 1998, the FASB issued 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. This statement requires companies to record derivatives on the balance sheet as assets and liabilities, measured at fair value. Gains and losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether it qualifies for hedge accounting. Since the Company's use of derivatives is minimal, this statement is not expected to have a material impact on the Company's consolidated financial statements. Had this statement been effective for the third quarter, the Company would have recorded a pretax charge in the third quarter of approximately $70,000.

In December 1999, the Securities and Exchange Commission issued SAB 101, "Revenue Recognition in Financial Statements," which summarizes the staff's views regarding the application of generally accepted accounting principals to selected revenue recognition issues and is effective for the fourth quarter of 2000. The Company believes that the impact of SAB 101 will have no material effect on its consolidated financial statements.

Forward-Looking Statements

Statements contained in this Form 10-Q that are not historical facts are forward-looking statements that are 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," "will" and similar expressions are intended to identify forward-looking statements. The Company cautions that a number of important factors could cause actual results for 2000 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 the continued expansion of the Company's OEM efforts, consumer acceptance of the Company's new and existing product lines, the successful development and performance of new technology in connection with certain of such new products, the Company's dependence on certain suppliers, the Company's sensitivity to technological change and economic conditions, the success of the Company's restructuring plan, 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 fifty two week period ended January 1, 2000 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 1999 annual report on Form 10-K.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

On or about April 21, 2000, the Company, certain officers and directors of the Company, and others were named as defendants in an action filed in the United States District Court for the District of Rhode Island. The suit, which is brought by a purchaser of the Company's Class A Common Stock, alleges that the defendants violated federal securities laws by making material misstatements and omissions in the Company's public filings and statements relating to the Company's Pen Computing Group business. The suit seeks class action status including all purchasers of the Company's Class A common stock between September 17, 1997 and April 22, 1999. The damages sought are unspecified.

On June 30, 2000, the Company filed a Motion to Dismiss the action in the Federal District Court in Rhode Island.

During the third quarter, the Plaintiffs amended the original Complaint and subsequently the Company filed an amended Motion to Dismiss.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

a) Exhibits

Exhibit 27 Financial Data Schedule

b) Reports on Form 8-K

There were no reports on Form 8-K filed during the period covered by this report.

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	A. T. CROSS COMPANY

Date: November 10, 2000	By: DAVID G. WHALEN David G. Whalen Chief Executive Officer

Date: November 10, 2000	By: JOHN T. RUGGIERI John T. Ruggieri Senior Vice President Chief Financial Officer