UNITED STATES | |||||||||||
FORM 10-Q (Mark One) | |||||||||||
[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | ||||||||||
For the quarterly period endedOctober 3, 2009 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 Number1-6720 A. T. CROSS COMPANY | |||||||||||
Rhode Island | 05-0126220 | ||||||||||
One Albion Road, Lincoln, Rhode Island | 02865 | ||||||||||
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 (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. | |||||||||||
X | Yes | __ | No | ||||||||
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (S232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). | |||||||||||
__ | Yes | __ | No | ||||||||
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. | |||||||||||
Large accelerated filer | __ | Accelerated filer | X | ||||||||
Non-accelerated filer | __ | Smaller reporting company | __ | ||||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). | |||||||||||
__ | Yes | X | No | ||||||||
Indicate the number of shares outstanding of each of the issuer's classes of common stock as of October 31, 2009: | |||||||||||
Class A common stock - | 13,356,733 shares | ||||||||||
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
A. T. CROSS COMPANY AND SUBSIDIARIES | ||||||
CONDENSED CONSOLIDATED BALANCE SHEETS | ||||||
(THOUSANDS OF DOLLARS AND SHARES) | OCTOBER 3, 2009 | JANUARY 3, 2009 | ||||
ASSETS | (UNAUDITED) | |||||
Current Assets | ||||||
Cash and cash equivalents | $ 10,372 | $ 18,629 | ||||
Short-term investments | 6,009 | 1,193 | ||||
Accounts receivable, net | 24,930 | 29,102 | ||||
Inventories | 30,232 | 26,425 | ||||
Deferred income taxes | 4,339 | 4,341 | ||||
Other current assets | 6,805 | 8,844 | ||||
Total Current Assets | 82,687 | 88,534 | ||||
Property, Plant and Equipment, Net | 15,267 | 15,609 | ||||
Goodwill | 15,279 | 14,526 | ||||
Intangibles, Net | 10,499 | 11,127 | ||||
Deferred Income Taxes | 11,439 | 11,480 | ||||
Other Assets | 2,045 | 2,683 | ||||
Total Assets | $ 137,216 | $ 143,959 | ||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||
Current Liabilities | ||||||
Accounts payable, accrued expenses and other liabilities | $ 14,267 | $ 17,614 | ||||
Accrued compensation and related taxes | 4,344 | 5,436 | ||||
Retirement plan obligations | 2,504 | 2,619 | ||||
Total Current Liabilities | 21,115 | 25,669 | ||||
Long-Term Debt | 19,721 | 21,721 | ||||
Retirement Plan Obligations | 14,751 | 14,681 | ||||
Deferred Gain on Sale of Real Estate | 3,389 | 3,780 | ||||
Other Long-Term Liabilities | 1,863 | 3,085 | ||||
Accrued Warranty Costs | 1,298 | 1,362 | ||||
Commitments and Contingencies (Note M) | - | - | ||||
Total Liabilities | 62,137 | 70,298 | ||||
Shareholders' Equity | ||||||
Common stock, par value $1 per share: | ||||||
Class A - authorized 40,000 shares, 17,651 shares issued and | ||||||
13,348 shares outstanding at October 3, 2009, and 17,609 shares | ||||||
issued and 13,794 shares outstanding at January 3, 2009 | 17,651 | 17,609 | ||||
Class B - authorized 4,000 shares, 1,805 shares issued and | ||||||
outstanding at October 3, 2009 and January 3, 2009 | 1,805 | 1,805 | ||||
Additional paid-in capital | 23,479 | 21,431 | ||||
Retained earnings | 73,498 | 72,886 | ||||
Accumulated other comprehensive loss | (11,215 | ) | (11,956 | ) | ||
Treasury stock, at cost | (30,139 | ) | (28,114 | ) | ||
Total Shareholders' Equity | 75,079 | 73,661 | ||||
Total Liabilities and Shareholders' Equity | $ 137,216 | $ 143,959 | ||||
See notes to condensed consolidated financial statements. | ||||||
A. T. CROSS COMPANY AND SUBSIDIARIES | |||||||||||||
CONDENSED CONSOLIDATED STATEMENTS OF INCOME | |||||||||||||
(UNAUDITED) | |||||||||||||
(THOUSANDS OF DOLLARS, | THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||||||
EXCEPT PER SHARE AMOUNTS) | OCTOBER 3, | SEPTEMBER 27, | OCTOBER 3, | SEPTEMBER 27, | |||||||||
2009 | 2008 | 2009 | 2008 | ||||||||||
Net sales | $ 34,129 | $ 38,974 | $102,275 | $118,439 | |||||||||
Cost of goods sold | 16,184 | 16,741 | 47,172 | 51,862 | |||||||||
Gross Profit | 17,945 | 22,233 | 55,103 | 66,577 | |||||||||
Selling, general and administrative expenses | 15,090 | 17,161 | 47,553 | 52,559 | |||||||||
Service and distribution costs | 1,664 | 1,783 | 5,003 | 5,301 | |||||||||
Research and development expenses | 745 | 605 | 1,940 | 1,817 | |||||||||
Restructuring charges | 252 | 219 | 1,049 | 219 | |||||||||
Operating Income (Loss) | 194 | 2,465 | (442 | ) | 6,681 | ||||||||
Interest income | 3 | 48 | 31 | 140 | |||||||||
Interest expense | (318 | ) | (315 | ) | (936 | ) | (824 | ) | |||||
Other income | 723 | 24 | 539 | 72 | |||||||||
Interest and Other Income (Expense) | 408 | (243 | ) | (366 | ) | (612 | ) | ||||||
Income (Loss) Before Income Taxes | 602 | 2,222 | (808 | ) | 6,069 | ||||||||
Income tax (benefit) provision | (324 | ) | 462 | (1,420 | ) | 1,834 | |||||||
Net Income | $ 926 | $ 1,760 | $ 612 | $ 4,235 | |||||||||
Net Income Per Share: | |||||||||||||
Basic | $0.06 | $0.12 | $0.04 | $ 0.28 | |||||||||
Diluted | $0.06 | $0.11 | $0.04 | $ 0.27 | |||||||||
Weighted Average Shares Outstanding: | |||||||||||||
Denominator for Basic Net Income Per Share | 14,578 | 14,999 | 14,823 | 15,023 | |||||||||
Effect of dilutive securities | 68 | 336 | 2 | 388 | |||||||||
Denominator for Diluted Net Income Per Share | 14,646 | 15,335 | 14,825 | 15,411 | |||||||||
Total Comprehensive Income | $ 874 | $ 1,069 | $ 1,353 | $ 3,574 | |||||||||
See notes to condensed consolidated financial statements. | |||||||||||||
A. T. CROSS COMPANY AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||
(UNAUDITED) | ||||||||
NINE MONTHS ENDED | ||||||||
(THOUSANDS OF DOLLARS) | OCTOBER 3, 2009 | SEPTEMBER 27, 2008 | ||||||
CASH (USED IN) PROVIDED BY: | ||||||||
Operating Activities: | ||||||||
Net Income | $ 612 | $ 4,235 | ||||||
Adjustments to reconcile net income to net cash provided by | ||||||||
operating activities: | ||||||||
Depreciation and amortization | 4,596 | 4,345 | ||||||
Restructuring charges | 1,049 | 219 | ||||||
Restructuring charges paid | (1,490 | ) | (2 | ) | ||||
Amortization of deferred gain | (391 | ) | (391 | ) | ||||
Provision for bad debts | 384 | 130 | ||||||
Deferred income taxes | (19 | ) | 264 | |||||
Provision for accrued warranty costs | 388 | 757 | ||||||
Warranty costs paid | (452 | ) | (701 | ) | ||||
Stock-based compensation and directors' fees | 716 | 1,071 | ||||||
Unrealized gains on short-term investments | (348 | ) | - | |||||
Unrealized losses on foreign exchange contracts | 36 | - | ||||||
Unrealized foreign currency transaction (gains) losses | (72 | ) | 9 | |||||
Changes in operating assets and liabilities: | ||||||||
Accounts receivable | 4,466 | 3,095 | ||||||
Inventories | (3,304 | ) | 1,366 | |||||
Other assets | 2,154 | (1,198 | ) | |||||
Accounts payable and other liabilities | (5,630 | ) | (8,555 | ) | ||||
Net Cash Provided by Operating Activities | 2,695 | 4,644 | ||||||
Investing Activities: | ||||||||
Payments related to the acquisition of Native, net of cash acquired | (343 | ) | (18,045 | ) | ||||
Additions to property, plant and equipment | (3,447 | ) | (3,101 | ) | ||||
Purchases of short-term investments | (27,424 | ) | - | |||||
Sales of short-term investments | 22,956 | - | ||||||
Additions to trademarks and patents | (153 | ) | (190 | ) | ||||
Net Cash Used in Investing Activities | (8,411 | ) | (21,336 | ) | ||||
Financing Activities: | ||||||||
Proceeds from bank borrowings | - | 19,546 | ||||||
Repayment of bank borrowings | (2,000 | ) | (1,735 | ) | ||||
Purchase of treasury stock | (667 | ) | (535 | ) | ||||
Proceeds from sale of Class A common stock | 16 | 22 | ||||||
Net Cash (Used in) Provided by Financing Activities | (2,651 | ) | 17,298 | |||||
Effect of exchange rate changes on cash and cash equivalents | 110 | (215 | ) | |||||
(Decrease) Increase in Cash and Cash Equivalents | (8,257 | ) | 391 | |||||
Cash and cash equivalents at beginning of period | 18,629 | 13,572 | ||||||
Cash and Cash Equivalents at End of Period | $ 10,372 | $ 13,963 | ||||||
Income taxes (refunded) paid, net | (2,195 | ) | 1,972 | |||||
Interest paid | 966 | 617 | ||||||
See notes to condensed consolidated financial statements. | ||||||||
A. T. CROSS COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
October 3, 2009
(UNAUDITED)
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 ("US GAAP") 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 US GAAP for financial statements. The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of October 3, 2009, and the results of operations for the three-month and nine-month periods ended October 3, 2009 and September 27, 2008. The results of operations for the nine-month period ended October 3, 2009 are not necessarily indicative of the results to be expected for the full year. The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure. Subsequent events have been evaluated to the date of issuance of these financial statements. These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended January 3, 2009, which includes consolidated financial statements and notes thereto for the years ended January 3, 2009, December 29, 2007 and December 30, 2006. The Company operates on a 52/53 week fiscal year, ending on the last Saturday closest to December 31, and consists of 13 week fiscal quarters. Fiscal 2008 was a 53 week year; the fourth quarter of 2008 was a 14 week quarter.
NOTE B - Accounting Standards Updates
In June 2009, the Financial Accounting Standards Board ("FASB") issued its final Statement of Financial Accounting Standards ("SFAS") No. 168 -The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles - a replacement of FASB Statement No. 162. SFAS No. 168 made the FASB Accounting Standards Codification ("the Codification") the single source of US GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the Securities and Exchange Commission ("SEC") under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing US GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidanc e. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 5, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates. The FASB will not consider Accounting Standards Updates as authoritative in their own right; these updates will serve only to update the Codification, provide background information about the guidance, and provide the basis for conclusions on the change(s) in the Codification. In the description of Accounting Standards Updates that follows, references in "italics" relate to Codification Topics and Subtopics, and their descriptive titles, as appropriate.
Accounting Standards Updates Not Yet Effective
In December 2008, an update was made to "Compensation - Retirement Benefits." This update requires employers to disclose information about fair value measurements of plan assets, including the investment policies and strategies for the major categories of plan assets, and significant concentrations of risk within plan assets. The Company will be required to apply this update as of January 2, 2010. This update provides only disclosure requirements; the adoption of this update will not have a material impact on the consolidated financial statements.
Other Accounting Standards Updates not effective until after October 3, 2009, are not expected to have a significant effect on the Company's consolidated financial position or results of operations.
NOTE C - Acquisition of Native Eyewear, Inc. ("Native")
On March 24, 2008, the Company completed the acquisition of all of the outstanding shares of Native Eyewear, Inc., a designer and marketer of a branded line of sport polarized sunglasses and goggles. The acquisition of Native is part of the Company's strategy of becoming a leading designer and marketer of branded personal and business accessories. The Company accounted for this acquisition under the purchase method of accounting, which provides that purchase prices be allocated to the net assets acquired and the liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired approximated $11.9 million, which is deductible for income tax purposes. One of the acquired intangibles, the Native trade name, is deemed to have an indefinite life and will not be amortized for book purposes. The results of operations of Native since March 24, 2008 are included in the consolidated statements of operations o f the Company.
As of April 4, 2009, the Company finalized the valuation of Native Eyewear, Inc.'s intangible assets. The Company executed an integration plan, including the consolidation of redundant activities. In the first nine months of 2009, integration costs and asset valuation adjustments of $0.8 million were recorded as an adjustment to goodwill. Through October 3, 2009, $0.8 million of integration costs have been incurred and $0.6 million paid. Native is reported in the Company's Cross Optical Group segment.
The following is the final allocation of the purchase price of Native:
(THOUSANDS OF DOLLARS) | |||
Cash Purchase Price | $ 17,861 | ||
Debt Assumed | 985 | ||
Acquisition and Integration Costs | 1,421 | ||
Cash Acquired | (266 | ) | |
Total Purchase Price | $ 20,001 | ||
Allocation: | |||
Assets Acquired | |||
Accounts receivable | $ 978 | ||
Inventories | 2,067 | ||
Property, plant and equipment | 271 | ||
Goodwill | 11,936 | ||
Intangible assets | 7,502 | ||
Other | 71 | ||
Liabilities Assumed | |||
Accounts payable and accrued expenses | (2,473 | ) | |
Accrued payroll and related benefits | (351 | ) | |
Net Assets Acquired | $ 20,001 | ||
NOTE D - Inventory
The components of inventory are as follows:
(THOUSANDS OF DOLLARS) | OCTOBER 3, 2009 | JANUARY 3, 2009 | |||
Finished goods | $19,644 | $15,108 | |||
Work in process | 2,013 | 2,539 | |||
Raw materials | 8,575 | 8,778 | |||
$30,232 | $26,425 | ||||
NOTE E - Income Taxes
In the first nine months of 2009, the effective tax rate was 175.9%, which included approximately $0.8 million of income tax benefit related to the net adjustment to the accrual of tax, interest and penalties as a result of the conclusion of the Internal Revenue Service (IRS) audit of our 2005 Federal income tax return. It also included approximately $0.2 million of income tax benefit resulting from the net adjustment to the accrual of tax, interest and penalties related to uncertain tax positions as well as approximately $0.1 million of income tax benefit to record the differences between the prior years' provision the actual tax returns filed. In the first nine months of 2008, the effective tax rate was 30.2%, which included approximately $0.2 million of income tax benefit resulting from the net adjustment to the accrual of tax, interest and penalties related to uncertain tax positions.
NOTE F - Restructuring Charges
In 2008, the Company restructured Cross Accessory Division ("CAD") Lincoln based manufacturing operations in order to increase its competitiveness in the global marketplace by further leveraging the investment in China manufacturing operations. The Company also closed several underperforming retail stores and reduced headcount at its Lincoln facility. These restructuring programs, which were substantially complete by end of the first quarter of 2009, moved Lincoln manufacturing operations to the Company's China facility and reduced the total retail store count by four. Approximately 50 manufacturing positions and 27 sales and administrative positions in the United States, and four sales and administrative positions in the United Kingdom were affected by these programs. In the third quarter of 2009, the Company expanded its restructuring efforts to further reduce headcount at its Lincoln and European facilities. Approximately $0.3 million of restructuring charges were recognized in the third quar ter of 2009. The Company incurred pre-tax restructuring charges of approximately $3.6 million since the inception of these programs. Of this $3.6 million, approximately $1.8 million was for severance and related expenses and approximately $1.8 million was for transition and other costs. The Company expects to incur $4.5 million in restructuring charges over the life of these programs.
Restructuring liabilities are included in accounts payable, accrued expenses and other liabilities. Following is a tabular presentation of the restructuring liabilities related to these plans:
(THOUSANDS OF DOLLARS) | SEVERANCE & | PROFESSIONAL | TOTAL | ||||
Balances at July 4, 2009 | $463 | $ 17 | $ 480 | ||||
Restructuring charges incurred | 252 | - | 252 | ||||
Cash payments | (324 | ) | (16 | ) | (340 | ) | |
Foreign exchange effects | 5 | (1 | ) | 4 | |||
Balances at October 3, 2009 | $396 | $ - | $ 396 | ||||
NOTE G - Segment Information
The Company has two reportable business segments: Cross Accessory Division ("CAD") and Cross Optical Group ("COG"). The Company evaluates segment performance based upon operating profit or loss. Following is the segment information for the Company:
(THOUSANDS OF DOLLARS) | THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||
OCTOBER 3, | SEPTEMBER 27, | OCTOBER 3, | SEPTEMBER 27, | ||||||
2009 | 2008 | 2009 | 2008 | ||||||
Revenues from External Customers: | |||||||||
CAD | $ 21,246 | $ 26,633 | $ 60,773 | $ 79,057 | |||||
COG | 12,883 | 12,341 | 41,502 | 39,382 | |||||
Total | $ 34,129 | $ 38,974 | $102,275 | $118,439 | |||||
Depreciation and Amortization: | |||||||||
CAD | $ 1,192 | $ 1,260 | $ 3,471 | $ 3,523 | |||||
COG | 377 | 342 | 1,125 | 822 | |||||
Total | $ 1,569 | $ 1,602 | $ 4,596 | $ 4,345 | |||||
Restructuring Charges: | |||||||||
CAD | $ 252 | $ 219 | $ 1,049 | $ 219 | |||||
COG | - | - | - | - | |||||
Total | $ 252 | $ 219 | $ 1,049 | $ 219 | |||||
Segment Operating (Loss) Income: | |||||||||
CAD | $ (1,418 | ) | $ 621 | $ (6,350 | ) | $ (685 | ) | ||
COG | 1,612 | 1,844 | 5,908 | 7,366 | |||||
Total | $ 194 | $ 2,465 | $ (442 | ) | $ 6,681 | ||||
Total Interest and Other (Expense) Income: | $ 408 | $ (243 | ) | $ (366 | ) | $ (612 | ) | ||
Total Income (Loss) Before Income Taxes: | $ 602 | $ 2,222 | $ (808 | ) | $ 6,069 | ||||
Expenditures on Long-Lived Assets: | |||||||||
CAD | $ 606 | $ 1,088 | $ 2,668 | $ 2,605 | |||||
COG | 350 | 132 | 932 | 686 | |||||
Total | $ 956 | $ 1,220 | $ 3,600 | $ 3,291 | |||||
OCTOBER 3, 2009 | JANUARY 3, 2009 | ||||
Segment Assets: | |||||
CAD | $ 89,880 | $ 99,836 | |||
COG | 47,336 | 44,123 | |||
Total | $137,216 | $143,959 | |||
Goodwill: | |||||
CAD | $ - | $ - | |||
COG | 15,279 | 14,526 | |||
Total | $ 15,279 | $ 14,526 | |||
NOTE H - Warranty Costs
The Cross Accessory Division's Cross-branded writing instruments are sold with a full warranty of unlimited duration against mechanical failure. CAD's accessories are sold with a one-year warranty against mechanical failure and defects in workmanship and timepieces are warranted for a period of two years. Costa Del Mar and Native sunglasses are sold with a lifetime warranty against defects in materials and workmanship. Estimated warranty costs are accrued at the time of sale. The most significant factors in the estimation of accrued warranty costs include the operating efficiency and related cost of the service department, unit sales and the number of units that are eventually returned for warranty repair. The current portions of accrued warranty costs were $0.5 million at October 3, 2009 and January 3, 2009, and were recorded in accrued expenses and other liabilities. The following chart reflects the activity in aggregate accrued warranty costs:
(THOUSANDS OF DOLLARS) | THREE MONTHS ENDED | NINE MONTHS ENDED | |||||||
OCTOBER 3, | SEPTEMBER 27, | OCTOBER 3, | SEPTEMBER 27, | ||||||
2009 | 2008 | 2009 | 2008 | ||||||
Accrued Warranty Costs - beginning of period | $ 1,794 | $ 1,758 | $ 1,823 | $ 1,730 | |||||
Warranty liabilities assumed | - | - | - | 26 | |||||
Warranty costs paid | (171 | ) | (372 | ) | (452 | ) | (701 | ) | |
Warranty costs accrued | 136 | 426 | 388 | 757 | |||||
Accrued Warranty Costs - end of period | $ 1,759 | $ 1,812 | $ 1,759 | $ 1,812 | |||||
NOTE I - Line of Credit
In the first quarter of 2008, and again in the first quarter of 2009, the Company amended its secured revolving line of credit with Bank of America, N.A. Under the amended line of credit agreement, the bank agreed to make loans to the Company in an aggregate amount not to exceed $35.0 million, including up to $5.0 million equivalent in Eurocurrency loans denominated in pounds sterling or Euro ("Eurocurrency Loans") and up to $30.0 million of other committed loans to the Company ("Committed Loans") at any time. As part of the aggregate availability, the bank may also issue up to $5.0 million in letters of credit. Subject to the limits on availability and the other terms and conditions of this credit agreement, amounts may be borrowed, repaid and reborrowed without penalty. This amended credit facility matures and amounts outstanding must be paid on March 31, 2011.
The interest rate for the Committed Loans will be, at the Company's option, either (i) the London Interbank Offered Rate ("LIBOR") plus an applicable margin or (ii) the higher of the federal funds rate plus 50 basis points or the bank's prime rate plus an applicable margin. The interest rate for any Eurocurrency Loans will be an interest settlement rate for deposits in pounds sterling or Euro plus an applicable margin. The applicable margin for LIBOR and Eurocurrency loans will be an amount between 2.25% and 3.00%, and the applicable margin for federal funds or the bank's prime rate will be an amount between 1.00% and 1.25%, which will vary from time to time based upon the Company's consolidated leverage ratio.
Under the line of credit agreement, the Company has agreed to comply with certain affirmative and negative covenants. The most restrictive covenant restricts the Company from declaring cash dividends on its common stock. The agreement requires the Company to maintain a minimum consolidated tangible net worth, computed at each year end, a maximum level of capital expenditures and a minimum ratio of adjusted EBITDA to required debt service payments over any four-quarter period, each of which is calculated in accordance with the agreement. Amounts due under the credit agreement are guaranteed by certain domestic and foreign subsidiaries of the Company. Amounts due are also secured by a pledge of the assets of the Company and those of certain of its domestic subsidiaries.
At October 3, 2009, the outstanding balance of the Company's amended line of credit was $19.7 million, bearing an interest rate of approximately 3.26%, and the unused and available portion, according to the terms of the amended agreement, was $15.3 million. At January 3, 2009, the outstanding balance of the Company's line of credit was $21.7 million, bearing an interest rate of approximately 3.18%, and the unused and available portion, according to the terms of the agreement, was $13.3 million.
NOTE J - Employee Benefit Plans
The following table illustrates the components of net periodic benefit cost:
(THOUSANDS OF DOLLARS) | THREE MONTHS ENDED | NINE MONTHS ENDED | ||||||
OCTOBER 3, | SEPTEMBER 27, | OCTOBER 3, | SEPTEMBER 27, | |||||
2009 | 2008 | 2009 | 2008 | |||||
Service cost | $ 25 | $ 17 | $ 75 | $ 50 | ||||
Interest cost | 578 | 572 | 1,735 | 1,717 | ||||
Expected return on plan assets | (535 | ) | (626 | ) | (1,607 | ) | (1,879 | ) |
Amortization of unrecognized loss | 93 | - | 279 | - | ||||
Amortization of prior service cost | 2 | 3 | 8 | 8 | ||||
Net Periodic Benefit Cost | $ 163 | $ (34 | ) | $ 490 | $ (104 | ) | ||
The Company expects to contribute $1.0 million to its defined benefit pension plans, $1.0 million to its defined contribution retirement plans and $0.1 million to its excess benefit plan in 2009. Additionally, the Company expects to meet or exceed its minimum funding requirements for its defined benefit plans in future years. The Company anticipates these future funding requirements to be between $1.0 million and $2.0 million per year.
NOTE K - Goodwill and Other Intangible Assets
Goodwill and certain intangible assets with indefinite-lives are not amortized but are subject to an annual impairment test, or more frequently, if events or circumstances occur that would indicate a potential decline in their fair value. The Company has identified two reporting units, consisting of the CAD and COG segments. The Company performs the assessment annually during the fourth quarter or on an interim basis if potential impairment indicators arise, and determines the fair value of the reporting units using established income and market valuation approaches.
At October 3, 2009 and January 3, 2009, the carrying value of goodwill was approximately $15.3 million and $14.5 million, respectively. The entire $0.8 million increase in goodwill was due to integration costs related to the acquisition of Native Eyewear. The $15.3 million goodwill balance at October 3, 2009, $11.9 million of which is expected to be tax deductible, related entirely to the COG segment. Other intangibles consisted of the following:
(THOUSANDS OF DOLLARS) | OCTOBER 3, 2009 | JANUARY 3, 2009 | |||||||||||||
GROSS | ACCUMULATED | OTHER | GROSS | ACCUMULATED | OTHER | ||||||||||
Amortized: | |||||||||||||||
Trademarks | $ 8,998 | $ 8,523 | $ 475 | $ 8,868 | $ 8,321 | $ 547 | |||||||||
Patents | 3,143 | 3,010 | 133 | 3,120 | 2,920 | 200 | |||||||||
Customer relationships | 3,170 | 679 | 2,491 | 3,170 | 340 | 2,830 | |||||||||
Non-compete agreements | 800 | 300 | 500 | 800 | 150 | 650 | |||||||||
$16,111 | $12,512 | 3,599 | $15,958 | $11,731 | 4,227 | ||||||||||
Not Amortized: | |||||||||||||||
Trade names | 6,900 | 6,900 | |||||||||||||
Intangibles, Net | $10,499 | $11,127 | |||||||||||||
Amortization expense for the nine month period ended October 3, 2009 was approximately $0.8 million. The estimated future amortization expense for other intangibles remaining as of October 3, 2009 is as follows:
(THOUSANDS OF DOLLARS) | 2009 | 2010 | 2011 | 2012 | 2013 | Thereafter | ||||||
$238 | $898 | $805 | $598 | $494 | $566 | |||||||
NOTE L - Financial Instruments
The Company is exposed to market risks arising from adverse changes in foreign exchange and interest rates. In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivatives. Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings. Cash flows from derivatives used to manage foreign exchange or interest risks are classified as selling, general and administrative expenses.
For cash flow hedges, changes in fair value are deferred in accumulated other comprehensive loss within shareholders' equity until the underlying hedged item is recognized in net income. For fair value hedges, changes in fair value are recognized immediately in earnings, consistent with the underlying hedged item. Hedging transactions are limited to an underlying exposure. As a result, any change in the value of the derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items. Hedging ineffectiveness and a net earnings impact occur when the change in the value of the hedge does not offset the change in the value of the underlying hedged item. Ineffectiveness of the Company's hedges is not material. If the derivative instrument is terminated, the Company continues to defer the related gain or loss and include it as a component of the cost of the underlying hedged item. Upon determination that the underlying hedged item will not be part of an actual transaction, the Company recognizes the related gain or loss in the statement of operations immediately.
The Company also uses derivatives that do not qualify for hedge accounting treatment. The Company accounts for such derivatives at market value with the resulting gains and losses reflected in the statements of income.
The Company enters into arrangements with individual counterparties that it believes are creditworthy and generally settles such arrangements on a net basis. In addition, the Company performs a quarterly assessment of counterparty credit risk, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty. Based on the most recent quarterly assessment of counterparty credit risk, the Company considers this risk to be low.
Foreign Exchange
The Company enters into derivatives, primarily forward foreign exchange contracts with terms of no more than one year, to manage risk associated with exposure to certain foreign currency denominated balance sheet positions, primarily intercompany accounts receivable. Gains or losses resulting from the translation of certain foreign currency balance sheet positions are recognized in the statement of income as incurred. Foreign currency derivatives had a total notional value of $25.2 million as of October 3, 2009 and $23.1 million as of January 3, 2009. Gains and losses on the derivatives were generally offset by changes in U.S. dollar value of the underlying hedged items.
Interest Rates
In March 2008, the Company entered into three interest rate swap agreements with a total initial notional amount of $15.0 million and a term of three years. These swaps effectively fix the interest rate on a portion of the Company's three-year line of credit at approximately 3.64%. Amounts paid or received under these swap agreements are recorded as adjustments to interest expense. The Company measures hedge ineffectiveness using the "hypothetical" derivative method. These swaps have been designated cash flow hedges and the effect of the mark-to-market valuations are recorded as an adjustment, net of tax, to accumulated other comprehensive loss. From inception to October 3, 2009, the effect of the mark-to-market valuations, net of tax, was an unrealized loss of approximately $0.4 million and is included as a component of accumulated other comprehensive loss. At October 3, 2009, the combined notional value of these three interest rate swaps was $15.0 million.
Fair Value Measurements
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities. Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment. The three levels are defined as follows:
Level 1 | Unadjusted quoted prices in active markets for identical assets and liabilities. |
Level 2 | Observable inputs other than those included in Level 1. For example, quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets. |
Level 3 | Unobservable inputs reflecting management's own assumptions about the inputs used in pricing the asset or liability. |
The fair values of our financial assets and liabilities are categorized as follows:
(THOUSANDS OF DOLLARS) | OCTOBER 3, 2009 | ||||||||
Assets: | LEVEL 1 | LEVEL 2 | LEVEL 3 | TOTAL | |||||
Money market funds (A) | $ 3,226 | $ - | $ - | $ 3,226 | |||||
Short-term investments (B) | 6,009 | - | - | 6,009 | |||||
Total Assets at Fair Value | $ 9,235 | $ - | $ - | $9,235 | |||||
Liabilities | ||||||||||
Derivatives designated as hedging instruments under SFAS 133: | ||||||||||
Interest rate swaps (D) | $ - | $ 628 | $ - | $ 628 | ||||||
Derivatives not designated as hedging instruments under SFAS 133: | ||||||||||
Foreign exchange contracts (C) | - | 37 | - | 37 | ||||||
Total Liabilities at Fair Value | $ - | $ 665 | $ - | $ 665 | ||||||
(A) | Value based on quoted market prices of identical instruments, fair value included in cash and cash equivalents | |||||||||
Accounts receivable are recorded at net realizable value, which approximates fair value. Accounts payable, included in accounts payable, accrued expenses and other current liabilities, is recorded at historical cost, which approximates fair value due to the short-term nature of the liabilities. Long-term debt is recorded at historical cost, which approximates fair value due to the variable interest rate.
The effective portion of the pre-tax losses (gains) on our derivative instruments for the three months ended October 3, 2009 are categorized in the following table:
(THOUSANDS OF DOLLARS) | LOSSES RECOGNIZED | GAINS RECOGNIZED IN | |||
Fair Value / Non-designated Hedges: | |||||
Foreign exchange contracts (A) | $ 36 | ||||
Cash Flow Hedges: | |||||
Interest rate swaps | $ - | $ 11 | |||
(A) | Included in selling, general and administrative expenses | ||||
NOTE M - Commitments and Contingencies
The Company is named as one of approximately ninety defendants in a contribution suit brought by CCL/Unilever relating to the J.M. Mills Landfill Site (the "Site"), which is part of the Peterson/Puritan Superfund Site in Cumberland, Rhode Island. These complaints allege that the Company is liable under CERCLA for contribution for Site investigation costs. Site investigation costs (excluding the required remedy) are currently estimated at $7 million. Formal discovery is ongoing. Currently it is not possible to estimate the Company's liability in this case, if any; however, at this stage in the litigation, based on discovery to date and its internal investigation, the Company believes that its exposure in this case would not be material.
The Company is involved in various other litigation and legal matters that have arisen in the ordinary course of business. To its knowledge, management believes that the ultimate resolution of any of those existing matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Overview
A.T. Cross Company is a leading designer and marketer of branded personal accessories including writing instruments, watches, reading glasses, personal and business accessories and sunglasses. The Company has been operating in a difficult economic environment in mature as well as competitive categories. The Company has challenged itself to build upon its unique attributes in order to develop a vibrant, diversified and forward-looking company poised for sustainable growth and long-term profit.
Cross Accessory Division ("CAD")
The Company has been a manufacturer and marketer of fine quality writing instruments since 1846. Sold primarily under the Cross brand, ball-point, fountain and selectip rolling ball pens and mechanical pencils are offered in a variety of styles and finishes.Also under the Cross brand, CAD offers a variety of personal and business accessories including leather goods, reading glasses, watches, desk sets, business totes, cufflinks, and stationery. CAD offers a lower-priced line of writing instruments and after-market refills under the brand name Penatia.
Cross Optical Group ("COG")
The Company established an optical segment with the 2003 acquisition of Costa Del Mar Sunglasses, Inc., a designer, manufacturer and marketer of high-quality polarized sunglasses. This segment typically records its highest sales and operating income in the second quarter of the fiscal year. On March 24, 2008, the Company acquired Native Eyewear, Inc.
Results of Operations Third Quarter 2009 Compared to Third Quarter 2008
In the third quarter of 2009, the Company reported net income of $0.9 million, or $0.06 per basic and diluted share, compared to net income of $1.8 million, or $0.12 per basic share and $0.11 per diluted share in the third quarter of 2008.
The following chart details net sales performance:
(THOUSANDS OF DOLLARS) | THREE MONTHS ENDED | PERCENTAGE | |||||
OCTOBER 3, 2009 | SEPTEMBER 27, 2008 | CHANGE | |||||
CAD | $21,246 | $ 26,633 | (20.2)% | ||||
COG | 12,883 | 12,341 | 4.4% | ||||
Consolidated Net Sales | $34,129 | $ 38,974 | (12.4)% | ||||
Consolidated net sales were $34.1 million in the third quarter of 2009 compared to $39.0 million in the third quarter of 2008. The effect of foreign exchange was unfavorable to consolidated third quarter 2009 sales results by approximately $0.4 million, or approximately 1 percentage point.
Weakness in worldwide economic conditions continued to have an adverse effect on CAD sales in the third quarter of 2009 compared to the third quarter of 2008. Retailers have been strictly monitoring their inventory levels and business gift sales are down. As a result, all major CAD divisions reported revenue declines in the third quarter of 2009 compared to 2008. In addition, the effect of foreign exchange was unfavorable to CAD third quarter 2009 sales results by approximately $0.4 million, or 1.4 percentage points. The Costa Del Mar brand grew while sales of Native product were down in the third quarter compared to the prior year.
The following chart details gross profit margins:
THREE MONTHS ENDED | PERCENTAGE POINT CHANGE | |||||
OCTOBER 3, 2009 | SEPTEMBER 27, 2008 | |||||
CAD | 50.6% | 56.0% | (5.4) | |||
COG | 55.9% | 59.3% | (3.4) | |||
Consolidated Gross Profit Margin | 52.6% | 57.0% | (4.4) | |||
The decline in CAD gross profit margin was due to the unfavorable effect of foreign exchange on revenue and shifts in product mix in the third quarter of 2009 compared to the third quarter of 2008. COG margins in the third quarter of 2009 were adversely affected by the US Dollar to Japanese Yen exchange rate changes compared to the prior year and changes in product mix.
Operating expenses for the third quarter of 2009 were $17.8 million, or 52.0% of sales, as compared to $19.8 million, or 50.7% of sales, a year ago, a decrease of 10.2%. The CAD segment reduced operating expenses by 14.9% in the third quarter of 2009 compared to 2008. Included in the CAD segment operating expenses are $0.3 million of restructuring charges. Excluding the effect of restructuring, consolidated operating expenses for the 2009 third quarter were 51.3% of sales, a decrease of approximately 10.5%, and CAD operating expenses for the 2009 third quarter were 15.4% lower than the third quarter of 2008. The COG segment operating expenses were 2.1% higher than last year.
In the third quarter of 2009, the effective tax rate was 53.8% as compared to 20.8% in the third quarter of 2008. Included in the third quarter of 2009 was approximately $0.2 million of income tax benefit related to the net adjustment to the accrual of tax, interest and penalties related to uncertain tax positions and $0.1 million of income tax benefit to record differences between the prior years' provision versus the actual returns. The effective tax rates excluding these adjustments were 25.2% for the third quarter of 2009 and 33.5% for the third quarter of 2008. The decrease is the result of a shift in the percentage of forecasted profitability to tax jurisdictions with lower tax rates.
Results of Operations Nine Months Ended October 3, 2009 Compared to Nine Months Ended September 27, 2008
In the nine months ended October 3, 2009, the Company reported net income of $0.6 million, or $0.04 per basic and diluted share, compared to net income of $4.2 million, or $0.28 per basic share and $0.27 per diluted share, in the nine months ended September 27, 2008.
The following chart details net sales performance:
(THOUSANDS OF DOLLARS) | NINE MONTHS ENDED | PERCENTAGE | |||||
OCTOBER 3, 2009 | SEPTEMBER 27, 2008 | CHANGE | |||||
CAD | $ 60,773 | $ 79,057 | (23.1)% | ||||
COG | 41,502 | 39,382 | 5.4% | ||||
Consolidated Net Sales | $102,275 | $118,439 | (13.6)% | ||||
Consolidated net sales were $102.3 million in the first nine months of 2009 compared to $118.4 million in the first nine months of 2008. Sales of Native Eyewear, part of the COG acquired on March 24, 2008, were favorable to the consolidated first nine months of 2009 sales results by 1.2 percentage points. The effect of foreign exchange was unfavorable to consolidated first nine months 2009 sales results by approximately $2.2 million, or 1.8 percentage points.
The continued weakness in worldwide economic conditions had a significant adverse effect on CAD sales in the first nine months of 2009 compared to the first nine months of 2008. Retailers have been very cautious about inventory levels and business gift sales are down. As a result, all CAD divisions reported revenue declines in the first nine months of 2009 compared to 2008. In addition, the effect of foreign exchange was unfavorable to CAD first nine months 2009 sales results by approximately $2.2 million, or 2.8 percentage points.
The Costa Del Mar brand grew in the first nine months of 2009 compared to 2008 as new styles were introduced and a number of new accounts were added. In addition, the inclusion of Native Eyewear, acquired on March 24, 2008, contributed to the COG sales increase.
The following chart details gross profit margins:
NINE MONTHS ENDED | PERCENTAGE POINT CHANGE | |||||
OCTOBER 3, 2009 | SEPTEMBER 27, 2008 | |||||
CAD | 51.7% | 54.4% | (2.7) | |||
COG | 57.0% | 59.9% | (2.9) | |||
Consolidated Gross Profit Margin | 53.9% | 56.2% | (2.3) | |||
The decline in CAD gross profit margin was due to the unfavorable effect of foreign exchange, particularly the Euro and British Pound, on revenue for the first nine months of 2009 and changes in channel mix and shifts in the composition by geographic region compared to the first nine months of 2008. COG margins in the first nine months of 2009 were adversely affected by the US Dollar to Japanese Yen exchange rate changes compared to the prior year, and changes in product mix.
Operating expenses for the first nine months of 2009 were $55.5 million, or 54.3% of sales, as compared to $59.9 million, or 50.6% of sales, a year ago, a decrease of 7.3%. The COG segment operating expenses increased by 9.4%, primarily due to the acquisition of Native Eyewear. The CAD segment reduced operating expenses by 13.5%. Included in the CAD segment operating expenses are $1.0 million of restructuring charges. Excluding the effect of restructuring, consolidated operating expenses for the 2009 first nine months were 53.3% of sales, a decrease of approximately 8.7%, and CAD operating expenses for the 2009 first nine months would have been 15.5% lower than the first nine months of 2008.
In the first nine months of 2009, the effective tax rate was 175.9%, which included approximately $0.8 million of income tax benefit related to the net adjustment to the accrual of tax, interest and penalties as a result of the conclusion of the Internal Revenue Service (IRS) audit of our 2005 Federal income tax return. It also included approximately $0.2 million of income tax benefit resulting from the net adjustment to the accrual of tax, interest and penalties related to uncertain tax positions as well as approximately $0.1 million of income tax benefit to record the differences between the prior years' provision compared to the actual tax returns filed. In the first nine months of 2008, the effective tax rate was 30.2%, which included approximately $0.2 million of income tax benefit resulting from the net adjustment to the accrual of tax, interest and penalties related to uncertain tax positions. The effective tax rates, excluding the effects of the IRS audit, adjustments of accrual of tax, interest and penalties related to uncertain tax positions and the prior years' provision to actual tax return adjustment were 25.2% and 33.5% in the first nine months of 2009 and 2008, respectively. The decrease is the result of a shift in the percentage of overall profitability toward jurisdictions with lower tax rates.
Liquidity and Sources of Capital
Historically, the Company's sources of liquidity and capital resources have been its cash, cash equivalents and short-term investments ("cash"), cash generated from operations and amounts available under the Company's line of credit. These sources have been sufficient in the past to support the Company's routine operating requirements, capital projects, restructuring programs, contributions to the retirement plans, stock repurchase programs and debt service. The Company expects its future cash needs in 2009 will be met by these historical sources of liquidity and capital.
The Company's cash balance of $16.4 million at October 3, 2009 decreased $3.4 million from January 3, 2009. The most significant factors affecting the Company's cash balance are discussed in this section.
Accounts receivable decreased since the end of fiscal 2008 by approximately $4.2 million to $24.9 million. CAD accounts receivable decreased $5.1 million and COG accounts receivable increased $0.9 million. The decline in CAD accounts receivable was primarily due to the seasonally lower sales volume in the third quarter of 2009 compared to the fourth quarter of 2008. The increase in COG accounts receivable was due primarily to the seasonally higher COG sales volume in the third quarter of 2009 compared to the fourth quarter of 2008.
Inventory was $30.2 million at October 3, 2009, an increase of $3.8 million since January 3, 2009. CAD inventory increased $2.4 million and COG inventory levels increased by $1.4 million from year end 2008. The increase in CAD segment inventory was due to planned increases to support sales volume in the fourth quarter, typically its strongest. The increase in COG inventory was due to the increased number of new styles introduced this year and lower than anticipated Native sales volumes.
The Company has a $35 million secured line of credit with a bank. Under this agreement, the Company has the option to borrow at various interest rates depending upon the type of borrowings made and the Company's consolidated leverage ratio. The unused and available portion of this line of credit was $15.3 million at October 3, 2009 and $13.3 million at January 3, 2009. The Company was in compliance with its various debt covenants as of October 3, 2009. The agreement requires the Company to maintain a minimum consolidated tangible net worth, computed at each year end, a maximum level of capital expenditures and a minimum ratio of adjusted EBITDA to required debt service payments over any four-quarter period, each of which is calculated in accordance with the agreement:
Covenant | Covenant | Calculated Company | |||
Tangible Net Worth | Cannot be less than $40 million | $49 million | |||
Capital Expenditures | Cannot exceed the greater of $10 million in a year or $10 million plus prior year expenditures less the $10 million cap | $3 million | |||
Consolidated Debt Service Ratio | Cannot exceed 2.5 to 1 | 1.95:1 |
The Company expects to contribute $1.0 million to its defined benefit pension plans, $1.0 million to its defined contribution retirement plans and $0.1 million to its excess benefit plan in 2009. Additionally, the Company expects to meet or exceed its minimum funding requirements for its defined benefit plans in future years. The Company anticipates these future funding requirements to be between $1.0 million and $2.0 million per year.
As part of the acquisition of Native Eyewear, the Company assumed the liability of future payments associated with a "settlement in lieu of future royalties." The payments will be $0.2 million each January through 2012.
The Company believes that existing cash and cash provided by operations, supplemented as appropriate by the Company's borrowing arrangements, will be adequate to finance its foreseeable operating and capital requirements, the stock repurchase plan and contributions to the retirement plans. Should operating cash flows in 2009 not materialize as projected, the Company has a number of planned alternatives to ensure that it will have sufficient cash to meet its operating needs. These alternatives include implementation of strict cost controls on discretionary spending and delaying non-critical research and development, capital projects and completion of the stock repurchase plan.
At October 3, 2009, cash available for domestic operations was approximately $12.7 million, while cash held offshore was approximately $3.7 million.
Critical Accounting Policies
There have been no changes to our critical accounting policies and estimates from the information provided in Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the fiscal year ended January 3 2009:
Accounting Standards Updates
See Note B to the condensed consolidated financial statements in Part I, Item 1 for information related to accounting standards updates.
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," "will" and similar expressions are intended to identify forward-looking statements, including but not limited to statements related to the availability of sources of cash; anticipated compliance with laws and regulations (including but not limited to environmental laws); and anticipated sufficiency of available working capital. The Company cautions that a number of important factors could cause the Company's actual results for fiscal 2009 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. For a discussion of certain of other of those risks, see "Risk Factors" in Item 1A of the Company's 2008 Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Refer to the Company's Annual Report on Form 10-K for the fiscal year ended January 3, 2009 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 2008 Annual Report on Form 10-K.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of October 3, 2009 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the third quarter of 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Refer to Item 3 in the Company's Form 10-K Annual Report for the fiscal year ended January 3, 2009 for a complete discussion of the Company's legal proceedings. No material developments have occurred in the Legal Proceedings described in such Item 3.
The Company is involved in various other litigation and legal matters that have arisen in the ordinary course of business. To its knowledge, management believes that the ultimate resolution of any of those existing matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.
Item 1a. Risk Factors.
Refer to Item 1A in the Company's Form 10-K Annual Report for the fiscal year ended January 3, 2009 for a complete discussion of the risk factors which could materially affect the Company's business, financial condition or future results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits.
Exhibit 10 | Amended and Restated Credit Agreement with Bank of America |
Exhibit 31.1 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 31.2 | Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
Exhibit 32 | Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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, 2009 | By:DAVID G. WHALEN |
Date: November 10, 2009 | By:KEVIN F. MAHONEY |