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 [FEE REQUIRED] For the quarterly period ended June 30, 1995 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 [NO FEE REQUIRED] For the transition period from __________ to __________ Commission File No. 1-6720 A. T. CROSS COMPANY (Exact name of registrant as specified in its charter) Rhode Island 05-0126220 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One Albion Road, Lincoln, Rhode Island 02865 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (401) 333-1200 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No______ Indicate the number of shares outstanding of each of the issuer's classes of common stock as of June 30, 1995: Class A common stock - 14,717,036 shares Class B common stock - 1,804,800 shares PART I. FINANCIAL INFORMATION A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS June 30 December 31 1995 1994 1994 ASSETS (Thousands of Dollars) CURRENT ASSETS Cash and Cash Equivalents $ 28,369 $ 32,308 $ 15,690 Short-Term Investments 33,256 45,708 56,331 Accounts Receivable 26,684 22,587 37,436 Inventories-Note B 25,117 19,353 16,725 Other Current Assets 6,191 4,529 4,545 TOTAL CURRENT ASSETS 119,617 124,485 130,727 PROPERTY, PLANT AND EQUIPMENT 89,279 80,329 84,979 Less Allowances for Depreciation 54,787 48,649 51,029 34,492 31,680 33,950 INTANGIBLES AND OTHER ASSETS 15,663 16,751 15,692 $169,772 $172,916 $180,369 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts Payable, Accrued Expenses and Other Liabilities $ 19,089 $ 18,103 $ 26,599 Compensation and Related Taxes 5,750 6,436 5,158 Cash Dividends Payable 0 0 2,644 Contributions Payable to Employee Benefit Plans 8,007 8,976 8,055 Income Taxes Payable 1,824 190 4,302 TOTAL CURRENT LIABILITIES 34,670 33,705 46,758 ACCRUED WARRANTY COSTS 5,059 4,759 4,909 SHAREHOLDERS' EQUITY Common Stock, Par Value $1 Per Share: Class A, Authorized 40,000,000 Shares; Issued 15,202,636 Shares and Outstanding 14,717,036 Shares in June 1995, Issued 15,182,801 Shares and Outstanding 15,151,001 Shares in June 1994 and Issued 15,194,293 Shares and Outstanding 14,719,293 Shares in December 1994 15,203 15,183 15,194 Class B, Authorized 4,000,000 Shares; Issued and Outstanding 1,804,800 Shares 1,805 1,805 1,805 Additional Paid-In Capital 10,827 10,176 10,722 Retained Earnings 108,514 107,495 107,959 Accumulated Foreign Currency Translation Adjustment 1,157 303 328 137,506 134,962 136,008 Treasury Stock, at Cost (7,463) (510) (7,306) TOTAL SHAREHOLDERS' EQUITY 130,043 134,452 128,702 $169,772 $172,916 $180,369 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1995 1994 1995 1994 (Thousands of Dollars Except per Share Data) Net Sales $44,883 $40,620 $80,290 $75,813 Cost of Goods Sold 23,215 21,897 41,025 40,404 Gross Profit 21,668 18,723 39,265 35,409 Selling, General and Administrative Expenses 17,983 16,485 32,436 29,781 Service and Distribution Costs 1,093 1,075 2,114 2,180 Research and Development Expenses 639 626 1,267 1,094 Operating Income 1,953 537 3,448 2,354 Interest and Other Income 682 760 1,673 1,347 Income Before Income Taxes 2,635 1,297 5,121 3,701 Income Taxes 988 608 1,920 1,651 Net Income $ 1,647 $ 689 $ 3,201 $ 2,050 Net Income Per Share - Note C $0.10 $0.04 $0.19 $0.12 Dividends Declared Per Share $0.16 $ 0.16 $0.16 $ 0.16 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30 1995 1994 (Thousands of Dollars) Cash Provided By(Used In): Operating Activities $(1,291) $ 15,620 Investing Activities: Additions to Property, Plant and Equipment (4,118) (2,849) Additional Acquisition Payment 0 (275) Purchase of Short-Term Investments (34,812) (43,779) Sale or Maturity of Short-Term Investments 57,887 16,383 Net Cash Provided By(Used In)Investing Activities 18,957 (30,520) Financing Activities: Cash Dividends Paid (5,289) (5,426) Purchase of Treasury Stock (157) (510) Other 114 104 Net Cash Used in Financing Activities (5,332) (5,832) Effect of Exchange Rate Changes on Cash and Cash Equivalents 345 218 Increase(Decrease)in Cash and Cash Equivalents 12,679 (20,514) Cash and Cash Equivalents at Beginning of Period 15,690 52,822 Cash and Cash Equivalents at End of Period $28,369 $ 32,308 See notes to condensed consolidated financial statements. A. T. CROSS COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 1995 NOTE A - Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month periods ended June 30, 1995 are not necessarily indicative of the results that may be expected for the year ending December 31, 1995. The Company typically records its highest sales and earnings in the fourth quarter. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1994. NOTE B - Inventories The components of inventory at June 30, 1995 and December 31, 1994 were as follows: June 30 December 31 1995 1994 Finished goods $ 13,762 $ 9,612 Work in process 5,790 2,832 Raw Materials 5,565 4,281 $25,117 $16,725 NOTE C - Net Income Per Share Net income per share has been determined based upon the weighted average number of Class A and Class B common shares outstanding of 16,531,149 and 16,529,497 for the second quarter and six months ended June 30, 1995, respectively and 16,977,000 and 16,979,857 for the second quarter and six months ended June 30, 1994, respectively. Common stock equivalents related to outstanding stock options have not been included in the calculations of earnings per share because the result is not dilutive. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations Second Quarter 1995 Compared to Second Quarter 1994 Net sales for the second quarter ended June 30, 1995 increased by $4.3 million or 10.5% from the second quarter of 1994. Domestic sales were 5.1% higher than last year while foreign sales were 19.7% improved over the same period in 1994. The higher domestic sales this quarter are due in part to the continued success of the wider-girth Townsend product line. A new Townsend case quality with a lapis lazuli finish was introduced this quarter. The elegant and distinctive look of this new product added excitement and interest to the entire line.. In late May, the Company began the worldwide introduction of its two new resin-based Solo products -- a lower-priced line with black appointments and a Classic line with gold electroplated appointments. Their debut had a positive effect on sales in the last few weeks of the quarter, although the introduction was later than planned and was not a major factor in the spring gift-giving occasions, such as Father's Day, Mother's Day and Graduation. The Solo and Solo Classic lines will be widely distributed prior to the important fall selling season. The increase in foreign sales was also the result of the continued demand for the exclusive Townsend product line and the introduction of Solo. The weaker U.S. dollar in the second quarter of 1995 as compared to the second quarter of 1994 also contributed to the foreign sales increase. A price increase on July 1, of last year positively affected both domestic and foreign sales this quarter in comparison to last year. Gross profit margins for the second quarter of 1995 were 48.3%, compared to 46.1% for the second quarter of 1994. The gross margin improvement was due largely to favorable changes in product mix compared to the same period in 1994 and the effect of the previously noted price increase. Selling, general and administrative expenses increased 9.1% to $18.0 million in the second quarter as a result of planned increases in Marketing Support expenditures and the effect of the weaker U. S. dollar on the Company's foreign operations. Interest and other income was 10.3% lower than 1994 due largely to lower non-recurring other income this period. Interest income alone was 22.7% improved as a result higher average yields, offset by lower average investments. The effective tax rate on income for the second quarter of 1995 was 37.5% as compared to 46.9% for the second quarter of 1994. The Company implemented a reorganization of certain of its European Operations at the end of 1994 to lower its overall effective corporate income tax rate. Results of Operations Six Months Ended June 30, 1995 Compared to June 30, 1994 Net sales for the six months ended June 30, 1995 were $80.3 million, or 5.9% higher than the same period in 1994. Domestic sales of $45.5 million were 2.4% higher, and foreign sales were up 10.8% over the same period in 1994. The factors affecting sales results for the second quarter had a similar affect on year to date sales. Both domestic and foreign sales were higher due to the continued strength of Townsend, aided by the introduction of the lapis lazuli finish, and by the introduction of Solo. Foreign results were also favorably affected by a weaker U. S. dollar in the first six months of 1995 compared to the same period last year. Gross profit margins for the six months of 1995 were 48.9%, as compared to 46.7% for the same period in 1994. As was the case in the second quarter, the gross margin improvement was largely due to favorable changes in product mix this year as compared to the same period in 1994 and the affect of the July 1, 1994 price increase. Selling, general and administrative expenses for the six months ended June 30 were 8.9% higher than the same period for 1994. The increase was due primarily to planned higher Marketing Support expenditures combined with the effect of a weaker U.S. dollar on foreign locations. Research and Development expenses were up over last year by 15.8% as a result of the timing of new projects in 1995 compared to 1994. Interest and other income increased by 24.2% for the first six months of 1995 primarily due to higher interest income as average rates are slightly higher than last year. The effective tax rate on income for the six months ended June 30, 1995 was 37.5% as compared to 44.6% for the 1994 six month period. As mentioned in the second quarter discussion above, the lower 1995 rate as compared to the 1994 rate was due primarily to a restructuring of the Company's European operations. Liquidity and Sources of Capital Cash, cash equivalents and short-term investments decreased $10.4 million from December 31, 1994 to $61.6 million at June 30, 1995. Cash available for domestic operations approximated $7.9 million while cash held off-shore approximated $53.7 million. Contributing to the decrease in cash was the increase in inventory and the repayment of $2 million in short term loans which were outstanding at the end of 1994. The company has a $50 million line of credit with Fleet National Bank which provides an additional source of working capital on a short term basis. Accounts receivable decreased $10.8 million from December 31, 1994 due to collections in 1995 from customers who took advantage of the 1994 special holiday promotion which, similar to previous years, allowed qualifying domestic customers to defer payments on their 1994 purchases. The increase in inventory since December 31, 1994 is in support of new product introductions. Cash from operations in 1995 is approximately $17 million less through the first six months of 1995 compared to the same period of 1994 due to the increase in inventory combined with an increase in accounts receivable compared to June 30, 1994, due to higher shipments late in the quarter. In the second half of 1994, the Company repurchased 475,000 shares of its common stock at a cost of $7.3 million. While only 10,600 shares have been repurchased in 1995, the Company is authorized to repurchase an additional 614,400 shares at management's discretion. PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders The Company held its annual meeting on April 27, 1995 at its corporate headquarters in Lincoln, Rhode Island. The following are the matters submitted to a vote of the shareholders: a. Number of Directors The proposition to fix the total number of directors at nine, of which three shall be Class A directors and six shall be Class B directors. Approved by the vote of 12,197,093 Class A shares in favor, 683,357 against, 48,501 abstaining, and by the vote of 1,804,800 Class B shares in favor and none against. b. Election of Directors The following directors were elected by the Class A shareholders: For Withheld Terrence Murray 12,729,851 199,100 James C. Tappan 12,619,844 309,107 Thomas C. McDermott 12,711,108 217,843 The following directors were elected by the unanimous vote of 1,804,800 Class B shares: Bradford R. Boss Russell A. Boss John E. Buckley Bernard V. Buonanno, Jr. H. Frederick Krimendahl, II Edwin G. Torrance c. Appointment of Independent Auditors A proposal to ratify the appointment of Ernst & Young LLP as independent auditors for the Company for the year ending December 31, 1995 was approved by the unanimous vote of 1,804,800 Class B shares. d. Approval of the Company's Non-Qualified Stock Option Plan, as amended and restated A proposal to approve the Company's Non-Qualified Stock Option Plan, as amended and restated, was approved by the affirmative vote of 9,842,244 Class A shares in favor, 2,973,634 against and 113,073 abstaining, and by the unanimous vote of 1,804,800 Class B shares. Item 6. No reports have been filed on Form 8-K pursuant to item 6(b) and no other items are applicable for the six months ended June 30, 1995. SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. A. T. CROSS COMPANY Date: August 9, 1995 By: JOHN E. BUCKLEY John E. Buckley Executive Vice President Chief Operating Officer Date: August 9, 1995 By: MICHAEL EL-HILLOW Michael El-Hillow Vice President, Finance, Treasurer Chief Financial Officer