A.T. Cross: 10-K for Year to 12/31/97 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ACT OF 1934 For the transition period from __________to __________ Commission File Number 1-6720 A. T. CROSS COMPANY (Exact name of registrant as specified in its charter) Rhode Island 05-0126220 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) One Albion Road, Lincoln, Rhode Island 02865 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (401) 333-1200 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered: Class A Common Stock ($1. Par Value) American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No______ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10K or any amendment to this Form 10-K. [ ] The aggregate market value of the voting stock held by non-affiliates of the registrant as of February 28, 1998: Class A common stock - $139,713,000 (For this purpose all directors have been treated as affiliates). The number of shares outstanding of each of the issuer's classes of common stock as of February 28, 1998: Class A common stock - 14,703,513 shares Class B common stock - 1,804,800 shares DOCUMENTS INCORPORATED BY REFERENCE Portions of the annual report to shareholders for the year ended December 31, 1997 are incorporated by reference into Parts I, II and IV. Portions of the definitive proxy statement for the 1998 annual meeting of shareholders are incorporated by reference into Parts I and III. PART I Item 1. BUSINESS A. T. Cross Company (the "registrant") currently operates predominantly in one business segment, the manufacture and sale of high quality writing instruments. Recent Developments: In July 1996, the Company established the Pen Computing Group (PCG) to develop and market new pen-based products that facilitate electronic communications. In conjunction with leading high technology companies, PCG is developing products that combine the functionality and aesthetic qualities of Cross' quality writing instruments with state of the art technology. In addition, in order to test the transferability of the Cross brand to other high quality gift and self purchase products, the Company has developed a line of Swiss-made Cross timepieces which it began to sell on a limited basis in 1997. The contract between the Company's Manetti-Farrow subsidiary and Fendi Diffusione whereby the Company distributed Fendi leather products in the United States, expired on December 31, 1997. In June 1997, the Company and Fendi agreed that the distribution agreement would not be renewed and, consequently, the Company decided to discontinue the distribution of quality leather goods and accessory products and to wind-down operations of its Manetti-Farrow subsidiary. Business: The registrant manufactures fine writing instruments consisting of ball- point and fountain pens, Selectip rolling ball pens (which also accommodate a porous point refill), mechanical pencils, desk sets and ball-point refills. The registrant's writing instruments are offered in a variety of styles and materials, including the traditional, narrow girth Century line, the wider girth Townsend line, and the fluted barrel Metropolis line, all fabricated primarily in metal, the Solo and Solo Classic lines, fabricated in resin, and the new Pinnacle line, also fabricated primarily in metal, which was introduced in the United States in 1997. The registrant also markets certain writing instrument accessories. The registrant continues to be a leader in the United States in fine writing instruments priced from $10 to $50. Products in this price range include Century, Solo, Solo Classic and Metropolis. The Townsend and Pinnacle lines have given the registrant a notable presence in the $55 to $250 price range of products. The registrant emphasizes styling, craftsmanship and quality control in the design and production of its products. All of the registrant's writing instruments carry a full warranty of unlimited duration against mechanical failure. The registrant's writing instruments are packaged and sold as individual units or in matching sets. The registrant also sells single and double unit desk sets with bases made of various materials such as onyx, marble and wood. The registrant's writing instrument products are sold throughout the United States by approximately 30 manufacturer's agents or representatives to about 6,600 active retail and wholesale accounts. Retail accounts include gift stores, department stores, jewelers, stationery and office supply stores, mass merchandisers and catalogue showrooms. The wholesale accounts distribute the registrant's products to retail outlets which purchase in smaller quantities. Advertising specialty representatives market the registrant's writing instruments in the United States to business and industry. Typically, such products are engraved or carry the purchaser's name or emblem and are used for gifts, sales promotions, incentive purposes or advertising. The registrant also sells its products to United States military post exchanges, service centers and central buying operations. Sales of the registrant's writing instrument products outside the United States during 1997 were made by the registrant and by its wholly-owned subsidiaries to foreign distributors and to retailers in Canada, Latin America, Europe, Africa, the Middle East, Asia, and Japan. The registrant also manufactures, markets and sells pen-based computer products through its Pen Computing Group (PCG) in the United States. These pen-based products are used to facilitate electronic communication via the use of a special patented refill in a Cross pen (DigitalWriter) with a personal digital assistant, or as an alternative to the traditional mouse input device for use with a personal computer (iPen). Raw Materials: Most raw materials for production of writing instruments in the United States are obtained domestically. Some desk set base materials, some fountain pen nibs and front sections, certain finished caps and barrels, and some lacquer coating of metal shells are imported from Germany and France. Complete pencil mechanisms, some porous point refill components and leads, resin caps and barrels and some fountain pen nibs and front sections are imported from Japan. Raw materials for production of writing instruments in Ireland are obtained largely from Ireland, Germany, Japan and the United States. Raw materials for the production of PCG products in the United States are obtained largely from the United States and China. Patents and Trademarks: The registrant, directly and through its subsidiaries, has certain writing instrument and PCG trademark registrations, and pending trademark applications, in the United States and many foreign countries, including but not limited to, its principal trademark "CROSS" and the frustoconical top of its writing instruments. The principal trademark "CROSS" is of fundamental importance to the business. The registrant holds certain United States and foreign writing instrument patents, and/or has filed U.S. and foreign patent applications, covering its desk set units, Townsend series writing instruments, Solo and Solo Classic series writing instruments, Metropolis series writing instruments, Signature series writing instruments, Pinnacle series writing instruments, fountain pens, mechanical pencil mechanisms, and ball-point pen mechanisms. The registrant also holds certain United States patents, and has filed United States and foreign patent applications, covering certain of its PCG pen-based computer products. While the registrant pursues a practice of seeking patent protection for novel inventions or designs, the Company's business is not significantly dependent upon obtaining and maintaining patents. In 1993, the registrant sold its Mark Cross trademark and selected assets of its wholly-owned subsidiary, Mark Cross, Inc. and discontinued its Mark Cross retail business. However, under the terms of that sale, the registrant retained the right to use the CROSS trademark in certain non- writing instruments categories, without challenge by the purchaser of the Mark Cross trademark. Seasonal Business: Retail demand for the registrant's writing instrument products is traditionally highest immediately prior to Christmas and other gift-giving occasions. However, seasonal fluctuations have not materially affected continuous production of writing instrument products. The Company historically has generated approximately one third of its annual sales in the fourth quarter. Working Capital Requirements: Inventory balances tend to be highest in anticipation of new product launches and just before peak selling seasons. Production for some products which have longer lead times or for which production capacity is limited is proportionately greater earlier in the year, and inventory balances are relatively higher, to assure adequate supply is available for the peak selling season. The registrant has offered in the past, and may offer in the future, extended payment terms to domestic customers at certain points during the year, usually September through November. See the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the registrant's annual report to shareholders for the year ended December 31, 1997 (filed herewith as Exhibit 13 and hereinafter referred to as the "1997 Annual Report"), which section is incorporated by reference herein. Customers: The registrant is not dependent for a material part of its business upon any single customer. Backlog of Orders: The backlog of orders is not a significant factor in the registrant's business. Government Contracts: Sales of the registrant's writing instrument products are made to military post exchanges and service centers, but no contracts are entered into which are subject to renegotiation or termination by the United States Government. Competition: The writing instrument field is highly competitive. In particular, competition is strong with respect to product quality and brand recognition. There are numerous manufacturers of ball-point, roller-ball and fountain pens and mechanical pencils in the United States and abroad. Many of such manufacturers produce lower priced writing instruments than those produced by the registrant. Although the registrant is a major producer of ball-point, roller-ball and fountain pens and mechanical pencils in the $10 to $50 price range, other writing instrument companies have significantly higher sales volumes from a broader product line across a wider range of prices or have greater resources as divisions of larger corporations. See also the "New Products" and the "Technological Change" sections of the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the registrant's annual report to shareholders for the year ended December 31, 1997 (filed herewith as Exhibit 13 and hereinafter referred to as the "1997 Annual Report"), which section is incorporated by reference herein. Research and Development: The registrant had expenditures for research and development of new products and improvement of existing products of approximately $3,367,000 in 1997, $2,877,000 in 1996, and $2,991,000 in 1995. Environment: The registrant believes it is in substantial compliance with all Federal, State and local environmental laws and regulations. It is believed that future capital expenditures for environmental control facilities will not be material. Employees: The registrant had approximately 1,100 employees at December 31, 1997, of which approximately 260 were employed by foreign subsidiaries or branches. Foreign Operations and Export Sales: Approximately 48.5% of the registrant's sales in 1997 were in foreign markets. The registrant's primary foreign markets are in Europe and the Far East. Sales of writing instrument products to foreign distributors are subject to import duties in many countries although sales by the registrant's wholly-owned manufacturing and distribution facilities in Ireland into European Common Market countries are duty free. The operations of the registrant's foreign subsidiaries and branches are subject to the effects of currency fluctuations, to the availability of dollar exchange, to exchange control and to other restrictive regulations. Undistributed earnings of the foreign manufacturing and marketing subsidiaries prior to the Revenue Reconciliation Act of 1993 (i.e., the "1993 Act") generally are not subject to current United States federal income and state income taxes. However, repatriation to the registrant of the accumulated earnings of foreign subsidiaries would subject such earnings to United States federal and state income taxes. It is not the intention of the registrant to repatriate these earnings. The 1993 Act added Internal Revenue Code Section 956A which had the effect of subjecting a portion of current foreign earnings (i.e., earnings generated subsequent to the 1993 Act) to United States federal taxation. See Note F to the registrant's financial statements included in the 1997 Annual Report, which note to such financial statements is incorporated by reference herein. See geographic information and export sales data in Note G to the registrant's financial statements included in the 1997 Annual Report, which note to such financial statements is hereby incorporated by reference. For the effect of foreign sales on the Company's results of operations, see "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the 1997 Annual Report incorporated herein by reference. ___________________________________________________________________________ See "Risks and Uncertainties; Forward Looking Statements" under the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the 1997 Annual Report incorporated herein by reference. In addition to statements in this document that may be construed as forward-looking statements, there may be statements in other documents of the registrant and oral statements by representatives of the registrant to securities analysts or investors that may be construed as forward- looking statements about the business and new products, sales and expenses, and operating and capital requirements. Any such statements are subject to risks that could cause the actual results or needs to differ materially, including but not limited to the ability of the Company to generate consumer acceptance of various new products recently introduced and or planned for introduction in the coming months; increases in the cost of, or limitations in the supply of, raw materials (including prices of precious metals used in the Company's products); changes in political and economic conditions in the United States and other countries in which the Company operates; interest and currency rate fluctuations; competitive product and pricing pressures; and inflation. These risks are discussed in the section referred to above. Executive Officers of the Registrant: In addition to the directors and executive officers listed in the "Election of Directors" section of the registrant's definitive proxy statement for the 1998 annual meeting of shareholders, which section is incorporated by reference herein, the following are executive officers of the registrant (each of whom serves until his or her successor is elected and has qualified): Year in Which Name Age Title First Held Office Joseph F. Eastman 61 Vice President-Human Resources 1981 John T. Ruggieri (1) 41 Senior Vice President, Treasurer 1997 and Chief Financial Officer Gary S. Simpson (2) 46 Corporate Controller 1997 Chief Accounting Officer Tina C. Benik (3) 38 Vice President-Legal, General 1993 Counsel and Corporate Secretary J. John Lawler (4) 60 Vice President- 1993 Worldwide Tax and Duty Free Stephen A. Perreault (5) 50 Vice President-Manufacturing 1995 David J. Arthur (6) 39 Vice President, Engineering 1996 Joseph V. Bassi (7) 45 Finance Director 1997 Robert J. Byrnes, Jr. (8) 48 President and Chief Executive 1997 Officer, Pen Computing Group Jack K. Gelman (9) 52 Vice President/General Manager, 1998 Marketing And Sales - Americas (1) Prior to becoming Senior Vice President - Chief Financial Officer in 1997, John T. Ruggieri was Vice President-Corporate Development and Planning, from 1993 to 1997, and from 1989 to 1993 was Executive Vice President of the registrant's wholly-owned subsidiary Mark Cross, Inc. (2) Prior to becoming Corporate Controller in 1997, Gary S. Simpson was the Controller, Lincoln Operations, of the registrant from 1992 to 1997. (3) Prior to becoming Vice President-Legal, General Counsel and Corporate Secretary, Tina C. Benik was the general counsel of the registrant from 1989 to 1991 and corporate secretary from 1991 to 1993. (4) Prior to becoming Vice President-Worldwide Tax and Duty Free in 1993, J. John Lawler was the Vice President International of the registrant from 1979 to 1993. (5) Prior to becoming Vice President-Manufacturing in 1995, Stephen A. Perreault held various senior executive positions in the jewelry, cosmetics, and gift manufacturing and distribution companies, including Weingeroff Enterprises, Inc., Lantis Corporation, Swarovski Jewelry U.S. Ltd., and Avon Products, Inc. (6) Prior to becoming Vice President, Engineering in 1996, David J. Arthur was the Director of Engineering of the registrant from 1995 to 1996, and the Manager, New Business Development of the registrant from 1994 to 1995. From 1991 to 1994 Mr. Arthur was Group Manager, Corporate R&D and Product Line Manager, Composite Materials Division, at Rogers Corporation. (7) Prior to becoming Finance Director in 1997, Joseph V. Bassi was the Manager Financial Planning, of the registrant from 1996 to 1997, and the Manager, Budgeting and Financial Planning of the registrant from 1987 to 1996. (8) Prior to becoming President and Chief Executive Officer, Pen Computing Group in 1997, Robert J. Byrnes, Jr. was the Executive Vice President and General Manager of the NEC Computer Systems Division of Packard Bell NEC Inc. from 1996 to 1997. From 1993 to 1996 Mr. Byrnes was the Executive Vice President of NEC Technology. (9) Prior to becoming Vice President/General Manager, Marketing and Sales - - Americas in 1998, Jack K. Gelman was the Managing Partner, Gelman and Associates from 1996 to 1997. From 1994 to 1995, Mr. Gelman was President and General Manager, International Division, Nashua Corporation, and from 1989 to 1993, he was the Vice President and General Manager North American Consumer Tape Division of Beiersdorf A.G. Item 2. PROPERTIES The registrant currently occupies approximately 269,000 square feet of manufacturing, warehouse and office space in its facility in Lincoln, Rhode Island. The registrant's wholly-owned subsidiary, A. T. Cross Limited, owns and operates an approximately 64,000 square foot manufacturing and distribution facility in Ballinasloe, County Galway, Ireland. Substantially all of these facilities, which are well maintained and in good repair, are currently being utilized in either a manufacturing, distribution or administrative capacity. The productive capacity of these facilities is sufficient to meet the registrant's needs for the foreseeable future. The registrant's operations in Germany, Japan, France, Italy, the United Kingdom, Spain and Hong Kong, all lease their administrative offices and warehouse space. The registrant's discontinued operation, Manetti-Farrow, has lease commitments for administrative office space in New York City and warehouse and office space in Oakland, California. Item 3. LEGAL PROCEEDINGS No material legal proceedings are pending by or against the registrant or any of its subsidiaries which would have a material effect upon the registrant's consolidated business and financial condition. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS See the "Market and Dividend Information" section of the 1997 Annual Report, which section is incorporated by reference herein. Item 6. SELECTED FINANCIAL DATA See the "Five-Year Summary" section of the 1997 Annual Report, which section is incorporated by reference herein. Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section of the 1997 Annual Report, which section is incorporated by reference herein. Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The consolidated financial statements of the registrant and its subsidiaries and the report of its independent auditors thereon for the audits of the consolidated financial statements for the years ended December 31, 1997 and 1996, set forth in the 1997 Annual Report, are incorporated herein by reference. The report of the Company's independent auditors for the year ended December 31, 1995 is included in Item 14 (a)(1)(2). Quarterly Results of Operations (Unaudited) in Note L of the registrant's financial statements included in the 1997 Annual Report are incorporated herein by reference. Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On July 11, 1996, the Audit Committee of the Board of Directors of the Company recommended to the Board of Directors that the Company appoint Deloitte & Touche LLP as the Company's independent accountants. By Unanimous Consent dated July 16, 1996, the Board of Directors appointed Deloitte & Touche LLP as the Company's independent accountants to replace Ernst & Young LLP for fiscal year 1996. The Company's management did not consult with Deloitte & Touche LLP on any accounting, auditing or reporting matter prior to their appointment as independent accountants for the Company. During the two fiscal years ended December 31, 1995 and the interim period subsequent to December 31, 1995, there had been no disagreements with Ernst & Young LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure or any reportable events. Ernst & Young LLP's report on the Company's financial statements for such two years contained no adverse opinion or disclaimer of opinion and was not qualified or modified as to uncertainty, audit scope or accounting principles. PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT See "Election of Directors" and "Section 16(a) Beneficial Ownership Reporting Compliance" of the registrant's definitive proxy statement for the 1998 annual meeting of shareholders, which sections are incorporated by reference herein. See also "Item 1. Business - Executive Officers of the Registrant." Item 11. EXECUTIVE COMPENSATION See "Executive Compensation" of the registrant's definitive proxy statement for its 1998 annual meeting of shareholders, which section is incorporated by reference herein. Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K. Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT See "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" of the registrant's definitive proxy statement for the 1998 annual meeting of shareholders, which sections are incorporated by reference herein. Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS See "Election of Directors" of the registrant's definitive proxy statement for the 1998 annual meeting of shareholders, which section is incorporated by reference herein. PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2) - The response to this portion of Item 14 is submitted as a separate section of this report. (3) Listing of Exhibits (3) Restated Articles of Incorporation and By-laws (incorporated by reference to Exhibit (3) to the registrant's report on Form 10-K for the year ended December 31, 1980); Amendment to Restated Articles of Incorporation (incorporated by reference to Exhibit (3) to the registrant's report on Form 10-K for the year ended December 31, 1994), Amendment to By-laws adopted December 2, 1988 (incorporated by reference to Exhibit (3) to the registrant's report on Form 10-K for the year ended December 31, 1989); Amendment to By-laws adopted February 6, 1992 (incorporated by reference to Exhibit (3) to the registrant's report on Form 10-K for the year ended December 31, 1991) (10.1) A. T. Cross Company Executive Compensation Program Performance Cash Plan, January 1, 1995 (incorporated by reference to Exhibit (10.1) to the registrant's report on Form 10-K for the year ended December 31, 1994)* (10.2) A. T. Cross Company Executive Compensation Program Annual Incentive Plan, January 1, 1995 (incorporated by reference to Exhibit (10.2) to the registrant's report on Form 10-K for the year ended December 31, 1994)* (10.3) A. T. Cross Company Non-Qualified Stock Option Plan, 1975 (as amended and restated February 4, 1988, as amended December 10, 1991, as amended October 21, 1993, and as further amended and restated December 6, 1994) (incorporated by reference to Exhibit (10.3) to the registrant's report on Form 10-K for the year ended December 31, 1995)* (10.4) A. T. Cross Company Incentive Stock Option Plan, 1981 (as amended February 6, 1992 and as further amended April 28, 1994) (incorporated by reference to Exhibit (10.4) to the registrant's report on Form 10-K for the year ended December 31, 1994)* (10.5) A. T. Cross Company Deferred Compensation Plan (incorporated by reference to Exhibit (10.5) to the registrant's report on Form 10-K for the year ended December 31, 1994)* (10.6) A. T. Cross Company Unfunded Excess Benefit Plan (as amended) (incorporated by reference to Exhibit (10.6) to the registrant's report on Form 10-K for the year ended December 31, 1994)* (10.7) A. T. Cross Company Restricted Stock Plan (incorporated by reference to Exhibit (10.7) to the registrant's report on Form 10-K for the year ended December 31, 1995)* (10.8) A. T. Cross Company Executive Life Insurance Program (11) Statement Re: Computation of Per Share Earnings - (incorporated by reference to the "Consolidated Statements of Operations and Retained Earnings" section of the registrant's 1997 Annual Report) (13) Annual Report to Shareholders for the year ended December 31, 1997. Filed only in respect to the portions expressly incorporated by reference in this Form 10-K. (21) Subsidiaries - incorporated by reference to the "Subsidiaries and Branches" section of the registrant's 1997 Annual Report (23.1) Consent of Deloitte & Touche LLP (23.2) Consent of Ernst & Young LLP (27) Financial Data Schedules * Management contract, compensatory plan or arrangement (b) No reports on Form 8-K were filed in the fourth quarter of 1997. (c) Exhibits--See Item (a)(3) above (d) Financial Statement Schedule--The response to this portion of Item 14 is submitted as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. A. T. CROSS COMPANY By /s/BRADFORD R. BOSS Bradford R. Boss Chairman Dated: March 23,1998 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated: Signature Title Date /s/BRADFORD R. BOSS Chairman & Director March 23, 1998 (Bradford R. Boss) /s/RUSSELL A. BOSS President & Director March 23, 1998 (Russell A. Boss) (Chief Executive Officer) /s/JOHN E. BUCKLEY Executive Vice President March 23, 1998 (John E. Buckley) & Director (Chief Operating Officer) /s/JOHN T. RUGGIERI Senior Vice President March 23, 1998 (John T. Ruggieri) (Chief Financial Officer) /s/GARY S. SIMPSON Corporate Controller March 23, 1998 (Gary S. Simpson ) (Chief Accounting Officer) /s/BERNARD V. BUONANNO, JR. Director March 23, 1998 (Bernard V. Buonanno, Jr.) /s/H. FREDERICK KRIMENDAHL II Director March 23, 1998 (H. Frederick Krimendahl II) /s/THOMAS C. MCDERMOTT Director March 23, 1998 (Thomas C. McDermott) /s/TERRENCE MURRAY Director March 23, 1998 (Terrence Murray) /s/JAMES C. TAPPAN Director March 23, 1998 (James C. Tappan) /s/EDWIN G. TORRANCE Director March 23, 1998 (Edwin G. Torrance) ANNUAL REPORT ON FORM 10-K ITEM 14 (a)(1) and (2), (c) and (d) LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE CERTAIN EXHIBITS FINANCIAL STATEMENT SCHEDULE YEAR ENDED DECEMBER 31, 1997 A. T. CROSS COMPANY LINCOLN, RHODE ISLAND FORM 10-K - ITEM 14(a)(1) and (2) A. T. CROSS COMPANY AND SUBSIDIARIES LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following consolidated financial statements of A. T. Cross Company and subsidiaries, included in the 1997 Annual Report, are incorporated by reference in Item 8: Consolidated Balance Sheets - December 31, 1997 and December 31, 1996 Consolidated Statements of Operations and Retained Earnings- Years Ended December 31, 1997, 1996 and 1995 Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996 and 1995 Notes to Consolidated Financial Statements Independent Auditors' Report for the years ended December 31, 1997 and 1996 The following consolidated financial statement schedule of A. T. Cross Company and subsidiaries is included in Item 14(d): Schedule II - Valuation and Qualifying Accounts The independent auditors' report on Financial Statement Schedule II for the years ended December 31, 1997 and 1996 is included herein. The report of independent auditors on the consolidated financial statements, and on Financial Statement Schedule II, for the year ended December 31, 1995, is included herein. All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions, or the information required therein has otherwise been disclosed in the consolidated financial statements referred to above, or are inapplicable, and therefore have been omitted. SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS A. T. CROSS COMPANY AND SUBSIDIARIES COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E Additions . Balance at Charged to Charged to Balance Beginning Costs and Other Accounts Deductions at End of DESCRIPTION of Period Expenses Describe Describe Period Year Ended December 31, 1997 Deducted from asset account: Allowance for doubtful accounts $1,388,000 $648,140 $412,140(A) $1,624,000 Year Ended December 31, 1996 Deducted from asset account: Allowance for doubtful accounts $1,244,000 $325,064 $181,064(A) $1,388,000 Year Ended December 31, 1995 Deducted from asset account: Allowance for doubtful accounts $1,329,000 $264,091 $349,091(A) $1,244,000 (A) Uncollectible accounts written off. Independent Auditors' Report Item 14 (d) To the Board of Directors and Shareholders of A.T. Cross Company Lincoln, Rhode Island We have audited the consolidated financial statements of A.T. Cross Company and subsidiaries (the "Company") as of December 31, 1997 and 1996, and for the years then ended, and have issued our report thereon dated February 10, 1998; such consolidated financial statements and report are included in the Company's 1997 Annual Report to Shareholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of the Company, listed in Item 14 (d). This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Deloitte & Touche LLP Boston, Massachusetts February 10, 1998 Report of Ernst & Young, Independent Auditors To the Shareholders A.T. Cross Company We have audited the accompanying consolidated statements of income and retained earnings and cash flows for the year ended December 31, 1995. Our audit also included the financial statement schedule for the year ended December 31, 1995, listed in the Index at item 14(a). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated results of their operations and their cash flows for the year ended December 31, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein for the year ended December 31,1995. ERNST & YOUNG LLP ERNST & YOUNG LLP Providence, Rhode Island January 30, 1996 Exhibit 10.8 A.T. Cross Company Executive Life Insurance Program The executive life insurance program provides a portable, universal life plan for coverage amounts in excess of the first $50,000 of tax free, group term coverage. The formula for coverage for the participant is three (3) or four (4) times the base salary, depending on the participant's bonus level. Under the program, the Company pays the monthly premium on the Universal Life policy which is owned by the participant. The premium is paid directly to the life insurance company and is included in the participant's annual income. Instead of paying imputed income taxes at Table I rates, participants have a tax liability based on the premium payments paid by the Company. The program also provides for an accrual of cash value. At retirement, participants have the option to continue to pay scheduled premiums, convert to an amount of insurance which can be supported by the cash value or surrender the policy for the cash value. 1997 Annual Report Company Profile The A.T. Cross Company is a major international manufacturer of fine writing instruments and distributor of quality gift products. Cross presently markets six styles of writing instruments. Each series offers distinctive designs, appointments and finishes - from precious metals to composite resin - created to meet the preferences of particular audiences at prices that meet specific market requirements. These fine writing instruments are sold to the consumer market through upscale stores worldwide and to the business gift market via a network of companies specializing in recognition and awards programs. The Pen Computing Group is a division of the A.T. Cross Company that designs, manufactures and markets electronic pen products. Table of Contents Five-Year Summary, Market & Dividend Information . . . . . . . . . . . . . . 1 Shareholders' Report . . . . . . . . . . . . . . . . . . . . . . . . . . 2 - 3 Cross Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 - 7 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . 8 - 19 Report of Deloitte & Touche LLP . . . . . . . . . . . . . . . . . . . . . . 19 Management's Discussion and Analysis . . . . . . . . . . . . . . . . . 20 - 23 Corporate Directors & Officers . . . . . . . . . . . . . . . . . . . . . . 24 Corporate Information . . . . . . . . . . . . . . . . . . . .Inside Back Cover Five-Year Summary (Thousands of Dollars) 1997 1996 1995 1994 1993 Operations: Net Sales From Continuing Operations $ 154,716 $ 166,889 $ 175,610 $ 161,821 $ 148,101 Income(Loss) From Continuing Operations Before Income Taxes (6,703) 8,075 18,645 16,832 1,209 Provision for Income Taxes (Benefit) (2,346) 2,163 6,082 7,554 1,033 Income(Loss) From Continuing Operations (4,357) 5,912 12,563 9,278 176 Income(Loss) From Discontinued Operations, net (2,321) 694 802 1,256 (3,657) Net Income (Loss) (6,678) 6,606 13,365 10,534 (3,481) Cash Dividends Declared 6,600 10,568 10,581 10,738 13,544 Capital Expenditures 7,471 8,983 10,494 7,469 8,468 Depreciation 7,820 6,799 6,338 5,709 5,292 (Thousands of Dollars) Financial Position: Current Assets 109,779 118,303 130,647 127,208 125,622 Current Liabilities 39,264 41,822 47,943 43,239 35,630 Total Assets 158,019 174,122 184,867 176,849 174,399 Working Capital 70,515 76,481 82,704 83,969 89,992 Net Property, Plant and Equipment 39,756 39,703 37,543 33,362 31,538 Shareholders' Equity (Net Worth) 112,934 126,791 131,714 128,702 134,160 (Dollars) Per Share Data: Basic and Diluted Earnings(Loss) Per Share: From Continuing Operations (0.26) 0.36 0.76 0.55 0.01 From Discontinued Operations (0.14) 0.04 0.05 0.07 (0.22) Net Income(Loss) (0.40) 0.40 0.81 0.62 (0.21) Cash Dividends Declared 0.40 0.64 0.64 0.64 0.80 Shareholders' Equity (Book Value) 6.84 7.69 7.96 7.79 7.92 Certain amounts in the years 1993 through 1996 have been restated. The Company's Class A common stock is traded on the American Stock Exchange (ATX. A). At December 31, 1997, there were approximately 1,800 shareholders of record of the Company's Class A common stock and 2 shareholders of record of the Company's Class B common stock. The weighted average numbers of shares outstanding were 16,497,687 and 16,531,488 during 1997 and 1996, respectively. High and low stock prices and dividends for the last two years were: Market & Dividend Information CASH CASH DIVIDENDS DIVIDENDS QUARTER HIGH LOW DECLARED QUARTER HIGH LOW DECLARED 1997 1996 First 12 1/2 10 1/4 $.00 First 16 1/4 14 $.00 Second 12 3/4 9 3/4 .16 Second 18 15 .16 Third 12 7/16 8 1/2 .08 Third 17 1/2 11 1/4 .16 Fourth 11 1/8 9 1/16 .16 **One-half paid in the fourth quarter and balance paid in the subsequent year first quarter. A.T. Cross Company & Subsidiaries Shareholders' Report To the Shareholders of A.T. Cross Company: In terms of our financial results, 1997 was not a good year for A.T. Cross and, therefore, its shareholders. While we can reflect on successes in Europe, Canada and Latin America, continued sales and earnings declines in our major market, the United States, and a deterioration during the year of one of our most significant foreign markets, Asia, greatly overshadowed other financial successes. Overall, 1997 net sales were $154.7 million, down 7.3% from 1996, resulting in a net loss of $6.7 million or 40 cents per share. The results include a $2.3 million (14 cents per share) after-tax loss on the discontinuation of our Manetti-Farrow subsidiary. Regionally, European sales were up approximately 5%. Sales to Canada and Latin America increased 94% and 11%, respectively. The increase in Canadian sales was largely due to Cross regaining market share lost in 1996 with the bankruptcy of our Canadian distributor. U.S. writing instrument sales decreased 10.4%. Sales to Asia, up in the first quarter of the year, declined so dramatically with the fiscal problems of Thailand, Singapore, Malaysia, Korea, Hong Kong and Japan that our sales for the year were off approximately 27%. We expect Asian problems to continue to affect us through at least our first half of 1998 as those economies struggle under monetary restraints and try to regain economic momentum. Illustrative of our Asian problems is Thailand, where we believe Cross is the market leader of imported fine writing instruments. Since July 1997, the currency suffered a 50% drop in value to the U.S. dollar, many businesses have failed, and there has been a duty imposed on quality writing instruments of 30%. Therefore, the cost of our product has skyrocketed on the local market, severely reducing sales. Duty free had a pretty good year for Cross in many areas of the world. Consolidation of our customer base in duty free continues to present challenges to us, but our writing instruments continue to perform well in that marketplace. As tobacco and liquor sales come under increased health warnings, duty free shops worldwide are selling more gift products. In fact, many airports now resemble shopping malls. One unexpected 1997 event that negatively impacted our results was the decision by Fendi to get out of the U.S. leather distribution business. Fendi is a fine Italian fashion house with worldwide sales of fur, leather, watches and fashion accessories. For many years, our subsidiary, Manetti-Farrow, has been Fendi's U.S. distributor of leather goods to roughly 400 retail shops, mostly upscale department stores. Fortunately, our inventory liquidation went smoother and quicker than expected and actually has been a cash flow benefit to Cross. We sold our former distribution center in 1997 for $4,500,000 and took a $290,000 write-off ($189,000 after-tax, or 1 cent per share). An $800,000 ($520,000 after-tax, or 3 cents per share) downsizing expense was the result of eliminating approximately 80 positions, mostly in Lincoln, Rhode Island. A few years ago, our senior staff and consultants spent many hours looking at Cross, its position in the worldwide writing instrument market and the writing instrument market itself, with a goal of realigning the Company for the future. One of our conclusions was that the writing instrument market, over the long term, would not provide acceptable growth opportunities as people wrote less and used computers more. In fact, less ink is being put to paper. The advent of the personal digital assistant (PDA), like the Palm Pilot_, is moving people away from the conventional date book or personal agenda. At the same time, e-mail has become a very popular, yet inkless, form of communication. For several years, we have been researching the ways that a pen-based product might be used to facilitate electronic communications. 1996 saw the formation of our Pen Computing Group, a new division that will actively pursue opportunities in that market area. The first product introduction by the division was our DigitalWriter. Basically a Cross pen with a special patented refill, it gives a pen to paper feel when writing on the plastic screens common to the very popular Palm Pilot and many other hand-held computers and digital cameras. Presently, most PDA's are sold with a very thin plastic stylus that is stored inside the unit. Many people find this stylus, with its sharp plastic point, to be both uncomfortable to hold and scratchy to write with. Our DigitalWriter, sold as an accessory item in many computer stores, office mega stores and catalogs, offers the customer a wonderful alternative to the stylus. A second product introduced in late 1997 is the Cross iPen. This electronic pen and tablet, compatible with Windows_95, is an alternative to the mouse. In addition to pointing and clicking, the product offers many additional features that a mouse does not. In a few months, its 1997 sales exceeded a million dollars and, more importantly, has given us credibility in the computer industry. Additionally, at the November Comdex show in Las Vegas, Cross launched its CrossPad, to be sold starting in March, 1998. This product, jointly developed by Cross and IBM, is a portable electronic note pad that allows one to put ink on a traditional pad of paper with a new Cross digital pen. While notes are being written, they are electronically captured for future filing, faxing or e-mailing. At the show, this product created much excitement and was recognized by PC WEEK magazine as a Best of Comdex Finalist. We expect this product to further enhance the credibility of the Cross Pen Computing Group and contribute to sales and earnings in 1998. In the Fall of 1997, we also began test marketing a line of Cross timepieces. Although there are many competitors in this industry, the market is much larger than writing instruments and we believe our loyal customers will embrace our product line. Results from our two test markets in the United States show that our reputation for quality is transferable, with about half the line selling reasonably well. We are redesigning the less successful styles and will continue testing in 1998. With little growth in the overall worldwide writing instrument market, our goal is to improve our writing instrument market share in Europe, where it is smallest against our major competition, yet has shown growth. We will also continue to develop newly emerging markets such as East Europe, Russia, China and India. We also must improve our margins to deliver a competitive return to shareholders who have not enjoyed acceptable returns from Cross in the past two years. In the United States, we are slowly regaining market share in the upper end of the market with our Townsend and Pinnacle lines and we must also protect our strong position in our Century arena. Much of the Cross shortfall in the U.S. marketplace over the past two years is directly related to the decreasing sales of our products through the catalog showroom and mass market sectors, which are of less and less importance to Cross. Catalog showrooms are disappearing from the American retail environment and mass marketers have relegated writing instruments to racks and speed tables. These trends are unhealthy to the Cross brand. As these accounts wind down, we can anticipate continued growth in the carriage trade and office mega store channels. Finally, let us conclude by saying management is committed to returning Cross to acceptable margins and earnings. We look at 1998 as a year where writing instruments will earn a more acceptable return and our Pen Computing Group will provide its first year of significant sales and earnings. To our worldwide associates, thank you for all your efforts to further our brand in your respective marketplaces and to our manufacturing partners and associates, thank you for your efforts. To our shareholders, thank you for your continued support. We will do all that is possible to justify your support. Cordially yours, Bradford R. Boss Russell A. Boss Chairman President and CEO February 12, 1998 The power of technology - The simplicity of a pen Millions of letters, contracts, grocery lists and love notes have been written with Cross writing instruments. Starting this year, they'll also edit business proposals, design newsletters, chronicle board meetings and compose e-mail with writing instruments designed for the 21st century. That's because of the new digital writing products created by the Pen Computing Group (PCG), a new Cross division. Through PCG, Cross is redefining and broadening the role of the pen in the digital age. Working with leading high-technology companies, Cross PCG is designing tools for business that increase productivity and are simple to use - inventing products that go far beyond the mouse and keyboard of today. CrossPad_, the first personal digital notepad, lets you take notes using a pen and paper, like you always have, and capture these notes as "digital ink". Using a special notepad and a new Cross digital pen, you can upload your notes to your PC for filing, faxing, e-mailing and more. The software also allows you to select "digital ink" and convert it to typed text, ready for use in any Windows 95 application. DigitalWriter_ employs proprietary writing technology only available from Cross. This special polymeric stylus provides a patented "pen-on-paper" feel when used with PDA's such as Palm Pilot. DigitalWriter_ pens will augment or replace the plastic stick stylus that is typically supplied with today's PDA's. iPen_ is a writing and navigating tool for your PC. The iPen_ provides full mouse functionality with an intuitive design, and is the ideal tool for marking up and editing documents right on your PC. Touch the pen to a special tablet surface and you can point, click, as well as write in "digital ink". The iPen_ is an attractive alternative to your mouse. Reliable, handsome and useful, these business tools offer the form, feel and function that merit the Cross name, and will result in dynamic new market segments for A.T. Cross. Anticipating the Future iPen DigitalWriter The iPen with matte-black finish and 22-karat gold plated appointments, combine traditional Cross styling with digital-age functionality. The DigitalWriter is offered in five distinctive models that appeal to both traditional and contemporary tastes. CrossPad and iPen allow for traditional note taking that can be transformed into "digital ink". Quality & craftsmanship create time-honored elegance When Cross created the Century_ pen more than 50 years ago, it quickly became recognized for its distinct silhouette. It was the quality and craftsmanship, however, that made people trust the Cross name. In 1993, the Cross Townsend_ line built upon that name recognition, its bold profile well suited to the style of the time. This year, our newest design, Pinnacle_, takes its place among our elite line of writing instruments. Crafted from among the most precious metals and lacquers available, and accented with 22-karat gold plate, the Pinnacle collection will make its mark among those who treasure exceptional quality and elegant design. These same attributes distinguish the new line of Cross timepieces, which is already finding favor with those who appreciate the Cross name. With Swiss-made quartz movements and a comprehensive three-year warranty, these men's and women's watches meet the exacting Cross standards for style, quality and reliability. The line had its debut at the new Manhattan store of the largest timepiece retailer in the world, Tourneau's Time Machine, followed by distribution to retailers in the Northeast and Southern California. After satisfactory completion of our market tests, the timepieces will be found in high-end jewelry stores and upscale department stores - the perfect settings for those who recognize Cross as a symbol of achievement. Building on tradition Pinnacle The new Cross Pinnacle line has been created in three luxurious finishes - peacock blue lacquer, 22-karat gold plate and sterling silver - all with 22-karat gold plate appointments. Timepieces The new Cross line of men's and women's timepieces includes more than 50 traditional styles. Round and rectangular cases combine with both leather straps and metal bracelets to create a collection that appeals to a variety of individual tastes. A.T. Cross Company & Subsidiaries Consolidated Balance Sheets DECEMBER 31 1997 1996 ASSETS Current Assets Cash and cash equivalents $ 25,800,777 $ 14,767,483 Short-term investments 21,607,293 27,288,967 Accounts receivable, less allowances for doubtful accounts of $1,624,000 at 1997 and $1,388,000 at 1996 37,571,319 43,221,644 Inventories Finished goods 7,767,465 7,063,289 Work in process 5,646,732 5,449,050 Raw materials 6,624,593 6,498,693 20,038,790 19,011,032 Other current assets 4,760,845 14,014,434 Total Current Assets 109,779,024 118,303,560 Property, Plant and Equipment Land and land improvements 1,274,453 1,274,453 Buildings 17,727,945 16,961,000 Machinery and equipment 90,341,414 83,461,833 109,343,812 101,697,286 Less allowances for depreciation 69,588,036 61,994,272 Net Property, Plant and Equipment 39,755,776 39,703,014 Intangibles and Other Assets 8,484,563 16,115,638 $ 158,019,363 $ 174,122,212 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Note payable to bank $ - $ 6,000,000 Accounts payable 6,247,870 5,834,459 Accrued compensation and related taxes 3,328,581 2,392,428 Accrued expenses and other liabilities 19,139,838 15,421,298 Cash dividends payable 1,320,379 2,638,536 Contributions payable to employee benefit plans 9,227,698 8,105,220 Income taxes payable - 1,430,346 Total Current Liabilities 39,264,366 41,822,287 Accrued Warranty Costs 5,821,000 5,509,000 Shareholders' Equity Common stock, par value $1 per share: Class A-authorized 40,000,000 shares, 15,294,652 shares issued and 14,696,272 shares outstanding at December 31, 1997, and 15,282,412 shares issued and 14,686,049 shares outstanding at December 31,1996 15,294,652 15,282,412 Class B-authorized 4,000,000 shares, 1,804,800 shares issued and outstanding at December 31, 1997 and 1996 1,804,800 1,804,800 Additional paid-in capital 11,958,670 11,837,534 Retained earnings 93,502,930 106,781,204 Accumulated foreign currency translation adjustment (702,273) (20,876) 121,858,779 135,685,074 Treasury stock, at cost, 598,380 shares in 1997 and 596,363 shares in 1996 (8,924,782) (8,894,149) Total Shareholders' Equity 112,933,997 126,790,925 $ 158,019,363 $ 174,122,212 See notes to consolidated financial statements. A.T. Cross Company & Subsidiaries Consolidated Statements of Operations & Retained Earnings YEAR ENDED DECEMBER 31 1997 1996 1995 Revenues Net sales $ 154,715,676 $ 166,888,830 $ 175,609,907 Interest and other income 1,958,920 2,030,901 3,354,656 156,674,596 168,919,731 178,964,563 Costs and Expenses Cost of goods sold 81,269,291 86,852,638 85,187,128 Selling, general and administrative expenses 74,693,999 66,795,543 67,653,709 Research and development expenses 3,366,683 2,876,756 2,990,745 Service and distribution costs 4,048,081 4,319,405 4,487,692 163,378,054 160,844,342 160,319,274 Income (Loss) from Continuing Operations Before Income Taxes (6,703,458) 8,075,389 18,645,289 Provision for income taxes (benefit) (2,346,000) 2,163,627 6,081,968 Income (Loss) from Continuing Operations (4,357,458) 5,911,762 12,563,321 Discontinued Operations, Less Income Taxes (Benefit) Income from operations 18,366 694,164 802,032 (Loss) on disposal (2,339,366) - - Income (Loss) from Discontinued Operations (2,321,000) 694,164 802,032 Net Income (Loss) (6,678,458) 6,605,926 13,365,353 Retained earnings at beginning of year 106,781,204 110,743,135 107,958,596 Cash dividends declared (per share: $0.40 in 1997, and $0.64 in 1996 and 1995) 6,599,816 10,567,857 10,580,814 Retained Earnings at End of Year $ 93,502,930 $ 106,781,204 $ 110,743,135 Basic and Diluted Earnings (Loss) per Share: From Continuing Operations $ (0.26) $ 0.36 $ 0.76 From Discontinued Operations (0.14) 0.04 0.05 Net Income (Loss) Per Share $ (0.40) $ 0.40 $ 0.81 Weighted Average Shares Outstanding: Denominator for Basic Earnings Per Share 16,497,687 16,531,488 16,528,876 Effect of Dilutive Securities: Employee Stock Options Denominator for Diluted Earnings Per Share 16,497,687 16,562,813 16,606,195 (A) No incremental shares related to options are included due to the loss. See notes to consolidated financial statements. A.T. Cross Company & Subsidiaries Consolidated Statements of Cash Flows YEAR ENDED DECEMBER 31 1997 1996 1995 CASH PROVIDED BY (USED IN): Operating Activities: Income (loss) from continuing operations $ (4,357,458) $ 5,911,762 $ 12,563,321 Adjustments to reconcile income (loss) from continuing operations to net cash provided by operating activities: Depreciation and amortization 8,226,180 7,077,275 6,612,135 Provision for losses on accounts receivable 648,140 325,064 264,091 Deferred income taxes (564,540) 583,036 (89,372) Provision for warranty costs 742,764 685,183 1,050,103 Changes in operating assets and liabilities: Accounts receivable 3,843,952 2,673,074 (10,852,562) Inventories (1,360,758) 5,232,610 (12,213,631) Other assets - net (247,476) (2,251,131) 1,076,685 Accounts payable 433,057 (5,041,381) 5,026,065 Other liabilities - net 4,862,623 (6,363,466) 1,505,644 Warranty costs paid (430,764) (385,183) (750,103) Foreign currency transaction (gain) loss 927,356 270,579 (194,763) Net Cash Provided by Continuing Operations 12,723,076 8,717,422 3,997,613 Discontinued operations: Income (loss) from discontinued operations (2,321,000) 694,164 802,032 Changes in operating assets and liabilities 12,610,378 (4,839,265) 7,851,504 Net Cash Provided by (Used in) Discontinued Operations 10,289,378 (4,145,101) 8,653,536 Net Cash Provided by Operating Activities 23,012,454 4,572,321 12,651,149 Investing Activities: Additions to property, plant and equipment (7,470,742) (8,982,743) (10,493,514) Proceeds from sale of building 4,200,000 - - Purchase of short-term investments (10,098,309) (26,373,158) (33,316,155) Sale or maturity of short-term investments 15,779,983 20,509,692 64,922,102 Net Cash Provided by (Used in) Investing Activities 2,410,932 (14,846,209) 21,112,433 Financing Activities: Cash dividends paid (7,917,972) (10,577,643) (10,576,346) Proceeds from bank borrowings 12,400,000 8,600,000 10,700,000 Repayment of bank borrowings (18,400,000) (2,600,000) (12,700,000) Proceeds from sale of Class A common stock 102,743 316,826 647,225 Purchase of treasury stock - (1,281,806) (306,606) Net Cash Used in Financing Activities (13,815,229) (5,542,623) (12,235,727) Effect of exchange rate changes on cash and cash equivalents (574,863) 25,562 108,751 Increase (decrease) in cash and cash equivalents 11,033,294 (15,790,949) 21,636,606 Cash and cash equivalents at beginning of year 14,767,483 30,558,432 8,921,826 Cash and Cash Equivalents at End of Year $ 25,800,777 $ 14,767,483 $ 30,558,432 See notes to consolidated financial statements. A.T. Cross Company & Subsidiaries Notes to Consolidated Financial Statements December 31, 1997 Note A - Significant Accounting Policies Principles of Consolidation: The consolidated financial statements include the accounts of the Company and all of its subsidiaries. Upon consolidation, all material intercompany accounts and transactions are eliminated. Reclassification of Prior Years' Financial Statements: Certain amounts in 1996 and 1995 have been reclassified in order to permit comparison to 1997. Accounting for Estimates: The preparation of financial statements in accordance with generally accepted accounting principles requires the Company to make assumptions that affect the estimates reported in these consolidated financial statements. Actual results may differ from these estimates. Industry Segments and Nature of Operations: The Company currently operates predominately in one industry segment, the manufacture, sale and distribution of writing instruments, and sells to retailers and wholesale distributors throughout the world, principally in North America, Europe and the Far East/Asia. In 1996, the Company established the Pen Computing Group (PCG) to develop and market new pen-based products that facilitate electronic communications. Significant costs were recorded during 1997 relating to the development and marketing of new product lines and commencement of operations, resulting in a pre-tax loss from continuing operations of $5,728,000 for PCG, on a stand alone basis. Shipment of product began in 1997 resulting in revenues approximating $1,657,000. Additionally, approximately 20% of the Company's 1997 capital expenditures related to PCG. The Company discontinued its Manetti-Farrow operations as of June 30, 1997 (See Note K). Cash Equivalents and Short-Term Investments: The Company considers all highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents. Short-term investments are stated at cost, which approximates market, and consist of interest bearing investments with a remaining maturity of greater than three months when purchased. Cash equivalents and short-term investments are placed only with high-credit quality financial institutions. At December 31, 1997 and 1996, approximately 50% and 55%, respectively, of the Company's cash, cash equivalents and short-term investments were placed with one financial institution. Short-term investments at December 31, 1997 and 1996 include time deposits, certificates of deposit, municipal bonds and U.S. Government Agency bonds and treasury notes ("Trading" securities) which have a maturity greater than three months. Trading securities are stated at cost which approximates fair market value. Inventories: Substantially all domestic inventories are priced at the lower of last-in, first-out cost or market. The remaining inventories are priced at the lower of first-in, first-out cost or market. Property, Plant and Equipment, and Related Depreciation: Property, plant and equipment are stated on the basis of cost. Provisions for depreciation are computed using a combination of accelerated and straight-line methods which are intended to depreciate the cost of such assets over their estimated useful lives which range from three to thirty years. Assets Held for Sale: The carrying value of the Company's former distribution center in Lincoln, Rhode Island, which was sold in July 1997, was included in the balance sheet caption "Intangibles and Other Assets" at December 31, 1996. Proceeds from the sale closely approximated the carrying value at December 31, 1996. Derivatives: The Company has a program in place to manage foreign currency risk. As part of that program, the Company has entered into foreign currency exchange contracts to hedge anticipated foreign currency transactions or commitments, primarily purchases of materials and products from foreign suppliers, and certain foreign currency denominated balance sheet positions. The terms of the contracts generally correspond with the dates of the anticipated foreign currency transactions. Realized and unrealized gains and losses on those contracts intended to hedge specific foreign currency transactions or commitments are deferred and accounted for as part of the transaction, while gains and losses on other contracts are included in net income (loss). Foreign currency exchange losses are included in selling, general and administrative expenses and approximated $1,060,000, $710,000 and $70,000 in 1997, 1996 and 1995, respectively. Gold Purchase Commitments: To reduce its exposure to fluctuating gold prices, the Company enters into gold purchase commitments with a third party. The contracts require the Company to purchase a specified quantity of gold bullion at a fixed price in the future, and require the Company to pay a monthly fee on the total value of each contract. The rate of the fee on each contract is selected from a pool of available rates related to the federal funds rate or the London Interbank Offering Rate (LIBOR). At any point in time, the Company's outstanding gold purchase contracts are generally sufficient to supply approximately twelve months expected gold usage. At December 31, 1997, the total contract prices of outstanding gold purchase commitments amounted to $4,670,000. Advertising Costs: The costs of advertising are charged to expense as incurred and amounted to $24,620,000, $21,359,000 and $21,783,000 for the years ended December 31, 1997, 1996 and 1995, respectively. Accrued advertising and marketing support expenses were $6,400,000 and $5,100,000 at December 31, 1997 and 1996, respectively, and are included in accrued expenses and other liabilities. Warranty Costs: The Company's writing instruments are sold with a full warranty of unlimited duration against mechanical failure. Estimated warranty costs are accrued at the time of sale. Discretionary product repair and replacement costs, not related to mechanical failure, are included in service and distribution costs. Net Income (Loss) Per Share: Net income (loss) per share is computed based upon the weighted average number of shares of Class A and Class B common stock outstanding during the year. In 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share." The Company adopted this new principle in 1997. The exercise of outstanding stock options has not resulted in a material dilution of net income per share. Prior years' earnings per share have been restated to give effect to SFAS No. 128. Long-Lived Assets: The Company evaluates the carrying value of its long-lived assets relying on a number of factors, including operating results, future anticipated cash flows, business plans and certain economic projections. In addition, the Company's evaluation considers nonfinancial data such as changes in the operating environment, competitive information, market trends and business relationships. New Accounting Pronouncements: The FASB recently issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Both statements are effective and will be adopted by the Company in fiscal 1998. The effect of adopting these standards is not expected to be material to the Company's consolidated financial position or results of operations; however, they both may require additional disclosure. Note B - Inventories Domestic inventories approximating $6,909,000 and $9,967,000 at December 31, 1997 and 1996, respectively, are priced at the lower of last-in, first-out (LIFO) cost or market. The remaining inventories are priced at the lower of first-in, first-out (FIFO) cost or market. If the first-in, first-out method of inventory valuation had been used by the Company for those inventories priced using the last-in, first-out method, inventories would have been approximately $13,978,000 and $13,652,000 higher than reported at December 31, 1997 and 1996, respectively. The Company believes the LIFO method of inventory valuation ordinarily results in a more appropriate matching of its revenues to their related costs since current costs are included in cost of goods sold and distortions in reported income due to the effect of changing prices are reduced. Note C - Common Stock The Class A and Class B common stock are identical, except for differences with respect to certain voting rights. Shareholders are entitled to share equally in dividends that may be declared by the Board of Directors and, upon liquidation, to share ratably in any assets which remain available for distribution on the Class A and Class B common stock. Holders of Class A common stock are entitled to elect one-third of the number of directors. Changes in Class A common stock and additional paid-in capital are shown below (there were no changes in Class B common stock): Class A Common Stock Number Additional of Paid-In Shares Amount Capital Balances at January 1, 1995 15,194,293 $ 15,194,293 $ 10,721,412 Stock option activity 40,984 40,984 484,808 Stock purchase plan 8,039 8,039 113,394 Balances at December 31, 1995 15,243,316 15,243,316 11,319,614 Stock option activity 15,334 15,334 189,488 Stock purchase plan 7,947 7,947 104,057 Restricted stock plan 15,815 15,815 224,375 Balances at December 31, 1996 15,282,412 15,282,412 11,837,534 Other shares issued 2,926 2,926 32,810 Stock purchase plan 9,314 9,314 88,326 Balances at December 31, 1997 15,294,652 $ 15,294,652 $ 11,958,670 Note D - Stock Option and Stock Purchase Plans The Company has an incentive stock option plan and a non-qualified stock option plan under which options to purchase shares of Class A common stock may be granted to key employees. Options to purchase Class A shares are automatically granted annually pursuant to formula under the non-qualified plan to members of the Company's Board of Directors. Under the incentive plan, the option price is the mean between the high and low prices of the stock on the date that the option is granted. The plan expires in February 1998. The term of each option is ten years or such shorter period as may be determined by the Board of Directors. The option price for options issued under the non-qualified plan is the mean between the high and low price on the date of the grant. The plan has no definite expiration date, but may be terminated by the Board of Directors. The term of each option is ten years or such shorter period as may be determined by the Board of Directors. The number of shares of Class A common stock reserved for issuance under the plan was increased by 675,000 by the Company's shareholders in 1995. Options under both the incentive plan and the non-qualified plan vest and become exercisable at such time or times, in installments or otherwise, as may be determined by the Compensation Committee of the Board of Directors and set forth in a written agreement evidencing the grant of such option. Stock option activity during the three years ended December 31, 1997 was as follows: WEIGHTED AVERAGE SHARES OPTIONS PRICE PER SHARE RESERVED Incentive Stock Option Plan: Outstanding at January 1, 1995 461,120 $ 21.21 608,140 Granted 32,250 $ 15.75 - Exercised (3,334) $ 15.44 (3,334) Canceled (62,149) $ 22.10 - Outstanding at December 31, 1995 427,887 $ 19.48 604,806 Granted 37,250 $ 14.95 - Exercised (4,000) $ 15.44 (4,000) Canceled (73,887) $ 19.25 - Outstanding at December 31, 1996 387,250 $ 19.90 600,806 Granted 174,750 $ 9.99 - Canceled (268,300) $ 20.23 - Outstanding at December 31, 1997 293,700 $ 17.82 600,806 Approximately 167,000 (at a weighted average price of $18.47), 354,000 and 385,000 options outstanding were exercisable at December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, exercise prices of outstanding options ranged from $9.69 to $36.69, approximately 80% of which were priced at less than $15.45. Outstanding options had a weighted average remaining contractual life of approximately eight years. WEIGHTED AVERAGE SHARES OPTIONS PRICE PER SHARE RESERVED Non-Qualified Stock Option Plan: Outstanding at January 1, 1995 705,007 $ 16.53 786,797 Addition to shares reserved - - 675,000 Granted 677,226 $ 15.21 - Exercised (37,650) $ 12.64 (37,650) Canceled (83,993) $ 15.01 - Outstanding at December 31, 1995 1,260,590 $ 16.10 1,424,147 Granted 11,182 $ 11.50 - Exercised (11,334) $ 12.63 (11,334) Canceled (86,317) $ 16.24 - Outstanding at December 31, 1996 1,174,121 $ 15.91 1,412,813 Granted 634,656 $ 9.83 - Canceled (713,733) $ 15.47 - Outstanding at December 31, 1997 1,095,044 $ 16.49 1,412,813 Approximately 331,000 (at a weighted average price of $17.81), 603,000 and 629,000 options outstanding were exercisable at December 31, 1997, 1996 and 1995, respectively. At December 31, 1997, exercise prices of outstanding options ranged from $9.69 to $33.02, approximately 80% of which were priced at less than $15.20. Outstanding options had a weighted average remaining contractual life of approximately eight years. The Company also has an employee stock purchase plan allowing eligible employees, other than officers and directors, to purchase shares of the Company's Class A common stock at 10% less than the mean between the high and low prices of the stock on the date of purchase. A maximum of 320,000 shares is available under the plan and the aggregate number of shares reserved was 136,416, 145,730 and 153,677 at December 31, 1997, 1996 and 1995, respectively. In addition, the Company has a restricted stock plan under which shares of the Company's Class A common stock may be issued to certain executives representing a portion of their annual incentive compensation in the event that such annual incentive compensation is in excess of performance target levels. Shares granted under the plan in 1996 may not be sold, assigned, pledged or otherwise encumbered during the restriction period which expires on December 31, 1999. If the Company fails to achieve certain operating targets during the restriction period, shares granted under the plan will revert back to the Company or will be canceled. At December 31, 1997, 13,535 shares were outstanding under the restricted stock plan. The Company applies APB Opinion No. 25 to account for its stock option plans. Accordingly, pursuant to the terms of the plans, no compensation cost has been recognized. However, if the Company had determined compensation cost for stock option grants issued during 1997, 1996 and 1995 under the provisions of SFAS No. 123, the Company's earnings (loss) and earnings (loss) per share would have been impacted by approximately $1,485,000 ($0.09 per share) in 1997, $93,000 ($0.00 per share) in 1996, and $1,242,000 ($0.07 per share) in 1995. The fair value of each stock option granted in 1997, 1996 and 1995 under the Company stock option plans was estimated on the date of grant using the Black- Scholes option-pricing model. The following key assumptions were used to value grants issued for each year: WEIGHTED AVERAGE AVERAGE DIVIDEND RISK FREE RATE EXPECTED LIFE VOLATILITY YIELD 1997 5.00% 5.0 years 34.70% 3.0% 1996 5.00% 5.0 years 29.00% 4.6% 1995 5.00% 5.0 years 24.90% 4.1% The weighted average fair values per share of stock options granted during 1997, 1996 and 1995 were $2.85, $2.84 and $2.89, respectively. It should be noted that the option pricing model used was designed to value readily tradable stock options with relatively short lives. The options granted to employees are not tradable and have contractual lives of up to ten years. However, management believes that the assumptions used and the model applied to value the awards yields a reasonable estimate of the fair value of the grants made under the circumstances. Note E - Employee Benefit Plans The Company has a non-contributory defined benefit pension plan and a defined contribution retirement plan (consisting of a savings plan and a non- contributory profit sharing plan), which cover substantially all domestic employees. In addition, participants in the plans whose retirement benefits would exceed amounts permitted under the Internal Revenue Code participate in a non-qualified excess retirement plan which provides a supplemental unfunded benefit equal to the amount of any benefit that would have been payable under the qualified retirement plan but for certain limitations under the Internal Revenue Code. Approximately $2,800,000 and $2,500,000 were accrued for the excess plan at December 31, 1997 and 1996, respectively, using the same actuarial assumptions as the defined benefit pension plan. Employees of non-U.S. subsidiaries generally receive retirement benefits from company sponsored defined benefit or defined contribution plans or from statutory plans administered by governmental agencies in their countries. The Company does not provide its employees any post-retirement benefits other than those described above. Benefits under the defined benefit plans are based on the employee's years of service and compensation, as defined. The Company's funding policy is consistent with applicable local laws and regulations. The savings plan, established under Section 401(k) of the Internal Revenue Code, allows participants to contribute up to 10% of their annual compensation. The Company will contribute 50% of the participant's contribution, to a maximum of 3% of the participant's salary and bonus. The Company's annual accrual and contribution for both the savings and profit sharing plans will not exceed the maximum amount deductible for such year for federal income tax purposes. The Company also has a voluntary employee beneficiary association (VEBA) plan. The VEBA plan provides payment of health benefits to the Company's employees and their beneficiaries. However, since the inception of the Company's fully funded medical insurance program in April 1997, the VEBA plan has been dormant. The following table sets forth the defined benefit plans' combined funded status and amounts recognized in the Company's consolidated balance sheets at December 31 of each year: 1997 1996 1995 Actuarial present value of benefit obligations: Accumulated benefit obligation including vested benefits of $20,968,000 in 1997, $17,869,000 in 1996, and $16,331,000 in 1995 $ 22,364,000 $ 18,322,000 $ 16,877,000 Projected benefit obligation $(28,418,000) $(25,280,000) $(23,023,000) Plan assets at fair value (marketable securities and short-term cash investments) 29,099,000 22,870,000 18,553,000 Excess (deficiency) of plan assets over projected benefit obligation 681,000 (2,410,000) (4,470,000) Unrecognized net gain (6,212,000) (3,440,000) (1,316,000) Unrecognized prior service cost 144,000 185,000 174,000 Unrecognized net transition obligation, net of amortization 416,000 486,000 421,000 Accrued pension cost included in contributions payable to employee benefit plans $ (4,971,000) $ (5,179,000) $ (5,191,000) The principal assumptions used in computing the amounts on the preceding table are as follows: Average discount rate 7.00% 7.75% 7.00% Increase in future compensation 4.00% 4.50% 4.00% Expected long-term return on plan assets 9.00% 9.00% 9.00% Expenses for each of the employee benefit plans are as follows: Service cost - benefits earned during the year $ 1,662,000 $ 1,685,000 $ 1,316,000 Interest cost on projected benefit obligation 1,848,000 1,666,000 1,590,000 Actual return on plan assets (6,040,000) (2,966,000) (3,278,000) Net amortization and deferral 4,142,000 1,339,000 1,893,000 Net pension cost of defined benefit plans 1,612,000 1,724,000 1,521,000 Savings plan 720,000 761,000 686,000 Profit sharing plan - - 1,000,000 Total $ 2,332,000 $ 2,485,000 $ 3,207,000 Note F - Income Taxes From Continuing Operations The provision (benefit) for income taxes consists of the following: 1997 1996 1995 Currently (receivable) payable: Federal $ (2,430,277) $ 1,549,354 $ 5,910,000 State - (63,763) 173,340 Foreign 648,817 95,000 88,000 (1,781,460) 1,580,591 6,171,340 Deferred: Federal 274,454 502,383 (83,151) State (838,994) 89,653 (15,221) Foreign - (9,000) 9,000 (564,540) 583,036 (89,372) Total $ (2,346,000) $ 2,163,627 $ 6,081,968 The reconciliation of income taxes computed at the statutory federal income tax rate to the provision for income taxes from continuing operations is as follows: 1997 1996 1995 Statutory federal income tax $ (2,346,210) $ 2,826,113 $ 6,526,178 State income tax, less federal tax benefit (545,346) 16,430 102,792 Foreign operations 1,411,973 145,000 170,000 Benefit of Foreign Sales Corporation (506,000) (457,000) (575,000) Miscellaneous (360,417) (366,916) (142,002) Provision for income taxes $ (2,346,000) $ 2,163,627 $ 6,081,968 The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 are presented below: 1997 1996 DEFERRED TAX ASSETS: Accounts receivable $ 310,420 $ 310,728 Additional costs inventoried for tax purposes and inventory reserves not deductible for tax purposes 875,629 759,111 Excess benefit plan 1,170,141 994,322 Accrued warranty costs 2,258,694 2,138,000 Accrued pension costs 1,347,835 1,170,385 Intangible assets 700,572 639,000 Net operating loss carryforward 1,165,000 1,322,000 Other 1,207,531 462,215 9,035,822 7,795,761 Less: valuation allowance (1,165,000) (1,322,000) Total deferred tax assets 7,870,822 6,473,761 DEFERRED TAX LIABILITIES: Property, plant and equipment, principally due to differences in depreciation (1,683,967) (712,685) Other (248,915) (387,676) Total deferred tax liabilities (1,932,882) (1,100,361) Net deferred tax asset (included in the consolidated balance sheet caption Intangibles and Other Assets) $ 5,937,940 $ 5,373,400 The Company's wholly-owned subsidiary, A. T. Cross Limited ("ATCL") is not subject to the Republic of Ireland statutory income tax rate. Through 2010, ATCL is subject to the 10% rate on profits from sales of Irish manufactured goods, as defined. This lower tax rate reduced income tax expense and increased net income by approximately $730,000 in 1997, $246,000 in 1996, and $625,000 in 1995. Beginning in 1994, the earnings of ATCL are subject to taxation in the United States pursuant to anti-deferral legislation. This had the effect of decreasing net income by approximately $640,000 in 1997, $215,000 in 1996, and $549,000 in 1995. At December 31, 1997 and 1996 undistributed earnings of foreign subsidiaries amounted to approximately $73,436,000 and $71,083,000 (including approximately $40 million in 1997 and $37 million in 1996 of cash, cash equivalents and short-term investments). These earnings could become subject to additional tax if they are remitted as dividends, if foreign earnings are lent to the Company or a U.S. affiliate, or if the Company should sell its stock in the subsidiaries Since it is generally the intention of the Company to invest the undistributed earnings of foreign subsidiaries in the growth of business outside the United States, deferred income taxes have not been provided on such earnings. The amount of additional taxes that might be payable on the foreign earnings approximates $22,400,000. At December 31, 1997, net operating loss carryforwards for certain foreign subsidiaries were approximately $3,045,000 for tax purposes. These losses begin to expire in 1998. Income taxes paid in 1997, 1996 and 1995 were approximately $2,442,000, $5,200,000 and $7,275,000, respectively. Note G - Geographic Information The following table sets forth geographic information for the Company: 1997 1996 1995 Net sales to unaffiliated customers: United States $ 100,216,275 $ 111,538,397 $ 123,268,925 Europe and Far East 54,499,401 55,350,433 52,340,982 Total $ 154,715,676 $ 166,888,830 $ 175,609,907 Income (loss) from continuing operations before income taxes: United States $ (9,305,693) $ 4,628,354 $ 13,899,549 Europe and Far East 2,602,235 3,447,035 4,745,740 Total $ (6,703,458) $ 8,075,389 $ 18,645,289 Identifiable assets: United States $ 70,380,565 $ 78,353,984 $ 102,439,015 Europe and Far East 87,638,798 95,768,228 82,427,555 Total $ 158,019,363 $ 174,122,212 $ 184,866,570 Identifiable assets outside the United States include cash, cash equivalents and short-term investments of $39,696,000, $37,363,000 and $46,259,000 at December 31, 1997, 1996 and 1995, respectively. United States sales to unaffiliated customers include export sales of approximately $20,575,000, $25,252,000 and $27,972,000 in 1997, 1996 and 1995, respectively. Note H - Line of Credit The Company has an unsecured line of credit agreement with a bank under which it may borrow up to $50,000,000. Any amounts borrowed under the agreement are payable on demand and will bear interest at one half of one percent (1/2 of 1%) per annum in excess of the LIBOR. The agreement is cancelable at any time by the Company or the bank. The highest amount borrowed at any time during 1997 was $7,500,000. The Company also has a multi-currency credit arrangement with a bank under which it may borrow up to the equivalent of 7,000,000 U.S. dollars to meet short-term foreign currency needs. This agreement is on an "offering basis" in that the terms and conditions of any transaction shall be mutually agreed upon at the time of each specific transaction. There were no amounts outstanding under this agreement at any time in 1997. Note I - Financial Instruments The table below details the U.S. dollar equivalent of foreign exchange contracts as of December 31, 1997 and 1996, along with maturity dates and net unrealized gain (loss) deferred. (Thousands of Dollars) CONTRACT AMOUNT MATURITY UNREALIZED GROSS NET UNREALIZED U.S. $ EQUIVALENT DATE GAIN (LOSS) GAIN (LOSS) DEFERRED DECEMBER 31, 1997 French Francs $ 995 1998 $ - $ - Pounds Sterling 1,660 1998 - - Spanish Pesetas 2,607 1998 - - German Marks 283 1998 - - Japanese Yen 3,736 1998 290 - Italian Lira 563 1998 - - Total $ 9,844 $ 290 $ - DECEMBER 31, 1996 French Francs $ 1,191 1997 $ - $ - Spanish Pesetas 3,548 1997 - - German Marks 135 1997 - - Japanese Yen 4,322 1997 - - Italian Lira 681 1997 - - Dutch Guilders 620 1997 (6) (6) Total $ 10,497 $ (6) $ (6) The fair value of cash, cash equivalents, short-term investments, note payable to bank, and foreign exchange contracts approximates its recorded amount. The fair value of forward foreign exchange contracts was approximately $290,000 and $(6,000) as of December 31, 1997 and 1996, respectively. Note J - Cost Reduction Plan In July 1997, the Company's Board of Directors approved a plan designed to reduce the cost of its independent sales force and operating costs at its manufacturing facility in Lincoln, Rhode Island. The plan primarily involved reducing personnel costs by eliminating redundant or excess positions in several of the Company's functional areas. Severance and other charges associated with the plan were approximately $800,000 and are included in selling, general and administrative expenses. Note K - Discontinued Operations In June 1997, the Company discontinued the distribution of quality leather goods and accessory products and began to wind down all operations of its Manetti-Farrow subsidiary. Manetti-Farrow was the exclusive wholesale distributor for the Fendi and Echo brands of leather products and fashion accessories in the United States. The Company recorded an after-tax loss of $2,321,000 in 1997 in connection with the disposition of this subsidiary. The following table sets forth summary information relating to Manetti-Farrow: SIX MONTHS YEAR ENDED ENDED DECEMBER 31, JUNE 30, 1997 1996 1995 Net sales $ 5,579,330 $ 12,314,613 $ 15,480,502 Costs and expenses 5,550,020 11,012,076 13,872,438 Operating income before income tax benefit 29,310 1,302,537 1,608,064 Income tax relating to operations 10,944 608,373 806,032 Operating income $ 18,366 $ 694,164 $ 802,032 The Company recorded a loss on disposal before income taxes of approximately $3,600,000 for the year ended December 31, 1997. The income tax benefit related to the disposal was approximately $1,261,000 for the year ended December 31, 1997. Sales from the measurement date to the balance sheet date were approximately $8,800,000. The consolidated statements of operations and retained earnings and consolidated statements of cash flows for the years ended December 31, 1996 and 1995 have been reclassified to present Manetti-Farrow as a discontinued operation. The net assets of Manetti-Farrow that have been reclassified to Other Current Assets, approximated $600,000 and $9,200,000 at year end 1997 and 1996, respectively. In addition, at year end 1996 approximately $600,000 of Manetti-Farrow assets have been reclassified to Intangibles and Other Assets. Note L - Quarterly Results of Operations (UNAUDITED) The following is a tabulation of the unaudited quarterly results of operations for the years ended December 31, 1997 and 1996: (Thousands of Dollars, Except Shares and Per Share Data) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1997: Net sales $ 33,688 $ 31,124 $ 36,626 $ 53,278 Gross profit 16,459 13,988 17,542 25,457 Net income (loss) from: Continuing operations 740 (2,573) (588) (1,936) Discontinued operations 66 (2,387) - - Net income (loss) $ 806 $ (4,960) $ (588) $ (1,936) Basic and diluted earnings (loss) per share: Continuing operations $ 0.05 $ (0.16) $ (0.04) $ (0.11) Discontinued operations - (0.14) - - Net income (loss) per share $ 0.05 $ (0.30) $ (0.04) $ (0.11) Weighted average shares outstanding: Denominator for basic earnings per share 16,494,602 16,495,206 16,499,604 16,501,241 Effect of dilutive securities: Employee stock options 501 Denominator for diluted earnings per share 16,495,103 16,495,206 16,499,604 16,501,241 (A) No incremental shares related to options are included due to the loss in the quarter. (Thousands of Dollars, Except Shares and Per Share Data) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 1996: Net sales $ 32,852 $ 39,035 $ 40,237 $ 54,765 Gross profit 16,549 18,685 19,051 25,751 Net income from: Continuing operations 1,523 769 1,521 2,099 Discontinued operations 134 25 100 435 Net income $ 1,657 $ 794 $ 1,621 $ 2,534 Basic and diluted earnings per share: Continuing operations $ 0.09 $ 0.05 $ 0.09 $ 0.13 Discontinued operations 0.01 - 0.01 0.02 Net income per share $ 0.10 $ 0.05 $ 0.10 $ 0.15 Weighted average shares outstanding: Denominator for basic earnings per share 16,555,892 16,561,264 16,508,235 16,490,849 Effect of dilutive securities: Employee stock options 56,632 109,139 17,542 51 Denominator for diluted earnings per share 16,612,524 16,670,403 16,525,777 16,490,900 Report of Deloitte & Touche LLP Independent auditors To the Board of Directors and Shareholders of A.T. Cross Company Lincoln, Rhode Island We have audited the accompanying consolidated balance sheets of A.T. Cross Company and subsidiaries as of December 31, 1997 and 1996 and the related consolidated statements of operations and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. The consolidated financial statements of the Company for the year ended December 31, 1995 were audited by other auditors whose report, dated January 30, 1996, expressed an unqualified opinion on those statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such 1997 and 1996 financial statements present fairly, in all material respects, the financial position of the companies as of December 31, 1997 and 1996, and the results of their operations and their cash flows for the years then ended in conformity with generally accepted accounting principles. DELOITTE & TOUCHE LLP Boston, Massachusetts February 10, 1998 Management`s Discussion & Analysis of Financial Condition and Results of Operations Results of Operations Comparison of 1997 with 1996 Consolidated net sales decreased 7.3% or $12.2 million in 1997 compared to 1996. Domestic writing instrument sales decreased by $8.9 million, or 10.4%, while foreign writing instrument sales were lower by $5.5 million or 6.9% as compared to 1996. Domestic writing instrument sales continued to be affected by changes in distribution channels. Sales through the mass market accounts and catalog showrooms have declined over 55% in the last two years as quality writing instruments have become less important to this class of trade. In response, Cross has introduced new products to enhance its image and gain market share at the upper end of the writing instrument market. The new Pinnacle line and Townsend Jade were introduced to department, gift and jewelry stores (i.e., the "carriage trade"), while a wider girth Century 2000 line was targeted to the office mega stores. To attempt to increase the awareness of the various products, finishes and girths Cross now offers, a new advertising campaign was introduced in 1997. Television advertising was also used during the all- important holiday season. These ads featured many of the newer Cross offerings along with the well recognized, traditional Century line. Internationally, sales results were mixed. Sales to European markets were up by almost 5% and sales to Canada and Latin America exceeded 1996 levels. In Europe, new product introductions and finishes in the Century line and wider-girth Townsend line as well as a large, one-time business gift order helped to offset the effects of an overall stronger U.S. dollar. Sales in Asia and the Far East decreased approximately 27% for the full year after a promising start, due to the severe economic downturn in this key market during 1997. It is expected that many of the conditions now affecting Asia will continue into 1998. In addition, the weaker Japanese yen as compared to 1996 unfavorably affected sales by just over 2%. In 1997 the Pen Computing Group (PCG) introduced its first two products, DigitalWriter_ and the iPen_, to the retail trade. Due to the heavy start-up costs associated with this new initiative, PCG had an after-tax loss of $3.7 million in 1997 ($0.23 per share, basic and diluted). The Company expects to introduce an electronic digital notepad in 1998 called CrossPad_. The CrossPad_, first introduced at the November Comdex show in Las Vegas, was recognized by PC WEEK magazine as a Best of Comdex Finalist. Additionally, in order to test the transferability of the Cross brand to other high quality gift and self-purchase products, the Company has introduced a line of Swiss-made timepieces which it began to sell on a limited, test market basis in 1997. The expenses associated with timepieces resulted in a $1.5 million after-tax loss in 1997 ($0.09 per share, basic and diluted). While pen computing and timepieces offer enhanced growth potential for 1998, it is important to recognize that the quality writing instrument business was profitable in 1997. It is the Company's intention to grow this business next year by the addition of several new products and an aggressive marketing campaign in Europe, where we hold the smallest market share against our competitors. The overall consolidated gross margin decreased to 47.5% in 1997 from 48.0% in 1996. Although cost reduction programs were implemented in 1997, the lower sales volume in 1997 resulted in a higher percentage of indirect product costs (i.e., factory overhead) in relation to sales. Lower margins also resulted from the first partial year of PCG sales and from the test marketing of Cross timepieces which generated margins lower than writing instruments. Selling, general and administrative expenses increased $7.9 million, or 11.8%, in 1997 as compared to 1996 and were 48.3% of net sales in 1997 as compared to 40.0% in 1996. Excluding the costs associated with PCG and Cross timepieces of $4.8 million and $2.5 million, respectively, and $0.8 million of expenses relating to the cost reduction plan, writing instrument's selling, general and administrative expenses were below 1996 levels. The lower writing instrument expenses this year largely resulted from the Company's cost containment efforts in response to declining sales. The stronger dollar, particularly with respect to the Japanese yen and German mark, also contributed to lower expenses this year. Research and development expenses were 17.0% above last year's levels due entirely to the increased spending for the development of PCG products. Service and distribution costs were 6.3% lower in comparison to 1996 largely due to the lower sales volume. Interest and other income decreased 3.5% from 1996 as interest income was slightly less than last year due to lower average invested funds. In 1997 the Company recorded an income tax benefit of 35.0% on the loss from continuing operations as compared to the 1996 tax provision of 26.8%. For an analysis of the changes in the effective tax rate, see Note F to the Company's consolidated financial statements. The contract between the Company's Manetti-Farrow subsidiary and Fendi Diffusione, whereby the Company distributed Fendi leather products in the United States, expired on December 31, 1997. In June 1997, the Company and Fendi agreed that the distribution agreement would not be renewed, and consequently, the Company decided to discontinue the distribution of quality leather goods and accessory products and to wind down the operations of its Manetti-Farrow subsidiary. The Company recorded an after-tax loss of $2.3 million in connection with the discontinuation of this business in 1997. As a result of the foregoing, the net loss in 1997 was $6,678,000, ($0.40 loss per share, basic and diluted) as compared to the 1996 net income of $6,606,000, ($0.40 income per share, basic and diluted), while the loss from continuing operations in 1997 was $4,357,000, ($0.26 loss per share, basic and diluted) as compared to the 1996 income from continuing operations of $5,912,000 ($0.36 income per share, basic and diluted). Comparison of 1996 with 1995 Consolidated net sales decreased 5.0% or $8.7 million in 1996 as compared to 1995. Overall, the decrease was attributable to a decline in sales of the Company's traditional, slim Century line, offset somewhat by sales of the Company's newer products. Domestic writing instrument sales decreased by $9.0 million, or 9.5%, while foreign writing instrument sales increased by $0.3 million or 0.4% compared to the prior year. The decline in Century sales was particularly notable in the United States where this product line has been marketed for over 50 years. In the last three years, the Company began offering new product lines to complement the sagging Century line. Although most of these new products have been well received in 1996, they did not generate sufficient sales to completely offset the Century decline. The Company attributes the less than expected new product sales to a lack of consumer awareness of the Company's new products. While the established Century line is well-known and quickly associated by consumers with the Cross brand name, the Company has not successfully transferred this high brand awareness to its other products. The decline in domestic writing instruments was most significant in sales to mass market retailers which declined almost 40%. However, part of the decline in sales to this distribution channel was the result of the Company's decision to discontinue business with certain customers whose merchandising strategies were incompatible with the Cross brand image. The Company's Century line and its more recently introduced, low-priced Solo_ line were the most negatively affected by the fall off in business to mass market retailers. While sales of the Company's new Metropolis_ and Solo Classic_ lines, particularly to the office mega stores as well as to the carriage trade, helped to partially offset the Century and Solo decreases, sales of these products were less than anticipated and insufficient to offset the entire decline. Sales of Townsend products, the Company's highest priced product line, were relatively flat as compared to 1995. Domestic sales in 1996 benefited somewhat from an approximate 2% first quarter price increase. Internationally, while sales in Asia and the Far East decreased approximately 3% as compared to 1995, primarily due to the weaker Japanese yen, European sales increased approximately 9.0%. The Company's largest sales growth in recent years has been in international markets, where the Company has a much lower share of the writing instrument market than in the United States. The Company has taken steps to increase its market share in these areas of the world. For example, in Europe, the Company introduced a new line of Century products (Century Restage) complete with unique finishes and designs developed specifically for this market. The success of this new product, especially the fountain pen, contributed to the higher European sales in 1996. The overall consolidated gross margin decreased to 48.0% in 1996 from 51.5% in 1995. Although cost controls have been effective at keeping production cost increases to a minimum, lower sales combined with even lower production levels in 1996 resulted in a much higher percentage of indirect product costs (i.e., factory overhead) in relation to sales. In addition, a number of the Company's newer products earn incrementally lower margins than the Company's older, more mature products. Selling, general and administrative expenses decreased $0.9 million (1.3%) in 1996 as compared to 1995, and were 40.0% of net sales in 1996, as compared to 38.5% in 1995. The lower expenses this year largely resulted from the Company's cost containment efforts undertaken in response to lower sales. Although the Company's overall cost structure is higher due to the establishment in 1995 of a European Sales and Marketing Headquarters facility in Paris, France, many discretionary costs were reduced or eliminated in order to minimize the negative impact on earnings associated with lower sales. The stronger dollar, particularly with respect to the Japanese yen, also contributed to lower expenses this year. Research and development expenses and service and distribution costs were relatively unchanged in comparison to 1995. Interest and other income decreased $1.3 million (39.5%) from 1995. Interest income was lower due to lower interest rates earned on lower average invested funds, and to interest earned in 1995 on a non-recurring state income tax refund claim. The effective income tax rate on income from continuing operations in 1996 was 26.8% as compared to the 1995 rate of 32.6%. For an analysis of the changes in the effective tax rate, see Note F to the Company's consolidated financial statements. As a result of the foregoing, net income in 1996 was $6,606,000, ($0.40 per share, basic and diluted) as compared to the 1995 net income of $13,365,000, ($0.81 per share, basic and diluted), while the income from continuing operations in 1996 was $5,912,000, ($0.36 per share, basic and diluted) as compared to 1995 of $12,563,000, ($0.76 per share, basic and diluted). Sales by Manetti-Farrow for the year were $12.3 million, down 20.5% from 1995. The decline in sales was due to the lack of the newer, more popularly priced styles of Fendi products. Liquidity and Capital Resources Cash, cash equivalents and short-term investments (i.e., "cash") increased $5.4 million in 1997 to $47.4 million. While income from continuing operations decreased $10.3 million, the effect of depreciation combined with lower accounts receivable and higher accrued liabilities at the end of the year resulted in a $4.0 million improvement in cash provided by continuing operations. Accounts receivable decreased $3.8 million, primarily due to the lower sales volume in the last months of the year as compared to the same months of 1996. The Company ordinarily offers domestic retail customers a program whereby they may either delay payment on certain third and fourth quarter purchases until January of the next year, or may earn a greater discount on these purchases if payment is made earlier. As a result, the Company's cash level is lowest at the end of the year when accounts receivable are highest. Inventory increased $1.4 million as compared to 1996 due entirely to PCG and timepiece inventories of $2.6 and $1.5 million, respectively, as writing instrument inventory declined by $2.7 million or approximately 15% from the prior year. Additions to property, plant and equipment were $7.5 million in 1997, compared to $9.0 million in 1996. The 1997 additions included expenditures for the Pen Computing Group as well as state-of-the-art PVD coating equipment at the Company's Irish facility. In 1998 the Company expects capital expenditures to be lower than 1997 and depreciation to approximate 1997 levels. Also included in cash from investing activities are the net proceeds of $4.2 million received from the sale of the Company's former distribution center. The discontinuation of Manetti-Farrow in 1997, and resultant liquidation of the operation's net assets, resulted in $10.3 million of cash in 1997. The Company does not expect this discontinued operation to consume or generate significant cash in 1998. The Company's working capital was $70.5 million at the end of 1997, a decrease of $6.0 million from 1996, and its current ratio at the end of 1997 was 2.8:1, the same as at the end of 1996. The Company has a $50 million bank line of credit to meet any temporary borrowing needs. There were no amounts outstanding on this line of credit at year end 1997. Also, the Company has a multi-currency credit arrangement under which it may borrow up to the equivalent of $7 million to meet short-term foreign currency needs. The Company believes that funds from operations and existing cash, supplemented, as appropriate, by the Company's existing short-term borrowing arrangements, will be adequate to finance its foreseeable operating and capital requirements. At the end of 1997, cash available for domestic operations amounted to $7.7 million while cash held offshore for international operations amounted to $39.7 million. While it is not the Company's current intention to do so, if the Company ever determines that the cash held offshore was not necessary for international operations, it may repatriate some or all of such cash for use in domestic operations. However, repatriated offshore funds would be subject to additional federal and state income taxes of approximately 31% of the remitted amounts. Year 2000 Compliance The Company will be required to modify significant portions of its software so that it will function properly in the year 2000. Some software programs have already been so modified and others are being updated on a routine ongoing basis. Maintenance or modification costs will be expensed as incurred and are estimated to be approximately $900,000 over the next two years. New hardware and software will be capitalized and depreciated over its useful life. The Company has developed a plan to contact its key suppliers and customers to evaluate their progress towards year 2000 compliance and the potential impact to the Company. The impact of non-compliance of the Company's key suppliers and customers may have a material adverse impact which has not yet been quantified. New Accounting pronouncements The FASB recently issued SFAS No. 130, "Reporting Comprehensive Income," and SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." Both statements are effective and will be adopted by the Company in fiscal 1998. The effect of adopting these standards is not expected to be material to the Company's financial position or results of operations; however, they both may require additional disclosure. Impact of Inflation and Changing Prices The Company's operations are subject to the effects of general inflation as well as fluctuations in foreign currencies. In addition, the Company is exposed to volatility in the price of gold and silver as those precious metals are used in the manufacture of its products. Policies and programs are in place to manage the potential risks in these areas. The Company has generally been successful in controlling cost increases due to precious metal fluctuations and due to general inflation. The Company continues to review its number of suppliers in order to obtain lower costs and higher quality on many of its materials and purchased components, and has taken steps in the current year to further reduce operating costs in its manufacturing operations. Because of volatility in both the gold bullion and foreign currency markets, the Company has followed the practice of making advance commitments for approximately one year's projected requirements for its gold needs and for a portion of its foreign currency needs. In addition, the Company normally enters into foreign currency forward exchange contracts to hedge that portion of its net financial position that is exposed to foreign currency fluctuations (See Note A). As noted above, the Company has a multi-currency credit arrangement which may help the Company meet some of its foreign currency needs and may serve as an additional tool for hedging assets and liabilities exposed to foreign currency fluctuations. The Company has adopted accounting practices which tend to reflect current costs in its statements of operations. A significant portion of total inventories at the end of 1997, 1996 and 1995, were accounted for using the last-in, first-out (LIFO) valuation method. Normally under this method, the cost of goods sold reported in the financial statements approximates current costs and, thus, helps reduce distortions in reported income due to the effect of changing prices. Risks and Uncertainties; Forward Looking Statements Statements contained herein that are not historical fact are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. In addition, words such as "believes", "anticipates", "expects" and similar expressions are intended to identify forward-looking statements. The Company cautions that a number of important factors could cause the Company's actual results for 1998 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Forward-looking statements involve a number of risks and uncertainties. The following section describes certain of the more prominent risks and uncertainties inherent in the Company's operations. However, this section does not intend to discuss all possible risks and uncertainties to which the Company is subjected, nor can it be assumed necessarily that there are no other risks and uncertainties which may be more significant to the Company. New Products: The Company's ability to restore growth in sales depends largely on consumer acceptance of various new products recently introduced and planned for introduction in the coming months. The market in which the Company sells is highly competitive, and there is no assurance that consumer acceptance will be realized to the degree necessary to generate growth in the Company's sales and earnings. Dependence on Certain Suppliers: To maintain the highest level of product quality, the Company relies on a limited number of domestic and foreign suppliers for certain raw materials and manufacturing technologies. The Company may be adversely affected in the event that these suppliers cease operations, or if pricing terms become less favorable. The Company believes, but cannot be assured, that the raw materials currently supplied by these vendors could be obtained from other sources and that the manufacturing technologies could be developed internally or that suitably similar technologies could be located. Technological Change: The Company's new electronic products may be subject to technological change, new product introductions and enhancements and evolving industry standards that may render existing products obsolete. As a result, the Company's position in its existing market or other markets that it may enter could be eroded rapidly by technological advancements. If the Company is unable to develop and introduce products in a timely manner in response to changing market conditions or customer requirements, managements expectations may not be met. Sensitivity to Economic Conditions: Sales of the Company's products may be adversely affected by adverse economic conditions in its various international markets. A.T. Cross Company & Subsidiaries Board of Directors Bradford R. Boss Chairman of the Board Class B Director.1,4 Russell A. Boss President and Chief Executive Officer Class B Director.1,4 John E. Buckley Executive Vice President Chief Operating Officer Class B Director. 1,4 Bernard V. Buonanno, Jr. Partner, Edwards & Angell, Providence, Rhode Island Class B Director. 3 H. Frederick Krimendahl II Limited Partner, The Goldman Sachs Group, L. P., New York, New York Class B Director. 3 Thomas C. McDermott Owner, Forbes Products, LLC, Rush, New York Class A Director. 2 Terrence Murray Chairman, President and Chief Executive Officer, Fleet Financial Group, Inc., Boston, Massachusetts Class A Director. 3 James C. Tappan President, Tappan Capital Partners, Hobe Sound, Florida Class A Director. 2 Edwin G. Torrance Partner, Hinckley, Allen & Snyder, Providence, Rhode Island Class B Director. 2 Board Committees: 1-Executive; 2-Audit; 3-Compensation; 4-Employee Benefits. A.T. Cross Company & Subsidiaries Officers Bradford R. Boss Chairman of the Board Russell A. Boss President Chief Executive Officer John E. Buckley Executive Vice President Chief Operating Officer John T. Ruggieri Senior Vice President, Treasurer and Chief Financial Officer David J. Arthur Vice President, Engineering and PCG Operations Joseph V. Bassi Finance Director Tina C. Benik Vice President, Legal General Counsel and Corporate Secretary Joseph F. Eastman Vice President, Human Resources Steven T. Henick Vice President, International Marketing and Sales J. John Lawler Vice President, Worldwide Tax and Duty Free Stephen A. Perreault Vice President, Manufacturing David A. Rogers Vice President, U.S. Marketing and Sales Gary S. Simpson Corporate Controller A.T. Cross Company & Subsidiaries Corporate Information & Annual Meeting Corporate Headquarters A.T. Cross Company One Albion Road Lincoln, Rhode Island 02865 U.S.A. Tel. (401) 333-1200 Fax (401) 334-2861 websites: cross.com cross-pcg.com Subsidiaries, Branches and Divisions ATX Marketing Company, Lincoln, Rhode Island ATX International, Inc., Lincoln, Rhode Island A.T. Cross Export Company Limited, St. Thomas, Virgin Islands A.T. Cross Limited, Ballinasloe, Republic of Ireland A.T. Cross Distribution, Ballinasloe, Republic of Ireland A.T. Cross (Canada), Inc. Toronto, Ontario, Canada ATX Ireland, Limited, Ballinasloe, Republic of Ireland A.T. Cross Italia, S.r.l. Milan, Italy A.T. Cross Company, French Branch Paris, France A.T. Cross Company, Hong Kong Branch Hong Kong, Republic of China A.T. Cross (U.K.) Limited, Luton, Bedfordshire, England A.T. Cross (Europe), Limited, Luton, Bedfordshire, England A.T. Cross Company, Spanish Branch Malaga, Spain A.T. Cross Deutschland GmbH, Mainz, Federal Republic of Germany Cross Company of Japan, Ltd. Tokyo, Japan Cross Pen Computing Group, Lincoln, Rhode Island Annual Meeting The Annual Meeting of Shareholders of A.T. Cross Company will be held on Thursday, April 23, 1998 at 10:00 a.m. at the offices of the Company, One Albion Road, Lincoln, Rhode Island 02865. Independent Auditors Deloitte & Touche LLP, Boston, Massachusetts 02110 Stock Symbol American Stock Exchange Symbol: ATX.A Transfer Agent and Registrar Boston EquiServe, Limited Partnership Boston, Massachusetts 02266 10-K Report A copy of the Company's report to the Securities and Exchange Commission on Form 10-K will be furnished free of charge to any security holder upon written request to the Senior Vice President, Treasurer and Chief Financial Officer, at One Albion Road, Lincoln, Rhode Island 02865. EXHIBIT 23.1 Independent Auditors' Consent We consent to the incorporation by reference in Post-Effective Amendment Number 6 to Registration Statement No. 2-54429 on Form S-8, Post-Effective Amendment Number 9 to Registration Statement No. 2-42388 on Form S-8, and Registration Statement Nos. 33-23709, 33-23710, 33-54176, 33-64729, 33-64731 and 333-42915 of A.T. Cross Company on Forms S-8 of our reports dated February 10, 1998, appearing in and incorporated by reference in this Annual Report on Form 10-K of A.T. Cross Company for the year ended December 31, 1997. DELOITTE & TOUCHE LLP Boston, Massachusetts March 23, 1998 EXHIBIT 23.2 Consent of Independent Auditors We consent to the incorporation by reference in Post-Effective Amendment Number 6 to Registration Statement Number 2-54429 on Form S-8, Post- Effective Amendment Number 9 to Registration Statement Number 2-42388 on Form S-8, Registration Statement Number 33-23709 on Form S-8, Registration Statement Number 33-23710 on Form S-8, Registration Statement Number 33- 54176 on Form S-8, Registration Statement Number 33-64729 on Form S-8, Registration Statement Number 33-64731 on Form S-8 and Registration Statement Number 333-42915 on Form S-8, of our report dated January 30, 1996, with respect to the consolidated financial statements and schedule of A.T.Cross Company as of December 31, 1995, and for the year then ended, included in the Annual Report (Form 10-K) for the year ended December 31, 1997. ERNST & YOUNG LLP ERNST & YOUNG LLP Providence, Rhode Island March 23, 1998 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL STATEMENTS INCLUDED IN THE A. T. CROSS COMPANY ANNUAL REPORT TO SECURITY HOLDERS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. RESTATEMENT OF PRIOR PERIOD FINANCIAL DATA SCHEDULES IS NOT REQUIRED AS THERE WAS NO CHANGE TO EARNINGS PER SHARE DUE TO THE ADOPTION OF SFAS 128. End