UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 

 

FORM 10-Q 

 

(Mark One)

 

For the quarterly period ended June 29, 2013 

 

or 

 

 

For the transition period from __________to __________ 

 

Commission File Number  1-6720 

 

A. T. CROSS COMPANY
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (401) 333-1200 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (S232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files).

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock as of July 27, 2013:

 

  

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PART I - FINANCIAL INFORMATION 

 

Item 1.  Financial Statements. 

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

 

 

 

See notes to condensed consolidated financial statements.

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

 

 

 

  

 

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

 

 

 

See notes to condensed consolidated financial statements.

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

 

 

 

 

See notes to condensed consolidated financial statements.

  

 

 

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NOTE A - Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes required by US GAAP for financial statements.  The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes.  In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of items of a normal and recurring nature) necessary to present fairly the financial position as of June 29, 2013, the results of operations and comprehensive income for the three-month and six-month periods ended June 29, 2013 and June 30, 2012, and the cash flows for the six-month periods ended June 29, 2013 and June 30, 2012.  The results of operations for the six-month period ended June 29, 2013 are not necessarily indicative of the results to be expected for the full year.  The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.  Subsequent events have been evaluated to the date of issuance of these financial statements.  These financial statements should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 29, 2012, which includes consolidated financial statements and notes thereto for the years ended December 29, 2012,  December 31, 2011 and January 1, 2011.  The Company operates on a 52/53 week fiscal year, ending on the Saturday closest to December 31, and consists of 13 week fiscal quarters.

 

 

NOTE B - Inventory
The Company’s inventories are valued at the lower of cost or market.  Cost is determined using the first in, first out method.  The components of inventory are as follows:  

 

 

 

NOTE C - Income Taxes
In the first six months of 2013 the effective tax rate was 33.6%.  In the first six months of 2012 the effective tax rate was 31.2%. 

 

 

NOTE D - Segment Information
The Company has two reportable business segments: Cross Accessory Division ("CAD") and Cross Optical Group ("COG").  The Company evaluates segment performance based upon operating profit or loss.  Following is the segment information for the Company:

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NOTE E - Warranty Costs
CAD's Cross-branded writing instruments are sold with a full warranty of unlimited duration against mechanical failure.  CAD's accessories are sold with a one-year warranty against mechanical failure and defects in workmanship and timepieces are warranted for a period of two years.  Costa and Native sunglasses are sold with a lifetime warranty against defects in materials and workmanship.  Estimated warranty costs are accrued at the time of sale.  The most significant factors in the estimation of warranty cost liabilities include the operating efficiency and related cost of the service department, unit sales and the number of units that are eventually returned for warranty repair.  The current portion of accrued warranty costs was $0.4 million at June 29, 2013 

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and December 29, 2012, and was recorded in accounts payable, accrued expenses and other liabilities.  The following chart reflects the activity in aggregate accrued warranty costs:

 

 

  

 

NOTE F - Line of Credit
The Company maintains a $40 million revolving line of credit with Bank of America, N.A. (the “Bank”).  Under the line of credit agreement, the Bank agreed to make loans to the Company in an aggregate amount not to exceed $40 million, including up to $10 million equivalent in Eurocurrency loans denominated in pounds sterling or Euro (“Eurocurrency Loans”) and up to $30 million of other committed loans to the Company (“Committed Loans”) at any time.  As part of the aggregate availability, the Bank may also issue up to $7.5 million in letters of credit.  Subject to the limits on availability and the other terms and conditions of this credit agreement, amounts may be borrowed, repaid and reborrowed without penalty.  At June 29, 2013, this credit facility had a maturity date of and amounts outstanding had to be paid by July 28, 2013.

 

The interest rate for the Committed Loans will be, at the Company's option, either (i) the London Interbank Offered Rate (“LIBOR”) plus an applicable margin or (ii) the higher of the federal funds rate plus 50 basis points or the Bank's prime rate plus an applicable margin.  The interest rate for any Eurocurrency Loans will be an interest settlement rate for deposits in pounds sterling or Euro plus an applicable margin.  The applicable margin for LIBOR and Eurocurrency loans will be an amount between 1.75% and 2.25%, and the applicable margin for federal funds or the Bank's prime rate will be an amount between 0.25% and 0.75%, which will vary from time to time based upon the Company's consolidated leverage ratio.

 

Under the line of credit agreement, the Company has agreed to comply with certain affirmative and negative covenants.  The most restrictive covenant requires the Company to maintain a maximum ratio of consolidated funded indebtedness to consolidated adjusted EBITDA over any four-quarter period.  The agreement requires the Company to maintain a minimum consolidated tangible net worth, computed at each year end, a maximum level of capital expenditures, each of which is calculated in accordance with the agreement.  Amounts due under the credit agreement are guaranteed by certain domestic and foreign subsidiaries of the Company.  Amounts due are also secured by a pledge of the assets of the Company and those of certain of its domestic subsidiaries.

 

At June 29, 2013, the outstanding balance of the Company's line of credit was $15.0 million, bearing an interest rate of approximately 2.0%, and the unused and available portion, according to the terms of the agreement, was $25.0 million.  At December 29, 2012, the outstanding balance of the Company's line of credit was $15.0 million, bearing an interest rate of approximately 2.0%, and the unused and available portion, according to the terms of the agreement, was $25.0 million.

 

 

  

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NOTE G - Employee Benefit Plans
The following table illustrates the components of net periodic benefit cost:

 

 

 

The Company contributed $0.7 million to its defined benefit pension plan in the first six months of 2013.  The Company expects to contribute $2.1 million to its defined benefit pension plans in 2013.  Additionally, the Company expects to contribute $0.9 million to its defined contribution retirement plans in 2013.

 

In the second quarter of 2013, the Company settled a defined benefit pension plan that covered certain employees of its former manufacturing facility in Ireland.  The Company incurred approximately $1.4 million in non-cash charges that are included in selling, general and administrative expenses.

 

  

 

NOTE H - Goodwill and Other Intangible Assets 

Goodwill and indefinite-lived intangible assets are not amortized but are subject to annual impairment tests, more frequently if events or circumstances occur that would indicate a potential decline in their fair value.  The Company has identified two reporting units, consisting of the CAD and COG segments.  The Company performs the assessments annually during the fourth quarter or on an interim basis if potential impairment indicators arise.  The fair value of the reporting unit's goodwill is determined using established income and market valuation approaches and the fair value of other indefinite-lived intangible assets, consisting of two COG segment trade names, is determined using a forward relief from royalty method.  For further discussion about impairment analysis, see the "Impairment Analysis" section of Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the fiscal year ended December 29, 2012.

 

At June 29, 2013 and December 29, 2012, the approximate $15.3 million carrying value of goodwill, $11.9 million of which is expected to be tax deductible, related entirely to the COG segment.  Other intangibles consisted of the following:

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Amortization expense for the three and six month periods ended June 29, 2013 was approximately $0.2 million and $0.4 million, respectively.  The estimated future amortization expense for other intangibles remaining as of June 29, 2013 is as follows:

 

 

  

 

NOTE I - Financial Instruments
The Company is exposed to market risks arising from adverse changes in foreign exchange and interest rates.  In the normal course of business, the Company manages these risks through a variety of strategies, including the use of derivatives.  Certain derivatives are designated as cash flow hedges and qualify for hedge accounting treatment, while others do not qualify and are marked to market through earnings.  Gains or losses from derivatives used to manage foreign exchange are classified as selling, general and administrative expenses.

 

For cash flow hedges, changes in fair value are deferred in accumulated other comprehensive loss within shareholders' equity until the underlying hedged item is recognized in net income.  For fair value hedges, changes in fair value are recognized immediately in earnings, consistent with the underlying hedged item.  Hedging transactions are limited to an underlying exposure.  As a result, any change in the value of the derivative instruments would be substantially offset by an opposite change in the value of the underlying hedged items.  Hedging ineffectiveness and a net earnings impact occur when the change in the value of the hedge does not offset the change in the value of the underlying hedged item.  Ineffectiveness of the Company's hedges is not material.  If the derivative instrument is terminated, the Company continues to defer the related gain or loss and include it as a component of the cost of the underlying hedged item.  Upon determination that the underlying hedged item will not be part of an actual transaction, the Company recognizes the related gain or loss in the statement of income immediately.

 

The Company also uses derivatives that do not qualify for hedge accounting treatment.  The Company accounts for such derivatives at market value with the resulting gains and losses reflected in the statements of income.

 

The Company enters into arrangements with one financial institution that it believes is creditworthy and generally settles such arrangements on a net basis.  In addition, the Company performs a quarterly assessment of counterparty credit risk, including a review of credit ratings, credit default swap rates and potential nonperformance of the counterparty.  Based on the most recent quarterly assessment of counterparty credit risk, the Company considers this risk to be low.

 

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Foreign Exchange
The Company enters into derivatives, primarily forward foreign exchange contracts with terms of no more than one year, to manage risk associated with exposure to certain foreign currency denominated balance sheet positions, primarily intercompany accounts receivable.  Gains or losses resulting from the translation of certain foreign currency balance sheet positions are recognized in the statement of income as incurred.  Foreign currency derivatives had a total notional value of $13.4 million as of June 29, 2013 and $24.6 million as of December 29, 2012.  Gains and losses on the derivatives were generally offset by changes in U.S. dollar value of the underlying hedged items.

 

Interest Rates
In 2010, the Company entered into a forward interest rate swap agreement with an initial notional amount of $15.0 million and a term of three years.  This swap effectively fixes the interest rate on a portion of the Company’s line of credit at approximately 1.2%.  The item being hedged is the first interest payment to be made on $15.0 million of principal expected to occur each month beginning March 31, 2011.  The Company measures hedge ineffectiveness using the “hypothetical” derivative method.  This swap has been designated a cash flow hedge and the effect of the mark-to-market valuation is recorded as an adjustment, net of tax, to accumulated other comprehensive loss.  From inception to June 29, 2013, the effect of the mark-to-market valuation, net of tax, was not material and was included as a component of accumulated other comprehensive loss.

 

Fair Value Measurements
The fair value framework requires the categorization of assets and liabilities into three levels based upon the assumptions (inputs) used to price the assets or liabilities.  Level 1 provides the most reliable measure of fair value, whereas Level 3 generally requires significant management judgment.  The three levels are defined as follows:

 

 

The fair values of our financial assets and liabilities are categorized as follows:

 

 

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(A) Value is based on quoted market prices of identical instruments, fair value is included in cash and cash equivalents

(B) Value is based on quoted market prices of identical instruments

(C) Value is based on the present value of the forward rates less the contract rate multiplied by the notional amount, fair value is included in other current assets or accounts payable, accrued expenses and other liabilities

(D) Value is derived from a discounted cash flow analysis based on the terms of the contract and the interest rate curve, fair value is included in accounts payable, accrued expenses and other liabilities

 

Accounts receivable are recorded at net realizable value, which approximates fair value.  Accounts payable, included in accounts payable, accrued expenses and other current liabilities, are recorded at historical cost, which approximates fair value due to the short-term nature of the liabilities.  Line of credit is recorded at historical cost, which approximates fair value since the interest rate varies with prevailing market rates similar to level 2 categorized items.

 

The effective portion of the pre-tax gains (losses) on our derivative instruments for the three and six month periods ended June 29, 2013 and June 30, 2012 are categorized in the following table:

 

 

 

 

  

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NOTE J - Short-Term Investments
At June 29, 2013, the Company had short-term investments of $0.3 million classified as trading securities.  Realized and unrealized gains or losses on these short-term investments are included in other income.  The amount of unrealized gain on these short-term investments was not material at June 29, 2013.

  

 

NOTE K - New Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) which simplified how companies test goodwill for impairment.  The ASU permits an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in the goodwill accounting standard.  The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011.  The Company adopted this pronouncement in 2012.  In July 2012, the FASB issued an ASU which expanded the scope of this valuation testing methodology to include all indefinite-lived assets and is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012.  We do not expect this ASU to have a material effect on our financial position, results of operations or cash flows. 

 

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income” to amend Accounting Standards Codification Topic 220, “Comprehensive Income”.  The amendment requires an entity to provide information about the amounts reclassified out of other comprehensive income by component.  Entities are also required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under US GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under US GAAP to be reclassified in their entirety to net income, an entity is required to cross reference to other disclosures required under US GAAP that provide additional details about those amounts.  ASU 2013-02 is effective prospectively for fiscal years, and interim periods within those years, beginning after December 15, 2012.  The Company has applied the requirements of ASU 2013-02 in the first quarter of 2013. 

 

  

 

NOTE L - Commitments and Contingencies
The Company was named as one of approximately ninety defendants in a contribution suit brought by CCL/Unilever relating to the J.M. Mills Landfill Site (the “Site”), which is part of the Peterson/Puritan Superfund Site in Cumberland, Rhode Island.  These complaints alleged that the Company was liable under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") for contribution for Site investigation costs.  The Company has reached settlement of the case and paid a settlement amount of approximately $0.2 million in 2010.

 

The Company expects that the Federal Environmental Protection Agency ("EPA") will select a remedy for the Site in 2014.  At that time, the EPA will initiate an administrative process (the "Special Notice Process") pursuant to CERCLA whereby the EPA will request that those entities that the EPA contends arranged for the disposal of hazardous materials at the Site (the PRPs), undertake the selected remedy at the Site.  The EPA contends that the Company is a PRP at the Site.  During the Special Notice Process, the Company and the other PRPs will engage in negotiations with the EPA regarding the remedy, and among themselves regarding the contribution of each PRP to overall remediation costs.  Neither the cost of the remedy nor the identity of all PRPs is known at this time.  Therefore it is not possible to assess the outcome of the Special Notice Process as it may relate to the Company's contribution to remediation costs.

 

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The Company is involved in various other litigation and legal matters that have arisen in the ordinary course of business.  To its knowledge, management believes that the ultimate resolution of any of those existing matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.

 

 

 

NOTE M - Subsequent Events

Assets Held for Sale
On July 13, 2013, the Company signed a material definitive agreement to sell its Cross Accessory Division (“CAD”) to ATC Holdings, LP, a newly formed affiliate of Clarion Capital Partners, for a cash price of $60 million, subject to certain customary closing conditions and post closing adjustments.  As part of this transaction, Clarion will assume substantially all of the assets and liabilities associated with CAD, excluding liabilities associated with its U.S. defined benefit pension plan and certain known pre-closing environmental matters.  The transaction met the criteria for Assets Held for Sale at the time of signing subsequent to the end of the second quarter.  The sale is expected to close before the end of the third quarter.  As such, it is expected that CAD earnings will be reported as discontinued operations in the Company’s third quarter 2013 Form 10-Q.  An approximation of those CAD assets and liabilities associated with this agreement that are presented in the unaudited June 29, 2013 condensed consolidated balance sheet are:

 

 

Credit Agreement
On July 23, 2013, the Company and its lender, Bank of America, amended the Company’s current credit agreement, Second Amended And Restated Credit Agreement, that was due to mature on July 28, 2013.  This amended agreement, First Amendment To Second Amended And Restated Credit Agreement, extends the maturity date to December 31, 2013.  All other conditions, restrictions and covenants are unchanged.

  

 

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.

Overview
A.T. Cross Company is a designer and marketer of branded personal accessories including writing instruments, reading glasses, personal and business accessories and sunglasses.

 

The Company operates in competitive categories.    The Company has challenged itself to build upon its unique attributes in order to develop a vibrant, diversified and forward-looking company poised for sustainable growth and long-term profit.    Such attributes include: strong brand names, an over 160 year heritage, a reputation for quality and craftsmanship, a global distribution network, and a strong balance sheet.    The Company established several strategic initiatives to build upon these attributes and overcome its challenges, including: becoming an innovative leader in the fine writing category, extending the Cross brand into new categories, developing avenues for diversification, streamlining its CAD operating structure and seeking additional brand assets to add scale.    COG has provided the business with an avenue of diversification and added two new brands to the Company’s portfolio: Costa and Native.    These brands uphold the Company’s reputation as an innovative leader

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with award-winning high-quality products.    Details on how the Company's two business segments are achieving these initiatives are presented below.

 

Cross Accessory Division ("CAD")
The Company has been a manufacturer and marketer of fine quality writing instruments since 1846.  Sold primarily under the Cross brand, ballpoint, fountain and Selectip rolling ball pens and mechanical pencils are offered in a variety of styles and finishes.  Cross also manufactures and markets a line of FranklinCovey entry level price point refillable writing instruments.    Also under the Cross brand, CAD offers a variety of personal and business accessories including leather goods, reading glasses, desk sets and stationery.  The Company has license agreements with third parties to develop and sell Cross watches, cufflinks and leather products.  This segment typically records its highest sales and operating income in the fourth quarter of the fiscal year.

 

Cross Optical Group ("COG")
The Company's COG segment consists of its wholly-owned subsidiary, Cross Optical Group, Inc.  This business designs, manufactures and markets high-quality, high-performance polarized sunglasses under the brand names Costa and Native.  This segment typically records its highest sales and operating income in the second quarter of the fiscal year.

 

Results of Operations Second Quarter 2013 Compared to Second Quarter 2012

In the second quarter of 2013, the Company reported net income of $3.1 million, or $0.25 per basic and $0.24 per diluted share, compared to net income of $3.7 million, or $0.30 per basic and $0.28 per diluted share in the second quarter of 2012.

 

The following chart details net sales performance:

 

 

 

Consolidated net sales were $53.5 million in the second quarter of 2013 compared to $48.8 million in the second quarter of 2012.  The effect of foreign exchange was unfavorable to consolidated second quarter 2013 sales results by approximately 110 basis points.

 

CAD sales decreased 1.1% in the second quarter of 2013 compared to the second quarter of 2012.  The entire decline was related to the substantially weaker Japanese Yen as foreign exchange was unfavorable to CAD sales results by approximately 240 basis points.

 

COG sales grew by 17.9%, led by the Costa brand which increased 20.3% compared to the prior year second quarter.

 

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The following chart details gross profit margins for both segments as well as the consolidated gross profit margins:

 

Consolidated gross margins were 58.4% in the second quarter,  140 basis points higher than the same period last year.

 

Consolidated operating expenses for the second quarter of 2013 were $26.5 million, or 49.4% of sales, as compared to $22.2 million, or 45.6% of sales a year ago; an increase of 380 basis points.  The CAD segment operating expenses were 17.0% higher than the prior year’s second quarter.  Included in CAD segment’s second quarter 2013 operating expenses is a $1.4 million one-time non-cash charge related to the settlement of a defined benefit pension plan that covered certain employees of its former manufacturing facility in Ireland and $0.5 million of costs related to the pending sale of CAD division assets.  The COG segment’s operating expenses were 21.5% higher than last year and were largely sales volume related.

 

In the second quarter of 2013, the effective tax rate was 33.3%.  In the second quarter of 2012, the effective tax rate was 30.9%.

 

Results of Operations First Six Months 2013 Compared to First Six Months 2012

In the first six months of 2013, the Company reported net income of $4.7 million, or $0.38 per basic and $0.36 per diluted share, compared to net income of $5.2 million, or $0.42 per basic and $0.40 per diluted share in the first six months of 2012.

 

The following chart details net sales performance:

 

 

Consolidated net sales were $97.9 million in the first six months of 2013 compared to $90.8 million in the first six months of 2012.  The effect of foreign exchange was unfavorable to consolidated sales results for the first six months of 2013 by approximately 100 basis points.

 

CAD sales decreased 3.7% in the first six months of 2013 compared to the first six months of 2012.  Approximately 60% of the decline was related to the substantially weaker Japanese Yen as foreign exchange was unfavorable to CAD sales results by approximately 220 basis points.

 

COG sales grew by 18.4%, led by the Costa brand which increased 20.3% compared to the prior year first six months.

 

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The following chart details gross profit margins for both segments as well as the consolidated gross profit margins:

 

 

Consolidated gross margin for the first six months of 2013 of 57.4% was 80 basis points higher than the first six months of 2012.

 

Consolidated operating expenses for the first six months of 2013 were $48.8 million, or 49.8% of sales, as compared to $43.4 million, or 47.8% of sales a year ago; an increase of 200 basis points.  The CAD segment operating expenses were 7.4% higher than the prior year’s first six months.  Included in the CAD segment’s 2013 six month period operating expenses was a $1.4 million one-time non-cash charge related to the settlement of a defined benefit pension plan that covered certain employees of its former manufacturing facility in Ireland and $0.7 million of costs related to the pending sale of CAD division assets.  The COG segment’s operating expenses were 18.7% higher than last year and were almost entirely related to the higher sales volume in the 2013 year-to-date period.

 

In the first six months of 2013, the effective tax rate was 33.6%.  In the first six months of 2012, the effective tax rate was 31.2%.

 

Liquidity and Sources of Capital

Historically, the Company's sources of liquidity and capital resources have been its cash and cash equivalents (“cash”), short-term investments, cash generated from operations and amounts available under the Company's line of credit.  These sources have been sufficient in the past to support the Company's routine operating requirements, capital projects, contributions to the retirement plans, stock repurchase programs and debt service.  The Company expects its future cash needs in 2013 will be met by these historical sources of liquidity and capital.

 

The Company's cash and short-term investment balance of $19.3 million at June 29, 2013 decreased $8.0 million from December 29, 2012.  The most significant factors affecting the Company's cash balance are discussed in this section.

 

Inventory was $46.0 million at June 29, 2013, an increase of $8.0 million since December 29, 2012.  CAD inventory increased $2.5 million and COG inventory levels increased by $5.5 million from year end 2012.  The increase was to support anticipated higher sales volumes.

 

Accounts payable, accrued expenses and other liabilities was $20.9 million, a decrease of $5.5 million since December 29, 2012.  CAD and COG accounts payable, accrued expenses and other liabilities decreased $2.0 million and $4.5 million, respectively.

 

The Company has a $40 million secured line of credit with a bank.  At June 29, 2013, this credit facility had a maturity date of and amounts outstanding had to be paid by July 28, 2013.    Subsequent to June 29, 2013, this credit facility was amended to extend its maturity date and date that amounts outstanding had to be paid by to December 31, 2013.    Under the current agreement, the Company has the option to borrow at various interest rates depending upon the type of borrowings made and the Company's consolidated leverage ratio.  At June 29,

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2013, the outstanding balance of the Company's line of credit was $15.0 million, bearing an interest rate of approximately 2.0%, and the unused and available portion, according to the terms of the agreement, was $25.0 million.  At December 29, 2012, the outstanding balance of the Company's line of credit was $15.0 million, bearing an interest rate of approximately 2.0%, and the unused and available portion, according to the terms of the agreement, was $25.0 million.  The Company was in compliance with its various debt covenants as of June 29, 2013.  The agreement requires the Company to maintain a minimum consolidated tangible net worth, computed at each year end, a maximum level of capital expenditures and a minimum ratio of adjusted EBITDA to required debt service payments over any four-quarter period, each of which is calculated in accordance with the agreement:

 

The Company believes that existing cash and cash provided by operations, supplemented as appropriate by the Company's borrowing arrangements, will be adequate to finance its foreseeable operating and capital requirements, the stock repurchase plan and contributions to the retirement plans.  Should operating cash flows in 2013 not materialize as projected, the Company has a number of planned alternatives to ensure that it will have sufficient cash to meet its operating needs.  These alternatives include implementation of strict cost controls on discretionary spending and delaying non-critical research and development, capital projects and completion of the stock repurchase plan.

 

At June 29, 2013, cash and short-term investments available for domestic operations was approximately $11.5 million, while cash held offshore was approximately $7.8 million.

 

Critical Accounting Policies

 

There have been no changes to our critical accounting policies and estimates from the information provided in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations," included in our Form 10-K for the fiscal year ended December 29, 2012.

 

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," “intends,” "will" and similar expressions are intended to identify forward-looking statements, including but not limited to statements related to the availability of sources of cash; anticipated compliance with laws and regulations (including but not limited to environmental laws); and anticipated sufficiency of available working capital.  The Company cautions that a number of important factors could cause the Company's actual results for fiscal 2012 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

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number of risks and uncertainties.  For a discussion of certain of other of those risks, see "Risk Factors" in Item 1A of the Company's 2012 Annual Report on Form 10-K.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

 

Refer to the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 2012 for a complete discussion of the Company's market risk.  There have been no material changes to the market risk information included in the Company's 2012 Annual Report on Form 10-K.

 

Item 4.  Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of June 29, 2013 and have concluded that these disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities and Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms.  These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the first six months of 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - OTHER INFORMATION 

 

Item 1.  Legal Proceedings.

 

Refer to Item 3 in the Company's Form 10-K Annual Report for the fiscal year ended December 29, 2012 for a complete discussion of the Company's legal proceedings.  No material developments have occurred in the Legal Proceedings described in such Item 3.

 

The Company is involved in various other litigation and legal matters that have arisen in the ordinary course of business.  To its knowledge, management believes that the ultimate resolution of any of those existing matters will not have a material adverse effect on the Company's consolidated financial position or results of operations.

 

Item 1A.  Risk Factors.

 

Refer to Item 1A in the Company's Form 10-K Annual Report for the fiscal year ended December 29, 2012 for a complete discussion of the risk factors which could materially affect the Company's business, financial condition or future results.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

 

Issuer Purchases of Equity Securities:

 

 

In 2008, the Company's Board of Directors authorized management to repurchase up to 1.0 million shares of the Company's outstanding Class A common stock, depending on market conditions.  On February 22, 2012, the Company’s Board of Directors authorized a 700,000 share increase to the 2008 program.  Cumulatively, through June 29, 2013, the Company purchased approximately 1.2 million shares under this plan for approximately $8.5 million at an average price per share of $7.07.

 

Item 3.  Defaults Upon Senior Securities.

 

None 

 

Item 4.  Mine Safety Disclosures

None

 

Item 5.  Other Information.

 

None

 

Item 6.  Exhibits.

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SIGNATURES 

 

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

 

 

 

 

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