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

 

FORM 10-Q 

 

(Mark One)

 

For the quarterly period ended September 28, 2013 

 

or 

 

 

For the transition period from __________to __________ 

 

Commission File Number  1-6720 

 

COSTA INC.
(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code (401) 335-3400 

 

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 October 26, 2013:

 

  

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PART I - FINANCIAL INFORMATION 

 

Item 1.  Financial Statements. 

COSTA INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS 

 

 

 

See notes to condensed consolidated financial statements.

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COSTA INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED) 

 

 

See notes to condensed consolidated financial statements.

 

  

 

 

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COSTA INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(UNAUDITED) 

 

 

 

See notes to condensed consolidated financial statements.

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COSTA INC. AND SUBSIDIARY
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 September 28, 2013, the results of operations and comprehensive income (loss) for the three-month and nine-month periods ended September 28, 2013 and September 29, 2012, and the cash flows for the nine-month periods ended September 28, 2013 and September 29, 2012.  The results of operations for the nine-month period ended September 28, 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.

 

Subsequent to the September 6, 2013 divestiture of the Cross Accessory Division (“CAD”), the A. T. Cross Company renamed itself Costa Inc. (“the Company”).  Costa Inc. trades on the NASDAQ stock exchange under the ticker symbol ATX. The Company now operates as one segment in the competitive sunglass business.  The Company designs, manufactures and markets high-quality, high-performance polarized sunglasses under the brand names Costa and Native.  The Company typically records its highest sales and operating income in the second quarter of the fiscal year.

 

 

 

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 from Continuing Operations
In the first nine months of 2013 the effective tax rate from continuing operations was 36.8%.  In the first nine months of 2012 the effective tax rate from continuing operations was 33.1%. 

 

 

 

 

 

 

 

NOTE D – Discontinued Operations

On September 6, 2013, the Company completed the sale of its Cross Accessory Division to a newly-formed affiliate of Clarion Capital Partners, LLC (the "Purchaser"). In accordance with the agreement, dated July 13,

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2013, the Purchaser assumed substantially all of the liabilities associated with the CAD Business, except those related to the U.S. defined benefit pension plan, certain pre-closing environmental matters and certain other liabilities, which were retained by the Company. Under the terms of the Asset Purchase Agreement the purchase price is subject to a post-closing adjustment for the final working capital sold.

 

The operating results of CAD, prior to the sale are reported within (loss) income from discontinued operations, net of tax, in the consolidated statement of income. The assets and liabilities sold with the business are listed below.

 

The following table sets forth summary information relating to Cross Accessory Division:

 

 

There was $2.9 million of cumulative translation losses which were reclassified from  accumulated other comprehensive income to the income statement as part of the loss from discontinued operations.  

 

The CAD assets and liabilities that were sold represent those reported as the CAD segment of the Company’s financial statements and were as follows:  

 

 

 

 

 

  

 

NOTE E - Warranty Costs 

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 repair department, unit sales and the number of units that are eventually returned for warranty repair.  The current portion of accrued warranty costs was $0.2 million at September 28, 2013 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:

 

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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.  This credit facility has a maturity date of and amounts outstanding have to be paid by December 31, 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 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 September 28, 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 $1.8 million to its defined benefit pension plans in the first nine months of 2013.  The Company expects to contribute a total of $2.3 million to its defined benefit pension plans in 2013.  Additionally, the Company expects to contribute $0.6 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 discontinued operations.

 

  

 

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 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 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 September 28, 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.  Other intangibles consisted of the following:

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Amortization expense for the three and nine month periods ended September 28, 2013 was approximately $0.1 million and $0.5 million, respectively.  The estimated future amortization expense for other intangibles remaining as of September 28, 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 operations as incurred.  Foreign currency derivatives had a total notional value of $0 as of September 28, 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 fixed the interest rate on a portion of the Company’s line of credit at approximately 1.2%.  The item being hedged was 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 was 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.  The interest rate swap expired July 28, 2013.

 

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 nine month periods ended September 28, 2013 and September 29, 2012 are categorized in the following table:

 

 

 

 

  

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NOTE J - Short-Term Investments
At September 28, 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 September 28, 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.

 

 

 

 

 

  

 

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

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

 

On September 6, 2013, the Company completed the sale of its Cross Accessory Division (“CAD”) to a newly formed affiliate of Clarion Capital Partners, LLC (the “Purchaser”).  The Purchaser assumed substantially all of the liabilities associated with the CAD business, other than those related to the U.S. defined benefit pension plan and certain pre-closing environmental matters and certain other liabilities.  The consolidated statements of income included present the former CAD as a Discontinued Operation.

 

Subsequent to the September 6, 2013 divestiture, the A. T. Cross Company renamed itself Costa Inc. (“the Company”).  Costa Inc. trades on the NASDAQ stock exchange under the ticker symbol ATX.

 

The Company operates as one segment in the competitive sunglass business.  The Company designs, manufactures and markets high-quality, high-performance polarized sunglasses under the brand names Costa and Native.  The Company typically records its highest sales and operating income in the second quarter of the fiscal year.

 

Results of Operations Third Quarter 2013 Compared to Third Quarter 2012

Sales by Costa Inc., the former Cross Optical Group, increased by 26.3% during the third quarter of 2013 to $24.6 million compared to $19.4 million in the third quarter of 2012. 

 

Gross margins in the third quarter of 2013 were 58.6%, compared to 59.0% in the third quarter of 2012.

 

Operating income in the third quarter of 2013 decreased to $0.2 million, compared to $1.4 million in the third quarter of 2012.  Included in the 2013 third quarter results for continuing operations was approximately $2.1 million of non-cash compensation expense associated with equity awards that vested upon the sale of the Cross Accessory Division.

 

Net loss from continuing operations for the third quarter of 2013 was a loss of $0.2 million or $0.01 per basic share compared to net income from continuing operations of $0.9 million, or $0.07 per basic and diluted share in the third quarter of 2012.

 

Net loss from discontinued operations, net of tax, for the third quarter of 2013 was $10.1 million, or $0.81 per basic share, compared to net income from discontinued operations, net of tax, of $1.1 million, or $0.09 per basic share and $0.08 per diluted share in the third quarter of 2012.  Loss from discontinued operations primarily includes the operating results of the former Cross Accessories Division through the date of the disposition, the loss on sale of the CAD business as well as certain tax related items associated with the divestiture.

 

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Net loss for the third quarter of 2013 was $10.2 million, or $0.82 per basic share, compared to net income of $2.0 million, or $0.16 per basic share and $0.15 per diluted share, in the third quarter of 2012.

 

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

Sales by Costa Inc., the former Cross Optical Group, increased by 20.7% during the nine months ended September 28, 2013 to $80.8 million compared to $67.0 million for the same period of 2012. 

 

Gross margins during the nine month 2013 period were 58.9%, similar to the same period in 2012.

 

Operating income during the nine month 2013 period was $8.9 million, compared to $8.4 million for the same period in 2012.  Included in the nine month 2013 period for continuing operations was approximately $2.1 million of non-cash compensation expense associated with equity awards that vested upon the sale of the Cross Accessory Division.

 

Net income from continuing operations for the nine month 2013 period was $5.4 million, or $0.43 per basic share and $0.40 per diluted share, compared to net income of $5.3 million, or $0.43 per basic share and $0.40 per diluted share, for the same period in 2012.

 

Net loss from discontinued operations, net of tax, for the nine month 2013 period was $10.9 million, or $0.88 per basic share, compared to net income from discontinued operations, net of tax, of $2.0 million, or $0.16 per basic and diluted share for the same period in 2012. Loss from discontinued operations primarily includes the operating results of the former Cross Accessories Division through the date of the disposition, the loss on sale of the CAD business as well as certain tax related items associated with the divestiture.

 

Net loss for the nine month 2013 period was $5.5 million, or $0.45 per basic share and $0.42 per diluted share, compared to net income of $7.2 million, or $0.59 per basic share and $0.56 per diluted share, for the same period in 2012.

 

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 $64.2 million at September 28, 2013 increased $36.8 million from December 29, 2012.  The most significant factors affecting the Company's cash balance are discussed in this section.

 

The sale of the Cross Accessory Division in the third quarter generated $50.4 million of net cash for the Company.  The changes to cash discussed below exclude the impact the sale of net assets.

 

Inventory was $17.9 million at September 28, 2013, as Costa Inc. inventory levels increased by $4.9 million from year end 2012.  The increase in Costa Inc. inventory is to support higher anticipated sales volumes.

 

Accounts payable, accrued expenses and other liabilities was $11.2 million.  Costa Inc. accounts payable, accrued expenses and other liabilities decreased by $4.1 million from year end.

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The Company has a $40 million secured line of credit with a bank.  At September 28 2013, this credit facility had a maturity date of and amounts outstanding had to be paid by 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 September 28, 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 September 28, 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. 

 

All cash as of September 28, 2013, was available for domestic use.

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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 2013 and beyond to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company.  Forward-looking statements involve a number of risks and uncertainties.  For a discussion of certain of other of those risks, see "Risk Factors" in Item 1A of the Company's 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 September 28, 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 nine 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 September 28, 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

 

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Item 5.  Other Information.

Section 5 – Corporate Governance and Management

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

Executive Agreements

On February 21, 2013 certain Named Executive Officers (“NEOs”) of the Company entered into Amended and Restated Executive Agreements with the Company. Due to these Amended and Restated Executive Agreements the NEOs qualify for certain benefits in the event of termination of such executive’s employment. The amount of compensation payable to each NEO is dependent on the nature of the termination. Payments that may be made in cases of voluntary termination, early retirement, involuntary termination, termination following a change in control and in the event of disability or death of the executive are discussed below. The actual amounts to be paid out upon termination or change in control can only be determined at the time of such executive’s separation from the Company.

Term

The agreements shall continue in effect until three years following the date of the agreements and will automatically renew for an addition year on each anniversary of thereof unless otherwise terminated.

Payments Made Upon Termination

Regardless of the nature of a NEO’s termination, he or she may be entitled to receive benefits accrued and compensation earned during his or her term of employment. Such amounts may include:

Payments Made Upon Death or Disability

In the event of the death or disability of an NEO, in addition to the applicable benefits listed under the headings “Payments Made Upon Termination” and “Payments Made Upon Retirement” above, the NEO or his or her estate may receive benefits under the Company’s disability plan or payments under the Company’s life insurance plan, as appropriate and in the same manner as other employee participants.

Payments Made Upon Involuntary Termination Without Cause

In the event of an involuntary termination without cause, in addition to the items identified above under the heading “Payments Made Upon Termination” above, each of the NEOs (other than Mr. Whalen) will receive a severance payment equal to 1.0 times the executive’s base salary, and Mr. Whalen will receive a severance payment equal to 2.0 times his base salary and target bonus under the annual incentive plan (75% of his base salary).

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Payments Made Upon a Change in Control

The Company has a Change in Control Severance Program (the “Program”). Pursuant to this Program, if an executive’s employment is actually or constructively terminated following a change in control (other than termination by the Company for cause), in addition to the items identified above under the heading “Payments Made Upon Involuntary Termination Without Cause”, the named executives may receive the following payments and benefits.

With the exception of Mr. Whalen, each of the NEOs actually or constructively terminated in the 24 month period following a change in control will receive:

If actively or constructively terminated following, or under certain circumstances in the time period immediately preceding, a change in control, Mr. Whalen will receive:

 

Change in Control is defined within the agreements. Refer to Exhibits 99.1, 99.2, 99.3, and 99.4.

Prior Executive Agreements

Prior to entering into the Amended and Restated Executive Agreements described above, David Whalen, Charles MacDonald, Kevin Mahoney, and Tina Benik entered into Executive Agreements with the Company, attached hereto as Exhibits 99.6, 99.7, 99.8, and 99.9.

Director Indemnification Agreement

The Company has entered into Indemnification Agreements with the members of its outside Board of Directors. The agreement protects the Director against certain risks associated with their role as a Director of the Company. The form of that agreement is attached as Exhibit 99.5.

Letter Agreements

Tina Benik, a NEO, entered into a Retention Letter with the Company on February 26, 2013 and a Letter Agreement with the Company on August 8, 2013. Such agreements are attached hereto as Exhibits 99.10 and 9.11, respectively.

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Item 5.03 Amendment to the Articles of Incorporation or Bylaws; Change in Fiscal Year

On September 11, 2013, the Company filed an amendment to its Articles of Incorporation to change its name from A.T. Cross Company to Costa Inc. A copy of the Amendment is located at Exhibit 3.

 

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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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