Mail Stop 6010
July 29, 2005
Via U.S. Mail and Facsimile (616-257-3710)
Mary E. Chowning
Chief Financial Officer
X-Rite, Incorporated
3100 44th Street S.W.
Grandville, Michigan 49418
Re: X-Rite, Incorporated
Form 10-K for year ended January 1, 2005
Filed March 16, 2005
File No. 000-14800
Dear Ms. Chowning:
We have reviewed your filings and have the following
comments.
We have limited our review to matters related to the issues raised
in
our comments. Where indicated, we think you should revise your
future filings in response to these comments. If you disagree, we
will consider your explanation as to why our comment is
inapplicable
or a revision is unnecessary. Please be as detailed as necessary
in
your explanation. In some of our comments, we may ask you to
provide
us with information so we may better understand your disclosure.
After reviewing this information, we may raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comment or on any other
aspects
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the year ended January 1, 2005
Item 7 - Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 10
1. We note that you disclose certain non-GAAP financial measures
that
exclude items that will require cash settlement. We also note
that
certain of the excluded charges are identified as non-recurring.
However, we note these charges have occurred in the prior two
years
and are reasonably likely to recur within two years. Based on
these
items, it does not appear that your non-GAAP financial measures
comply with the guidance of Item 10(e)(1)(ii) of Regulation S-K.
Please revise future filings to remove the non-GAAP financial
measures. If you elect to replace this with another non-GAAP
financial measure in future filings, please ensure each non-GAAP
financial measure complies with all of the requirements of Item
10(e)
of Regulation S-K.
2. Further to the above, we note your current disclosure states
that
you believe the non-GAAP financial measures "gives a more
meaningful
comparison of the results of our core business operations." If
you
elect to present any non-GAAP financial measures in future
filings,
please clearly indicate that the non-GAAP measures should not be
considered as a substitute for the most directly comparable GAAP
measures.
Item 8 - Financial Statements and Supplementary Data
Note 2 - Summary of Significant Accounting Policies, page 34
Revenue Recognition, page 36
3. You state in MD&A that you provide end to end solutions that
consist of a wide range of hardware, software and services.
Accordingly, please respond to the following and revise future
filings to address our comments as appropriate:
a) Tell us and revise future filings to disclose how you recognize
software revenue. Tell us how you have considered SOP 97-2 and
EITF
03-05. In addition, tell us and revise future filings to disclose
how you account for the custom software development that you refer
to
in your discussion of the retail market products on page 4.
b) Discuss how you account for multiple-element arrangements.
Demonstrate how your policies comply with SOP 97-2, EITF 00-21 and
SAB 104 by identifying the separate units of accounting,
disclosing
how you allocate the total consideration and disclosing how you
determine the fair value of the undelivered elements.
c) Discuss any significant post-shipment obligations such as
installation, setup, warranties, returns or any other significant
terms, including special arrangements with distributors, in your
arrangements. Tell us how these terms impact your revenue
recognition.
d) Please revise future filings to provide separate disclosure of
revenues from product sales and revenues from services as well as
the
related costs and expenses for products and services on your
statements of operations, or tell us why you do not believe this
is
required. Refer to the requirements of Rule 5-03(b)(1) and (2) of
Regulation S-X.
Segment Information
4. We note your disclosure on page 34 that you have only one
reportable operating segment. Based on your disclosures in MD&A
on
pages 13-15, it appears that you have discrete financial
information
for five distinct market groups: Graphic Arts, Industrial, Retail,
Light and Other. Also, it appears that each of these markets
provides distinct products and services. In light of such
information, please tell us why you concluded you have only one
reportable operating segment based on the guidance in paragraphs
10-
24 of SFAS 131. Tell us and revise future filings to disclose
whether you are aggregating different operating segments. If so,
tell us and revise future filings to disclose why you believe you
meet the aggregation criteria provided in paragraph 17 of SFAS
131.
Note 8 - Founders` Stock Redemption Agreements, page 44
5. We note your disclosure on page 45 that upon termination of the
Founders` Stock Redemption agreements you recorded a credit to
interest expense of $9.0 million, which reversed the accumulation
of
the liability to increase the value of the agreements that had
occurred since the adoption of SFAS No. 150 on July 1, 2003. Tell
us
why you determined it was appropriate to record this reversal on
the
statement of operations instead of recording the full amount to
paid-
in capital. Cite the accounting literature on which you based
your
conclusion.
6. In this regard, the $9 million credit recorded in the fourth
quarter of 2004 is a material item as it relates to the
information
presented on page 48 under "Item 8 - Financial Statements and
Supplementary Data." Revise future filings to discuss any
material
items from any of the quarterly periods in accordance with Item
302(A)(3) of Regulation S-K.
As appropriate, please respond to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter with your response that keys your
responses to our comments and provides any requested information.
Detailed cover letters greatly facilitate our review. Please file
your cover letter on EDGAR. Please understand that we may have
additional comments after reviewing your amendment and responses
to
our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* The company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* Staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* The company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Praveen Kartholy, Staff Accountant, at (202)
551-3778, Kevin Vaughn, Reviewing Accountant, at (202) 551-3643,
or
me at (202) 551-3327 if you have questions regarding these
comments.
Sincerely,
Michele Gohlke
Branch Chief
Ms. Mary Chowning
X-Rite, Incorporated
July 29, 2005
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