1
SECURITIES & EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Form 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Act of
1934 (Fee required) for the fiscal year ended December 31, 1996, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 (No fee required) for the transition period from
_______________to _________________
Commission file number 0-14800
X-RITE, INCORPORATED
- --------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Michigan 38-1737300
------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3100 44th Street, SW, Grandville, MI 49418
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 534-7663
--------------
Securities registered pursuant to Section 12(b) of the Act: (none)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 per share
----------------------------
(Title of Class)
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.
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 10-K or any
amendment to this Form 10-K. [ ]
As of March 3, 1997, 21,092,339 shares of the registrant's common stock,
par value $.10 per share, were outstanding. The aggregate market value of
the common stock held by non-affiliates of the registrant (i.e., excluding
shares held by executive officers, directors and control persons as defined
in Rule 405, 17 CFR 230.405) on that date was $262,481,130, computed at the
closing price on that date.
Portions of the Company's Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated by reference into Part III. Exhibit Index is
located at Page 32.
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
- ------------------------------------
X-Rite, Incorporated ("X-Rite" or the "Company") was organized as a
Michigan corporation in 1958. The business currently conducted by the
Company is largely an outgrowth of the Company's x-ray marking and
identification system introduced in 1961. The Company's silver recovery
equipment, introduced in 1968, and its first quality control instruments,
introduced in 1975, were developed to meet the needs of film processors; a
customer class known to the Company from its sales of radio-opaque x-ray
marking tape.
The Company has expanded its product offerings by concentrating on its
instrument technologies and developing expertise in the fields of light and
color measurement. Pursuant to that strategy, X-Rite has successfully
developed and marketed numerous quality control instruments and
accessories.
The Company made its initial public offering of common stock during 1986.
Proceeds from that public offering were used to finance the construction of
a new building for office, manufacturing and warehouse needs, purchase new
production and laboratory equipment, retire debt and provide working
capital.
X-Rite has grown through internal expansion and through acquisitions. In
1993 the Company established two foreign sales and service subsidiaries;
X-Rite GmbH, Cologne, Germany and X-Rite Asia-Pacific Limited, Hong Kong.
In 1994 the Company purchased a foreign sales and service subsidiary,
X-Rite Limited, Congleton, Cheshire, England, and acquired certain assets
of Colorgen, Inc. ("Colorgen"), a Massachusetts-based manufacturer of
retail point-of-purchase paint matching systems. In 1995 the Company
acquired all of the outstanding stock of Labsphere, Inc. ("Labsphere") of
North Sutton, New Hampshire. Labsphere was founded in 1981 and is a
leading manufacturer of light measurement and light source integrating
systems and instrumentation.
(b) Financial Information About Industry Segments
- --------------------------------------------------
For purposes of the consolidated financial statements included as part of
this report, all operations of the Company are classified in one industry
segment: quality control instruments and accessories.
(c) Narrative Description of Business
- --------------------------------------
Principal Products
The Company primarily manufactures and sells proprietary quality control
instruments which utilize advanced electronics and optics technologies.
The principal types of products produced include:
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Densitometers
X-Rite's first densitometer was introduced in 1975. A densitometer is an
instrument that measures optical or photographic density, compares that
measurement to a reference standard, and signals the result to the operator
of the instrument. There are two types of densitometers; transmission
densitometer and reflection densitometer.
A transmission densitometer measures the amount of light that is
transmitted through film. Some models are designed for use in controlling
variables in the processing of x-ray film in medical and non-destructive
testing applications. Other models are designed to be used to control
process variables in the production of photo-transparencies, such as
photographic film and microfilm. Reflection densitometers measure the
amount of incident light that is reflected from a surface, such as ink on
paper.
X-Rite introduced its spectrodensitometer in 1990 which combines the
function of a densitometer with the functions of a colorimeter and a
spectrophotometer (see following paragraphs) to provide measurements for
monitoring and controlling color reproduction. Also introduced in 1990 was
the scanning densitometer, which is used for controlling the color of
printed inks in graphic arts applications.
In 1994 the Company began delivering densitometer-based products for
digital imaging applications. Products which calibrate image setters,
raster image processors and digital printers were the initial entrants into
the market for use in desktop publishing and computer-based printing
activities.
Sensitometers
Sensitometers have been manufactured by X-Rite since 1975. This instrument
is used to expose various types of photographic film in a very precise
manner for comparison to a reference standard. The exposed film is
processed and then "read" with a densitometer to determine the extent of
variation from the standard.
Colorimeters
In 1989 the Company introduced its first colorimeter. Colorimeters measure
light much like the human eye using red, green and blue receptors and are
used to measure printed colors on packages, labels, textiles and other
materials where a product's appearance is critical for buyer acceptance.
In 1990 X-Rite added the spectrocolorimeter which is a combination
instrument that performs colorimeter functions by applying
spectrophotometric techniques and principles (see next paragraph), thereby
greatly improving the accuracy and reliability of the instrument.
Spectrophotometers and Accessories
The spectrophotometer, introduced in 1990, is related to the colorimeter;
however, it measures light at many points over the entire visible spectrum,
generally with the high degree of accuracy required in laboratory
measurements. Spectrophotometers are used in color formulation for
materials such as plastics, paints, inks, ceramics and metals.
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In 1991 the Company introduced a multi-angle spectrophotometer which is
used to measure the color of metallic finishes. This instrument is useful
for controlling the color consistency of automotive paints and other
metallic and pearlescent coatings. In 1992 the Company introduced a
spherical spectrophotometer which measures the color of textured surfaces
and is used in the textile, paint and plastics industries.
During 1993 and 1994, X-Rite introduced a group of color formulation and
quality control software packages designed for use with its
spectrophotometer products. This software is sold separately or is
combined with a computer and an instrument and sold as a turn-key system.
Marketing efforts with respect to this family of related products are being
directed at packaging material printers, textile, plastic, paint, ink and
coatings manufacturers.
In 1994 and 1995, X-Rite introduced products developed for desktop graphics
professionals. One of the instruments in this product category is a hand-
held spectrophotometer which captures color from almost any item and sends
it to a personal computer. Once there, the color can be used in a variety
of graphic design applications, previewed and prepared for output, and
organized into a custom electronic color library; colors can also be
transmitted to other personal computers anywhere in the world using
X-Rite's ColorMail software.
Another 1995 introduction was the auto-tracking spectrophotometer. This
instrument is used in the graphic arts industry to help control hard to
match colors such as pastels, reflex blue, dark reds and colors used in
corporate logo standards.
The 1995 acquisition of Labsphere expanded the Company's product lines to
include standard accessories which are compatible with a majority of
commercially available spectrophotometers worldwide. These accessories
extend a spectrophotometer's capabilities and enhance its performance.
Point-of-Purchase Paint Matching Systems
In 1993 the Company introduced computerized point-of-purchase paint
matching systems for use by paint stores, hardware stores, mass merchants
and home improvement centers. After successfully establishing its own line
of products, the Company acquired certain assets of Colorgen in 1994.
Colorgen had a significant share of the U.S. point-of-purchase paint
matching market. With that acquisition, X-Rite should be able to establish
a significant market presence in the retail point-of-purchase architectural
paint matching business.
Integrating Spheres and Integrating Sphere Systems
With the acquisition of Labsphere, X-Rite added integrating spheres and
integrating sphere systems to its product lines. Applications for these
instruments include testing incandescent and fluorescent lamp output,
calibration of remote sensors, laser power measurement, and reflectance and
transmittance light measurement.
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Reflectance Materials and Coatings
Labsphere is also an OEM supplier of proprietary reflectance materials and
coating services. These materials and services are used in such products as
photographic processing equipment, check scanning systems, x-ray film
analysis, backlight illuminators and surface profiling equipment.
Other Products
For many years, X-Rite has also manufactured silver recovery equipment,
heat shrink packaging equipment, and radio-opaque marking tape.
Collectively, these other products represent less than five percent of the
Company's consolidated net sales.
X-Rite categorizes the sales of its products into six major categories;
medical, photographic, graphic arts, digital imaging, and color and
appearance.
Sales of the Company's products are made by its own sales personnel and
through independent manufacturer's representatives. Certain products not
sold directly to end users are distributed in the U.S. through a network of
fifteen hundred independent dealers and outside the U.S. through four
hundred independent dealers in fifty countries. Independent dealers are
managed and serviced by the Company's sales staff and by independent sales
representatives.
Raw Materials
Raw materials and components necessary for manufacturing products and
providing services are generally available from several sources. The
Company does not foresee any unavailability of materials or components
which would have a material adverse effect on its overall business in the
near term.
Patents and Trademarks
The Company owns twenty U.S. patents which are significant for products
which it currently manufactures; seventeen relating to light and color
measuring instruments, one relating to silver recovery equipment, one
relating to shrink packaging equipment, and one for reflectance materials
and coatings.
The Company currently has eight patent applications on file in the U.S. and
in several other countries. While the Company follows a policy of
obtaining patent protection for its products, it does not believe that the
loss of any existing patent, or failure to obtain any new patents, would
have a material adverse impact on its competitive position.
Seasonality
The Company's business is generally not subject to seasonal variations that
would impact sales, production or net income.
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Significant Customers
No single customer accounted for more than 10% of total net sales in 1996,
1995 or 1994. The Company does not believe that the loss of any single
customer would have a material adverse effect on the Company.
Backlog
The Company's backlog of scheduled but unshipped orders was $5.3 million at
March 3, 1997 and $5.2 million at March 1, 1996. The March 3, 1997 backlog
is expected to be filled during the current fiscal year.
Competition
The Company's market share in the medical and photographic instrument
markets is substantial with few competitors.
There are eight firms producing competing products in the graphic
arts/digital imaging categories; MacBeth, a division of Kollmorgen
Corporation, Gretag Color Control Systems, Tobias Associates, Graphics
Microsystems, Inc., Light Source, Inc., Ihara Electronic Industries Co.,
Ltd., Viptronic GmbH, and Techkon Elektronik GmbH.
There are five major manufacturers of competing products in the color and
appearance market; Datacolor, Int., Minolta Corporation, the MacBeth
division of Kollmorgen Corporation, Hunter Associates Laboratory, Inc. and
Byk-Gardner.
The primary basis of competition for all the Company's products is quality,
design and service. The Company believes that superior quality and
features are competitive advantages for its products.
Research and Development
During 1996, 1995 and 1994, respectively, the Company spent $5,324,000,
$5,952,000 and $3,759,000 on research and development. X-Rite has no
customer-sponsored research and development activities.
Human Resources
As of March 3, 1997, the Company employed 621 persons; 587 in its U.S.
operations and 34 in its foreign subsidiaries. The Company believes that
its relations with employees are excellent.
(d) Financial Information About Foreign and Domestic Operations
- ----------------------------------------------------------------
See Note 1 to the consolidated financial statements contained in Part II,
Item 8 of this report.
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ITEM 2. PROPERTIES
Listed below are the principal properties owned or leased by X-Rite as of
March 3, 1997:
Owned
Location Principal Uses or Leased
-------------------- --------------------------- ---------
Grandville, MI Manufacturing, R&D, sales, Owned
customer service, warehouse
and administration
North Sutton, NH Manufacturing, R&D, sales, Owned
customer service, warehouse
and administration
Littleton, MA Customer service, R&D, and Leased
sales
Congleton, England Sales and customer service Leased
Cologne, Germany Sales and customer service Leased
Hong Kong Sales and customer service Leased
Brno, Czech Republic Sales Leased
Collectively, X-Rite and its subsidiaries own approximately 242,000 square
feet of space and lease approximately 17,000 square feet. During 1995, the
Company purchased land and a 52,000 square foot building adjacent to its
headquarters for future expansion purposes; the property is not yet
completely occupied by the Company. Management considers all the Company's
properties and equipment to be well maintained, in excellent operating
condition, and suitable and adequate for their intended purposes.
ITEM 3. LEGAL PROCEEDINGS
The Company is not presently engaged in any material litigation within the
meaning of Regulation S-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The following table lists the names, ages and positions of all of the
Company's executive officers. Officers are elected annually by the Board
of Directors at the first meeting of the Board following the Annual Meeting
of Shareholders.
Position
Name Age Position Held Since
- -------------------- ----- --------------------------- ----------
Ted Thompson 67 Chief Executive Officer 1976
C. Mathew Peabody 45 President, Chief Operating
Officer 1996 (1)
Bernard J. Berg 53 Vice President, Engineering 1983
Duane F. Kluting 47 Vice President, Chief
Financial Officer 1992
Jeffrey L. Smolinski 35 Vice President, Operations 1994 (2)
Joan Mariani Andrew 38 Vice President, Sales &
Marketing 1995 (3)
(1) C. Mathew Peabody was named President, Chief Operating Officer in
September of 1996. Prior to joining X-Rite, Mr. Peabody served in the
capacities of Executive Vice President of L. Perrigo Company and
President of Perrigo International from 1994 to 1996. Prior to that
time, Mr. Peabody was Senior Vice President for OEMV Chemie (a large
chemical company located in Linz, Austria) from 1990 to 1994, Executive
Vice President from 1989 to 1990, and Senior Vice President, Sales/
Marketing from 1988 to 1989.
(2) Jeffrey Smolinski joined X-Rite as Vice President, Operations in
December of 1994. Mr. Smolinski previously worked for La-Z-Boy Chair
Company as Director of Engineering from 1993 to 1994, Director of
Operations from 1991 to 1993, and Director of Advanced Technologies
from 1988 to 1991.
(3) Joan Mariani Andrew became the Company's Vice President, Sales and
Marketing in December of 1995. Prior to joining X-Rite, Ms. Andrew was
Vice President, Sales and Marketing for Bell & Howell's Document
Management Products Company from 1992 to 1995, Vice President-Marketing
and New Business Development from 1991 to 1992, and General Manager,
Scanners from 1989 to 1991.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is traded over the counter on The Nasdaq Stock
Market under the symbol XRIT. As of March 3, 1997, there were
approximately 1,700 shareholders of record. Ranges of high and low sales
prices reported by The Nasdaq Stock Market for the past two fiscal years
appear in the following table.
Dividends
High Low Per Share
------ ------ ---------
Year Ended December 31, 1996:
Fourth Quarter $19.75 $16.50 $.025
Third Quarter 18.63 13.75 .025
Second Quarter 19.00 14.50 .025
First Quarter 17.25 12.00 .025
Year Ended December 31, 1995:
Fourth Quarter $18.75 $13.75 $.025
Third Quarter 20.00 17.00 .025
Second Quarter 24.00 16.25 .025
First Quarter 21.00 15.00 .025
The Board of Directors intends to continue paying dividends at the current
quarterly rate of 2.5 cents per share in the foreseeable future, and retain
the balance of the Company's earnings for use in the expansion of its
businesses.
ITEM 6. SELECTED FINANCIAL DATA
(in thousands except per share data)
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
Net sales $84,394 $72,634 $59,475 $39,189 $36,170
Net income 15,381 9,871 12,646 7,527 7,062
Net income per share (1) .73 .47 .60 .36 .34
Dividends per share (1) .10 .10 .08 .08 .06
Total assets 78,951 63,507 54,558 41,855 35,789
Long-term debt at year end -0- -0- -0- -0- -0-
(1) Retroactively adjusted to reflect two-for-one stock splits occurring
in 1992 and 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth information derived from the Company's
consolidated statements of income expressed as a percentage of net sales.
1996 1995 1994
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 35.5 34.6 30.3
------ ------ ------
Gross profit 64.5 65.4 69.7
Operating expenses:
Selling & marketing 18.9 21.7 20.8
Engineering, general
& administrative 12.3 15.5 12.6
Research & development 6.3 8.2 6.3
------ ------ ------
37.5 45.4 39.7
------ ------ ------
Operating income 27.0 20.0 30.0
Other income 0.5 0.2 1.0
------ ------ ------
Income before income taxes 27.5 20.2 31.0
Income taxes 9.3 6.6 9.7
------ ------ ------
Net income 18.2% 13.6% 21.3%
====== ====== ======
Net Sales
Net sales in 1996 increased 16.2% compared to 1995. The increase was
mainly due to unit volume increases; price increases had a nominal effect
on sales levels.
Net sales increased 22.1% in 1995 when compared to 1994 net sales. The
increase in 1995 was mainly due to the inclusion of sales from Labsphere,
Incorporated ("Labsphere"), a company acquired by X-Rite in the first
quarter of 1995. Excluding the Labsphere sales, X-Rite's sales in 1995
increased 8.8% compared to 1994.
Gross Profit
Gross profit as a percentage of sales declined in 1996 compared to 1995 and
1994 due to higher labor costs and changes in product mix. The inclusion
of Labsphere sales, beginning in 1995, has also affected profit margins;
gross profit earned on sales of those products is typically less than gross
profit earned on sales of X-Rite products.
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Selling and Marketing Expenses
Selling and marketing expenses increased slightly in 1996 compared to 1995
in terms of costs incurred; however, as a percentage of sales those
expenditures actually decreased in 1996 compared to 1995. While efforts
will continue to control these costs, the Company is prepared to increase
its investment in sales and marketing in order to position itself for
continued long-term growth in new and existing markets.
As a percentage of sales, selling and marketing expenses increased slightly
in 1995 when compared with 1994. The increase was due to higher trade show
costs and increased marketing expenditures for new product introductions.
Engineering, General and Administrative
Engineering, general and administrative ("EG&A") expenses in 1996 compared
to 1995 were lower both in actual dollars spent and as a percentage of net
sales. The decrease was achieved through cost containment efforts aimed at
controlling administrative expenses.
The increase in EG&A expenses as a percentage of sales in 1995 compared to
1994 was due to several factors. The Company increased investment
commitments to its foreign subsidiary operations in order to support those
long-term sales growth opportunities. Costs to fully absorb the Colorgen
assets acquired in 1994 were higher than expected in 1995 as the Company
made investments to ramp up that product line for future growth, in
addition to incurring costs to reorganize and streamline those operations.
EG&A expenses in 1995 also included amortization of Labsphere costs in
excess of net assets acquired and amortization of Colorgen databases; those
expenses were not comparable to 1994 costs. Additional salaries and other
costs were also incurred in 1995 in anticipation of sales growth that was
greater than actual results.
Research and Development
Although research and development ("R&D") expenditures decreased 10.6% in
1996 compared to 1995, the Company's commitment to making investments in
strategic product development has remained unchanged. R&D projects in 1996
were carefully reviewed and prioritized in order to control costs and
optimize returns. The R&D spending increase in 1995 over 1994 was due to a
conscious effort by the Company to raise the level of resources committed
to product development.
In addition to the R&D costs reported as operating expenses, there were
costs incurred to develop new software products in each of the last three
years that were not included with R&D expenses. Those costs were
capitalized and the related amortization expense was included in cost of
sales (see Note 2 to the accompanying financial statements). Software
development costs capitalized were $1,151,000, $833,000 and $658,000 in
1996, 1995 and 1994, respectively.
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Other Income
Other income in 1994, 1995 and 1996 consisted mainly of interest earned on
funds invested in tax-exempt securities. Interest income in 1995 was
significantly less than 1994 and 1996 due to a reduction in funds available
for investment; substantially all of the Company's short-term investments
were used in February of 1995 to acquire Labsphere, Incorporated and to
retire Labsphere's long-term debt.
Income Taxes
The effective tax rate in 1996 was 33.8% compared to 32.8% in 1995. The
most significant items affecting the 1996 tax rate were higher state income
taxes and a lower research and development tax credit; those factors were
offset partially by lower foreign taxes. The increase in the 1995
effective tax rate over the 1994 rate of 31.2% was primarily due to
nondeductible amortization of costs in excess of net assets acquired in
1995 and higher foreign income taxes.
Liquidity and Capital Resources
X-Rite has continued to maintain a strong financial position with excellent
liquidity. At December 31, 1996 working capital was $42.1 million and the
ratio of current assets to current liabilities was 8.9:1.
Cash provided by operating activities in 1996 was a record $13.2 million
and was used primarily to fund short-term investments, capital expenditures
and dividend payments. Short-term investments purchased consisted mainly
of municipal bonds and tax-exempt industrial revenue bonds. Capital
expenditures of $3.1 million in 1996 were made primarily for machinery and
equipment, computer hardware and computer software. The Company expects
capital expenditures in 1997 to total approximately $4 million and will
consist mainly of machinery and equipment. Dividends of $2.1 million were
paid at the annual rate of 10 cents per share, which is rate the Board of
Directors intends to continue paying in the foreseeable future.
Management expects that X-Rite's current liquidity, combined with cash flow
from future operations and the Company's $20 million revolving credit
agreement, will be sufficient to finance the Company's operations, capital
expenditures and dividends in 1997.
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Inflation
The Company has experienced the effects of inflation on its business
through increases in the cost of services, employee compensation and fringe
benefits. Although modest adjustments to selling prices have mitigated the
effects of inflation, the Company continues to explore ways to improve
productivity and reduce operating costs. The Company does not anticipate
any significant adverse impact from inflation in the coming year.
Substantially all of the Company's foreign transactions are invoiced and
paid in U.S. dollars.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following report, financial statements and notes are included with this
report:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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Report of Independent Public Accountants
To the Shareholders of X-Rite, Incorporated:
We have audited the accompanying consolidated balance sheets of X-Rite,
Incorporated (a Michigan corporation) and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of income,
shareholders' investment and cash flows for each of the three years in the
period ended December 31, 1996. 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.
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, the financial statements referred to above present fairly,
in all material respects, the financial position of X-Rite, Incorporated
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
/S/ ARTHUR ANDERSEN LLP
Grand Rapids, Michigan,
January 27, 1997
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31,
1996 1995
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,587,000 $ 332,000
Short-term investments 10,196,000 4,073,000
Accounts receivable, less allowances of
$738,000 in 1996 and $574,000 in 1995 18,447,000 13,168,000
Inventories 15,019,000 12,835,000
Deferred tax assets 1,392,000 792,000
Prepaid expenses and other current assets 724,000 683,000
----------- -----------
Total current assets 47,365,000 31,883,000
PLANT AND EQUIPMENT:
Land 1,980,000 1,980,000
Buildings and improvements 8,753,000 8,560,000
Machinery and equipment 9,385,000 8,356,000
Furniture and office equipment 7,003,000 5,891,000
Construction in progress 941,000 320,000
----------- -----------
28,062,000 25,107,000
Less accumulated depreciation (12,263,000) (9,825,000)
----------- -----------
15,799,000 15,282,000
OTHER ASSETS:
Costs in excess of net assets acquired 9,522,000 10,098,000
Other noncurrent assets 6,265,000 6,244,000
----------- -----------
15,787,000 16,342,000
----------- -----------
$78,951,000 $63,507,000
=========== ===========
The accompanying notes are an integral part of these statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--Continued
December 31,
1996 1995
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 2,161,000 $ 1,499,000
Accrued liabilities--
Payroll and employee benefits 1,181,000 785,000
Income taxes 105,000 286,000
Other 1,848,000 1,056,000
----------- -----------
Total current liabilities 5,295,000 3,626,000
DEFERRED INCOME TAXES 694,000 611,000
SHAREHOLDERS' INVESTMENT:
Preferred stock, $.10 par value,
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value, 50,000,000
shares authorized; 21,064,825 and
21,019,206 shares issued and outstanding
in 1996 and 1995, respectively 2,107,000 2,102,000
Additional paid-in capital 6,908,000 6,388,000
Retained earnings 64,059,000 50,781,000
Cumulative translation adjustment (112,000) (1,000)
----------- -----------
72,962,000 59,270,000
----------- -----------
$78,951,000 $63,507,000
=========== ===========
The accompanying notes are an integral part of these statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
1996 1995 1994
----------- ----------- -----------
Net sales $84,394,000 $72,634,000 $59,475,000
Cost of sales 29,973,000 25,096,000 18,000,000
----------- ----------- -----------
Gross profit 54,421,000 47,538,000 41,475,000
Operating expenses:
Selling & marketing 15,897,000 15,737,000 12,403,000
Engineering, general
& administrative 10,414,000 11,280,000 7,515,000
Research & development 5,324,000 5,952,000 3,759,000
----------- ----------- -----------
31,635,000 32,969,000 23,677,000
----------- ----------- -----------
Operating income 22,786,000 14,569,000 17,798,000
Other income 447,000 111,000 590,000
----------- ----------- -----------
Income before income taxes 23,233,000 14,680,000 18,388,000
Income taxes 7,852,000 4,809,000 5,742,000
----------- ----------- -----------
NET INCOME $15,381,000 $ 9,871,000 $12,646,000
=========== =========== ===========
Earnings per share $.73 $.47 $.60
==== ==== ====
The accompanying notes are an integral part of these statements.
-17-
18
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
Additional Cumulative Total
Common Paid-in Retained Translation Shareholders'
Stock Capital Earnings Adjustment Investment
---------- ---------- ----------- ---------- ------------
BALANCES,
JANUARY 1, 1994 $1,047,000 $6,717,000 $32,040,000 $ 14,000 $39,818,000
Net income - - 12,646,000 - 12,646,000
Cash dividends declared
of $.08 per share - - (1,676,000) - (1,676,000)
Issuance of 29,062 shares
of common stock under
employee benefit plans 3,000 407,000 - - 410,000
Issuance of 10,495,134
shares of common stock
in connection with a
two-for-one stock split 1,049,000 (1,049,000) - - -
Translation adjustment - - - (66,000) (66,000)
---------- ---------- ----------- --------- -----------
BALANCES,
DECEMBER 31, 1994 2,099,000 6,075,000 43,010,000 (52,000) 51,132,000
Net income - - 9,871,000 - 9,871,000
Cash dividends declared
of $.10 per share - - (2,100,000) - (2,100,000)
Issuance of 26,423 shares
of common stock under
employee benefit plans 3,000 313,000 - - 316,000
Translation adjustment - - - 51,000 51,000
---------- ---------- ----------- --------- -----------
BALANCES,
DECEMBER 31, 1995 2,102,000 6,388,000 50,781,000 (1,000) 59,270,000
Net income - - 15,381,000 - 15,381,000
Cash dividends declared
of $.10 per share - - (2,103,000) - (2,103,000)
Issuance of 45,619 shares
of common stock under
employee benefit plans 5,000 520,000 - - 525,000
Translation adjustment - - - (111,000) (111,000)
---------- ---------- ----------- --------- -----------
BALANCES,
DECEMBER 31, 1996 $2,107,000 $6,908,000 $64,059,000 $(112,000) $72,962,000
========== ========== =========== ========= ===========
The accompanying notes are an integral part of these statements.
-18-
19
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
1996 1995 1994
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $15,381,000 $ 9,871,000 $12,646,000
Adjustments to reconcile net income to net
cash and cash equivalents provided by
(used for) operating activities-
Depreciation and amortization 4,265,000 3,430,000 1,473,000
Provision for doubtful accounts 268,000 350,000 52,000
Deferred income taxes (517,000) (105,000) (1,000)
Changes in operating assets and liabilities
net of effects from acquisitions:
Accounts receivable (5,532,000) (2,258,000) (3,344,000)
Inventories (2,089,000) 1,002,000 (5,563,000)
Other current and noncurrent assets (70,000) 380,000 (533,000)
Accounts payable 661,000 (529,000) 197,000
Other accrued liabilities 834,000 (184,000) 555,000
----------- ----------- -----------
Net cash and cash equivalents
provided by operating activities 13,201,000 11,957,000 5,482,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments 667,000 - -
Proceeds from sales of investments 1,600,000 13,772,000 12,559,000
Purchases of investments (8,406,000) (4,200,000) (10,610,000)
Capital expenditures (3,122,000) (3,413,000) (4,173,000)
Acquisitions, less cash acquired - (11,490,000) (274,000)
Purchases of other assets (1,151,000) (4,041,000) (3,156,000)
Other investing activities 44,000 178,000 -
----------- ----------- -----------
Net cash and cash equivalents
used for investing activities (10,368,000) (9,194,000) (5,654,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Labsphere, Inc. long-term debt - (1,795,000) -
Dividends paid (2,103,000) (2,100,000) (1,676,000)
Issuance of common stock 525,000 316,000 410,000
----------- ----------- -----------
Net cash and cash equivalents
used for financing activities (1,578,000) (3,579,000) (1,266,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS - (23,000) 65,000
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 1,255,000 (839,000) (1,373,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 332,000 1,171,000 2,544,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,587,000 $ 332,000 $ 1,171,000
=========== =========== ===========
The accompanying notes are an integral part of these statements.
-19-
20
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND OTHER INFORMATION
X-Rite, Incorporated and its wholly-owned subsidiaries (individually
"X-Rite" and with its subsidiaries the "Company") are engaged in the
development, manufacture and sale of quality control instruments and
accessories which measure color and appearance, optical density,
photographic density, and various types of light sources. Principal
markets for the Company's products include the paint, plastic, textile,
packaging, photographic, graphic arts and medical industries, in addition
to commercial and research laboratories. Based on the nature of its
products, the Company considers its business to be operating in a single
industry segment.
Products are sold worldwide through the Company's own sales personnel and
through independent sales representatives. The Company is headquartered in
Grandville, Michigan and has operations in New Hampshire and Massachusetts.
In addition, the Company has locations in Germany, England, Hong Kong and
the Czech Republic.
Geographic sales information is as follows:
1996 1995 1994
----------- ----------- -----------
Domestic sales:
U.S. operations $55,711,000 $48,968,000 $41,497,000
International sales:
U.S. operations export sales
to unaffiliated customers 20,901,000 17,072,000 15,148,000
Foreign subsidiary sales 7,782,000 6,594,000 2,830,000
----------- ----------- -----------
28,683,000 23,666,000 17,978,000
----------- ----------- -----------
$84,394,000 $72,634,000 $59,475,000
=========== =========== ===========
No single customer accounted for more than 10% of total net sales in 1996,
1995 or 1994.
-20-
21
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of X-Rite,
Incorporated and its wholly-owned domestic and foreign subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents:
The Company considers all highly liquid financial instruments with
maturities of three months or less when purchased to be cash equivalents.
Short-Term Investments:
Short-term investments consist primarily of municipal bonds and tax-exempt
industrial revenue bonds. All of the Company's short-term investments are
stated at the amortized cost, which approximates market, and are classified
as available for sale. Short-term investments at December 31, 1996 include
securities with original maturities of greater than three months and
remaining maturities of less than one year.
Inventories:
Inventories are stated at the lower of cost, determined on a first-in
first-out basis, or market. Components of inventories at December 31 are
summarized as follows:
1996 1995
----------- -----------
Raw materials $ 4,963,000 $ 4,399,000
Work in process 4,708,000 3,523,000
Finished goods 5,348,000 4,913,000
----------- -----------
$15,019,000 $12,835,000
=========== ===========
Plant, Equipment and Depreciation:
Plant and equipment are stated at cost and include expenditures for major
renewals and betterments. Maintenance and repairs that do not extend the
lives of the respective assets are charged to expense as incurred.
Depreciation expense is computed using the straight-line method over the
estimated useful lives of the related assets. Estimated depreciable lives
are as follows: buildings and improvements 5 to 40 years; machinery and
equipment, 3 to 10 years; and furniture and office equipment, 3 to 10
years.
-21-
22
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Computer Software Development Costs:
The Company capitalized $1,151,000, $833,000 and $658,000 of software
development costs during 1996, 1995 and 1994, respectively.
Amortization of software development costs is computed using the straight-
line method over a three-year period. Amortization expense was $731,000,
$462,000 and $172,000 in 1996, 1995 and 1994, respectively. The net
capitalized software development costs included in other assets are
$1,583,000 and $1,163,000 as of December 31, 1996 and 1995, respectively.
Amounts expended to achieve technological feasibility are included in
research and development expenses.
Costs in Excess of Net Assets Acquired and Other Long-Lived Assets:
Substantially all of X-Rite's costs in excess of net assets acquired result
from the 1995 acquisition of Labsphere, Inc. (see Note 6). These costs are
being amortized using the straight-line method over twenty years.
Accumulated amortization of excess acquisition costs was $1,087,000 and
$511,000 at December 31, 1996 and 1995, respectively.
Effective January 1, 1996, the Company adopted the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." In accordance with
the provisions of this statement, the Company evaluates on an ongoing basis
the recoverability of long-lived assets by determining whether unamortized
balances can be recovered through undiscounted future operating cash flows
over the remaining lives of the assets. The adoption of this statement had
no effect on the Company's financial statements.
Income Taxes:
The provision for income taxes is based on earnings reported in the
financial statements. Deferred income taxes are recognized for all
temporary differences between tax and financial reporting.
Revenue Recognition:
Revenue is recognized when a product is shipped or a service is performed.
Advertising Costs:
Advertising costs are charged to operations in the period incurred and
totaled $1,806,000, $2,172,000 and $1,773,000 in 1996, 1995 and 1994,
respectively.
-22-
23
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Stock Split:
On November 15, 1994, the Company's Board of Directors declared a two-for-
one stock split, paid December 27, 1994, in the form of a 100% stock
dividend to shareholders of record on December 15, 1994. All references to
the number of common shares and per share amounts in the financial
statements have been adjusted to reflect the stock split on a retroactive
basis.
Per Share Data:
Earnings per share were computed based on the weighted average number of
shares of common stock and common stock equivalents outstanding. For 1996,
1995 and 1994, these weighted averages were 21,195,467, 21,172,436 and
21,078,054 shares, respectively.
Foreign Currency Translation:
Foreign currency balance sheet accounts are translated into United States
dollars at the exchange rate in effect at year end. Income statement
accounts are translated at the average rate of exchange in effect during
the year. The resulting translation adjustments are recorded as a separate
component of shareholders' investment.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates;
however, management believes that any subsequent revisions to estimates
used would not have a material effect on the financial condition or results
of operations of the Company.
Reclassifications:
Certain reclassifications have been made to the prior years' consolidated
financial statements to conform with the 1996 presentation.
NOTE 3--REVOLVING CREDIT AGREEMENT
The Company maintains a revolving line of credit agreement with a bank
which provides for maximum borrowings of $20,000,000 with interest at 1.5%
over the "Effective Federal Funds Rate" (6.26% at December 31, 1996). The
borrowings are unsecured and no compensating balances are required by the
agreement. There were no significant borrowings under this agreement
during 1996, 1995 or 1994.
-23-
24
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--INCOME TAXES
The provision for income taxes at December 31 consisted of the following:
1996 1995 1994
---------- ---------- ----------
Current-
Federal $8,126,000 $4,777,000 $5,669,000
State 241,000 90,000 50,000
Foreign 2,000 47,000 20,000
---------- ---------- ----------
8,369,000 4,914,000 5,739,000
Deferred-
Federal (517,000) (261,000) 5,000
Foreign - 156,000 (2,000)
---------- ---------- ----------
(517,000) (105,000) 3,000
---------- ---------- ----------
$7,852,000 $4,809,000 $5,742,000
========== ========== ==========
The provision for income taxes reflects effective tax rates of 33.8%, 32.8%
and 31.2% in 1996, 1995 and 1994, respectively. A reconciliation of income
taxes which would have been computed by applying the statutory federal
income tax rate to income before provision for income taxes and the
provision for income taxes as presented in the accompanying consolidated
statements of income for the years ended December 31 is as follows:
1996 1995 1994
---------- ---------- ----------
Income tax at statutory rates $8,132,000 $5,038,000 $6,436,000
Foreign sales corporation (357,000) (279,000) (258,000)
Other 77,000 50,000 (436,000)
---------- ---------- ----------
$7,852,000 $4,809,000 $5,742,000
========== ========== ==========
-24-
25
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--INCOME TAXES, continued
Major components of the Company's deferred tax assets and liabilities at
December 31 are as follows:
1996 1995
---------- --------
Assets:
Inventory reserves and tax valuation $ 875,000 $517,000
Accounts receivable reserves 251,000 193,000
Financial accruals and reserves
not currently deductible 503,000 169,000
---------- --------
$1,629,000 $879,000
========== ========
Liabilities:
Software development costs $ 554,000 $395,000
Depreciation 321,000 252,000
Other 56,000 51,000
---------- --------
$ 931,000 $698,000
========== ========
Cash expended for income taxes was $8,459,000, $3,940,000 and $5,973,000 in
1996, 1995 and 1994, respectively.
NOTE 5--EMPLOYEE BENEFIT AND STOCK PLANS
The Company maintains 401(k) retirement savings plans for the benefit of
substantially all full-time U.S. employees. Participant contributions are
matched by the Company based on applicable matching formulas. The
Company's matching expense for the plans was $278,000, $232,000 and
$158,000 in 1996, 1995 and 1994, respectively.
The Company may sell up to 1,000,000 shares of common stock to its
employees under an employee stock purchase plan. Eligible employees who
participate purchase shares quarterly at 85% of the market price on the
date purchased. During 1996, 1995 and 1994, employees purchased 12,923,
14,398 and 11,285 shares, respectively. The weighted average fair value of
shares sold in 1996 was $16.16. At December 31, 1996, 912,620 shares were
available for future purchases.
-25-
26
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--EMPLOYEE BENEFIT AND STOCK PLANS, continued
The Company has two stock option plans covering 2,800,000 shares of common
stock. These plans permit options to be granted to key employees and the
Company's board of directors. Options are granted at market price on the
date of grant and are exercisable based on vesting schedules determined at
the time of grant. No options are exercisable after ten years from the
date of grant. At December 31, 1996, 2,253,593 shares were available for
future granting.
The Company accounts for its employee stock purchase plan and its stock
option plans under APB Opinion 25; therefore, no compensation costs are
recognized when employees purchase stock or when stock options are
authorized, granted or exercised. If compensation costs had been computed
under SFAS No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have been reduced by
approximately $860,000 and $.04 in 1996, and $951,000 and $.05 in 1995.
For purposes of computing compensation costs of stock options granted, the
fair value of each stock option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions: 6.2% to 6.7% and 5.4% to 7.0% risk-free interest rates
in 1996 and 1995, respectively; 5 year expected lives in 1996 and 1995; 36%
expected volatility in 1996 and 1995; and .5% expected dividend yields in
1996 and 1995. Black-Scholes is a widely accepted stock option pricing
model; however, the ultimate value of stock options granted will be
determined by the actual lives of options granted and future price levels
of the Company's common stock.
The Company also has a restricted stock plan covering 400,000 shares of
common stock. Shares awarded under this plan entitle the shareholder to
all rights of common stock ownership except that the shares may not be
sold, transferred, pledged, exchanged or otherwise disposed of during the
restriction period. The restriction period is determined by a committee,
appointed by the board of directors, but in no event shall have a duration
period in excess of ten years. No shares were awarded in 1996, 1995 or
1994. At December 31, 1996, there were 345,200 shares available for future
awards.
-26-
27
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--EMPLOYEE BENEFIT AND STOCK PLANS, continued
A summary of shares subject to options follows:
1996 1995 1994
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Prices Shares Prices Shares Prices
------- -------- ------- -------- ------- --------
Outstanding at
beginning
of year: 578,500 $12.07 408,000 $ 9.17 258,000 $ 6.42
Granted 197,000 16.17 185,000 18.72 212,000 11.25
Exercised (36,196) 7.05 (5,025) 11.23 (46,324) 3.17
Canceled (16,004) 18.43 (9,475) 17.08 (15,676) 9.82
------- ------- -------
Outstanding at
end of year 723,300 13.30 578,500 12.07 408,000 9.17
======= ======= =======
Exercisable at
end of year 606,300 12.90 460,000 10.59 275,000 8.45
======= ======= =======
Weighted average
fair value of
options granted $6.56 $7.70
===== =====
A summary of stock options outstanding at December 31, 1996 follows:
Weighted
Exercise Prices Average
------------------------- Remaining
Weighted Contractual
Price Ranges Shares Lowest Highest Average Life (Years)
---------------- --------- ------ ------- -------- ------------
Under $11.00:
Exercisable 233,200 $ 2.47 $10.88 $ 8.10 5.4
Over $11.00:
Exercisable 373,100 11.25 19.50 15.91 8.2
Non-Exercisable 117,000 14.50 18.38 15.35 9.3
-------
490,100 11.25 19.50 15.78 8.5
-------
723,300 2.47 19.50 13.30 7.5
=======
-27-
28
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--ACQUISITIONS
In February of 1995 the Company acquired all the outstanding stock of
Labsphere, Inc. ("Labsphere") for $11,500,000 in cash. The acquisition was
accounted for under the purchase method of accounting and was funded by
short-term investments. Labsphere is a leading manufacturer of light
measurement and light source integrating sphere systems and
instrumentation. Had the acquisition of Labsphere occurred on January 1,
1994, net sales, net income and earnings per share for the year ended
December 31, 1994 would have been $66,419,999, $12,076,000 and $.57,
respectively (unaudited).
In July of 1994, the Company acquired from the First National Bank of
Boston substantially all of the assets of Colorgen, Inc. ("Colorgen") for
$4,500,000 in cash, funded by short-term investments. The Company has
discontinued the product lines previously marketed by Colorgen. The
primary objective of the acquisition was to obtain paint formulation
databases. These databases are costly and time-consuming to develop, and
are currently being used in connection with certain of the Company s
existing products.
NOTE 7--QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data are summarized as follows:
Earnings
Net Gross Operating Net Per
Quarter Sales Profit Income Income Share
----------- ----------- ----------- ----------- ----------- --------
1996:
First $19,696,000 $12,599,000 $ 4,994,000 $ 3,369,000 $.16
Second 20,827,000 13,387,000 5,584,000 3,775,000 .18
Third 21,358,000 13,737,000 5,917,000 4,014,000 .19
Fourth 22,513,000 14,698,000 6,291,000 4,223,000 .20
----------- ----------- ----------- ----------- ----
$84,394,000 $54,421,000 $22,786,000 $15,381,000 $.73
=========== =========== =========== =========== ====
1995:
First $17,946,000 $12,515,000 $ 4,803,000 $3,303,000 $.16
Second 18,906,000 12,383,000 3,716,000 2,553,000 .12
Third 18,755,000 11,912,000 3,848,000 2,531,000 .12
Fourth 17,027,000 10,728,000 2,202,000 1,484,000 .07
----------- ----------- ----------- ---------- ----
$72,634,000 $47,538,000 $14,569,000 $9,871,000 $.47
=========== =========== =========== ========== ====
-28-
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
(a) Directors
Information relating to directors appearing under the caption "Election of
Directors" in the definitive Proxy Statement for the 1997 Annual Meeting of
shareholders and filed with the Commission is incorporated herein by
reference.
(b) Officers
Information relating to executive officers is included in this report in
the last section of Part I under the caption "Executive Officers of the
Registrant."
(c) Compliance With Section 16(a)
Information concerning compliance with Section 16(a) of the Securities
Exchange Act of 1934 appearing under the caption "Compliance With Reporting
Requirements" in the definitive Proxy Statement for the 1997 Annual meeting
of Shareholders and filed with the Commission is incorporated herein by
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Executive Compensation"
contained in the definitive Proxy Statement for the 1997 Annual Meeting of
Shareholders and filed with the Commission is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the captioned "Securities Ownership of
Management" contained in the definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders and filed with the Commission is hereby
incorporated herein by reference.
-29-
30
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
Part IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) The following financial statements, all of which are set forth in Item
8, are filed as a part of this report:
Report of Independent Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) No reports on Form 8-K were filed for the 3-month period ended
December 31, 1996.
(c) See Exhibit Index located on page 32.
(d) All other schedules required by Form 10-K Annual Report have been
omitted because they were inapplicable, included in the notes to the
consolidated financial statements, or otherwise not required under the
instructions contained in Regulation S-X.
-30-
31
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
X-RITE, INCORPORATED
March 18, 1997 /s/ Ted Thompson
----------------------------------
Ted Thompson, Chairman and
Chief Executive Officer
March 18, 1997 /s/ Duane Kluting
----------------------------------
Duane Kluting, Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below on this 18th day of March, 1997, by the
following persons on behalf of the Registrant and in the capacities
indicated.
Each director of the Registrant whose signature appears below, hereby
appoints Ted Thompson and Duane Kluting, and each of them individually as
his attorney-in-fact to sign in his name and on his behalf as a Director of
the Registrant, and to file with the Commission any and all amendments to
this report on Form 10-K to the same extent and with the same effect as if
done personally.
/s/ Ted Thompson
- ---------------------------------- ----------------------------------
Ted Thompson, Director Stanley W. Cheff, Director
/s/ Dr. Marvin G. DeVries /s/ James A. Knister
- ---------------------------------- ----------------------------------
Dr. Marvin G. DeVries, Director James A. Knister, Director
/s/ Rufus S. Teesdale /s/ Ronald A. VandenBerg
- ---------------------------------- ----------------------------------
Rufus S. Teesdale, Director Ronald A. VandenBerg, Director
/s/ Charles Van Namen /s/ Quinten E. Ward
- ---------------------------------- ----------------------------------
Charles Van Namen, Director Quinten E. Ward, Director
-31-
32
EXHIBIT INDEX
- --------------------------------------------------------------------------
3(a) Restated Articles of Incorporation (filed as exhibit to Form
S-18 dated April 10, 1986 (Registration No. 33-3954C) and
incorporated herein by reference)
3(b) Certificate of Amendment to Restated Articles of Incorporation
adding Article IX (filed as exhibit to Form 10-Q for the quarter
ended June 30, 1987 (Commission File No. 0-14800) and
incorporated herein by reference)
3(c) Certificate of Amendment to Restated Articles of Incorporation
amending Article III (filed as exhibit to Form 10-K for the year
ended December 31, 1995 (Commission File No. 0-14800) and
incorporated herein by reference)
3(d) Bylaws, as amended through June 16, 1994 (filed as exhibit to
Form 10-K for the year ended December 31, 1994 (Commission File
No. 0-14800) and incorporated herein by reference)
3(e) First amendment to amended Bylaws amending Article IV (filed as
exhibit to Form 10-K for the year ended December 31, 1995
(Commission File No. 0-14800) and incorporated herein by
reference)
4 X-Rite, Incorporated common stock certificate specimen (filed
as exhibit to Form 10-Q for the quarter ended June 30, 1986
(Commission File No. 0-14800) and incorporated herein by
reference)
The following material contracts identified with "*" preceding the exhibit
number are agreements or compensation plans with or relating to executive
officers, directors or related parties.
*10(a) X-Rite, Incorporated Amended and Restated Outside Director Stock
Option Plan, effective as of September 17, 1996 (filed as exhibit
to Form 10-Q for the quarter ended September 30, 1996 (Commission
File No. 0-14800) and incorporated herein by reference)
*10(b) X-Rite, Incorporated Cash Bonus Conversion Plan (filed as
Appendix A to the definitive proxy statement dated April 8, 1996
relating to the Company's 1996 annual meeting (Commission File
No. 0-14800) and incorporated herein by reference)
*10(c) Form of Indemnity Contract entered into between the registrant
and members of the board of directors (filed as exhibit to
Form 10-Q for the quarter ended June 30, 1996 (Commission File
No. 0-14800) and incorporated herein by reference)
-32-
33
EXHIBIT INDEX
- --------------------------------------------------------------------------
*10(d) Employment Resignation and Severance Agreement entered into
between the registrant and Bruce Jorgensen (filed as exhibit to
Form 10-Q for the quarter ended March 31, 1996 (Commission File
No. 0-14800) and incorporated herein by reference)
10(e) Exchange Agreement entered into between the registrant and
Ronald L. Sisson (filed as exhibit to Form 10-K for the year
ended December 31, 1994 (Commission File No. 0-14800) and
incorporated herein by reference)
11 Computation of Earnings Per Share
21 Subsidiaries of the registrant
23 Consent of independent accountants
27 Financial Data Schedule
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<EX-11>
Exhibit 11
X-RITE, INCORPORATED AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
Year ended December 31,
1996 1995 1994
----------- ----------- -----------
Net Income $15,381,000 $ 9,871,000 $12,646,000
=========== =========== ===========
Weighted average number of shares
of common stock outstanding 21,031,534 21,001,357 20,961,225
Weighted average number of common
equivalent shares outstanding 163,933 171,079 116,829
---------- ---------- ----------
Total weighted average of common
and common equivalent shares
outstanding 21,195,467 21,172,436 21,078,054
========== ========== ==========
Earnings per share $.73 $.47 $.60
==== ==== ====
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<EX-21>
Exhibit 21
X-RITE, INCORPORATED
LIST OF SUBSIDIARIES
1. X-Rite International, Incorporated, a U.S. Virgin Islands
Corporation, is a wholly owned subsidiary of X-Rite, Incorporated,
being utilized as a foreign sales corporation.
2. X-Rite Holdings, Incorporated, a U.S. Corporation, is a wholly owned
subsidiary of X-Rite, Incorporated, being utilized as a stockholder
of certain foreign subsidiaries.
3. X-Rite GmbH, a German Corporation, is wholly owned by X-Rite,
Incorporated and X-Rite Holdings, Incorporated, and being utilized
as a sales and service office.
4. X-Rite Asia Pacific Limited, a Hong Kong Corporation, is wholly
owned by X-Rite, Incorporated and X-Rite Holdings, Incorporated, and
being utilized as a sales office.
5. X-Rite Limited, a United Kingdom Corporation, is wholly owned by
X-Rite, Incorporated and being utilized as a sales and service
office.
6. X-Rite MA, Incorporated, a U.S. Corporation, is wholly owned by
X-Rite, Incorporated and being utilized as a sales and service
office.
7. OTP, Incorporated, a U.S. Corporation, is wholly owned by X-Rite,
Incorporated and being utilized to hold title to certain real
property of the Corporation.
8. Labsphere, Incorporated, a U.S. Corporation, is wholly owned by
X-Rite, Incorporated and is a manufacturer of light measurement
systems and related proprietary materials.
9. Labsphere Limited, a United Kingdom Corporation, is wholly owned by
Labsphere, Incorporated and being utilized as a sales office.
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<EX-23>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
of our report included in this Form 10-K, into the Company's previously
filed Registration Statement File Numbers 33-29288, 33-29290, 33-82258 and
33-82260.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan
March 24, 1997
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