UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 1, 2000
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______
Commission File No. 0-14800
X-RITE, INCORPORATED
(Exact name of registrant as specified in its charter)
Michigan 38-1737300
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3100 44th Street, SW, Grandville, Michigan 49418
(Address of principal executive offices) (Zip Code)
(616) 534-7663
(Registrant's telephone number, including area code)
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 _____
The number of shares outstanding of registrant's common stock, par value $.10
per share, at May 1, 2000 was 21,275,981 shares.
Exhibit Index on page 13.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 1, January 1,
2000 2000
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 9,235,000 $ 6,898,000
Short-term investments 21,167,000 22,129,000
Accounts receivable, less allowances of
$1,026,000 in 2000 and $1,110,000 in 1999 19,611,000 20,249,000
Inventories 15,504,000 15,410,000
Deferred taxes 1,666,000 1,642,000
Prepaid expenses and other current assets 2,016,000 1,565,000
----------- -----------
Total current assets 69,199,000 67,893,000
PROPERTY AND EQUIPMENT, at cost 45,207,000 44,406,000
Less accumulated depreciation (24,006,000) (23,351,000)
----------- -----------
21,201,000 21,055,000
OTHER ASSETS:
Costs in excess of net assets acquired 7,873,000 8,036,000
Cash surrender values - Founders policies 10,093,000 6,616,000
Other noncurrent assets 4,289,000 4,219,000
----------- -----------
22,255,000 18,871,000
----------- -----------
$112,655,000 $107,819,000
=========== ============
See accompanying notes to condensed consolidated financial statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
April 1, January 1,
2000 2000
----------- -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 2,770,000 $ 2,277,000
Accrued liabilities--
Payroll and employee benefits 1,528,000 2,043,000
Income taxes 1,779,000 325,000
Other accrued liabilities 2,727,000 2,352,000
----------- -----------
Total current liabilities 8,804,000 6,997,000
TEMPORARY SHAREHOLDERS' INVESTMENT:
Value of shares subject to redemption
agreements 45,400,000 45,400,000
PERMANENT SHAREHOLDERS' INVESTMENT:
Common stock 1,674,000 1,670,000
Additional paid-in capital 8,581,000 8,439,000
Retained earnings 54,378,000 51,347,000
Shares in escrow (4,826,000) (4,820,000)
Accumulated other comprehensive loss (1,356,000) (1,214,000)
----------- -----------
58,451,000 55,422,000
----------- -----------
$112,655,000 $107,819,000
=========== ============
See accompanying notes to condensed consolidated financial statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
April 1, April 3,
2000 1999
----------- -----------
Net sales $26,134,000 $23,688,000
Cost of sales 9,011,000 7,833,000
----------- -----------
Gross profit 17,123,000 15,855,000
Operating expenses:
Selling & marketing 5,322,000 4,911,000
General & administrative 3,770,000 3,803,000
Research, development & engineering 2,772,000 2,765,000
----------- -----------
11,864,000 11,479,000
----------- -----------
Operating income 5,259,000 4,376,000
Other income 233,000 231,000
----------- -----------
Income before income taxes 5,492,000 4,607,000
Income taxes 1,936,000 1,624,000
----------- -----------
NET INCOME $ 3,556,000 $ 2,983,000
=========== ===========
Earnings per share:
Basic $.17 $.14
==== ====
Diluted $.17 $.14
==== ====
Cash dividends per share $.025 $.025
===== =====
See accompanying notes to condensed consolidated financial statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
April 1, April 3,
2000 1999
----------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES $ 7,093,000 $ 5,625,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 2,000,000 11,150,000
Proceeds from maturities of investments 211,000 355,000
Purchases of investments ( 1,250,000) (11,338,000)
Capital expenditures (713,000) (1,732,000)
Purchases of other assets (385,000) (347,000)
Increase in cash value of life insurance (3,477,000) (3,372,000)
Other investing activities 18,000 56,000
----------- ----------
Net cash and cash equivalents
used for investing activities (3,596,000) (5,228,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (531,000) (529,000)
Issuance of common stock 146,000 63,000
------------ ---------
Net cash and cash equivalents
used for financing activities (385,000) (466,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (775,000) (24,000)
------------ ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,337,000 (93,000)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 6,898,000 1,536,000
----------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $ 9,235,000 $1,443,000
=========== ==========
See accompanying notes to condensed consolidated financial statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by X-Rite Incorporated ("X-Rite" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading. It is suggested that these condensed consolidated
financial statements be read in conjunction with the consolidated financial
statements and notes thereto included in X-Rite's 1999 annual report on Form
10-K.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments necessary to present fairly the
financial position of the Company as of April 1, 2000 and the results of its
operations and its cash flows for the three month periods ended April 1, 2000
and April 3, 1999. All such adjustments are of a normal and recurring nature.
Certain prior year information has been reclassified to conform to the current
year presentation.
NOTE 2--INVENTORIES
Inventories consisted of the following:
April 1, January 1,
2000 2000
----------- -----------
Raw materials $ 6,107,000 $ 6,351,000
Work in process 5,725,000 5,381,000
Finished goods 3,672,000 3,678,000
----------- -----------
$15,504,000 $15,410,000
=========== ===========
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 3--EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income by the
weighted-average number of common shares outstanding in each quarter. Diluted
EPS is computed by dividing net income by the weighted-average number of common
shares outstanding plus all shares that would have been outstanding if every
potentially dilutive common share had been issued. The following table
reconciles the numerators and denominators used in the calculations of basic and
diluted EPS for each period presented in the accompanying financial statements:
Three Months Ended
April 1, April 3,
2000 1999
---------- ----------
Numerators:
Net income numerators for
both basic and diluted EPS $3,556,000 $2,983,000
========== ==========
Denominators:
Denominators for basic EPS; weighted
average common shares outstanding 20,996,842 20,929,523
Potentially dilutive shares-
Shares subject to redemption agreements 17,780 911,201
Stock options 17,337 11,229
---------- ----------
Denominators for diluted EPS 21,031,959 21,851,953
========== ==========
Certain shares subject to redemption agreements (see Note 5) were considered
dilutive. Certain exercisable stock options were not included in the computation
of diluted EPS because the option prices were greater than the average market
prices in each quarter. The number of stock options not included in the
computation of diluted EPS and the range of exercise prices was 985,500 and
$7.03 - $19.52 in 2000, and 902,100 and $7.03 - $19.25 in 1999.
NOTE 4--COMPREHENSIVE INCOME
Comprehensive income consisted of net income, foreign currency translation
adjustments and unrealized loss on short-term investments. Comprehensive income
was $3,414,000 for the quarter ended April 1, 2000 and $2,943,000 for the
quarter ended April 3, 1999.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 5--VALUE OF SHARES SUBJECT TO REDEMPTION AGREEMENTS
During 1998 the Company entered into agreements with its founding shareholders
for the future repurchase of 4.54 million shares, or 21.3 percent, of the
Company's outstanding stock. The stock purchases will occur following the later
of the death of each founder and his spouse. The cost of the repurchase
agreements will be funded by proceeds from life insurance policies the Company
has purchased on the lives of certain of these individuals. The price the
Company will pay the founders' estates for these shares will reflect a 10
percent discount from the average closing price for the ninety trading days
preceding the later death of the founder and his spouse. The discounted price
may not be less than $10 per share or more than $25 per share.
The shares subject to the agreements have been reclassified on the April 1, 2000
balance sheet to a temporary equity account. The reclassification of $45,400,000
was determined by multiplying the applicable shares by the minimum redemption
price of $10, since the average closing price of the Company's common stock,
after applying the 10 percent discount, for the ninety trading days preceding
April 1, 2000 was less than $10.
NOTE 6--SHARES IN ESCROW
During 1997, the Company acquired substantially all the assets of Light Source
Computer Images, Inc. The asset purchase agreement provides for future
contingent consideration if net sales of certain products reaches or exceeds
agreed upon sales goals during twelve month periods that end in July 1998, 1999
and 2000. The Company established an escrow fund equal to the maximum contingent
cash consideration that could be earned by the sellers. The investment of escrow
funds must be made in accordance with the terms of an escrow agreement, which
allows for certain money market securities or X-Rite common stock. On April 1,
2000, the escrow fund held 257,064 shares of X-Rite common stock at a cost of
$4,769,000, plus $57,000 in dividends received. Accordingly, that portion of the
escrow fund is presented in the accompanying balance sheet as a reduction to
shareholders' investment. This contractual agreement remains in effect until
July of 2000.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities in the first quarter of 2000 totaled $7.1
million. The primary source of cash was net income earned during the period.
Included in net income were certain accounting charges that did not require the
use of cash. The largest non-cash accounting charges, which totaled $1.3
million, were depreciation and amortization.
The most significant investing activity during the first three months of 2000
was the payment of life insurance premiums in connection with agreements the
Company entered into with its founding shareholders for the future redemption of
4.54 million shares, or 21.3 percent, of the Company's outstanding stock. The
stock redemptions will occur following the later of the death of each founder
and his spouse. The cost of the redemption agreements will be funded by proceeds
from life insurance policies the Company has purchased on the lives of certain
of these individuals. Of the $4.3 million of premiums paid in the first quarter,
approximately $3.5 million represented cash surrender value and has been
recorded as a noncurrent asset on the Company's balance sheet.
Capital expenditures in the first three months of 2000 totaled $713,000 and
consisted mainly of building improvements, machinery and equipment. X-Rite
currently anticipates capital expenditures for the remainder of 2000 will be
approximately $2.7 million and will consist principally of building
improvements, machinery, equipment, and computer hardware and software.
Dividends of $531,000 were paid during the first quarter which is equal to an
annual rate of 10 cents per share. The Board of Directors intends to continue
paying dividends at this rate 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, life insurance premiums,
capital expenditures and dividends for the foreseeable future. In the event more
funds are required, additional short or long-term borrowing arrangements are the
most likely alternatives for meeting liquidity and capital resource needs.
RESULTS OF OPERATIONS
Net Sales:
First quarter 2000 consolidated net sales were $26.1 million, a 10.1% increase
compared to the first quarter of 1999. Stronger sales in Asia and North America
were the primary contributors to this increase. Increases were noted in most
product lines led by the coatings product lines.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations, continued
Cost of Sales and Gross Profit:
Gross profit as a percentage of sales was 65.5% for the first quarter of 2000,
compared to 66.9% for the first quarter of 1999. The decrease was due to a
higher production costs, and the impact of sales discounts.
Operating Expenses:
Selling and marketing expenses increased 8.4% in the first quarter of 2000
compared to the same period in 1999. The increase reflects the Company's long
term strategy to expand its markets from both a product as well as geographical
perspective.
First quarter general and administrative expenses decreased slightly as compared
to the same quarter in the prior year. The decrease can be attributed to
increased operating efficiencies as well as 1999 expenses including the startup
costs related to our Paris office.
Research, development and engineering expenses in the first quarter were
essentially the same as first quarter of 1999. Research activities continue to
be funded at levels consistent with prior years when the Company made a
strategic decision to increase efforts aimed at broadening existing product
lines as well as developing innovative solutions for markets not currently
served by X-Rite.
Other Income:
Other income consisted mainly of interest earnings from invested funds.
Net Income:
The Company recorded net income of $3.6 million for the first three months of
2000 compared to $3.0 million in the same period of 1999. On a per share basis,
first quarter net income was $.17 in 2000 and $.14 in 1999. The average number
of common and common equivalent shares outstanding was lower in 2000 due to a
higher average market price during the quarter for the Company's stock, which
reduced the dilutive effect of the shares subject to redemption agreements.
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, continued
SAFE HARBOR PROVISIONS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995.
Statements in this filing that are not historical facts are forward-looking
statements, which involve risks and uncertainties that could affect the
Company's results of operations, financial position and cash flows. Actual
results may differ materially from those projected in the forward-looking
statements, due to a variety of factors, some of which may be beyond the control
of the Company. Readers are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date of this report.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on Page 14 of this Form 10-Q report.
(b) No reports on Form 8-K were filed for the 3-month period ended
April 1, 2000.
SIGNATURES
Pursuant to the requirements 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
May 12, 2000 /s/ Rich Cook
Rich Cook
President, and Chief
Executive Officer
May 12, 2000 /s/ Duane F. Kluting
Duane F. Kluting
Vice President and
Chief Financial Officer
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) Certificate of Amendment to Restated Articles of Incorporation
amending Article IV (filed as exhibit to Form 10-K for the year ended
January 2, 1999 (Commission File No. 0-14800) and incorporated herein
by reference)
3(e) Bylaws, as amended and restated January 20, 1998 (filed as exhibit to
Form 10-K for the year ended January 3, 1998 (Commission File No.
0-14800) and incorporated herein by reference)
3(f) Bylaws, as amended and restated November 18, 1999 (filed as exhibit to
Form 10-K for the year ended January 1, 1999 (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)
EXHIBIT INDEX
- --------------------------------------------------------------------------
*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)
*10(d) Employment Agreement dated April 17,1998 between the registrant and
Richard E. Cook (filed as exhibit to Form 10-K for the year ended
January 2, 1999 (Commission File No. 0-14800) and incorporated herein
by reference)
10(e) Asset Purchase Agreement entered into between Light Source Acquisition
Company and Light Source Computer Images, Inc. including Escrow
Agreement by and between Light Source Acquisition Company and Light
Source Computer Images, Inc. and U.S. Trust Company of California,
N.A. (filed as exhibit to Form 8-K dated June 2, 1997 (Commission File
No. 0-14800) and incorporated herein by reference)
*10(f) Form of X-Rite, Incorporated Founders Redemption Agreement entered
into between the registrant and certain persons, together with a list
of such persons (filed as exhibit to Form 10-Q for the quarter ended
July 3,1999 (Commission File No. 0-14800) and incorporated herein by
reference)
*10(g) First amendment to X-Rite, Incorporated Founders Redemption Agreement
dated July 16, 1999 between the registrant and Ted Thompson (filed as
exhibit to Form 10-Q for the quarter ended July 3,1999 (Commission
File No. 0-14800) and incorporated herein by reference)
*10(h) Chairman's agreement dated July 16, 1999 between the registrant and
Ted Thompson (filed as exhibit to Form 10-Q for the quarter ended July
3,1999 (Commission File No. 0-14800) and incorporated herein by
reference)
*10(i) Employment arrangement effective upon a change in control entered into
between the registrant and certain persons with a list of such persons
(filed as exhibit to Form 10-K for the year ended January 1, 2000
(Commission File No. 0-14800) and incorporated herein by reference)
*10(j) Deferred compensation trust agreement dated November 23, 1999 entered
into between the registrant and Richard E. Cook (filed as exhibit to
Form 10-K for the year ended January 1, 2000 (Commission File No.
0-14800) and incorporated herein by reference)
27 Financial Data Schedule