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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 January 3, 1998, 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 2, 1998, 21,156,191 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 $257,292,833 computed at the
closing price on that date.
Portions of the Company's Proxy Statement for the 1998 Annual Meeting of
Shareholders are incorporated by reference into Part III. Exhibit Index is
located at Page 34.
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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. In 1997, the Company acquired substantially
all the assets of Light Source Computer Images, Inc. ("Light Source").
Light Source is a California-based producer of high-quality, easy-to-use
scanning, imaging and print optimization software.
(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.
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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:
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.
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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.
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 has established a
significant market presence in the retail point-of-purchase architectural
paint matching business.
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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.
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 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 five major categories;
medical, photographic, graphic arts, color and appearance, and research
laboratories.
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 22 U.S. patents and 4 foreign patents which are
significant for products it manufactures. The Company currently has 8 U.S.
and 22 foreign patent applications on file. 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 1997,
1996 or 1995. 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 $7.1 million at
March 2, 1998 and $5.3 million at March 3, 1997. The March 2, 1998 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; GretagMacBeth, Tobias Associates, Graphics
Microsystems, 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, GretagMacBeth,
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 1997, 1996 and 1995, respectively, the Company spent $6,380,000,
$5,324,000 and $5,952,000 on research and development. X-Rite has no
customer-sponsored research and development activities.
Human Resources
As of March 2, 1998, the Company employed 640 persons; 600 in its U.S.
operations and 40 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 2, 1998:
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
San Rafael, CA 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 250,000 square
feet of space and lease approximately 47,000 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 68 Chief Executive Officer, 1976
President and Chief
Operating Officer
Bernard J. Berg 54 Vice President, Engineering 1983
Duane F. Kluting 48 Vice President, Chief
Financial Officer 1992
Jeffrey L. Smolinski 36 Vice President, Operations 1994 (1)
Joan Mariani Andrew 39 Vice President, Sales &
Marketing 1995 (2)
(1) 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.
(2) 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 2, 1998, there were
approximately 1,560 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 January 3, 1998:
Fourth Quarter $20.63 $17.25 $.025
Third Quarter 22.38 17.75 .025
Second Quarter 19.63 14.25 .025
First Quarter 18.00 13.75 .025
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
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)
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
Net sales $96,991 $84,394 $72,634 $59,475 $39,189
Net income 18,022 15,381 9,871 12,646 7,527
Net income per share:
Basic (1) .85 .73 .47 .60 .36
Diluted (1) .85 .73 .47 .60 .36
Dividends per share (1) .10 .10 .10 .08 .08
Total assets 92,468 78,951 63,507 54,558 41,855
Long-term debt at year end -0- -0- -0- -0- -0-
(1) Retroactively adjusted to reflect two-for-one stock split occurring
in 1994.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
X-Rite has a strong financial position, with excellent liquidity. Cash
provided by operating activities in 1997 was a record $20 million. Working
capital on January 3, 1998 was $46.5 million and the ratio of current
assets to current liabilities was 9.1:1.
Acquiring substantially all the assets of Light Source Computer Images,
Inc. was the most significant investment transaction in 1997. The purchase
price of $6.9 million was paid in cash. In addition, the Company deposited
$4.6 million in cash into an escrow fund related to the acquisition (see
Note 6 to the accompanying financial statements). The acquisition and the
escrow account deposit were funded with cash and short-term investments on
hand. Capital expenditures of $4.3 million in 1997 were made primarily for
machinery and equipment, computer hardware and software. The Company
expects capital expenditures in 1998 to total approximately $4 million and
will consist mainly of machinery and equipment and building improvements.
Dividends of $2.1 million were paid at the annual rate of 10 cents per
share, which is the rate the Board of Directors intends to continue paying
in the foreseeable future.
On January 21, 1998, the Company announced it had entered into agreements
with its founding shareholders for the future repurchase of 4.54 million
shares, or 21.5 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 totaling $160 million 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 market price, although the discounted price may
not be less than $10 per share or more than $25 per share.
If all the stock is purchased from the founders' estates at the maximum
price of $25 per share, the aggregate stock purchases will total $113.5
million. The company anticipates that certain stock purchases will not
coincide with the receipt of insurance proceeds; therefore, borrowed funds
will be needed from time to time to finance the Company's purchase
obligations. Insurance was purchased at the $160 million level in order to
cover both the maximum aggregate purchase price and anticipated borrowing
costs. Life insurance premiums will total $4.3 million each year while all
the policies remain in effect. Of the $4.3 million paid in 1998,
approximately $3.1 million represents cash surrender value and will be
recorded as an other long-term asset on the Company's balance sheet.
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, expected
founders' stock repurchase obligations, capital expenditures and dividends
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in 1998. 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.
The following table sets forth information derived from the Company's
consolidated statements of income expressed as a percentage of net sales.
1997 1996 1995
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 34.0 35.5 34.6
------ ------ ------
Gross profit 66.0 64.5 65.4
Operating expenses:
Selling & marketing 18.5 18.9 21.7
Engineering, general
& administrative 13.1 12.3 15.5
Research & development 6.6 6.3 8.2
------ ------ ------
38.2 37.5 45.4
------ ------ ------
Operating income 27.8 27.0 20.0
Other income 0.3 0.5 0.2
------ ------ ------
Income before income taxes 28.1 27.5 20.2
Income taxes 9.5 9.3 6.6
------ ------ ------
Net income 18.6% 18.2% 13.6%
====== ====== ======
Net Sales
Net sales in 1997 increased 14.9% compared to 1996. Net sales in 1996
increased 16.2% compared to 1995. The increases were mainly due to unit
volume increases; price increases had a nominal effect on sales levels.
Gross Profit
Gross profit as a percentage of sales was 66.0% for 1997 compared to 64.5%
for 1996, due to a favorable change in product sales mix. Gross profit as
a percentage of sales declined in 1996 compared to 1995 due to changes in
product mix and higher labor costs.
Selling and Marketing Expenses
Selling and marketing expenses increased in 1996 and 1997 in terms of
actual costs incurred; however, as a percentage of sales 1996 and 1997
expenditures actually declined from preceding years. In 1998 the Company
intends to increase the level of investment in sales and marketing in order
to position itself for continued long-term sales growth.
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Engineering, General and Administrative
Engineering, general and administrative ("EG&A") expenses in 1997 were
higher compared to 1996; as a percentage of sales, 1997 EG&A expenses were
13.1% compared to 12.3% in 1996. The increase was primarily due to the
inclusion in 1997 of Light Source operating costs and Light Source goodwill
amortization; no comparable expenses were incurred in 1996. 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.
Research and Development
Research and development ("R&D") expenses showed a year-over-year increase
in 1997, and as a percentage of sales increased slightly in 1997 compared
to 1996. R&D expenditures decreased in 1996 compared to 1995, as R&D
projects in 1996 were carefully reviewed and prioritized in order to manage
costs and optimize returns. The Company intends to raise the level of
resources committed to product development in 1998 in order to expedite new
product introductions.
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 $1.3, $1.2 and $.8 million in 1997, 1996
and 1995, respectively.
Other Income
Other income in 1997, 1996 and 1995 consisted mainly of interest earned on
funds invested in tax-exempt securities. Interest income in 1997 and 1995
was less than 1996 due to a reduction in funds available for investment. A
substantial portion of the Company's short-term investments were used in
those years in connection with acquiring other companies.
Income Taxes
The effective tax rate in 1997 of 34.0% approximated the effective tax rate
in 1996. The 1996 effective tax rate of 33.8% was higher than the 1995
rate of 32.8% due to higher state income taxes and a lower research and
development tax credit.
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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.
Year 2000
Substantially all of the Company's computer systems and software
applications for its business operations are currently year 2000 ("Y2K")
compliant. The Company expects to be 100% compliant by the end of 1998,
and also expects that the expenses and capital expenditures associated with
completing Y2K compliance will not have a material effect on its financial
condition or results of operations.
The Company is also in the process of verifying Y2K conversion plans with
its vendors. If any significant vendors are identified that do not have
appropriate or timely Y2K conversion plans the Company will immediately
begin to make contingency plans with those vendors, or seek to find
alternative vendors in order to minimize potential adverse affects on
business operations.
Most of the products the Company sells, or has sold, are Y2K compliant. A
Y2K conversion schedule has been established for product applications that
are not currently Y2K ready. Conversion solutions for applications that
are not Y2K ready are expected to be completed by the end of 1998. The
Company does not expect the cost of product application Y2K conversions to
be material to its financial condition or results of operations.
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 January 3,
1998 and December 31, 1996, and the related consolidated statements of
income, shareholders' investment and cash flows for each of the three years
in the period ended January 3, 1998. 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 January 3, 1998 and December 31, 1996, and the
results of their operations and their cash flows for each of the three
years in the period ended January 3, 1998, in conformity with generally
accepted accounting principles.
/S/ ARTHUR ANDERSEN LLP
Grand Rapids, Michigan,
January 29, 1998
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 3, December 31,
1998 1996
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,808,000 $ 1,587,000
Short-term investments 10,555,000 10,196,000
Accounts receivable, less allowances of
$567,000 in 1997 and $738,000 in 1996 20,833,000 18,447,000
Inventories 15,000,000 15,019,000
Deferred tax assets 1,189,000 1,392,000
Prepaid expenses and other current assets 1,848,000 724,000
----------- -----------
Total current assets 52,233,000 47,365,000
PLANT AND EQUIPMENT:
Land 1,980,000 1,980,000
Buildings and improvements 8,732,000 8,753,000
Machinery and equipment 11,362,000 9,385,000
Furniture and office equipment 10,076,000 7,003,000
Construction in progress 1,306,000 941,000
----------- -----------
33,456,000 28,062,000
Less accumulated depreciation (16,043,000) (12,263,000)
----------- -----------
17,413,000 15,799,000
OTHER ASSETS:
Costs in excess of net assets acquired 15,539,000 9,522,000
Other noncurrent assets 7,283,000 6,265,000
----------- -----------
22,822,000 15,787,000
----------- -----------
$92,468,000 $78,951,000
=========== ===========
The accompanying notes are an integral part of these statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--Continued
January 3, December 31,
1998 1996
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 1,604,000 $ 2,161,000
Accrued liabilities--
Payroll and employee benefits 1,403,000 1,181,000
Income taxes 249,000 105,000
Other 2,454,000 1,848,000
----------- -----------
Total current liabilities 5,710,000 5,295,000
DEFERRED INCOME TAXES 678,000 694,000
SHAREHOLDERS' INVESTMENT:
Preferred stock, $.10 par value,
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value, 50,000,000
shares authorized; 21,149,381 and
21,064,825 shares issued and outstanding
in 1997 and 1996, respectively 2,115,000 2,107,000
Additional paid-in capital 7,876,000 6,908,000
Retained earnings 79,969,000 64,059,000
Shares in escrow; 184,300 in 1997 (3,449,000) -
Cumulative translation adjustment (431,000) (112,000)
----------- -----------
86,080,000 72,962,000
----------- -----------
$92,468,000 $78,951,000
=========== ===========
The accompanying notes are an integral part of these statements.
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17
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the year ended
---------------------------------------
January 3, December 31, December 31,
1998 1996 1995
----------- ----------- -----------
Net sales $96,991,000 $84,394,000 $72,634,000
Cost of sales 32,933,000 29,973,000 25,096,000
----------- ----------- -----------
Gross profit 64,058,000 54,421,000 47,538,000
Operating expenses:
Selling & marketing 17,969,000 15,897,000 15,737,000
Engineering, general
& administrative 12,664,000 10,414,000 11,280,000
Research & development 6,380,000 5,324,000 5,952,000
----------- ----------- -----------
37,013,000 31,635,000 32,969,000
----------- ----------- -----------
Operating income 27,045,000 22,786,000 14,569,000
Other income 267,000 447,000 111,000
----------- ----------- -----------
Income before income taxes 27,312,000 23,233,000 14,680,000
Income taxes 9,290,000 7,852,000 4,809,000
----------- ----------- -----------
NET INCOME $18,022,000 $15,381,000 $ 9,871,000
=========== =========== ===========
Earnings per share:
Basic $.85 $.73 $.47
==== ==== ====
Diluted $.85 $.73 $.47
==== ==== ====
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 Shares in Translation Shareholders'
Stock Capital Earnings Escrow Adjustment Investment
---------- ---------- ----------- ----------- ---------- ------------
BALANCES,
JANUARY 1, 1995 $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 26,420 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
Net income - - 18,022,000 - - 18,022,000
Cash dividends declared
of $.10 per share - - (2,112,000) - - (2,112,000)
Issuance of 84,556 shares
of common stock under
employee benefit plans 8,000 968,000 - - - 976,000
Purchase of 184,300 shares
by escrow fund - - - (3,449,000) - (3,449,000)
Translation adjustment - - - - (319,000) (319,000)
---------- ---------- ----------- ----------- --------- -----------
BALANCES,
JANUARY 3, 1998 $2,115,000 $7,876,000 $79,969,000 $(3,449,000) $(431,000) $86,080,000
========== ========== =========== =========== ========= ===========
The accompanying notes are an integral part of these statements.
-18-
19
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended
---------------------------------------
January 3, December 31, December 31,
1998 1996 1995
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $18,022,000 $15,381,000 $ 9,871,000
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 5,488,000 4,265,000 3,430,000
Provision for doubtful accounts 220,000 268,000 350,000
Deferred income taxes 187,000 (517,000) (105,000)
Other 172,000 - -
Changes in operating assets and liabilities
net of effects from acquisitions:
Accounts receivable (2,944,000) (5,532,000) (2,258,000)
Inventories 2,000 (2,089,000) 1,002,000
Other current and noncurrent assets (831,000) (70,000) 380,000
Accounts payable (548,000) 661,000 (529,000)
Other accrued liabilities 191,000 834,000 (184,000)
----------- ----------- -----------
Net cash provided by operating activities 19,959,000 13,201,000 11,957,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments 2,042,000 667,000 -
Proceeds from sales of investments 9,223,000 1,600,000 13,772,000
Purchases of investments (11,653,000) (8,406,000) (4,200,000)
Capital expenditures (4,288,000) (3,122,000) (3,413,000)
Acquisitions, less cash acquired (6,960,000) - (11,490,000)
Deposit to escrow fund in connection
with Light Source acquisition (4,638,000) - -
Purchases of other assets (1,344,000) (1,151,000) (4,041,000)
Other investing activities 40,000 44,000 178,000
----------- ----------- -----------
Net cash used for investing activities (17,578,000) (10,368,000) (9,194,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of Labsphere, Inc. long-term debt - - (1,795,000)
Dividends paid (2,112,000) (2,103,000) (2,100,000)
Issuance of common stock 976,000 525,000 316,000
----------- ----------- -----------
Net cash used for financing activities (1,136,000) (1,578,000) (3,579,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (24,000) - (23,000)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,221,000 1,255,000 (839,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,587,000 332,000 1,171,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,808,000 $ 1,587,000 $ 332,000
=========== =========== ===========
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, Massachusetts and
California. In addition, the Company has locations in Germany, England,
Hong Kong and the Czech Republic.
Geographic sales information is as follows:
1997 1996 1995
----------- ----------- -----------
Domestic sales:
U.S. operations $65,180,000 $55,711,000 $48,968,000
International sales:
U.S. operations export sales
to unaffiliated customers 22,010,000 20,901,000 17,072,000
Foreign subsidiary sales 9,801,000 7,782,000 6,594,000
----------- ----------- -----------
31,811,000 28,683,000 23,666,000
----------- ----------- -----------
$96,991,000 $84,394,000 $72,634,000
=========== =========== ===========
No single customer accounted for more than 10% of total net sales in 1997,
1996 or 1995.
-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.
Effective January 1, 1997, the Company adopted a 4-4-5 quarterly accounting
cycle to accommodate manufacturing schedules that were developed to improve
customer service. Accordingly, 1997 ended on January 3, 1998 whereas 1996
and 1995 ended on December 31. The Company's 1997 results from operations
would have been approximately the same if the year had ended on December
31, 1997 rather than on January 3, 1998.
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 January 3, 1998 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 are summarized as
follows:
January 3, December 31,
1998 1996
----------- -----------
Raw materials $ 5,083,000 $ 4,963,000
Work in process 3,081,000 4,708,000
Finished goods 6,836,000 5,348,000
----------- -----------
$15,000,000 $15,019,000
=========== ===========
-21-
22
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
Computer Software Development Costs:
Development costs incurred in the research and development of new software
products and enhancements to existing software products are expensed as
incurred until technological feasibility is achieved. After technological
feasibility is achieved, any additional development costs are capitalized
and amortized using the straight-line method over a three-year period.
The Company capitalized $1,344,000, $1,151,000 and $833,000 of software
development costs during 1997, 1996 and 1995, respectively. Amortization
expense was $992,000, $731,000 and $462,000 in 1997, 1996 and 1995,
respectively. The net capitalized software development costs included in
other assets are $1,935,000 and $1,583,000 as of January 3, 1998 and
December 31, 1996, respectively.
Costs in Excess of Net Assets Acquired and Other Long-Lived Assets:
Costs in excess of net assets acquired resulted primarily from the 1995
acquisition of Labsphere, Inc. and the 1997 acquisition of the assets of
Light Source Computer Images, Inc. (see Note 6). The costs associated with
the Labsphere and Light Source acquisitions are being amortized using the
straight-line method over twenty and twelve years, respectively.
Accumulated amortization of excess acquisition costs was $2,014,000 and
$1,087,000 at January 3, 1998 and December 31, 1996, respectively.
The Company continually evaluates the recoverability of its long-lived
assets by determining whether unamortized balances can be recovered through
undiscounted future operating cash flows over the remaining lives of the
assets.
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.
-22-
23
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Advertising Costs:
Advertising costs are charged to operations in the period incurred and
totaled $2,053,000, $1,806,000 and $2,172,000 in 1997, 1996 and 1995,
respectively.
Per Share Data:
Effective January 3, 1998, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings Per Share". This statement
establishes standards for computing and presenting "basic" and "diluted"
earnings per share ("EPS"). Basic EPS excludes the dilutive effect of
common shares that could potentially be issued (i.e., stock options in the
case of X-Rite) and is computed by dividing net income by the weighted
average number of common shares outstanding for the period. Diluted EPS is
computed by dividing net income by the weighted average number of shares
outstanding plus all shares that could potentially be issued. All prior
period EPS data has been restated to conform to this statement.
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted EPS for each of the last three years:
1997 1996 1995
----------- ----------- ----------
Numerators:
Net income numerators for
both basic and diluted EPS $18,022,000 $15,381,000 $9,871,000
=========== =========== ==========
Denominators:
Denominators for basic EPS;
weighted average common
shares outstanding 21,122,347 21,031,534 21,001,357
Potentially dilutive shares
resulting from stock options 166,204 163,933 171,079
---------- ---------- ----------
Denominators for diluted EPS 21,288,551 21,195,467 21,172,436
========== ========== ==========
The following exercisable stock options were not included in the
computation of diluted EPS because the option prices were greater than
average quarterly market prices:
Exercise Price 1997 1996 1995
-------------- ------ ------ ------
$19.50 68,500 73,500 -
19.25 5,000 5,000 -
18.38 25,000 - -
18.00 - 80,000 -
-23-
24
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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.
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" (6.0% at January 3, 1998). The
borrowings are unsecured and no compensating balances are required by the
agreement. There were no significant borrowings under this agreement
during 1997, 1996 or 1995.
-24-
25
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4--INCOME TAXES
The provision for income taxes consisted of the following:
1997 1996 1995
---------- ---------- ----------
Current-
Federal $8,689,000 $8,126,000 $4,777,000
State 259,000 241,000 90,000
Foreign 155,000 2,000 47,000
---------- ---------- ----------
9,103,000 8,369,000 4,914,000
Deferred-
Federal 187,000 (517,000) (261,000)
Foreign - - 156,000
---------- ---------- ----------
187,000 (517,000) (105,000)
---------- ---------- ----------
$9,290,000 $7,852,000 $4,809,000
========== ========== ==========
The provision for income taxes reflects effective tax rates of 34.0%, 33.8%
and 32.8% in 1997, 1996 and 1995, 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 is as follows:
1997 1996 1995
---------- ---------- ----------
Income tax at statutory rates $9,559,000 $8,132,000 $5,038,000
Foreign sales corporation (345,000) (357,000) (279,000)
Other 76,000 77,000 50,000
---------- ---------- ----------
$9,290,000 $7,852,000 $4,809,000
========== ========== ==========
-25-
26
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 are
as follows:
January 3, December 31,
1998 1996
---------- -----------
Assets:
Inventory reserves and tax valuation $ 808,000 $ 875,000
Accounts receivable reserves 210,000 251,000
Financial accruals and reserves
not currently deductible 522,000 503,000
---------- ----------
$1,540,000 $1,629,000
========== ==========
Liabilities:
Software development costs $ 678,000 $ 554,000
Depreciation 310,000 321,000
Other 41,000 56,000
---------- ----------
$1,029,000 $ 931,000
========== ==========
Cash expended for income taxes was $9,733,000, $8,459,000 and $3,940,000 in
1997, 1996 and 1995, 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 $336,000, $278,000 and
$232,000 in 1997, 1996 and 1995, 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 1997, 1996 and 1995, employees purchased 17,201,
12,923 and 14,398 shares, respectively. The weighted average fair value of
shares purchased in 1997 was $17.30. At January 3, 1998, 895,419 shares
were available for future purchases.
-26-
27
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 January 3, 1998, 2,025,093 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 (basic and diluted) would have
been reduced by approximately $1,109,000 and $.05 in 1997, $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:
1997 1996 1995
----------- ----------- -----------
Dividend yield .5% .5% .5%
Volatility 35% 36% 36%
Risk-free interest rates 5.8% - 6.8% 6.2% - 6.7% 5.4% - 7.0%
Expected term of options 5 years 5 years 5 years
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 1997, 1996 or
1995. At January 3, 1998, there were 345,200 shares available for future
awards.
-27-
28
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:
1997 1996 1995
---------------- ---------------- ----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Prices Shares Prices Shares Prices
------- -------- ------- -------- ------- --------
Outstanding at
beginning
of year 723,300 $13.30 578,500 $12.07 408,000 $ 9.17
Granted 259,500 15.90 197,000 16.17 185,000 18.72
Exercised (61,700) 8.08 (36,196) 7.05 (5,025) 11.23
Canceled (31,000) 15.98 (16,004) 18.43 (9,475) 17.08
------- ------- -------
Outstanding at
end of year 890,100 14.33 723,300 13.30 578,500 12.07
======= ======= =======
Exercisable at
end of year 735,600 14.09 606,300 12.90 460,000 10.59
======= ======= =======
Weighted average
fair value of
options granted $6.40 $6.56 $7.70
===== ===== =====
A summary of stock options outstanding at January 3, 1998 follows:
Weighted
Exercise Prices Average
------------------------- Remaining
Weighted Contractual
Price Ranges Shares Lowest Highest Average Life (Years)
---------------- -------- ------ ------- -------- ------------
Under $13.00:
Exercisable 304,100 $ 2.47 $12.00 $ 9.66 5.2
Over $13.00:
Exercisable 431,500 14.50 19.50 17.20 8.2
Non-Exercisable 154,500 15.00 19.52 15.48 9.2
-------
586,000 14.50 19.52 16.75 8.4
-------
890,100 2.47 19.52 14.33 7.3
=======
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29
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--ACQUISITIONS
In May of 1997 the Company acquired substantially all the assets of Light
Source Computer Images, Inc. ("Light Source") for $6,955,000 in cash.
Light Source is a California-based producer of high-quality, easy-to-use
scanning, imaging and print optimization software. The acquisition has
been accounted for under the purchase method of accounting and was funded
by proceeds from sales of short-term investments.
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 has paid $4,638,000 in cash into an escrow fund which is equal to
the maximum contingent cash consideration that could be earned by the
sellers if such sales goals are realized. The escrow fund payment is not
included in the acquisition price stated in the preceding paragraph. If
any contingent payments are made, those amounts will be accounted for as
additional costs of the acquired assets and amortized over the remaining
lives of the assets.
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. At January 3, 1998, the escrow fund held 184,300
shares of X-Rite common stock at a cost of $3,449,000. Accordingly, that
portion of the escrow fund is presented in the accompanying balance sheet
as a reduction to shareholders' investment.
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 integrating sphere systems and instrumentation.
-29-
30
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 7--QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data are summarized as follows:
Diluted
Earnings
Net Gross Operating Net Per
Quarter Sales Profit Income Income Share
----------- ----------- ----------- ----------- ----------- --------
1997:
First $23,080,000 $14,947,000 $ 6,341,000 $ 4,246,000 $.20
Second 23,986,000 15,619,000 6,981,000 4,636,000 .22
Third 24,861,000 16,314,000 6,974,000 4,653,000 .22
Fourth 25,064,000 17,178,000 6,749,000 4,487,000 .21
----------- ----------- ----------- ----------- ----
$96,991,000 $64,058,000 $27,045,000 $18,022,000 $.85
=========== =========== =========== =========== ====
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
=========== =========== =========== =========== ====
NOTE 8--SUBSEQUENT EVENT
On January 21, 1998 the Company announced that it had entered into
agreements with its founding shareholders for the future repurchase of 4.54
million shares or 21.5 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 market price, although the discounted price may not be less than $10
per share or more than $25 per share.
Had this transaction been entered into on January 3, 1998, approximately
$77.9 million would have been reclassified from Shareholders' Investment to
a temporary equity account entitled "Shares Subject to Redemption
Agreements" on the accompanying balance sheet.
-30-
31
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 1998 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."
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 1998 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 1998 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 1998 Annual
Meeting of Shareholders and filed with the Commission is hereby
incorporated herein by reference.
-31-
32
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
January 3, 1998.
See Exhibit Index located on page 34.
(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.
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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 30, 1998 /s/ Ted Thompson
----------------------------------
Ted Thompson, Chairman and
Chief Executive Officer
March 30, 1998 /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 17th day of March, 1998, 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 /s/ Stanley W. Cheff
- ---------------------------------- ----------------------------------
Ted Thompson, Director Stanley W. Cheff, Director
/s/ Richard E. Cook /s/ Marvin G. DeVries
- ---------------------------------- ----------------------------------
Richard E. Cook, Director Dr. Marvin G. DeVries, Director
/s/ James A. Knister /s/ Rufus S. Teesdale
- ---------------------------------- ----------------------------------
James A. Knister, Director Rufus S. Teesdale, Director
/s/ Charles Van Namen
- ---------------------------------- ----------------------------------
Ronald A. VandenBerg, Director Charles Van Namen, Director
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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 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 and restated January 20, 1998
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 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 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)
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EXHIBIT INDEX
- --------------------------------------------------------------------------
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)
21 Subsidiaries of the registrant
23 Consent of independent accountants
27 Financial Data Schedule
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Exhibit 3d
AMENDED AND RESTATED BYLAWS
of
X-RITE, INCORPORATED
A Michigan Corporation
As Amended and Restated January 20, 1998
ARTICLE I. OFFICES
Section 1. Registered Office. The registered office of the Corporation
shall be as specified in the Articles of Incorporation. The Corporation
shall keep records containing the names and addresses of all shareholders,
the number, class and series of shares held by each, and the dates when
they respectively became holders of record thereof, at its registered
office or at the office of its transfer agent.
Section 2. Other Offices. The business of the Corporation may be
transacted in such locations other than the registered office, within or
outside the State of Michigan, as the Board of Directors may from time to
time determine.
ARTICLE II. CAPITAL STOCK
Section 1. Stock Certificates. Certificates representing shares of the
Corporation shall be in such form as is approved by the Board of Directors.
Certificates shall be signed by the Chairman of the Board of Directors,
Vice Chairman of the Board of Directors, President or a Vice President, and
by the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary of
the Corporation, and shall be sealed with the seal of the Corporation, or a
facsimile thereof, if one be adopted. The signatures of the officers may
be facsimiles if the certificate is countersigned by a transfer agent or
registered by a registrar other than the Corporation itself, or its
employees. In the event an officer who has signed, or whose facsimile
signature has been placed upon, a certificate ceases to be such officer
before the certificate is issued, it may be issued by the Corporation with
the same effect as if he were such officer at the date of issue.
Section 2. Replacement of Lost or Destroyed Certificates. In the event
of the loss or destruction of a stock certificate, no new certificate shall
be issued in place thereof until the Corporation has received from the
registered holder such assurances, representations, warranties and/or
guarantees as the Board of Directors, in its sole discretion, shall deem
advisable, and until the Corporation receives sufficient indemnification
protecting it against any claim that may be made on account of such loss or
destroyed certificate, or the issuance of any new certificate in place
thereof, including an indemnity bond in such amount and with sureties, if
any, as the Board of Directors, in its sole discretion, deems advisable.
Any new certificate issued in place of any such lost or destroyed
certificate shall be plainly marked "duplicate" upon its face.
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Section 3. Transfer of Shares. Shares of stock of the Corporation shall
be transferrable only upon the books of the Corporation. The old
certificates shall be surrendered to the Corporation by delivery thereof to
the person in charge of the stock transfer books of the Corporation, or to
such other person as the Board of Directors may designate, properly
endorsed for transfer, and such certificates shall be canceled before a new
certificate is issued. The Corporation shall be entitled to treat the
person in whose name any share, right or option is registered as the owner
thereof for all purposes, and shall not be bound to recognize any equitable
or other claim with respect thereto, regardless of any notice thereof,
except as may be specifically required by the laws of the State of
Michigan.
Section 4. Rules Governing Stock Certificates. The Board of Directors
shall have the power and authority to make all such rules and regulations
as they may deem expedient concerning the issue, transfer and registration
of certificates of stock, and may appoint a transfer agent and a registrar
of transfer, and may require all such certificates to bear the signature of
such transfer agent and of such registrar of transfers.
Section 5. Record Date for Stock Rights. The Board of Directors may fix
in advance a date not exceeding sixty (60) days preceding the date of
payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of capital stock shall go
into effect, as a record date for the determination of the shareholders
entitled to receive payment of any such dividends, or any such allotment of
rights, or to exercise the rights with respect to any such change,
conversion, or exchange of capital stock; and in such case, only
shareholders of record on the date so fixed shall be entitled to receive
payment of such dividends, or allotment of rights, or exercise such rights,
as the case may be, notwithstanding any transfer of any stock on the books
of the Corporation after any such record date is fixed.
In the event the Board of Directors shall fail to fix a record date as
provided in this Section 5 of Article II, the record date for the purposes
specified herein shall be the close of business on the day on which the
resolution of the Board of Directors relating thereto is adopted.
Section 6. Dividends. The Board of Directors, in its discretion, may
from time to time declare and direct payment of dividends or other
distributions upon its outstanding shares out of funds legally available
for such purposes, which dividends may be paid in cash, the Corporation's
bonds or the Corporation's property, including the shares or bonds of other
corporations. In the event a dividend is paid or any other distribution
made, in any part, from sources other than earned surplus, payment or
distribution thereof shall be accompanied by written notice to the
shareholders (a) disclosing the amounts by which the dividend or
distribution affects stated capital, capital surplus and earned surplus, or
(b) if such amounts are not determinable at the time of the notice,
disclosing the approximate effect of the dividend or distribution upon
stated capital, capital surplus and earned surplus, and stating that the
amounts are not yet determinable.
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In addition to the declaration of dividends and other distributions
provided in the preceding paragraph of this Section 6 of Article II, the
Board of Directors, in its discretion, from time to time may declare and
direct the payment of a dividend in shares of this Corporation, upon its
outstanding shares, in accordance with and subject to the provisions of the
Michigan Business Corporation Act. A share dividend or other distribution
of shares of the Corporation shall be accompanied by a written notice to
shareholders (a) disclosing the amounts by which the distributions affects
stated capital, capital surplus and earned surplus, or (b) if such amounts
are not determinable at the time of the notice, disclosing the approximate
effect of the distribution upon stated capital, capital surplus and earned
surplus, and stating that the amounts are not yet determinable.
Section 7. Treasury Shares. Treasury shares held by the Corporation
shall be subject to the disposal of the Board of Directors, but shall
neither vote nor participate in dividends or other distributions.
Section 8. Redemption of Control Shares. Control shares acquired in a
control share acquisition, with respect to which no acquiring person
statement has been filed with the Corporation, shall, at any time during
the period ending 60 days after the last acquisition of control shares or
the power to direct the exercise of voting power of control shares by the
acquiring person, be subject to redemption by the Corporation. After an
acquiring person statement has been filed with the Corporation and after
the meeting at which the voting rights of the control shares acquired in a
control share acquisition are submitted to the shareholders, the shares
shall be subject to redemption by the Corporation unless the shares are
accorded full voting rights by the shareholders as provided in Section 798
of the Michigan Business Corporation Act. Redemptions of shares pursuant
to this bylaw shall be at the fair value of the shares pursuant to
procedures adopted by the Board of Directors of the Corporation.
The terms "control shares," "control share acquisition," "acquiring
person statement" "acquiring person" and "fair value" as used in this
bylaw, shall have the meanings ascribed to them, respectively, in Chapter
7B of the Michigan Business Corporation Act.
ARTICLE III. SHAREHOLDERS
Section 1. Place of Meetings. Meetings of shareholders shall be held at
the registered office of the Corporation or at such other place, within or
outside the State of Michigan, as may be determined from time to time by
the Board of Directors; provided, however, if a meeting of shareholders is
to be held at a place other than the registered office of the Corporation,
the notice of the meeting shall designate such place.
Section 2. Annual Meeting. Annual meetings of shareholders for election
of directors and for such other business as may come before the meeting
shall be held on such date prior to June 1 of each year and at such time as
may be fixed from year to year by the Board of Directors.
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Section 3. Special Meetings. Special meetings of shareholders may be
called by the President or the Secretary, and shall be called by either of
them pursuant to resolution therefor by the Board of Directors, or upon
receipt by them of a request in writing, stating the purpose or purposes
thereof, and signed by shareholders of record owning a majority of the
voting shares of the Corporation issued and outstanding.
Section 4. Record Date for Notice and Vote. The Board of Directors may
fix a date not more than sixty (60) days nor less than ten (10) days before
the date of a shareholders' meeting as the record date for the purposes of
determining shareholders entitled to notice of and to vote at the meeting
or adjournments thereof; provided, however, that the record date shall not
precede the date on which the Board takes action to fix the record date.
In the event the Board of Directors fails to fix a record date as provided
in this Section 4 of Article III, the record date for determination of
shareholders entitled to notice of or to vote at a meeting of shareholders
shall be the close of business on the day preceding the day on which notice
is given, or if no notice is given, the day next preceding the day on which
the meeting is held.
Section 5. Notice of Shareholder Meetings. Written notice of the time,
place and purposes of any meeting of shareholders shall be given to
shareholders entitled to vote thereat, not less than ten (10) days nor more
than sixty (60) days before the date of the meeting, which notice may be
given either by delivery in person to such shareholders or by mailing such
notice to shareholders at their addresses as the same appear on the stock
books of the Corporation; provided, however, that attendance of a person at
a meeting of shareholders, in person or by proxy, constitutes a waiver of
notice of the meeting, except when the shareholder attends the meeting for
the express purpose of objecting, at the beginning of the meeting to the
transaction of any business, because the meeting is not lawfully called or
convened.
Section 6. Voting Lists. The Corporation's officer or agent having
charge of its stock transfer books shall prepare and certify a complete
list of the shareholders entitled to vote at a shareholders' meeting or any
adjournment thereof, which list shall be arranged alphabetically within
each class and series, and shall show the address of, and the number of
shares held by each share holder. The list shall be produced at the time
and place of the meeting of shareholders and be subject to inspection by
any shareholder at any time during the meeting. If for any reason the
requirements with respect to the shareholder list specified in this Section
6 of Article III have not been complied with, any shareholder, either in
person or by proxy, who in good faith challenges the existence of
sufficient votes to carry any action at the meeting, may demand that the
meeting be adjourned and the same shall be adjourned until the requirements
are complied with; provided, however, that failure to comply with such
requirements does not affect the validity of any action taken at the
meeting before such demand is made.
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Section 7. Voting. Except as may otherwise be provided by law or in the
Articles of Incorporation for the Corporation, each shareholder entitled to
vote at a meeting of shareholders shall be entitled to one vote, in person
or by proxy, for each share of stock entitled to vote held by such
shareholder; provided, however, no proxy shall be voted after three years
from its date unless such proxy provides for a longer period.
Section 8. Quorum. Shares equaling a majority of all of the voting
shares of the capital stock of the Corporation issued and outstanding
represented in person or by proxy, shall constitute a quorum at the
meeting. Meetings at which less than a quorum is represented may be
adjourned by a vote of a majority of the shares present to a further date
without further notice other than the announcement at such meeting, and
when the quorum shall be present upon such adjourned date, any business may
be transacted which might have been transacted at the meeting as originally
called. Shareholders present in person or by proxy at any meeting of
shareholders may continue to do business until adjournment, notwithstanding
the withdrawal of shareholders to leave less than a quorum.
Section 9. Conduct of Meetings. The Chairman of the Corporation or his
designee shall call meetings of the shareholders to order and shall act as
chairman of such meetings unless otherwise determined by the affirmative
vote of a majority of all the voting shares of the capital stock of the
Corporation issued and outstanding. The Secretary of the Corporation shall
act as secretary of all meetings of shareholders, but in the absence of the
Secretary at any meeting of shareholders, or his inability or refusal to
act as secretary, the presiding officer may appoint any person to act as
secretary of the meeting.
Section 10. Inspector of Elections. The Board of Directors may, in
advance of a meeting of shareholders, appoint one or more inspectors to act
at the meeting or any adjournment thereof. In the event inspectors are not
so appointed, or an appointed inspector fails to appear or act, the person
presiding at the meeting of shareholders may, and on request of a
shareholder entitled to vote shall, appoint one or more persons to fill
such vacancy or vacancies, or to act as inspector. The inspector(s) shall
determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, the
validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine challenges and questions arising in connection
with the right to vote, count and tabulate votes, ballots or consents,
determine the results, and do such acts as are proper to conduct the
election or vote with fairness to all shareholders.
Section 11. Notice of Shareholder Proposals.
(a) Except for the election of directors, which is governed by
Article V of the Corporation's Articles of Incorporation, only such
business shall be conducted at any meeting of shareholders, and only such
proposals shall be acted upon at such meetings, as shall have been brought
before the meeting: (I) by, or at the direction of, the Board of
Directors; or (ii) by any shareholder of the Corporation who complies with
the notice procedures set forth in this Section of these Bylaws. For a
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proposal to be properly brought before the meeting by a shareholder, the
shareholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the Corporation not less than sixty (60) days nor more than ninety (90)
days prior to the scheduled meeting date, regardless of any postponements,
deferrals, or adjournments of that meeting to any later date; provided,
however, that if less than seventy (70) days' notice, or prior public
disclosure of the date of a scheduled meeting is given or made, notice by
the shareholder to be timely must be delivered or received not later than
the close of business on the tenth (10) day following the earlier of the
day on which such notice of the date of the scheduled meeting was mailed or
the day on which such public disclosure was made. A shareholder's notice
to the Secretary shall set forth, as to each matter the shareholder
proposes to bring before the meeting: (I) a brief description of a
proposal desired to be brought before the meeting and the reasons for
conducting such business at the meeting; (ii) the name and address, as they
appear, on the Corporation's stock record of the shareholder proposing such
business and any other shareholders known by such shareholder to be
supporting such proposal; (iii) the class and number of shares of the
Corporation's stock which are beneficially owned by the shareholder on the
date of such shareholder notice and by any other shareholders known by such
shareholder to be supporting such proposal on the date of such shareholder
notice; and (iv) any financial interest of the shareholder in such
proposal.
(b) If the presiding officer at the meeting of shareholders
determines that a shareholder proposal was not made in accordance with the
terms of this Section, the presiding officer shall declare the matter to be
out of order and the matter shall not be acted upon at the meeting.
Nothing contained in this Section shall prevent the
consideration and approval or disapproval at any meeting of shareholders of
reports of officers, directors, and committees of the Board of Directors,
but, in connection with such reports, no business shall be acted upon at
such meeting unless stated, filed, and received as provided herein.
ARTICLES IV. DIRECTORS
Section 1. Board of Directors. Except as may otherwise provided in the
Articles or Incorporation or these Bylaws, the business and affairs of the
Corporation shall be managed by a Board of Directors. The size of the
Board, the classification of the Board, the manner of filling vacancies
occurring in the Board, nominations for directors, and removal of directors
shall be as provided for in the Corporation's Articles of Incorporation
Section 2. Place of Meetings and Records. The directors shall hold
their meetings, and maintain the minutes of the proceedings of meetings of
shareholders, Board of Directors, and executive and other committees, if
any, and keep the books and records of account for the Corporation, in such
place or places, within or outside the State of Michigan, as the Board may
from time to time determine.
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Section 3. Regular Meetings of the Board. Regular meetings of the Board
of Directors may be held at such times and places and pursuant to such
notice, if any, as may be established from time to time by resolution of
the Board of Directors.
Section 4. Special Meetings of the Board. Special meetings of the Board
of Directors may be called by the Chairman of the Board, the President or
the Secretary, and shall be called by one of them upon the written request
of a majority of the Directors. Written notice of the time and place of
special meetings of the Board shall be delivered personally or mailed to
each director at least forty-eight (48) hours prior thereto. Attendance of
a Director at a special meeting constitutes a waiver of notice of the
meeting, except where a director attends the meeting for the express
purpose of objecting to the transaction of any business because the meeting
is not lawfully called or convened.
Section 5. Quorum and Vote. A majority of the members of the Board then
in office constitutes a quorum for the transaction of business, and the
vote of a majority of the members present at any meeting at which a quorum
is present constitutes the action of the Board of Directors.
Section 6. Action of the Board Without a Meeting. Any action required
or permitted to be taken pursuant to authorization voted at a meeting of
the Board of Directors may be taken without a meeting if, before or after
the action, all members of the Board of Directors consent thereto in
writing. Such written consent shall be filed with the minutes of the
proceedings of the Board of Directors and the consent shall have the same
effect as a vote of the Board of Directors for all purposes.
Section 7. Report to Shareholders. At least once in each year the Board
of Directors shall cause a financial report of the Corporation for the
preceding fiscal year to be made and distributed to each shareholder within
four months after the end of such fiscal year. The report shall include
the Corporation's statement of income, its year-end balance sheet and, if
prepared by the Corporation's statement of source and application of funds.
Section 8. Corporate Seal. The Board of Directors may provide a
suitable corporate seal, which seal shall be kept in the custody of the
Secretary.
Section 9. Compensation of Directors. Each of the directors shall be
entitled to be paid an annual fee for services as a director in such an
amount and at such times as may be fixed by the Board of Directors from
time to time. By resolution of the Board of Directors, the directors also
may be paid their actual expenses, if any, and/or reasonable compensation
for their attendance at meetings of the Board or of any committee of which
they are a member.
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Section 10. Executive Committee. The Board of Directors may by
resolution establish an executive or other committee composed of one or
more of the directors to exercise such powers and authority of the Board of
Directors to the extent provided in such resolution and not prohibited by
the Michigan Business Corporation Act for the management of the business
and affairs of the Corporation. Such committees and each member thereof
shall serve at the pleasure of the Board of Directors.
Section 11. Directors Emeritus. Any director of the Corporation who has
at least nine years of service as a director and who either resigns as a
director or does not stand for reelection, shall be entitled to be
considered for the position of "Director Emeritus." If nominated by the
Nominating committee and elected by the Board of Directors, a Director
Emeritus shall continue in that position for a period equal to the time
served as a regular director or until an earlier resignation or death.
During their tenure, Directors Emeritus shall be given notices of all
meetings of the Board of Directors, and copies of minutes of those
meetings, and they shall perform such consulting services for the
Corporation as the Board of Directors may reasonably request from time to
time. Directors Emeritus shall be entitled to attend and participate in
all such meetings of the Board of Directors, except that they may not vote
and they shall not be counted for purposes of determining a quorum.
Directors Emeritus shall receive the same annual retainer fee as is
provided for regular directors and shall be entitled to reimbursement for
expenses of attendance at meetings of the Board, but they shall receive no
other compensation from the Company.
ARTICLE V. OFFICERS
Section 1. Designation of Officers. The officers of the Corporation
shall consist of such officers as the Board of Directors shall determine
from time to time, and may include a Chairman of the Board, a President, a
Secretary, a Treasurer, one or more Vice Presidents, and such other or
different offices as may be established by the Board of Directors. The
officers of the Corporation need not be directors or shareholders. Any two
or more offices may be held by the same person, but an officer shall not
execute, acknowledge or verify any instrument in more than one capacity if
the instrument is required by law to be executed, acknowledged or verified
by two or more officers.
Section 2. Election of Officers. The officers of the Corporation shall
be elected at the first meeting of the Board of Directors, or by action
taken pursuant to written consent, after the annual meeting of
shareholders. Officers shall hold office for the term of their election
and until their respective successors are elected and qualified, or until
resignation or removal.
Section 3. Resignation and Removal. An officer may resign by written
notice to the Corporation, which resignation is effective upon its receipt
by the Corporation or at a subsequent time specified in the notice of
resignation. Officers of the Corporation serve at the pleasure of the
Board of Directors and may be removed by the Board at any time, with or
without cause.
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Section 4. Compensation of Officers. The Board of Directors, by
affirmative vote or a majority or Directors in office and irrespective of
any personal interest of any of them, may establish reasonable compensation
of officers for services to the Corporation.
Section 5. Chairman of the Board. The Chairman of the Board of Directors
shall be elected by the directors from among the directors then serving.
The Chairman of the Board shall be the chief executive officer of the
Corporation, shall preside at all meetings of the Board of Directors and
shareholders, and shall perform such other duties as from time to time may
be determined by resolution of the Board of Directors not inconsistent with
these Bylaws.
Section 6. President. The President shall be the chief operating
officer of the Corporation and shall have such authority and shall perform
such duties in the management of the Corporation as from time to time may
be determined by resolution of the Board of Directors not inconsistent with
these Bylaws. In the absence of the Chairman of the Board of Directors,
the President shall perform the duties of the Chairman.
Section 7. Vice Presidents. The Vice Presidents shall have such
authority and shall perform such duties as shall be assigned to them by the
Board of Directors and may be designated by such special titles as the
Board of Directors shall approve.
Section 8. Treasurer. The Treasurer, or other officer performing the
duties of a Treasurer, shall have custody of the corporate funds and
securities and shall keep full and accurate account of receipts and
disbursements in books belonging to the Corporation. The Treasurer shall
deposit all money and other valuables in the name and to the credit of the
Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as
may be ordered by the Board of Directors or the President, taking proper
vouchers for such disbursements. The Treasurer shall render to the
President and Board of Directors, or any member thereof, at such times as
they may request within reason, an account of all his transactions as
Treasurer and of the financial condition of the Corporation. In general
the Treasurer shall perform all duties incident to the office of Treasurer
and such other duties as may be assigned by the Board of Directors. The
Treasurer may be required to give bond for the faithful performance of his
duties in such sum and with such surety, at the expense of the Corporation,
as the Board of Directors may from time to time require.
Section 9. Secretary. The Secretary shall give or cause to be given
notice or all meetings of shareholders and Directors and all other notices
required by law or by these Bylaws, and in case of his absence or refusal
or neglect to do so, any such notice may be given by the shareholders upon
whose requisition the meeting is called, as provided in these Bylaws. The
Secretary shall record all the proceedings of the meetings of the
shareholders and of the Directors in one or more books provided for that
purpose. The Secretary shall have custody of the seal of the Corporation,
if one be provided, and shall affix the same to all instruments requiring
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it when authorized by the Directors or the President. The Secretary shall
have such authority and perform such other duties as may be assigned by the
Board of Directors. All records in the possession or custody of the
Secretary shall be open to examination by the Chairman of the Board,
President, and Board of Directors, or any member thereof, during regular
business hours.
Section 10. Other Offices. Other officers elected by the Board of
Directors shall have such authority and shall perform such duties in the
management of the Corporation as may be determined by resolution of the
Board of Directors not inconsistent with these Bylaws. In addition, the
Chairman of the Board and the President may jointly approve the employment
of managerial employees for positions which may involve the use of the
title of "Vice President" or some other official title, without the
necessity of the Board of Directors' election of such person as an officer
of the Corporation. In such case, such persons shall not constitute
officers of the Corporation within the meaning of the Corporation's
Articles of Incorporation or Bylaws, and they shall have such duties and
authority as may be assigned to them by the Chairman and the President.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND LEGAL ACTION
Section 1. Contracts. The Board of Directors may authorize any officer
or officers, agent or agents to enter into any contract or execute and
deliver any instrument in the name of and on behalf of the Corporation, and
such authority may be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
Corporation, and no evidences of indebtedness shall be issued in its name,
unless authorized by resolution of the Board of Directors. Such
authorization may be general or confined to specific instances.
Section 3. Checks. All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of
the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
Section 4. Deposits. All funds of the Corporation, not otherwise
employed, shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositories as the
Board of Directors may determine.
ARTICLE VII. MISCELLANEOUS
Section 1. Fiscal Year. The fiscal year of this Corporation shall end
on the 31st day of December of each year.
Section 2. Notices. Whenever any notice is required to be given under
the provisions of any law, the Articles of Incorporation for this
Corporation, or by these Bylaws, it shall not be construed or interpreted
to mean personal notice, unless expressly so stated, and any notice so
required shall be deemed to be sufficient if given in writing by mail, by
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depositing the same in a Post Office box, postage prepaid, addressed to the
person entitled thereto at his last known Post Office address, and such
notice shall be deemed to have been given on the day of such mailing.
Shareholders not entitled to vote shall not be entitled to receive notice
of any meetings, except as otherwise provided by law or these Bylaws.
Section 3. Waiver of Notice. Whenever any notice is required to be
given under the provisions of any law, or the Articles of Incorporation for
this Corporation, or these Bylaws, a waiver thereof in writing, signed by
the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent thereto.
Section 4. Voting of Securities. Securities of another corporation
foreign or domestic, standing in the name of this Corporation which are
entitled to vote shall be voted, in person or by proxy, by the President of
this Corporation or by such other or additional persons as may be
designated by the Board of Directors.
ARTICLE VIII. AMENDMENTS
Section 1. Except as may otherwise be provided in the Articles of
Incorporation or these Bylaws, these Bylaws may be amended, repealed or new
Bylaws adopted either by a majority vote of the Board of Directors at a
regular or special meeting of the Board, or by vote of the holders of a
majority of the outstanding voting stock of the Corporation at any annual
or special meeting, if notice of the proposed amendment, repeal or adoption
be contained in the notice of such meeting.
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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 was used to execute a real estate transaction.
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.
10. Light Source Acquisition Company, is wholly by X-Rite, Incorporated
and was utilized in 1997 to acquire substantially all the assets of
Light Source Computer Images, Inc.
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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 X-Rite Inc.'s previously
filed Registration Statement File Numbers 33-29288, 33-29290, 33-82258 and
33-82260.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan,
April 1, 1998.
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