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SECURITIES & EXCHANGE COMMISSION
WASHINGTON D.C. 20549
Form 10-K
(Mark one)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Act of 1934
(Fee required) for the fiscal year ended December 30, 2000, 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
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(Exact name of registrant as specified in charter)
Michigan 38-1737300
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification No.)
3100 44th Street, SW, Grandville, MI 49418
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (616) 534-7663
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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 1, 2001, 21,380,502 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 $154,330,881 computed at the closing price on that
date.
Portions of the Company's Proxy Statement for the 2001 Annual Meeting of
Shareholders are incorporated by reference into Part III. Exhibit Index is
located at Page 35.
PART I
ITEM 1. BUSINESS
(a) General Development of Business
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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, shape
and color measurement. Pursuant to that strategy, X-Rite has successfully
developed and marketed numerous quality control instruments, software 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 scanning, imaging and print optimization software.
In 1998, the Company established a French subsidiary, X-Rite Mediterranee SARL,
which acquired the branch of an X-Rite dealer located near Paris. In 2000, the
Company acquired substantially all the assets of Optronik, GmbH ("Optronik") of
Berlin, Germany. Optronik is a leading developer and manufacturer of
non-contact, on-line color and light measurement technologies for web based
processes. Optronik's facilities are the Company's first research, development
and manufacturing facilities in Europe. Also in 2000, the Company formed a
domestic subsidiary, Coherix Corporation ("Coherix"), which acquired
substantially all the assets of the HoloVision Products Group of Veridian-ERIM
International. The Coherix product line uses tunable laser technology to provide
three dimensional mapping of the surface of physical objects. In 2000, the
Company formed a strategic venture capital group, XR Ventures, LLC. The group's
purpose is to direct and manage X-Rite's holdings in start up companies in the
high technology field.
(b) Financial Information About Operating Segments
- ---------------------------------------------------
For purposes of the consolidated financial statements included as part of this
report, all operations of the Company are classified in one operating segment:
quality control instruments and accessories. Accordingly, no separate industry
segment information is presented.
(c) Narrative Description of Business
- --------------------------------------
Principal Products
The Company primarily manufactures and sells proprietary quality control
instruments which utilize advanced electronics and optics technologies. The
principal types of products 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.
In 1998 X-Rite launched its 500 series spectrodensitometer which is the only
hand held densitometer equipped with a spectral engine. Spectral engines are the
most accurate type of measurement engines available and offer precise,
repeatable and reliable measurements for pressroom quality control.
The Company continued to expand the 500 series in 1999 with the introduction of
the micro-spot spectrodensitometer. This device is the first hand held
measurement instrument to accurately read color bars and related micro sized
color control elements as small as 1/16" (1.6mm).
The Company introduced the Auto Tracking Densitometer (ATD) for News during
2000. Designed specifically for newspaper presses, ATD News measures and reports
density levels from continuous color rules as well as automating the process of
evaluating and adjusting gray balance in newspaper production.
Sensitometers
Sensitometers have been manufactured by X-Rite since 1975. This instrument is
used to expose various types of photographic film in a very precise manner for
comparison to a reference standard. The exposed film is processed and then
"read" with a densitometer to determine the extent of variation from the
standard.
Colorimeters
In 1989 the Company introduced its first colorimeter. Colorimeters measure light
much like the human eye using red, green and blue receptors and are used to
measure printed colors on packages, labels, textiles and other materials where a
product's appearance is critical for buyer acceptance. In 1990 X-Rite added the
spectrocolorimeter which is a combination instrument that performs colorimeter
functions by applying spectrophotometric techniques and principles (see next
paragraph), thereby greatly improving the accuracy and reliability
of the instrument.
Spectrophotometers and Accessories
The spectrophotometer, introduced in 1990, is related to the colorimeter;
however, it measures light at many points over the entire visible spectrum,
generally with the high degree of accuracy required in laboratory measurements.
Spectrophotometers are used in color formulation for materials such as plastics,
paints, inks, ceramics and metals.
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 generally 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.
In 1999 the company introduced the DTP41/T series of auto-tracking
spectrophotometer. These instruments enable the automated measurement of
transparent and semi-transparent material, as well as prints. In addition, they
provide transmission and ultraviolet capabilities. This technology is ideal for
use in commercial photo labs, print for pay centers and research facilities.
In 1999 the SP60,SP62, and SP64 portable sphere spectrophotometer series was
introduced. These instruments were designed to provide a fast, precise, and
accurate color measurement on a wide array of materials ranging from paper and
paint to plastics and textiles.
The Company also released QA 2000 in 1999, a turnkey software package designed
to enhance and support the new multi-angle sphere spectrophotometer products.
This product is a user friendly Windows based software that utilizes client
/server database technology. The network capabilities allow for multiple users
in different locations to access a single database.
In 2000, the Company introduced Formulation-Master 2001. Formulation-Master 2001
is an enhanced version of three separate software packages, Plastic Master,
Paint Master and QA-Master 2000, that will allow all color assurance processes
to be performed with one streamlined software program.
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.
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, testing
light emitting diodes and fiber optics; calibration of remote sensors and
reflectance and transmittance light measurements.
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.
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 foreign countries. Independent dealers are managed and serviced
by the Company's sales staff and by independent sales representatives.
New Product and Industry Segment Information
During the past twelve months, the Company has not made any public announcement
of, or otherwise made public information about, a new product or a new industry
segment which would require the investment of a material amount of the Company's
assets or which would otherwise result in a material cost.
Raw Materials
With very few exceptions, 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 37 U.S. patents and 19 foreign patents which are significant
for products it manufactures. The Company currently has 6 U.S. and 18 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 significantly impact sales, production or net income.
Working Capital Practices
The Company does not believe that it or the industry in general has any special
practices or special conditions affecting working capital items that are
significant for an understanding of the Company's business.
Significant Customers
No single customer accounted for more than 10% of total net sales in 2000, 1999
or 1998. 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 $8.9 million at
March 1, 2001 and $6.8 million at March 1, 2000. The March 1, 2001 backlog is
expected to be filled during the current fiscal year.
Competition
The Company has few competitors producing competing medical and photographic
instruments and believes its share in that market is substantial.
There are approximately ten firms producing competing products in the graphic
arts/digital imaging categories, and approximately five manufacturers of
competing products in the color and appearance market.
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, Development and Engineering
During 2000, 1999 and 1998, respectively, the Company expensed $11,771,000,
$10,689,000 and $10,044,000 on research, development and engineering. X-Rite has
no customer sponsored research and development activities.
Human Resources
As of March 1, 2001, the Company employed 745 persons; 634 in its U.S.
operations and 111 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.
ITEM 2. PROPERTIES
The Company owns or leases properties throughout the world, listed below are the
principal properties owned or leased as of March 1, 2001:
Owned
Location Principal Uses or Leased
---------------------- --------------------------- ---------
Grandville, MI Manufacturing, R,D&E, sales, Owned
customer service, warehouse
and administration
Grandville, MI Sales and training Leased
Ann Arbor, MI Manufacturing, R,D&E, sales,
customer service, and warehouse Leased
North Sutton, NH Manufacturing, R,D& E, sales, Owned
customer service, warehouse
and administration
Littleton, MA Customer service, R,D&E, and Leased
sales
Poynton, England Sales and customer service Leased
Cologne, Germany Sales and customer service Leased
Berlin, Germany Manufacturing, R,D& E, sales,
customer service, warehouse Leased
and administration
Quarry Bay, Hong Kong Sales and customer service Leased
Brno, Czech Republic Sales Leased
MASSY, France Sales and customer service Leased
Collectively, X-Rite and its subsidiaries own approximately 288,000 square feet
of space and lease approximately 58,000 square feet. 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 Item 103 of Regulation S-K. The Company is involved in legal
proceedings and litigation arising in the ordinary course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable, no matters were submitted to a vote of security holders during
the fourth quarter of the year end December 30, 2000.
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.
Except as discussed, each of the
named officers has served the Company in an executive capacity for more than
five years.
Position
Name Age Position Held Since
- -------------------- ----- --------------------------- ----------
Richard E. Cook 55 President and Chief 1998 (1)
Executive Officer
Bernard J. Berg 57 Senior Vice President, 1983
Engineering
Duane F. Kluting 51 Vice President,
Chief Financial Officer 1992
Jeffrey L. Smolinski 39 Vice President, Operations 1994
Joan Mariani Andrew 42 Vice President, Sales &
Marketing 1995
(1) Prior to joining X-Rite, Mr. Cook was the President and Chief Operating
Officer of Cascade Engineering, a developer and producer of plastic mold
injection technology and products. Mr. Cook held that position for more than
five years.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Company's common stock is quoted in the NASDAQ - National Market System
under the symbol XRIT. As of March 1, 2001, there were approximately 1,500
shareholders of record. Ranges of high and low sales prices reported by The
NASDAQ National Market System for the past two fiscal years appear in the
following table.
Dividends
High Low Per Share
------ ------ ---------
Year Ended December 30, 2000:
Fourth Quarter $ 9.00 $ 5.00 $.025
Third Quarter 11.75 8.00 .025
Second Quarter 13.50 8.56 .025
First Quarter 13.25 6.00 .025
Year Ended January 1, 2000:
Fourth Quarter 7.44 5.75 .025
Third Quarter 7.75 6.31 .025
Second Quarter 7.75 6.00 .025
First Quarter 8.87 6.18 .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
Quarterly financial data are summarized as follows:
(in thousands except per share data)
Diluted
Gross Operating Net Earnings
Quarter Sales Profit Income Income Per Share
- --------------------------- ------- ------- --------- ------- --------
2000:
First $26,134 $17,123 $ 5,259 $3,556 $.17
Second 26,232 16,756 5,215 3,616 .17
Third 23,087 14,619 2,963 1,863 .09
Fourth 27,996 18,008 4,636 3,373 .15
------- ------- ------- ------ ----
$103,449 $66,506 $18,073 $12,408 $.58
======== ======= ======= ======= ====
1999:
First $23,688 $15,855 $ 4,376 $ 2,983 $.14
Second 24,331 16,107 4,956 3,326 .15
Third 23,764 15,420 4,613 3,104 .14
Fourth 28,426 18,609 6,308 4,236 .19
------- ------- ------- ------- ----
$100,209 $65,991 $20,253 $13,649 $.62
======== ======= ======= ======= ====
Selected financial data for the five years ended December 30, 2000 is summarized
as follows:
(in thousands except per share data)
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
Net sales $103,449 $100,209 $94,811 $96,991 $84,394
Net income 12,408 13,649 6,862 18,022 15,381
Net income per share:
Basic .59 .65 .33 .85 .73
Diluted .58 .62 .32 .85 .73
Dividends per share .10 .10 .10 .10 .10
Total assets 125,683 107,819 95,444 92,468 78,951
Long-term debt -0- -0- -0- -0- -0-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The issues discussed in management's discussion and analysis should be read in
conjunction with the Company's consolidated financial statements and notes to
the consolidated financial statements
The following table sets forth information derived from the Company's
consolidated statements of income expressed as a percentage of net sales:
2000 1999 1998
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 35.7 34.1 34.4
----- ----- -----
Gross profit 64.3 65.9 65.6
Operating expenses:
Selling & marketing 21.0 20.1 21.7
General & administrative 14.5 14.9 15.5
Research, development &
engineering 11.4 10.7 10.6
Write-down of digital
imaging assets - - 7.0
----- ----- -----
46.9 45.7 54.8
----- ----- -----
Operating income 17.4 20.2 10.8
Other income 1.0 0.8 0.4
----- ----- -----
Income before income taxes 18.4 21.0 11.2
Income taxes 6.5 7.4 4.0
----- ----- -----
Net income 11.9% 13.6% 7.2%
====== ====== ======
Net Sales
Net sales in 2000 were $103.4 million, a Company record and a 3.2% increase over
1999 sales of $100.2 million. Sales in 1999 were an increase of 5.7% over 1998
sales of 94.8 million.
New product introductions in 2000 helped the Printing, Labsphere and Imaging
business units record 20.2%, 11.8% and 3.3% sales increases, respectively. The
Coatings business unit experienced a 7.3% decrease in sales during 2000.
We are particularly pleased by our continued growth in markets outside of North
America. Revenues in local currencies grew approximately 28% and 20%
respectively, in Asia and Europe in 2000 as compared to 1999. These sales gains
were mitigated somewhat by weakness in the major European currencies as compared
to the U.S. dollar. Had exchange rates remained stable in 2000 as compared to
1999, consolidated sales as reported would have increased by approximately $2.6
million dollars.
Lower demand in the retail paint matching and aftermarket auto refinishing
markets in the Coatings industry were primary factors in domestic sales
decreasing 1.0% in 2000 as compared to 1999.
Price increases had a nominal effect on sales levels in 2000, 1999 and 1998.
Gross Profit
Gross profit margin dropped slightly during 2000 due to the impact of foreign
exchange rates and competitive pricing pressures. Gross profit percentages were
64.3%, 65.9% and 65.6% in 2000, 1999 and 1998, respectively.
Selling and Marketing Expenses
Over the past three years, the Company has significantly increased its
investment in sales and marketing programs outside North America. Selling and
marketing expenditures were $21.7, $20.1 and $20.5 million for 2000, 1999, and
1998, respectively. In 2000, costs increased 8.0% over 1999, while 1999 costs
were 1.9% lower than in 1998. These investments have been targeted at expanding
X-Rite's global marketing reach. These efforts have been rewarded by growth in
Europe and Asia over the past two years. The Company intends to continue
investing to expand its global presence in 2001, as well as to serve new markets
such as telecommunications and biomedicine.
General and Administrative
General and administrative expenses in 2000, 1999 and 1998 were $15.0, $15.0 and
$14.7 million respectively. Inflationary and actual expense growth in 2000 was
offset by efficiencies gained through facilities consolidation and the effects
of foreign exchange rates. Expenses increased 1.4% in 1999 over 1998 due to wage
inflation and corporate wide technology upgrades.
Research Development and Engineering
Research, Development and Engineering (RD&E) costs in 2000 were $11.8 million as
compared to $10.7 million in 1999, a 10.3% increase. RD&E costs in 1998 were
$10.0 million. The above expenses include costs of $.03, $1.7 and $1.8 million
in 2000, 1999 and 1998, respectively, associated with a west coast research
center which was closed in the first quarter of 2000.
The year over year increase in RD&E for 2000 reflects X-Rite's emphasis on new
product development for its core color measurement applications, as well as
research and development directed toward creating measurement solutions for new
markets. We expect research investment will continue to grow with the
integration of the Optronik and Coherix product development teams into X-Rite.
(see Acquisitions and Investments below)
In addition to the RD&E costs reported as operating expenses, costs were
incurred to develop new software products in each of the last three years that
were not included with RD&E expenses. Those costs were capitalized, and the
related amortization expense was included in cost of sales (see Note 2 to the
accompanying consolidated financial statements). Software development costs
capitalized totaled $1.6, $1.3 and $1.2 million in 2000, 1999 and 1998,
respectively.
Write-Down of Digital Imaging Assets
The Company recognized a nonrecurring charge of $6.7 million in the third
quarter of 1998 for the write-down of certain digital imaging assets associated
with the 1997 acquisition of Light Source Computer Images, Inc. (see Note 8 to
the accompanying consolidated financial statements). Increased competition in
the digital imaging business and a continued rapid decline in the demand for
certain digital imaging instruments, software and technology were the primary
factors that led the Company to reevaluate the markets Light Source sells into
and the Light Source product lines, which then forced the recognition of this
charge.
Other Income
Other income in 2000, 1999 and 1998 consists primarily of interest income and
foreign exchange gains and losses. The Company's investment portfolio is made up
of short term tax exempt municipal bonds, mutual funds and corporate securities.
Year over year growth in other income is due primarily to the growth of funds
available for investment.
Income Taxes
The effective tax rate has remained essentially unchanged at approximately 35%
during the last three years.
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 deterred 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.
Approximately 80% of the Company's transactions are invoiced and paid in U.S.
dollars.
Liquidity and Capital Resources
Cash flow from operations in 2000 was $20.5 million, compared to $20.4 and $17.9
million for 1999 and 1998, respectively. Net income was the principal source of
cash from operations. Certain expenses included in net income did not require
the use of cash. The most significant non-cash expenses in 2000, which totaled
$5.7 million, were depreciation and amortization. For 1999 and 1998 depreciation
and amortization charges were $5.9 and $5.8 million, respectively. The largest,
single non-cash expense in 1998 was for the write-down of digital imaging
assets, which was $6.7 million.
Cash and short-term investments at December 30, 2000, were $31.1 million as
compared to $29.0 million at January 1, 2000. We are pleased with our growth in
liquidity in 2000, as it was an active year for X-Rite in terms of acquisitions
and investments (see Acquisitions and Investments below) and capital
expenditures. At December 30, 2000, the Company had working capital of $61.7
million as compared to $60.9 million at January 1, 2000. Its ratios of current
assets to current liabilities were 5.9:1 and 9.7:1 for 2000 and 1999,
respectively. Current liabilities were $12.5 million at December 30, 2000, an
increase of $5.5 million over 1999. The increase in current liabilities and the
reduction of the current ratio was due to an increase in taxes payable and a
corresponding increase in current tax assets.
In addition to funding ongoing operations, the Company expects to use its funds
for future acquisitions, capital expenditures, stock repurchases, new product
development and expansion of our marketing efforts.
Since going public in 1986, the Company has funded its operations, investing,
acquisitions and financing activities from internally generated cash flows and
cash reserves. Management anticipates that X-Rite's current liquidity, future
cash flows and credit line will be sufficient to fund the Company's operations,
life insurance premiums, capital expenditures and dividends for the foreseeable
future. Should additional funding be necessary, additional short- or long-term
borrowing arrangements are the most probable alternatives for meeting capital
resource and liquidity needs. The Company maintains a revolving line of credit
in the amount of $20 million. The line was not used during 2000.
X-Rite's short-term investments consist primarily of tax free municipal bonds,
high grade corporate bonds, mutual funds and preferred stocks. Historically, the
cost of the Company's investments has approximated market value.
Capital expenditures of $4.1 million were made in 2000. These expenditures were
made primarily for machinery, equipment, building improvements, computer
hardware and software. Capital expenditures in 1999 were $4.3 million. The
Company anticipates making capital expenditures in 2001 of approximately $5.0
million.
In September 2000 the Board of Directors authorized a common stock repurchase
program of up to one million shares of outstanding stock. The timing of the
program and amount of the stock repurchases will be dictated by overall
financial and market conditions. At December 30, 2000, no shares had been
repurchased.
During 1998, the Company announced it had entered into agreements with its
founding shareholders for the future purchase by the Company of 4.54 million
shares, or 21.3 percent of the Company's outstanding stock at December 30, 2000.
The stock purchases will occur following the later of the death of each founder
and his spouse. The cost of the redemption agreements will be funded by proceeds
from life insurance policies totaling $160 million, or $35.24 per share to be
repurchased. 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.
At the maximum price, 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 may 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 total $4.3
million each year while all the policies remain in effect. Of the $4.3 million
paid in 2000 and 1999, approximately $1.0 and $1.2 million, respectively, were
classified as expense.
The Company's most significant financing activities in 2000 were the payment of
dividends to shareholders and the proceeds from liquidation of investments due
to the expiration of the Light Source Computer Images, Inc. escrow fund.
During the last three years dividends were paid at a rate of 10 cents per share
or approximately $2.1 million dollars annually. At the present time, the Board
of Directors intends to continue payments at this rate.
During 2000 the escrow fund established as part of the agreement to purchase
Light Source Computer Images Inc. in 1997 expired. (see Note 8 to the
accompanying consolidated financial statements) The contingent elements of the
underlying escrow agreement were not met, thereby releasing the Company from any
additional obligations with respect to the escrow fund. The investments in the
escrow fund were liquidated and the proceeds returned to the Company.
Acquisitions and Investments
2000 was an active year in terms of acquisitions and technology investments. We
acquired the assets of two measurement technology companies for approximately
$4.5 million. In addition, we formed a strategic venture capital group focused
specifically on high technology investments.
In the third quarter of 2000, the Company announced the purchase of
substantially all of the assets of Optronik GmbH by X-Rite GmbH. Based in
Berlin, Germany, Optronik is a leading provider of color and light measurement
instrumentation and software. Focused primarily on on-line color and light
measurement for web based processes, its non-contact measurement technologies
are new to X-Rite. The Berlin location gives X-Rite its first research,
development and manufacturing capabilities in Europe.
Also in the third quarter we announced the purchase of substantially all of the
assets of the HoloVision Products Group of Veridian-ERIM International. These
assets were purchased by a newly formed subsidiary of X-Rite named Coherix
Corporation (formerly known as HoloVision Acquisition Company).
The products of Coherix use tunable laser technology to accurately map the
surface of physical objects for a variety of industrial applications. Currently
the technology is used to provide noncontact measurement applications requiring
a three dimensional perspective. The measurement of shape complements the
traditional X-Rite technologies of color and light measurement. The ability to
provide high resolution, non contact, spatial measurement will elevate X-Rite's
exposure to many dynamic markets, such as electronic components, micromachines,
telecommunications and biomedicine. Coherix is located in Ann Arbor, Michigan,
but will also be conducting research, development and manufacturing at the
X-Rite headquarters in Grandville, Michigan.
XR Ventures, LLC is a strategic venture capital group formed in 2000 and
majority owned by X-Rite. Its mission is to direct and manage X-Rite's holdings
in start up companies in high technology fields. Our partners in the group are
Dr. Peter M. Banks and Mr. James A. Knister. Both have had extensive careers as
executives in technology companies. In addition to their roles with XR Ventures,
both serve on the Board of Directors of X-Rite, Incorporated. The venture group
seeks out, but is not restricted to companies with technologies that are
directly related to current X-Rite technologies, or technologies that we are
interested in pursuing including biosensors, micro mechanical systems,
telecommunication components and information technologies. At December 30, 2000,
the fund held minority positions in seven companies, with a total investment of
approximately $4.6 million.
FORWARD-LOOKING STATEMENTS:
This discussion and analysis of financial condition and results of operations,
as well as other sections of our Form 10-K, contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act, as amended, that are based on
management's beliefs, assumptions, current expectations, estimates and
projections about the industries it serves, the economy, and about the Company
itself. Words such as "anticipates," "believes, " "estimates," "expects,"
"likely," "plans," "projects," "should," variations of such words and similar
expressions are intended to identify such forward looking statements. These
statements are not guarantees of future performance and involve certain risks,
uncertainties, and assumptions that are difficult to predict with regard to
timing, extent, likelihood and degree of occurrence. Therefore, actual results
and outcomes may materially differ from what may be expressed or forecasted in
such forward looking statements. Furthermore, X-Rite, Incorporated undertakes no
obligation to update, amend or clarify forward looking statements, whether as a
result of new information, future events or otherwise.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Registrant's market risk sensitive financial instruments do not subject the
Registrant to material market risk exposures.
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 Temporary and Permanent Shareholders' Investment
Consolidated Statements of Income
Consolidated Statements of Permanent Shareholders' Investment
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Public Accountants
To the Shareholders of X-Rite, Incorporated:
We have audited the accompanying consolidated balance sheets of X-Rite,
Incorporated (a Michigan corporation) and subsidiaries as of December 30, 2000
and January 1, 2000, and the related consolidated statements of temporary and
permanent shareholders' investment, income, permanent shareholders' investment
and cash flows for each of the three years in the period ended December 30,
2000. 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 auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of X-Rite, Incorporated and
subsidiaries as of December 30, 2000 and January 1, 2000, and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 2000, in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan,
January 30, 2001
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 30, January 1,
2000 2000
----------- -----------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $18,595,000 $ 6,898,000
Short-term investments 12,469,000 22,129,000
Accounts receivable, less allowances of
$1,149,000 in 2000 and $1,110,000 in 1999 19,463,000 20,249,000
Inventories 15,800,000 15,410,000
Deferred taxes 6,503,000 1,642,000
Prepaid expenses and other current assets 1,427,000 1,565,000
----------- -----------
Total current assets 74,257,000 67,893,000
PLANT AND EQUIPMENT:
Land 2,278,000 2,278,000
Buildings and improvements 15,872,000 15,501,000
Machinery and equipment 14,904,000 13,368,000
Furniture and office equipment 13,284,000 13,169,000
Construction in progress 574,000 90,000
----------- -----------
46,912,000 44,406,000
Less accumulated depreciation (25,046,000) (23,351,000)
----------- -----------
21,866,000 21,055,000
OTHER ASSETS:
Costs in excess of net assets acquired 10,604,000 8,036,000
Cash surrender values founders policies 9,918,000 6,616,000
Other noncurrent assets 9,038,000 4,219,000
----------- -----------
29,560,000 18,871,000
----------- -----------
$125,683,000 $107,819,000
============ ===========
The accompanying notes are an integral part of these statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS--Continued
December 30, January 1,
2000 2000
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 2,456,000 $ 2,277,000
Accrued liabilities--
Payroll and employee benefits 2,603,000 2,043,000
Income taxes 5,063,000 325,000
Other 2,423,000 2,352,000
----------- -----------
Total current liabilities 12,545,000 6,997,000
TEMPORARY SHAREHOLDERS' INVESTMENT:
Value of shares subject to redemption
agreements; 4,540,000 shares issued
and outstanding in 2000 and 1999 45,400,000 45,400,000
PERMANENT SHAREHOLDERS' INVESTMENT:
Preferred stock, $.10 par value,
5,000,000 shares authorized; none issued - -
Common stock, $.10 par value, 50,000,000
shares authorized; 16,797,321 and
16,700,896 shares issued and outstanding
in 2000 and 1999 respectively,
not subject to redemption agreements 1,680,000 1,670,000
Additional paid-in capital 5,993,000 8,439,000
Retained earnings 61,639,000 51,347,000
Shares in escrow; 257,064 in 1999 - (4,820,000)
Accumulated other comprehensive loss (1,574,000) (1,214,000)
----------- -----------
67,738,000 55,422,000
----------- -----------
$125,683,000 $107,819,000
============= ============
The accompanying notes are an integral part of these statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF TEMPORARY AND PERMANENT SHAREHOLDERS' INVESTMENT
For the years ended December 30, 2000, January 1, 2000
and January 2,1999
Total Temporary
Temporary Permanent and Permanent
Shareholders' Shareholders' Shareholders'
Investment Investment Investment
---------- ------------ --------------
Balances January 3, 1998 $ - $ 86,080,000 $ 86,080,000
Allocation of Permanent Shareholders' Investment
to Temporary Shareholders' Investment,
4,540,000 shares 45,400,000 (45,400,000) -
Net changes in Permanent Shareholders Investment - 4,039,000 4,039,000
---------- ----------- -----------
Balances January 2, 1999 45,400,000 44,719,000 90,119,000
Net changes in Permanent Shareholders Investment - 10,703,000 10,703,000
------------ ------------ -----------
Balances January 1, 2000 45,400,000 55,422,000 100,822,000
Net changes in Permanent Shareholders Investment - 12,316,000 12,316,000
------------ ------------ -----------
Balances December 30, 2000 $ 45,400,000 $ 67,738,000 $ 113,138,000
============ ============ =============
The accompanying notes are an integral part of these statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
For the year ended
---------------------------------------
December 30, January 1, January 2,
2000 2000 1999
----------- ----------- -----------
Net sales $103,449,000 $100,209,000 $94,811,000
Cost of sales 36,943,000 34,218,000 32,579,000
----------- ----------- -----------
Gross profit 66,506,000 65,991,000 62,232,000
Operating expenses:
Selling & marketing 21,685,000 20,096,000 20,478,000
General & administrative 14,977,000 14,953,000 14,749,000
Research, development &
engineering 11,771,000 10,689,000 10,044,000
Write-down of digital
imaging assets - - 6,694,000
----------- ----------- -----------
48,433,000 45,738,000 51,965,000
----------- ----------- -----------
Operating income 18,073,000 20,253,000 10,267,000
Other income 1,090,000 827,000 425,000
----------- ----------- -----------
Income before income taxes 19,163,000 21,080,000 10,692,000
Income taxes 6,755,000 7,431,000 3,830,000
----------- ----------- -----------
NET INCOME $12,408,000 $13,649,000 $6,862,000
=========== =========== ===========
Earnings per share:
Basic $.59 $.65 $.33
==== ==== ====
Diluted $.58 $.62 $.32
==== ==== ====
The accompanying notes are an integral part of these statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PERMANENT SHAREHOLDERS' INVESTMENT
Accumulated
Other Total
Additional Comprehensive Permanent
Common Paid-in Retained Shares in Income Shareholders'
Stock Capital Earnings Escrow (Loss) Investment
---------- ---------- ----------- ----------- ------------- ------------
BALANCES,
JANUARY 3, 1998 $2,115,000 $7,876,000 $79,969,000 $(3,449,000) $(431,000) $86,080,000
Net income - - 6,862,000 - - 6,862,000
Cash dividends declared
of $.10 per share - - (2,092,000) (25,000) - (2,117,000)
Issuance of 28,798 shares
of common stock under
employee benefit plans 3,000 267,000 - - - 270,000
Purchase of 72,764 shares
by escrow fund - - - (1,320,000) - (1,320,000)
Value of shares subject to
redemption agreements (454,000) - (44,946,000) (45,400,000)
Translation adjustment - - - - 344,000 344,000
---------- ---------- ----------- ----------- --------- -----------
BALANCES,
JANUARY 2, 1999 1,664,000 8,143,000 39,793,000 (4,794,000) (87,000) 44,719,000
Net income - - 13,649,000 - - 13,649,000
Cash dividends declared
of $.10 per share - - (2,095,000) (26,000) - (2,121,000)
Issuance of 62,717 shares
of common stock under
employee benefit plans 6,000 296,000 - - - 302,000
Translation adjustment - - - - (659,000) (659,000)
Unrealized loss on short-term
investments - - - - (468,000) (468,000)
---------- ---------- ----------- ----------- --------- ------------
BALANCES,
JANUARY 1, 2000 1,670,000 8,439,000 51,347,000 (4,820,000) (1,214,000) 55,422,000
Net income - - 12,408,000 - - 12,408,000
Cash dividends declared
of $.10 per share - - (2,116,000) (13,000) - (2,129,000)
Issuance of 96,425 shares
of common stock under
employee benefit plans 10,000 467,000 - - - 477,000
Sale of 257,264 shares
by escrow fund (2,913,000) 4,833,000 1,920,000
Translation adjustment - - - - (522,000) (522,000)
Unrealized gain on short-term
investments - - - - 162,000 162,000
---------- ---------- ----------- ----------- --------- -----------
BALANCES,
DECEMBER 30, 2000 $1,680,000 $5,993,000 $61,639,000 $ - $(1,574,000) $ 67,738,000
========== ========== =========== ============ ============ ===========
The accompanying notes are an integral part of these statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the year ended
---------------------------------------
December 30, January 1, January 2,
2000 2000 1999
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,408,000 $ 13,649,000 $ 6,862,000
Adjustments to reconcile net income to net
cash provided by operating activities-
Depreciation and amortization 5,717,000 5,862,000 5,836,000
Provision for doubtful accounts 388,000 412,000 266,000
Deferred income taxes (4,669,000) (246,000) (2,629,000)
Write-down of digital imaging assets - - 6,694,000
Other 18,000 (58,000) (15,000)
Changes in operating assets and liabilities
net of effects from acquisitions:
Accounts receivable 335,000 (1,576,000) 1,189,000
Inventories 415,000 278,000 (623,000)
Other current and noncurrent assets 144,000 (547,000) 892,000
Accounts payable 217,000 638,000 163,000
Income taxes payable 4,738,000 135,000 (69,000)
Other accrued liabilities 792,000 1,818,000 (624,000)
----------- ----------- -----------
Net cash provided by operating activities 20,503,000 20,365,000 17,942,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investments 2,606,000 1,258,000 2,030,000
Proceeds from sales of investments 19,420,000 19,875,000 5,323,000
Purchases of investments (12,378,000) (24,473,000) (16,056,000)
Capital expenditures (4,140,000) (4,343,000) (4,176,000)
Acquisitions, less cash acquired (4,505,000) - (382,000)
Investment in founders' life insurance (3,302,000) (3,525,000) (3,091,000)
Purchases of other assets (6,238,000) (1,373,000) (1,279,000)
Other investing activities (16,000) 85,000 113,000
------------ ------------ ------------
Net cash (used for) investing activities (8,553,000) (12,496,000) (17,518,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (2,129,000) (2,121,000) (2,117,000)
Issuance of common stock 477,000 302,000 270,000
Proceeds from sales of escrow investments 1,920,000 - -
----------- ----------- -----------
Net cash provided by (used for) financing activities 268,000 (1,819,000) (1,847,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS (521,000) (688,000) 151,000
----------- ------------ -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 11,697,000 5,362,000 (1,272,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 6,898,000 1,536,000 2,808,000
----------- ----------- -----------
CASH AND CASH EQUIVALENTS AT END OF YEAR $18,595,000 $6,898,000 $1,536,000
=========== =========== ===========
The accompanying notes are an integral part of these statements.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND OTHER INFORMATION
X-Rite, Incorporated and its subsidiaries (individually "X-Rite" and all of its
subsidiaries the "Company") are engaged in the development, manufacture and sale
of technically sophisticated instrumentation and user friendly software
solutions for a wide variety of color, light and shape measurement applications,
including corporate branding, medical diagnostics, consumer products and on-line
commerce. 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 a single operating 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 other domestic operations in New Hampshire,
Massachusetts and Michigan. In addition, the Company has locations in Germany,
England, Hong Kong, the Czech Republic and France. Manufacturing is done in the
United States and Germany.
Geographic sales information is as follows:
2000 1999 1998
----------- ----------- -----------
Domestic sales:
U.S. operations $65,136,000 $65,732,000 $62,875,000
International sales:
U.S. operations export sales
to unaffiliated customers 12,002,000 11,023,000 14,628,000
Foreign subsidiary sales 26,311,000 23,454,000 17,308,000
----------- ----------- -----------
38,313,000 34,477,000 31,936,000
----------- ----------- -----------
$103,449,000 $100,209,000 $94,811,000
=========== =========== ===========
No single customer accounted for more than 10% of total net sales in 2000, 1999
or 1998.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation:
The consolidated financial statements include the accounts of X-Rite,
Incorporated and its majority owned domestic and foreign subsidiaries. All
significant inter-company 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, 2000 ended on December 30, 2000, 1999 ended on
January 1, 2000, and 1998 ended on January 2, 1999. The Company's 2000, 1999 and
1998 results from operations would have been approximately the same if the years
had ended on December 31 rather than on December 30, 2000, January 1, 2000, and
January 2, 1999.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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 tax free municipal bonds, high grade
corporate bonds, mutual funds and preferred stocks. All of the Company's
short-term investments are stated at market value and are classified as
available for sale. Adjustments to market value are included in comprehensive
income (see Note 3) Short-term investments at December 30, 2000 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:
December 30, January 1,
2000 2000
----------- -----------
Raw materials $ 7,024,000 $ 6,351,000
Work in process 4,903,000 5,381,000
Finished goods 3,873,000 3,678,000
----------- -----------
$15,800,000 $15,410,000
=========== ===========
Plant, Equipment and Depreciation:
Plant and equipment are stated at cost and include expenditures for major
renewals and betterments. Maintenance and repairs that do not extend the lives
of the respective assets are charged to expense as incurred. Depreciation
expense is computed using the straight-line method over the estimated useful
lives of the related assets. Estimated depreciable lives are as follows:
buildings and improvements, 5 to 40 years; machinery and equipment, 3 to 10
years; and furniture and office equipment, 3 to 10 years.
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 $1,572,000, $1,334,000 and $1,248,000 of software
development costs during 2000, 1999 and 1998, respectively. Amortization expense
was $1,405,000, $1,249,000 and $1,107,000 in 2000, 1999 and 1998, respectively.
The net capitalized software development costs included in other assets were
$2,356,000 and $2,160,000 as of December 30, 2000 and January 1, 2000,
respectively.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
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., the 1997 acquisition of the assets of Light
Source Computer Images, Inc. (see Note 8) and the 2000 acquisitions of the
assets of Optronik GmbH and the HoloVision Products group. The costs associated
with the Labsphere acquisition are being amortized using the straight-line
method over twenty years. The costs associated with the Optronik GmbH and
HoloVision Products Group acquisitions are being amortized using the
straight-line method over ten years. The costs resulting from the Light Source
acquisition were written off in 1998 (see Note 8). Accumulated amortization of
excess acquisition costs was $3,445,000 and $2,790,000 at December 30, 2000 and
January 1, 2000, respectively.
The Company 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 in accordance with
the provisions of Statement of Financial Accounting Standards (SFAS) No. 121. If
the sum of the expected future cash flows is less than the carrying value of the
assets, an impairment loss is recognized for the excess of the carrying value
over the fair value. The estimated fair value is determined by discounting the
expected future cash flows at a rate that would be required for a similar
investment with like risks.
Investments Carried at Cost:
Included in other noncurrent assets in 2000, is $4,610,000 related to
investments made by the Company's strategic venture capital group, XR Ventures,
LLC. The Company funds acquisitions made by XR Ventures, LLC and in exchange
receives its investment back in full before any distributions are made. Each
individual investment represents less than 20% of the outstanding voting common
stock of the respective investee. Because the Company is unable to exercise
significant influence over the operating and financial policies of each
respective investee, the investments have been recorded at cost. The Company
periodically evaluates the carrying value of each investment to determine
whether a decline in fair value below the respective cost has occurred. If the
decline is determined to be other than temporary, the carrying value is adjusted
to the then current fair value as the new cost basis and a loss is recognized.
No such write downs occurred in 2000.
Temporary and Permanent Shareholders' Investment:
During 1998 the Company entered into agreements with its founding shareholders
for the future redemption of 4.54 million shares or 21.3 percent of its
outstanding stock at December 30, 2000 (see Note 7). These shares have been
reclassified on the balance sheet to a temporary equity account.
The Company records the results of its operations and all other equity
transactions as a component of permanent shareholders' investment.
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.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
Revenue Recognition:
Revenue is recognized when earned in accordance with applicable accounting
standards, including American Institute of Certified Public Accountants
Statement of Position 97-2, as amended. Revenue from sales of products and
services is recognized when a purchase order has been received, the product has
been shipped or the service has been performed, the sales price is fixed and
determinable and collection of any resulting receivable is probable.
Advertising Costs:
Advertising costs are charged to operations in the period incurred and totaled
$1,737,000, $2,047,000 and $2,389,000 in 2000, 1999 and 1998, respectively.
Per Share Data:
Basic earnings per share ("EPS") are computed by dividing net income by the
weighted-average number of common shares outstanding in each year. Diluted EPS
is computed by dividing net income by the weighted-average number of common
shares outstanding plus all shares that would have been outstanding if every
potentially dilutive common share had been issued. The following table
reconciles the numerators and denominators used in the calculations of basic and
diluted EPS for each of the last three years:
2000 1999 1998
---------- ----------- -----------
Numerators:
Net income numerators for
both basic and diluted EPS $12,408,000 $13,649,000 $ 6,862,000
========== =========== ===========
Denominators:
Denominators for basic EPS
Weighted-average common
shares outstanding 21,171,963 20,951,692 20,913,400
Potentially dilutive shares
Shares subject to
redemption agreements 358,722 1,155,096 159,522
Stock options 37,768 6,985 58,630
---------- ---------- ----------
Denominators for diluted EPS 21,568,453 22,113,773 21,131,552
========== ========== ==========
During 2000, 1999 and the fourth quarter of 1998, certain shares subject to
redemption agreements (see Note 7) were considered dilutive.
Certain exercisable stock options were not included in the calculations of
diluted EPS because option prices were greater than average market prices for
the periods presented. The number of stock options outstanding at the end of
each year presented not included in the calculation of diluted EPS and the
ranges of exercise prices were 1,005,800 and $7.03 - $19.50 in 2000, 984,500 and
$7.03 - $19.50 in 1999, and 583,000 and $14.50 - $19.50 in 1998.
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 U.S. 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 component of accumulated other
comprehensive income (loss) in the statements of shareholders' investment. Gains
and losses arising from remeasuring foreign currency transactions into the
appropriate currency are included in net income.
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.
New Accounting Standard:
On December 31, 2000, the Company adopted SFAS No. 133, as amended by SFAS Nos.
137 and 138. These statements establish accounting and reporting standards
requiring that derivative instrument be recorded in the balance sheet as asset
and liability measured at current fair value and that changes in a derivative's
fair value be recognized currently in the determination of net income unless
specific hedge accounting criteria are met. The impact of adopting this standard
was not material to the Company.
Reclassifications:
Certain prior year information has been reclassified to conform to the current
year presentation.
NOTE 3--COMPREHENSIVE INCOME
Comprehensive income consisted of net income, foreign currency translation and
unrealized loss on short-term investments, which are presented in the
accompanying statements of shareholders' investment. Comprehensive income
totaled $ 12,048,000, $ 12,522,000 and $ 7,206,000 in 2000, 1999 and 1998,
respectively.
NOTE 4--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" (5.41% at December 30, 2000).
The borrowings are unsecured and no compensating balances are required by the
agreement. There were no significant borrowings under this agreement during
2000, 1999 or 1998.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5--INCOME TAXES
The provision for income taxes consisted of the following:
2000 1999 1998
---------- ---------- ----------
Current
Federal $10,988,000 $7,386,000 $6,111,000
State 254,000 256,000 220,000
Foreign 15,000 35,000 128,000
---------- ---------- ----------
11,257,000 7,677,000 6,459,000
Deferred
Federal (4,502,000) (246,000) (2,629,000)
---------- ---------- ----------
$6,755,000 $7,431,000 $3,830,000
========== ========== ==========
The preceding table excludes a tax benefit in 2000 of $167,000 related to market
value adjustments on short-term investments, which is recorded as a component of
other comprehensive income.
The provisions for income taxes reflected effective tax rates of 35.3%, 35.3%
and 35.8% in 2000, 1999 and 1998, respectively, compared to the U.S. statutory
rate of 35%. The Company's effective tax rates were impacted by state income
taxes, goodwill amortization, benefits from a foreign sales corporation and life
insurance premiums.
Major components of the Company's deferred tax assets and liabilities are as
follows:
December 30, January 1,
2000 2000
---------- ----------
Assets:
Inventory reserves $ 610,000 $ 947,000
Accounts receivable reserves 209,000 105,000
Amortization of intangible assets 2,282,000 2,629,000
Deferred income 5,008,000 -
Financial accruals and reserves
not currently deductible 997,000 638,000
---------- ----------
$9,106,000 $4,319,000
========== ==========
Liabilities:
Depreciation $ 181,000 $ 143,000
Software development costs 820,000 756,000
Other 50,000 34,000
---------- ----------
$ 1,051,000 $ 933,000
========== ==========
Cash expended for income taxes was $6,809,000, $7,551,000 and $5,733,000 in
2000, 1999 and 1998, respectively.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--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 $557,000, $469,000 and $473,000 in 2000, 1999
and 1998, 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 2000, 1999 and 1998, employees purchased 36,940, 40,137 and 21,798
shares, respectively. The weighted average fair value of shares purchased was
$9.47, $6.77 and $13.01 in 2000, 1999 and 1998 respectively. At December 30,
2000, 796,544 shares were available for future purchases.
The Company has two stock option plans covering 2,800,000 shares of common
stock. These plans permit options to be granted to key employees and the
Company's Board of Directors. Options are granted at market price on the date of
grant and are exercisable based on vesting schedules determined at the time of
grant. No options are exercisable after ten years from the date of grant. At
December 30, 2000, 1,356,893 shares were available for future granting. A
summary of shares subject to options follows:
2000 1999 1998
-------------------- ---------------- ------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Prices Shares Prices Shares Prices
--------- -------- ------- -------- ------- ----------
Outstanding at
beginning of year 1,305,200 $13.26 1,093,100 $14.54 890,100 $14.33
Granted 247,500 8.69 244,500 7.08 221,500 15.10
Exercised - (10,000) 2.47 (7,000) 4.06
Canceled (11,400) 12.33 (22,400) 13.39 (11,500) 14.93
--------- ------- --------
Outstanding at
end of year 1,541,300 12.53 1,305,200 13.26 1,093,100 14.54
========= ========= =========
Exercisable at
end of year 1,274,300 13.57 1,076,500 14.27 943,100 14.25
========= ======= =======
Weighted average
fair value of
options granted $4.30 $2.85 $6.23
===== ===== =====
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--EMPLOYEE BENEFIT AND STOCK PLANS, continued
A summary of stock options outstanding at December 30, 2000 follows:
Outstanding Exercisable
--------------------------------- -----------------
Weighted
Weighted Average Weighted
Average Remaining Average
Exercise Contractual Exercise
Price Ranges Shares Price Life (Years) Shares Price
--------------- --------- -------- ------------ ------- --------
$ 6.19 - $ 7.50 401,000 $ 6.84 7.2 223,500 $ 7.07
9.50 - 12.00 364,600 10.69 5.5 275,100 11.08
13.00 - 15.00 270,300 13.94 6.5 270,300 13.94
15.63 - 19.50 505,400 17.61 5.6 505,400 17.61
--------- -------
1,541,300 12.53 6.2 1,274,300 13.57
========= =========
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 $726,000
and $.03 in 2000, $492,000 and $.02 in 1999, and $ 924,000 and $.04 in 1998.
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:
2000 1999 1998
----------- ----------- -----------
Dividend yield .9% .7% .6%
Volatility 54% 40% 40%
Risk-free interest rates 5.7% - 6.7% 4.7% - 5.9% 5.5% - 5.6%
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 has a Cash Bonus Conversion Plan covering 400,000 shares of stock.
This plan provides an opportunity for certain executives of the Company to
purchase restricted stock in an amount equal to all, or any portion of their
annual cash bonus. Shares are issued in the name of the employee, who has all
rights of a shareholder, subject to certain restrictions on transferability and
a risk of forfeiture. The forfeiture provisions lapse as to 20 percent after six
months and an additional 20 percent annually thereafter. During 2000, 59,485
shares were issued under this plan, no shares were forfeited, and the forfeiture
provisions expired on 11,273 shares. At December 30, 2000, 63,754 shares
remained subject to forfeiture provisions and restrictions on transferability.
During 1999, 12,580 shares were issued under this plan, no shares were
forfeited, and the forfeiture provisions expired on 1,831 shares. During 1998,
no shares were issued under this plan, no shares were forfeited, and the
forfeiture provisions expired on 2,962 shares.
X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6--EMPLOYEE BENEFIT AND STOCK PLANS, continued
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 2000, 1999 or 1998. At December 30, 2000, there were
345,200 shares available for future awards.
NOTE 7--FOUNDERS STOCK REDEMPTION AGREEMENTS
During 1998, the Company entered into agreements with its founding shareholders
for the future redemption of 4.54 million shares or 21.3 percent of the
Company's outstanding stock at December 30, 2000. The stock redemptions will
occur following the later of the death of each founder and his spouse. The cost
of the redemption agreements will be funded by proceeds from life insurance
policies the Company has purchased on the lives of certain of these individuals.
The price the Company will pay the founders' estates for these shares will
reflect a 10 percent discount from the average closing price for the ninety
trading days preceding the later death of the founder and his spouse. The
discounted price may not be less than $10 per share or more than $25 per share.
The shares subject to the agreements have been classified on the balance sheet
as a temporary equity account. The classification of $45,400,000 was determined
by multiplying the applicable shares by the minimum redemption price of $10,
since the average closing price of the Company's common stock, after applying
the 10 percent discount, for the ninety trading days preceding December 30, 2000
was less than $10.
NOTE 8--ACQUISITION & WRITE-DOWN OF DIGITAL IMAGING ASSETS
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 was
a California-based producer of scanning, imaging and print optimization
software. The acquisition was 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 ended July 1998, 1999 and 2000. The Company
established an escrow fund equal to the maximum contingent consideration that
could be earned by the sellers. The investment of escrow funds was made in money
market securities or X-Rite common stock. This contractual agreement expired in
July of 2000. The net sales goals of certain products required for the payment
of future contingent consideration were not met during the periods outlined in
the asset purchase agreement, thereby releasing the Company from any additional
obligations with respect to the escrow fund. The investments in the escrow fund
were liquidated and the proceeds returned to the Company.
During the third quarter of 1998, increased competition in the digital imaging
business and a continued rapid decline in the demand for certain digital imaging
instruments, software and technology led the Company to reevaluate its digital
imaging markets and product lines, which forced the recognition of an asset
impairment loss. The non-cash, pre-tax write down of $6,694,000 ($4,351,000
after tax) consisted of $6,294,000 in goodwill, and $400,000 in fixed assets and
other capitalized start-up costs associated with the 1997 Light Source asset
acquisition.
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 2001 Annual Meeting of
shareholders and filed with the Commission is incorporated herein by reference.
(b) Officers
Information relating to executive officers is included in this report in the
last section of Part I under the caption "Executive Officers of the Registrant."
(c) Compliance With Section 16(a)
Information concerning compliance with Section 16(a) of the Securities Exchange
Act of 1934 appearing under the caption "Compliance With Reporting Requirements"
in the definitive Proxy Statement for the 2001 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 2001 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 2001 Annual
Meeting of Shareholders and filed with the Commission is hereby incorporated
herein by reference.
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 Temporary and Permanent Shareholders' Investment
Consolidated Statements of Income
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(b) The following report on Form 8-K was filed for the quarter ending December
30, 2000. Notice of press release dated January 19, 2001 announcing that
X-Rite, Incorporated will conduct a live audio web cast of its fourth
quarter conference call on January 31, 2001.
(c) See Exhibit Index located on page 35.
(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.
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, 2001 /s/ Richard E. Cook
Richard E. Cook, President and Chief Executive Officer
March 30, 2001 /s/ Duane F. Kluting
Duane F. 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 30th day of March, 2001, 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
Richard E. Cook and Duane F. 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/ Peter M. Banks
Ted Thompson, Director Dr. Peter M. Banks, Director
/s/ Stanley W. Cheff /s/ Richard E. Cook
Stanley W. Cheff, Director Richard E. Cook, Director
/s/ Rufus S. Teesdale /s/ James A. Knister
Rufus S. Teesdale, Director James A. Knister, Director
/s/ John E. Utley /s/ Charles Van Namen
John E. Utley, Director Charles Van Namen, Director
/s/ Ronald A. Vandenberg
Ronald A. VandenBerg, Director
EXHIBIT INDEX
- --------------------------------------------------------------------------
3(a) Restated Articles of Incorporation (filed as exhibit to Form S-18
dated April 10, 1986 (Registration No. 33-3954C) and incorporated
herein by reference)
3(b) Certificate of Amendment to Restated Articles of Incorporation adding
Article IX (filed as exhibit to Form 10-Q for the quarter ended June
30, 1987 (Commission File No. 0-14800) and incorporated herein by
reference)
3(c) Certificate of Amendment to Restated Articles of Incorporation
amending Article III (filed as exhibit to Form 10-K for the year ended
December 31, 1995 (Commission File No. 0-14800) and incorporated
herein by reference)
3(d) Certificate of Amendment to Restated Articles of Incorporation
amending Article IV as filed with the Michigan Department of Consumer
& Industry Services (filed as exhibit to Form 10-K for the year ended
January 2, 1999 (Commission File No. 0-14800) and incorporated herein
by reference)
3(e) Bylaws, as amended and restated January 20, 1998 (filed as exhibit to
Form 10-K for the year ended January 3, 1998 (Commission File No.
0-14800) and incorporated herein by reference)
3(f) Bylaws, as amended and restated November 18, 1999 (Commission File No.
0-14800).
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)
5 Notice of press release dated January 19, 2001 announcing that X-Rite,
Incorporated will conduct a live audio web cast of its fourth quarter
conference call on January 31, 2001 (filed as Form 8-K (Commission
file No. 0-14800) and incorporated herein by reference)
The following material contracts identified with "*" preceding the exhibit
number are agreements or compensation plans with or relating to executive
officers, directors or related parties.
*10(a) X-Rite, Incorporated Amended and Restated Outside Director Stock
Option Plan, effective as of September 17, 1996 (filed as exhibit to
Form 10-Q for the quarter ended September 30, 1996 (Commission File
No. 0-14800) and incorporated herein by reference)
*10(b) X-Rite, Incorporated Cash Bonus Conversion Plan (filed as Appendix A
to the definitive proxy statement dated April 8, 1996 relating to the
Company's 1996 annual meeting (Commission File No. 0-14800) and
incorporated herein by reference)
*10(c) Form of Indemnity Contract entered into between the registrant and
members of the board of directors (filed as exhibit to Form 10-Q for
the quarter ended June 30, 1996 (Commission File No. 0-14800) and
incorporated herein by reference)
EXHIBIT INDEX
- --------------------------------------------------------------------------
*10(d) Employment Agreement dated April 17,1998 between the registrant and
Richard E. Cook (filed as exhibit to Form 10-K for the year ended
January 2, 1999 (Commission File No. 0-14800) and incorporated herein
by reference)
10(e) Asset Purchase Agreement entered into between Light Source Acquisition
Company and Light Source Computer Images, Inc. including Escrow
Agreement by and between Light Source Acquisition Company and Light
Source Computer Images, Inc. and U.S. Trust Company of California,
N.A. (filed as exhibit to Form 8-K dated June 2, 1997 (Commission File
No. 0-14800) and incorporated herein by reference)
*10(f) Form of X-Rite, Incorporated Founders Redemption Agreement entered
into between the registrant and certain persons, together with a list
of such persons (filed as exhibit to Form 10-Q for the quarter ended
July 3, 1999 (Commission File No. 0-14800) and
incorporated herein by reference)
*10(g) First Amendment to X-Rite, Incorporated Founders Redemption Agreement
dated July 16, 1999 between the registrant and Ted Thompson (filed as
exhibit to Form 10-Q for the quarter ended July 3, 1999 (Commission
File No. 0-14800) and incorporated herein by reference)
*10(h) Chairman's agreement dated July 16, 1999 between the registrant and
Ted Thompson (filed as exhibit to Form 10-Q for the quarter ended July
3, 1999 (Commission File No. 0-14800) and incorporated herein by
reference)
*10(i) Employment arrangement effective upon a change in control entered into
between the registrant and certain persons together with a list of
such persons. (Commission File No. 0-14800) and incorporated herein by
reference
*10(j) Deferred compensation trust agreement dated November 23, 1999 between
the registrant and Richard E. Cook. (Commission File No.0-14800) and
incorporated herein by reference
*10(k) Operating Agreement for XR Ventures, LLC dated September 14, 2000, by
and between XR Ventures, LLC the registrant, Dr. Peter M. Banks and
Mr. James A. Knister. (Commission File No. 0-14800) and incorporated
herein by reference
21 Subsidiaries of the registrant
23 Consent of independent accountants
Exhibit 21
X-RITE, INCORPORATED
LIST OF SUBSIDIARIES
1. X-Rite International, Inc., a Barbados Corporation, is a wholly owned
subsidiary of X-Rite, Incorporated, being utilized as a foreign sales
corporation.
2. X-Rite Holdings, Inc., 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, Inc., 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, Inc., and being utilized
as a sales office.
5. X-Rite Ltd, 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, Inc., 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 Ltd, a United Kingdom Corporation, is wholly owned by
Labsphere, Incorporated and being utilized as a sales office.
10. X-Rite Mediterranee SARL, a French Corporation, is wholly owned by
X-Rite, Incorporated and X-Rite Holdings, Inc., and being utilized as
a sales and service office.
11. X-Rite Global, Inc., a U.S. Corporation, is a wholly owned subsidiary
of X-Rite, Incorporated, being utilized as a stockholder of certain
foreign subsidiaries.
12. XR Ventures, LLC, a U.S. Limited Liability Corporation, is a majority
owned subsidiary of X-Rite, Incorporated, being utilized as a venture
capital company.
13. Coherix, Corporation, a U.S. Corporation, is majority owned by X-Rite,
Incorporated and is a manufacturer of laser based measurement systems
and related proprietary materials.
14. Optronik GmbH, a German Corporation, is a wholly owned subsidiary of
X-Rite GmbH, and is a manufacturer of color and light measurement
systems and related proprietary materials.
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report dated January 30, 2001, included in this Form 10-K, into X-Rite,
Incorporated's previously filed Registration Statement File Numbers 33-29288,
33-29290, 33-82258 and 33-82260.
/s/ Arthur Andersen LLP
Grand Rapids, Michigan,
March 30, 2001.