Commission file number 0-14800
X-RITE, INCORPORATED
(Name of registrant as specified in charter)
|
Michigan (State of Incorporation) |
38-1737300 (I.R.S. Employer Identification No.) |
3100 44th Street S.W., Grandville,
Michigan 49418
(Address of principal executive offices)
616-534-7663
(Registrant's telephone number, including area code)
Indicate by check mark whether the
registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No
[ ]
Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes [X] No [ ]
On August 1, 2003, the number of shares of the registrant’s common stock, par value $.10 per share outstanding was 20,534,424.
Exhibit Index is located at Page 17.
X-RITE, INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS
(in thousands)
June 28, December 28,
2003 2002
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 12,638 $ 10,100
Short-term investments 1,005 7,438
Accounts receivable, less allowance of
$1,371 in 2003 and $1,207 in 2002 19,093 19,773
Inventories 15,050 14,080
Deferred taxes 1,566 1,602
Prepaid expenses and other current assets 1,750 1,141
------- -------
51,102 54,134
Property plant and equipment:
Land 2,278 2,278
Buildings and improvements 16,980 16,948
Machinery and equipment 16,588 15,399
Furniture and office equipment 19,204 18,224
Construction in progress - 157
------- -------
55,050 53,006
Less accumulated depreciation (33,812) (31,879)
------- -------
21,238 21,127
Other assets:
Cash surrender values (founders policies) 20,250 16,123
Goodwill 3,262 2,135
Other investments 3,316 3,210
Capitalized software (net of accumulated amortization
of $9,919 in 2003 and $9,011 in 2002) 3,022 2,862
Deferred taxes 1,221 1,683
Other noncurrent assets 2,534 1,610
------- -------
33,605 27,623
------- -------
$105,945 $102,884
======= =======
The accompanying notes are an integral part of these statements.
2
X-RITE, INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
BALANCE SHEETS - Continued
(in thousands, except share and per share data)
June 28, December 28,
2003 2002
----------- ------------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Accounts payable $ 2,982 $ 3,323
Accrued liabilities:
Payroll and employee benefits 4,386 4,265
Income taxes 1,959 2,144
Other 1,690 1,804
------- -------
11,017 11,536
Temporary shareholders' investment:
Value of shares subject to redemption agreements;
3,420 shares issued and outstanding in 2003 and 2002 34,200 34,200
Permanent shareholders' investment:
Common stock 1,684 1,680
Additional paid-in capital 6,395 6,056
Retained earnings 51,962 50,001
Accumulated other comprehensive income (loss) 894 (330)
Stock conversion program (207) (259)
------- -------
60,728 57,148
------- -------
$105,945 $102,884
======= =======
The accompanying notes are an integral part of these statements.
3
X-RITE, INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF INCOME
(in thousands, except
per share data)
Three Months Ended Six Months Ended
---------------------- ----------------------
June 28, June 29, June 28, June 29,
2003 2002 2003 2002
------ ------ ------ ------
Net sales $28,197 $24,401 $51,822 $45,357
Cost of sales 10,551 8,864 18,955 17,536
------ ------ ------ ------
Gross profit 17,646 15,537 32,867 27,821
Operating expenses:
Selling and marketing 7,145 7,089 14,356 12,823
General and administrative 4,466 3,594 7,818 7,257
Research, development and engineering 3,472 3,253 6,570 6,464
------ ------ ------ ------
15,083 13,936 28,744 26,544
------ ------ ------ ------
Operating income 2,563 1,601 4,123 1,277
Other income (expense) 308 (131) 348 (139)
Write down of other investments, net (106) (6,566) (246) (6,566)
------ ------ ------ ------
Income (loss) before income taxes 2,765 (5,096) 4,225 (5,428)
Income taxes 804 392 1,252 319
------ ------ ------ ------
Income (loss) before cumulative effect
of change in accounting principle 1,961 (5,488) 2,973 (5,747)
Cumulative effect of change in accounting
principle - - - (7,615)
------ ------ ------ ------
Net income (loss) $ 1,961 $(5,488) $ 2,973 $(13,362)
====== ====== ====== ======
Earnings (loss) per share, basic and diluted $.10 $(.27) $.15 $(.66)
=== ==== === ===
Cash dividends per share $.025 $.025 $.050 $.050
==== ==== ==== ====
The accompanying notes are an integral part of these statements.
4
X-RITE, INCORPORATED
AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(in thousands)
Six Months Ended
-----------------------
June 28, June 29,
2003 2002
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES: $ 5,106 $ 7,755
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of short-term investments 7,234 11,162
Proceeds from maturities of short-term investments 30 605
Purchases of short-term investments (570) -
Capital expenditures (1,611) (1,305)
Investment in founders life insurance, net (4,127) (3,102)
Acquisitions (2,007) -
Purchases of other assets (1,052) (863)
Purchases of other investments - (1,692)
Other investing activities (33) 38
------- -------
Net cash and cash equivalents provided by (used for) investing activities (2,136) 4,843
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (1,012) (1,011)
Issuance of common stock 238 265
Purchase of common stock - (11,286)
------- -------
Net cash and cash equivalents used for financing activities (774) (12,032)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND
CASH EQUIVALENTS 342 104
------- -------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,538 670
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 10,100 9,164
------- -------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $12,638 $ 9,834
======= =======
The accompanying notes are an integral part of these statements.
5
X-RITE, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The condensed consolidated financial statements included herein have been prepared by X-Rite Incorporated (“X-Rite” or the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the consolidated financial statements and notes thereto included in X-Rite’s 2002 annual report on Form 10-K.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to present fairly the financial position of the Company as of June 28, 2003 and the results of its operations and its cash flows for the three and six month periods ended June 28, 2003 and June 29, 2002. All such adjustments are of a normal and recurring nature. Certain prior year information has been reclassified to conform to current year presentation.
In December 2002, the Financial Accounting Standards Board (FASB) issued Financial Accounting Standards Board Statement (SFAS) No. 148, Accounting for Stock-Based Compensation –Transition and Disclosure – an amendment to FASB Statement No. 123. SFAS No. 148 amends SFAS No.123, Accounting for Stock-Based Compensation to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock based employee compensation and requires disclosure in interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company does not intend to adopt a fair value based method of accounting for stock based employee compensation and will continue to use Accounting Principles Board (APB) Opinion No. 25.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Statement 150 generally requires liability classification for classes of financial instruments that represent, or are indexed to, an obligation to buy back the issuer’s shares, or obligations that can be settled in shares but meet one of the following conditions a) derive their value predominately from some other underlying measure, b) have a fixed value or c) have a value to the counterparty that moves in opposite direction to the issuer’s shares. Many of the financial instruments within the scope of Statement 150 were previously classified by the issuer as equity or temporary equity. Upon adoption, this Statement will require the Company to reclassify its temporary shareholders’ investment related to the Founders Shares Redemption program (see Note 11) to a long term liability. The underlying shares in the program will remain as a component of the calculation of basic and diluted earnings per share. In addition, future changes in the valuation of the liability, as well as dividend payments on the program shares will be classified as interest expense. The Company is required to adopt the Statement beginning with the third quarter of 2003.
In January 2003, the FASB issued interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN 46). The new rule requires that companies consolidate a variable interest entity if the company is subject to a majority of the risk of loss from the variable interest entity’s activities, or is entitled to receive a majority of the entity’s residual returns or both. The provisions of FIN 46 apply currently to variable interest entities created after January 31, 2003, and for the first fiscal year or interim period beginning after June 15,2003 for variable interest entities in which an enterprise holds a variable interest that is acquired on or before January 31, 2003 The Company is required to adopt the provisions of FIN 46 beginning with the third quarter of 2003, and is currently evaluating the expected impact on its consolidated financial statements, primarily as it relates to XR Ventures.
The Company classifies all of its short-term investments as available for sale securities. Such short term investments consist primarily of United States federal agency securities, state and municipal securities, mutual funds, corporate bonds and preferred stocks which are stated at market value, with unrealized gains and losses on such securities reflected net of tax, as other comprehensive income (loss) in shareholders’ equity. Realized gains and losses are included in earnings and are derived using the specific identification method for determining the cost of the securities. It is the Company’s intent to maintain a liquid portfolio to take advantage of investment opportunities; therefore all securities are considered to be available-for-sale and are classified as current assets. The Company’s short-term investments are generally due on demand with no set maturity.
6
X-RITE, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)
The carrying amount of the Company’s investments is shown in the table below (in thousands):
June 28, 2003 December 28, 2002
------------------- -------------------
Market Market
Cost Value Cost Value
------ ------ ------ ------
Investments
State and municipal securities 70 70 5,515 5,515
Mutual funds 1,530 925 1,530 839
Corporate bonds - - 100 102
Preferred stocks 10 10 1,117 982
------ ------ ------ ------
1,610 1,005 8,262 7,438
Allowance for unrealized losses (605) - (824) -
------ ------ ------ ------
Total $1,005 $1,005 $7,438 $7,438
====== ====== ====== ======
Inventories consisted of the following (in thousands):
June 28, December 28,
2003 2002
------- ---------
Raw materials $ 5,485 $ 4,564
Work in process 3,200 3,908
Finished goods 6,365 5,608
------- -------
Total $15,050 $14,080
======= =======
Included in other noncurrent assets in 2003 and 2002 is $3.3 and $3.2 million respectively, related to investments made by the Company’s strategic venture capital group, XR Ventures, LLC (XRV). The Company funds acquisitions made by XRV 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. During 2002, the Company performed a comprehensive assessment of the continuing value of each XRV investment and concluded that the value of certain investments had been permanently impaired, and any related tax benefit on the write downs may not be realizable at that time. Therefore, it recorded a charge of $6.6 million writing the investments down against second quarter results.
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets effective December 30, 2001. SFAS No. 142 requires companies to discontinue amortizing goodwill and certain intangible assets with indefinite lives. Instead, companies are required to review goodwill and intangible assets with indefinite useful lives for impairment at least annually or more frequently if indicators of impairment occur. During 2002, the Company completed steps one and two of the transitional testing required by SFAS No. 142, as well as the annual impairment testing requirement. Step two testing was completed with the assistance of an independent valuation firm during the fourth quarter of 2002.
Under SFAS No.142, goodwill impairment exists if the net book value of a reporting unit exceeds its estimated fair value. The Company evaluated goodwill using three reporting units, Labsphere and Optronik combined, Coherix, and X-Rite Mediterranee.
Upon completion of the step two transitional testing for the Labsphere and Optronik combined reporting unit, it was determined that an impairment of goodwill had occurred, therefore, a non-cash charge of $7.6 million, or 38 cents per share was recorded and classified as a cumulative effect of change in accounting principle as required by SFAS No. 142 in the first quarter of 2002. This charge was not tax benefited due to the majority of the underlying goodwill not previously being deductible. The decline in fair value of the Labsphere and Optronik reporting unit is primarily attributable to a decline in revenue and profitability for the unit. This decline has led to a reduction in the three to five year projection of operating earnings for the unit. The fair value of the remaining reporting units exceeded their net book value; therefore, no impairment charges were recorded for these units.
7
X-RITE, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)
In calculating the impairment charge, the fair value of the reporting unit was determined by using a discounted cash flow analysis. This methodology was selected over the market value approach due to a lack of comparable competitor data availability, which is necessary to complete a market value study.
In the April 2003, X-Rite Ltd. recorded $1.1 million of goodwill in connection with its acquisition of the ccDot meter product line of Centurfax Ltd. for $1.5 million (see Note 10).
A summary of changes in goodwill by reporting unit during the six months ended June 28, 2003, consisted of the following (in thousands):
Foreign
December 28, Currency June 28,
2002 Acquisitions Adjustments 2003
------------ ------------ ----------- --------
Coherix $1,941 $ - $ - $1,941
X-Rite, Mediterranee 194 - 19 213
X-Rite, Ltd. - 1,108 - 1,108
------ ------ ------ ------
Total $2,135 $1,108 $ 19 $3,262
====== ====== ====== ======
At June 28, 2003, other intangible assets consisting of patents, trademarks and covenants totaled $0.8 million, with accumulated amortization of $0.1 million. Amortization expense for other intangible assets in 2003 and five succeeding years is not significant.
In accordance with SFAS No. 123, Accounting for Stock Based Compensation, the Company has elected to account for stock- based compensation under APB Opinion No. 25 Accounting for Stock Issued to Employees.
The Company sets the exercise price of stock options granted equal to the market close on the date prior to the grant date; therefore, in accordance with APB Opinion No. 25 no compensation expense is recorded.
The fair value of employee and outside director stock options has been estimated using the Black Scholes option-pricing model, as required under accounting principles generally accepted in the United States. The Black Scholes model is a trading option-pricing model that neither considers the non-traded nature of employee stock options, nor the restrictions on trading, lack of transferability or the ability of employees to forfeit the options prior to expiration. If the model adequately permitted consideration of these unique characteristics, the resulting estimate of the fair value of X-Rite’s stock options could be different.
The following table summarizes the Company’s results as if it had recorded compensation expense for the 2003 and 2002 options grants: (in thousands)
Three Months Ended Six Months Ended
------------------------ ------------------------
June 28, June 29, June 28, June 29,
Net income (loss) 2003 2002 2003 2002
------ ------ ------ ------
As reported $1,961 $(5,488) $2,973 $(13,362)
Deduct: Compensation expense-fair value method (165) (85) (245) (147)
------ ------ ------ ------
Pro forma net income (loss) $ 1,796 $(5,573) $ 2,728 $(13,509)
====== ====== ====== ======
Basic and diluted net earnings (loss) per share:
As reported $.10 $(.27) $.15 $(.66)
Pro forma $.09 $(.28) $.13 $(.67)
8
X-RITE, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)
Basic earnings per share (“EPS”) is computed by dividing net income by the weighted-average number of common shares outstanding in each quarter. Diluted EPS is computed by dividing net income by the weighted-average number of common shares outstanding plus all shares that would have been outstanding if every potentially dilutive common share had been issued. The following table reconciles the numerators and denominators used in the calculations of basic and diluted EPS for each period presented in the accompanying financial statements:
(in thousands, except for share Three Months Ended Six Months Ended
----------------------- -----------------------
and per share data) June 28, June 29, June 28, June 29,
2003 2002 2003 2002
-------- -------- -------- --------
Numerators:
Net income (loss) numerators for
both basic and diluted EPS $1,961 $(5,488) $2,973 $(13,362)
====== ======== ====== =========
Denominators:
Denominators for basic EPS
Weighted-average common
shares outstanding 20,250,200 20,208,228 20,240,703 20,203,304
Potentially dilutive shares
Shares subject to redemption agreements - - 179,825 -
Stock options 131,765 - 82,234 -
---------- ---------- ---------- ----------
Denominators for diluted EPS 20,381,965 20,208,228 20,502,762 20,203,304
========== ========== ========== ==========
Certain shares subject to redemption agreements (see Note 11) were considered dilutive in 2003. Also in 2003, certain exercisable stock options were not included in the computation of diluted EPS because the option prices were greater than the average market prices in each quarter. The number of stock options not included in the computation of diluted EPS and the range of exercise prices was 1,013,200 and $7.38 — $19.50. In 2002 the Company incurred a loss; therefore, a dilutive share calculation is not presented because to do so would have an anti-dilutive effect on earnings per share. Had the Company not recorded a loss, the number of stock options not included in the computation of diluted EPS and the range of exercise prices would have been 1,324,400 and $7.56 — $19.50 respectively.
Comprehensive income (loss) consisted of net income (loss), foreign currency translation adjustments and unrealized loss on short-term investments. Comprehensive income (loss) was $2.9 and $4.2 million for the three and six month periods ended June 28, 2003; and ($4.1 million) and ($12.1 million) for the three and six month periods ended June 29, 2002.
In March 2003, the Company acquired the ColoRx(R)spectrophotometer product line and related assets of Thermo Electron Corporation for $0.5 million. The Company will assume service and support for the current installed base of ColoRx as part of the transaction. In an event related to this transaction, the Company entered into a five-year agreement with Benjamin Moore & Co. to be the preferred provider of color management solutions to Benjamin Moore authorized dealers. Prior to the acquisition, Thermo Electron was the preferred provider of color measurement equipment to Benjamin Moore & Co.
In April 2003, the Company acquired the ccDot meter product line of Centurfax Ltd. for $1.5 million, including all intellectual property and related software for the products. Centurfax Ltd. is a London based company that develops and distributes products serving the pre-press and printing industries. The acquired products consist of quality control instruments that ensure accurate measurement of film, offset litho plates and digital proofing solutions.
During 1998 the Company entered into agreements with its founding shareholders for the future repurchase of 4.5 million shares of the Company’s outstanding stock. The stock purchases will occur following the later of the death of each founder and his spouse. 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, although the discounted price may not be less than $10 per share (a total of $45.4 million) or more than $25 per share (a total of $113.5 million). The cost of the purchase agreements will be funded by $160.0 million of proceeds from life insurance policies the Company has purchased on the lives of certain of these individuals.
9
X-RITE, INCORPORATED
AND SUBSIDIARIES
NOTES TO CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS — Continued
(Unaudited)
The Company anticipates that 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 $160.0 million level in order to cover both the maximum aggregate purchase price and anticipated borrowing costs.
The Company purchased 1,120,000 shares at $10 per share or $11.2 million under the terms of the agreement in January 2002. This founder was not insured; therefore, as anticipated at the time the agreement was entered into, the Company funded this obligation with cash and short-term investments.
The remaining shares subject to the agreements have been classified on the balance sheet as temporary equity. The classification of $34.2 million was determined by multiplying the applicable shares by the minimum purchase 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 June 28, 2003 and December 28, 2002, respectively was less than $10.
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (see Note 2). Upon adoption, this Statement will require the Company to reclassify the temporary shareholders’ investment account related to the Founders Shares Redemption program to a long term liability. In addition, future changes in the valuation of the liability, as well as dividend payments on the program shares will be classified as interest expense. The Company is required to adopt the Statement beginning with the third quarter of 2003.
On February 19, 2002, Ivoclar Vivadent, Inc. and Shade Analyzing Technologies, Inc. sued the Company in U.S. District Court for the Western District of New York, alleging infringement of certain U.S. patents by the Company’s ShadeVision(TM)system. In August 2003, the Company entered into a confidential settlement agreement with the plaintiffs under which the Company has a worldwide license to use the patented technology. Management believes the resolution of this matter does not have a material adverse effect on the Company’s consolidated financial statements.
The Company is also involved in other legal proceedings, legal actions and claims arising in the normal course of business, including proceedings related to product, labor and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. The Company records amounts for losses that are deemed probable and subject to reasonable estimate. The Company does not believe that the ultimate resolution of these matters will have a material adverse effect on its consolidated financial statements.
Pursuant to a standby letter of credit agreement, the Company has provided a financial guarantee to a third party on behalf of its subsidiary located in England. The term of the letter of credit is one year, with an automatic renewal provision at the grantor’s discretion. The face amount of the agreement is 130,000 British Pounds Sterling or approximately $0.2 million at June 28, 2003.
The Company’s product warranty reserves and operating lease commitments are not significant.
In November of 2001, the Company’s Board of Directors adopted a Shareholder Protection Rights Plan (“Plan”), which was implemented in the first quarter of 2002. The Plan is designed to protect shareholders against unsolicited attempts to acquire control of the Company in a manner that does not offer a fair price to all shareholders.
Under the Plan, one purchase right automatically trades with each share of the Company’s common stock. Each Right entitles a shareholder to purchase 1/100 of a share of junior participating preferred stock at a price of $30, if any person or group attempts certain hostile takeover tactics toward the Company. Under certain hostile circumstances, each Right may entitle the holder to purchase the Company’s common stock at one-half its market value or to purchase the securities of any acquiring entity at one-half their market value. Rights are subject to redemption by the Company at $.005 per Right and, unless earlier redeemed, will expire in the first quarter of 2012. Rights beneficially owned by holders of 15 percent or more of the Company’s common stock, or their transferees and affiliates, automatically become void.
10
| Item 2. | Management’s Discussion
and Analysis of Financial Condition and Results of Operations |
The following management’s discussion and analysis describes the principal factors affecting the results of operations, liquidity and capital resources of X-Rite, Incorporated (also referred to as “X-Rite” and “the Company”). This discussion should be read in conjunction with the accompanying condensed financial statements which include additional information about the Company’s significant accounting policies and practices that underlie its financial results.
Continuing strength in the core color measurement lines helped the Company record sales of $28.2 million for the second quarter of 2003 a 15.6 percent increase over second quarter 2002 sales of $24.4 million. Quarter over quarter gains were achieved in the Graphic Arts, Color and Appearance and Labsphere product lines, while the Bio Diagnostic sales remained flat. Year to date sales were $51.8 million for 2003, a 14.1 percent increase, over 2002 sales of $45.4 million.
Both quarterly and year to date sales have increased in the principal geographic regions the Company serves. Sales to Asia Pacific and Europe grew 40.4 and 30.7 percent respectively for the second quarter of 2003, as compared to the same quarter of 2002. On a year to date basis, sales to Asia Pacific and Europe grew 32.5 and 21.7 percent respectively compared to the same period in the previous year. Sales in the more established North American market grew 4.1 and 6.9 percent on a quarterly and year to date basis respectively as compared to the same periods in 2002.
Sales in the Graphic Arts product lines were $12.3 million for the second quarter of 2003, compared to $10.0 million for the second quarter of 2002, an increase of 23.0 percent. On a year to date basis sales in the Graphic Arts product lines were $23.5 and $18.6 million for 2003 and 2002, respectively. Sales increases were achieved in Graphic Arts primary components, printing and imaging, on both a quarterly and year to date basis. Printing sales increased 18.5 and 19.3 percent, respectively for the second quarter and year to date 2003, as compared to the same time periods in 2002. Imaging sales were up 26.5 and 33.7 percent on a quarterly and annual basis in 2003 as compared to 2002.
Color and Appearance product sales also increased on both a quarterly and annual basis in 2003, as compared to the same periods in 2002. Quarterly sales in the second quarter of 2003 were $11.1 million compared to $10.0 million for the second quarter of 2002, an increase of 11.0 percent. Year to date sales were $19.6 million for 2003, compared to $18.1 million for 2002, an increase of 8.3 percent. Color and Appearance products are sold to both the industrial coatings and retail home improvement markets. Both markets have recorded sales gains in 2003 as compared to 2002. Industrial coatings sales have increased 9.8 and 10.3 percent on a quarterly and year to date basis for 2003, as compared to the same periods in 2002. Retail product sales have increased 13.0 and 4.6 percent respectively, for the quarter and year to date in 2003 as compared to the same periods in 2002.
Bio-Diagnostic sales were flat for the second quarter of 2003 as compared to 2002. Year to date sales for Bio-Diagnostic products were $3.8 million, compared to $3.2 million for the same period in 2002, an increase of 16.9 percent.
Labsphere, which represents the Company’s light measurement business, recorded sales of $2.9 million for the second quarter of 2003, as compared to second quarter 2002 sales of $2.5 million, an increase of 16.0 percent. Year to date sales were $4.9 million as compared to 2002 sales in the same period of $5.4 million, a decrease of 9.2 percent. This decrease was driven primarily by continued softness in the lighting and telecommunication industries.
Sales from the Coherix and Optronik businesses which were acquired in 2000 had a nominal impact on consolidated sales in 2003.
Gross profit as a percentage of sales was 62.6 and 63.4 percent for the second quarter and year to date 2003 respectively. Comparable period gross profit percentages for 2002 were 63.7 and 61.3 percent respectively. The year to date gross profit percentages have benefited from higher overhead absorption rates due to increased sales volumes and a weaker dollar.
Selling and marketing expenses were flat in the second quarter of 2003 as compared to 2002. Year to date, selling and marketing expenses were $14.4 million, a 12.5 percent increase over 2002 selling and marketing expenses of $12.8 million. The increase was due to expansion of the sales force for the Bio-Diagnostic product line and in the Asia Pacific region, increased commission costs, higher health care costs and the effects of a weaker dollar in Europe.
11
| Item 2. | Management’s Discussion
and Analysis of Financial Condition and Results of Operations — continued |
General and administrative expenses were $4.5 million for the second quarter of 2003, compared to $3.6 million for the second quarter of 2002, an increase of 25.0 percent. On a year to date basis general and administrative expenses were $7.8 million compared to $7.3 million in 2002, an increase of 6.9 percent. The increases are attributable to wage and benefit costs and the effect of a weaker dollar in Europe. These increases were partially offset by a release payment of $1.0 million received in the first quarter of 2003 in connection with the renegotiation of a customer supply agreement.
Research, development and engineering (RD&E) expenses have shown slight increases for both the quarter and year to date 2003, as compared to the same periods in 2002. RD&E costs were $3.5 and $6.6 million for the second quarter and year to date respectively, in 2003, compared to $3.3 and $6.5 million respectively, for the same periods in 2002. As a percentage the increases were 6.1 and 1.5 percent for the quarter and year to date respectively. The RD&E operating costs have reduced on both a quarter and year to date basis in 2003 due to reduced headcount at Labsphere and consolidation of facilities.
Other income consists of investment income and gains and losses from foreign exchange. The Company’s investment portfolio consists of short term tax exempt bonds, mutual funds and corporate securities.
For the first six months of 2003 the Company recorded other income of $0.3 million, compared to a loss of $0.1 million for the same period of 2002. The year over year increase is attributable to currency exchange gains generated by the foreign sales offices in response to a weakening U.S. dollar.
Included in other investments in 2003 and 2002, is $3.3 and $3.2 million respectively related to investments made by the Company’s strategic venture capital group, XR Ventures, LLC. (XRV) Since the Company does not exercise significant influence over the operating and financial policies of each 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 cost has occurred. If the decline is determined to be other than temporary, the carrying value is adjusted to the current fair value and a loss is recognized.
In the second quarter of 2003 XRV provided a working capital advance of $0.1 million to a company in which it had previously invested and subsequently expensed that investment. This funding was intended to provide the investee operating cash for a period of time while it sought new sources of investment capital. The investee has not been successful in securing new capital and upon further analysis, this investment was deemed to be impaired and the appropriate charge taken.
During the first quarter of 2003 the Company established a reserve of $0.3 million for a non trade bad debt which was offset in part by a recovery of $0.2 on an XRV investment.
During the second quarter of 2002 the Company performed a comprehensive assessment of the continuing value of each XR Venture investment. Based on the continued erosion of the venture capital markets and the network middleware and tele/data communications sectors of the economy during the quarter, the Company concluded that the value of certain of these investments had been permanently impaired, and any related tax benefit on the write downs may not be realizable at this time. Therefore, it recorded a charge of $6.6 million to write the investments down in that quarter.
At June 28, 2003, the Company had four venture capital investments for which impairment charges have not been recorded. These companies are focused in the medical diagnostic device, computer software, chemical compound and data communications industries.
The Company recorded a tax provision of $0.8 and $1.3 million for the quarter and year to date respectively in 2003, against pre tax income of $2.8 and $4.2 million. The effective tax rate was 29.0 and 29.6 percent for the quarter and year to date respectively, compared to the U.S. statutory rate of 35 percent. The rate benefited from tax reductions received as a result of the Company’s foreign sales operations.
In 2002, the Company recorded a tax provision of $0.4 and $0.3 million for the quarter and year to date respectively, against pre tax losses of $5.1 and $5.4 million. The provision for income taxes was negatively impacted by the potentially non deductible capital losses related to the write down of investments by XR Ventures LLC. Exclusive of these write downs the Company would have had approximately a 28 percent tax rate in 2002.
12
| Item 2. | Management’s Discussion
and Analysis of Financial Condition and Results of Operations — continued |
The Company adopted SFAS No. 142, Goodwill and Other Intangible Assets effective December 30, 2001. SFAS No. 142 requires companies to discontinue amortizing goodwill and certain intangible assets with an indefinite life. Instead, companies are required to review goodwill and intangible assets with an indefinite useful life for impairment at least annually or more frequently if indicators of impairment occur. During 2002, the Company completed steps one and two of the transitional testing required by SFAS No. 142 as well as the annual impairment testing requirement. Step two testing was completed with the assistance of an independent valuation firm during the fourth quarter of 2002.
Under SFAS No.142, goodwill impairment exists if the net book value of a reporting unit exceeds its estimated fair value. The Company evaluated goodwill using three reporting units, Labsphere and Optronik combined, Coherix, and X-Rite Mediterranee.
Upon completion of the step two transitional testing for the Labsphere and Optronik combined reporting unit, it was determined that an impairment of goodwill had occurred, therefore a non cash charge of $7.6 million, or 38 cents per share was recorded and classified as a cumulative effect of change in accounting principle as required by SFAS No. 142 in the first quarter of 2002. This charge was not tax benefited due to the majority of the underlying goodwill not previously being deductible. The decline in fair value of the Labsphere and Optronik reporting unit is primarily attributable to a decline in revenue and profitability for the unit. This decline has led to a reduction in the three to five year projection of operating earnings for the unit. The fair value of the remaining reporting units exceeded their net book value; therefore, no impairment charges were recorded for these units. In calculating the impairment charge, the fair value of the reporting unit was determined by using a discounted cash flow analysis. This methodology was selected over the market value approach, due to a lack of comparable competitor data availability, which is necessary to complete a market value study.
The Company recorded net income of $2.0 and $3.0 million for the second quarter and year to date respectively in 2003. For the comparable periods in 2002, the Company recorded net losses of $5.5 and $13.4 million respectively. On a per share basis, the 2003 fully diluted net income per share was $.10 and $.15 for the second quarter and year to date respectively. In 2002, net loss per share was $.27 and $.66 for the second quarter and year to date respectively in such prior periods.
The average number of common shares outstanding was approximately the same for both years. The average number of common stock equivalents was slightly higher in 2003. Common stock equivalent calculations were not presented for 2002 due to the anti-dilutive effect they have on earnings per share calculations when there is a net loss.
Cash from operations for the first six months of 2003 was $5.1 million, compared to $7.8 million for the comparable period in 2002. Net income was the principal source of cash from operations in 2003. Federal income taxes recoverable were the largest source of funds in 2002. Included in the net income in 2003, and net loss in 2002, were certain accounting charges that did not require the use of cash. The most significant non cash expense in 2003, was depreciation and amortization charges of $2.8 million. During the first six months of 2002 the largest non-cash accounting charge, was $6.6 million, related to the write down of other investments. Depreciation and amortization charges for the first two quarters of 2002 were $2.9 million.
At June 28, 2003 the Company had cash and cash equivalents of $12.6 million, compared to $10.1 million at June 28, 2002.
The most significant investing activity year to date in 2003 was the disposition of $7.2 million of short term investments. These funds were used for acquisition activity as well the payment of $4.3 million of life insurance premiums in connection with the founders share redemption program. During the first six months of 2002 the largest investment activity was the disposition of $11.2 million of short term investments. These funds were used to repurchase shares of outstanding common stock under the Company’s founders stock redemption program. During the first six months of 2002 other investing activities include the payment of $4.3 million of life insurance in connection with the founders share redemption program, and $1.2 million of investments made by XR Ventures, LLC, the Company’s strategic venture investment group.
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 29, 2001. 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 reflects a 10 percent discount from the market price, although the discounted price may not be less than $10 per share (a total of $45.4 million) or more than $25 per share (a total of $113.5 million).
The Company purchased 1.12 million shares at $10 per share or $11.2 million under the terms of the agreement in January 2002. This founder was not insured; therefore, as anticipated at the time the agreement was entered into, the Company funded this obligation with cash and short-term investments. At June 28, 2003 there were 3.42 million founder’s shares remaining under the agreement, or 16.9 percent of the Company’s outstanding stock.
13
| Item 2. | Management’s Discussion
and Analysis of Financial Condition and Results of Operations — continued |
In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Statement 150 generally requires liability classification for classes of financial instruments that represent, or are indexed to, an obligation to buy back the issuer’s shares, or obligations that can be settled in shares but meet one of the following conditions a) derive their value predominately from some other underlying measure, b) have a fixed value or c) have a value to the counterparty that moves in opposite direction to the issuer’s shares. Many of the financial instruments within the scope of Statement 150 were previously classified by the issuer as equity or temporary equity. Upon adoption, this Statement will require the Company to reclassify its temporary shareholders’ investment account related to the Founders Shares Redemption program to a long term liability.
The underlying shares in the program will remain as a component of the calculation of basic and diluted earnings per share. In addition, future changes in the valuation of the liability, as well as dividend payments on the program shares will be classified as interest expense. The Company is required to adopt the Statement beginning with the third quarter of 2003.
Capital expenditures in the first six months of 2003 totaled $1.6 million and consisted mainly of machinery, equipment and computer hardware and software. The Company currently anticipates capital expenditures for the remainder of 2003 will be approximately $1.9 million and will consist principally of machinery, equipment, and computer hardware and software.
In August 2003, the Company entered into a confidential settlement agreement with Ivoclar Vivadent, Inc. and Shade Analyzing Technologies, Inc. in connection with a patent infringement claim originally filed in February 2002. The agreement grants the Company a worldwide license to use the patented technology. Management believes the resolution of this matter does not have a material adverse effect on the Company’s consolidated financial statements.
Dividends of $1.0 million were paid during the first two quarters of 2003, which is equal to an annual rate of $.10 cents per share. The Board of Directors intends to continue paying dividends at this rate for the foreseeable future. Management expects that X-Rite’s current liquidity, combined with cash flow from future operations and the Company’s $20 million revolving credit agreement, will be sufficient to finance the Company’s operations, life insurance premiums, capital expenditures common stock repurchases and dividends for the next year and foreseeable future. In the event more funds are required, additional short or long-term borrowing arrangements are the most likely alternatives for meeting liquidity and capital resource needs.
In March 2003, the Company acquired the ColoRx(R)spectrophotometer product line and related assets of Thermo Electron Corporation for $0.5 million. The Company will assume service and support for the current installed base of ColoRx as part of the transaction. In an event related to this transaction, the Company entered into a five-year agreement with Benjamin Moore & Co. to be the preferred provider of color management solutions to Benjamin Moore authorized dealers. Prior to the acquisition, Thermo Electron was the preferred provider of color measurement equipment to Benjamin Moore & Co.
In April 2003, the Company acquired the ccDot meter product line of Centurfax Ltd. for $1.5 million, including all intellectual property and related software for the products. Centurfax Ltd. is a London based company that develops and distributes products serving the pre-press and printing industries. The acquired products consist of quality control instruments that ensure accurate measurement of film, offset litho plates and digital proofing solutions.
In July 2003, the Company acquired the assets of Monaco Systems Incorporated of Andover, Massachusetts for $10.6 million. Monaco Systems is a leading developer of color management software to the graphic arts and photographic markets. The purchase price was comprised of a combination of cash and stock, a portion of which is subject to vesting requirements. The cash portion of the transaction was funded from the Company’s operating funds and short term investments. Assets acquired in the purchase include the entire Monaco line of color management products, all intellectual property and operating assets.
For the year ended December 31, 2002, Monaco Systems recorded sales and operating income (unaudited) of $4.4 and $0.7 million respectively. Total assets at December 31, 2002 were $1.1 million (unaudited).
The preparation of financial statements in accordance with generally accepted accounting principles in the United States requires management to adopt accounting policies and make significant judgments and estimates to develop amounts reflected and disclosed in the financial statements. In some instances there may be alternative policies or estimation techniques that could be used. Management maintains a thorough process to review the application of accounting policies and to evaluate the appropriateness of the many estimates that are required to prepare the financial statements. However, even under optimal circumstances, estimates routinely require adjustment based on changing circumstances and the receipt of new or better information.
Management has discussed the development and selection of the Company’s accounting policies with the Audit Committee of the Board of Directors. There has been no material changes in estimates or policies during the six months ended June 28, 2003.
14
| Item 2. | Management’s Discussion
and Analysis of Financial Condition and Results of Operations — continued |
This discussion and analysis of financial condition and results of operations, as well as other sections of our Form 10-Q, 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. Forward-looking statements include, but are not limited to statements concerning liquidity, capital resource needs, tax rates, dividends and potential new markets.
The Company is exposed to a variety of risks including foreign currency exchange fluctuations, and market volatility in its investment and insurance portfolios. In the normal course of business the Company employs established procedures to evaluate its risks and take corrective actions when necessary to manage these exposures. The Company is not a party to any derivative instruments
During the first six months of 2003, there were no material changes in foreign exchange risk or the founders stock redemption program.
As of the end of the period covered by this report an evaluation was performed under the supervision and with the participation of the Company’s management, including the President and CFO, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Company’s management, including the President and CFO, concluded that the Company’s disclosure controls and procedures were effective as of June 28, 2003. There have been no significant changes in the Company’s internal controls over financial reporting or in other factors that could significantly affect internal controls over financial reporting subsequent to June 28, 2003.
15
Item 1 Legal Proceedings--None
Item 2 Changes in Securities and Use of Proceeds--None
Item 3 Defaults Upon Senior Securities - --None
Item 4 Submission of Matters to a vote of Security Holders--
At the Annual Meeting of Shareholders on May 19, 2003, X-Rite's shareholders voted on the following matters:
1. Election of the following directors to three year terms expiring in 2006.
| Affirmative | Votes | Broker | |
| Votes |
Withheld | Non-votes | |
| Paul R. Sylvester | 15,869,010 | 2,825,727 | -0- |
| Mark D. Weishaar | 15,871,492 | 2,826,895 | -0- |
Company directors Dr. Peter M. Banks, and Ronald A. VandenBerg (whose terms expire in 2004); and Stanley W. Cheff, James A. Knister and John E. Utley (whose terms expire in 2005) continued as directors of the Company following the annual meeting.
| Affirmative | Negative | Votes | Broker | ||
|
Votes |
Votes |
Withheld |
Non-votes | ||
| 2. | Proposal to Amend and Restate the Employee Stock Option Plan: | 11,157,720 | 2,741,699 | 54,000 | 4,744,968 |
| 3. | Proposal to Amend and Restate the Outside Director Stock Option Plan: | 10,793,095 | 3,105,449 | 54,875 | 4,744,968 |
Item 5 Other Information — None
Item 6 Exhibits and Reports on Form 8-K
(a) See Exhibit Index on Page 17 of this Form 10-Q report.
(a) See Exhibits 99.1 and 99.2 on Page 17 of this Form 10-Q report.
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.
| Date: August 12, 2003 |
X-RITE, INCORPORATED
By: /s/ Michael C. Ferrara Michael C. Ferrara Its: Chief Executive Officer and President |
| Date: August 12, 2003 |
By: /s/ Mary E. Chowning Mary E. Chowning Its: Vice President and Chief Financial Officer |
16
| 3(a) | Restated Articles of Incorporation (filed as exhibit to Form S-18 dated April 10, 1986 (Registration No. 33-3954C) and
incorporated herein by reference) |
| 3(b) | Certificate of Amendment to Restated Articles of Incorporation adding Article IX (filed as exhibit to Form 10-Q for the
quarter ended June 30, 1987 (Commission File No. 0-14800) and incorporated herein by reference) |
| 3(c) | Certificate of Amendment to Restated Articles of Incorporation amending Article III (filed as exhibit to Form 10-K for the
year ended December 31, 1995 (Commission File No. 0-14800) and incorporated herein by reference) |
| 3(d) | Certificate of Amendment to Restated Articles of Incorporation amending Article IV (filed as exhibit to Form 10-K for the
year ended January 2, 1999 (Commission File No. 0-14800) and incorporated herein by reference) |
| 3(e) | Bylaws, as amended and restated January 20, 1998 (filed as exhibit to Form 10-K for the year ended January 3, 1998
(Commission File No. 0-14800) and incorporated herein by reference) |
| 3(f) | Bylaws, as amended and restated November 18, 1999 (filed as exhibit to Form 10-K for the year ended January 1, 1999
(Commission File No. 0-14800) and incorporated herein by reference) |
| 4(a) | 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) |
| 4(b) | Shareholder Protection Rights Agreement, dated as of March 29, 2002, including as Exhibit A the form of Rights Certificate
and of Election to Exercise, and as Exhibit B the form of Certificate of Adoption of Resolution Designating and Prescribing
Rights, Preferences and Limitations of Junior Participating Preferred Stock of the Company. (filed as exhibit to Form 10-K
for the year ended December 29, 2001 (Commission file No. 0-14800) and incorporated herein by reference |
| 10(a) | X-Rite, Incorporated amended and restated employee stock option plan, effective as of January 26, 2003 (filed as Appendix A
to the definitive proxy statement dated April 11, 2003 relating to the Company's 2003 annual meeting (Commission File No.
0-14800) and incorporated herein by reference) |
| 10(b) | X-Rite, Incorporated amended and restated outside directors stock option plan, effective as of January 26, 2003 (filed as
Appendix B to the definitive proxy statement dated April 11, 2003 relating to the Company's 2003 annual meeting (Commission
File No. 0-14800) and incorporated herein by reference) |
| 31.1 | Certification of the Chief Executive Officer and President of X-Rite, Incorporated pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
| 31.2 | Certification of the Chief Financial Officer of X-Rite, Incorporated pursuant to Section 302 of the Sarbanes-Oxley Act of
2002 (18 U.S.C. 1350). |
| 32.1 | Certificate of the Chief Executive Officer and President of X-Rite, Incorporated pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350). |
| 32.2 | Certificate of the Chief Financial Officer of X-Rite, Incorporated pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350). |
| 99.1 | Notice of press release dated July 2, 2003 announcing the acquisition by the registrant of substantially all of the assets
of Monaco Systems Business Trust (formerly known as Monaco Systems Inc.), and the asset purchase agreement between Monaco
Systems Business Trust, George Adam, the registrant and the registrant's subsidiary company Monaco Acquisition Company dated
July 1, 2003 (filed as exhibit to Form 8-K (Commission File No. 0-14800) and incorporated herein by reference). |
| 99.2 | Notice of press release dated July 17, 2003 announcing the results for the second fiscal quarter of 2003 of X-Rite,
Incorporated (filed as exhibit to Form 8-K (Commission File No. 0-14800) and incorporated herein by reference). |
17
I, Michael C. Ferrara, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of X-Rite, Incorporated;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 12, 2003 |
By: /s/ Michael C. Ferrara Michael C. Ferrara Chief Executive Officer and President |
18
I, Mary E. Chowning, certify that:
(1) I have reviewed this quarterly report on Form 10-Q of X-Rite, Incorporated;
(2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
(3) Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
(4) The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13(a)-15(e) and 15(d)-15(e)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(c) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
(5) The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 12, 2003 |
By: /s/ Mary E. Chowning Mary E. Chowning Vice President and Chief Financial Officer |
19
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):
I, Michael C. Ferrara, Chief Executive Officer and President of X-Rite, Incorporated, certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:
(1) The quarterly report on Form 10-Q for the quarter ending June 28, 2003, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;
(2) The information contained in this quarterly report on Form 10-Q for the quarter ending June 28, 2003 fairly presents, in all material respects, the financial condition and results of operations of X-Rite, Incorporated.
| Date: August 12, 2003 |
X-Rite, Incorporated
By: /s/ Michael C. Ferrara Michael C. Ferrara Its: Chief Executive Officer and President |
A signed original of this written statement required by Section 906, and other written documentation authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to X-Rite, Incorporated and will be retained by X-Rite, Incorporated and furnished to the Securities Exchange Commission or its staff upon request.
20
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350):
I, Mary E. Chowning, Chief Financial Officer of X-Rite, Incorporated, certify, to the best of my knowledge and belief, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) that:
(1) The quarterly report on Form 10-Q for the quarterly period ending June 28, 2003, which this statement accompanies, fully complies with requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and;
(2) The information contained in this quarterly report on Form 10-Q for the quarterly period ending June 28, 2003 fairly presents, in all material respects, the financial condition and results of operations of X-Rite, Incorporated.
| Date: August 12, 2003 |
X-Rite, Incorporated
By: /s/ Mary E. Chowning Mary E. Chowning Its: Vice President and Chief Financial Officer |
A signed original of this written statement required by Section 906, and other written documentation authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to X-Rite, Incorporated and will be retained by X-Rite, Incorporated and furnished to the Securities Exchange Commission or its staff upon request.