<PAGE>
<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
-----------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------- ----------
Commission File No. 0-14800
---------------
X-RITE, INCORPORATED
- ------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Michigan 38-1737300
- ------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3100 44th Street, SW, Grandville, Michigan 49418
- ------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(616) 534-7663
- ------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares outstanding of registrant's common stock, par value
$.10 per share, at April 30, 1996 was 21,024,884 shares.
Exhibit Index on page 11.
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X-RITE, INCORPORATED AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 1996
INDEX
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1996 (Unaudited) and December 31, 1995 3-4
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1996 and 1995 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows - Three
Months Ended March 31, 1996 and 1995 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 8-9
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURES 10
Index to Exhibits 11
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
1996 1995
------------ -----------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 2,601,000 $ 332,000
Short-term investments 5,320,000 4,073,000
Accounts receivable, less allowances of
$582,000 in 1996 and $574,000 in 1995 13,773,000 13,168,000
Inventories 12,687,000 12,835,000
Deferred tax assets 792,000 792,000
Prepaid expenses and other current assets 640,000 683,000
----------- -----------
Total current assets 35,813,000 31,883,000
PROPERTY AND EQUIPMENT, at cost 26,295,000 25,107,000
Less accumulated depreciation (10,413,000) (9,825,000)
----------- -----------
15,882,000 15,282,000
OTHER ASSETS:
Costs in excess of net assets acquired 9,954,000 10,098,000
Other noncurrent assets 6,176,000 6,244,000
----------- -----------
16,130,000 16,342,000
----------- -----------
$67,825,000 $63,507,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
March 31, December 31,
1996 1995
------------ -----------
(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 1,242,000 $ 1,499,000
Accrued liabilities--
Payroll and employee benefits 1,016,000 785,000
Income taxes 2,222,000 286,000
Other accrued liabilities 736,000 1,056,000
----------- -----------
Total current liabilities 5,216,000 3,626,000
DEFERRED INCOME TAXES 611,000 611,000
SHAREHOLDERS' INVESTMENT:
Common stock 2,102,000 2,102,000
Additional paid-in capital 6,355,000 6,388,000
Retained earnings 53,624,000 50,781,000
Cumulative translation adjustment (83,000) (1,000)
----------- -----------
61,998,000 59,270,000
----------- -----------
$67,825,000 $63,507,000
=========== ===========
See accompanying notes to condensed consolidated financial statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
Three Months Ended
March 31,
1996 1995
----------- -----------
Net sales $19,696,000 $17,946,000
Cost of sales 7,097,000 5,431,000
----------- -----------
Gross profit 12,599,000 12,515,000
Operating expenses:
Selling & marketing 3,430,000 3,716,000
Engineering, general & administrative 2,783,000 2,521,000
Research & development 1,392,000 1,475,000
----------- -----------
7,605,000 7,712,000
----------- -----------
Operating income 4,994,000 4,803,000
Other income 72,000 90,000
----------- -----------
Income before income taxes 5,066,000 4,893,000
Income taxes 1,697,000 1,590,000
----------- -----------
NET INCOME $ 3,369,000 $ 3,303,000
=========== ===========
Average number of common and common
equivalent shares outstanding 21,161,000 21,156,000
========== ==========
Earnings per common and
common equivalent share $.16 $.16
==== ====
Cash dividends per share $.025 $.025
===== =====
See accompanying notes to condensed consolidated financial statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Three Months Ended
March 31,
1996 1995
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES $5,522,000 $ 1,562,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 500,000 11,723,000
Proceeds from maturities of investments 200,000 -
Purchases of investments (1,950,000) -
Capital expenditures (1,221,000) (823,000)
Acquisitions, less cash acquired - (11,490,000)
Purchases of other assets (227,000) -
Other investing activities 9,000 -
---------- -----------
Net cash and cash equivalents
used for investing activities (2,689,000) (590,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (526,000) (525,000)
Issuance of common stock - 48,000
Other financing activities (32,000) -
---------- -----------
Net cash and cash equivalents
used for financing activities (558,000) (477,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (6,000) 29,000
---------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,269,000 524,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 332,000 1,171,000
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $2,601,000 $ 1,695,000
========== ===========
See accompanying notes to condensed consolidated financial statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1--BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have been
prepared by X-Rite Incorporated ("X-Rite" or the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures are
adequate to make the information presented not misleading. It is suggested
that these condensed consolidated financial statements be read in
conjunction with the consolidated financial statements and notes thereto
included in X-Rite's 1995 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 March 31, 1996
and the results of its operations and its cash flows for the three month
periods ended March 31, 1996 and 1995. All such adjustments are of a
normal and recurring nature.
Certain reclassifications have been made to prior year operating expenses
to conform with the 1996 presentation.
NOTE 2--INVENTORIES
Inventories consisted of the following:
March 31, December 31,
1996 1995
------------ -----------
Raw materials $ 4,265,000 $ 4,399,000
Work in process 3,628,000 3,523,000
Finished goods 4,794,000 4,913,000
----------- -----------
$12,687,000 $12,835,000
=========== ===========
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Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition
RESULTS OF OPERATIONS
Net Sales:
First quarter 1996 consolidated net sales of $19,696,000 were 9.8% higher
than sales of $17,946,000 in the same quarter a year ago. The improvement
in sales was due to unit volume increases and the inclusion of Labsphere,
Inc. ("Labsphere") sales for a full quarter. Labsphere was acquired by
X-Rite in February of 1995; first quarter consolidated sales that year only
included a portion of Labsphere's sales volume.
Cost of Sales and Gross Profit:
Gross profit as a percentage of sales was 64.0% for the first quarter of
1996, compared to 69.7% for the first quarter of 1995. Product sales mix
unfavorably impacted gross profit margins in the quarter. The inclusion of
Labsphere sales also contributed to the margin decrease; gross profit
margins earned on those products are typically less than margins earned on
X-Rite products.
Operating Expenses:
Selling and marketing expenses decreased 7.7% in the first quarter compared
to the same period in 1995. The decline resulted from reducing certain
advertising and trade show expenses, and making workforce reductions as
part of an overall effort to contain operating expenses.
First quarter engineering, general and administrative ("EG&A") expenses
increased 10.4% compared to the same quarter in the prior year. The
increase was due to EG&A expenses for a full quarter being included from
the Labsphere operations, versus only a partial quarter's costs in the
prior year. The Company has also maintained its continued support of its
international subsidiary operations where management believes the greatest
long-term sales growth opportunities exist.
Research and development expenses in the first quarter decreased slightly
compared with the same period in 1995. X-Rite is committed to continuing
its investments in strategic product development, in addition to containing
costs wherever possible in order to optimize those investments.
Other Income:
Other income consisted mainly of interest earnings from invested funds.
First quarter interest income was less than the comparable period in 1995
due to a reduction in funds available for investment.
-8-
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Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition, continued
RESULTS OF OPERATIONS, continued
Net Income:
The Company recorded net income of $3,369,000 for the three months ended
March 31, 1996 compared to $3,303,000 in the same period of 1995. On a per
share basis, first quarter net income was $.16 in 1996 and 1995. The
average number of common and common equivalent shares outstanding was not
significantly different between the periods.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities in the first quarter of 1996 totaled
$5,522,000. Working capital at March 31, 1996 was $30,597,000 compared to
$28,257,000 at December 31, 1995. The increase was mainly due to net
income earned in the period.
Capital expenditures in the first three months of 1996 totaled $1,221,000
and consisted of computers, software, machinery and equipment. X-Rite
currently anticipates capital expenditures for the remainder of 1996 will
be approximately $1,300,000, and will consist mainly of machinery and
equipment.
Management expects that X-Rite's current liquidity, combined with cash flow
from future operations and the Company's $20 million revolving credit
agreement, will be sufficient to finance the Company's operations, capital
expenditures and dividends for the remainder of 1996 and 1997.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) See Exhibit Index on Page 11 of this Form 10-Q report.
(b) There were no reports on Form 8-K filed by the Registrant
during the three months ended March 31, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
X-RITE, INCORPORATED
May 13, 1996 /s/ Ted Thompson
----------------------
Ted Thompson
Chairman, President and
Chief Executive Officer
May 13, 1996 /s/ Duane F. Kluting
----------------------
Duane F. Kluting
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
- --------------------------------------------------------------------------
3(a) Restated Articles of Incorporation (filed as exhibit to Form
S-18 dated April 10, 1986 (Registration No. 33-3954C) and
incorporated herein by reference)
3(b) Certificate of Amendment to Restated Articles of Incorporation
adding Article IX (filed as exhibit to Form 10-Q for the quarter
ended June 30, 1987 (Commission File No. 0-14800) and
incorporated herein by reference)
3(c) Certificate of Amendment to Restated Articles of Incorporation
amending Article III (filed as exhibit to Form 10-K for the year
ended December 31, 1995 (Commission File No. 0-14800) and
incorporated herein by reference)
3(d) Bylaws, as amended through June 16, 1994 (filed as exhibit to
Form 10-K for the year ended December 31, 1994 (Commission File
No. 0-14800) and incorporated herein by reference)
3(e) First amendment to amended Bylaws amending Article IV (filed as
exhibit to Form 10-K for the year ended December 31, 1995
(Commission File No. 0-14800) and incorporated herein by
reference)
4 X-Rite, Incorporated common stock certificate specimen (filed
as exhibit to Form 10-Q for the quarter ended June 30, 1986
(Commission File No. 0-14800) and incorporated herein by
reference)
The following material contracts identified with "*" preceding the exhibit
number are agreements or compensation plans with or relating to executive
officers, directors or related parties.
*10(a) X-Rite, Incorporated 1993 Outside Director Stock Option Plan
(filed as exhibit to Form S-8 dated July 19, 1994 (Commission
File No. 0-14800) and incorporated herein by reference)
*10(b) Form of Indemnity Contract 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 September
30, 1995 (Commission File No. 0-14800) and incorporated herein
by reference)
*10(c) Employment Resignation and Severance Agreement entered into
between the registrant and Bruce Jorgensen
10(d) Exchange Agreement entered into between the registrant and
Ronald L. Sisson (filed as exhibit to Form 10-K for the year
ended December 31, 1994 (Commission File No. 0-14800) and
incorporated herein by reference)
27 Financial Data Schedule
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<EX-10.c>
Exhibit 10(c)
EMPLOYMENT RESIGNATION AND SEVERANCE AGREEMENT
This Agreement, made this 22nd day of January, 1996, between X-RITE,
INCORPORATED, a Michigan corporation, hereinafter called "Employer," and
BRUCE JORGENSEN, hereinafter called "Employee."
W I T N E S S E T H:
WHEREAS, Employee has been employed by Employer since 1994, most
recently as President and Chief Operating Officer; and
WHEREAS, Employee is subject to termination when the Employer is not
satisfied with his service; and
WHEREAS, Employer and Employee have agreed to terminate their
relationship; and
WHEREAS, Employer and Employee wish to set out the terms of the
severance of that relationship pursuant to which Employee will resign his
position with Employer.
NOW, THEREFORE, IT IS AGREED AS FOLLOWS:
1. Employee is hereby resigning his employment at X-Rite,
Incorporated and his offices at X-Rite Holding Company and his position as
an officer, director or employee of any subsidiary or affiliate of X-Rite
effective January 22, 1996. Employer's employment records will reflect his
resignation; and Employer will provide prospective employers of Employee
with the dates of his employment, the title he held at the time of
resignation and the fact that he resigned.
2. Employer will continue to pay Employee his regular compensation
as payment in lieu of notice of termination through January 31, 1997, or
until his employment by a competitor of Employer, whichever first occurs,
as a settlement. Employee agrees that, irrespective of which first occurs,
he will not compete in any manner with X-Rite prior to February 1, 1997
either as a consultant, employee, contractor, shareholder, partner,
officer, director or agent. Employee will not file for unemployment
compensation and will not be eligible for unemployment compensation
benefits prior to the period commencing after February 1, 1997, if he is
then otherwise eligible for such benefits under the then applicable laws of
the State of Michigan.
3. Employee has been notified of his rights to insurance
continuation under the COBRA laws. The Employer will pay these premiums on
his behalf (and waives the $10 per week charge for dependent coverage), for
up to twelve (12) months, or when he obtains insurance coverage at a new
employer, whichever first occurs. There will be no other benefit accrual
or vacation benefits owing for the year 1996 or thereafter, or any other
benefits of any kind, except as follows:
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<PAGE> 13
a. There will be a normal contribution on behalf of Employee to
his Section 401(k) Plan account as of December 31, 1995, but none
thereafter.
b. Employee's participation in the Employee Stock Purchase Plan
terminates as of January 22, 1996. On January 4, 1994, Employee was
granted a forfeitable stock option for 20,000 shares of X-Rite,
Incorporated Stock. As to this stock option for 20,000 shares and no
others, the Employer agrees that Employee's termination of employment will
be considered to have been the result of retirement with the consent of the
Company so that the option may be exercised at any time within twelve (12)
months after the execution of this Agreement.
c. Any normal and reasonable expenses incurred by Employee in
the course of his employment will be reimbursed provided the required
documentation is received by Employer within one (1) week of the execution
of this Agreement.
d. Employer will pay the fee for an outplacement service for up
to six (6) months at an outplacement service in the Grand Rapids area
selected by Employer.
4. In consideration of the foregoing, Employee releases Employer,
its related companies, employees, agents, officers, and representatives
from any claims he may have against Employer, including any claims arising
under the Federal Age Discrimination in Employment Act of 1967, as amended
(hereinafter "ADEA"). This release shall be immediately effective as to
all claims, other than any claims that Employee may have under the ADEA.
As to any claims under the ADEA, this release will not be effective unless
Employee signs the additional waiver which is attached. Employee will have
up to twenty-one (21) days in which to consider the waiver and hereby
acknowledges being advised to consult with legal counsel prior to executing
the waiver. Employee shall have seven (7) days after the actual execution
of the waiver in which to revoke the waiver, and the waiver shall not
become enforceable until that period has expired. If, however, Employee
fails to sign, or timely revokes the waiver of claims under the ADEA,
Employer may, at its option, revoke this Severance Agreement, or enforce or
abide by the remaining provisions of this Agreement as written. In the
event that this Agreement is revoked by Employer, Employee will be
obligated to return any payment he has received under the terms of this
Agreement from Employer.
5. As a condition to this Agreement, Employee will return, or has
already returned, any and all equipment or property of Employer to Employer
by this date. This includes any and all keys, identifications cards, or
other equipment which he may have in his possession, plus any books,
papers, programs, and records which he may have outside Employer's
premises. The leased car being used by Employee must be returned with its
keys at the end of the lease in July 1996, with Employer continuing the
current insurance and lease payments of $550/month to that time.
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<PAGE> 14
6. This Agreement, with the exception of the attached waiver, must
be signed by February 5, 1996, or Employer will withdraw its offer to be
bound by this Agreement.
7. By agreeing to this Agreement, the parties acknowledge that the
agreement does not constitute an admission of any wrongdoing or
discrimination by Employer against Employee in any fashion for any reason.
8. Employee, his agents, relatives, and heirs release and hold
harmless Employer, its officers, directors, parent organizations, agents,
subsidiaries, employees, attorneys, successors and assigns from any and all
past, present and future claims, legal, administrative, or otherwise which
they have, which are related in any way to his employment by Employer,
whether known or unknown.
9. Employee shall fully indemnify Employer or any other affiliated
individuals or organizations from any charges or claims brought by him or
at his behest (or by any third party on his behalf). This includes all
attorneys fees and expenses incurred in defense therein.
10. The parties agree that the terms and facts of this Agreement
shall be confidential. Employee also agrees not to disclose any
information concerning the terms of this Agreement (except as required by
law) to any agency or person, including but not limited to, past, present
and future employees of Employer, except that he is free to disclose it to
his spouse, his children, his attorney, and/or his tax consultant.
Additionally, Employee (and his agents) agree to keep confidential (and not
disclose) any aspects of his relationship with Employer which involved his
review of proprietary and/or confidential information of Employer,
including any Trade Secrets. The parties agree not to make any derogatory
statements to others regarding each other, including Employer's officers,
employees, parent organizations or affiliates. The parties acknowledge
that failure to adhere to this Agreement will afford the other party an
action to seek any damages authorized in law/or equity. In the event of
breach by Employee, the action, if it is brought, will be filed in the
Circuit Court for Kent County, Michigan. Employee agrees to jurisdiction
of said Court as to his person and the subject matter of that dispute.
11. Employee and his respective agents represent and warrant that no
person or government agency, or any other body, is entitled to assert any
claim based on or arising out of any wrongful treatment of Employee,
including any and all claims for damages resulting as a consequence
thereof, and that this Agreement may be pled by Employer as a complete
defense to the past, present or future claim or entitlement which he may
subsequently assert.
12. Employee acknowledges that this is the complete agreement between
the parties with respect to the subject matter of this Agreement and
supersedes all prior understandings or agreements between the parties
dealing with this subject matter. Employee further affirms that the only
consideration for his signing this Agreement are the terms and provisions
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<PAGE> 15
stated herein; that no other promise of any kind, except for those set
forth in this Agreement, has been made to him by any person to cause him to
sign this Agreement and that he full understands the meaning and intent of
the Agreement.
13. This Agreement shall be construed according to the laws of the
State of Michigan.
14. No modification of this Agreement will be enforceable unless it
is in writing signed by all parties.
Employee states that he has carefully read this Agreement, understands
its contents, and has been given the opportunity to discuss its terms with
his attorney and that he is not required to execute this Agreement earlier
than February 5, 1996, but that he will not have the opportunity to do so
thereafter if he does not sign it before that time (subject to the
provisions specified in Paragraph 4).
Executed in multiple copies, each having the same effect as the
original.
X-RITE, INCORPORATED
Dated: January 22, 1996. By: /s/ Ted Thompson
----------------------------
Ted Thompson, Chairman
Dated: January 30, 1996. /s/ Bruce L. Jorgensen
--------------------------------
Bruce Jorgensen
Approved as to
Form and Content:
- ----------------------------
Attorney for Jorgensen
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<PAGE> 16
WAIVER
In conjunction with the consideration provided in my Employment
Resignation and Severance Agreement and Release with X-RITE, INCORPORATED
dated January 22, 1996, I agree, knowingly and voluntarily, to waive any
and all claims I might have under the Age Discrimination in Employment Act
of 1967 against the Company, its employees and agents, occurring on or
before the date of this waiver. I acknowledge that I have been advised to
consult with legal counsel prior to executing this Waiver and have been
provided twenty-one (21) days within which to consider the Waiver. I
further understand that I have seven (7) days after the execution of this
Waiver in which to revoke the Waiver, subject to the provisions and
possible penalties specified in Paragraph 5 of the Employment Severance
Agreement.
Dated: January 30, 1996 By: /s/ Bruce L. Jorgensen
----------------------------
Bruce L. Jorgensen
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,601,000
<SECURITIES> 5,320,000
<RECEIVABLES> 14,355,000
<ALLOWANCES> 582,000
<INVENTORY> 12,687,000
<CURRENT-ASSETS> 35,813,000
<PP&E> 26,295,000
<DEPRECIATION> 10,413,000
<TOTAL-ASSETS> 67,825,000
<CURRENT-LIABILITIES> 5,216,000
<BONDS> 0
0
0
<COMMON> 2,102,000
<OTHER-SE> 59,896,000
<TOTAL-LIABILITY-AND-EQUITY> 67,825,000
<SALES> 19,696,000
<TOTAL-REVENUES> 19,696,000
<CGS> 7,097,000
<TOTAL-COSTS> 7,097,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,066,000
<INCOME-TAX> 1,697,000
<INCOME-CONTINUING> 3,369,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,369,000
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
