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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 5, 1997
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
- --- OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 0-14800
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X-RITE, INCORPORATED
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(Exact name of registrant as specified in its charter)
Michigan 38-1737300
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
3100 44th Street, SW, Grandville, Michigan 49418
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(Address of principal executive offices) (Zip Code)
(616) 534-7663
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(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, 1997 was 21,116,339 shares.
Exhibit Index on page 11.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 5, December 31,
1997 1996
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(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 6,484,000 $ 1,587,000
Short-term investments 10,919,000 10,196,000
Accounts receivable, less allowances of
$809,000 in 1997 and $738,000 in 1996 17,903,000 18,447,000
Inventories 15,709,000 15,019,000
Deferred tax assets 1,392,000 1,392,000
Prepaid expenses and other current assets 874,000 724,000
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Total current assets 53,281,000 47,365,000
PROPERTY AND EQUIPMENT, at cost 28,735,000 28,062,000
Less accumulated depreciation (12,948,000) (12,263,000)
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15,787,000 15,799,000
OTHER ASSETS:
Costs in excess of net assets acquired 9,377,000 9,522,000
Other noncurrent assets 6,190,000 6,265,000
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15,567,000 15,787,000
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$84,635,000 $78,951,000
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See accompanying notes to condensed consolidated financial statements.
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X-RITE, INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS--Continued
April 5, December 31,
1997 1996
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(Unaudited)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Accounts payable $ 1,810,000 $ 2,161,000
Accrued liabilities--
Payroll and employee benefits 1,217,000 1,181,000
Income taxes 2,213,000 105,000
Other accrued liabilities 1,748,000 1,848,000
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Total current liabilities 6,988,000 5,295,000
DEFERRED INCOME TAXES 694,000 694,000
SHAREHOLDERS' INVESTMENT:
Common stock 2,112,000 2,107,000
Additional paid-in capital 7,328,000 6,908,000
Retained earnings 67,778,000 64,059,000
Cumulative translation adjustment (265,000) (112,000)
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76,953,000 72,962,000
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$84,635,000 $78,951,000
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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
April 5, March 31,
1997 1996
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Net sales $23,080,000 $19,696,000
Cost of sales 8,133,000 7,097,000
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Gross profit 14,947,000 12,599,000
Operating expenses:
Selling & marketing 4,007,000 3,430,000
Engineering, general & administrative 3,041,000 2,783,000
Research & development 1,558,000 1,392,000
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8,606,000 7,605,000
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Operating income 6,341,000 4,994,000
Other income 93,000 72,000
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Income before income taxes 6,434,000 5,066,000
Income taxes 2,188,000 1,697,000
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NET INCOME $ 4,246,000 $ 3,369,000
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Average number of common and common
equivalent shares outstanding 21,212,000 21,161,000
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Earnings per common and
common equivalent share $.20 $.16
==== ====
Cash dividends per share $.025 $.025
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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
April 5, March 31,
1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES $6,834,000 $ 5,522,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investments 1,000,000 500,000
Proceeds from maturities of investments 220,000 200,000
Purchases of investments (1,954,000) (1,950,000)
Capital expenditures (783,000) (1,221,000)
Purchases of other assets (316,000) (227,000)
Other investing activities 12,000 9,000
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Net cash and cash equivalents
used for investing activities (1,821,000) (2,689,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (527,000) (526,000)
Issuance of common stock 425,000 -
Other financing activities - (32,000)
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Net cash and cash equivalents
used for financing activities (102,000) (558,000)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
AND CASH EQUIVALENTS (14,000) (6,000)
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NET INCREASE IN CASH AND CASH EQUIVALENTS 4,897,000 2,269,000
CASH AND CASH EQUIVALENTS AT BEGINNING
OF YEAR 1,587,000 332,000
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CASH AND CASH EQUIVALENTS AT END OF QUARTER $6,484,000 $ 2,601,000
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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 1996 annual report on Form 10-K.
Effective January 1, 1997, the Company adopted a 4-4-5 quarterly accounting
cycle to accommodate manufacturing schedules that were developed to improve
customer service. The first quarter of 1997 ended on April 5, whereas the
first quarter of 1996 ended on March 31. The Company's 1997 first quarter
results from operations would have been approximately the same if the
current year quarter had ended on March 31 rather than on April 5.
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to
present fairly the financial position of the Company as of April 5, 1997
and the results of its operations and its cash flows for the three month
periods ended April 5, 1997 and March 31, 1996. All such adjustments are
of a normal and recurring nature.
NOTE 2--INVENTORIES
Inventories consisted of the following:
April 5, December 31,
1997 1996
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Raw materials $ 5,037,000 $ 4,963,000
Work in process 5,272,000 4,708,000
Finished goods 5,400,000 5,348,000
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$15,709,000 $15,019,000
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X-RITE, INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED), continued
NOTE 3--EARNINGS PER SHARE
In March of 1997, Statement of Financial Accounting Standards No. 128,
"Earnings per Share," was issued. This statement replaces "primary"
earnings per share ("EPS") with "basic" EPS. Basic EPS does not include
the dilutive effect of common shares that could potentially be issued
(i.e., stock options in the case of X-Rite). The Statement is effective
for financial statements issued after December 15, 1997. If the Company
had adopted this standard in the first quarter of 1997 there would have
been no change in the EPS reported. The Company does not believe the
adoption of this pronouncement will have a material effect on its financial
statements.
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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 1997 consolidated net sales of $23,080,000 were 17.2% higher
than sales of $19,696,000 in the same quarter a year ago. The improvement
in sales was due to unit volume increases in all product categories rather
than price increases.
Cost of Sales and Gross Profit:
Gross profit as a percentage of sales was 64.8% for the first quarter of
1997, compared to 64.0% for the first quarter of 1996. The increase was
due to a favorable change in product sales mix.
Operating Expenses:
Selling and marketing expenses increased 16.8% in the first quarter of 1997
compared to the same period in 1996. The increase resulted from stepped-up
marketing programs, with an emphasis on products in the graphic arts and
color and appearance categories. As a percentage of sales, selling and
marketing expenses were comparable in 1997 and 1996.
First quarter engineering, general and administrative ("EG&A") expenses
increased 9.3% compared to the same quarter in the prior year. As a
percentage of sales, EG&A expenses were 13.2% in 1997 and 14.2% in 1996.
The relative decline was achieved through ongoing cost containment efforts
aimed at controlling administrative costs.
Research and development expenses in the first quarter increased 11.9%
compared with the same period in 1997. X-Rite is committed to its
investments in strategic product development, while 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 higher than the comparable period in 1997
due to an increase in funds available for investment.
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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 $4,246,000 for the three months ended
April 5, 1997 compared to $3,369,000 in the same period of 1996. On a per
share basis, first quarter net income was $.20 in 1997 and $.16 in 1996.
The average number of common and common equivalent shares outstanding was
not significantly different between the periods.
PROPOSED ACQUISITION
In April 1997 the Company reached an agreement in principle to acquire
substantially all the assets of Light Source Computer Images, Inc. ("Light
Source"). Light Source is a privately held producer of high-quality,
easy-to-use scanning, imaging and print optimization software. The
agreement is subject to customary conditions to closing, including
satisfactory completion of due diligence.
FINANCIAL CONDITION AND LIQUIDITY
Cash provided by operating activities in the first quarter of 1997 totaled
$6,834,000. Working capital at April 5, 1997 was $30,597,000 compared to
$28,257,000 at December 31, 1996. The increase in working capital was
mainly due to net income earned in the period.
Capital expenditures in the first three months of 1997 totaled $783,000 and
consisted mainly of machinery and equipment. X-Rite currently anticipates
capital expenditures for the remainder of 1997 will be approximately
$3,000,000 and will consist principally 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, proposed
acquisitions, capital expenditures and dividends for the remainder of 1997
and 1998.
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 quarter ended April 5, 1997.
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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 16, 1997 /s/ Ted Thompson
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Ted Thompson
Chairman, President and
Chief Executive Officer
May 16, 1997 /s/ Duane F. Kluting
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Duane F. Kluting
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
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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 Amended and Restated Outside Director Stock
Option Plan, effective as of September 17, 1996 (filed as exhibit
to Form 10-Q for the quarter ended September 30, 1996 (Commission
File No. 0-14800) and incorporated herein by reference)
*10(b) X-Rite, Incorporated Cash Bonus Conversion Plan (filed as
Appendix A to the definitive proxy statement dated April 8, 1996
relating to the Company's 1996 annual meeting (Commission File
No. 0-14800) and incorporated herein by reference)
*10(c) Form of Indemnity Contract entered into between the registrant
and members of the board of directors (filed as exhibit to
Form 10-Q for the quarter ended June 30, 1996 (Commission File
No. 0-14800) and incorporated herein by reference)
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EXHIBIT INDEX
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*10(d) Employment Resignation and Severance Agreement entered into
between the registrant and Bruce Jorgensen (filed as exhibit to
Form 10-Q for the quarter ended March 31, 1996 (Commission File
No. 0-14800) and incorporated herein by reference)
27 Financial Data Schedule
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<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> APR-05-1997
<CASH> 6,484,000
<SECURITIES> 10,919,000
<RECEIVABLES> 18,712,000
<ALLOWANCES> 809,000
<INVENTORY> 15,709,000
<CURRENT-ASSETS> 53,281,000
<PP&E> 28,735,000
<DEPRECIATION> 12,948,000
<TOTAL-ASSETS> 84,635,000
<CURRENT-LIABILITIES> 6,988,000
<BONDS> 0
0
0
<COMMON> 2,112,000
<OTHER-SE> 74,841,000
<TOTAL-LIABILITY-AND-EQUITY> 84,635,000
<SALES> 23,080,000
<TOTAL-REVENUES> 23,080,000
<CGS> 8,133,000
<TOTAL-COSTS> 8,133,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 81,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,434,000
<INCOME-TAX> 2,188,000
<INCOME-CONTINUING> 4,246,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,246,000
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
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