X-Rite, Inc.

views updated

X-Rite, Inc.

3100 44th Street Southwest
Grandville, Michigan 49418-2582
U.S.A.
Telephone: (616) 534-7663
Fax: (616) 534-0723
Web site: http://www.x-rite.com

Public Company
Incorporated: 1958
Employees: 687
Sales: $103.50 million
Stock Exchanges: NASDAQ
Ticker Symbol: XRIT
NAIC: 334514 Totalizing Fluid Meter and Counting Device Manufacturing; 334516 Analytical Laboratory Instrument Manufacturing

X-Rite, Inc. is a leader in the development and manufacturing of equipment that measures the composition and brightness of colors. The company’s products are used for purposes that include making matching paint colors and regulating quality in the processing of film and x-rays. X-Rite also makes a device that helps match the colors of replacement teeth to a patient’s own and a non-invasive cholesterol level tester that works by analyzing the color change of a chemical solution on the skin, as well as other specialty medical products. The Michigan-based, publicly traded firm, which has branches in Europe and Asia, distributes its products around the world.

Beginnings

X-Rite was founded by a group of seven engineers at aircraft instrument maker Lear Siegler, Inc. who wanted to form a new company as a sideline. The seven founders, led by D. Ted Thompson, incorporated their new business on Christmas Eve 1958. Initially unsure of what they would make, they found inspiration for the company’s first product when the wife of one engineer, a nurse, commented on the difficulty she had in making labels for x-rays. Thompson came up with the idea of a lightopaque silver tape that could be used in place of the standard metal letters that were photographed along with the patient. The tape was first marketed in 1961, but the firm remained small and had no full-time employees for several years.

By 1967, business had grown to the point that one of the company’s founders was needed to dedicate his full attention to X-Rite, and Ted Thompson was chosen for the role. In addition to running the company, Thompson continued to look after new product development. One of his inventions, a silver recovery system for x-ray equipment, became the company’s second major product when it was introduced in 1968. X-Rite would also later add a shrink-wrapping device to its offerings. In 1975, the company introduced another new product called a densitometer. The device measured the density of a film image for the printing of negatives and in other applications. After several years, X-Rite’s densitometer was improved to allow it to feed data into a computer.

This newest product became popular with the photographic printing industry, in particular for use in monitoring print quality in “one-hour photo” mini-labs, and this led to a period of strong growth, with revenues increasing an average of 30 percent during each of the next ten years. Though X-Rite had entered a field already dominated by several larger competitors, by the mid-1980s the company controlled half of the $50 million densitometer market. By 1986, with annual sales topping $10 million, X-Rite was ready to go public. It did so early in the year and was subsequently added to the NASDAQ National Market System. During the first two years of X-Rite’s listing, its share value tripled. In June 1987, the firm moved into its new corporate headquarters and manufacturing site in Grandville, Michigan.

Color Measurement Devices Prove Popular

The year 1989 saw X-Rite introduce another color-analysis product, a spectrocolorimeter. Similar to the densitometer, the spectrocolorimeter could analyze colors of textiles, plastics, or paints and create a match that was essentially as good as the human eye was able to. Though there were several larger competitors, X-Rite’s technological innovations and efficient manufacturing techniques allowed it to price its new product considerably lower than the industry average, at $3,500 as opposed to the $6,000 to $10,000 prices of models made by other companies. The battery-powered, portable X-Rite product was also more user friendly than those previously available. Users of spec-trocolorimeters included graphic arts firms (to whom they were initially introduced), paint stores, and other customers who needed accurate color measurement. As its densitometer had done, X-Rite’s spectrocolorimeter soon became one of the leaders in the market. The company had spent 18 months and more than $1.5 million to develop the product. At this time, X-Rite typically dedicated between 6 and 12 percent of its earnings to creating new products or upgrading old ones, with 47 of the firm’s 203 employees working as engineers. Soon after the spectrocolorimeter’s introduction, X-Rite signed a $1 million deal to sell densitometers and sensitometers, a similar product, to Kodak’s medical division for use in controlling the quality of films used in mammography. In early 1990, the company announced another new variation on its spectrocolorimeter, X-Scan, which measured the color values of inks on a printed page with a portable unit that was interfaced with a computer. The $15,000 device cost less than half of what its competitors’ versions did. A 30,000-square-foot expansion of the company’s Grandville facility was completed in late fall to help fulfill orders for X-Scans and the company’s successful line of spectrocolorimeters.

In 1991, another big order was signed to deliver $2.5 million worth of densitometers to a large photo company in Japan. At this time, X-Rite’s overseas sales accounted for 30 percent of its revenues, an amount that was increasing every year. That same year also saw introduction of a multi-angle spectrophotometer, which could measure the color of metallic paint for customers such as auto manufacturers and body shops. The device took readings from several angles to arrive at a final value, which could then be used to create a paint match or to assure consistency in paint from batch to batch. Sales for fiscal 1991 were a record $29.1 million, with earnings of $4.3 million. The firm placed 95th on Forbes’ annual list of the 200 best small companies in the United States during the year.

X-Rite introduced another new product in 1992, MiX-Rite, a $10,000 machine for use in paint stores that could formulate precisely blended paints to match the colors of wallpaper or fabrics in a home. The machine would analyze a color sample and then calculate the color formula for the tint, which would be mixed and then inserted into a can of paint base with an automated hole-punch and resealing mechanism. The process took a total of 90 seconds. As with other X-Rite products, the device was based on an existing idea but delivered it in a smaller and cheaper form. The first sales were made in 1993, a year which also saw the company open its first foreign office, in Cologne, Germany. Though X-Rite products were already sold and serviced internationally by a network of dealers, the new office gave the firm a better platform for the increased growth it was seeking abroad. A new subsidiary, X-Rite GmbH, was formed to run its German operations. In the early fall, X-Rite also signed a two-year, $10 million deal with DuPont to supply it with spectrophotometry instruments.

Expansion Through Acquisitions

The spring of 1994 saw the expansion-minded X-Rite make its first purchase, H. Miller Graphics Arts of Congleton, England. H. Miller, an X-Rite distributor, was another link in the company’s chain of overseas growth. It was subsequently renamed X-Rite, Ltd. The Miller acquisition was followed in September by the purchase of the assets of Colorgen, Inc., a bankrupt maker of color matching equipment. The fall of 1994 also saw Ted Thompson cede some of his duties to company newcomer Bruce Jorgensen, who took the title of president. Jorgensen had grown up in the Grand Rapids, Michigan, area and later worked around the world during a 27-year stint with Exxon Corp. The 65-year old Thompson remained in his long-held posts of CEO and board chairman.

The company’s growth, despite a national recession, had swelled the ranks of its employees to more than 400 in Grandville and nearly 100 at the former Colorgen facility near Boston, Massachusetts, and its German and newly opened Hong Kong offices. X-Rite was continuing to introduce new products, such as the Digital Swatchbook, which could analyze a color in the real world and then transfer it to a computer screen. The $1,000 product, one of 11 new items introduced during the year, included a color sampling tool and software. During 1994 the debt-free company’s stock value rose 80 percent.

The start of 1995 saw X-Rite’s acquisition spree continue with the purchase of light measurement device maker Labsphere, Inc. of North Sutton, New Hampshire. The company also bought a second manufacturing site in Grandville, across the street from its main facility. A slowdown in the automotive and graphics arts markets, and a decline in orders from major customer DuPont, precipitated a restructuring that took place in January of 1996 and involved the layoff of 55 workers (about 10 percent of the company’s workforce), and the elimination of all non-necessary expenditures. Company president Bruce Jorgensen also announced his resignation, with former Perrigo executive C. Mathew Peabody named as his replacement in the fall, though his own tenure ended abruptly the following summer.

Company Perspectives:

X-Rite is on an evolutionary track. By strengthening our technology and broadening our markets, we believe we are assuring our future. Rapid advances in technology over the past few years have revolutionized the global economy and created new opportunities. Amid all the changes, the factors that drive our company’s success remain the same: First-mover leadership in markets served; Skilled development of knowledge-based systems; Products that offer great value; Strategic collaboration with key industry leaders; Global marketing and selling. As X-Rite’s family of companies continues to grow, we are sharing ideas and embracing new technologies, new markets, and new possibilities. Our objective is to increase your return on the investment you have in X-Rite’s future as a customer, employee, or shareholder.

Another acquisition was announced in June 1997 when X-Rite bought California-based Light Source Computer Images, Inc., a maker of color measuring equipment and computer scanner software. The following year another foreign branch was added when X-Rite formed X-Rite Mediterranee SARL to acquire an existing distributorship near Paris. In June 1998, former Cascade Engineering president Richard Cook took over as the firm’s president from Ted Thompson, who had been wearing both CEO and president caps since Mathew Peabody’s departure. Cook had earned physics, management, and divinity degrees from various Michigan schools.

A New President Faces Challenges

In a reversal from 1997’s record-setting $97 million in revenues and $18 million in profits, 1998 saw the company suffering its worst year ever, with a first-time quarterly loss reported during the third bookkeeping period. The red ink was attributed to a $4.4 million asset write-off related to X-Rite’s underachieving digital imaging business, plus $400,000 in legal fees spent on a lawsuit for a patent infringement, as well as an overall drop in revenues and sales for the year. As a result, in September Cook effected a reorganization of X-Rite into four business units. These would consist of imaging; printing; coating, plastics, and textiles; and new business development. Cook stated that the goal of the restructuring was to put the firm back on track for 20 percent annual sales growth, with the realignment expected to facilitate finding new markets for X-Rite products.

At the end of 1998, X-Rite signed an agreement with retail chain Ace Hardware to put the company’s current generation of paint matching devices, called MatchRite, into 5,000 Ace stores worldwide. The company also reached an agreement with Heidelberg Color Publishing Solutions to include X-Rite’s Digital Swatchbook as part of Heidelberg’s color management package for the printing industry. January 1999 saw X-Rite open a new office in Tokyo, Japan, while at the same time ramping up spending on research and development to create more new products.

In the summer of 1999, company patriarch Ted Thompson announced he was giving up the position of CEO, though he would remain on duty as board chairman. President Richard Cook was named to the top post the following February. The fiscal year was an improvement over 1998, with earnings of $13.6 million on sales of $100.2 million, and the sagging value of X-Rite stock began to shoot back up in early 2000. Shortly afterwards the firm brought in investment bank Broadview International LLC as a consultant on acquisitions and investments. The company formed a new subsidiary, XR Ventures, to facilitate this activity.

One of the first investments the new unit made was in Trident Technology, a Grand Rapids-area firm that developed networking and database software for corporations. The XR Ventures money would help Trident expand its network of sales offices in the Midwest and on the east coast. X-Rite also bought 90 percent of the rights to a tunable laser technology developed by Virginia-based Veridian, which it formed a new subsidiary, Coherix, to develop. The laser system was capable of precisely measuring three-dimensional objects for use in a variety of industrial processes. Another acquisition, that of the German firm Optronik GmbH, took place in September. Optronik, with $2.5 million in sales, was a maker of Web-based color and light measurement instruments and software.

In early 2001, X-Rite subsidiary Labsphere signed a major agreement with Cleveland-based Keithley Instruments, Inc. to sell it light measurement devices for use in the telecommunications industry. The firm also invested in two additional companies, MedPanel, Inc. of Cambridge, Massachusetts, an online medical research and marketing firm, and HandyLab, Inc. of Ann Arbor, Michigan, which became part of the Coherix operation. HandyLab was a developer of laser-based measuring devices.

In the spring of 2001, X-Rite announced the availability of its new Shade-Rite Dental Vision System, which utilized the company’s color matching technology to produce accurately tinted replacement teeth. In June, XR Ventures invested in UrbanPixel, Inc. of San Francisco, which developed software for Web site development. Shortly after this, Richard Cook relinquished his president duties to newcomer Michael Ferrara, former CEO of Marine Optical Group, an eyewear maker. The company’s new Cholesterol 1,2,3 System, which had been developed in 2000, was also undergoing testing by the U.S. Food and Drug Administration, having already been given the green light in Canada. Cholesterol 1,2,3, which had been developed in conjunction with Toronto, Canada-based International Medical Innovations, Inc., measured the amount of cholesterol in the bloodstream by checking the color of a chemical after it was placed on a patient’s skin. The new device offered a quick, non-invasive test that also generated no medical wastes.

Key Dates:

1958:: X-Rite is incorporated by seven Lear Siegler engineers. 1961: The company’s first product, x-ray marking tape, is introduced.
1968:: Silver recovery equipment for x-rays debuts.
1975:: X-Rite introduces its first densitometer for photographic printing use.
1986:: X-Rite goes public.
1987:: The company moves into new headquarters and production facility in Grandville, Michigan.
1990:: X-Rite begins to shift its emphasis to the field of color-measurement.
1994:: A round of acquisitions starts with purchase of H. Miller Graphic Arts of England.
2001:: Co-founder Ted Thompson retires; Dental color matching system are unveiled.

In late 2001, X-Rite chairman Ted Thompson announced his retirement from the firm he had helped found more than 40 years earlier. The 72-year-old’s position would be taken by board member John Utley. Shortly afterward, the company announced another restructuring and layoffs of almost 10 percent of its workforce, which was expected to generate a savings of $3.5 million annually. With the transition of leadership from patriarch Ted Thompson successfully completed, the company was streamlining operations while simultaneously investing in new possibilities and seeking new markets around the world. X-Rite, Inc. remained a leader in the field of color measurement, while it looked to the future with its new medical and three-dimensional measurement technologies.

Principal Subsidiaries

X-Rite International, Inc. (Barbados); X-Rite Holdings, Inc.; XR Ventures LLC; X-Rite GmbH (Germany); X-Rite Asia Pacific Limited (Hong Kong); X-Rite Ltd. (U.K.); X-Rite MA, Incorporated; OTP, Incorporated; Labsphere, Inc.; X-Rite Mediterranee SARL (France); X-Rite Global, Inc.; Coherix Corporation.