X-Rite Reports Fourth Quarter Results

GRAND RAPIDS, Mich.--X-Rite, Incorporated today announced its financial results for the fourth quarter ended December 30, 2006.

Fourth Quarter Highlights:

Fourth quarter combined net sales of $63.7 million includes integrated Amazys operations
Sales backlog increased by approximately $6 million versus comparable levels at the end of 2005
Amazys integration ahead of pace, with cost savings of $6.2 million achieved through the fourth quarter
Imaging & Media and Industrial category product line integration plans announced and implemented
Sale of non-core Labsphere business for $15.4 million completed on February 7, 2007
Successful launch of the Eye-One iSis automated color chart reader and PlateScope process control device
Successful completion of US headquarters and manufacturing move

The Company reported fourth quarter 2006 net sales of $63.7 million, versus pre-acquisition sales of $41.9 million for the fourth quarter of last year. Gross margins were 58.1 percent and included $0.9 million of restructuring related charges. Operating income for the fourth quarter totaled $5.9 million and included $6.0 million of restructuring and acquisition related charges. The Company reported net income in the fourth quarter of 2006 of $0.9 million, or 3 cents per diluted share.

Adjusted operating income, which excludes acquisition and restructuring related charges (“acquisition and restructuring expenses”), was $11.9 million and reflects gross margins of 59.4 percent for the fourth quarter of 2006. Adjusted net income, which excludes acquisition and restructuring expenses, was $4.8 million, or 17 cents per diluted share. A reconciliation of GAAP earnings to adjusted earnings is included in this release.

“Our primary focus in the fourth quarter was moving quickly to achieve cost synergies in the sales and marketing area, consolidating product lines and facilities and managing our customer and revenue base,” stated Thomas J. Vacchiano, Jr., Chief Executive Officer of X-Rite. “While this effort was successful, revenues in the second half of 2006 were approximately six percent below the estimated pro forma revenues for the combined Company in 2005. Specifically, we faced delays delivering products as we consolidated the US manufacturing and back office operations into our new facility and our sales force productivity was less than optimal as we reorganized territories, changed responsibilities and reduced headcount. We expect these operational difficulties to subside by midyear.”

“Overall, our revenue performance in Q4 was impacted by integration related disruptions as we prioritized cost synergy goals to build a solid go forward organization. It does not reflect any downward trend in our markets or future growth opportunities,” continued Vacchiano. “This is supported by the increase in our backlog and a strong flow of orders in the fourth quarter and beginning of 2007.”

The fourth quarter results include the following charges and expenses related to the Amazys acquisition and related restructuring:

Description	Statement of Operations Caption	Amount
Product line integration related write-offs	Cost of goods sold	$ 0.9 million
Amortization of Amazys related intangibles	Operating expenses	2.1 million
Integration and restructuring costs	Operating expenses	3.0 million
�	�	�
Total pre-tax charges related to Amazys acquisition	�	$6.0 million

“The Company expected to achieve approximately $7 million to $9 million of the identified cost synergies during the initial 12 months following the closing of the acquisition. I’m pleased to report that we are ahead of schedule having generated $6.2 million in cost savings just six months into the integration,” stated Mary E. Chowning, Chief Financial Officer of X-Rite. “Specifically, we were able to close 12 facilities worldwide including the Amazys US headquarters and manufacturing operations. We also announced and began implementing our product line integration plans, consolidated key financial and back office operations and reduced headcount by approximately 13 percent. While there is more work to complete in the coming quarters, we are off to a strong start.”

“Operating margin, excluding acquisition and restructuring expenses, more than doubled from the third quarter, reaching 18.7 percent, which reflects the impact of those synergies,” continued Chowning. “As we achieve our targeted synergies, we will continue to see the planned improvements in operating leverage and cash flow which we will use to fund capital expenditures, interest costs, working capital and debt reduction. EBITDA (earnings before interest, taxes, depreciation and amortization), excluding acquisition and restructuring expenses, was $14.0 million or 22.0 percent of sales for the fourth quarter.”

Amazys Transaction

X-Rite launched its formal tender offer for outstanding Amazys shares on March 24, 2006. The consideration offered for each Amazys share was cash of 77 CHF plus 2.11 shares of X-Rite common stock. On July 5, 2006, the Company completed the tender offer for 3,422,492 shares of Amazys, or 99.7 percent of the outstanding shares, at a total value of approximately $295 million. X-Rite acquired the final 0.3 percent through a statutory squeeze out process in early 2007.

Outlook

As previously announced, the Company expects revenue growth on a pro forma basis to be flat in the aggregate for the initial 12 months following the acquisition. Preliminary estimates for full year 2007 revenue growth is in the 4 percent to 6 percent range. Final revenue growth estimates and synergy targets for 2007 will be provided with the first quarter results.

“We believe that our very good progress in realizing cost synergies has strengthened our foundation as a combined company. This achievement created some internal hurdles in meeting our sales targets, but we are now well positioned with a consolidated sales force and consolidated product lines as we enter 2007,” stated Vacchiano. “Overall, we are confident in our ability to manage the integration process to a successful completion over the next 12 to 18 months, while continuing to deliver the innovation X-Rite is known for.”

Conference Call

The Company will conduct a live audio webcast discussing its fourth quarter 2006 results on Tuesday, March 6, 2007 at 11:00 a.m. ET. The call will be co-hosted by Thomas J. Vacchiano, Jr., the Company’s Chief Executive Officer and Mary E. Chowning, its Chief Financial Officer. To access this webcast, as well as all future webcasts, use the X-Rite corporate website at www.x-rite.com. Select the Investor Relations page and click on the conference call link for the webcast. In addition, an archived version of the webcast conference call will be available on X-Rite’s website shortly after the live broadcast.

About X-Rite

X-Rite, which recently acquired Amazys, is the global leader in color-measurement solutions, offering hardware, software and services for the verification and communication of color data. The Company serves a range of industries, including imaging and media, industrial color and appearance, retail color matching, and medical. X-Rite serves customers in more than 100 countries from its offices in Europe, Asia and the Americas.

EBITDA and Non-GAAP Measures

In addition to the results reported in accordance with generally accepted accounting standards (GAAP) within this release, X-Rite may reference certain information which is considered a non-GAAP financial measure. Management believes these measures are useful and relevant to management and investors in their analysis of the Company’s underlying business and operating performance. Management also uses this information for operational planning and decision-making purposes. Non-GAAP financial measures should not be considered a substitute for any GAAP measure. Additionally, non-GAAP measures as presented by X-Rite may not be comparable to similarly titled measures reported by other companies.

One specific non-GAAP measure used by X-Rite is “EBITDA”, which is defined as earnings before interest, taxes, depreciation and amortization. In addition to disclosing results that are determined under US GAAP, the Company also discloses non-GAAP results of operations that exclude certain expenses and charges that are directly related to the Amazys acquisition and related integration and restructuring. Specific non-GAAP captions on the operations statements include gross profit, operating expenses (selling and marketing expenses, R&D and engineering, general and administrative, acquired in-process R&D, restructuring and integration), operating income (loss), net income (loss) and earnings per share information. The excluded expenses and charges primarily include costs and charges resulting from purchase accounting and integration and restructuring activities associated with the July 5, 2006 acquisition of Amazys Holding AG. Management utilizes the line item non-GAAP operations statement for operational planning and decision making purposes. A reconciliation of GAAP to non-GAAP financial information discussed in this release is contained in the attached exhibits and on the Company’s website at xrite.com.

Forward-Looking Statements and Disclaimer

This release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those projected in the forward-looking statements, due to a variety of factors, some of which may be beyond the control of the Company. Factors that could cause such differences include the Company’s ability to sustain increased sales, improve operations and realize cost savings, competitive and general economic conditions, ability to access into new markets, acceptance of the Company’s products and other risks described in the Company’s filings with the US Securities & Exchange Commission (“SEC”). The Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or for any other reason.

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Consolidated Financial Highlights

(Unaudited - in thousands except EPS)

�

2006

2005

Net Sales

$ 63,657�

$ 54,154�

$ 31,972�

$ 30,020�

$ 41,927�

Gross Profit

36,974�

22,385�

19,471�

19,438�

28,748�

Gross Profit Percent

58.1%

41.3%

60.9%

64.8%

68.6%

Selling and Marketing

13,578�

13,616�

9,183�

8,926�

10,181�

R&D and Engineering

7,251�

10,004�

4,361�

4,900�

4,112�

General and Administrative

7,243�

7,926�

4,744�

4,899�

4,174�

Acquired In-Process R&D

-�

11,107�

-�

Restructuring

1,803�

8,183�

-�

Integration

1,168�

1,008�

579�

553�

-�

Operating Income (Loss)

5,931�

(29,459)

604�

160�

10,281�

Interest Expense

(4,371)

(4,354)

(28)

(5)

(1)

Gain (Loss) on Derivative Instruments

-�

(92)

2,175�

-�

Other Income (Expense)

(691)

181�

94�

228�

(402)

Pre-Tax Income (Loss)

869�

(33,724)

2,845�

383�

9,878�

Net Income (Loss)

$ 913�

$ (28,260)

$ 1,620�

$ 236�

$ 7,481�

�

Earnings (Loss) Per Share

Basic

$ 0.03�

$ (0.99)

$ 0.08�

$ 0.01�

$ 0.35�

Diluted

$ 0.03�

$ (0.99)

$ 0.07�

$ 0.01�

$ 0.35�

�

Average Shares Outstanding

Basic

28,541�

28,507�

21,343�

21,241�

21,218�

Diluted

28,810�

28,507�

21,642�

21,504�

21,390�

�

Cash and Investments

$ 12,876�

$ 13,840�

$ 20,341�

$ 16,930�

$ 21,359�

Accounts Receivable

40,226�

33,073�

25,040�

29,164�

33,536�

Inventory

30,165�

33,173�

20,101�

19,760�

17,631�

Other Current Assets

22,208�

14,227�

6,633�

5,122�

4,107�

Goodwill and Other Intangible Assets

285,392�

262,640�

25,809�

20,055�

20,153�

Other Noncurrent Assets

74,110�

80,134�

65,931�

65,671�

50,849�

Total Assets

464,977�

437,087�

163,855�

156,702�

147,635�

�

Current Liabilities

63,065�

59,517�

33,374�

28,343�

19,640�

Noncurrent Liabilities

213,584�

192,278�

332�

413�

Total Liabilities

276,649�

251,795�

33,706�

28,756�

20,053�

�

Shareholders' Equity

$ 188,328�

$ 185,292�

$ 130,149�

$ 127,946�

$ 127,582�

�

Capital Expenditures

$ 5,722�

$ 5,124�

$ 3,394�

$ 14,613�

$ 1,541�

Depreciation and Amortization (a)

$ 5,374�

$ 7,060�

$ 1,862�

$ 1,791�

$ 1,558�

�

International Sales

65.8%

60.6%

53.3%

48.8%

42.0%

�

(a)

Excludes amortization of deferred financing costs.

Consolidated Financial Highlights, continued
(Unaudited - in thousands except EPS)
					�
					�
		Three Months Ended		Year Ended
		December 30,	December 31,	December 30,	December 31,
		2006	2005	2006	2005
Net Sales		$ 63,657�	$ 41,927�	$ 179,803�	$ 130,939�
Gross Profit		36,974�	28,748�	98,268�	85,989�
Gross Profit Percent		58.1%	68.6%	54.7%	65.7%
					�
Selling and Marketing		13,578�	10,181�	45,303�	36,646�
R&D and Engineering		7,251�	4,112�	26,516�	16,316�
General and Administrative		7,243�	4,174�	24,812�	18,478�
Acquired In-Process R&D		-�	-�	11,107�	-�
Restructuring		1,803�	-�	9,986�	-�
Integration		1,168�	-�	3,308�	-�
Founders' Insurance		-�	-�	-�	(1,154)
Operating Income (Loss)		5,931�	10,281�	(22,764)	15,703�
					�
Interest Expense		(4,371)	(1)	(8,758)	(39)
Gain (Loss) on Derivative Instruments		-�	-�	2,083�	-�
Write-Down of Other Investments		-�	-�	-�	(332)
Other Income (Expense)		(691)	(402)	(188)	(297)
Pre-Tax Income (Loss)		869�	9,878�	(29,627)	15,035�
					�
Net Income (Loss)		$ 913�	$ 7,481�	$ (25,491)	$ 11,052�
					�
Earnings (Loss) Per Share
	Basic	$ 0.03�	$ 0.35�	$ (1.03)	$ 0.52�
	Diluted	$ 0.03�	$ 0.35�	$ (1.03)	$ 0.52�
					�
Average Shares Outstanding
	Basic	28,541�	21,218�	24,865�	21,150�
	Diluted	28,810�	21,390�	24,865�	21,418�

U.S. GAAP to Non-GAAP Measure Reconciliations and
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
For the Three Months Ended December 30, 2006
(Unaudited - in thousands except EPS)
�	�	�	�	�	�	�	�	�	�
							Amazys
							Acquisition
	Non-GAAP Measures				U.S. GAAP		Related		Non-GAAP
	Used By Management				Measure		Adjustments		Measure
									�
1.�	Gross Profit				$ 36,974�		$ 865�	(a)	$ 37,839�
		Gross Profit Percent			58.1%				59.4%
									�
									�
2.�	Operating Expenses:
		Selling and Marketing			$ 13,578�		$ (663)	(b)	$ 12,915�
		R&D and Engineering			7,251�		(1,169)	(b)	6,082�
		General and Administrative			7,243�		(323)	(b)	6,920�
		Restructuring			1,803�		(1,803)	(c)	-�
		Integration			1,168�		(1,168)	(d)	-�
					$ 31,043�				$ 25,917�
									�
									�
3.�	Operating Income				$ 5,931�		$ 5,991�	(e)	$ 11,922�
									�
									�
4.�	Net Income				$ 913�		$ 3,894�	(f)	$ 4,807�
									�
									�
5.�	Earnings Per Share
		Basic			$ 0.03�				$ 0.17�
		Diluted			$ 0.03�				$ 0.17�
									�
		Average Basic Shares Outstanding			28,541�				28,541�
		Average Diluted Shares Outstanding			28,810�				28,810�
�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�
							Amazys
	Earnings Before						Acquisition
	Interest, Taxes, Depreciation				Non-GAAP		Related		Non-GAAP
	and Amortization (EBITDA)				Measure		Adjustments		Measure
									�
	EBITDA (Non-GAAP Measure):
		Net Income (GAAP Measure)			$ 913�		$ 3,894�		$ 4,807�
		Interest Expense			4,371�		-�		4,371�
		Income Taxes			(44)		2,097�		2,053�
		Depreciation and Amortization			5,374�		(2,647)		2,727�
		EBITDA (Non-GAAP Measure)			$ 10,614�		$ 3,344�		$ 13,958�
�	�	�	�	�	�	�	�	�	�
									�
(a)	Cost of sales adjustment for end-of-life product charges related to acquisition.
(b)	Operating expense adjustments for acquisition-related amortization of intangible assets.
(c)	Restructuring charges related to acquisition for severances, and trademark and trade name write downs.
(d)	Integration expenses related to acquisition.
(e)	Operating income effect of adjustments (a) through (d).
(f)	Adjustment (e) after tax using a 35% tax rate.

U.S. GAAP to Non-GAAP Measure Reconciliations and
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
For the Six Months Ended December 30, 2006
(Unaudited - in thousands except EPS)
�	�	�	�	�	�	�	�	�	�
							Amazys
							Acquisition
	Non-GAAP Measures				U.S. GAAP		Related		Non-GAAP
	Used By Management				Measure		Adjustments		Measure
									�
1.�	Gross Profit				$ 59,359�		$ 11,013�	(a)	$ 70,372�
		Gross Profit Percent			50.4%				59.7%
									�
									�
2.�	Operating Expenses:
		Selling and Marketing			$ 27,194�		$ (1,263)	(b)	$ 25,931�
		R&D and Engineering			17,255�		(3,407)	(b)	13,848�
		General and Administrative			15,169�		(646)	(b)	14,523�
		Acquired In-Process R&D			11,107�		(11,107)	(c)	-�
		Restructuring			9,986�		(9,986)	(d)	-�
		Integration			2,176�		(2,176)	(e)	-�
					$ 82,887�				$ 54,302�
									�
									�
3.�	Operating Income (Loss)				$ (23,528)		$ 39,598�	(f)	$ 16,070�
									�
									�
4.�	Net Income (Loss)				$ (27,347)		$ 25,739�	(g)	$ (1,608)
									�
									�
5.�	Loss Per Share
		Basic			$ (0.96)				$ (0.06)
		Diluted			$ (0.96)				$ (0.06)
									�
		Average Basic Shares Outstanding			28,524�				28,524�
		Average Diluted Shares Outstanding			28,524�				28,524�
�	�	�	�	�	�	�	�	�	�
�	�	�	�	�	�	�	�	�	�
							Amazys
	Earnings Before						Acquisition
	Interest, Taxes, Depreciation				Non-GAAP		Related		Non-GAAP
	and Amortization (EBITDA)				Measure		Adjustments		Measure
									�
	EBITDA (Non-GAAP Measure):
		Net Income (Loss) (GAAP Measure)			$ (27,347)		$ 25,739�		$ (1,608)
		Interest Expense			8,725�		-�		8,725�
		Income Taxes			(5,508)		13,859�		8,351�
		Depreciation and Amortization			12,434�		(6,587)		5,847�
		EBITDA (Non-GAAP Measure)			$ (11,696)		$ 33,011�		$ 21,315�
�	�	�	�	�	�	�	�	�	�
									�
(a)	Cost of sales adjustment for end-of-life product charges of $6,159 and amortization of inventory fair value adjustment of $4,854. Both adjustments were acquisition related.

(b)	Operating expense adjustments for acquisition-related amortization of intangible assets.
(c)	One-time charge for acquired in-process R&D related to acquisition.
(d)	Restructuring charges related to acquisition for severances, and trademark and trade name write downs.
(e)	Integration expenses related to acquisition.
(f)	Operating income effect of adjustments (a) through (e).
(g)	Adjustment (f) after tax using a 35% tax rate.