X-Rite Reports Third Quarter Results

GRAND RAPIDS, Mich.--X-Rite, Incorporated today announced its financial results for the third quarter ended September 29, 2007.

Third Quarter Highlights:

• Net sales from continuing operations totaled $55.6 million, an 8.6 percent increase over Q3 2006
• Adjusted operating income totaled $4.9 million, a 40.0 percent increase from the prior year period
• Achieved operating cash flows of $3.1 million and debt reduction of $3.9 million
• Amazys integration remains significantly ahead of timetable, with cost savings of $19.5 million achieved during the first five quarters of combined operations
• Sales backlog and order levels remained strong at the end of September 2007
• Announced and subsequently completed the acquisition of Pantone, Inc., the leading provider of color communication solutions and standards

The Company reported third quarter 2007 net sales from continuing operations of $55.6 million compared with $51.2 million in the year-earlier period. Gross margins were 55.5 percent, up from 40.6 percent in the third quarter of 2006. Operating income totaled $0.4 million and included $4.5 million in acquisition and restructuring related charges related to the Amazys acquisition (“acquisition and restructuring expenses”). The Company reported a net loss from continuing operations of $2.9 million or $0.10 per basic share, versus a net loss of $28.3 million or $0.99 per basic share for the same period in 2006.

Adjusted operating income, which excludes acquisition and restructuring expenses, was $4.9 million, and reflects a gross margin of 55.6 percent for the third quarter of 2007 versus $3.6 million and a gross margin of 60.4 percent for the same period in 2006. A reconciliation of GAAP earnings from continuing operations to adjusted earnings is included in this release.

“Overall sales in our core markets are in line with expectations, and the integration of the sales, engineering and general & administrative functions is on track,” stated Thomas J. Vacchiano, Jr., Chief Executive Officer of X-Rite. “Our revenue performance in the third quarter was consistent with our targets as we continue to successfully integrate our product lines, develop exciting new products and expand our customer base.”

“Our gross margins were below expectations by approximately 5.0 percent in the third quarter,” stated Mary E. Chowning, Chief Financial Officer. “Approximately 2.6 percent of the gross margin decline in the third quarter was related to issues we encountered as we converted our core operating system and conformed operating practices in Europe. This conversion will allow us to standardize operating policies and practices in the operations area and move product production from Europe to the US more efficiently. Additionally, weak performance in our color services business and unfavorable product mix impacted our gross margins by approximately 2.8 percent. However, these items are not expected to impact gross margins significantly in the longer term.”

Year-to-Date Results

In the first three quarters of 2007, net sales from continuing operations were $174.0 million, versus $107.2 million for the same period of 2006 on a stand-alone basis and $163.0 million after combining 2006 Amazys results with X-Rite on a nine-month pro forma basis. Gross margins were 59.4 percent versus 59.9 percent on a combined pro forma basis. Operating income for the first three quarters of 2007 totaled $12.1 million and included $12.9 million in acquisition and restructuring related charges. The Company reported net income of $7.0 million, or $0.24 per diluted share. The net loss from continuing operations was $0.5 million, or $0.02 per basic share.

Adjusted operating income, which excludes acquisition and restructuring expenses, was $25.0 million, reflects a gross margin of 59.5 percent for the first nine months of 2007 versus $9.9 million and a gross margin percent of 59.9 on a pro forma basis for the first nine months of 2006. Adjusted net income from continuing operations, which excludes acquisition and restructuring expenses, was $7.8 million, or $0.27 per diluted share.

The third quarter and year-to-date results included the following charges related to the Amazys acquisition and restructuring expenses:

Description		Statement of Operations Caption		2007 Q3		2007 YTD
Product line integration related write-offs		Cost of goods sold		$0.0 million		$0.1 million
Amortization of Amazys related intangibles		Operating expenses		2.7 million		8.0 million
Integration and restructuring costs		Operating expenses		1.8 million		4.8 million
Total pre-tax charges related to Amazys acquisition				$4.5 million		$12.9 million

Outlook

During fiscal year 2007, the Company expects to realize cost synergies related to the Amazys integration of $14 million to $16 million. This includes the $13.3 million of synergies achieved in the first nine months of 2007. Anticipated cumulative synergies since the closing of the transaction are expected to range from $20 million to $22 million by the end of 2007.

“Backlog and order levels at the end of the third quarter remain strong and we continue to believe that we are well positioned to capitalize on future growth opportunities,” stated Vacchiano. “We are particularly enthusiastic about the Pantone acquisition and our ability to leverage their brand, market position and products to drive our top line going forward. We remain committed to our fiscal 2007 guidance of 4 to 6 percent revenue growth on a combined pro forma basis and expect our full year results, excluding Pantone, to be at or slightly above the high end of the range.”

Pantone Transaction

On August 23, 2007, the Company announced that it had entered into a definitive agreement to purchase Pantone, Inc. for $180 million in cash. The transaction and refinancing of the Company’s current debt was financed through new borrowings. The Pantone acquisition was completed on October 24, 2007 and thus did not affect third quarter performance.

Conference Call

The Company will conduct a live audio webcast discussing its third quarter 2007 results on Tuesday, November 6, 2007 at 11:00 a.m. EST. The call will be co-hosted by Thomas J. Vacchiano, Jr., the Company’s Chief Executive Officer and Mary E. Chowning, the Company’s 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 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 that 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 measures. 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), operating income from continuing operations, net income from continuing operations 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.

Consolidated Financial Highlights
(Unaudited - in thousands except EPS)
														(a)			(a)
					Q3			Q2			Q1			Q4			Q3
					2007			2007			2007			2006			2006
Net Sales					$ 55,561			$ 60,745			$ 57,717			$ 60,422			$ 51,198
Gross Profit					30,858			36,637			35,896			35,115			20,798
Gross Profit Percent					55.5	%		60.3	%		62.2	%		58.1	%		40.6	%
Selling and Marketing					13,961			13,882			14,092			13,030			13,170
R&D and Engineering					8,357			9,692			8,633			6,942			9,691
General and Administrative					6,350			5,181			6,378			6,864			7,601
Acquired In-Process R&D					-			-			-			-			11,107
Restructuring					490			868			863			1,803			8,183
Integration					1,257			431			862			1,168			1,008
Operating Income (Loss)					443			6,583			5,068			5,308			(29,962	)
Interest Expense					(4,275	)		(4,358	)		(4,612	)		(4,371	)		(4,354	)
Gain on Sale of Investments					-			837			-			-			-
Loss on Derivative Instruments					-			-			-			-			(92	)
Foreign Currency Gain (Loss)					(928	)		330			(60	)		(739	)		(4	)
Other Income (Expense)					(54	)		52			(12	)		82			123
Pre-Tax Income (Loss)					(4,814	)		3,444			384			280			(34,289	)
Net Income (Loss) From Continuing Operations
					(2,862	)		2,104			217			596			(28,624	)
Discontinued Operations, Net					-			(36	)		7,593			317			364
Net Income (Loss)					$ (2,862	)		$ 2,068			$ 7,810			$ 913			$ (28,260	)
Diluted Earnings (Loss) Per Share
	Continuing Operations				$ (0.10	)		$ 0.07			$ 0.01			$ 0.02			$ (1.00	)
	Discontinued Operations				-			-			0.26			0.01			0.01
	Net Income (Loss)				$ (0.10	)		$ 0.07			$ 0.27			$ 0.03			$ (0.99	)
Average Shares Outstanding
	Basic				28,953			28,839			28,664			28,541			28,507
	Diluted				28,953			29,265			28,973			28,810			28,507
Cash and Investments					$ 17,294			$ 15,639			$ 11,821			$ 12,876			$ 13,840
Accounts Receivable					36,621			39,178			39,478			40,226			33,073
Inventory					35,195			32,178			31,300			30,165			33,173
Other Current Assets					17,897			22,841			23,149			22,208			14,227
Goodwill and Other Intangible Assets					255,289			258,287			280,826			282,674			262,640
Other Non-Current Assets					97,846			98,993			71,166			74,110			80,134
	Total Assets				460,142			467,116			457,740			462,259			437,087
Current Liabilities					63,659			63,879			55,883			63,065			59,517
Non-Current Liabilities					193,927			199,395			203,399			213,584			192,278
	Total Liabilities				257,586			263,274			259,282			276,649			251,795
	Shareholders' Equity				$ 202,556			$ 203,842			$ 198,458			$ 185,610			$ 185,292
Capital Expenditures (b)					$ 1,672			$ 1,748			$ 2,738			$ 5,691			$ 5,108
Depreciation and Amortization (b) (c)					$ 5,350			$ 5,462			$ 5,461			$ 5,286			$ 6,969
International Sales (b)					65.5	%		66.8	%		66.1	%		67.3	%		62.2	%
(a)	Labsphere, Inc. 2006 income statements reclassified to Discontinued Operations.
(b)	Excludes Labsphere, Inc.
(c)	Excludes amortization of deferred financing costs.

Consolidated Financial Highlights, continued
(Unaudited - in thousands except EPS)
					Quarter Ended						Nine Months Ended
								(a)						(a)
					Sept. 29,			Sept. 30,			Sept. 29,			Sept. 30,
					2007			2006			2007			2006
Net Sales					$ 55,561			$ 51,198			$ 174,023			$ 107,219
Gross Profit					30,858			20,798			103,391			56,007
Gross Profit Percent					55.5	%		40.6	%		59.4	%		52.2	%
Selling and Marketing					13,961			13,170			41,935			30,393
R&D and Engineering					8,357			9,691			26,682			18,338
General and Administrative					6,350			7,601			17,909			16,814
Acquired In-Process R&D					-			11,107			-			11,107
Restructuring					490			8,183			2,221			8,183
Integration					1,257			1,008			2,550			2,140
Operating Income (Loss)					443			(29,962	)		12,094			(30,968	)
Interest Expense					(4,275	)		(4,354	)		(13,245	)		(4,387	)
Gain (Loss) on Sale of Investments					-			-			837			(2	)
Gain (Loss) on Derivative Instruments					-			(92	)		-			2,083
Foreign Currency Gain (Loss)					(928	)		(4	)		(658	)		399
Other Income (Expense)					(54	)		123			(14	)		403
Pre-Tax Loss					(4,814	)		(34,289	)		(986	)		(32,472	)
Net Loss From Continuing Operations
					(2,862	)		(28,624	)		(541	)		(27,658	)
Discontinued Operations, Net					-			364			7,557			1,254
Net Income (Loss)					$ (2,862	)		$ (28,260	)		$ 7,016			$ (26,404	)
Basic & Diluted Earnings (Loss) Per Share
	Continuing Operations				$ (0.10	)		$ (1.00	)		$ (0.02	)		$ (1.17	)
	Discontinued Operations				-			0.01			0.26			0.05
	Net Income (Loss)				$ (0.10	)		$ (0.99	)		$ 0.24			$ (1.12	)
Average Shares Outstanding
	Basic & Diluted				28,953			28,507			28,819			23,640
(a)	Labsphere, Inc. 2006 results reclassified to Discontinued Operations.

U.S. GAAP to Non-GAAP Measure Reconciliations and
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
For the Three Months Ended September 29, 2007
(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				$ 30,858			$ 25		(a)		$ 30,883
		Gross Profit Percent			55.5	%						55.6	%
2.	Operating Expenses:
		Selling and Marketing			$ 13,961			$ (631	)	(b)		$ 13,330
		R&D and Engineering			8,357			(1,704	)	(b)		6,653
		General and Administrative			6,350			(323	)	(b)		6,027
		Restructuring			490			(490	)	(c)		-
		Integration			1,257			(1,257	)	(d)		-
					$ 30,415							$ 26,010
3.	Operating Income				$ 443			$ 4,430		(e)		$ 4,873
4.	Net Income (Loss) From Continuing Operations				$ (2,862	)		$ 2,880		(f)		$ 18
5.	Earnings (Loss) From Continuing Operations Per Share
			Basic		$ (0.10	)						$ 0.00
			Diluted		$ (0.10	)						$ 0.00
		Average Basic Shares Outstanding			28,953							28,953
		Average Diluted Shares Outstanding			28,953							28,953
								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) From Continuing Operations (GAAP Measure)
					$ (2,862	)		$ 2,880				$ 18
		Interest Expense			4,275			-				4,275
		Income Taxes			(1,952	)		1,550				(402	)
		Depreciation and Amortization			5,350			(2,683	)			2,667
		EBITDA (Non-GAAP Measure)			$ 4,811			$ 1,747				$ 6,558
(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 severance and severance-related expenses.
(d)	Integration expenses related to Amazys 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 Nine Months Ended September 29, 2007
(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				$ 103,391			$ 162		(a)		$ 103,553
		Gross Profit Percent			59.4	%						59.5	%
2.	Operating Expenses:
		Selling and Marketing			$ 41,935			$ (1,894	)	(b)		$ 40,041
		R&D and Engineering			26,682			(5,110	)	(b)		21,572
		General and Administrative			17,909			(970	)	(b)		16,939
		Restructuring			2,221			(2,221	)	(c)		-
		Integration			2,550			(2,550	)	(d)		-
					$ 91,297							$ 78,552
3.	Operating Income				$ 12,094			$ 12,907		(e)		$ 25,001
4.	Net Income (Loss) From Continuing Operations				$ (541	)		$ 8,390		(f)		$ 7,849
5.	Earnings (Loss) From Continuing Operations Per Share
			Basic		$ (0.02	)						$ 0.27
			Diluted		$ (0.02	)						$ 0.27
		Average Basic Shares Outstanding			28,819							28,819
		Average Diluted Shares Outstanding			28,819							28,819
								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) From Continuing Operations (GAAP Measure)
					$ (541	)		$ 8,390				$ 7,849
		Interest Expense			13,245			-				13,245
		Income Taxes			(445	)		4,517				4,072
		Depreciation and Amortization			16,273			(8,083	)			8,190
		EBITDA (Non-GAAP Measure)			$ 28,532			$ 4,824				$ 33,356
(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 severance and severance-related expenses.
(d)	Integration expenses related to Amazys acquisition.
(e)	Operating income effect of adjustments (a) through (d).
(f)	Adjustment (e) after tax using a 35% tax rate.