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X-Rite Sees Net Sales Drop in Q2

Wednesday, August 02, 2006

Press release from the issuing company

GRANDVILLE, Mich.--Aug. 1, 2006-- X-Rite, Incorporated today announced its financial results for the second quarter ended July 1, 2006. The Company reported second quarter 2006 net sales of $32.0 million, a 3.0 percent decrease versus the second quarter of last year. The impact of foreign currency translation on sales was minimal in the second quarter. Gross margins were 60.9 percent compared to 65.3 percent in the year ago quarter. Operating income was $0.6 million versus $4.1 million in the second quarter of 2005. Operating income, as a percentage of sales was 1.9% and 12.5% for the second quarters of 2006 and 2005, respectively. For the first half of 2006 the Company reported net sales of $62.0 million, a 2.3 percent increase versus the first half of last year. The impact of foreign currency translation on sales was unfavorable in the first half of 2006 and decreased sales by approximately 1 percent. Gross margins were 62.8 percent compared to 64.4 percent in the year ago first half. Operating income was $0.8 million versus $4.4 million in the first half of 2005. Operating income, as a percentage of sales was 1.2% and 7.2% for the first halves of 2006 and 2005, respectively. Total operating expenses increased by $1.5 million over the second quarter of 2005, including one-time expenses of $0.6 million related to integration planning for the Amazys acquisition and $0.4 million related to the adoption of FAS 123R. This compares to a one-time gain of $1.2 million in 2005 related to the sale of insurance policies. Excluding these items, operating expenses would have declined by $0.7 million. "In the second quarter, our team did a great job managing the internal and external challenges as the Amazys close approached," stated Michael C. Ferrara, Chief Executive Officer of X-Rite. "Our goal was to lay the foundation for a successful integration by completing a detailed plan, while staying the course with our current business. Despite the significant business change on the horizon for our Company, revenues were impacted minimally as sales grew 2.3 percent in the first half of 2006. Further, we successfully focused on controlling our operating costs, while continuing to invest in new product development." The Company reported net income in the second quarter of 2006 of $1.6 million, or 7 cents per diluted share, versus $2.9 million, or 14 cents per diluted share in the second quarter of 2005. For the first half of 2006 net income was $1.9 million, or 9 cents per diluted share, versus $2.6 million or 12 cents per diluted share for the first half of 2005. Net income in 2006 was impacted by a pre-tax gain of $2.2 million on currency hedging contracts related to the cash portion of the Amazys acquisition. "During the second quarter, gross margins decreased as a result of inventory write downs for excess and obsolete inventory primarily related to new European regulatory standards and elimination of older products, changes in our product mix and lower absorption of overhead due to volume decreases," stated Mary E. Chowning, Chief Financial Officer. "This temporary decline in gross margins significantly impacted our profitability. Approximately 3 percentage points, or $1.0 million, of the decline are attributed to one-time events." Amazys Transaction X-Rite launched the formal tender offer for all Amazys shares on March 24, 2006. The consideration offered for each Amazys share in the tender offer 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 $280 million. Outlook The Company expects revenue growth to be flat for the remainder of 2006. Preliminary estimates for full year 2007 revenue growth is in the 4 percent to 6 percent range. "In addition to the ongoing support of our existing business, we are very excited about our new products for the second half of 2006. PlateScope, Vericolor Spectro and Matchstik 1.1 are building strong backlogs and have been well received in the marketplace," said Ferrara. "At the same time, the first stages of our integration plan for Amazys have also been launched. We are pleased with the successful close, and look forward to the opportunity to enhance our business and build shareholder value as we begin to leverage the complementary strengths of these entities." The Company expects to achieve the following portion of the cost synergies related to the Amazys acquisition over the next twelve months: Manufacturing 10-15% of $9 million total synergies Selling & Marketing 45-55% of $5.5 million total synergies Engineering 30-40% of $5.0 million total synergies General & Administration 40-50% of $5.5 million total synergies "As part of the Amazys integration, we have the opportunity to recognize significant annual cost synergies totaling $25 million by the end of there of the third year following the close," stated Chowning. "Our synergies from operating expense costs are expected to be $16 million annually with $9 million of additional reductions related to manufacturing."

 

 

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