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X-Rite Reports Record Q2 Revenue

Press release from the issuing company

GRANDVILLE, Mich.--July 21, 2005-- X-Rite, Incorporated today announced its financial results for the second quarter ended July 2, 2005. Second Quarter Highlights: Net sales of $33.0 million, compared to $31.8 million in the second quarter of 2004. Gross margins remained strong at 65.3 percent. Operating income of $4.1 million, with continued strategic investments in infrastructure, engineering, sales and marketing. Posted a gain of $1.2 million related to the sale of three life insurance policies. Completed acquisitions of two software products - ICC Tools and ForeSite. The Company reported record second quarter 2005 net sales of $33.0 million, a 3.5 percent increase from the second quarter of last year, and a 19.6 percent increase over first quarter revenues. Gross margins were 65.3 percent compared to 66.3 percent in the year ago quarter. Operating income was $4.1 million versus $4.8 million in the second quarter of 2004. Operating income was 12.5 percent of sales in the second quarter of 2005, compared to 15.1 percent in the prior year period. Net sales for the first half of the year were $60.6 million versus $60.4 million in the prior year. Year-to-date gross margins were 64.4 percent and 65.0 percent for 2005 and 2004, respectively. Operating income for the first half of 2005 was $4.4 million versus $6.5 million in 2004. Performance improvements in the Company's Asia Pacific and digital imaging businesses led to the return to revenue growth in the second quarter. "The declines in both businesses in the first quarter were reversed as a result of improved execution. We believe we are on track and expect to see overall growth in these businesses for the full year in 2005," said Michael C. Ferrara, Chief Executive Officer of X-Rite. Ferrara continued, "Our revenue growth was also supported by other areas of our business that performed well above targets. We are particularly encouraged by the growth in our Retail business, which exceeded our expectations and grew by 20 percent over the prior-year quarter. In addition, we continue to see favorable responses to our new products from large OEM customers and important industry influencers. As a result, we remain confident in our 2005 growth projections in the digital imaging segment of our business." The second quarter results for 2005 include a gain of $1.2 million related to the sale of certain life insurance policies to third parties. The gain is included in Founders' Insurance expenses which is a component of operating income. "After reviewing many options, we feel that these sales represent an excellent opportunity to realize value in our life insurance portfolio as well as increase cash flow to fund new business initiatives. We will continue to explore our options with regards to the remaining eleven policies in the portfolio," stated Mary E. Chowning, Chief Financial Officer. The Company reported net income in the second quarter of 2005 of $2.9 million, or 14 cents per share, versus a loss of $0.7 million, or 3 cents per share, in the second quarter of 2004. The loss in 2004 was primarily due to a non-cash charge of $3.6 million (17 cents per share) related to Statement of Financial Accounting Standards No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity (SFAS No. 150). "During the quarter, we focused on making investments in infrastructure and new business development in color and marketing initiatives to support long-term growth plans," said Chowning. "These planned investments more than offset our revenue increases during the quarter resulting in a decline in our operating income versus the prior year. However, we remain confident in our business decisions as we believe these investments position us well for the future." Outlook The Company further revised its guidance outlook from low double digit growth to 7-10 percent growth for 2005. Ferrara explained, "While the adoption rate of our new products in the first half of 2005 was slightly lower than we hoped for, we continue to receive positive signals from our customers that they will include these solutions in their future offerings. Additionally, our Asia Pacific business has regrouped and will add to our second half growth after a slow start in the first quarter. As an organization we remain committed to driving low double digit growth in the future, but believe it to be prudent to slightly adjust our guidance for the remainder of 2005 to reflect our flat first half."