Condition and Results of Operations

FORWARD-LOOKING STATEMENTS:

This discussion and analysis of financial condition and results of operations, as well as other sections of the Company's Form 10-Q, contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act, as amended, that are based on management's beliefs, assumptions, current expectations, estimates and projections about the industries it serves, the economy, and about the Company itself. Words such as "anticipates," "believes," "estimates," "expects," "likely," "plans," "projects," "should," variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what may be expressed or forecasted in such forward-looking statements. Furthermore, X-Rite, Incorporated undertakes no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements include, but are not limited to statements concerning liquidity, capital resources needs, tax rates, dividends and potential new markets.

The following management's discussion and analysis describes the principal factors affecting the results of operations, liquidity, and capital resources, as well as the critical accounting policies, of X-Rite, Incorporated (also referred to as "X-Rite", "the Company"). For purposes of this discussion, amounts from the accompanying condensed consolidated financial statements and related notes have been rounded to millions of dollars for convenience of the reader. These rounded amounts are the basis for calculations of comparative changes and percentages used in this discussion. This discussion should be read in conjunction with the accompanying condensed consolidated financial statements, which include additional information about the Company's significant accounting policies, practices and transactions that underlie its financial results.

OVERVIEW OF THE COMPANY

X-Rite, Incorporated is a technology company that develops a full range of color management systems. The Company, which now includes color industry leader Pantone, Inc., develops, manufactures, markets and supports innovative color solutions through measurement systems, software, color standards and services. The Company's technologies assist manufacturers, retailers and distributors in achieving precise color appearance throughout their global supply chain. X-Rite products also assist printing companies, graphic designers, and professional photographers in achieving precise color reproduction of images across a wide range of devices and from the first to the last print. The Company's products also provide retailers color harmony solutions at point of purchase. The key markets served include Imaging and Media, Industrial, and Retail. X-Rite generates revenue by selling products and services through a direct sales force as well as select distributors. The Company has sales and service facilities located in the United States, Europe, Asia, and Latin America.

First Quarter Highlights:

• First quarter 2009 net sales of $46.6 million

• Strong execution of the Company's profit improvement plan

• Healthy cash flow from operations with a quarter ending cash balance of $43.3 million

• Strengthened balance sheet by debt paid down by $20.9 million in the quarter

• iVue ® product line success at Spring trade shows signals strong potential

Condition and Results of Operations - continued

RESULTS OF OPERATIONS

The following table summarizes the results of the Company's operations for the
three month periods ended April 4, 2009 and March 29, 2008 (in millions):



                                                    Three Months Ended
                                           April 4, 2009          March 29, 2008
        Net sales                        $  46.6     100.0 %    $   65.9     100.0 %
        Cost of sales:
        Products sold                       19.8      42.5          26.5      40.2
        Inventory valuation adjustment        -         -            3.9       5.9
        Restructuring charges                 -         -            0.2       0.3

        Gross profit                        26.8      57.5          35.3      53.6

        Operating expenses                  28.6      61.4          37.3      56.6

        Operating loss                      (1.8 )    (3.9 )        (2.0 )    (3.0 )

        Interest expense                    (8.5 )   (18.2 )       (12.0 )   (18.2 )
        Other, net                           1.7       3.6          (1.1 )    (1.7 )

        Loss before taxes                   (8.6 )   (18.5 )       (15.1 )   (22.9 )

        Income taxes                         0.1       0.2           1.7       2.6

        Net Loss                            (8.7 )   (18.7 )%      (16.8 )   (25.5 )%

Condition and Results of Operations - continued

Net Sales

Net Sales By Product Line

The Company has two reportable segments, Color Measurement and Color Standards. The Color Measurement segment is engaged in X-Rite's traditional hardware and software technology business that develops a full range of color management systems. The Company's technologies assist manufacturers, retailers, and distributors in achieving precise color appearance throughout their global supply chain. The Color Standards segment includes the operations of the Pantone business unit. Pantone is a leading developer and marketer of products for the accurate communication and reproduction of color, servicing worldwide customers in a variety of industries including imaging and media, textiles, digital technology, plastics, and paint. The following table denotes net sales by business unit for the three months ended April 4, 2009 and March 29, 2009 (in millions):

                                                 Three Months Ended
                                        April 4, 2009        March 29, 2008
             Imaging and Media         $   18.6    39.9 %   $    28.0    42.5 %
             Industrial                     8.2    17.6          13.2    20.0
             Retail                         3.9     8.4           4.1     6.2
             Color Support Services         6.1    13.1           7.4    11.2
             Other                          1.4     3.0           1.4     2.2

             Total Color Measurement       38.2    82.0          54.1    82.1
             Color Standards                8.4    18.0          11.8    17.9

             Total                     $   46.6   100.0 %   $    65.9   100.0 %

Consolidated

Net sales for the first quarter of 2009 were $46.6 million, a decrease of $19.3 million, or 29.3 percent, over the first quarter in 2008. The Color Standards segment accounted for approximately $8.4 million in net sales for the first quarter 2009, versus $11.8 million for the comparable period in the previous year. The Color Measurement segment's net sales decreased $15.9 million, or 29.4 percent, compared with first quarter 2008. Net sales in all business units decreased quarter over quarter, compared with the same period in 2008. The most significant declines occurred within the Imaging and Media and the Industrial business units. These declines were a result of the continued global economic recession and its related effect on the Company's products.

In the first quarter of 2009, the Company experienced net sales decline over the first quarter of 2008 in all of the primary regions of the world where it conducts business, with the exception of Latin America. Net sales in North America decreased $4.2 million, or 18.0 percent, compared with the first quarter of 2008, while net sales in Europe decreased $12.1 million, or 39.8 percent for the first quarter of 2009. Net sales in Asia Pacific decreased $3.2 million, or 27.6 percent compared with the first quarter of 2008.

The Company's primary foreign exchange exposures are from the Euro and the Swiss Franc. The impact of fluctuations in these currencies was reflected mainly in the Company's European operations. Foreign currency fluctuations had a $2.3 million negative effect on first quarter 2009 net sales.

Condition and Results of Operations - continued

Color Measurement Segment

The Imaging and Media product lines provide solutions for commercial and package printing applications, digital printing and photo processing, photographic, graphic design and pre-press service bureaus in the imaging industries. For the first quarter of 2009, the Imaging and Media market reported a decrease in net sales of $9.4 million, or 33.6 percent, as compared to the first quarter of 2008. The decline in the Imaging and Media market continued from prior year and was seen in the pressroom and printing sub markets where demand from strategic partners declined and aftermarket channel sales decreased compared to 2008 performance.

The Industrial group provides color measurement solutions for the automotive quality control, process control and global supply chain markets. The Company's products are an integral part of the manufacturing process for automotive interiors and exteriors, as well as textiles, plastics, and dyes. The Industrial market's 2009 first quarter net sales decreased by $5.0 million, or 37.9 percent compared to the same quarter in the prior year. The Industrial quarter over quarter decline was largely related to the decline in the global automotive channel and global supply chain projects between U.S. retailers or product companies and their suppliers in Asia. As the U.S. economy weakened in 2008 and continued into 2009 a number of these supply chain projects were delayed into late 2009 or potentially 2010.

The Retail market experienced a net sales decrease of $0.2 million, or 4.9 percent, for first quarter of 2009 compared with that of 2008. The release of iVue ® (a next generation retail paint matching system) in late 2008 was received well by many of our major retail accounts. The incremental sales from the iVue ®product line partially offset decreased European sales.

The Color Support Services business provides professional color training and support worldwide through seminar training, classroom workshops, on-site consulting, technical support and interactive media development. This group also manages the Company's global service repair departments. The products repaired by the service department include the Company's products currently covered by our warranty program as well as those products which have expired warranties. The Color Support Services market was formed in 2007 as a result of the Amazys acquisition. The Color Support Services group recorded a first quarter decrease in net sales of $1.3 million or 17.6 percent compared to the first quarter of the previous year. The decrease in Color Support Services net sales was driven in large part by the continued global economic recession, as well as a decline in the European sales of parts and repairs.

The Company's product lines denoted as Other are primarily comprised of the Medical and Dental category. The Medical product line provides instrumentation designed for use in controlling variables in the processing of x-ray film and other applications. The Dental product line provides matching technology to the cosmetic dental industry through X-Rite's ShadeVision and Shade-X systems. Other product net sales for the first quarter of 2009 and 2008 were $1.4 million.

Color Standards Segment

The Color Standards segment includes the operations of the Pantone business unit. Pantone is a leading developer and marketer of products for the accurate communication and reproduction of color, servicing worldwide customers in a variety of industries including imaging and media, textiles, digital technology, plastics and paint. For 2008, the results presented in the Color Standards segment reflect the first full year of Pantone operations since the acquisition. For the quarters ended April 4, 2009 and March 29, 2008, the Color Standards segment recorded net sales of $8.4 and $11.8 million, respectively. The graphics and licensing product lines experienced slight increases in sales, which were offset by economic conditions.

Cost of Sales and Gross Profit

Gross profit for the first quarter of 2009 was $26.8 million, or 57.5 percent of net sales, compared with $35.3 million, or 53.6 percent of net sales, for the first quarter of 2008. Included in cost of sales for 2008 are $3.9 million, or 5.9 percent of margin percentage, in purchase accounting inventory adjustments as a result of the Pantone acquisition purchase price allocation. As part of the Pantone purchase price allocation, an adjustment of $15.4 million was recorded to increase inventory to its fair value at the date of acquisition. This adjustment has been recognized in cost of sales ratably as the inventory is sold. The current year gross margin was unfavorably impacted by 1.9 percentage points due to certain changes in useful lives of various demonstration instrumentation. The decrease in gross profit for 2009 was largely due to lower overall volume as a result of the weakening of global economy. The decreases in volume have been partially offset by the Company's process improvement initiatives including headcount reductions.

Condition and Results of Operations - continued

Operating Expenses

The following table compares operating expense components as a percentage of net
sales (in millions):



                                                         Three Months Ended
                                                April 4, 2009        March 29, 2008
     Selling and marketing                     $    13.6   29.2 %   $    17.7    26.9 %
     Research, development and engineering           5.9   12.6           8.6    13.1
     General and administrative                      7.3   15.7           9.9    15.0
     Restructuring and other related charges         1.8    3.9           1.1     1.6

     Total                                     $    28.6   61.4 %   $    37.3    56.6 %

Selling and marketing expenses for the first quarter of 2009 decreased by $4.1 million, or 23.2 percent, as compared with the first quarter of 2008. Research, development and engineering expenses in 2009 as compared with the comparable period in 2008, have declined by $2.7 million or 31.4 percent. General and Administrative expenses decreased by $2.6 million, or 26.3 percent, for the first quarter of 2009 compared with the first quarter of 2008. The decreases in all classifications of expenses are primarily a result of lower compensation levels due to lower employee costs, strong initiatives to reduce travel and entertainment expenses, and efforts to minimize consulting fees. These declines are a result of the aggressive restructuring activities in place in response to the uncertain economic conditions, as discussed below.

Restructuring and Other Related Charges

Restructuring and other related charges expense during the first quarter of 2009 increased $0.7 million compared with the first quarter of 2008. The increase was related to the continued restructuring efforts resulting from the January 2009 restructuring (January 2009 plan) the Company announced in the first quarter of 2009. The January 2009 plan includes narrowing the Company's business focus and rationalizing certain business segments, aggressively pursuing manufacturing efficiencies, implementing a reduction in force of up to 120 jobs, executing reduced work schedules and furloughs for selected employee groups, reducing executive compensation and suspending selected employee benefit programs. For the three months ended April 4, 2009 the Company expensed $1.7 million related to the January 2009 restructuring plan, including $1.2 million in severance costs and lease termination and other fees of $0.5 million. In the first quarter of 2009 the Company also expensed $0.1 related to the 2008 restructuring plans. For further discussion of the restructuring plans refer to Note 5 regarding Restructuring and Other Related Charges.

Incremental costs have been incurred related to the integration of the Company's acquisitions that do not qualify as restructuring under the provisions of SFAS 146, Accounting for Costs Associated with Exit or Disposal Activities. These costs include costs related to personnel working fulltime on integration work, integration related travel, and outside consultants' work on strategic planning, culture and synergy assessments. All costs included in this caption were solely related to the integration and do not include normal business operating costs. There were no other related charges for the first quarter of 2009 and these charges were nominal for the first quarter of 2008.

Other Income (Expense)

Interest Expense

Interest expense for the first quarter of 2009 was $8.5 million, which is a decrease of $3.5 million or 29.2 percent over the first quarter of 2008. The decrease is largely attributable to the significant pay down of debt that occurred as a result of the Corporate Recapitalization Plan of 2008. Interest expense was $12.0 million for the quarter ended March 29, 2008, which was primarily related to the borrowings and amortization of associated financing costs incurred to finance the acquisitions of Amazys and Pantone that occurred during July 2006 and October 2007, respectively. Additionally, in the first quarter of 2008 the Company included $2.0 million in losses on the ineffective portion of interest rate hedges in interest expense. These losses were reclassified from other comprehensive income (loss) to interest expense. For further discussions see Note 7 regarding the Company's short and long-term indebtedness and Note 8 on the Company's derivative financial instruments.

Other income (expense)

Other income (expense) consists of investment income, and gains or losses from foreign exchange transactions and sale of assets. Other income (expense) totaled $1.7 million during the first quarter of 2009, and were primarily related to gains on foreign exchange transactions.

Condition and Results of Operations - continued

Income Taxes

For the quarter ended April 4, 2009, the Company recorded a tax provision of $0.1 million against pre-tax losses of $8.6 million, resulting in a nominal effective income tax rate. For the quarter ended March 29, 2008, the Company recorded a tax provision of $1.7 million against pre-tax losses of $15.1 million, an effective rate of approximately (11.0) percent. This income tax provision primarily related to income earned outside the United States.

The Company cannot currently recognize tax benefits associated with its U.S. domestic operating losses and has valuation allowances recorded against related net federal deferred income tax assets. In addition, the income tax provision reflects the fact that foreign taxes are currently not subject to foreign tax credit offsets given the net operating losses accumulated domestically.

The Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes (FIN 48) on December 31, 2006 (fiscal year 2007). FIN 48 requires the Company to evaluate whether the tax position taken will more likely than not be sustained upon examination by the appropriate taxing authority. It also provides guidance on the measurement of the amount of benefit a company is to recognize in its financial statements. Under FIN 48 a company should also classify a liability for unrecognized tax benefits as current to the extent the company anticipates making a payment within one year.

The Company's policy is to recognize interest and/or penalties related to income tax matters in income tax expense. For the quarter ended April 4, 2009, the Company accrued interest and penalties of $0.1 million, net of associated tax benefits. At January 3, 2009, the Company had accrued $2.1 million for payment of interest and penalties.

The Company is subject to periodic audits by domestic and foreign tax authorities. During the second quarter of 2008, a periodic audit in one foreign tax jurisdiction was concluded, resulting in no additional amounts due. The Company reported a net operating loss on its 2007 Federal Income Tax return and during 2008 it filed a loss carry back claim with the Internal Revenue Service (IRS) related to this loss. By statute, the IRS is required to submit tax refund claims in excess of $2 million to the Congressional Joint Committee on Taxation for review. Consequently, the IRS is currently in the process of examining the Company's tax returns for the years 2005 and 2007. The Company believes that adequate accruals have been provided for all years. There are currently no other ongoing audits in foreign tax jurisdictions.

For the majority of tax jurisdictions, the Company is no longer subject to U.S. federal, state, and local, or non-U.S. income tax examinations by tax authorities for years before 2003.

The U.S statutory rate for both tax years was 35.0 percent.

Net Loss

The Company recorded a net loss of $8.7 million for the first quarter of 2009 compared with a net loss of $16.8 million for the first quarter of 2008. On a per share basis, fully diluted loss per share was $(0.11) and $(0.58) in the first quarter of 2009 and 2008, respectively.

The average number of common shares outstanding for purposes of calculating basic shares outstanding was higher in 2009 due to shares being issued in connection with the recapitalization in 2008 and the Company's employee stock programs.

Condition and Results of Operations - continued