SOURCE: Merisel

April 17, 2007 08:45 ET

Merisel, Inc. Announces Earnings for Fourth Quarter 2006

NEW YORK, NY -- (MARKET WIRE) -- April 17, 2007 -- Merisel, Inc. (PINKSHEETS: MSEL), a leading provider of visual communications and brand imaging solutions to the consumer products, retail, advertising and entertainment industries, today reported financial results for the fourth quarter and year ended December 31, 2006.

Merisel reported Fourth Quarter 2006 earnings of $.55 per share versus income of $.06 per share for the Fourth Quarter of 2005, and Full Year 2006 earnings of $.66 per share versus income of $1.18 per share in 2005. Excluding Discontinued Operations, Merisel reported earnings of $.58 per share in the Fourth Quarter versus income of $.15 per share in the Fourth Quarter of 2005 and Full Year 2006 earnings of $.56 per share versus income of $.53 per share in fiscal 2005.

The Fourth Quarter of 2006 included a $3,492 credit to the income tax provision ($.45 per share) attributable to the Company releasing a portion of its full valuation allowance against its deferred tax asset based on the belief that it will earn sufficient future income from operations to be able to utilize its NOLs. The Company utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." Under SFAS 109, when a Company believes that it may not have sufficient income to be able to utilize its deferred tax assets, (NOLs in the Company's case) a valuation allowance is recorded. Prior to today's announcement, the Company had taken a full valuation allowance that had reduced its net deferred tax assets to zero.

"We're pleased with our results for the quarter and for the full year," stated Donald. R. Uzzi, Chairman and CEO. Our revenue has shown solid growth fueled by our acquisitions of Crush Creative, Dennis Curtin Studios, AdProps and Fuel Digital. These acquisitions have broadened our footprint of operations, increased client service offerings and expanded our client base. Merisel is now a leading service provider in the Visual Communications and Brand Imaging Solutions business.

Results of Operations

(In thousands except per share amounts)

                               2006                    2005        2004
                Successor   Successor   Successor   Successor   Predecessor
                 Existing    Expanded     Total      Existing
                Operations  Operations  Operations  Operations
                ----------  ----------  ----------  ----------  ----------
Net sales       $   78,452  $    6,268  $   84,720  $   63,009  $   51,742
Gross profit        39,182       3,222      42,404      33,761      25,906
Selling,
 general, and
 administrative     35,515       2,553      38,068      26,753      22,083
Restructuring
 charge                724           -         724           -           -
Interest
 expense            (1,054)        (12)      (1066)       (611)       (489)
Interest income        481           -         481         347          48
Income taxes        (3,280)          -       (3280)        925       1,856
Discontinued
 Operations            748           -         748       5,016           -
Net Income           6,398         657       7,055      10,835  $    1,526
Preferred stock
 dividends           1,920           -       1,920       1,774           -
Net income
 available to
 common
 shareholders   $    4,478  $      657  $    5,135  $    9,061  $    1,526
                ----------  ----------  ----------  ----------  ----------
For the purposes of the above table and the following discussion, "Existing Operations" refers to the Company's businesses acquired during the fiscal year ended December 31, 2005, and "Expanded Operations" represents businesses acquired during the fiscal year ended December 31, 2006, specifically Dennis Curtin Studios, AdProps, and Fuel Digital.

Based on the fact that the Company had no ongoing operations immediately prior to the Acquisitions, predecessor accounting rules apply. Color Edge, Inc. and Affiliates represent the predecessor company, and as such 2004 comparisons in the discussion and analysis below are made to the Color Edge entity in 2004. Including discontinued operations, the Company reported net income to common stockholders of $5,135 for 2006, compared to $9,061 for 2005 and $1,526 for 2004. These results include a gain on the sale of discontinued operations of $748 and $5,016 for 2006 and 2005, respectively.

Comparison of Fiscal Years Ended December 31, 2006 and December 31, 2005

Net Sales - Net sales increased by $21,711 or 34.5% to $84,720 for the year ended December 31, 2006 from $63,009 for the year ended December 31, 2005. Net sales from Existing Operations increased $15,443 or 24.5% to $78,452 for the year ended December 31, 2006 from $63,009 for the year ended December 31, 2005. The increase in net sales from Existing Operations is due to the fact that the results of operations for Crush were included for the full twelve months in 2006 as compared to five months in 2005. In addition, the results of operations for ColorEdge and Comp 24 were included for the full twelve months in 2006 as compared to ten months in 2005.

Gross Profit - Gross profit increased $8,643 or 25.6% to $42,404 for the year ended December 31, 2006 as compared to $33,761 for the year ended December 31, 2005. Gross profit from Existing Operations increased $5,421 or 16.1% to $39,182 for the year ended December 31, 2006 from $33,761 for the year ended December 31, 2005. The increase in gross profit from Existing Operations is due to the fact that the results of operations for Crush were included for the full twelve months in 2006 as compared to five months in 2005. In addition, the results of operations for ColorEdge and Comp 24 were included for the full twelve months in 2006 as compared to ten months in 2005. Gross profit as a percentage of sales, or gross margin, was 50.1% for the year ended December 31, 2006 compared to 53.6% for the 2005 period. The decrease in gross margin is attributable to an increase in outside purchases, which typically have a lower profit margin than components produced internally. We anticipate that outsourcing as a percentage of sales will decline in future years as our 2006 acquisitions are now fully integrated into our existing production resources.

Selling, General and Administrative - Selling, general and administrative expenses increased $11,315 or 42.3% to $38,068 for the year ended December 31, 2006 from $26,753 for the year ended December 31, 2005. Selling, general and administrative expenses from Existing Operations increased $8,762 or 32.8% to $35,515 for the year ended December 31, 2006 from $26,753 for the year ended December 31, 2005. The increase in selling, general, and administrative from Existing Operations is due to the fact that the results of operations for Crush were included for the full twelve months in 2006 as compared to five months in 2005. In addition, the results of operations for ColorEdge and Comp 24 were included for the full twelve months in 2006 as compared to ten months in 2005.

Restructuring Costs - For the year ended December 31, 2006, the Company recorded a restructuring charge of $724 related to the restructuring of the wet film processing business. There was no restructuring charge for year-end December 31, 2005.

Interest Expense - Interest expense for the Company increased by $455 or 74.5% to $1,066 for the year ended December 31, 2006 from $611 for the year ended December 31, 2005. The change primarily reflects increased interest expense related to the Crush borrowings which were outstanding for twelve months in 2006 as compared to five months in 2005.

Interest Income - Interest income for the Company increased by $134 or 38.6% to $481 for the year ended December 31, 2006 from $347 for the year ended December 31, 2005. The increase was due to increases in interest income on short-term investments and escrow accounts.

Income Taxes - For the year ended December 31, 2006, the Company recorded an income tax benefit of $3,280 including a benefit of $3,492 recorded in the fourth quarter. This compared to a provision of $925 in the year ended December 31, 2005. The Company reduced its valuation allowance and recorded a deferred tax benefit in the amount of $3,378 for the year ended December 31, 2006.

Discontinued Operations - Income from discontinued operations for the year ended December 31, 2006 was $748. The Company recorded a gain on the sale of the Company's right to an unsecured claim for $1,250 and other expenses of $342, net of tax of $160. Gain on the sale of discontinued operations was $5,016 in the year ended December 31, 2005 based on the rescission of the sale of the software licensing assets to D&H. The primary components of this gain were the recovery and subsequent sale of a piece of land in Cary, North Carolina for $4,079, cash receipts from D&H of approximately $1,541 the recovery of a note receivable with a book value of $914 and approximately $539 of collections from discontinued customers. These gains were offset by approximately $2,057 of legal and other fees, certain liabilities and tax expense.

Net Income - As a result of the above items, the Company reported net income available to common stockholders of $5,135 for the year ended December 31, 2006 compared to $9,061 in the year ended December 31, 2005. The Company reported net income from existing operations available to common stockholders of $4,478 for the year ended December 31, 2006 compared to $9,061 in the year ended December 31, 2005.

About Merisel

Merisel, headquartered in New York, N.Y., is a leading visual communications and brand imaging solutions provider to its clients. Merisel provides a broad portfolio of digital and graphic services to clients in the retail, manufacturing, beverage, cosmetic, advertising, entertainment and consumer packaged goods industries. These solutions are delivered to clients through its portfolio companies; ColorEdge, Crush Creative, Comp 24, It's in the Works, Dennis Curtin Studios, AdProps, and Fuel Digital. Merisel has sales offices in New York City, Atlanta, Chicago, Los Angeles, Orlando, and Portland, Oregon, and production facilities in New York, New Jersey, Atlanta and Los Angeles to ensure the highest quality solutions and services to our clients. Learn more at www.merisel.com.

Cautionary Statement

This release contains statements concerning Merisel's expectations for future performance, and are forward-looking statements as that term is used in the Private Securities Litigation Reform Act of 1995. Any such forward-looking statements are inherently speculative and are based on currently available information, operating plans and projections about future events and trends. As such, they are subject to numerous risks and uncertainties. Actual results and performance may be significantly different from expectations. The Company undertakes no obligation to update any such forward-looking statements. Please see the Company's filing with the Securities and Exchange Commission, including the Company's Annual Report on Form 10-K, for a discussion of specific risks that may affect performance.

Contact Information