SOURCE: Merisel

November 14, 2006 16:05 ET

Merisel, Inc. Announces Earnings for Third Quarter 2006

NEW YORK, NY -- (MARKET WIRE) -- November 14, 2006 -- 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 third quarter ended September 30, 2006.

Merisel reported third quarter 2006 earnings of $.09 per share compared to earnings of $.63 per share for the third quarter of 2005. The third quarter of 2005 included a non-recurring gain from discontinued operations of $3.5 million ($.46 per share) that positively impacted financial results.

For the nine months ended September 30, 2006, the Company reported earnings of $.11 per share compared to $1.12 per share in the first nine months of 2005. Excluding discontinued operations, results for the first nine months of 2006 were a loss of ($.02) per share compared to income of $.38 per share for the first nine months of 2005.

Chairman and Chief Executive Officer Donald R. Uzzi stated, "We are pleased with our third quarter results as each of our portfolio companies turned in strong revenue results led by ColorEdge, where revenues grew by $1.4 million over the previous quarter. Strong revenues coupled with our disciplined cost reduction initiatives enabled us to absorb the continuing decline in wet processing and yield solid profitability. Our focused efforts on improving ColorEdge profitability have begun to show positive results."

He further stated, "On October 5th we closed the acquisition of Fuel Digital, Inc., a leader in the High Art and Commercial Retouching space, our sixth acquisition in nineteen months. This transaction firmly establishes Merisel as the leader in the domestic retouching space, and will be immediately accretive to EPS."

"We continue to believe in our strategy of transforming the graphics solution space and that Merisel is a leader in providing visual communication and brand imaging solutions to clients."

RESULTS OF OPERATIONS (amounts in thousands except as noted or in per share data)

The Company reported net income available to common stockholders of $685, or $0.09 per share, and $864, or $0.11 per share, for the three and nine months ended September 30, 2006, respectively. This compares with net income available to common stockholders of $4,798, or $0.63 per share, and $8,556, or $1.12 per share, for the comparable 2005 period. Net income for the three and nine months ended September 30, 2006 includes a loss of $19 and income $984, or $0.00 and $0.13 per share, respectively, from discontinued operations as compared to a gain on the sale of discontinued operations of $3,491 and $5,643, or $0.46 and $0.74 for the three and nine months ended September 30, 2005.

Three Months Ended September 30, 2006 as Compared to the Three Months Ended September 30, 2005.

During the quarter ended September 30, 2005, the Company acquired Crush Creative (acquired in August 2005) and has acquired two additional subsidiaries, Dennis Curtin Studios and Advertising Props, since the close of that quarter. The results of operations for these three acquisitions are included for three full months during the quarter end September 30, 2006. Comparatively, the results of operations for Crush Creative were included for two months during the same quarter in 2005, while the results of operations for Dennis Curtin Studios and Advertising Props were not included. For the purposes of the following discussion, "existing operations" refers to those businesses that were operational for three full months in the quarters ended September 30, 2006 and 2005.

Net Sales -- Net sales increased $707 or 3.5% to $20,677 for the three months ended September 30, 2006 from $19,970 for the three months ended September 30, 2005. Net sales from existing operations decreased $2,422 due primarily due to decreased revenues of $1,156 in the conventional wet film processing business, as well as, the delay of expected client projects from the current period to the fourth quarter.

Gross Profit -- Gross profit increased $720 or 7.3% to $10,567 for the three months ended September 30, 2006 from $9,847 for the three months ended September 30, 2005. Gross profit from existing operations decreased $996 due primarily to decreased revenues in the conventional wet film processing business. Gross profit as a percentage of sales, or gross margin, increased from 49.3% in the prior year to 51.1% in the current quarter. The gross margin percentage in existing operations increased 1.4% due to decreased production payroll costs. Additionally, the total increase is related to higher gross profit percentages in recently acquired Dennis Curtin Studios and Advertising Props, which have a combined gross profit margin percentage of 54.0%.

Selling, General and Administrative -- Selling, general and administrative expenses increased $1,153 or 14.5% to $9,098 for the three months ended September 30, 2006 from $7,945 for the three months ended September 30, 2005. Selling, general and administrative expenses as a percentage of sales increased to 44.0% for the three months ended September 30, 2006 compared to 39.8% for the three months ended September 30, 2005. The increase is due to decreased revenues in the traditional wet processing business, as well as, unrecognized revenues from the delay of expected client projects without yet fully realizing the benefits of cost reduction initiatives expected to impact future quarters.

Discontinued Operations -- Loss from discontinued operations for the three months ended September 30, 2006 was $19. This loss is the result of the expenses related to maintenance of property available for sale. Income from discontinued operations was $3,491 for the three months ended September 30, 2005. This income was related to the gain on a sale of land, recovered during the second quarter of 2005 and sold in September 2005.

Net Income Available to Common Shareholders -- As a result of the above items, the Company had net income of $685 for the three months ended September 30, 2006 compared to income of $4,798 for the three months ended September 30, 2005.

Nine months Ended September 30, 2006 as Compared to the Nine months Ended September 30, 2005.

During the nine months ended September 30, 2005, the Company acquired Color Edge and Comp 24 (acquired in March 2005) and Crush Creative (acquired in August 2005) and has acquired two additional subsidiaries, Dennis Curtin Studios and Advertising Props, since September 30, 2005. The results of operations for ColorEdge, Comp 24, and Crush Creative are included for nine full months during the nine months end September 30, 2006. In addition, the results of operations for Dennis Curtin Studios and Advertising Props are included for five months during the nine months ended September 30, 2006. Comparatively, the results of operations for Color Edge, Comp 24, and Crush Creative were included for partial periods during the nine months ended September 30, 2005, while the results of operations for Dennis Curtin Studios and Advertising Props were not included.

Net Sales -- Net sales increased $18,617 or 45.2% to $59,782 for the nine months ended September 30, 2006 from $41,165 for the nine months ended September 30, 2005.

Gross Profit -- Gross profit increased $8,558 or 40.0% to $29,951 for the nine months ended September 30, 2006 from $21,393 for the nine months ended September 30, 2005. Gross profit as a percentage of sales, or gross margin, was 50.1% in the nine months ended September 30, 2006 compared to 52.0% in the 2005 period. The decrease in gross margin is attributable to negative volume leverage on fixed production costs.

Selling, General and Administrative -- Selling, general and administrative expenses increased $10,372 or 60.9% to $27,397 for the nine months ended September 30, 2006 from $17,025 for the nine months ended September 30, 2005. Selling, general and administrative expenses as a percentage of sales increased to 45.8% for the nine months ended September 30, 2006 compared to 41.4% for the nine months ended September 30, 2005. The increase is due to decreased revenues in the traditional wet processing business, as well as, unrecognized revenues from the delay of expected client projects with the benefits of cost reduction initiatives impacting only the third quarter this year.

Restructuring Costs -- For the nine months ended September 30, 2006, the Company recorded a restructuring charge of $724 related to the restructuring of the wet processing film business.

Discontinued Operations -- Income from discontinued operations for the nine months ended September 30, 2006 was $984. This income is the result of the Company selling its right to an unsecured claim for $1,250, net of tax of $160 and other expenses of $106. For the nine months ended September 30, 2005, a gain on the sale of discontinued operations was $5,643. This gain was related to the rescission of the sale of the Company's software licensing assets in February 2005, whereby the Company recovered cash, a note receivable, and land from D&H Services, LLC and the gain from the subsequent sale of the land.

Net Income Available to Common Shareholders -- As a result of the above items, the Company had net income of $864 for the nine months ended September 30, 2006 compared to $8,556 for the nine months ended September 30, 2005.

                      MERISEL, INC. AND SUBSIDIARIES
                   CONSOLIDATED STATEMENTS OF OPERATIONS


                                                               Two Months
                 Three Months Ended      Nine months Ended        Ended
                   September 30,           September 30,       February 28,
                  2006         2005       2006         2005        2005
               ----------  ----------- ----------  ----------- -----------
              (Unaudited)  (Unaudited) (Unaudited) (Unaudited)  (Audited)
                Successor    Successor  Successor   Successor  Predecessor
               ----------  ----------- ----------  ----------- -----------
Net sales      $   20,677  $    19,970 $   59,782  $    41,165 $     8,532

Cost of sales      10,110       10,123     29,831       19,772       5,011

               ----------  ----------- ----------  ----------- -----------
Gross profit       10,567        9,847     29,951       21,393       3,521

Selling, general
 & administrative
  expenses          9,098        7,945     27,397       17,025       4,615
Restructuring
 charge                 -            -        724            -           -

               ----------  ----------- ----------  ----------- -----------
Operating
 income (loss)      1,469        1,902      1,830        4,368      (1,094)

Interest
 expense, net          86          120        312           74          73

               ----------  ----------- ----------  ----------- -----------
Income (loss)
 from
 continuing
 operations
 before provision
 for income tax     1,383        1,782      1,518        4,294      (1,167)

Income tax
 provision            194           27        212           63           -

               ----------  ----------- ----------  ----------- -----------
Income (loss)
 from
 continuing
 operations         1,189        1,755      1,306        4,231      (1,167)

Income (loss)
 from discontinued
 operations,
 net of taxes         (19)           -        984            -           -
Gain on sale
 of discontinued
 operations             -        3,491          -        5,643           -
               ----------  ----------- ----------  ----------- -----------
Net income
 (loss)             1,170        5,246      2,290        9,874      (1,167)
Preferred
 stock dividends      485          448      1,426        1,318           -
               ----------  ----------- ----------  ----------- -----------
Net income
 (loss)
 available to
 common
 stockholders  $      685  $     4,798 $      864  $     8,556 $    (1,167)
               ==========  =========== ==========  =========== ===========

Net income per
 share (basic
 and diluted):
Net income
 (loss) from
 continuing
 operations
 available to
 common
 stockholders  $     0.09  $      0.17 $    (0.02) $      0.38         N/A
Income from
 discontinued
 operations,
 net of taxes        0.00         0.00       0.13         0.00         N/A
Gain on sale
 of discontinued
 operations          0.00         0.46       0.00         0.74         N/A
               ----------  ----------- ----------  ----------- -----------
Net income
 available
 common
 stockholders  $     0.09  $      0.63 $     0.11  $      1.12         N/A
               ==========  =========== ==========  =========== ===========
Weighted
 average number
 of shares
  Basic             7,773        7,624      7,774        7,624         N/A
  Diluted           7,781        7,743      7,797        7,727         N/A

Contact Information

  • Contact:
    Jon H. Peterson
    212-502-6570
    Email Contact

    Hannah Lee
    Merisel, Inc.
    127 West 30th Street
    New York, NY 10001
    T (212) 502-6571
    F (917) 351-5889
    Email Contact