EX-99.3 4 ex99_3.htm EXHIBIT 99.3 Exhibit 99.3

Zones Announces Financial Results for the Quarter and Year Ended December 31, 2006
AUBURN, WA -- 02/08/2007 -- Zones, Inc. (the "Company," "Zones"™) (NASDAQ: ZONS):
 
-
2006 earnings increased 57.1% to $0.66 per diluted share compared to earnings of $0.42 per diluted share in 2005
-
Fourth quarter 2006 diluted earnings per share increased 42.9% to $0.20 compared to $0.14 in 2005
-
Fourth quarter net sales grew 16.0% sequentially to $159.9 million
-
Fourth quarter 2006 SMB sales grew 32.3% compared to the prior year
-
Unassisted sales increased to 30.2% of total sales in the fourth quarter

Zones, a single-source direct marketing reseller of name-brand information technology products, today announced its results for the three- and twelve-month periods ended December 31, 2006.

The Company's fourth quarter net income was $3.0 million, or $0.20 per diluted share, compared with net income of $2.0 million, or $0.14 per diluted share, for the same quarter a year ago. Total fourth quarter 2006 net sales were $159.9 million compared to $159.8 million in the fourth quarter of 2005.

For the year ended December 31, 2006, net earnings improved to $9.7 million, or $0.66 per diluted share; this compares to $6.1 million, or $0.42 per diluted share, for 2005. Net sales for the year ended December 31, 2006 increased 1.8% to $577.0 million from $566.6 million for 2005.

Firoz Lalji, CEO, said, "I am very pleased with our fourth quarter and 2006 operating performance. 2006 annual earnings grew 57.1% over our reported earnings for 2005, which were 31.3% higher than 2004. Financial results for our most recent two fiscal years have provided shareholders an average annual return on equity of 20.8% and 15.5%, respectively." Continued Lalji, "Our acceleration in earnings demonstrates the continued fiscal improvements made by the Company in key financial and operating metrics. The 2007 plan is expected to build on our 2006 accomplishments and includes an extensive first half customer management initiative and a first half investment to develop a national field sales presence as another point of contact with current and prospective SMB and Enterprise customers."

Operating Highlights

Consolidated outbound sales increased 1.3% to $157.2 million in the fourth quarter of 2006 compared to $155.1 million in the same period of 2005. Sales to the SMB business grew 32.3% in the quarter compared to the same quarter a year ago. Customer unassisted sales (primarily web-based) were $48.4 million, an increase of 18.6% over the same period of 2005, and represented 30.2% of total fourth quarter 2006 net sales.

Gross profit margin improved 160 basis points to 12.0% in the fourth quarter of 2006, compared to 10.4% in the fourth quarter of 2005. The gross profit margin percentage in the fourth quarter of 2006 was positively affected due to product and customer mix, vendor programs and credits.

Total selling, general and administrative expenses, as a percent of net sales, were 7.8% in the fourth quarter of 2006. This represents an increase from 7.1% in the corresponding period of 2005 and a sequential decline from 8.2% in the third quarter of 2006. The year-over-year increase is due to compensation and benefit related expenses resulting from an increase in sales account executive headcount.

Asset Management

The Company's balance sheet remained strong and ended the year with a cash balance of $9.2 million. Consolidated working capital was $41.7 million at December 31, 2006 compared to $33.4 million at December 31, 2005.
 
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Inventories increased to $21.4 million at December 31, 2006 from $19.7 million at December 31, 2005. The increase is due to on hand customer inventory. Trade accounts receivable decreased to $65.7 million at December 31, 2006 from $68.3 million at December 31, 2005.

About Zones, Inc.

Zones, Inc. is a single-source direct marketing reseller of name-brand information technology products to the small- to medium-sized business market, large and public sector accounts. Zones sells these products through outbound and inbound account executives, specialty print and e-catalogs, and the Internet. Zones offers more than 150,000 products from leading manufacturers including 3COM, Adobe, Apple, Cisco, Epson, HP, IBM, Kingston, Lenovo, Microsoft, Sony and Toshiba.

Incorporated in 1988, Zones, Inc. is headquartered in Auburn, Washington. Buying information is available at http://www.zones.com, or by calling 800-258-2088. The Company's investor relations information can be accessed online at www.zones.com/IR.

A live webcast of the Company's management discussion of the fourth quarter will be available on the Company's Web site at www.zones.com/IR under upcoming events. The webcast will be held Friday, February 9, 2007 at 8:30 am PT.

This press release may contain statements that are forward looking. These statements are made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations that are subject to risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. These risk factors include, without limitation, future growth; account executive hiring and productivity; increased expenses of being a public company; pressure on margin; competition; state tax uncertainties; rapid technological change and inventory obsolescence; reliance on vendor relationships; dependence on personnel; potential disruption of business from information systems failure; reliance on outsourced distribution; variations in gross profit margin percentages due to vendor programs and credits, product and customer mix, pricing strategies, and economic conditions; and other risks and uncertainties detailed in the Company's filings with the SEC.
 
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ZONES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
 
   
December 31,
  
December 31,
  
   
2006
  
2005
  
ASSETS
          
Current assets
          
Cash and cash equivalents
  
$
9,191
  
$
3,195
  
Receivables, net of allowance for doubtful accounts of $1,936 and $1,562
    
65,699
    
68,318
  
Vendor Receivables
    
12,556
    
14,750
  
Inventories
    
21,385
    
19,736
  
Prepaids
    
1,076
    
922
  
Deferred tax asset
    
1,473
    
1,346
  
               
Total current assets
    
111,380
    
108,267
  
               
Property and equipment, net
    
3,771
    
3,810
  
Goodwill
    
5,098
    
5,098
  
     
251
        
Other assets
    
195
    
179
  
               
Total assets
  
$
120,695
  
$
117,354
  
               
LIABILITIES & SHAREHOLDERS' EQUITY
              
Current liabilities:
              
Accounts payable
  
$
42,592
  
$
45,359
  
Inventory Financing
    
14,385
    
8,469
  
Accrued liabilities and other
    
12,728
    
9,069
  
Line of credit
    
-
    
10,700
  
Notes payable to former shareholders of CPCS, Inc.
    
-
    
1,272
  
               
Total current liabilities
    
69,705
    
74,869
  
               
Note payable
    
6
    
21
  
Deferred income tax
    
-
    
35
  
Deferred rent obligation
    
1,502
    
1,112
  
               
Total liabilities
    
71,213
    
76,037
  
               
Commitments and contingencies
              
               
Shareholders' equity:
              
Common stock
    
35,983
    
37,503
  
Retained earnings
    
13,499
    
3,814
  
               
Total shareholders' equity
    
49,482
    
41,317
  
               
Total liabilities & shareholders' equity
  
$
120,695
  
$
117,354
  
 
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ZONES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)

   
For the three months
  
For the twelve months
  
   
ended December 31,
  
ended December 31,
  
   
2006
  
2005
  
2006
  
2005
  
                   
Net sales
  
$
159,918
  
$
159,834
  
$
577,027
  
$
566,553
  
Cost of sales
    
140,753
    
143,189
    
505,508
    
505,997
  
 
                          
 
                          
Gross profit
    
19,165
    
16,645
    
71,519
    
60,556
  
Selling, general and administrative expenses
    
12,515
    
11,373
    
48,434
    
43,618
  
Advertising expense
    
1,873
    
1,871
    
7,159
    
6,618
  
 
                          
Income from operations
    
4,777
    
3,401
    
15,926
    
10,320
  
 
                          
Other (income) expense:
    
(12
)
  
200
    
270
    
503
  
 
                          
Income before income taxes
    
4,789
    
3,201
    
15,656
    
9,817
  
Provision for income taxes
    
1,807
    
1,227
    
5,971
    
3,766
  
 
                          
 
                          
Net income
  
$
2,982
  
$
1,974
  
$
9,685
  
$
6,051
  
 
                          
 
                          
Basic earnings per share
  
$
0.23
  
$
0.15
  
$
0.73
  
$
0.45
  
Shares used in computation of basic earnings per share
    
13,208
    
13,309
    
13,195
    
13,382
  
 
                          
Diluted earnings per share
  
$
0.20
  
$
0.14
  
$
0.66
  
$
0.42
  
Shares used in computation of diluted earnings per share
    
14,800
    
14,543
    
14,756
    
14,527
  
 
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Operating Highlights
Supplemental Data
 
   
Three months ended
  
Twelve months ended
  
   
12/31/2006
  
12/31/2005
  
12/31/2006
  
12/31/2005
  
Operating Data
                  
Number of orders
    
103,743
    
103,613
    
406,475
    
398,437
  
Average order size
    
1,585
    
1,591
    
1,451
    
1,455
  
Customer online net sales
    
48,363,000
    
40,775,000
    
172,385,000
    
103,670,000
  
Sales force, end of period
                
342
    
250
  
 
                          
Average Productivity
                          
(annualized)
                          
Per Account
                          
Executive
    
1,870,000
    
2,557,000
    
1,687,000
    
2,266,000
  
Per Employee
    
968,000
    
1,108,000
    
873,000
    
982,000
  
 
                          
 
                          
Product Mix (% of sales)
                          
Notebook & PDA's
    
12.7
%
  
15.7
%
  
12.4
%
  
15.3
%
Desktops & Servers
    
19.3
%
  
19.8
%
  
20.3
%
  
20.1
%
Software
    
19.7
%
  
14.0
%
  
17.7
%
  
15.9
%
Storage
    
8.0
%
  
9.8
%
  
9.1
%
  
9.1
%
NetComm
    
4.5
%
  
4.7
%
  
4.9
%
  
4.2
%
Printers
    
8.5
%
  
10.1
%
  
8.2
%
  
11.3
%
Monitors & Video
    
11.4
%
  
10.2
%
  
10.4
%
  
9.6
%
Memory & Processors
    
5.8
%
  
6.0
%
  
6.2
%
  
5.4
%
Accessories & Other
    
10.1
%
  
9.7
%
  
10.8
%
  
9.1
%

Contact:
Ronald McFadden
Zones, Inc.
Chief Financial Officer
253-205-3000


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