SOURCE: Merisel

August 14, 2008 09:24 ET

Merisel, Inc. Announces Earnings for Second Quarter 2008

(In Thousands Except for per Share Amounts)

NEW YORK, NY--(Marketwire - August 14, 2008) - 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 Second Quarter ended June 30, 2008.

Merisel reported a loss of ($0.20) per share for the Second Quarter 2008 versus a loss of $0.00 per share for the Second Quarter of 2007. Discontinued Operations in the current and prior year were immaterial to the quarter's results. Results in the current year and prior year were impacted by expenses recorded in SG&A for legal costs and investment banking fees associated with the Company's decision to enter into a merger agreement with TU Holdings, Inc. (a wholly owned portfolio company of American Capital Strategies, Ltd.) In the current year, these expenses amounted to $1,106 or ($0.14) per share. In the prior year the expenses related to the sale process amounted to $674 or ($0.08) per share.

For the six months ended June 30, 2008, the Company reported a loss ($0.35) per share compared to income of $0.08 per share for the first six months of 2007. Excluding Discontinued Operations, results for the first six months of 2008 were a loss of ($0.35) per share compared to income of $0.06 per share for the first six months of 2007.

Results for the six months ended June 30, 2008 were impacted by $1,940 or ($0.25) per share of expenses (in SG&A) for legal costs and investment banking associated with the Company's decision to enter into a merger agreement with TU Holdings, Inc. (a wholly owned portfolio company of American Capital Strategies, Ltd.). For the six months ended June 30, 2007, the expenses related to the sale process amounted to $674 or ($0.08) per share.

"The slowing U.S. economy has noticeably impacted our industry, our retail clients and as a result Merisel revenues in the first half of 2008," said Donald R. Uzzi, Chairman and CEO of Merisel. "While we have experienced a reduction in client marketing activities, we have maintained client market share. Importantly this environment has enabled us to take a comprehensive look at our cost structure and identify additional savings and efficiencies from which we will benefit going forward. Merisel's balance sheet remains strong and we continue to provide clients with the highest level of quality and service," stated Mr. Uzzi.

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

The Company reported a loss of $(1,586) or $(0.20) and $(2,772) or $(0.35) per share for the three and six months ended June 30, 2008, respectively, as compared to net loss of $(17) or $0.00 per share and net income of $635 or $0.08 for the three and six months ended June 30, 2007, respectively. These results include income from discontinued operations of $4 or $0.00 per share for the three months ended June 30, 2008. There was no income from discontinued operations for the six months ended June 30, 2008. This compares to a loss of $(19) or $0.00 per share and net income of $131 or $0.02 per share from discontinued operations for the three and six months ended June 30, 2007, respectively.

Three Months Ended June 30, 2008 as Compared to the Three Months Ended June 30, 2007

Net Sales -- Net sales were $20,342 for the three months ended June 30, 2008 compared to $22,273 for the three months ended June 30, 2007. The decrease of $1,931 or 8.7% was due to weakening demand for our client services due to softer economic conditions throughout the United States.

Gross Profit -- Total gross profit was $8,607 for the three months ended June 30, 2008 compared to $10,797 for the three months ended June 30, 2007. The decrease in total gross profit of $2,190 or 20.3% was primarily due to the 8.7% decline in net sales. Gross margin percentage decreased to 42.3% for the three months ended June 30, 2008 from 48.5% for the three months ended June 30, 2007. This decrease resulted from disproportionately larger percentage decreases in sales when compared with smaller percentage decreases in production labor, increases in outside purchases, delivery and shipping costs, and depreciation on production equipment.

Selling, General and Administrative -- Total Selling, General and Administrative expenses increased to $10,406 for the three months ended June 30, 2008 from $9,782 for the three months ended June 30, 2007. The increase of $624 or 6.4% was due to $432 of legal costs and investment banking fees associated with the Company's decision to enter into a merger agreement with TU Holdings, Inc with the balance of the increase attributable to higher expenses for bad debts of $176, depreciation/amortization of $143, and maintenance of $84. These increases were offset by decreases of $222 in selling and commission expenses. Total Selling, General and Administrative expenses as a percentage of sales increased to 51.2% for the three months ended June 30, 2008 compared to 43.9% for the three months ended June 30, 2007.

Interest Expense, Net -- Interest expense decreased to $24 in the three months ended June 30, 2008 from $112 in the three months ended June 30, 2007. The decrease was due to a $88 reduction in interest expense resulting from lower installment note balances.

Income Taxes -- The Company recorded an income tax benefit of $789 for the three months ended June 30, 2008 compared to a provision of $386 for the three months ended June 30, 2007. Income tax expense in the current quarter is recorded at an effective tax rate of 43.4%, which compares to a 43.7% tax rate in the second quarter of 2007.

Discontinued Operations -- The Company recorded income from discontinued operations of $4 during the three months ended June 30, 2008 related to return of a legal retainer and a loss of $19 consisting of other expenses for the three months ended June 30, 2007.

Net Income -- As a result of the above items, the Company had net loss of $1,030 for the three months ended June 30, 2008 compared to income of $498 for the three months ended June 30, 2007.

Six Months Ended June 30, 2008 as Compared to the Six Months Ended June 30, 2007

Net Sales -- Net sales were $41,694 for the six months ended June 30, 2008 compared to $46,207 for the six months ended June 30, 2007. The decrease of $4,513 or 9.8% was due to weakening demand for our client services due to softer economic conditions throughout the United States.

Gross Profit -- Total gross profit was $17,994 for the six months ended June 30, 2008 compared to $21,526 for the six months ended June 30, 2007. The decrease in total gross profit of $3,532 or 16.4% was primarily due to the 9.8% decline in net sales. Gross margin percentage decreased to 43.2% for the six months ended June 30, 2008 from 46.6% for the six months ended June 30, 2007. This decrease resulted from disproportionately larger percentage decreases in sales when compared with smaller percentage decreases in production labor, and increases in outside purchases, delivery and shipping costs, and depreciation on production equipment.

Selling, General and Administrative -- Total Selling, General and Administrative expenses increased to $20,887 for the six months ended June 30, 2008 from $18,588 for the six months ended June 30, 2007. The increase of $2,299 or 11.0% was due to $1,266 of legal costs and investment banking fees associated with the Company's decision to enter into a merger agreement with TU Holdings, Inc., with the balance of the increase attributable to higher expenses for professional fees of $270, bad debts of $389, depreciation/amortization of $248, and maintenance of $115. Total Selling, General and Administrative expenses as a percentage of sales increased to 50.1% for the six months ended June 30, 2008 compared to 40.2% for the six months ended June 30, 2007.

Interest Expense, Net -- Interest expense decreased to $25 in the six months ended June 30, 2008 from $276 in the six months ended June 30, 2007. The decrease was due to a $150 reduction in interest expense resulting from lower installment note balances coupled with a $101 increase in interest income due to higher balances in short-term interest-bearing investments classified as cash.

Income Taxes -- The Company recorded an income tax benefit of $1,249 for the six months ended June 30, 2008 compared to a provision of $1,139 for the six months ended June 30, 2007. Income tax expense for both periods is recorded at an effective tax rate of 42.8%.

Discontinued Operations -- The Company recorded income from discontinued operations of $4 related to return of a legal retainer offset by legal fees of $4 for the six months ended June 30, 2008. The Company recorded income from discontinued operations of $131 for the six months ended June 30, 2007. This figure consists of the sale price of $1,192, net of cost basis of $914 and taxes of $112 and other expenses of $35. The Company recorded a loss of $19 consisting of other expenses for the three months ended June 30, 2007.

Net Income -- As a result of the above items, the Company had net loss of $1,669 for the six months ended June 30, 2008 compared to income of $1,654 for the six months ended June 30, 2007.

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.

Forward-Looking Statements

This press release may contain forward-looking information regarding Merisel that is intended to be covered by the safe harbor for "forward- looking statements" provided by 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. Merisel undertakes no obligation to update any such forward-looking statements. Please see Merisel's filings with the Securities and Exchange Commission, including Merisel's Annual Report on Form 10-K, for a discussion of specific risks that may affect performance.

                      MERISEL, INC. AND SUBSIDIARIES
              CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                  (In thousands, except per share data)
                                (Unaudited)



                                    Three Months Ended   Six Months Ended
                                         June 30,            June 30,
                                      2008      2007      2008      2007
                                    --------  --------  --------  ---------
Net sales                           $ 20,342  $ 22,273  $ 41,694  $  46,207

Cost of sales                         11,735    11,476    23,700     24,681

                                    --------  --------  --------  ---------
Gross profit                           8,607    10,797    17,994     21,526

Selling, general & administrative
 expenses                             10,406     9,782    20,887     18,588

                                    --------  --------  --------  ---------
Operating income (loss)               (1,799)    1,015    (2,893)     2,938

Interest expense, net                     24       112        25        276

                                    --------  --------  --------  ---------
Income (loss) from continuing
 operations  before provision for
 income tax                           (1,823)      903    (2,918)     2,662

Income tax (benefit) provision          (789)      386    (1,249)     1,139

                                    --------  --------  --------  ---------
Income (loss) from continuing
 operations                           (1,034)      517    (1,669)     1,523

Income (loss) from discontinued
 operations, net of taxes                  4       (19)        -        131
                                    --------  --------  --------  ---------
Net income (loss)                     (1,030)      498    (1,669)     1,654
Preferred stock dividends                556       515     1,103      1,019
                                    --------  --------  --------  ---------
Net income (loss) available to
 common stockholders                $ (1,586) $    (17) $ (2,772) $     635
                                    ========  ========  ========  =========

Income (loss) per share (basic and
 diluted):
Income (loss) from continuing
 operations available to common
 stockholders                       $  (0.20) $   0.00  $  (0.35) $    0.06
Income from discontinued
 operations, net of taxes               0.00      0.00      0.00       0.02
                                    --------  --------  --------  ---------
Net income (loss) available to
 common stockholders                $  (0.20) $   0.00  $  (0.35) $    0.08
                                    ========  ========  ========  =========
Weighted average number of shares
  Basic                                7,893     7,774     7,889      7,768
  Diluted                              7,893     8,018     7,889      8,014

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