SOURCE: Merisel

November 14, 2008 17:04 ET

Merisel, Inc. Announces Earnings for Third Quarter 2008

(In Thousands Except for Per Share Amounts)

NEW YORK, NY--(Marketwire - November 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 Third Quarter ended September 30, 2008.

Merisel reported a loss of ($0.05) per share for the Third Quarter 2008 versus income of $0.01 per share for the Third Quarter of 2007. Discontinued Operations in the current and prior year were immaterial to the quarter's results. Third Quarter results in both the current year and prior year were impacted by $309 or ($.04) per share of 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.)

For the nine months ended September 30, 2008, the Company reported a loss ($0.41) per share compared to income of $0.09 per share for the first nine months of 2007. Excluding Discontinued Operations, results for the first nine months of 2008 were a loss of ($0.41) per share compared to income of $0.07 per share for the first nine months of 2007.

Results for the nine months ended September 30, 2008 were impacted by $2,249 or ($0.28) 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 nine months ended September 30, 2007, the expenses related to the sale process amounted to $983 or ($0.12) per share.

"The slowing U.S. economy has materially affected our industry particularly retail clients... noticeably impacting Merisel revenues for the first nine months 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 ($424) or ($0.05) and ($3,196) or ($0.41) per share for the three and nine months ended September 30, 2008, respectively, as compared to net income of $90 or $0.01 per share and $725 or $0.09 for the three and nine months ended September 30, 2007, respectively. There was no income from discontinued operations for the three and nine months ended September 30, 2008. This compares to income of $12 or $0.00 per share and $143 or $0.02 per share from discontinued operations for the three and nine months ended September 30, 2007, respectively.

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

Net Sales - Net sales were $21,607 for the three months ended September 30, 2008 compared to $22,919 for the three months ended September 30, 2007. The decrease of $1,312 or 5.7% was due to weakening demand for our client services due to softer economic conditions throughout the United States.

Gross Profit - Total gross profit was $9,665 for the three months ended September 30, 2008 compared to $10,608 for the three months ended September 30, 2007. The decrease in total gross profit of $943 or 8.9% was primarily due to the 5.7% decline in net sales. Gross margin percentage decreased to 44.7% for the three months ended September 30, 2008 from 46.3% for the three months ended September 30, 2007. This decrease resulted from lower sales (down 5.7%) coupled with higher percentage (of sales) costs for outside purchases, delivery and shipping costs, and depreciation on production equipment. Actual production labor in the current quarter was below the year ago quarter by $1,017.

Selling, General and Administrative - Total Selling, General and Administrative expenses decreased to $9,359 for the three months ended September 30, 2008 from $9,487 for the three months ended September 30, 2007. The decrease of $128 or 1.3% was due primarily to decreases in sales salaries and commission expense of $206 partially offset by an increase in depreciation/amortization expense of $99. Total Selling, General and Administrative expenses as a percentage of sales increased to 43.3% for the three months ended September 30, 2008 compared to 41.4% for the three months ended September 30, 2007.

Interest Expense, Net - Interest expense decreased to $53 in the three months ended September 30, 2008 from $74 in the three months ended September 30, 2007. The decrease was due to a $91 reduction in interest expense resulting from lower installment note balances offset by a decrease in interest income of $70 due to lower balances in short-term interest-bearing investments classified as cash.

Income Taxes - The Company recorded income tax expense of $109 for the three months ended September 30, 2008 compared to a provision of $445 for the three months ended September 30, 2007. Income tax expense in the current quarter is recorded at an effective tax rate of 43.1%, which compares to a 42.5% tax rate in the third quarter of 2007.

Discontinued Operations - The Company did not have income from discontinued operations during the three months ended September 30, 2008. Income from discontinued operations for the three months ended September 30, 2007 was $12 related to a refund of professional fees.

Net Income - As a result of the above items, the Company had net income of $144 for the three months ended September 30, 2008 compared to income of $614 for the three months ended September 30, 2007.

Nine Months Ended September 30, 2008 as Compared to the Nine Months Ended September 30, 2007

Net Sales - Net sales were $63,301 for the nine months ended September 30, 2008 compared to $69,126 for the nine months ended September 30, 2007. The decrease of $5,825 or 8.4% was due to weakening demand for our client services due to softer economic conditions throughout the United States.

Gross Profit - Total gross profit was $27,659 for the nine months ended September 30, 2008 compared to $32,134 for the nine months ended September 30, 2007. The decrease in total gross profit of $4,475 or 13.9% was primarily due to the 8.4% decline in net sales. Gross margin percentage decreased to 43.7% for the nine months ended September 30, 2008 from 46.5% for the nine months ended September 30, 2007. This decrease resulted from lower sales (down 8.4%) coupled with higher percentage (of sales) costs for outside purchases, delivery and shipping costs, and depreciation on production equipment. Actual production labor and raw material costs for the nine months ended September 30, 2008 was below the same period last year by 150 basis points.

Selling, General and Administrative - Total Selling, General and Administrative expenses increased to $30,246 for the nine months ended September 30, 2008 from $28,075 for the nine months ended September 30, 2007. The increase of $2,171 or 7.7% 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 $284, bad debts of $395, and depreciation/amortization of $347. Total Selling, General and Administrative expenses as a percentage of sales increased to 47.8% for the nine months ended September 30, 2008 compared to 40.6% for the nine months ended September 30, 2007.

Interest Expense, Net - Interest expense decreased to $78 in the nine months ended September 30, 2008 from $350 in the nine months ended September 30, 2007. The decrease was due to a $242 reduction in interest expense resulting from lower installment note balances coupled with a $30 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 $1,140 for the nine months ended September 30, 2008 compared to a provision of $1,584 for the nine months ended September 30, 2007. Income tax expense for both periods is recorded at an effective tax rate of 42.8%.

Discontinued Operations - The Company did not have income from discontinued operations during the nine months ended September 30, 2008. Income from discontinued operations for the nine months ended September 30, 2007 was $143 related to the sale of real property for a sales price of $1,192 net of cost basis of $914 and taxes and other expenses of $135.

Net Income - As a result of the above items, the Company had net loss of $1,525 for the nine months ended September 30, 2008 compared to income of $2,268 for the nine months ended September 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, Los Angeles, Orlando, and Portland, Oregon and, 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.

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

                                    Three Months Ended   Nine Months Ended
                                       September 30,       September 30,
                                      2008      2007      2008      2007
                                    --------  --------- --------  ---------
Net sales                           $ 21,607  $  22,919 $ 63,301  $  69,126

Cost of sales                         11,942     12,311   35,642     36,992

                                    --------  --------- --------  ---------
Gross profit                           9,665     10,608   27,659     32,134

Selling, general & administrative
 expenses                              9,359      9,487   30,246     28,075

                                    --------  --------- --------  ---------
Operating income (loss)                  306      1,121   (2,587)     4,059

Interest expense, net                     53         74       78        350

                                    --------  --------- --------  ---------
Income (loss) from continuing
 operations before provision for
 income tax                              253      1,047   (2,665)     3,709

Income tax (benefit) provision           109        445   (1,140)     1,584

                                    --------  --------- --------  ---------
Income (loss) from continuing
 operations                              144        602   (1,525)     2,125

Income (loss) from discontinued
 operations, net of taxes                  -         12        -        143
                                    --------  --------- --------  ---------

Net income (loss)                        144        614   (1,525)     2,268
Preferred stock dividends                568        524    1,671      1,543
                                    --------  --------- --------  ---------
Net income (loss) available to
 common stockholders                $   (424) $      90 $ (3,196) $     725
                                    ========  ========= ========  =========

Income (loss) per share (basic and
 diluted):

Income (loss) from continuing
 operations available to common
 stockholders                       $  (0.05) $    0.01 $  (0.41) $    0.07
Income from discontinued
 operations, net of taxes               0.00       0.00     0.00       0.02
                                    --------  --------- --------  ---------
Net income (loss) available to
 common stockholders                $  (0.05) $    0.01 $  (0.41) $    0.09
                                    ========  ========= ========  =========
Weighted average number of shares
  Basic                                7,838      7,791    7,865      7,776
  Diluted                              7,987      8,030    8,024      8,019

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