Handleman Company Exiting Music Business in North America

Sale of Wal-Mart Related and Selected Other Assets and Operations to Anderson
Merchandisers, L.P.

TROY, Mich., June 2 /PRNewswire-FirstCall/ -- In a major step in its
continuing efforts to address the rapid and fundamental changes under way in
the music industry, Handleman Company (Pink Sheets: HDLM) today announced that
it is exiting the music business in North America. Handleman will continue to
operate its other businesses as usual as it explores opportunities to maximize
value for the benefit of the Company's stakeholders.
In connection with its decision to exit the North American music business,
Handleman has entered into a definitive agreement pursuant to which it has
sold music inventory and selected other assets related to its Wal-Mart
business in the U.S. to Anderson Merchandisers, L.P. ("Anderson"), of
Amarillo, Texas. Sales to Wal-Mart stores currently constitute a substantial
majority of Handleman's U.S. music sales. Handleman will work with its other
U.S. music customers over the next few months to assist them in achieving a
smooth transition to other music suppliers.
Separately, Handleman has also agreed in principle to sell substantially
all of the assets and operations of its Canadian subsidiary to Anderson.
Completion of that transaction is expected to occur shortly after receipt of
Canadian regulatory approval, which the parties expect to receive in the near
future.
Albert A. Koch, President and Chief Executive Officer of Handleman, said,
"Our decision to exit the North American music business was difficult but
unavoidable. CD music sales have been declining at double-digit rates for
several years both industry-wide and at our customers' stores, resulting in a
sharp drop-off in our business. Unfortunately, even the significant steps
we've taken over the past two years to reduce our costs have not enabled the
Company to return to profitability. We have reluctantly concluded that there
simply were not enough further cost reduction opportunities available to
offset the margin erosion in future years from continuing sales declines.
"As to the timing of our decision, we took into consideration a number of
factors, including indications from existing customers of their reluctance to
maintain long-term relationships with multiple music distributors in a
shrinking market, a growing question in our minds whether our key music
suppliers would provide trade terms sufficient for us to support our customers
for the peak holiday shipment season, and uncertainty whether our credit
agreements would permit sufficient liquidity to operate normally through the
upcoming Christmas season if our suppliers did not return to historical trade
terms.
"Taking all these factors into consideration, we determined that exiting
the North American music business now, in the transactions announced today,
was in the best interest of our customers, vendors, employees, shareholders
and other stakeholders. We regret the impact of this decision on many of our
employees, and will do our best to assist them at this difficult time. We also
will work with our valued customers and vendors to achieve a smooth, seamless
and timely transition."
In conjunction with these actions, Handleman will be reducing its
U.S.-based work force by approximately 260 positions over the next several
weeks. Most of these reductions are expected to occur at the Company's
headquarters in Troy, Michigan, and its distribution facility in Indianapolis,
Indiana. It is anticipated that some U.S.-based employees, particularly field
service personnel, will be offered opportunities by Anderson. Handleman said
that in addition to providing severance benefits to affected U.S. employees,
it has engaged Right Management, a leading provider of career continuation
services, to assist these employees with their career transition. Anderson,
which currently has no operational presence in Canada, is expected to retain
substantially all of Handleman's approximately 230 Canada-based employees when
the contemplated Canadian transaction is completed.
"The support of our lenders means that we have sufficient liquidity to
operate while we complete the wind-down of our North American music business
and continue to explore opportunities to maximize the value of other assets
and operations for the benefit of our stakeholders," Mr. Koch said. "If we are
able to generate cash proceeds in excess of what is needed to satisfy the
Company's obligations, we currently intend to distribute any such proceeds to
our shareholders rather than pursue reinvestment opportunities."
The Company currently anticipates that shareholders will receive a cash
distribution. Whether there will be any excess cash proceeds for distribution
to shareholders is subject to a number of material risks and uncertainties
that may prevent any such distribution from occurring. Accordingly, while the
Company believes that a cash distribution is a definite possibility, actual
results may differ from current estimates, perhaps materially. The Company
will endeavor to provide information about future cash distributions, if any,
at such time as it believes that they are reasonably estimable.
Handleman's other operations, which are not involved in or affected by the
transaction announced today, include Crave Entertainment Group, Inc.
("Crave"), a leading full-service distributor of video game software,
hardware, and related accessories and a specialty video game publisher;
Handleman UK Limited, a leading UK-based distributor and store merchandiser of
books, music, computer games and other products; Artist to Market Distribution
("A2M"), an independent music distributor that works directly with branded
artists and artists' management to streamline the supply chain and deliver new
music product to the marketplace at a lower cost; and REPS LLC, a national
in-store merchandiser. As previously announced, Handleman has retained the
investment banking firm W.Y. Campbell & Company for the purpose of exploring a
sale or other strategic options for Crave.
Cautionary Comment Regarding Forward-Looking Statements
This press release contains forward-looking statements, which are not
historical facts. These statements involve risks and uncertainties and are
made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Actual results, events and performance could
differ materially from those contemplated by these forward-looking statements
because of factors affecting any of a number of critical objectives,
including, without limitation, our reaching a final agreement to sell the
assets and operations of our Canadian subsidiary to Anderson and obtaining of
all required regulatory approvals, our ability to transition our U.S. music
customers other than Wal-Mart to other vendors smoothly, maintaining
satisfactory working relationships with our lenders, customers and vendors,
retaining key personnel, satisfactory resolution of any outstanding claims or
claims which may arise, finding and capitalizing on opportunities to maximize
the value of the Company's non-music operations, and other factors discussed
in this press release and those detailed from time to time in the Company's
filings with the Securities and Exchange Commission. Handleman Company notes
that the preceding conditions are not a complete list of risks and
uncertainties. The Company undertakes no obligation to update any forward-
looking statement to reflect events or circumstances after the date of this
press release.
SOURCE Handleman Company

Khaled Haram, Senior Vice President and CFO, +1-248-362-4400, Ext. 8765, or
Greg Mize, VP of Investor Relations and Treasurer, +1-248-362-4400, Ext. 211,
both of Handleman Company