Handleman Company Reports Fourth Quarter and Fiscal Year 2008 Results

Handleman Company Reports Fourth Quarter and Fiscal Year 2008 Results

TROY, Mich., Aug. 13 /PRNewswire-FirstCall/ -- Handleman Company (Pink Sheets: HDLM), www.handleman.com, today announced results for its fourth quarter and fiscal year ended May 3, 2008 ("fiscal 2008"). These results reflect the impact on Handleman of the rapid and fundamental changes underway in the music industry.

In June 2008, subsequent to the close of the fiscal year, Handleman announced its decision to exit the North American music business and entered into a definitive agreement pursuant to which it sold music inventory and selected other assets related to its Wal-Mart business in the United States to Anderson Merchandisers, L.P. ("Anderson"). Handleman also announced on July 29, 2008 that it has agreed to sell its Canadian operations to Anderson, has sold its Artist to Market Distribution unit ("A2M") to Eurpac Service, Inc., and has reached an agreement in principal to sell its UK operations ("Handleman UK") to a subsidiary of Tesco PLC.

Handleman is continuing to explore opportunities to maximize the value of its other businesses and how best to maximize the economic return to its shareholders. These other businesses 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, and REPS LLC ("REPS"), a national in-store merchandiser.

In accordance with generally accepted accounting principles, Handleman's music category management and distribution operations in the U.S. and Canada, as well as its A2M operation, have been classified as discontinued operations for financial reporting purposes. The Company's continuing operations for fiscal 2008 primarily consist of Crave, REPS and Handleman UK. A thorough discussion of the Company's financial results for fiscal 2008 is contained in Handleman's annual report on Form 10-K, filed today with the Securities and Exchange Commission.

Fiscal Year 2008

Revenues from continuing operations for the fiscal year ended May 3, 2008 were $494.6 million, compared to $558.4 million for the fiscal year ended April 28, 2007 ("fiscal 2007"). Net loss for fiscal 2008 was $96.8 million or $4.76 per diluted share, compared to net loss of $53.4 million or $2.65 per diluted share for fiscal 2007. The fiscal 2008 loss includes $47 million of asset and goodwill impairment charges.

Fourth Quarter of Fiscal 2008

Revenues for the fourth quarter of fiscal 2008 were $91.5 million, compared to $132.9 million for the fourth quarter of fiscal 2007. Net loss for the fourth quarter of fiscal 2008 was $65.6 million or $3.22 per diluted share, compared to net loss of $37.5 million or $1.85 per diluted share for fiscal 2007. The fourth quarter fiscal 2008 loss includes $47 million of asset and goodwill impairment charges.

Albert A. Koch, President and Chief Executive Officer of Handleman, said, "We believe the decision to exit the North American music business and seek to maximize the value of Handleman's other businesses is in the best interest of our shareholders. Over the past several years, music industry sales have declined at double-digit rates as the industry was impacted by digital distribution, downloading and piracy. In addition, the Company's gross margins have been compressed because lower-margin promotional products became a greater proportion of annual sales. This level of continued erosion of CD music sales was expected to continue into the foreseeable future. As a result, and after several cost reduction initiatives in the past three years, we reluctantly concluded that there simply were not enough further cost reduction opportunities available to maintain the business as it had operated in the past."

As previously announced, Handleman will consider a distribution to the Company's shareholders of cash proceeds generated from the asset dispositions in excess of what is needed to satisfy the Company's obligations. 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. In addition, the Company is exploring other alternatives to maximize shareholder recoveries. Accordingly, while the Company believes that a cash distribution is a possibility, actual results may differ from current estimates, perhaps materially. The Company will provide information about future cash distributions, if any, at such time as it believes that they are reasonably estimable.

Handleman believes that cash provided from operations and the sale of remaining assets could provide sufficient liquidity to fund the Company's day-to-day operations provided the Company is able to sell its remaining assets within a reasonable period of time. If the Company is unable to sell its remaining assets in a reasonable period of time, or if the Company receives substantially less for its remaining assets than anticipated, the Company's liquidity would be dependent on further amendments to its credit agreements or securing alternative funding.

Forward-Looking and Cautionary 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, obtaining all required regulatory approvals to sell the assets and operations of our Canadian subsidiary to Anderson, the completion of an agreement to sell a substantial portion of the Company's UK assets to Tesco, 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, maintaining sufficient liquidity to fund our day-to-day operations, 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, selling certain of the Company's assets in a timely manner and for amounts reasonably consistent with the Company's valuation of those assets, 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.

                     CONSOLIDATED STATEMENTS OF INCOME               (amounts in thousands, except per share data)                                (unaudited)                                 Three Months               Year ended                              (13 Weeks) Ended          (52 Weeks) Ended                             May 3,     April 28,     May 3,      April 28,                              2008        2007         2008         2007     Revenues                 $91,499      132,870     $494,570     $558,363    Costs and expenses:     Direct product costs   (74,538)    (122,673)    (411,120)    (506,352)     Selling, general and      administrative      expenses              (26,219)     (37,269)    (168,615)    (173,914)     Impairment of goodwill (30,035)          --      (30,035)          --     Impairment of      subsidiary assets     (17,197)          --      (17,197)          --   Operating loss           (56,490)     (27,072)    (132,397)    (121,903)    Interest expense           6,802        1,056       (2,978)      (4,870)   Investment (loss) income      49          512       (1,913)       1,475    Loss from continuing    operations before    income taxes            (49,639)     (25,504)    (137,288)    (125,298)    Income tax benefit         4,580       22,657       10,725       25,279    Loss from continuing    operations              (45,059)      (2,847)    (126,563)    (100,019)    Income from discontinued    operations              (20,538)     (34,630)      29,778       46,591    Net loss                $(65,597)    $(37,477)    $(96,785)    $(53,428)    Basic net (loss)    income per share:     - From continuing      operations             $(2.21)      $(0.14)      $(6.22)      $(4.96)     - From discontinued      operations              (1.01)       (1.71)        1.46         2.31   Total basic net (loss)    income per share         $(3.22)      $(1.85)      $(4.76)      $(2.65)    Diluted net (loss) income    per share     - From continuing      operations             $(2.21)      $(0.14)      $(6.22)      $(4.96)     - From discontinued      operations              (1.01)       (1.71)        1.46         2.31   Total diluted net (loss)    income per share         $(3.22)      $(1.85)      $(4.76)      $(2.65)    Weighted average    number of shares    outstanding  - basic     20,393       20,217       20,341       20,149                  - diluted   20,393       20,217       20,341       20,149                      CONSOLIDATED CONDENSED BALANCE SHEETS                           (amounts in thousands)                                (unaudited)                                                   May 3, 2008  April 28, 2007   Assets     Cash and cash equivalents                       $1,043        $18,457     Accounts receivable                             62,479        236,069     Merchandise inventories                         29,404        115,535     Other current assets                            10,221         17,713     Assets held for sale                           139,943             --        Total current assets                         243,090        387,774      Property and equipment, net of      depreciation and amortization                  28,870         65,128     Other assets, net                               56,744         93,549       Total assets                                $328,704       $546,451    Liabilities     Debt, current                                 $ 63,706      $ 106,897     Accounts payable                                31,023        159,444     Other current liabilities                       23,548         31,163     Liabilities for sale                            62,298             --        Total current liabilities                    180,575        297,504       Other liabilities                                6,456          9,402    Shareholders' equity                             141,673        239,545     Total liabilities and      shareholders' equity                         $328,704       $546,451  

First Call Analyst:
FCMN Contact:

Source: Handleman Company

CONTACT: Rozanne Kokko, Senior Vice President and CFO, +1-248-362-4400,
Ext. 3998, or Greg Mize, Vice President, Investor Relations and Treasurer,
+1-248-362-4400, Ext. 211, both of Handleman Company

Web site: http://www.handleman.com/

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Profile: International Entertainment