Handleman Company Reports Second Quarter Results

Handleman Company Reports Second Quarter Results

Adopts Liquidation Accounting for Remaining Assets

TROY, Mich., Dec. 22 /PRNewswire-FirstCall/ -- Handleman Company (Pink Sheets: HDLM), www.handleman.com, today announced results for its fiscal second quarter ended November 1, 2008. The Company's financial results for the second quarter ended November 1, 2008 reflect the impact of a change to liquidation accounting, as the Company continues to explore opportunities to sell its remaining assets. The Company's remaining assets consist primarily of Crave Entertainment Group, Inc. ("Crave"), a leading full-service distributor of video game software, hardware, and related accessories and a specialty video game publisher, REPS LLC ("REPS"), a national in-store merchandiser, and the Company's corporate office building in Troy, Michigan.

As previously announced on October 1, 2008, Handleman Company shareholders approved the Company's Plan of Final Liquidation and dissolution of the Company. The decision to liquidate and dissolve the Company came primarily as a result of dramatic changes in the music industry, the Company's primary source of revenues. Over the past several years music sales have declined at double-digit rates, which had a significant impact on the Company's financial performance during that period. As a result, in June 2008 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 in July 2008 that it sold its Canadian operations to Anderson and sold its Artist to Market Distribution unit ("A2M") to Eurpac Service, Inc. In September 2008, Handleman announced that it sold a majority of its assets and operations in the United Kingdom to a subsidiary of Tesco PLC.

As a result of the shareholder's approval of the Plan of Final Liquidation, Handleman Company adopted the liquidation basis of accounting as of October 5, 2008. This basis of accounting is appropriate when the liquidation of a company appears imminent and the net realizable value or the estimated settlement amounts of its assets are reasonably determinable. Under this basis of accounting, assets and liabilities are stated at their net realizable value and estimated costs through the liquidation date are provided to the extent reasonably determinable. On a regular basis, the Company will evaluate assumptions, judgments, and estimates that may have a significant impact on the reported net assets in liquidation and will make adjustments as required.

With the adoption of liquidation accounting and the continued reduction in corporate staff, Handleman Company is no longer in a position to address specific inquires from investors. As a result, Handleman Company has eliminated its corporate Investor Relations department. Future communications regarding the Company and the progress of its liquidation will be made available through its SEC filings which are available via internet at www.Handleman.com.

Second Quarter of Fiscal 2009

Net loss for the two months ended October 4, 2008 was $4.2 million or $0.21 per diluted share, compared to net loss of $15.9 million or $0.78 per diluted share for the second quarter of fiscal 2008. Net Assets (liquidation basis) as of November 1, 2008 was $3.3 million.

Through the liquidation period, if the Company is able to generate cash proceeds in excess of what is needed to satisfy all of the Company's obligations, the Company will distribute any such proceeds to shareholders. 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.

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, successfully selling the Company's Crave and REPS businesses for amounts reasonably consistent with the Company's valuation of those assets, maintaining satisfactory working relationships with Crave and REPS customers and vendors, maintaining sufficient liquidity to fund 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 other Company's assets in a timely manner, 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.

                              -Tables Follow-                         CONSOLIDATED STATEMENTS OF INCOME               (amounts in thousands, except per share data)                                (unaudited)                                For the    For the     For the     For the                              Two Months   Three       Five      Six Months                               Ended      Months      Months       Ended                              October 4,   Ended      Ended      October 27,                                2008      October     October       2007                                          27, 2007    4, 2008    Revenues                   $ --          $23          $20         $46    Costs and expenses:     Direct product costs       --           --           --          --     Selling, general and      administrative      expenses              (7,919)     (19,783)     (26,808)    (37,496)   Operating loss           (7,919)     (19,760)     (26,788)    (37,450)    Interest expense         (3,321)        (778)      (3,678)     (1,697)   Investment (loss) income     23       (3,331)         127      (2,070)   Loss from continuing    operations before income    taxes                  (11,217)     (23,869)     (30,339)    (41,217)   Income tax benefit    (expense)                   97         (424)         699       1,212   Loss from continuing    operations             (11,120)     (24,293)     (29,640)    (40,005)   Income (loss) from    discontinued    operations               6,887        8,416      (21,138)      6,412    Net loss                $(4,233)    $(15,877)    $(50,778)   $(33,593)    Basic net (loss) income    per share:     - From continuing      operations            $(0.54)      $(1.19)      $(1.45)     $(1.97)     - From discontinued      operations              0.33         0.41        (1.03)       0.31   Total basic net (loss)    income per share        $(0.21)      $(0.78)      $(2.48)     $(1.66)    Diluted net (loss) income    per share     - From continuing      operations            $(0.54)      $(1.19)      $(1.45)     $(1.97)     - From discontinued      operations              0.33         0.41        (1.03)       0.31   Total diluted net (loss)    income per share        $(0.21)      $(0.78)      $(2.48)     $(1.66)    Weighted average number    of shares outstanding        - basic             20,498       20,359       20,472      20,286         - diluted           20,498       20,359       20,472      20,286                      CONSOLIDATED CONDENSED BALANCE SHEETS                           (amounts in thousands)                                (unaudited)                                            November 1, 2008    May 3, 2008   Assets     Cash and cash equivalents                      $16,508         $1,043     Accounts receivable                             29,656         62,479     Merchandise inventories                         25,542         29,404     Other current assets                            21,354         10,221     Assets held for sale                                --        139,943       Total current assets                          93,060        243,090      Property and equipment, net of      depreciation and amortization                      --         28,870     Other assets, net                                   --         56,744       Total assets                                 $93,060       $328,704    Liabilities     Debt, current                                     $ --        $63,706     Accounts payable                                37,687         31,023     Other current liabilities                       23,163         23,548     Accrued liquidation Costs                       28,938             --     Liabilities for sale                                --         62,298       Total current liabilities                     89,788        180,575      Other liabilities                                   --          6,456    Shareholders' equity                                  --        141,673     Total liabilities and      shareholders' equity                          $89,788       $328,704    Net Assets                                        $3,272   (liquidation basis - available to common    shareholders)  

First Call Analyst:
FCMN Contact:

Source: Handleman Company

CONTACT: Handleman Company, +1-248-362-4400

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

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Profile: International Entertainment