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)

Source: Handleman Company

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

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

-------
Profile: intent