Handleman Withdraws From Music Business

Handleman Company is exiting the music business in North America but will continue to operate its other businesses. The company is selling music inventory and selected other assets related to its Wal-Mart business in the U.S. to Anderson Merchandisers. 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, pending regulatory approval.

Albert A. Koch, President/CEO 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.

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. Some U.S.-based employees may be offered opportunities by Anderson. Anderson, which currently has no operational presence in Canada, is expected to retain substantially all of Handleman's approximately 230 Canada-based employees.

Koch continued, "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."

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.