Handleman Company Exiting Music Business in North America

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.

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