Attached files
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EX-31.1 - EXHIBIT 31.1 - HASTINGS ENTERTAINMENT INC | c09254exv31w1.htm |
EX-31.2 - EXHIBIT 31.2 - HASTINGS ENTERTAINMENT INC | c09254exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - HASTINGS ENTERTAINMENT INC | c09254exv32w1.htm |
Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended October 31, 2010
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 000-24381
HASTINGS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Texas | 75-1386375 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) |
3601 Plains Boulevard, Amarillo, Texas (Address of principal executive offices) |
79102 (Zip Code) |
(806) 351-2300
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
Yes o No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See definitions of accelerated
filer, large accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange
Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer o | Smaller reporting company þ | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date.
Class | Outstanding at October 31, 2010 | |
Common Stock, $.01 par value per share | 8,803,560 shares |
HASTINGS ENTERTAINMENT, INC.
Form 10-Q
For the Quarterly Period Ended October 31, 2010
Form 10-Q
For the Quarterly Period Ended October 31, 2010
INDEX
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Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
2
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
HASTINGS ENTERTAINMENT, INC.
Consolidated Balance Sheets
October 31, 2010 and January 31, 2010
(Dollars in thousands, except par value)
October 31, | January 31, | |||||||
2010 | 2010 | |||||||
(Unaudited) | ||||||||
Assets |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 6,706 | $ | 8,863 | ||||
Merchandise inventories, net |
167,627 | 148,149 | ||||||
Deferred income taxes |
5,535 | 7,804 | ||||||
Prepaid expenses and other current assets |
13,114 | 10,120 | ||||||
Total current assets |
192,982 | 174,936 | ||||||
Rental assets, net of accumulated depreciation of $19,143 and $21,444 at
October 31, 2010 and January 31, 2010, respectively |
15,172 | 13,127 | ||||||
Property, equipment and improvements, net of accumulated depreciation of
$199,922 and $190,607 at October 31, 2010 and January 31, 2010, respectively |
43,899 | 47,695 | ||||||
Deferred income taxes |
3,371 | 1,310 | ||||||
Intangible assets, net |
391 | 391 | ||||||
Other assets |
2,030 | 1,341 | ||||||
Total Assets |
$ | 257,845 | $ | 238,800 | ||||
Liabilities and Shareholders Equity |
||||||||
Current liabilities: |
||||||||
Trade accounts payable |
$ | 79,325 | $ | 58,068 | ||||
Accrued expenses and other current liabilities |
26,860 | 28,128 | ||||||
Total current liabilities |
106,185 | 86,196 | ||||||
Long term debt |
44,107 | 38,174 | ||||||
Other liabilities |
6,227 | 6,272 | ||||||
Shareholders equity: |
||||||||
Preferred stock, $.01 par value; 5,000,000 shares authorized; none issued |
| | ||||||
Common stock, $.01 par value; 75,000,000 shares authorized;
11,944,544 shares issued and 8,803,560 shares outstanding at October 31, 2010; 11,944,544 shares issued and 9,463,838 shares outstanding at January 31, 2010 |
119 | 119 | ||||||
Additional paid-in capital |
36,800 | 36,920 | ||||||
Retained earnings |
84,741 | 86,884 | ||||||
Accumulated other comprehensive income |
88 | 37 | ||||||
Treasury stock, at cost 3,140,984 shares and 2,480,706 shares at October
31, 2010 and January 31, 2010, respectively |
(20,422 | ) | (15,802 | ) | ||||
Total Shareholders Equity |
101,326 | 108,158 | ||||||
Total Liabilities and Shareholders Equity |
$ | 257,845 | $ | 238,800 | ||||
See accompanying notes to unaudited consolidated financial statements.
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HASTINGS ENTERTAINMENT, INC.
Unaudited Consolidated Statements of Operations
For the Three and Nine Months Ended October 31, 2010 and 2009
(Dollars in thousands, except per share amounts)
Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Merchandise revenue |
$ | 94,462 | $ | 94,434 | $ | 301,175 | $ | 295,896 | ||||||||
Rental revenue |
17,673 | 17,903 | 58,801 | 59,327 | ||||||||||||
Gift card breakage revenue |
149 | | 537 | | ||||||||||||
Total revenues |
112,284 | 112,337 | 360,513 | 355,223 | ||||||||||||
Merchandise cost of revenue |
65,038 | 64,869 | 206,333 | 202,651 | ||||||||||||
Rental cost of revenue |
6,456 | 6,464 | 21,768 | 21,069 | ||||||||||||
Total cost of revenues |
71,494 | 71,333 | 228,101 | 223,720 | ||||||||||||
Gross profit |
40,790 | 41,004 | 132,412 | 131,503 | ||||||||||||
Selling, general and administrative expenses |
45,675 | 45,731 | 135,753 | 133,508 | ||||||||||||
Pre-opening expenses |
| | | 3 | ||||||||||||
Operating loss |
(4,885 | ) | (4,727 | ) | (3,341 | ) | (2,008 | ) | ||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(374 | ) | (211 | ) | (695 | ) | (778 | ) | ||||||||
Other, net |
46 | 17 | 91 | 96 | ||||||||||||
Loss before income taxes |
(5,213 | ) | (4,921 | ) | (3,945 | ) | (2,690 | ) | ||||||||
Income tax benefit |
(2,134 | ) | (1,485 | ) | (1,802 | ) | (560 | ) | ||||||||
Net loss |
$ | (3,079 | ) | $ | (3,436 | ) | $ | (2,143 | ) | $ | (2,130 | ) | ||||
Basic loss per share |
$ | (0.35 | ) | $ | (0.36 | ) | $ | (0.23 | ) | $ | (0.22 | ) | ||||
Diluted loss per share |
$ | (0.35 | ) | $ | (0.36 | ) | $ | (0.23 | ) | $ | (0.22 | ) | ||||
Weighted-average common shares outstanding: |
||||||||||||||||
Basic |
8,849 | 9,574 | 9,120 | 9,658 | ||||||||||||
Dilutive effect of stock awards |
| | | | ||||||||||||
Diluted |
8,849 | 9,574 | 9,120 | 9,658 | ||||||||||||
See accompanying notes to unaudited consolidated financial statements.
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Table of Contents
HASTINGS ENTERTAINMENT, INC.
Unaudited Consolidated Statements of Cash Flows
For the Nine Months Ended October 31, 2010 and 2009
(Dollars in thousands)
Nine Months Ended | ||||||||
October 31, | ||||||||
2010 | 2009 | |||||||
Cash flows from operating activities: |
||||||||
Net loss |
$ | (2,143 | ) | $ | (2,130 | ) | ||
Adjustments to reconcile net loss to net cash provided by
operating activities: |
||||||||
Rental asset depreciation expense |
8,224 | 9,185 | ||||||
Purchases of rental assets |
(20,139 | ) | (15,805 | ) | ||||
Property and equipment depreciation expense |
12,989 | 14,327 | ||||||
Deferred income taxes |
208 | 1,723 | ||||||
Loss on rental assets lost, stolen and defective |
1,403 | 606 | ||||||
Loss on disposal of other assets |
64 | 379 | ||||||
Non-cash stock-based compensation |
481 | 224 | ||||||
Changes in operating assets and liabilities: |
||||||||
Merchandise inventories |
(11,009 | ) | (24,562 | ) | ||||
Prepaid expenses and other current assets |
(2,994 | ) | (982 | ) | ||||
Trade accounts payable |
21,254 | 35,029 | ||||||
Accrued expenses and other current liabilities |
(1,220 | ) | (5,773 | ) | ||||
Excess tax benefit from stock-based compensation |
(48 | ) | | |||||
Other assets and liabilities, net |
(84 | ) | 1,431 | |||||
Net cash provided by operating activities |
6,986 | 13,652 | ||||||
Cash flows from investing activities: |
||||||||
Purchases of property, equipment, and improvements |
(9,259 | ) | (8,683 | ) | ||||
Net cash used in investing activities |
(9,259 | ) | (8,683 | ) | ||||
Cash flows from financing activities: |
||||||||
Borrowings under revolving credit facility |
381,020 | 365,806 | ||||||
Repayments under revolving credit facility |
(375,087 | ) | (368,022 | ) | ||||
Purchase of treasury stock |
(5,471 | ) | (1,018 | ) | ||||
Change in cash overdraft |
3 | (3,162 | ) | |||||
Deferred financing costs paid |
(599 | ) | | |||||
Proceeds from exercise of stock options |
202 | | ||||||
Excess tax benefit from stock-based compensation |
48 | | ||||||
Net cash provided by (used in) financing activities |
116 | (6,396 | ) | |||||
Net decrease in cash and cash equivalents |
(2,157 | ) | (1,427 | ) | ||||
Cash and cash equivalents at beginning of period |
8,863 | 7,449 | ||||||
Cash and cash equivalents at end of period |
$ | 6,706 | $ | 6,022 | ||||
See accompanying notes to unaudited consolidated financial statements.
5
Table of Contents
Hastings Entertainment, Inc
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements of Hastings Entertainment, Inc. and
its subsidiary (Hastings, the Company, we, our, or us) have been prepared in accordance
with U.S. generally accepted accounting principles for interim financial information and with
instructions in Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote
disclosures normally included in annual financial statements prepared in accordance with U.S.
generally accepted accounting principles have been condensed or omitted pursuant to such principles
and regulations of the Securities and Exchange Commission. All adjustments, consisting of normal
recurring adjustments, have been made which, in the opinion of management, are necessary for a fair
presentation of the results of interim periods. The results of operations for such interim periods
are not necessarily indicative of the results that may be expected for a full year because of,
among other things, seasonality factors in the retail business. As is the case with many
retailers, a significant portion of our revenues, and an even greater portion of our operating
earnings, is generated in the fourth fiscal quarter, which includes the holiday selling season.
The unaudited consolidated financial statements contained herein should be read in conjunction with
the audited consolidated financial statements and notes thereto included in our Annual Report on
Form 10-K for the fiscal year ended January 31, 2010.
The balance sheet at January 31, 2010 has been derived from the audited consolidated financial
statements at that date but does not include all of the information and notes required by U.S.
generally accepted accounting principles for complete financial statements. For further
information, refer to the consolidated financial statements and notes thereto included in our
Annual Report on Form 10-K for the fiscal year ended January 31, 2010.
Our fiscal year ends on January 31 and is identified as the fiscal year for the immediately
preceding calendar year. For example, the fiscal year that will end on January 31, 2011 is
referred to as fiscal year 2010.
2. Stock-Based Compensation
We have various stock incentive plans, which allow us to issue stock options, stock appreciation
rights, restricted shares, restricted stock units, performance awards and other awards.
Stock-based compensation is discussed more fully in Note 13 in our Annual Report on Form 10-K for
the fiscal year ended January 31, 2010.
For the three months ended October 31, 2010 and 2009, we recognized approximately $0.1 million of
stock-based compensation expense. For the nine months ended October 31, 2010 and 2009, we
recognized approximately $0.5 million and $0.2 million, respectively, of stock-based compensation
expense. These amounts include expense related to incentive stock options, non-qualified stock
options, restricted stock units, and performance-based restricted stock awards.
As of October 31, 2010, we had 652,600 shares available to grant as stock-based compensation awards
under our various stock incentive plans.
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Table of Contents
Hastings Entertainment, Inc
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)
3. Long-term Debt
On July 22, 2010, we entered into the Amended and Restated Loan and Security Agreement (the
Amended Agreement) with Bank of America, N.A., as agent, which amended and restated our Loan and
Security Agreement dated as of August 29, 2000, as otherwise amended (the Prior Agreement). The
Amended Agreement is substantially the same as the Prior Agreement, extends the maturity date of
the Prior Agreement from August 29, 2011 to July 22, 2014, and provides that we may repurchase up
to $10.0 million worth of our common stock. The Amended Agreement also provides that we may
repurchase additional shares of our common stock in the event we meet certain criteria set forth in
the Amended Agreement. The Amended Agreement prohibits the payment of dividends and includes
certain other debt and acquisition limitations and requires a minimum availability of $10.0 million
at all times. The Amended Agreement is secured by substantially all of the assets of the Company
and our subsidiary and is guaranteed by our subsidiary.
The amount outstanding under the Amended Agreement is limited by a borrowing base predicated on the
sum of (a) 85% of Eligible Credit Card Receivables plus (b) (i) 85% multiplied by (ii) the
Appraised Inventory Liquidation Value multiplied by (iii) Eligible Inventory (net of Inventory
Reserves), less (c) Availability Reserves (each term as defined in the Amended Agreement), and is
limited to a ceiling of $100 million, less a $10 million availability reserve. The lender may
increase specifically defined reserves to reduce availability in the event of adverse changes in
our industry or our financial condition that are projected to impact the value of our assets
pledged as collateral. The lender must exercise reasonable judgment and act in good faith with
respect to any changes in the specifically defined reserves.
Interest under the Amended Agreement will accrue, at our election, at a Base Rate or Libor Rate,
plus, in each case, an Applicable Margin, which is determined by reference to the level of
Availability as defined in the Amended Agreement, with the Applicable Margin for Libor Rate loans
ranging from 2.00% to 2.75% and the Applicable Margin for Base Rate loans ranging from 1.00% to
1.75%. In addition, unused line fees ranging from 0.30% to 0.375% (determined by reference to the
level of usage under the Amended Agreement) are also payable on unused commitments.
We utilize standby letters of credit to support certain insurance policies. The aggregate amount
of the letters of credit at October 31, 2010, was approximately $0.8 million, which reduces the
excess availability under the Amended Agreement.
At October 31, 2010, we had approximately $44.2 million in excess availability, after the $10
million availability reserve, under the Amended Agreement. The average rates of interest incurred
for the three months ended October 31, 2010 and 2009 were 3.0% and 1.9%, respectively. The average
rates of interest incurred for the nine months ended October 31, 2010 and 2009 were 2.4% and 2.5%,
respectively. Deferred financing costs that were amortized into interest expense during the three
and nine months ended October 31, 2010 are excluded from the calculation of the average rate of
interest for each respective period.
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Hastings Entertainment, Inc
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)
4. Loss per Share
The computations for basic and diluted loss per share are as follows:
Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss |
$ | (3,079 | ) | $ | (3,436 | ) | $ | (2,143 | ) | $ | (2,130 | ) | ||||
Average shares outstanding: |
||||||||||||||||
Basic |
8,849 | 9,574 | 9,120 | 9,658 | ||||||||||||
Effect of stock awards |
| | | | ||||||||||||
Diluted |
8,849 | 9,574 | 9,120 | 9,658 | ||||||||||||
Loss per share: |
||||||||||||||||
Basic |
$ | (0.35 | ) | $ | (0.36 | ) | $ | (0.23 | ) | $ | (0.22 | ) | ||||
Diluted |
$ | (0.35 | ) | $ | (0.36 | ) | $ | (0.23 | ) | $ | (0.22 | ) | ||||
The following options to purchase shares of common stock were not included in the computation of
diluted loss per share because their inclusion would have been antidilutive:
Three Months Ended October 31, | Nine Months Ended October 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Shares of common stock
underlying options |
614 | 535 | 614 | 535 | ||||||||||||
Exercise price range per share |
$ | 1.69 to $8.70 | $ | 1.33 to $8.70 | $ | 1.69 to $8.70 | $ | 1.33 to $8.70 |
5. Fair Value Measurements
We account for certain assets and liabilities at fair value. Fair value is defined as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The hierarchy below lists three levels of
fair value based on the extent to which inputs used in measuring fair value are observable in the
market. These levels are:
| Level 1 Observable inputs quoted prices in active markets for identical assets and
liabilities; |
| Level 2 Observable inputs other than the quoted prices in active markets for identical
assets and liabilities includes quoted prices for similar instruments, quoted prices for
identical or similar instruments in inactive markets, and amounts derived from valuation
models where all significant inputs are observable in active markets; and |
| Level 3 Unobservable inputs includes amounts derived from valuation models where one
or more significant inputs are unobservable and require us to develop relevant assumptions. |
At October 31, 2010 and January 31, 2010, we had approximately $1.1 million and $1.0 million,
respectively, in assets which are carried at fair value on a recurring basis. These assets consist
of available-for-sale investments related to our non-qualified supplemental executive retirement
plan (SERP). The fair value of these investments was determined using Level 1 inputs.
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Hastings Entertainment, Inc
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)
Notes to Unaudited Consolidated Financial Statements
(Tabular amounts in thousands, except per share data or unless otherwise noted)
Our long-term debt is our only financial instrument with a fair value which can differ
significantly from the carrying amount. The fair value of our long-term debt is estimated using a
discounted cash flow analysis that applies interest rates currently being offered on borrowings of
similar amounts and terms to those currently outstanding while also taking into consideration our
current credit worthiness. At January 31, 2010, the estimated fair value of our long-term debt was
approximately $36.8 million compared to carrying value of $38.2 million. We entered into the
Amended Agreement on July 22, 2010. As a result, the carrying value of long-term debt at October
31, 2010 approximates fair value due to the instrument bearing interest at variable rates that are
comparable to what is currently available to us.
6. Income Taxes
During the three months ended October 31, 2009, the Company recorded a discrete tax charge of
approximately $0.4 million related to amended state and federal tax returns resulting from an
Internal Revenue Service (IRS) audit of the Companys previously filed tax returns. No discrete
items were recorded during the three months ended October 31, 2010. Primarily as a result of this
discrete tax charge combined with the Companys pre-tax loss for the period, the effective tax
rates for the three months ended October 31, 2010 and 2009 were (40.9%) and (30.2%), respectively.
During the nine months ended October 31, 2010, the Company recorded a discrete tax benefit of
approximately $0.2 million related to amended state returns resulting from an IRS audit of the
Companys previously filed federal tax returns. During the nine months ended October 31, 2009, the
Company recorded a discrete tax charge of approximately $0.4 million related to amended state and
federal tax returns resulting from an IRS audit of the Companys previously filed tax returns.
Primarily as a result of these discrete tax items, the effective tax rates for the nine months
ended October 31, 2010 and 2009 were (45.7%) and (20.8%), respectively.
7. Litigation and Contingencies
We are involved in various claims and legal actions arising in the ordinary course of business. In
the opinion of management, the ultimate disposition of these matters will not have a material
adverse effect on our financial position, results of operations or cash flows.
8. Recent Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards
Update (ASU) No. 2010 06 Fair Value Measurements and Disclosures (Topic 820): Improving
Disclosures about Fair Value Measurements. This standard amends the disclosure guidance with
respect to fair value measurements for both interim and annual reporting periods. Specifically,
this standard requires new disclosures for significant transfers of assets or liabilities between
Level 1 and Level 2 in the fair value hierarchy, separate disclosures for purchases, sales,
issuance and settlements of Level 3 fair value items on a gross, rather than net basis, and more
robust disclosure of the valuation techniques and inputs used to measure Level 2 and Level 3 assets
and liabilities. Except for the detailed disclosures of changes in Level 3 items, which will be
effective for us as of February 1, 2011, the remaining disclosure requirements were effective for
us as of February 1, 2010. We adopted the provisions of this guidance, as applicable, beginning in
the fiscal quarter ended April 30, 2010, with no material impact to our financial statements.
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ITEM 2 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-looking Statements
Certain written and oral statements set forth below or made by Hastings with the approval of an
authorized executive officer constitute forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The words believe, expect, intend,
anticipate, project, will and similar expressions identify forward-looking statements, which
generally are not historical in nature. All statements that address operating performance, events
or developments that we expect or anticipate will occur in the future including statements relating
to the business, expansion, merchandising and marketing strategies of Hastings, industry
projections or forecasts, inflation, effect of critical accounting policies including lower of cost
or market for inventory adjustments, the returns process, rental asset depreciation, store closing
reserves, impairment or disposal of long-lived assets, revenue recognition, and vendor allowances,
sufficiency of cash flow from operations and borrowings under our revolving credit facility and
statements expressing general optimism about future operating results are forward-looking
statements. Such statements are based upon our managements current estimates, assumptions and
expectations, which are based on information available at the time of the disclosure, and are
subject to a number of factors and uncertainties, including, but not limited to, consumer appeal of
our existing and planned product offerings, and the related impact of competitor pricing and
product offerings; overall industry performance and the accuracy of our estimates and judgments
regarding trends; our ability to obtain favorable terms from suppliers; our ability to respond to
changing consumer preferences, including with respect to new technologies and alternative methods
of content delivery, and to effectively adjust our offerings if and as necessary; the application
and impact of future accounting policies or interpretations of existing accounting policies;
whether our assumptions turn out to be correct; our inability to attain such estimates and
expectations; a downturn in market conditions in any industry relating to the products we
inventory, sell or rent; the degree to which we enter into and maintain vendor relationships; the
extremely challenging times that the U.S. and global economies are currently experiencing, the
effects of which have had and will continue to have an adverse impact on spending by Hastings
current retail customer base and potential new customers, and the possibility that general economic
conditions could deteriorate further; volatility of fuel and utility costs; acts of war or
terrorism inside the United States or abroad; unanticipated adverse litigation results or effects;
and other factors which may be outside of our control; any of which could cause actual results to
differ materially from those described herein. We undertake no obligation to affirm, publicly
update or revise any forward-looking statements, whether as a result of new information, future
events or otherwise.
The following discussion should be read in conjunction with the unaudited consolidated financial
statements of the Company and the related notes thereto appearing elsewhere in this Quarterly
Report on Form 10-Q.
General
Incorporated in 1972, Hastings Entertainment, Inc. (the Company, Hastings, or Hastings
Entertainment) is a leading multimedia entertainment retailer. We operate entertainment
superstores that buy, sell, trade and rent various home entertainment products, including books,
music, software, periodicals, movies on DVD and Blu-ray, video games, video game consoles and
consumer electronics. We also offer consumables and trends products such as apparel, t-shirts,
action figures, posters, greeting cards and seasonal merchandise. As of October 31, 2010, we
operated 146 superstores principally in medium-sized markets located in 20 states, primarily in the
Western and Midwestern United States. In fiscal 2010, we opened and operate a new concept store,
Sun Adventure Sports, located in Amarillo, Texas.
We also operate a multimedia entertainment e-commerce web site offering a broad selection of books,
software, video games, movies on DVD and Blu-ray, music, trends, and consumer electronics. We fill
orders for new and used product placed at this website and also through Amazon Marketplace using
our proprietary goShip program, which allows us to ship directly from stores. We have one
wholly-owned subsidiary, Hastings Internet, Inc.
References herein to fiscal years are to the twelve-month periods that end in January of each
following calendar year. For example, the twelve-month period ended January 31, 2011 is referred
to as fiscal 2010.
10
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Critical Accounting Estimates
The preparation of the financial statements in conformity with accounting principles generally
accepted in the United States requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. We believe the following critical
accounting estimates comprise the more significant estimates and assumptions used in preparing our
financial statements. Our significant estimates and assumptions are reviewed, and any required
adjustments are recorded, on a monthly or quarterly basis.
Lower of Cost or Market for Merchandise Inventory. Our merchandise inventories are recorded at the
lower of cost, which approximates the first-in, first-out (FIFO) method, or market. As with any
retailer, economic conditions, cyclical customer demand and changes in purchasing or distribution
can affect the carrying value of inventory. As circumstances warrant, we record the lower of cost
or market inventory adjustments. In some instances, these adjustments can have a material effect
on the financial results of an annual or interim period. In order to determine such adjustments,
we evaluate the age, inventory turns and estimated market value and returnability of merchandise
inventory by product category and record an adjustment if estimated market value is below cost.
Rental Asset Depreciation. We have established rental asset depreciation policies that match
rental product costs with the related revenues. These policies require that we make significant
estimates, based upon our experience, as to the ultimate amount and timing of revenue to be
generated from our rental product. We utilize an accelerated method of depreciation because it
approximates the pattern of demand for the product, which is higher when the product is initially
released by the studios for rental and declines over time. In establishing salvage values for our
rental product, we consider the sales prices and sales volume of our previously rented product and
other used product.
We currently depreciate the cost of our rental assets on an accelerated basis over six months or
nine months, except for rental assets purchased for the initial stock of a new store, which are
depreciated on a straight-line basis over 36 months. Rental assets, which include DVDs, Books on
CD and Video Games, are depreciated to salvage values ranging from $4 to $10. Rental assets
purchased for less than established salvage values are not depreciated.
We also review the carrying value of our rental assets to ensure that estimated future cash flows
exceed the carrying value. We periodically record adjustments to the value of previously rented
product primarily for estimated obsolescence or excess product based upon changes in our original
assumptions about future demand and market conditions. If future demand or actual market conditions
are less favorable than our original estimates, additional adjustments, including adjustments to
useful lives or salvage values, may be required. We continually evaluate the estimates surrounding
the useful lives and salvage values used in depreciating our rental assets. Changes to these
estimates resulting from changes in consumer demand, changes in customer preferences or the price
or availability of retail products may materially impact the carrying value of our rental assets
and our rental margins.
The costs of rental product purchased pursuant to revenue-sharing arrangements, which are recorded
in rental cost of sales on the consolidated statements of operations, typically include a lower
initial product cost than traditional rental purchases with a certain percentage of the net rental
revenues shared with studios over an agreed period of time. Any up-front costs exceeding the
designated salvage value are amortized on an accelerated basis and revenue-sharing payments
pursuant to the applicable arrangement are expensed as rental costs of sales as the related revenue
is earned. Additionally, certain titles have performance guarantees. We analyze titles that are
subject to performance guarantees and recognize an estimated expense for under-performing titles
throughout the applicable period based upon our analysis of the estimated rental revenue shortfall.
We revise these estimates on a monthly basis, based on actual results.
Impairment or Disposal of Long-Lived Assets. We evaluate under-performing stores on a quarterly
basis to determine whether projected future cash flows over the remaining lease term are sufficient
to recover the carrying value of the fixed asset investment in each individual store. If
projected future cash flows are less than the carrying value of the fixed asset investment, an
impairment charge is recognized if the estimated fair value is less than the carrying value of such
assets. The carrying value of leasehold improvements and certain other property and equipment is
subject to impairment write-down.
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Income Taxes. In determining net income, we make certain estimates and judgments in the
calculation of tax expense and the resulting tax liabilities and in the recoverability of deferred
tax assets that arise from temporary differences between the tax and financial statement
recognition of revenue and expense. We record deferred tax assets and liabilities for future
income tax consequences that are attributable to differences between financial statement carrying
amounts of assets and liabilities and their income tax bases. We base the measurement of deferred
tax assets and liabilities on enacted tax rates that we expect will apply to taxable earnings in
the year when we expect to settle or recover those temporary differences. We recognize the effect
on deferred tax assets and liabilities on any change in income tax rates in the period that
includes the enactment date.
The tax benefit from an uncertain tax position is recognized only if it is more likely than not
that the tax position will be sustained on examination by the taxing authorities, based on the
technical merits of the position. The tax benefits recognized in the financial statements from
such a position are measured based on the largest benefit that has a greater than fifty percent
likelihood, on a cumulative basis, of being realized upon ultimate settlement. We recognize
interest and penalties relating to any uncertain tax positions as a component of income tax
expense.
Share-Based Compensation. Determining the amount of share-based compensation to be recorded in the
statement of operations requires us to develop estimates that are used in calculating the
grant-date fair value of stock options. In determining the fair value of stock options, we use the
Black-Scholes valuation model, which requires us to make estimates of the following assumptions:
| Expected volatility The estimated stock price volatility is derived based upon our
historical stock prices over the expected life of the option. |
| Expected life of the option The estimate of an expected life is calculated based on
historical data relating to grants, exercises and cancellations, as well as the vesting
period and contractual life of the option. |
| Risk-free interest rate The risk-free interest rate is based on the yield on
zero-coupon U.S. Treasury securities for a period that is commensurate with the expected
life of the option. |
Our stock price volatility and expected option lives involve managements best estimates at that
time, both of which impact the fair value of the option calculated under the Black-Scholes pricing
model and, ultimately, the expense that will be recognized over the vesting period of the option.
We recognize compensation expense only for the portion of options that are expected to vest.
Therefore, we apply estimated forfeiture rates that are derived from historical employee
termination behavior. If the actual number of forfeitures differs from those estimated by
management, additional adjustments to compensation expense may be required in future periods.
In addition to stock options, we award restricted stock awards, including restricted stock units
and performance-based restricted stock awards. The grant date fair value of restricted stock
awards is equal to the average of the opening and closing stock price on the day on which they are
granted. For performance-based restricted stock awards, compensation expense is recognized if
management deems it probable that the performance conditions will be met. Management must use its
judgment to determine the probability that a performance condition will be met. If actual results
differ from managements assumptions, future results could be materially impacted.
Gift Card Breakage Revenue. We sell gift cards through each of our stores and through our web site
www.goHastings.com. The gift cards we sell have no stated expiration dates or fees and are
subject to potential escheatment rights in some of the jurisdictions in which we operate. Gift
card liabilities are recorded as deferred revenue at the time of sale of such cards with the costs
of designing, printing and distributing the cards recorded as expense as incurred. Historically,
the liability was relieved and revenue was recognized only upon redemption of the gift cards.
Beginning in the fourth quarter of fiscal 2009, we had sufficient historical data to analyze gift
card redemption patterns and a determination of the escheatment laws applicable to our operations.
As a result, during the fourth quarter of fiscal 2009, we began recognizing revenue for the
estimated breakage on gift cards we previously issued and sold. Subsequent to the initial change
in estimate related to gift card breakage, gift card breakage revenue is recognized as gift cards
are redeemed, based upon an analysis of the aging and utilization of gift cards, our determination
that the likelihood of future redemption is remote and our determination that such balances are not
subject to escheatment laws applicable to our operations.
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Results of Operations
The following tables present our statement of operations data, expressed as a percentage of
revenue, and the number of superstores open at the end of the periods presented herein.
Three Months Ended | Nine Months Ended | |||||||||||||||
October 31, | October 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Merchandise revenue |
84.1 | % | 84.1 | % | 83.5 | % | 83.3 | % | ||||||||
Rental revenue |
15.8 | 15.9 | 16.3 | 16.7 | ||||||||||||
Gift card breakage revenue |
0.1 | | 0.2 | | ||||||||||||
Total revenues |
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Merchandise cost of revenue |
68.9 | 68.7 | 68.5 | 68.5 | ||||||||||||
Rental cost of revenue |
36.5 | 36.1 | 37.0 | 35.5 | ||||||||||||
Total cost of revenues |
63.7 | 63.5 | 63.3 | 63.0 | ||||||||||||
Gross profit |
36.3 | 36.5 | 36.7 | 37.0 | ||||||||||||
Selling, general and
administrative expenses |
40.7 | 40.7 | 37.7 | 37.6 | ||||||||||||
Pre-opening expenses |
| | | | ||||||||||||
Operating loss |
(4.4 | ) | (4.2 | ) | (1.0 | ) | (0.6 | ) | ||||||||
Other income (expense): |
||||||||||||||||
Interest expense |
(0.2 | ) | (0.2 | ) | (0.1 | ) | (0.2 | ) | ||||||||
Other, net |
| | | | ||||||||||||
Loss before income taxes |
(4.6 | ) | (4.4 | ) | (1.1 | ) | (0.8 | ) | ||||||||
Income tax benefit |
(1.9 | ) | (1.3 | ) | (0.5 | ) | (0.2 | ) | ||||||||
Net loss |
(2.7 | )% | (3.1 | )% | (0.6 | )% | (0.6 | )% | ||||||||
Summary of Superstore Activity(1)
Three Months Ended | Nine Months Ended | Year Ended | ||||||||||||||||||
October 31, | October 31, | January 31, | ||||||||||||||||||
2010 | 2009 | 2010 | 2009 | 2010 | ||||||||||||||||
Beginning number of stores |
147 | 151 | 149 | 153 | 153 | |||||||||||||||
Openings |
| | | | | |||||||||||||||
Closings |
(1 | ) | (1 | ) | (3 | ) | (3 | ) | (4 | ) | ||||||||||
Ending number of stores |
146 | 150 | 146 | 150 | 149 | |||||||||||||||
(1) | We operate one concept store, Sun Adventure Sports, which is not included in the
summary of superstore activity. |
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Financial Results for the Third Quarter of Fiscal Year 2010
Both operating loss and adjusted operating loss for the third quarter were approximately $4.9
million compared to $4.7 million for the third quarter of fiscal 2009. Adjusted operating loss
excludes gift card breakage, stock compensation expense and store asset impairment expense.
Earnings before interest, taxes, property and equipment depreciation expense and amortization
(EBITDA) was approximately ($0.5) million for the third quarter of fiscal 2010 as compared to
approximately $34,000 for the same period in the prior year. Adjusted EBITDA, which excludes gift
card breakage revenue, stock compensation expense and store asset impairment expense, was
approximately ($0.5) million for the third quarter of fiscal 2010 compared to approximately $0.1
million for the same period in the prior year.
Reconciliations of non-GAAP financial measures to comparable GAAP financial measures are included
in the tables following this section along with a discussion of why management believes these
measures provide meaningful information regarding the Companys performance.
Revenues. Total revenues for the third quarter remained consistent with the revenues for the
same period in the prior year at $112.3 million. Excluding gift card breakage revenue, total
revenues for the third quarter of fiscal 2010 decreased approximately $0.2 million, or 0.2%.
Comparable store sales, which exclude gift card breakage revenue, increased approximately 1.3%. As
of October 31, 2010, we operated four fewer superstores, as compared to October 31, 2009, and one
additional concept store, Sun Adventure Sports, which opened during the second quarter. The
following is a summary of our revenues results (dollars in thousands):
Three Months Ended October 31, | ||||||||||||||||||||||||
2010 | 2009 | Increase (Decrease) | ||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
Revenues | Of Total | Revenues | Of Total | Dollar | Percent | |||||||||||||||||||
Merchandise Revenue |
$ | 94,462 | 84.1 | % | $ | 94,434 | 84.1 | % | $ | 28 | 0.0 | % | ||||||||||||
Rental Revenue |
17,673 | 15.8 | % | 17,903 | 15.9 | % | (230 | ) | -1.3 | % | ||||||||||||||
Gift Card Breakage Revenue |
149 | 0.1 | % | | 0.0 | % | 149 | | ||||||||||||||||
Total Revenues |
$ | 112,284 | 100.0 | % | $ | 112,337 | 100.0 | % | $ | (53 | ) | 0.0 | % | |||||||||||
Comparable-store
revenues (Comp) |
||||||||
Total |
1.3 | % | ||||||
Merchandise |
1.2 | % | ||||||
Rental |
2.2 | % |
Below is a summary of the Comp results for our major merchandise categories:
Three Months Ended October 31, | ||||||||
2010 | 2009 | |||||||
Trends |
19.0 | % | -4.1 | % | ||||
Hardback Café |
7.2 | % | 16.5 | % | ||||
Video Games |
6.7 | % | 8.5 | % | ||||
Movies |
5.6 | % | -3.1 | % | ||||
Consumables |
3.4 | % | 3.8 | % | ||||
Electronics |
-0.4 | % | 5.1 | % | ||||
Books |
-6.2 | % | 0.2 | % | ||||
Music |
-6.2 | % | -10.4 | % |
Stores included in the Comps calculation are those stores that have been open for a minimum of 60
weeks. Also included are stores that were remodeled or relocated during the comparable period.
Sales via the internet are included and closed stores are removed from each comparable period for
the purpose of calculating Comps. Prior year Comp sales have been revised to reflect current year
classification of Comp sale categories.
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Trends Comps increased 19.0% for the quarter, driven by strong sales of new and used Comics, Hex
Bugs, As Seen on TV products including the Kymaro and Big Top Cupcake, shaped rubber bands,
apparel, collectible card games, and novelty items. The increase in new and used comic sales is
primarily due to an expanded comic footprint in eighty-seven stores. Key drivers in the apparel
category included hats and bags. Key drivers in the novelty category included seasonal merchandise
for Halloween, Nerf toys and black lights. Hardback Café Comps increased 7.2% for the quarter
primarily due to increased sales of specialty café drinks. Video Game Comps increased 6.7% for the
quarter resulting from strong sales of new and used video games for the Microsoft Xbox 360 and Sony
Playstation 3 platforms and strong sales of new and used video game accessories. These sales were
partially offset by lower sales of older generation video games, new Nintendo Wii video games, and
video game consoles. Hit titles that helped drive sales during the quarter included Fallout: New
Vegas, Halo Reach, Madden NFL 11, Fable III, Star Wars: The Force Unleashed II, Medal of Honor,
Dead Rising 2, and Mafia II. Movie Comps increased 5.6% for the quarter, primarily driven by
strong sales of new and used DVD boxed sets and increased sales of new and used Blu-ray movies,
partially offset by lower sales of new DVDs. The increase in sales of boxed sets is attributable
to an increased presence of boxed set promotions, increased sales of catalog boxed sets and several
strong new titles that helped drive store traffic, including Sons of Anarchy: Season 2 and Dexter:
Season 4. Consumables Comps increased 3.4% for the quarter, primarily resulting from strong sales
of popcorn and assorted candies and gums, partially offset by lower sales of can drinks and
fountain drinks. Electronics Comps decreased 0.4% for the quarter. Decreased sales of digital
converter boxes, Blu-ray players, and refurbished iPods were partially offset by increased sales of
headphones, iPod accessories, and PC accessories. Books Comps decreased 6.2% for the quarter,
primarily resulting from decreases in sales of new trade paperbacks, mass-market books, and
hardbacks, which to some degree is attributable to the increasing popularity of electronic book
readers, and decreased sales of magazines. These decreases were partially offset by an increase in
the sales of value books and used trade paperbacks. Music Comps decreased 6.2% for the quarter due
to lower sales of new and used CDs, resulting directly from a continued industry decline and a
reduced footprint in ninety-six stores.
Rental Comps increased 2.2% for the quarter, due to fewer promotions during the quarter as compared
to the prior year. Rental Video Comps increased 3.7% for the quarter and Rental Video units had a
slight decrease of 0.6% compared to the prior year. The decrease in units rented was due to fewer
titles released during the quarter with gross box office revenues in the range of $20 million to
$80 million, which typically represent our strongest rentals. Rental Video Game Comps decreased
1.1% for the quarter and Rental Video Game Units decreased 6.0% for the quarter. The decrease in
Rental Video Games was due to a challenging comparison to titles released in the prior year and
lower price points on select titles as compared to the prior year.
Gross Profit Merchandise. For the third quarter, total merchandise gross profit dollars
decreased approximately $0.2 million, or 0.7%, to $29.4 million from $29.6 million for the same
period in the prior year. As a percentage of total merchandise revenue, merchandise gross profit
decreased to 31.1% for the quarter compared to 31.3% for the same period in the prior year,
resulting primarily from increased shrinkage expense and costs to return products, partially offset
by improvements in margin management. We are currently utilizing a comprehensive store audit
program to assess store level execution and controls designed to reduce shrink, with a strong focus
on our high-shrinkage stores.
Gross Profit Rental. For the third quarter, total rental gross profit dollars decreased
approximately $0.2 million, or 1.8%, to $11.2 million from $11.4 million for the same period in the
prior year due to lower revenues as well as lower margin rates. As a percentage of total rental
revenue, rental gross profit decreased to 63.5% for the quarter compared to 63.9% for the same
period in the prior year primarily due to increased shrinkage partially offset by lower
depreciation expense. Depreciation is a function of rental purchases over approximately a six
month period.
Selling, General and Administrative Expenses (SG&A). SG&A remained consistent for the third
quarter, at $45.7 million, or 40.7% of total revenue. SG&A drivers for the quarter included a
decrease in depreciation expense of approximately $0.4 million related to a reduction in capital
expenditures and a decrease in expense for bonuses under our bonus incentive programs of
approximately $0.3 million. These decreases were partially offset by an increase in store labor
costs of approximately $0.3 million, an increase in store supply costs of approximately $0.2
million, and an increase in store maintenance costs of approximately $0.1 million.
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Interest Expense. For the third quarter, interest expense increased approximately $0.2 million, or
100.0%, to $0.4 million, compared to $0.2 million for the same period in the prior year, primarily
as a result of higher interest rates incurred under our Amended and Restated Loan and Security
Agreement. The average rate of interest charged for the quarter increased to 3.0% compared to 1.9%
for the same period in the prior year.
Tax Expense. During the three months ended October 31, 2009, the Company recorded a discrete tax
charge of approximately $0.4 million related to amended state and federal tax returns resulting
from an Internal Revenue Service (IRS) audit of the Companys previously filed tax returns. No
discrete items were recorded during the three months ended October 31, 2010. Primarily as a result
of this discrete tax charge combined with the Companys pre-tax loss for the period, the effective
tax rates for the three months ended October 31, 2010 and 2009 were (40.9%) and (30.2%),
respectively.
Financial Results for the Nine Months Ended October 31, 2010
Operating loss for the nine months ended October 31, 2010 was approximately $3.3 million compared
to $2.0 million for same period in the prior year. Adjusted operating loss, which excludes gift
card breakage revenue, stock compensation expense and store asset impairment expense, was
approximately $3.4 million for the nine month period compared to $1.6 million for the same period
in the prior year. Earnings before interest, taxes, property and equipment depreciation expense
and amortization (EBITDA) was approximately $9.7 million for the nine months ended October 31,
2010 as compared to approximately $12.4 million for the same period in the prior year. Adjusted
EBITDA, which excludes gift card breakage revenue, stock compensation expense and store asset
impairment expense, was approximately $9.7 million for the nine month period compared to
approximately $12.8 million for the same period in the prior year.
Revenues. Total revenues for the first nine months of fiscal 2010 increased approximately $5.3
million, or 1.5%, to $360.5 million compared to $355.2 million for the same period in fiscal 2009.
Excluding gift card breakage revenue, total revenues for the period increased approximately $4.8
million, or 1.3%. Comparable store sales, which exclude gift card breakage revenue and the impact
of operating fewer stores during the current period, increased approximately 3.6%. The following
is a summary of our revenues results (dollars in thousands):
Nine Months Ended October 31, | ||||||||||||||||||||||||
2010 | 2009 | Increase (Decrease) | ||||||||||||||||||||||
Percent | Percent | |||||||||||||||||||||||
Revenues | Of Total | Revenues | Of Total | Dollar | Percent | |||||||||||||||||||
Merchandise Revenue |
$ | 301,175 | 83.5 | % | $ | 295,896 | 83.3 | % | $ | 5,279 | 1.8 | % | ||||||||||||
Rental Revenue |
58,801 | 16.3 | % | 59,327 | 16.7 | % | (526 | ) | -0.9 | % | ||||||||||||||
Gift Card Breakage
Revenue |
537 | 0.2 | % | | 0.0 | % | 537 | | ||||||||||||||||
Total Revenues |
$ | 360,513 | 100.0 | % | $ | 355,223 | 100.0 | % | $ | 5,290 | 1.5 | % | ||||||||||||
Comparable-store
revenues (Comp) |
||||||||
Total |
3.6 | % | ||||||
Merchandise |
3.9 | % | ||||||
Rental |
2.1 | % |
Below is a summary of the Comp results for our major merchandise categories:
Nine Months Ended October 31, | ||||||||
2010 | 2009 | |||||||
Video Games |
18.4 | % | -8.6 | % | ||||
Trends |
12.9 | % | -0.3 | % | ||||
Hardback Café |
10.9 | % | 13.9 | % | ||||
Movies |
8.8 | % | -5.7 | % | ||||
Consumables |
5.7 | % | 3.8 | % | ||||
Electronics |
1.7 | % | 0.9 | % | ||||
Books |
-3.0 | % | -0.4 | % | ||||
Music |
-6.2 | % | -13.9 | % |
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Prior year Comp sales have been revised to reflect current year classification of Comp sale
categories. Video Game Comps increased 18.4% for the period, primarily due to strong sales of new
and used video games for the Sony Playstation 3 and Microsoft XBOX 360, used games for the Nintendo
Wii, and video gaming consoles and accessories, partially offset by lower sales of older generation
video games. Trends Comps increased 12.9% for the period, primarily resulting from strong sales of
Hex Bugs, As Seen on TV products including the Kymaro and Big Top Cupcake, new and used comics,
collectible card games, such as Magic: The Gathering, and action figures. The increase in new and
used comic sales is primarily due to an expanded comic footprint in eighty-seven stores. The
increase in action figure sales was driven by an increase in action figures sold over the internet
and the addition of collectible action figures to our product mix. Hardback Café Comps increased
10.9% for the period, resulting from increased sales of specialty café drinks. Movie Comps
increased 8.8% for the period, primarily due to increased sales of new and used Blu-ray movies and
DVD boxed sets, partially offset by lower sales of new and used DVDs. Consumables Comps increased
5.7% for the period, primarily due to strong sales of assorted candies and gums, including candies
and snacks cross merchandised on our video rental wall, and novelty drinks. Electronics Comps
increased 1.7% for the period primarily resulting from strong sales of MP3 accessories and
headphones, partially offset by lower sales of digital converter boxes and refurbished iPods. Book
Comps decreased 3.0% for the period, primarily due to lower sales of new trade paperbacks,
mass-market books, and hardbacks, which to some degree is attributable to the increasing popularity
of electronic book readers, and lower sales of magazines, partially offset by increased sales of
used trade paperbacks and hardbacks. Music Comps decreased 6.2% for the period due to lower sales
of new and used CDs, resulting directly from a continued industry decline and a reduced footprint
in ninety-six stores.
Rental Comps increased 2.1% for the period, primarily due to fewer promotions being offered during
the current period. Units rented for the period increased 6.2% for the period as compared to the
prior year resulting from our new rental pricing program along with competitor store closings.
Rental Video Comps increased 3.2% for the period while Rental Video Game Comps decreased 0.4% due
to a challenging comparison to titles released in the prior year and lower price points on select
titles as compared to the prior year.
Gross Profit Merchandise. For the current nine months, total merchandise gross profit dollars
increased approximately $1.6 million, or 1.7%, to $94.8 million from $93.2 million for the same
period in the prior year, due to higher revenues. As a percentage of total merchandise revenue,
merchandise gross profit remained consistent at 31.5%. Improvements in margin management, lower
markdown expense, and lower costs to return product were offset by increases in freight costs,
which resulted directly from increased shipments related to our goShip program, and increased
shrinkage expense. We have created a comprehensive store audit program to assess store level
execution and controls designed to reduce shrink, with a strong focus on our high-shrinkage stores.
Gross Profit Rental. For the current nine months, total rental gross profit dollars decreased
approximately $1.3 million, or 3.4%, to $37.0 million from $38.3 million for the same period in the
prior year primarily due to lower margin rates as well as lower revenues. As a percentage of total
rental revenue, rental gross profit decreased to 63.0% for the period compared to 64.5% for the
same period in the prior year primarily as a result of increased shrinkage and lower rental
revenues partially offset by lower depreciation expense. Depreciation is a function of rental
purchases over approximately a six month period.
Selling, General and Administrative Expenses (SG&A). As a percentage of total revenue, SG&A
increased to 37.7% for the current nine months compared to 37.6% for the same period in the prior
year. SG&A increased approximately $2.3 million, or 1.7%, to $135.8 million compared to $133.5
million for the same period in the prior year. The main drivers of the SG&A increase included an
increase in associate health insurance of approximately $0.8 million, an increase in store supplies
expense of approximately $0.5 million, and an increase in store advertising costs of approximately
$0.4 million. Increases were partially offset by a decrease in depreciation expense of
approximately $1.6 million related to a reduction in capital expenditures.
Interest Expense. For the current nine months, interest expense decreased approximately $0.1
million, or 12.5%, to $0.7 million, compared to $0.8 million for the same period in the prior year
primarily as a result of lower average
debt levels outstanding during the period. The average rate of interest charged for the current
nine months decreased to 2.4% compared to 2.5% for the same period in the prior year.
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Table of Contents
Income Tax Expense. During the nine months ended October 31, 2010, the Company recorded a discrete
tax benefit of approximately $0.2 million related to amended state returns resulting from an IRS
audit of the Companys previously filed Federal tax returns. During the nine months ended October
31, 2009, the Company recorded a discrete tax charge of approximately $0.4 million related to
amended state and federal tax returns resulting from an IRS audit of the Companys previously filed
tax returns. Primarily as a result of these discrete tax items, the effective tax rates for the
nine months ended October 31, 2010 and 2009 were (45.7%) and (20.8%), respectively.
Use of Non-GAAP Financial Measures
The Company is providing free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income
(loss) as supplemental non-GAAP financial measures regarding the Companys operational performance.
The Company evaluates its historical and prospective financial performance, and its performance
relative to its competitors, by using such non-GAAP financial measures. Specifically, management
uses these items to further its own understanding of the Companys core operating performance,
which management believes represents the Companys performance in the ordinary, ongoing and
customary course of its operations. Therefore, management excludes from core operating performance
those items, such as those relating to restructuring, investing, stock-based compensation expense
and non-cash activities that management does not believe are reflective of such ordinary, ongoing
and customary activities.
The Company believes that providing this information to its investors, in addition to the
presentation of GAAP financial measures, allows investors to see the Companys financial results
through the eyes of management. The Company further believes that providing this information
allows investors to both better understand the Companys financial performance and to evaluate the
efficacy of the methodology and information used by management to evaluate and measure such
performance.
Free Cash Flow
Management defines free cash flow as net cash provided by operating activities for the period less
purchases of property, equipment and improvements during the period. Purchases of property,
equipment and improvements during the period are netted with any proceeds received from insurance
on casualty loss that are directly related to the reinvestment of new capital expenditures. The
following table reconciles net cash provided by operating activities, a GAAP financial measure, to
free cash flow, a non-GAAP financial measure (in thousands):
Nine months ended October 31, | ||||||||
2010 | 2009 | |||||||
Net cash provided by operating activities |
$ | 6,986 | $ | 13,652 | ||||
Purchase of property, equipment and improvements, net |
(9,259 | ) | (8,683 | ) | ||||
Free cash flow |
$ | (2,273 | ) | $ | 4,969 | |||
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EBITDA and Adjusted EBITDA
EBITDA is defined as net income (loss) before interest expense (net), income tax expense (benefit),
property and equipment depreciation expense and amortization. Adjusted EBITDA, as presented
herein, is EBITDA excluding gift card breakage revenue, stock-based compensation expense and store
asset impairment expense. The following table reconciles net income (loss), a GAAP financial
measure, to EBITDA and adjusted EBITDA, non-GAAP financial measures (in thousands):
Three months ended October 31, | Nine months ended October 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Net loss |
$ | (3,079 | ) | $ | (3,436 | ) | $ | (2,143 | ) | $ | (2,130 | ) | ||||
Adjusted for |
||||||||||||||||
Interest expense, net |
374 | 211 | 695 | 778 | ||||||||||||
Income tax benefit |
(2,134 | ) | (1,485 | ) | (1,802 | ) | (560 | ) | ||||||||
Property and equipment
depreciation expense |
4,365 | 4,744 | 12,989 | 14,327 | ||||||||||||
EBITDA |
(474 | ) | 34 | 9,739 | 12,415 | |||||||||||
Gift card breakage revenue |
(149 | ) | | (537 | ) | | ||||||||||
Non-cash stock-based compensation |
144 | 68 | 481 | 224 | ||||||||||||
Store asset impairment expense |
| | | 155 | ||||||||||||
Adjusted EBITDA |
$ | (479 | ) | $ | 102 | $ | 9,683 | $ | 12,794 | |||||||
Adjusted Operating Income (Loss)
Adjusted operating income (loss) is defined as operating income excluding gift card breakage
revenue, stock based compensation expense and store asset impairment expense. The following table
reconciles operating income (loss), a GAAP financial measure, to adjusted operating income (loss),
a non-GAAP financial measure (in thousands):
Three months ended October 31, | Nine months ended October 31, | |||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Operating loss |
$ | (4,885 | ) | $ | (4,727 | ) | $ | (3,341 | ) | $ | (2,008 | ) | ||||
Adjusted for |
||||||||||||||||
Gift card breakage revenue |
(149 | ) | | (537 | ) | | ||||||||||
Non-cash stock-based compensation |
144 | 68 | 481 | 224 | ||||||||||||
Store asset impairment expense |
| | | 155 | ||||||||||||
Adjusted operating loss |
$ | (4,890 | ) | $ | (4,659 | ) | $ | (3,397 | ) | $ | (1,629 | ) | ||||
Free cash flow, EBITDA, adjusted EBITDA, and adjusted operating income (loss) are considered
non-GAAP financial measures under the SECs Regulation G and therefore should not be considered in
isolation of, or as a substitute for, net income, operating income (loss), cash flow from operating
activities, or any other measure of financial performance or liquidity presented in accordance with
GAAP. The financial measures of non-GAAP free cash flow, EBITDA, adjusted EBITDA, and adjusted
operating income (loss) may vary among other companies. Therefore, our free cash flow, EBITDA,
adjusted EBITDA, and adjusted operating income (loss) may not be comparable to similarly titled
measures used by other companies.
Liquidity and Capital Resources
We generate cash from operations from the sale of merchandise and the rental of products, most of
which is received in cash and cash equivalents. Our primary sources of working capital are cash
flow from operating activities including trade credit from vendors and borrowings under our
revolving credit facility, with the most significant source during the first nine months of fiscal
2010 and 2009 being cash flow from operating activities. Other than our principal capital
requirements arising from the purchasing, warehousing and merchandising of inventory and rental
products, opening new stores and expanding or reformatting existing stores and updating existing
and implementing new information systems technology, we have no anticipated material capital
commitments, except for the stock buyback programs discussed more fully in Item 2 of Part II of
this Quarterly Report on Form 10-Q. We believe our cash flow from operations and borrowings under
our revolving credit facility will be sufficient to fund our ongoing operations, new stores, store
expansions, and store reformations for the next twelve months.
At October 31, 2010, total outstanding debt was approximately $44.1 million. We project our
outstanding debt level will be in the range of $40.5 million to $42.5 million by the end of fiscal
2010. At October 31, 2010, we had approximately $44.2 million in excess availability, after the
$10 million availability reserve, under the Amended Agreement (as defined below).
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Consolidated Cash Flows
Operating Activities. Net cash provided by operating activities totaled
approximately $7.0 million for the nine months ended October 31, 2010, compared to $13.7
million for the nine months ended October 31, 2009. Net loss for the nine months ended
October 31, 2010 and 2009 was approximately $2.1 million. Merchandise inventories increased
approximately $11.0 million for the current nine months, compared to an increase of $24.6
million during the same period in fiscal 2009 primarily due to differences in the timing and
amount of inventory build-up based on anticipated sales for the holiday season. Trade
accounts payable increased $21.3 million for the current nine months compared to an increase
of $35.0 million during the same period in fiscal 2009, primarily due to the lower increase
in merchandise inventories in the current period and differences in timing of payments to
vendors surrounding the holiday purchases in the current year compared to the prior year.
Merchandise inventories, net of trade accounts payable decreased approximately $10.2 million
for the current nine months compared to a decrease of $10.5 million for the same period in
the prior year. Accrued expenses and other liabilities decreased approximately $1.2 million
during the period compared to a decrease of $5.8 million during the same period in fiscal
2009. Other current assets increased approximately $3.0 million during the period compared
to an increase of $1.0 million during the same period in fiscal 2009. The changes in
accrued expenses and other liabilities and other current assets were primarily driven by the
timing of federal income tax payments. Purchases of rental video increased to $20.1 million
for the period, compared to $15.8 million for the same period in the prior year, resulting
primarily from increased purchases to support additional demand resulting from competitor
stores that have closed during the first nine months of fiscal 2010 in markets in which we
operate. During fiscal 2010, we estimate net cash provided by operations of approximately
$15.0 to $17.0 million. The expected decrease from fiscal 2009 net cash provided by
operations of $26.6 million to estimated fiscal 2010 net cash provided by operations results
primarily from projected increases in the purchases of rental asset inventory during fiscal
2010.
Investing Activities. Net cash used in investing activities increased approximately
$0.6 million from $8.7 million for the nine months ended October 31, 2009, to $9.3 million
for the nine months ended October 31, 2010. This increase was primarily due to increased
expenditures related to relocated, remodeled and reformatted stores during the current nine
months. For the full fiscal year 2010, the Company projects capital expenditures to be
approximately $12.5 million, which includes approximately $1.6 million related to the
reformatting of twenty stores to expand the footprint of our Comics category, and $0.7
million to expand the Comics footprint in another 100 stores on a smaller scale, with
remaining planned discretionary capital expenditures related to new stores, relocated stores
and our internet site. The Company incurred approximately $11.3 million of capital
expenditures during fiscal year 2009.
Financing Activities. Cash flows from financing activities are primarily associated
with borrowings and payments made under our revolving credit facility (described below under
Capital Structure). For the nine months ended October 31, 2010, cash provided by
financing activities was approximately $0.1 million compared to cash used of $6.4 million
for the nine months ended October 31, 2009. For the current nine months, net borrowings
from our revolving credit facility were approximately $5.9 million compared to net
repayments of approximately $2.2 million for same period in the prior year. Changes in our
cash overdraft position decreased from a use of $3.2 million for the nine months ended
October 31, 2009 to cash provided of approximately $3,000 for the nine months ended October
31, 2010, due to the timing of payments issued to vendors during the period. The Company
purchased approximately $5.5 million of treasury stock during the nine months ended October
31, 2010 compared to $1.0 million during the nine months ended October 31, 2009.
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On December 4, 2009, we entered into a stock transfer agreement with the Marmaduke Family Limited
Partnership (the Partnership). Under the stock transfer agreement, for a period of three years
following the death of Mr. John H. Marmaduke, the Companys President and Chief Executive Officer,
the Partnership may tender for purchase to the Company, and, if so tendered, the Company will be
required to purchase, the number of shares of the Companys common stock belonging to the
Partnership that equal an aggregate fair market value of $5.0 million. During this three year
period, the Partnership may elect to tender portions of such shares in various lots and parcels, at
any time and from time to time, and any tender shall not exhaust or limit the Partnerships right
to tender an additional amount of such shares, subject to the limitations set within the stock
transfer agreement. Under the stock transfer
agreement, the Company is not obligated to purchase, and the Partnership does not have the right to
tender, any amount of such shares with an aggregate fair market value in excess of $5.0 million.
In the event that Mr. Marmaduke resigns as an officer or director of the Company prior to his
death, the Partnerships right to tender the shares to the Company shall terminate. The stock
transfer agreement shall terminate on the earlier of February 9, 2019, or four years after the
death of Mr. Marmaduke. The Company is currently the beneficiary of a $10 million key-man life
insurance policy on Mr. Marmaduke, a portion of the proceeds of which would be used to complete any
purchases of shares resulting from the stock transfer agreement.
Capital Structure. On July 22, 2010, we entered into the Amended and Restated Loan and Security
Agreement (the Amended Agreement) with Bank of America, N.A., as agent, which amended and
restated our Loan and Security Agreement dated as of August 29, 2000, as otherwise amended (the
Prior Agreement). The Amended Agreement is substantially the same as the Prior Agreement,
extends the maturity date of the Prior Agreement from August 29, 2011 to July 22, 2014, and
provides that we may repurchase up to $10.0 million worth of our common stock. The Amended
Agreement also provides that we may repurchase additional shares of our common stock in the event
we meet certain criteria set forth in the Amended Agreement. The Amended Agreement prohibits the
payment of dividends and includes certain other debt and acquisition limitations and requires a
minimum availability of $10.0 million at all times. The Amended Agreement is secured by
substantially all of the assets of the Company and our subsidiary and is guaranteed by our
subsidiary.
The amount outstanding under the Amended Agreement is limited by a borrowing base predicated on the
sum of (a) 85% of Eligible Credit Card Receivables plus (b) (i) 85% multiplied by (ii) the
Appraised Inventory Liquidation Value multiplied by (iii) Eligible Inventory (net of Inventory
Reserves), less (c) Availability Reserves (each term as defined in the Amended Agreement), and is
limited to a ceiling of $100 million, less a $10 million availability reserve. The lender may
increase specifically defined reserves to reduce availability in the event of adverse changes in
our industry or our financial condition, that are projected to impact the value of our assets
pledged as collateral. The lender must exercise reasonable judgment and act in good faith with
respect to any changes in the specifically defined reserves.
Interest under the Amended Agreement will accrue, at our election, at a Base Rate or Libor Rate,
plus, in each case, an Applicable Margin, which is determined by reference to the level of
Availability as defined in the Amended Agreement, with the Applicable Margin for Libor Rate loans
ranging from 2.00% to 2.75% and the Applicable Margin for Base Rate loans ranging from 1.00% to
1.75%. In addition, unused line fees ranging from 0.30% to 0.375% (determined by reference to the
level of usage under the Amended Agreement) are also payable on unused commitments.
At October 31, 2010, we had approximately $44.2 million in excess availability, after the $10
million availability reserve, under the Amended Agreement. We expect to have approximately $51.0
million in excess availability, after the $10 million availability reserve and outstanding letters
of credit, at January 31, 2011. However, excess availability may be reduced in the future as
changes in the borrowing base occur or the lenders increase availability reserves. The average
rate of interest incurred for the three and nine months ended October 31, 2010 was 3.0% and 2.4%,
respectively. Deferred financing costs that were amortized into interest expense during the three
and nine months ended October 31, 2010 are excluded from the calculation of the average rate of
interest for each respective period.
We utilize standby letters of credit to support certain insurance policies. The aggregate amount
of the letters of credit at October 31, 2010, was approximately $0.8 million, which reduces the
excess availability under the Amended Agreement.
At October 31, 2010, our minimum lease commitments for the remainder of fiscal 2010 were
approximately $4.5 million. Total existing minimum operating lease commitments for fiscal years
2010 through 2025 were approximately $167.6 million as of October 31, 2010.
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Contractual obligations and off-balance sheet arrangements. We have contractual obligations
associated with ongoing business and financing activities, which will result in cash payments in
future periods. These obligations include long-term debt, operating leases and certain
revenue-sharing agreements. As of October 31, 2010, other than operating leases and standby
letters of credit, we had not entered into any off-balance sheet arrangements or
third-party guarantees, nor does our business ordinarily require us to do so. At October 31, 2010,
there have been no material changes in our contractual obligations or off-balance sheet
arrangements from those reported in our Annual Report on Form 10-K for the fiscal year ended
January 31, 2010.
Seasonality
As is the case with many retailers, a significant portion of our revenues, and an even greater
portion of our operating income, is generated in the fourth fiscal quarter, which includes the
holiday selling season. As a result, a substantial portion of our annual earnings has been, and
will continue to be, dependent on the results of the fourth quarter, which could be impacted by the
extremely challenging times that the U.S. and global economies are currently experiencing, the
conditions of which have had and will continue to have an adverse impact on spending by Hastings
current retail customer base and potential new customers. Less than satisfactory net sales for
such period could have a material adverse effect on the Companys financial condition or results of
operations for the year and may not be sufficient to cover any losses that may have been incurred
in the first three quarters of the year. We experience reduced video rental activity in the spring
because customers spend more time outdoors. Major world or sporting events, such as the Super
Bowl, the Olympic Games or the World Series, also have a temporary adverse effect on revenues.
Future operating results may be affected by many factors, including variations in the number and
timing of superstore openings, the number and popularity of new book, music and video titles, the
cost of the new release or best renter titles, changes in comparable-store revenues, competition,
marketing programs, increases in the minimum wage, weather, special or unusual events and other
factors that may affect our operations.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
In the ordinary course of our business, we are exposed to certain market risks, primarily changes
in interest rates. Our exposure to interest rate risk consists of variable rate debt based on the
lenders Base Rate or LIBOR plus a specified percentage, at our option. The annual impact on our
results of operations of a 100 basis point interest rate change on the October 31, 2010 outstanding
balance of the variable rate debt would be approximately $0.4 million. After an assessment of
these risks to our operations, we believe that the primary market risk exposures (within the
meaning of Regulation S-K Item 305) are not material and are not expected to have any material
adverse impact on our financial position, results of operations or cash flows for the next fiscal
year.
ITEM 4 CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
We performed an evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15
promulgated under the Securities Exchange Act of 1934, as amended (Exchange Act) as of the end of
the period covered by this Quarterly Report on Form 10-Q. Based upon that evaluation, our Chief
Executive Officer and our Chief Financial Officer concluded that our disclosure controls and
procedures, as defined by Exchange Act Rules 13a-15(e) and 15d-15(e), were effective as of the end
of the period covered by this Quarterly Report on Form 10-Q to provide reasonable assurance that
the information required to be disclosed by us in our reports filed or submitted under the Exchange
Act is recorded, processed, summarized and reported within the time periods specified in the rules
and forms of the Securities and Exchange Commission and such information is accumulated and
communicated to management as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control over Financial Reporting
Management has implemented a process to monitor and assess both the design and operating
effectiveness of internal control over financial reporting. All internal control systems, no
matter how well designed, have inherent limitations. Therefore, even those systems determined to
be effective can provide only reasonable assurance with respect to financial statement preparation
and presentation.
There has not been any change in our internal control over financial reporting during our fiscal
quarter ended October 31, 2010, that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS.
We are involved in various claims and legal actions arising in the ordinary course of business. In
the opinion of management, the ultimate disposition of these matters will not have a material
adverse effect on our financial position, results of operations, or cash flows.
ITEM 1A RISK FACTORS.
Our Annual Report on Form 10-K for the fiscal year ended January 31, 2010 includes a detailed
discussion of our risk factors. Since that time, there have been no material changes to our risk
factors.
ITEM 2 UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
A summary of our purchases of shares of common stock for the three months ended October 31, 2010 is
as follows:
ISSUER PURCHASES OF EQUITY SECURITIES
Approximate dollar | ||||||||||||||||
Total number of | value of shares that | |||||||||||||||
Average | shares purchased | may yet be | ||||||||||||||
Total number | price | as part of publicly | purchased under | |||||||||||||
of shares | paid per | announced plans | the plans or | |||||||||||||
Period | purchased (1) | share | or programs | programs (2) | ||||||||||||
August 1, 2010
through August 31,
2010 |
86,900 | $ | 7.40 | 86,900 | N/A | |||||||||||
September 1, 2010
through September
30, 2010 |
38,635 | 7.34 | 38,635 | N/A | ||||||||||||
October 1, 2010
through October 31,
2010 |
20,900 | 6.70 | 20,900 | N/A | ||||||||||||
Total |
146,435 | $ | 7.29 | 146,435 | $ | 9,166,914 | ||||||||||
(1) | All shares were open-market purchases made under a repurchase plan publicly announced
in a press release dated September 28, 2001. Our Board of Directors initially authorized
the repurchase of up to $5.0 million of our common stock. To date, the Board of Directors
has approved the repurchase of up to an additional $32.5 million of our common stock. Each
such authorization to increase amounts was publicly announced in a press release. The
repurchases satisfied the conditions of the safe harbor of Rule 10b-18 under the Exchange
Act. |
|
(2) | A total of 4,531,680 shares have been purchased under the repurchase plan at a total
cost of approximately $28.3 million, or approximately $6.25 per share. |
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ITEM 6 EXHIBITS.
a. | The following exhibits are filed herewith or incorporated by reference as indicated as
required by Item 601 of Regulation S-K. Any exhibits designated by an asterisk are
management contracts and/or compensatory plans or arrangement required to be filed as
exhibits to this Quarterly Report on Form 10-Q. |
Exhibit | ||||||||
Number | Description of Documents | |||||||
3.1 | (1 | ) | Third Restated Articles of Incorporation of the Company. |
|||||
3.2 | (2 | ) | Amended and Restated Bylaws of the Company. |
|||||
4.1 | (3 | ) | Specimen of Certificate of Common Stock of the Company. |
|||||
4.2 | (1 | ) | Third Restated Articles of Incorporation of the Company (see 3.1 above). |
|||||
4.3 | (2 | ) | Amended and Restated Bylaws of the Company (see 3.2 above). |
|||||
31.1 | (4 | ) | Principal Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|||||
31.2 | (4 | ) | Principal Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
|||||
32.1 | (4 | ) | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
(1) | Previously filed as an exhibit to the Companys Registration Statement on Form S-1, dated
March 18,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are
incorporated herein by reference. |
|
(2) | Previously filed as an exhibit to the Companys Form 8-K (File No. 000-24381) filed on
January 17, 2008 and incorporated herein by reference. |
|
(3) | Previously filed as an exhibit to the Companys Registration Statement on Form S-1/A, dated
May 19,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are
incorporated herein by reference. |
|
(4) | Filed herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized:
HASTINGS ENTERTAINMENT, INC |
||||
Date: December 3, 2010 | /s/ Dan Crow | |||
Dan Crow | ||||
Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) |
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INDEX TO EXHIBITS
Exhibit | ||||||
Number | Description of Documents | |||||
3.1 | (1) | Third Restated Articles of Incorporation of the Company. |
||||
3.2 | (2) | Amended and Restated Bylaws of the Company. |
||||
4.1 | (3) | Specimen of Certificate of Common Stock of the Company. |
||||
4.2 | (1) | Third Restated Articles of Incorporation of the Company (see 3.1 above). |
||||
4.3 | (2) | Amended and Restated Bylaws of the Company (see 3.2 above). |
||||
31.1 | (4) | Principal Executive Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
||||
31.2 | (4) | Principal Financial Officer Certification Pursuant to Exchange Act Rule 13a-14(a)/15d-14(a). |
||||
32.1 | (4) | Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
(1) | Previously filed as an exhibit to the Companys Registration Statement on Form S-1, dated
March 18,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are
incorporated herein by reference. |
|
(2) | Previously filed as an exhibit to the Companys Form 8-K (File No. 000-24381) filed on
January 17, 2008 and incorporated herein by reference. |
|
(3) | Previously filed as an exhibit to the Companys Registration Statement on Form S-1/A, dated
May 19,1998 (File No. 333-47969) and with a corresponding exhibit number herein and are
incorporated herein by reference. |
|
(4) | Filed herewith. |
26