AMARILLO, Texas, March 7, 2000--Hastings Entertainment, Inc. (NASDAQ:HAST), today
announced that its fourth quarter and fiscal 1999 results (and previous four years'
results) will be negatively impacted by an accounting adjustment that will result in a
non-cash charge to earnings. The company has determined that merchandise receipts were not
properly entered into the inventory control system for a small portion of vendor
deliveries. As a result, merchandise cost of revenue was understated. The adjustment will
require Hastings to restate its earnings in the first three quarters of fiscal 1999 and
probably for the prior four fiscal years. The company presently believes the aggregate
amount of the pre-tax effect of the restatement, after certain off-setting adjustments,
could total $23-$27 million for all of the periods. The pre-tax effect by year is
currently being determined. The company believes that these charges can be utilized to
amend its tax returns for the tax years 1996-1998 which would result in a tax refund to
the company of approximately $6.8 million. It is not possible at this time to predict the
precise amount or timing of such tax refund. "This
adjustment does not affect the company's current cash flow from operations," said
Thomas D. Nugent, chief financial officer. "We are working diligently with our
outside auditors to more precisely determine the magnitude of this accounting adjustment
and the proper allocation to the 1999 and prior fiscal year periods. Until that process is
completed, the company cannot provide information on our fiscal 1999 performance. We have
made appropriate changes to our internal accounting system to ensure that this problem
does not recur. Those changes are expected to have some impact on future operating
margins."
John H. Marmaduke, chairman and chief executive officer, said
"We have directed our finance team, headed by our new CFO, Tom Nugent, to devote
whatever resources are required to resolve this issue as promptly as possible. This
accounting adjustment in no way reduces our confidence in the Hastings concept and its
future prospects."
Unrelated to the accounting adjustment referred to above, the
company also will record an approximate $6 million pre-tax charge in the fourth quarter
related to the closing of five of its stores and will record fourth quarter inventory
write-downs of approximately $3.5 million. These two fourth quarter charges, of which
approximately $5.8 million is a non-cash charge, will negatively affect earnings for
fiscal 1999 by approximately $0.51 loss per share.
The company presently believes the adjustment and charges referred
to above will not cause the company to be out of compliance with financial covenants in
its $60 million unsecured revolving credit facility, under which the company presently has
outstanding borrowings of approximately $23 million. The company believes that, once
fourth quarter results are final, it would not, however, be in compliance with the fixed
charge coverage ratio financial covenant under its unsecured 7.75% Series A Senior Notes
due June 13, 2003, of which there is outstanding an aggregate principal amount of $20
million. The holders of the Senior Notes have granted a waiver of the company’s
compliance with that covenant for the quarter ending January 31, 2000. The company is also
engaged in discussions with the holders of the Senior Notes to amend certain provisions of
the Senior Notes, including the covenant relating to the fixed charge coverage ratio.
Founded in 1968, Hastings Entertainment, Inc. is the leading
multimedia entertainment retailer that combines the sale of books, music, software,
periodicals, DVDs, videos and video games with the rental of videos, DVDs and video games
in a superstore format. The company currently operates 147 superstores, averaging 21,500
square feet, primarily in small to medium-sized markets throughout United States. The
company plans to slow new store growth in fiscal 2000 to four or five new units.
Hastings also operates www.gohastings.com,
an e-commerce Internet Web site that makes available to its customers new and used
entertainment products and unique, contemporary gifts and toys. The site features
exceptional product and pricing offers, including best-selling books at up to 50% off list
price. In addition, investors and customers can review general and financial information
about Hastings at this site.
Certain statements set forth above are forward-looking statements
within the meaning of the Securities Exchange Act of 1934. Such statements are based upon
Hastings Entertainment management's current estimates, assumptions and expectations and
are subject to a number of factors and uncertainties, which could cause actual results to
differ materially from those described herein. Significant uncertainties at this time
include a determination of the precise magnitude of the accounting adjustment referred to
above, the fiscal periods to which the adjustment should be allocated and the amount of
the adjustment in each period. The forward-looking statements set forth above are also
subject to the factors and uncertainties set forth under the heading "Risk
Factors" in the company's Registration Statement on Form S-1 as filed with the
Securities and Exchange Commission and declared effective on June 11, 1998, and the
company's annual and quarterly reports on file with the SEC.
and 
