Hastings Entertainment, which operates almost 150 multiple-media stores in small and medium-size cities and towns in the Rockies and Plains states, announced last week that it is restating its earnings for as far back as the last four years. According to the company, because "merchandise receipts were not properly entered into the inventory control system for a small portion of vendor deliveries," merchandise costs have been understated. As a result, the company will have to readjust its results for the past year and "probably for the prior four fiscal years" to the tune of $23 million-$27 million. The silver lining is that the company believes that amending its tax returns as far back as 1996 will result in a tax refund of about $6.8 million.
In addition to the receipt-entering problem, the company is recording a $6-million charge in the fourth quarter related to the closing of five stores and inventory write-downs amounting to about $3.5 million. It was unclear last week when Hastings will be able to give a full report of its fiscal 2000 performance.
Because of these problems, Hastings added that it will be out of compliance with its senior notes due in 2003, which have a principal amount of $20 million. The holders of the senior notes have granted a waiver for the quarter ended January 31, 2000, and the company is negotiating to change some of the requirements of the notes, including the one that puts it out of compliance.
Hastings CFO Thomas D. Nugent noted in a statement that the multi-year adjustments do "not affect the company's current cash flow from operations." He emphasized, too, that Hastings has made changes to its accounting system "to ensure that this problem d s not recur."
Chairman and CEO John H. Marmaduke said that the adjustment "in no way reduces our confidence in the Hastings concept and its future prospects."
