Mail Stop 3561
August 8, 2005
Mr. Dan Crow
Vice President and Chief Financial Officer
Hastings Entertainment, Inc.
3601 Plains Boulevard
Amarillo, Texas 79102
RE: Hastings Entertainment, Inc.
Form 10-K for Fiscal Year Ended January 31, 2005
Filed May 2, 2005
Form 10-Q for Quarterly Period Ended April 30, 2005
File No. 000-24381
Dear Mr. Crow:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and will make no further review of your
documents. Where indicated, we think you should revise your
disclosures in future filings in response to these comments. If
you
disagree, we will consider your explanation as to why our comment
is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we may
ask
you to provide us with information so we may better understand
your
disclosure. After reviewing this information, we may or may not
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended January 31, 2005
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 15
Results of Operations, page 20
Fiscal 2004 Compared to Fiscal 2003, page 21
1. Where you identify intermediate causes of changes in your
operating results, in future filings please also describe the
reasons
underlying the intermediate causes. For example, you indicate
that
sales increased in fiscal year 2004 primarily due to a 5% increase
in
same store revenues. You should elaborate to explain why same
stores
sales for each individual merchandise category are increasing.
You
should also explain why rental and sell-through revenues from all
video and video game products increased in fiscal 2004.
Additionally, your disclosures should indicate whether you expect
identified trends in your historical operating results to continue
into the future and why or why not. See SEC Release No. 33-8350.
Contractual Obligations Table, page 25
2. Please revise your contractual obligations table in future
filings
to include estimated interest payments on your debt. Because the
table is aimed at increasing transparency of cash flow, we believe
interest payments should be included in the table. If you choose
not
to include these payments, a footnote to the table should clearly
identify the excluded item and provide any additional information
that is material to an understanding of your cash requirements.
See
Section IV.A and footnote 46 to the Commission`s MD&A Guidance
issued
December 19, 2003 available at www.sec.gov.
Item 8. Financial Statements and Supplementary Data
Consolidated Statements of Cash Flows, page 32
3. Please tell us where the cash inflows related to retail sales
of
rental videos converted to sales merchandise are included in your
statements of cash flows. Also tell us in detail how your
classification complies with GAAP and specifically SFAS 95. In
this
connection, it appears that the cash flows from the retail sales
of
the rental videos may be treated as operating cash inflows; yet we
note that the cash outflows related to the purchase of these
rental
videos are classified as investing cash outflows. Tell us why you
believe this treatment is consistent with paragraph 16(c) of SFAS
95
regarding sales of productive assets and also paragraph 24 of SFAS
95
regarding cash receipts and payments having aspects of more than
one
class of cash flows. We may have further comment.
4. Pursuant to paragraph 32 of SFAS 95, please disclose in future
filings the amount of the noncash transfer from rental video fixed
assets to previously viewed video inventory.
Notes to Consolidated Financial Statements, page 33
General
5. Please refer to paragraph 26 of SFAS 131 and disclose in future
filings the factors used to determine that you have one reportable
segment. Ensure the disclosure is clear in terms of how you
manage
your business and whether your in-store sales and internet sales
represent separate operating segments that have been aggregated
into
one reportable segment or whether both of these retail formats is
managed as one operating segment. Show us how the disclosure will
read in future filings.
6. In future filings please disclose the types of expenses that
you
include in the merchandise cost of revenue and rental video cost
of
revenue line items and the types of expenses that you include
within
selling, general and administrative expenses. In doing so, please
disclose specifically whether you include inbound freight charges,
purchasing and receiving costs, inspection costs, warehousing
costs,
internal transfer costs and the other costs of your distribution
network in merchandise cost of revenue and rental video cost of
revenue. If you currently exclude a significant portion of these
costs from merchandise cost of revenue and rental video cost of
revenue, please provide cautionary disclosure in MD&A that your
gross
margins may not be comparable to others, since some entities
include
all of the rental video asset depreciation expense and costs
related
to their distribution network in cost of revenues and others
exclude
a portion of them from gross margin, including them instead in
other
operating expense line items. To the extent the excluded costs
are
material to your operating results, quantify these amounts in
MD&A.
If you determine that these amounts are immaterial for disclosure,
please provide us with your qualitative and quantitative
assessment
of materiality for all periods presented.
Note 1. Operations and Summary of Significant Accounting Policies,
page 33
Note 1(h). Property and Equipment, page 34
7. Please tell us your consideration of disaggregating your rental
video assets into separate depreciation pools for categories such
as
new release DVDs, new release VHS tapes, catalog DVDs, catalog VHS
tapes, and video games. Also tell us your consideration of the
potential impact such disaggregation would have on your financial
statements.
Note 4. Accrued Expenses and Other Current Liabilities, page 38
8. We note you record an allowance for estimated costs related to
merchandise to be returned to suppliers for which credit from the
supplier is pending. You state that it is reasonably possible
that
your estimate of the ultimate settlement with your suppliers may
change. Please confirm to us that this allowance is only relieved
upon return of the related inventory, and not based on changes in
management`s judgment. In this regard please note that inventory
should be recorded at the lower of cost or market. The write down
of
inventory creates a new cost basis which cannot subsequently be
marked up based on changes in the underlying facts and
circumstances.
Refer to SAB Topic 5:BB.
Financial Statement Schedule II, page 52
9. In future filings please revise Schedule II to include your
allowance for sales returns, if material. Refer to Rules 5-04 and
12-09 of Regulation S-X.
Exhibits 31.1 and 31.2
10. Please confirm that the inclusion of your CEO and CFO`s title
was
not intended to limit the capacity in which such individuals
provided
the certifications. In the future, eliminate reference to the CEO
and CFO`s titles in the introductory paragraph of the
certifications
to conform to the format provided in Item 601(b)(31) of Regulation
S-
K.
Form 10-Q for Quarterly Period Ended April 30, 2005
Item 4. Controls and Procedures
11. Please revise your future disclosures regarding your principal
executive and financial officers` conclusion as to the
effectiveness
of your disclosure controls and procedures to ensure it
encompasses
the entire definition of disclosure controls and procedures in
Exchange Act Rules 13a-15(e) and 15d-15(e). Your current
disclosure
does not achieve this objective. Also confirm to us that your
disclosures regarding the effectiveness of your disclosure
controls
and procedures are still accurate considering the entire
definition
of disclosure controls and procedures, or otherwise amend this
Form
10-Q accordingly.
12. Please revise your future filings to provide an unqualified
statement as to whether there were any changes during your most
recent fiscal quarter in your internal controls over financial
reporting that have materially affected, or are reasonably likely
to
materially affect, your internal controls and procedures over
financial reporting. Your current disclosure, which states that
"except as described above," there were no changes in your
internal
control over financial reporting is not sufficient in this regard.
Please respond to these comments within 10 business days or
tell
us when you will provide us with a response. Please furnish a
letter
that keys your responses to our comments and provides any
requested
information. Please understand that we may have additional
comments
after reviewing your responses to our comments. Please file your
response letter on EDGAR as a correspondence file.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filing;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement has access to all information you provide to the staff
of
the Division of Corporation Finance in our review of your filings
or
in response to our comments on your filings.
If you have any questions regarding these comments, please
direct them to Adam Phippen, Staff Accountant, at (202) 551-3336.
In
his absence, direct your questions to Robyn Manuel at (202) 551-
3823.
Any other questions may be directed to me at (202) 551-3843.
Sincerely,
George F. Ohsiek, Jr.
Branch Chief
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Mr. Dan Crow
Hastings Entertainment, Inc.
August 8, 2005
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