SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended January 31, 2002
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to ______________
COMMISSION FILE NUMBER 000-24381
A. Full title of the plan and the address of the plan, if
different from that of the issuer named below:
HASTINGS ENTERTAINMENT, INC. ASSOCIATES' 401(k) PLAN
B. Name of issuer of the securities held pursuant to the plan
and the address of its principal executive office:
HASTINGS ENTERTAINMENT, INC.
3601 PLAINS BLVD.
AMARILLO, TEXAS 79102
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Hastings Entertainment, Inc. Associates' 401(k) Plan
As of January 31, 2002 and 2001, and for the Year ended January 31, 2002
Hastings Entertainment, Inc. Associates' 401(k) Plan
Financial Statements and Supplemental Schedule
As of January 31, 2002 and 2001,
and for the Year ended January 31, 2002
CONTENTS
<Table>
Reports of Independent Auditors
Ernst & Young LLP ............................................................... 1
Clifton Gunderson LLP ........................................................... 2
Financial Statements
Statements of Net Assets Available for Benefits ......................................... 3
Statement of Changes in Net Assets Available for Benefits ............................... 4
Notes to Financial Statements ........................................................... 5
Supplemental Schedule
Schedule H; Line 4i - Schedule of Assets (Held At End of Year) .......................... 10
Signature Page .......................................................................... 11
Exhibit Index ........................................................................... 12
</Table>
Report of Independent Auditors
The Benefits Administrative Committee
Hastings Entertainment, Inc. Associates' 401(k) Plan and Trust
We have audited the accompanying statement of net assets available for benefits
of the Hastings Entertainment, Inc. Associates 401(k) Plan as of January 31,
2002, and the related statement of changes in net assets available for benefits
for the year then ended. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan at
January 31, 2002, and the changes in its net assets available for benefits for
the year ended January 31, 2002, in conformity with accounting principles
generally accepted in the United States.
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying supplemental schedule of assets
(held at end of year) as of January 31, 2002, is presented for purposes of
additional analysis and is not a required part of the financial statements but
is supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. This supplemental schedule is the responsibility of the
Plan's management. The supplemental schedule has been subjected to the auditing
procedures applied in our audit of the financial statements and, in our opinion,
is fairly stated in all material respects in relation to the financial
statements taken as a whole.
/s/ Ernst & Young LLP
July 26, 2002
Fort Worth, Texas
1
INDEPENDENT AUDITOR'S REPORT
The Benefit Committee
Hastings Entertainment, Inc.
Associates' 401(k) Plan and Trust
Amarillo, Texas
We were engaged to audit the accompanying statement of net assets available for
benefits (modified cash basis) of Hastings Entertainment, Inc. Associates'
401(k) Plan and Trust as of January 31, 2001. This financial statement is the
responsibility of the Plan's management.
As permitted by 29 CFR 2520.103-8 of the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974, the Plan administrator instructed us not perform, and we
did not perform, any auditing procedures with respect to the information
summarized in Note 3 for 2001, which was certified by Amarillo National Bank,
the trustee of the Plan, except for comparing such information with the related
information included in the financial statement. We have been informed by the
Plan administrator that the trustee holds the Plan's investment assets and
executes investment transactions. The Plan administrator has obtained a
certification from the trustee as of January 31, 2001 that the information
provided to the Plan administrator by the trustee is complete and accurate.
As described in the Summary of Significant Accounting Policies, the financial
statement for 2001 was prepared on a modified cash basis of accounting, which is
a comprehensive basis of accounting other than accounting principles generally
accepted in the United States of America.
Because of the significance of the information that we did not audit, we are
unable to, and do not, express an opinion on the accompanying 2001 financial
statement taken as a whole. The form and content of the information included in
the financial statement, other than that derived from the information certified
by the trustee, have been audited by us in accordance with auditing standards
generally accepted in the United States of America and, in our opinion, are
presented in compliance with the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974.
/s/ CLIFTON GUNDERSON LLP
CLIFTON GUNDERSON LLP
Amarillo, Texas
August 3, 2001
2
Hastings Entertainment, Inc. Associates' 401(k) Plan
Statements of Net Assets Available for Benefits
<Table>
<Caption>
JANUARY 31,
2002 2001
------------ ------------
(Modified Cash
Basis)
ASSETS
Cash $ 20,154 $ --
Investments 9,072,284 10,110,033
Receivables:
Employee contributions 41,336 41,995
Employer contributions 126,919 230,894
------------ ------------
168,255 272,889
------------ ------------
LIABILITIES
Excess contribution refundable 37,033 --
------------ ------------
Net assets available for benefits $ 9,223,660 $ 10,382,922
============ ============
</Table>
See accompanying notes.
3
Hastings Entertainment, Inc. Associates' 401(k) Plan and Trust
Statement of Changes in Net Assets Available for Benefits
Year ended January 31, 2002
<Table>
Investment income (loss):
Net depreciation in fair value of investments $ (2,027,326)
Interest and dividends 143,306
------------
(1,884,020)
Contributions:
Employee 1,195,607
Employer 348,163
Rollover 61,487
------------
1,605,257
------------
Net additions (278,763)
Deductions:
Benefit payments 812,282
Administrative expenses 68,217
------------
Total deductions 880,499
------------
Net decrease (1,159,262)
Net assets available for benefits at beginning of year 10,382,922
------------
Net assets available for benefits at end of year $ 9,223,660
============
</Table>
See accompanying notes.
4
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements
January 31, 2002
1. DESCRIPTION OF THE PLAN
The following description of the Hastings Entertainment, Inc. Associates 401(k)
Plan (the Plan) provides only general information. Participants should refer to
the Plan Document for a more complete description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan covering substantially all employees of
Hastings Entertainment, Inc. (the Employer), as defined in the Plan document.
Full-time associates of Hastings, over the age of 21, are immediately eligible
to participate in the 401(k) plan upon hiring. Effectively, May 1, 2001,
part-time associates, over the age of 21, are eligible after the completion of
12 months and 1,000 hours within those 12 months. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974 (ERISA).
CONTRIBUTIONS
Participants may elect to contribute up to 12% of their pretax compensation, as
provided by the Plan and Internal Revenue Service (IRS) regulations. Such
contributions are withheld by the Employer from each participant's compensation
and deposited in the appropriate investment fund as directed by the participant.
Effective February 1, 2001, the Employer makes a guaranteed matching
contribution of 25% of a participant's contributions, to the extent that
participant contributions do not exceed 6% of compensation. The guaranteed match
is made quarterly and the participant must be employed on the last day of the
quarter to receive the guaranteed match for that quarter. Participants who
became disabled, died, or retired during the quarter will also receive the
match.
Effective February 1, 2001, the Employer may make an additional discretionary
matching contribution in an amount determined by the Board of Directors. For the
Plan year ended January 31, 2002, the Board of Directors approved two
discretionary matches of up to 25% of participant deferrals limited to the first
6% of compensation. The first discretionary matching contribution was made to
participants employed as of July 31, 2001, and was for the period February 1,
2001 through July 31, 2001. A second discretionary match was made to
participants employed as of January 31, 2002 and was for the period August 1,
2001 through January 31, 2002. Prior to February 1, 2001, all employer
contributions were discretionary.
5
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's contributions,
rollovers, Company's contributions, and Plan earnings, and is charged with an
allocation of administrative expenses as defined by the Plan.
VESTING
Participants are immediately vested in their contributions and related earnings
or losses thereon. Vesting in the Company's contributions and related earnings
and losses thereon is based on the following vesting schedule:
<Table>
<Caption>
FULL YEARS OF CREDIT SERVICE VESTING PERCENTAGE
- ---------------------------- ------------------
Less than 2 years 0%
2-3 years 25%
3-4 years 50%
4-5 years 75%
5 or more years 100%
</Table>
BENEFITS
In accordance with the Plan document, distribution of a participant's vested
account is available upon the participant's death, termination, or retirement.
Participants may elect to receive installment payments or a lump-sum
distribution. Benefit payments are recorded upon distribution.
FORFEITURES
The amounts forfeited by participants who terminate prior to becoming fully
vested are used to reduce employer contributions.
6
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements (continued)
1. DESCRIPTION OF THE PLAN (CONTINUED)
PARTICIPANT LOANS
Participants may borrow from their fund accounts a minimum of $500 up to a
maximum equal to the lesser of $50,000 or 50% of their vested account balance.
Loan terms range from 1 to 5 years or up to 15 years for the purchase of a
primary residence. The loans are secured by the balance in the participant's
account and bear interest at a rate of 1% over the prime rate published in the
Wall Street Journal.
ADMINISTRATIVE EXPENSES
Administrative expenses, which are not paid by the Plan Sponsor, are paid by the
Plan.
PLAN TERMINATION
Although it has not expressed any intent to do so, the Plan Sponsor has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of Plan
termination, participants will become 100% vested in their accounts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The financial statements as of and for the year January 31, 2002 are prepared on
the accrual basis of accounting, while the January 31, 2001 Statement of Net
Assets Available for Benefits is prepared on the modified cash basis of
accounting, which is a comprehensive basis of accounting other than generally
accepted accounting principles. The impact of the change in accounting methods
was not material, and therefore, the 2001 Statement of Net Assets Available for
Benefits has not been restated.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the Untied States requires management to make estimates
that affect certain amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
7
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
VALUATION OF INVESTMENTS
Investments in common stock and registered investment companies are stated at
fair value. Shares of registered investment companies are valued based on
published market prices, which represent the net asset values of shares held by
the Plan at year-end. The Company's stock is valued at the quoted market price.
Participant loans are valued at their outstanding balances, which approximate
fair value.
Purchases and sales of securities are recorded on a trade-date basis. Interest
income is recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
3. INVESTMENTS
The Plan's investments were held by Amarillo National Bank from January 31, 2001
through October 31, 2001 and by First National Bank of Amarillo from November 1,
2001 through January 31, 2002.
The fair value of individual investments that represent 5% or more of the Plan's
net assets are as follows:
<Table>
<Caption>
JANUARY 31,
2002
------------
Alliance Balanced Shares Fund $ 744,830
Baron Growth Fund 583,496
Federated Kaufmann Fund 677,834
Federated Maximum Cap Fund 823,146
Janus Fund 1,483,062
Janus Worldwide Fund 1,266,976
Federated Prime Obligation Fund 2,004,849
Hastings Entertainment, Inc. Common Stock 593,224
</Table>
8
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
<Table>
<Caption>
JANUARY 31,
2001
------------
Fidelity Domestic Money Market Fund $ 1,577,612
Fidelity Spartan U.S. 1,057,080
Janus Fund 2,222,945
Janus Worldwide Fund 1,763,104
PBHG Emerging Growth Fund 777,342
PBHG Growth Fund 1,043,256
Warburg Pincus Balanced Fund 881,468
</Table>
During the year, the Plan's investments (including investments purchased, sold
as well as held during the year) appreciated (depreciated) as follows:
<Table>
Shares of registered investments $ (2,321,561)
Common stock 294,235
------------
$ (2,027,326)
============
</Table>
4. INCOME TAX STATUS
The Plan has received a determination letter from the IRS dated January 5, 1996,
stating that the Plan, as amended, is qualified under Section 401(a) of the
Internal Revenue Code (the Code) and, therefore, the related trust is exempt
from taxation. Once qualified, the Plan is required to operate in conformity
with the Code to maintain its qualification. The Plan has been amended since
receiving the determination letter. The plan administrator has indicated that it
will take the necessary steps, if any, to maintain the Plan's qualified status.
5. SUBSEQUENT EVENTS
The Plan changed its trustee effective March 21, 2002.
9
Supplemental Schedule
Hastings Entertainment, Inc. Associates' 401(k) Plan and Trust
Schedule H; Line 4i - Schedule of Assets (Held At End of Year)
EIN: 75-1386375 Plan #: 001
January 31, 2002
<Table>
<Caption>
(c)
(b) DESCRIPTION OF INVESTMENT INCLUDING (e)
IDENTITY OF ISSUE, BORROWER, MATURITY DATE, RATE OF INTEREST, CURRENT
(a) LESSOR, OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE VALUE
- --- ---------------------------- ----------------------------------- -------
Alger Retirement Group Alger Mid Cap Growth Fund $ 48,572
Alger Retirement Group Alger Capital Appreciation Fund 14,821
Alliance Capital Management LP Alliance Balanced Shares Fund 744,830
Alliance Capital Management LP Alliance Growth and Income Fund 29,077
American Century Investments American Century Strategy Allocation
Fund 7,663
American Century Investments American Century Strategy Allocation
Moderate Fund 8,484
American Century Investments American Century Strategy Allocation
Fund 9,527
Baron Asset Fund Baron Growth Fund 583,496
* Federated Investors, Inc. Federated Kaufmann Fund 677,834
* Federated Investors, Inc. Federated Income Trust Fund 10,417
* Federated Investors, Inc. Federated Maximum Cap Fund 823,146
* Federated Investors, Inc. Federated US Govt. SEC Fund
2-5 Yrs Fund 393,292
Janus Janus Fund 1,483,062
Janus Janus Worldwide Fund 1,266,976
* Federated Investors, Inc. Federated Money Market Trust 9,729
* Federated Investors, Inc. Federated Prime Obligation Fund 2,004,849
* Hastings Entertainment, Inc. Hastings Entertainment Inc.
Common Stock 593,224
* Participants Loans with interest rates ranging from
5.7% to 10.5% 363,285
----------
$9,072,284
==========
</Table>
*Indicates party-in-interest to the Plan.
Investments are participant-directed thus cost column (d) is not applicable.
10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees (or other persons who administer the employee benefit plan) have
duly caused this annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
Hastings Entertainment, Inc. Associates'
401(k) Plan
Date: July 26, 2002 /s/ DAN CROW
-----------------------------------------
Dan Crow, Vice President/CFO
11
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT SEQ.
NUMBER DESCRIPTION PAGE NO.
- ------ ----------- --------
23 Consent of Ernst & Young LLP 13
23.1 Consent of Clifton Gunderson LLP 14
</Table>
12