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, 2003
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 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., SUITE #1
AMARILLO, TEXAS 79102
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Hastings Entertainment, Inc. Associates' 401(k) Plan
As of January 31, 2003 and 2002, and for the Year ended January 31, 2003
Hastings Entertainment, Inc. Associates' 401(k) Plan
Financial Statements and Supplemental Schedule
As of January 31, 2003 and 2002,
and for the Year ended January 31, 2003
<Table>
CONTENTS
Report of Independent Auditors...........................................................................1
Audited Financial Statements
Statements of Net Assets Available for Benefits..........................................................2
Statement of Changes in Net Assets Available for Benefits................................................3
Notes to Financial Statements............................................................................4
Supplemental Schedule
Schedule H; Line 4i - Schedule of Assets (Held At End of Year)...........................................9
</Table>
Report of Independent Auditors
The Benefits Administrative Committee
Hastings Entertainment, Inc. Associates' 401(k) Plan
We have audited the accompanying statements of net assets available for benefits
of the Hastings Entertainment, Inc. Associates 401(k) Plan as of January 31,
2003 and 2002, and the related statement of changes in net assets available for
benefits for the year ended January 31, 2003. These financial statements and
schedule are the responsibility of the Plan's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits 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 audits provide 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, 2003 and 2002, and the changes in its net assets available for
benefits for the year ended January 31, 2003, 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, 2003, 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 audits 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
Fort Worth, Texas
July 18, 2003
1
Hastings Entertainment, Inc. Associates' 401(k) Plan
Statements of Net Assets Available for Benefits
<Table>
<Caption>
JANUARY 31
2003 2002
------------- -------------
ASSETS
Cash $ -- $ 20,154
Investments 8,078,254 9,072,284
Receivables:
Employee contributions 35,265 41,336
Employer contributions 206,991 126,919
------------- -------------
242,256 168,255
LIABILITIES
Excess contribution refundable 111,698 37,033
------------- -------------
Net assets available for benefits $ 8,208,812 $ 9,223,660
============= =============
</Table>
See accompanying notes.
2
Hastings Entertainment, Inc. Associates' 401(k) Plan
Statement of Changes in Net Assets Available for Benefits
Year ended January 31, 2003
<Table>
Investment income (loss):
Net depreciation in fair value of investments $ (1,273,113)
Interest and dividends 81,514
-------------
(1,191,599)
Contributions:
Employee 952,711
Employer 254,661
-------------
1,207,372
-------------
Net additions 15,773
Deductions:
Benefit payments 992,063
Administrative expenses 38,558
-------------
Total deductions 1,030,621
-------------
Net decrease 1,014,848
Net assets available for benefits at beginning of year 9,223,660
-------------
Net assets available for benefits at end of year $ 8,208,812
=============
</Table>
See accompanying notes.
3
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements
January 31, 2003
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). Full-time employees and part-time
employees who have completed one year of service, as defined by the Plan
Document, are eligible for participation in the Plan once age 21 has been
attained. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
CONTRIBUTIONS
Effective February 1, 2002, participants may elect to contribute up to 25% 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.
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, 2002, participants who have
attained age 50 or older are allowed to make additional participant
contributions.
The Employer may make a discretionary matching contribution in an amount
determined by the Board of Directors. For the Plan year ended January 31, 2003,
the Board of Directors approved for payment one discretionary match of 15% of
participant deferrals, limited to the first 6% of compensation. The
discretionary matching contribution was made to participants employed as of July
31, 2002, and was for the period February 1, 2002 through July 31, 2002. A
second discretionary match was not made for the plan year ended January 31,
2003. The financial objectives set by the Board of Directors for the second half
of the year were not met, which resulted in no discretionary match for that
period.
4
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 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.
5
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 of the Plan are prepared on the accrual basis of
accounting.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United 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.
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. The Company's stock is valued at the quoted market price. Participant
loans are valued at their outstanding balances, which approximate fair value.
6
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements (continued)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
The Plan provides for investments in various investment securities, which, in
general, are exposed to various risks, such as interest rate, credit, and
overall market volatility risks. Further, due to the level of risk associated
with certain investment securities, it is at least reasonably possible that
changes in the values of investment securities will occur in the near term and
that such changes could materially affect the amounts reported in the statements
of net assets available for benefits.
3. INVESTMENTS
The Plan's investments were held by First National Bank of Amarillo (the
Custodian) from February 1, 2002 through March 25, 2002 and by Herring National
Bank (the Custodian) from March 26, 2002 through January 31, 2003.
The fair value of individual investments that represent 5% or more of the Plan's
net assets is as follows:
<Table>
<Caption>
JANUARY 31,
2003 2002
---------------- ----------
Federated US Government Securities 2-5 Years Fund $ 438,894 *
American Century Strategy Allocation Moderate Fund 655,469 *
Federated Kaufmann Fund 1,064,307 677,834
Federated Max-Cap Index Fund 508,494 823,146
Janus Fund 950,163 1,483,062
Janus Worldwide Fund 842,007 1,266,976
Federated Prime Obligation Fund 2,601,399 2,004,849
Hastings Entertainment, Inc. Common Stock 418,809 593,224
Participant loans 406,014 *
Baron Growth Fund -- 583,496
Alliance Balanced Shared Fund -- 744,830
</Table>
* Investment did not represent 5% or more of the Plan's net assets as of January
31, 2002.
7
Hastings Entertainment, Inc. Associates' 401(k) Plan
Notes to Financial Statements (continued)
3. INVESTMENTS (CONTINUED)
During the year ended January 31, 2003, the Plan's investments (including
investments purchased, sold, as well as held during the year) depreciated as
follows:
<Table>
Shares of registered investment companies $ (1,179,107)
Hastings Entertainment, Inc. common stock (94,006)
-----------------
$ (1,273,113)
=================
</Table>
4. INCOME TAX STATUS
The Plan has received a determination letter from the Internal Revenue Service
dated April 8, 2003, stating that the Plan 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 administrator believes the
Plan is being operated in compliance with the applicable requirements of the
Code and, therefore, believes that the Plan is qualified and the related trust
is tax-exempt. The plan administrator has indicated that it will take the
necessary steps, if any, to maintain the Plan's qualified status.
5. SUBSEQUENT EVENT
On June 23, 2003, the Benefits Advisory Committee approved the removal of
Hastings Common Stock as an investment option of the plan, however participants
that currently have an investment in Hastings Common Stock will be
grandfathered.
8
Supplemental Schedule
Hastings Entertainment, Inc. Associates' 401(k) Plan
Schedule H; Line 4i - Schedule of Assets (Held At End of Year)
EIN: 75-1386375 Plan #: 001
January 31, 2003
<Table>
<Caption>
(c)
(b) DESCRIPTION OF INVESTMENT INCLUDING MATURITY
IDENTITY OF ISSUE, BORROWER, LESSOR, DATE, RATE OF INTEREST, COLLATERAL, PAR OR (e)
(a) OR SIMILAR PARTY MATURITY VALUE CURRENT VALUE
---- --------------------------------------- -------------------------------------------- --------------
* Federated Investors, Inc. Federated Total Return Bond (A) $ 603
Turner Turner Small Cap Value 3
Alliance Capital Management LP Alliance Growth and Income Fund 66,186
American Century Investments American Century Strategy Allocation
Aggressive Fund 37,277
American Century Investments American Century Strategy Allocation
Moderate Fund 655,469
American Century Investments American Century Strategy Allocation
Conservative Fund 7,682
* Federated Investors, Inc. Federated Kaufmann Fund 1,064,307
* Federated Investors, Inc. Federated Income Trust 80,947
* Federated Investors, Inc. Federated Max-Cap Index Fund 508,494
* Federated Investors, Inc. Federated US Government Securities 2-5 Years
Fund 438,894
Janus Janus Fund 950,163
Janus Janus Worldwide Fund 842,007
* Federated Investors, Inc. Federated Prime Obligation Fund 2,601,399
* Hastings Entertainment, Inc. Hastings Entertainment, Inc.
Common Stock 418,809
* Participants Loans with interest rates ranging from 5.75%
to 10.75% 406,014
--------------
$ 8,078,254
==============
</Table>
*Indicates party-in-interest to the Plan.
Investments are participant-directed, thus cost column (d) is not applicable.
9
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 29, 2003
/s/ Dan Crow, Vice President/CFO
10
EXHIBIT INDEX
<Table>
<Caption>
EXHIBIT SEQ.
NUMBER DESCRIPTION PAGE NO.
- ------- ----------- --------
23 Consent of Ernst & Young LLP 12
99.1 Certification pursuant to 18 U.S.C. 13
Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
</Table>
11