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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K/A
 Amendment No. 1
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended January 31, 2010
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 000-24381
 HASTINGS ENTERTAINMENT, INC.
  Texas
(State or other jurisdiction of 
incorporation or organization)
    
    75-1386375
(I.R.S. Employer
Identification No.)3601 Plains Boulevard, Amarillo, Texas
(Address of principal executive offices)
    
    79102
(Zip Code)
 806) 351-2300
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.01 par value per share
    
    The NASDAQ Stock Market LLC
  Yes o No þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ
 o þ
   Class
    
    Outstanding at March 31, 2010Common Stock, $0.01 par value per share
    
    9,433,938 shares
 DOCUMENTS INCORPORATED BY REFERENCE
 Document
    
    Parts Into Which IncorporatedProxy Statement for the Annual Meeting of
Shareholders of the registrant to be held
June 2, 2010 (Proxy Statement)
    
    Part III




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EXPLANATORY NOTE




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##### 



HASTINGS ENTERTAINMENT, INC.
Form 10-K Annual Report
For the Fiscal Year Ended January 31, 2010
 INDEX
 PAGEPART IItem 1. Business
    
    
    1Item 1A. Risk Factors
    
    
    8Item 1B. Unresolved Staff Comments
    
    
    12Item 2. Properties
    
    
    13Item 3. Legal Proceedings
    
    
    14Item 4. (Removed and Reserved)
    
    
    14PART IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    15Item 6. Selected Financial Data
    
    
    17Item 7. Managements Discussion and Analysis of Financial Condition and
Results of Operation
    
    
    19Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    33Item 8. Financial Statements and Supplementary Data
    
    
    34Item 9. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
    
    
    61Item 9A. Controls and Procedures
    
    
    61Item 9A(T). Controls and Procedures
    
    
    63Item 9B. Other Information
    
    
    63PART IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    63Item 11. Executive Compensation
    
    
    63Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    63Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    63Item 14. Principal Accountant Fees and Services
    
    
    64PART IVItem 15. Exhibits and Financial Statement Schedules
    
    
    65SIGNATURES
    
    
    69CERTIFICATIONSExhibit 21.1Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1




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PART I
   
 ITEM 1. BUSINESS.
      1




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Superior Multimedia Concept.
 Minimum
    
    
    MaximumProduct Category
    
    Title Count
    
    
    Title CountBooks
    
    
    15,000
    
    
    
    56,000Rental DVD and Video Games
    
    
    12,000
    
    
    
    24,000Used DVD, Video Games, Music
    
    
    7,000
    
    
    
    28,000DVD and Video Games
    
    
    7,000
    
    
    
    13,000Music
    
    
    7,000
    
    
    
    15,000Trends and Consumables
    
    
    5,000
    
    
    
    14,000Used Books
    
    
    2,000
    
    
    
    37,000Periodicals
    
    
    1,000
    
    
    
    4,000Consumer Electronics
    
    
    1,000
    
    
    
    2,000Software
    
    
    
    
    
    
    1,000
  Fiscal YearProduct Category
    
    2009
    
    
    2008
    
    
    2007Books
    
    
    23
    %
    
    
    23
    %
    
    
    22
    %Video
    
    
    21
    %
    
    
    22
    %
    
    
    22
    %Rental
    
    
    16
    %
    
    
    16
    %
    
    
    16
    %Music
    
    
    13
    %
    
    
    15
    %
    
    
    17
    %Video Games
    
    
    12
    %
    
    
    11
    %
    
    
    11
    %Trends
    
    
    6
    %
    
    
    5
    %
    
    
    4
    %Consumables and Hardback Café
    
    
    4
    %
    
    
    3
    %
    
    
    3
    %Electronics
    
    
    3
    %
    
    
    4
    %
    
    
    3
    %Other
    
    
    2
    %
    
    
    1
    %
    
    
    2
    %
  Medium-Sized Market Focus.
 Customer-Oriented Format.
  2




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Low Pricing.
 Used and Budget-Priced Products.
 Internet.
    3




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New Release Allocation.
 Rental Asset Purchasing System.
 Store Replenishment.
 Selection Management .
 Model Stock Calculation/Ordering .
 Inventory Management .
 Used Inventory Management
  4




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Store Systems.
 Warehouse Management.
 Data Center.
 goShip
     5




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6




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Name
    
    Age
    
    
    PositionJohn H. Marmaduke
    
    
    62
    
    
    Chairman of the Board, President and Chief Executive OfficerAlan Van Ongevalle
    
    
    42
    
    
    Executive Vice President of MerchandisingDan Crow
    
    
    63
    
    
    Vice President of Finance and Chief Financial OfficerSue Dasse
    
    
    56
    
    
    Vice President of StoresKevin Ball
    
    
    53
    
    
    Vice President of MarketingPhil McConnell
    
    
    47
    
    
    Vice President, Divisional Merchandise ManagerJohn Hintz
    
    
    45
    
    
    Vice President of Information TechnologyVictor Fuentes
    
    
    43
    
    
    Vice President, Divisional Merchandise Manager
  John H. Marmaduke
 Alan Van Ongevalle
 Dan Crow
 Sue Dasse
 Kevin Ball
 Phil McConnell
 John Hintz
  7




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Victor Fuentes,
  www.sec.gov
 www.gohastings.com
 
 ITEM 1A. RISK FACTORS.
 CAUTIONARY STATEMENTS
  Our business is highly seasonal.
  Our business is dependent on consumer spending patterns.
   8




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Intense competition from traditional retail sources and the Internet may adversely affect our
business.
  Our business could be negatively impacted if the in-store video retailer distribution window is
reduced or eliminated.
    Our business is subject to changes in current rental video studio pricing policies.
   9




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Our business could be negatively impacted by new technology that provides alternate methods of
video, music and book delivery.
   We rely on certain key personnel.
   10




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Our growth is dependent on our ability to execute our expansion strategy.
   Changes to information technology systems may disrupt the supply chain.
  Our business is dependent upon renewing or entering into new leases on favorable terms.
  We cannot predict the impact of the recent downturn in the financial markets and the resulting
costs or constraints in obtaining financing on our business and financial results.
   11




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Global economic conditions, including recessions or slow economic growth, and continuing credit
market disruptions in the United States, could continue to adversely affect our business and
financial results.
  
    
    consumer demand for our products, including shifting consumer purchasing patterns to
lower-cost options,
    
    the mix of our products sales, and
 
    
    the ability of certain suppliers to fill our orders for various products or other goods
and services.
   The U.S. governments plans to address the financial crisis may not be effective to stabilize the
financial markets or to increase the availability of credit
  We may see increased costs or lower revenue arising from health care reform .
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS.
   12




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ITEM 2. PROPERTIES.
  Name of State
    
    Number of StoresAlabama
    
    
    1Arkansas
    
    
    11Arizona
    
    
    7Colorado
    
    
    4Georgia
    
    
    1Idaho
    
    
    9Indiana
    
    
    1Kansas
    
    
    9Kentucky
    
    
    1Louisiana
    
    
    1Missouri
    
    
    7Montana
    
    
    6Nebraska
    
    
    4New Mexico
    
    
    15Oklahoma
    
    
    12Tennessee
    
    
    7Texas
    
    
    39Utah
    
    
    2Washington
    
    
    7Wyoming
    
    
    3Total
    
    
    147
     Number of Stores
    
    
    OptionsFiscal Year 2010
    
    
    15
    
    
    
    14Fiscal Year 2011
    
    
    14
    
    
    
    14Fiscal Year 2012
    
    
    20
    
    
    
    20Fiscal Year 2013
    
    
    18
    
    
    
    16Fiscal Year 2014
    
    
    27
    
    
    
    27Thereafter
    
    
    53
    
    
    
    52Total
    
    
    147
    
    
    
    143
  13




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ITEM 3. LEGAL PROCEEDINGS.
  
 ITEM 4. (REMOVED AND RESERVED).
  14




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PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
  High
    
    
    Low2009:First Quarter
    
    $
    3.84
    
    
    $
    1.85Second Quarter
    
    $
    4.61
    
    
    $
    3.25Third Quarter
    
    $
    4.74
    
    
    $
    3.60Fourth Quarter
    
    $
    4.59
    
    
    $
    3.902008:First Quarter
    
    $
    9.18
    
    
    $
    7.36Second Quarter
    
    $
    8.91
    
    
    $
    7.88Third Quarter
    
    $
    8.85
    
    
    $
    3.22Fourth Quarter
    
    $
    5.19
    
    
    $
    1.26
     Total number of
    
    
    Approximateshares purchased
    
    
    dollar value ofas part of
    
    
    shares that mayTotal number
    
    
    Average
    
    
    publicly
    
    
    yet be purchasedof shares
    
    
    price paid
    
    
    announced plans
    
    
    under the plans orPeriod
    
    purchased (1)
    
    
    per share
    
    
    or programs
    
    
    programs (2)November 1 to November 30, 2009
    
    
    14,000
    
    
    $
    4.32
    
    
    
    14,000
    
    
    
    N/ADecember 1 to December 31, 2009
    
    
    24,200
    
    
    
    4.36
    
    
    
    24,200
    
    
    
    N/AJanuary 1 to January 31, 2010
    
    
    23,400
    
    
    
    4.40
    
    
    
    23,400
    
    
    
    N/ATotal
    
    
    61,600
    
    
    $
    4.36
    
    
    
    61,600
    
    
    $
    4,425,753
 (1)
    
    All share purchases were open-market purchases made under a repurchase plan publicly
announced in a press release dated September 28, 2001. Our Board of Directors initially
authorized the repurchase of up to $5.0 million worth of our common stock. To date, the Board
of Directors has approved the repurchase of up to an additional $22.5 million of our common
stock. Each such authorization to increase amounts was publicly announced in a press release.
The repurchases satisfied the conditions of the safe harbor of Rule 10b-18 under the Exchange
Act.(2)
    
    A total of 3,738,845 shares have been purchased under the repurchase plan at a total cost of
approximately $22.9 million, or approximately $6.12 per share.  15




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Comparison of Cumulative Five Year Total Return
 
 Fiscal Years EndedJanuary 31,
    
    
    January 31,
    
    
    January 31,
    
    
    January 31,
    
    
    January 31,
    
    
    January 31,2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009
    
    
    2010Hastings
    
    $
    100.00
    
    
    $
    64.85
    
    
    $
    71.52
    
    
    $
    105.94
    
    
    $
    30.55
    
    
    $
    51.39S&P 500 Index
    
    
    100.00
    
    
    
    108.36
    
    
    
    121.75
    
    
    
    116.70
    
    
    
    69.92
    
    
    
    90.91Nasdaq Composite Index
    
    
    100.00
    
    
    
    111.80
    
    
    
    119.47
    
    
    
    115.88
    
    
    
    71.59
    
    
    
    104.12
    16




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ITEM 6. SELECTED FINANCIAL DATA.
  Fiscal Year(In thousands, except per share and square foot data)
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Income Statement Data:Merchandise revenue
    
    $
    441,462
    
    
    $
    451,492
    
    
    $
    458,076
    
    
    $
    454,142
    
    
    $
    444,291Rental revenue
    
    
    81,374
    
    
    
    87,256
    
    
    
    89,609
    
    
    
    94,190
    
    
    
    93,640Gift card breakage revenue (1)
    
    
    8,510
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total revenues
    
    
    531,346
    
    
    
    538,748
    
    
    
    547,685
    
    
    
    548,332
    
    
    
    537,931Merchandise cost of revenue
    
    
    307,074
    
    
    
    315,780
    
    
    
    321,438
    
    
    
    326,025
    
    
    
    314,328Rental asset cost of revenue
    
    
    29,424
    
    
    
    30,948
    
    
    
    31,107
    
    
    
    33,862
    
    
    
    34,458Total cost of revenues
    
    
    336,498
    
    
    
    346,728
    
    
    
    352,545
    
    
    
    359,887
    
    
    
    348,786Gross profit
    
    
    194,848
    
    
    
    192,020
    
    
    
    195,140
    
    
    
    188,445
    
    
    
    189,145Selling, general and administrative expenses(2)
    
    
    183,413
    
    
    
    182,511
    
    
    
    177,028
    
    
    
    177,467
    
    
    
    176,684Pre-opening expenses
    
    
    3
    
    
    
    233
    
    
    
    120
    
    
    
    94
    
    
    
    92Operating income
    
    
    11,432
    
    
    
    9,276
    
    
    
    17,992
    
    
    
    10,884
    
    
    
    12,369Interest expense
    
    
    (1,014
    )
    
    
    (1,961
    )
    
    
    (2,919
    )
    
    
    (3,260
    )
    
    
    (2,616
    )Other, net (3)
    
    
    1,902
    
    
    
    193
    
    
    
    123
    
    
    
    642
    
    
    
    399Income before income taxes
    
    
    12,320
    
    
    
    7,508
    
    
    
    15,196
    
    
    
    8,266
    
    
    
    10,152Income tax expense(4)
    
    
    5,387
    
    
    
    3,449
    
    
    
    4,951
    
    
    
    3,247
    
    
    
    4,457Net income
    
    $
    6,933
    
    
    $
    4,059
    
    
    $
    10,245
    
    
    $
    5,019
    
    
    $
    5,695Basic income per share
    
    $
    0.72
    
    
    $
    0.40
    
    
    $
    0.95
    
    
    $
    0.45
    
    
    $
    0.50Diluted income per share
    
    $
    0.71
    
    
    $
    0.39
    
    
    $
    0.93
    
    
    $
    0.44
    
    
    $
    0.49Weighted-average common shares outstanding  basic
    
    
    9,610
    
    
    
    10,122
    
    
    
    10,797
    
    
    
    11,244
    
    
    
    11,421Weighted-average common shares outstanding  diluted
    
    
    9,752
    
    
    
    10,324
    
    
    
    11,055
    
    
    
    11,518
    
    
    
    11,667Other Data:Depreciation (5)
    
    $
    18,957
    
    
    $
    20,019
    
    
    $
    19,400
    
    
    $
    19,865
    
    
    $
    19,737Capital expenditures (6)
    
    $
    11,265
    
    
    $
    25,539
    
    
    $
    15,256
    
    
    $
    18,566
    
    
    $
    17,097Store Data:Total selling square footage at end of period
    
    
    3,065,477
    
    
    
    3,137,692
    
    
    
    3,134,912
    
    
    
    3,121,737
    
    
    
    3,101,627Comparable-store revenues increase (decrease) (7)
    
    
    (3.1
    %)
    
    
    (1.6
    %)
    
    
    (0.1
    %)
    
    
    1.8
    %
    
    
    (1.4
    %)Revenue per selling square footage(8)
    
    $
    170.58
    
    
    $
    171.69
    
    
    $
    174.70
    
    
    $
    175.63
    
    
    $
    173.41
 January 31,2010
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006Balance Sheet Data:Working capital (9)
    
    $
    88,740
    
    
    $
    75,373
    
    
    $
    76,983
    
    
    $
    71,941
    
    
    $
    52,508Total assets
    
    $
    238,800
    
    
    $
    253,703
    
    
    $
    260,221
    
    
    $
    257,498
    
    
    $
    254,661Total long-term debt
    
    $
    38,174
    
    
    $
    44,507
    
    
    $
    40,616
    
    
    $
    41,922
    
    
    $
    28,151Dividends declared
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total shareholders equity(4)
    
    $
    108,158
    
    
    $
    102,036
    
    
    $
    101,808
    
    
    $
    97,553
    
    
    $
    94,693
  17




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(1)
    
    In fiscal 2009, we recorded approximately $8.5 million of revenue for the estimated
breakage on gift cards we previously issued and sold. See Note 1 of the financial statements
for additional discussion.(2)
    
    Includes approximately $1.6 million, $0.8 million, $0.9 million and $0.4 million of
impairment charges for fiscal 2009, 2008, 2006 and 2005, respectively. No impairment charges
were recognized during fiscal 2007.(3)
    
    For fiscal 2009, includes approximately $1.4 million related to gain from insurance proceeds.
See Note 16 of the financial statements for additional discussion.(4)
    
    The results for fiscal 2009 include a discrete tax charge of approximately $0.4 million
related to amended state and federal tax returns resulting from an Internal Revenue Service
audit of the Companys previously filed tax returns. The results for fiscal 2008 reflect a
discrete tax charge of approximately $0.8 million related to an IRS audit of the Companys
previously filed federal tax returns. The IRS audit resulted in a change in our tax method
used to account for gift cards and the $0.8 million represents interest due as a result of the
audit. On February 1, 2007, we recognized an increase in the liability for uncertain tax
positions plus interest and penalties totaling $0.8 million as a result of ASC 740, with a
corresponding adjustment to retained earnings. The results for fiscal 2007 reflect an income
tax benefit of approximately $0.9 million related to a favorable settlement of a prior years
state tax liability.(5)
    
    Excludes amounts associated with our rental asset cost depreciation of $12.3 million, $14.8
million, $13.4 million, $15.8 million and $18.5 million, for fiscal 2009, 2008, 2007, 2006 and
2005, respectively.(6)
    
    Includes purchases of property, equipment and improvements. For fiscal 2009, amount is shown
net of approximately $0.5 million in proceeds received from insurance that were used to fund
capital expenditures to replace assets that were damaged.(7)
    
    Stores included in the comparable-store revenues calculation are those stores that have been
open for a minimum of 60 weeks. Also included are stores that are remodeled or relocated.
Sales via the internet and gift card breakage revenues are not included and closed stores are
removed from each comparable period for the purpose of calculating comparable-store revenues.(8)
    
    Excludes gift card breakage revenue of $8.5 million for fiscal 2009.(9)
    
    Working capital is calculated as total current assets less total current liabilities.  18




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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION.
       Lower of Cost or Market for Merchandise Inventory.
 Rental Asset Depreciation.
    19




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Impairment or Disposal of Long-Lived Assets
 Income Taxes.
  Share-Based Compensation.
 
    
    Expected volatility  The estimated stock price volatility is derived based upon our
historical stock prices over the expected life of the option.
 
    
    Expected life of the option  The estimate of an expected life is calculated based on
historical data relating to grants, exercises and cancellations, as well as the vesting
period and contractual life of the option.
 
    
    Risk-free interest rate  The risk-free interest rate is based on the yield on
zero-coupon U.S. Treasury securities for a period that is commensurate with the expected
life of the option.
    20




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Gift Card Breakage Revenue. www.goHastings.com
  21




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Fiscal Year2009
    
    
    2008
    
    
    2007Merchandise revenue
    
    
    83.1
    %
    
    
    83.8
    %
    
    
    83.6
    %Rental asset revenue
    
    
    15.3
    
    
    
    16.2
    
    
    
    16.4Gift card breakage revenue
    
    
    1.6
    
    
    
    
    
    
    
    Total revenues
    
    
    100.0
    
    
    
    100.0
    
    
    
    100.0Merchandise cost of revenue
    
    
    69.6
    
    
    
    69.9
    
    
    
    70.2Rental asset cost of revenue
    
    
    36.2
    
    
    
    35.5
    
    
    
    34.7Total cost of revenues
    
    
    63.3
    
    
    
    64.4
    
    
    
    64.4Gross profit
    
    
    36.7
    
    
    
    35.6
    
    
    
    35.6Selling, general and administrative expenses
    
    
    34.5
    
    
    
    33.9
    
    
    
    32.3Pre-opening expenses
    
    
    
    
    
    
    
    
    
    
    34.5
    
    
    
    33.9
    
    
    
    32.3Operating income
    
    
    2.2
    
    
    
    1.7
    
    
    
    3.3Other income (expense):Interest expense
    
    
    (0.2
    )
    
    
    (0.3
    )
    
    
    (0.5
    )Other, net
    
    
    0.3
    
    
    
    
    
    
    
    0.1
    
    
    
    (0.3
    )
    
    
    (0.5
    )Income before income taxes
    
    
    2.3
    
    
    
    1.4
    
    
    
    2.8Income tax expense
    
    
    1.0
    
    
    
    0.6
    
    
    
    0.9Net income
    
    
    1.3
    %
    
    
    0.8
    %
    
    
    1.9
    %
 Fiscal Year2009
    
    
    2008
    
    
    2007Hastings Stores:Beginning number of stores
    
    
    153
    
    
    
    153
    
    
    
    154Openings
    
    
    
    
    
    
    2
    
    
    
    1Closings
    
    
    (4
    )
    
    
    (2
    )
    
    
    (2
    )Ending number of stores
    
    
    149
    
    
    
    153
    
    
    
    153
  22




---



##### Table of Contents



Revenues .
 Fiscal Year Ended January 31,2010
    
    
    2009
    
    
    Increase (Decrease)Percent
    
    
    
    
    
    
    PercentRevenues
    
    
    Of Total
    
    
    Revenues
    
    
    of Total
    
    
    Dollar
    
    
    PercentMerchandise revenue
    
    $
    441,462
    
    
    
    83.1
    %
    
    $
    451,492
    
    
    
    83.8
    %
    
    $
    (10,030
    )
    
    
    -2.2
    %Rental revenue
    
    
    81,374
    
    
    
    15.3
    %
    
    
    87,256
    
    
    
    16.2
    %
    
    
    (5,882
    )
    
    
    -6.7
    %Gift card breakage revenue
    
    
    8,510
    
    
    
    1.6
    %
    
    
    
    
    
    
    0.0
    %
    
    
    8,510
    
    
    
    Total Revenues
    
    $
    531,346
    
    
    
    100.0
    %
    
    $
    538,748
    
    
    
    100.0
    %
    
    $
    (7,402
    )
    
    
    -1.4
    %
  Fiscal year ended January 31,20102010
    
    
    2009
    
    
    (excludes leap day)Total
    
    
    -3.1
    %
    
    
    -1.6
    %
    
    
    -2.7
    %Merchandise
    
    
    -2.4
    %
    
    
    -1.5
    %
    
    
    -2.1
    %Rental
    
    
    -6.7
    %
    
    
    -2.5
    %
    
    
    -6.2
    %
  23




---



##### Table of Contents



Fiscal Year Ended January 31,20102010
    
    
    2009
    
    
    (excluding leap day)Hard Back Café
    
    
    13.0
    %
    
    
    8.7
    %
    
    
    13.4
    %Trends
    
    
    6.4
    %
    
    
    22.1
    %
    
    
    6.7
    %Consumables
    
    
    4.1
    %
    
    
    14.6
    %
    
    
    4.5
    %Video Games
    
    
    3.2
    %
    
    
    0.5
    %
    
    
    3.6
    %Books
    
    
    -0.9
    %
    
    
    1.3
    %
    
    
    -0.5
    %Electronics
    
    
    -2.0
    %
    
    
    10.0
    %
    
    
    -1.7
    %Movies
    
    
    -3.2
    %
    
    
    -2.4
    %
    
    
    -2.8
    %Music
    
    
    -12.6
    %
    
    
    -16.3
    %
    
    
    -12.3
    %
    Gross Profit  Merchandise.
 Gross Profit  Rental.
  24




---



##### Table of Contents



Selling, General and Administrative Expenses (SG&A).
 Interest Expense.
 Other Income.
 Tax Expense
  Revenues.
 Fiscal Year Ended January 31,2009
    
    
    2008
    
    
    DecreasePercent
    
    
    
    
    
    
    PercentRevenues
    
    
    Of Total
    
    
    Revenues
    
    
    of Total
    
    
    Dollar
    
    
    PercentMerchandise revenue
    
    $
    451,492
    
    
    
    83.8
    %
    
    $
    458,076
    
    
    
    83.6
    %
    
    $
    (6,584
    )
    
    
    -1.4
    %Rental revenue
    
    
    87,256
    
    
    
    16.2
    %
    
    
    89,609
    
    
    
    16.4
    %
    
    
    (2,353
    )
    
    
    -2.6
    %Total Revenues
    
    $
    538,748
    
    
    
    100.0
    %
    
    $
    547,685
    
    
    
    100.0
    %
    
    $
    (8,937
    )
    
    
    -1.6
    %
  Total
    
    
    -1.6
    %Merchandise
    
    
    -1.5
    %Rental
    
    
    -2.5
    %
  Fiscal Year Ended January 31,2009
    
    
    2008Trends
    
    
    22.1
    %
    
    
    8.4
    %Consumables
    
    
    14.6
    %
    
    
    3.8
    %Electronics
    
    
    10.0
    %
    
    
    12.0
    %Hard Back Café
    
    
    8.7
    %
    
    
    10.9
    %Books
    
    
    1.3
    %
    
    
    2.0
    %Video Games
    
    
    0.5
    %
    
    
    17.3
    %Movies
    
    
    -2.4
    %
    
    
    4.0
    %Music
    
    
    -16.3
    %
    
    
    -15.3
    %
  25




---



##### Table of Contents



The Twilight Saga The Shack The New Earth
   Gross Profit  Merchandise.
 Gross Profit  Rental.
 Selling, General and Administrative expenses (SG&A).
 Interest Expense.
  26




---



##### Table of Contents



Income Tax Expense.
    Free Cash Flow
  Fiscal year ended January 31,2010
    
    
    2009Net cash provided by operating activities
    
    $
    26,601
    
    
    $
    27,103Purchase of property and equipment, net
    
    
    (11,265
    )
    
    
    (25,539
    )Free cash flow
    
    $
    15,336
    
    
    $
    1,564
  27




---



##### Table of Contents



EBITDA and Adjusted EBITDA
  Fiscal year ended January 31,2010
    
    
    2009Net Income
    
    $
    6,933
    
    
    $
    4,059Adjusted forInterest expense, net
    
    
    1,014
    
    
    
    1,961Income tax expense
    
    
    5,387
    
    
    
    3,449Property and equipment depreciation expense
    
    
    18,957
    
    
    
    20,019EBITDA
    
    
    32,291
    
    
    
    29,488Gift card breakage revenue
    
    
    (8,510
    )
    
    
    Gain on casualty loss
    
    
    (1,412
    )
    
    
    Stock-based compensation
    
    
    354
    
    
    
    113Store asset impairments
    
    
    1,595
    
    
    
    947Adjusted EBITDA
    
    $
    24,318
    
    
    $
    30,548
 Adjusted Operating Income
  Fiscal year ended January 31,2010
    
    
    2009Operating income
    
    $
    11,432
    
    
    $
    9,276Adjusted forGift card breakage revenue
    
    
    (8,510
    )
    
    
    Stock-based compensation
    
    
    354
    
    
    
    113Store asset impairments
    
    
    1,595
    
    
    
    947Adjusted operating income
    
    $
    4,871
    
    
    $
    10,336
   28




---



##### Table of Contents



Consolidated Cash Flows
 Operating Activities .
 Investing Activities.
 Financing Activities .
  29




---



##### Table of Contents



Capital Structure.
   Contractual Obligations and Off-Balance Sheet Arrangements
  30




---



##### Table of Contents



Payments due by periodLess than
    
    
    1 to 3
    
    
    3 to 5
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    Years
    
    
    Years
    
    
    5 YearsLong-term debt (principal only) (1)
    
    $
    38,174
    
    
    
    
    
    
    
    38,174
    
    
    
    
    
    
    
    Operating leases (2)
    
    
    167,356
    
    
    
    23,642
    
    
    
    46,466
    
    
    
    35,945
    
    
    
    61,303Revenue sharing (3)
    
    
    396
    
    
    
    396
    
    
    
    
    
    
    
    
    
    
    
    Total (4)
    
    $
    205,926
    
    
    
    24,038
    
    
    
    84,640
    
    
    
    35,945
    
    
    
    61,303
 (1)
    
    Based on our internal forecasts, we estimate interest payments for FY 2010 to be
approximately $0.9 million.(2)
    
    Amounts include the direct lease obligations, excluding any taxes, insurance, maintenance and
other related expenses. For the fiscal year ended January 31, 2010, payments for taxes,
insurance, maintenance, and other related expenses, which are variable in nature, were
approximately $6.3 million.(3)
    
    As of January 31, 2010, we were a party to revenue-sharing arrangements with various studios.
These agreements include minimum purchase requirements, based upon the box office results of
the title, at a lower initial product cost as compared to non-revenue sharing purchases. In
addition, these contracts require net rental revenues to be shared with the studios over an
agreed period of time. We have included amounts owed and an estimate of our contractual
obligation under these agreements for performance guarantees and minimum purchase requirements
for the period in which they can reasonably be estimated, which is approximately two months in
the future. Although these contracts may extend beyond the estimated two month period, we
cannot reasonably estimate these amounts due to the uncertainty of purchases that will be made
under these agreements. The amounts presented above do not include revenue sharing accruals
for rental revenues that will be recognized during fiscal 2010.(4)
    
    Uncertain tax position obligations including unrecognized tax benefits of $186,000 and
accrued interest and penalties related to unrecognized tax benefits of $229,000, as of January
31, 2010, were not included in this table. Due to the uncertainty surrounding the timing of
any future cash outflows related to uncertain tax position liabilities, we are not able to
reasonably estimate the period of cash settlement with the respective taxing authority.  31




---



##### Table of Contents



QuarterFiscal year 2009:
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues (1)
    
    $
    125,693
    
    
    $
    117,192
    
    
    $
    112,338
    
    
    $
    176,123Operating income (loss)
    
    $
    3,086
    
    
    $
    (367
    )
    
    $
    (4,727
    )
    
    $
    13,440% of full year:Total revenues
    
    
    23.7
    %
    
    
    22.1
    %
    
    
    21.1
    %
    
    
    33.1
    %Operating income (loss)
    
    
    27.0
    %
    
    
    (3.2
    %)
    
    
    (41.3
    %)
    
    
    117.5
    %
 QuarterFiscal year 2008:
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues
    
    $
    131,936
    
    
    $
    125,666
    
    
    $
    114,268
    
    
    $
    166,878Operating income (loss)
    
    $
    5,317
    
    
    $
    1,528
    
    
    $
    (4,687
    )
    
    $
    7,118% of full year:Total revenues
    
    
    24.5
    %
    
    
    23.3
    %
    
    
    21.2
    %
    
    
    31.0
    %Operating income (loss)
    
    
    57.3
    %
    
    
    16.5
    %
    
    
    (50.5
    %)
    
    
    76.7
    %
  (1)
    
    The fourth quarter of fiscal 2009 includes approximately $8.5 million of gift card breakage
revenue.  32




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##### Table of Contents



FASB Accounting Standards Codification
 
 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
   33




---



##### Table of Contents



ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
 HASTINGS ENTERTAINMENT, INC.
Index to Consolidated Financial Statements
and Financial Statement Schedule
 PageReport of Independent Registered Public Accounting Firm
    
    
    35Consolidated Balance Sheets as of January 31, 2010 and 2009
    
    
    36Consolidated Statements of Earnings 
for the years ended January 31, 2010, 2009, and 2008
    
    
    37Consolidated Statements of Shareholders Equity 
for the years ended January 31, 2010, 2009, and 2008
    
    
    38Consolidated Statements of Cash Flows 
for years ended January 31, 2010, 2009, and 2008
    
    
    39Notes to Consolidated Financial Statements
    
    
    40ScheduleFinancial Statement Schedule II  The Financial Statement Schedule filed as part of
this report is listed under Part IV, Item 15(a). Exhibits and Financial Statement Schedules.
    
    
    68
  34




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
       
  35




---



##### Table of Contents



HASTINGS ENTERTAINMENT, INC.
 
    January 31,2010
    
    
    2009AssetsCurrent assetsCash and cash equivalents
    
    $
    8,863
    
    
    $
    7,449Merchandise inventories
    
    
    148,149
    
    
    
    147,957Deferred income taxes
    
    
    7,804
    
    
    
    11,180Prepaid expenses and other current assets
    
    
    10,120
    
    
    
    11,224Total current assets
    
    
    174,936
    
    
    
    177,810Rental assets, net of accumulated depreciation of $21,444 and $22,647 at
January 31, 2010 and 2009, respectively
    
    
    13,127
    
    
    
    15,463Property and equipment, net
    
    
    47,695
    
    
    
    56,585Deferred income taxes
    
    
    1,310
    
    
    
    2,434Intangible assets
    
    
    391
    
    
    
    391Other assets
    
    
    1,341
    
    
    
    1,020$
    238,800
    
    
    $
    253,703Liabilities and Shareholders EquityCurrent liabilitiesTrade accounts payable
    
    $
    58,068
    
    
    $
    61,823Accrued expenses and other current liabilities
    
    
    28,128
    
    
    
    40,614Total current liabilities
    
    
    86,196
    
    
    
    102,437Long-term debt
    
    
    38,174
    
    
    
    44,507Other liabilities
    
    
    6,272
    
    
    
    4,723Shareholders equity:Preferred stock, $.01 par value; 5,000,000 shares authorized; none
issued
    
    
    
    
    
    
    Common stock, $.01 par value; 75,000,000 shares authorized;
11,944,544 shares issued in fiscal 2009 and 2008;
9,463,838 shares outstanding in fiscal 2009 and
9,766,818 shares outstanding in fiscal 2008
    
    
    119
    
    
    
    119Additional paid-in capital
    
    
    36,920
    
    
    
    36,651Retained earnings
    
    
    86,884
    
    
    
    79,951Accumulated other comprehensive income (loss)
    
    
    37
    
    
    
    (67
    )Treasury stock, at cost
    
    
    (15,802
    )
    
    
    (14,618
    )108,158
    
    
    
    102,036$
    238,800
    
    
    $
    253,703
   36




---



##### Table of Contents



HASTINGS ENTERTAINMENT, INC.
 
 
  Fiscal Year2009
    
    
    2008
    
    
    2007Merchandise revenue
    
    $
    441,462
    
    
    $
    451,492
    
    
    $
    458,076Rental asset revenue
    
    
    81,374
    
    
    
    87,256
    
    
    
    89,609Gift card breakage revenue
    
    
    8,510
    
    
    
    
    
    
    
    Total revenues
    
    
    531,346
    
    
    
    538,748
    
    
    
    547,685Merchandise cost of revenue
    
    
    307,074
    
    
    
    315,780
    
    
    
    321,438Rental asset cost of revenue
    
    
    29,424
    
    
    
    30,948
    
    
    
    31,107Total cost of revenues
    
    
    336,498
    
    
    
    346,728
    
    
    
    352,545Gross profit
    
    
    194,848
    
    
    
    192,020
    
    
    
    195,140Selling, general and administrative expenses
    
    
    183,413
    
    
    
    182,511
    
    
    
    177,028Pre-opening expenses
    
    
    3
    
    
    
    233
    
    
    
    120Operating income
    
    
    11,432
    
    
    
    9,276
    
    
    
    17,992Other income (expense):Interest expense
    
    
    (1,014
    )
    
    
    (1,961
    )
    
    
    (2,919
    )Other, net
    
    
    1,902
    
    
    
    193
    
    
    
    123Income before income taxes
    
    
    12,320
    
    
    
    7,508
    
    
    
    15,196Income tax expense
    
    
    5,387
    
    
    
    3,449
    
    
    
    4,951Net income
    
    $
    6,933
    
    
    $
    4,059
    
    
    $
    10,245Basic income per share
    
    $
    0.72
    
    
    $
    0.40
    
    
    $
    0.95Diluted income per share
    
    $
    0.71
    
    
    $
    0.39
    
    
    $
    0.93
   37




---



##### Table of Contents



HASTINGS ENTERTAINMENT, INC.
 
    AccumulatedAdditional
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    
    
    
    
    TotalCommon Stock
    
    
    Paid-in
    
    
    Retained
    
    
    Comprehensive
    
    
    Treasury Stock
    
    
    ShareholdersShares
    
    
    Amount
    
    
    Capital
    
    
    Earnings
    
    
    Income (Loss)
    
    
    Shares
    
    
    Amount
    
    
    EquityBalances at January 31, 2007
    
    
    11,944,544
    
    
    $
    119
    
    
    $
    36,906
    
    
    $
    66,485
    
    
    $
    67
    
    
    
    933,191
    
    
    $
    (6,024
    )
    
    $
    97,553Issuance of stock to directors
    
    
    
    
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    
    
    
    
    (6,905
    )
    
    
    45
    
    
    
    50Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    778,687
    
    
    
    (6,336
    )
    
    
    (6,336
    )Exercise of stock options and other, net of taxes
    
    
    
    
    
    
    
    
    
    
    (164
    )
    
    
    
    
    
    
    
    
    
    
    (149,768
    )
    
    
    1,002
    
    
    
    838Other stock-based
compensation
    
    
    
    
    
    
    
    
    
    
    378
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    378Uncertain tax position adjustment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (838
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (838
    )Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,245
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,245Change in interest rate cap, net of $43 in taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (67
    )
    
    
    
    
    
    
    
    
    
    
    (67
    )Unrealized loss in investments held for sale
in Supplemental Executive Retirement Plan
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    
    
    
    
    
    
    
    
    (15
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,163Balances at January 31, 2008
    
    
    11,944,544
    
    
    
    119
    
    
    
    37,125
    
    
    
    75,892
    
    
    
    (15
    )
    
    
    1,555,205
    
    
    
    (11,313
    )
    
    
    101,808Issuance of stock to directors
    
    
    
    
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    (5,750
    )
    
    
    43
    
    
    
    50Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    764,199
    
    
    
    (4,350
    )
    
    
    (4,350
    )Exercise of stock options and other, net of taxes
    
    
    
    
    
    
    
    
    
    
    (194
    )
    
    
    
    
    
    
    
    
    
    
    (88,428
    )
    
    
    652
    
    
    
    458Grant of performance-based restricted stock
    
    
    
    
    
    
    
    
    
    
    (350
    )
    
    
    
    
    
    
    
    
    
    
    (47,500
    )
    
    
    350
    
    
    
    Other stock-based compensation
    
    
    
    
    
    
    
    
    
    
    63
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    63Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,059
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,059Unrealized losses in investments held for sale
in Supplemental Executive Retirement Plan,
net of $42 in taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    (52
    )Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,007Balances at January 31, 2009
    
    
    11,944,544
    
    
    
    119
    
    
    
    36,651
    
    
    
    79,951
    
    
    
    (67
    )
    
    
    2,177,726
    
    
    
    (14,618
    )
    
    
    102,036Issuance of stock to directors
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    
    
    
    
    
    
    
    
    (11,250
    )
    
    
    74
    
    
    
    50Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    318,896
    
    
    
    (1,287
    )
    
    
    (1,287
    )Exercise of stock options and other, net of taxes
    
    
    
    
    
    
    
    
    
    
    (11
    )
    
    
    
    
    
    
    
    
    
    
    (4,666
    )
    
    
    29
    
    
    
    18Other stock-based compensation
    
    
    
    
    
    
    
    
    
    
    304
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    304Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,933
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,933Unrealized gains in investments held for sale
in Supplemental Executive Retirement Plan,
net of $66 in taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    
    
    
    
    
    
    
    
    104Total comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,037Balances at January 31, 2010
    
    
    11,944,544
    
    
    $
    119
    
    
    $
    36,920
    
    
    $
    86,884
    
    
    $
    37
    
    
    
    2,480,706
    
    
    $
    (15,802
    )
    
    $
    108,158
   38




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##### Table of Contents



HASTINGS ENTERTAINMENT, INC.
 
  
 Fiscal Year2009
    
    
    2008
    
    
    2007Cash flows from operating activities:Net income
    
    $
    6,933
    
    
    $
    4,059
    
    
    $
    10,245Adjustments to reconcile net income to net cash provided
by operating activities:Rental asset depreciation expense
    
    
    12,266
    
    
    
    14,833
    
    
    
    13,441Purchases of rental assets
    
    
    (20,864
    )
    
    
    (30,695
    )
    
    
    (27,276
    )Property and equipment depreciation expense
    
    
    18,957
    
    
    
    20,019
    
    
    
    19,400Amortization expense
    
    
    
    
    
    
    
    
    
    
    20Loss on rental assets lost, stolen and defective
    
    
    1,131
    
    
    
    1,198
    
    
    
    1,218Loss on disposal or impairment of property and equipment, excluding rental assets
    
    
    1,746
    
    
    
    1,620
    
    
    
    709Deferred income taxes
    
    
    4,500
    
    
    
    (7,417
    )
    
    
    (542
    )Non-cash stock-based compensation
    
    
    354
    
    
    
    113
    
    
    
    428Changes in operating assets and liabilities:Merchandise inventories
    
    
    9,610
    
    
    
    35,924
    
    
    
    7,030Other current assets
    
    
    557
    
    
    
    (182
    )
    
    
    (409
    )Trade accounts payable
    
    
    2,565
    
    
    
    (16,445
    )
    
    
    2,224Accrued expenses and other liabilities
    
    
    (12,484
    )
    
    
    4,071
    
    
    
    (1,215
    )Excess tax benefit from stock option exercises
    
    
    (2
    )
    
    
    (132
    )
    
    
    (127
    )Other assets and liabilities, net
    
    
    1,332
    
    
    
    137
    
    
    
    (563
    )Net cash provided by operating activities
    
    
    26,601
    
    
    
    27,103
    
    
    
    24,583Cash flows from investing activities:Purchase of property, equipment and improvements
    
    
    (11,812
    )
    
    
    (25,539
    )
    
    
    (15,256
    )Proceeds from insurance on casualty loss
    
    
    547
    
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    (11,265
    )
    
    
    (25,539
    )
    
    
    (15,256
    )Cash flows from financing activities:Borrowings under revolving credit facility
    
    
    536,570
    
    
    
    556,589
    
    
    
    565,488Repayments under revolving credit facility
    
    
    (542,903
    )
    
    
    (552,698
    )
    
    
    (566,794
    )Purchase of treasury stock
    
    
    (1,287
    )
    
    
    (4,350
    )
    
    
    (6,336
    )Change in cash overdraft
    
    
    (6,320
    )
    
    
    1,904
    
    
    
    (2,378
    )Proceeds from exercise of stock options
    
    
    16
    
    
    
    326
    
    
    
    711Excess tax benefit from stock option exercises
    
    
    2
    
    
    
    132
    
    
    
    127Net cash provided by (used in) financing activities
    
    
    (13,922
    )
    
    
    1,903
    
    
    
    (9,182
    )Net increase in cash and cash equivalents
    
    
    1,414
    
    
    
    3,467
    
    
    
    145Cash and cash equivalents at beginning of year
    
    
    7,449
    
    
    
    3,982
    
    
    
    3,837Cash and cash equivalents at end of year
    
    $
    8,863
    
    
    $
    7,449
    
    
    $
    3,982
   39




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##### Table of Contents



(1)
    
    Operations and Summary of Significant Accounting Policies
 (a)
    
    General
  (b)
    
    Basis of Consolidation
  (c)
    
    Basis of Presentation
  (d)
    
    Cash and Cash Equivalents
  (e)
    
    Revenue Recognition
     40




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##### Table of Contents



(f)
    
    Gift Cards and Breakage Revenue
 www.goHastings.com
 (g)
    
    Merchandise Inventories
      41




---



##### Table of Contents



(h)
    
    Property and Equipment
    (i)
    
    Rental Asset Depreciation
  (j)
    
    Financial Instruments
  (k)
    
    Stock Based Compensation
  
    
    Expected volatility  The estimated stock price volatility is derived based
upon our historical stock prices over the expected life of the option.
    
    Expected life of the option  The estimate of an expected life is calculated
based on historical data relating to grants, exercises, and cancellations and the
vesting period and contractual life of the option.
    
    Risk-free interest rate  The risk-free interest rate is based on the yield on
zero-coupon U.S. Treasury securities for a period that is commensurate with the
expected life of the option.
    42




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##### Table of Contents



(l)
    
    Advertising Costs
   (m)
    
    Pre-opening Costs
  (n)
    
    Earnings Per Share
  (o)
    
    Use of Management Estimates
  (p)
    
    Subsequent Events
   43




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##### Table of Contents



(q)
    
    Impact of Recently Issued Accounting Standards
    FASB Accounting Standards Codification
 (2)
    
    Merchandise Inventories
  January 31,2010
    
    
    2009Books
    
    $
    52,897
    
    
    $
    56,339Videos
    
    
    36,150
    
    
    
    34,847Video Games
    
    
    19,503
    
    
    
    19,523Music
    
    
    22,039
    
    
    
    22,281Trends
    
    
    14,195
    
    
    
    10,865Consumer Electronics
    
    
    6,941
    
    
    
    7,485Other
    
    
    1,636
    
    
    
    1,953153,361
    
    
    
    153,293Less allowance for inventory shrinkage and obsolescence
    
    
    5,212
    
    
    
    5,336$
    148,149
    
    
    $
    147,957
   44




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##### Table of Contents



(3)
    
    Property and Equipment
  January 31,2010
    
    
    2009Furniture, equipment and software
    
    $
    169,485
    
    
    $
    164,332Leasehold improvements
    
    
    67,060
    
    
    
    68,462Buildings and land
    
    
    258
    
    
    
    258Work in progress
    
    
    1,499
    
    
    
    799238,302
    
    
    
    233,851Less accumulated depreciation
    
    
    190,607
    
    
    
    177,266Property and equipment, net
    
    $
    47,695
    
    
    $
    56,585
   45




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##### Table of Contents



(4)
    
    Accrued Expenses and Other Current Liabilities
  January 31,2010
    
    
    2009Allowance for cost of inventory returns
    
    $
    891
    
    
    $
    962Deferred gift card revenue
    
    
    11,147
    
    
    
    18,735Salaries, vacation, bonus and benefits
    
    
    4,453
    
    
    
    4,241Short term lease obligations
    
    
    611
    
    
    
    1,001Sales taxes payable
    
    
    2,374
    
    
    
    1,810Federal income tax payable
    
    
    966
    
    
    
    7,807Other accrued expenses
    
    
    7,686
    
    
    
    6,058Total
    
    $
    28,128
    
    
    $
    40,614
     46




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##### Table of Contents



(5)
    
    Store Closing Reserve
    Future LeasePaymentsBalance at January 31, 2007
    
    $
    676Additions to provision
    
    
    195Changes in estimates
    
    
    (82
    )Cash outlay, net
    
    
    (412
    )Balance at January 31, 2008
    
    
    377Additions to provision
    
    
    107Changes in estimates
    
    
    49Cash outlay, net
    
    
    (501
    )Balance at January 31, 2009
    
    
    32Additions to provision
    
    
    12Changes in estimates
    
    
    47Cash outlay, net
    
    
    (91
    )Balance at January 31, 2010
    
    $
    
  47




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##### Table of Contents



(6)
    
    Long-term Debt
     48




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##### Table of Contents



(7)
    
    Fair Value Measurements
  
    
    Level 1  Observable Inputs  quoted prices in active markets for identical assets
and liabilities;
    
    Level 2  Observable inputs other than the quoted prices in active markets for
identical assets and liabilities  includes quoted prices for similar instruments,
quoted prices for identical or similar instruments in inactive markets, and amounts
derived from valuation models where all significant inputs are observable in active
markets; and
    
    Level 3  Unobservable inputs  includes amounts derived from valuation models
where one or more significant inputs are unobservable and require us to develop
relevant assumptions.
     49




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##### Table of Contents



(8)
    
    Leases
 We lease retail space under operating leases with terms ranging from five to fifteen years,
with certain leases containing renewal options. Renewal options are typically for five years
and contain terms similar to those of the original lease. Lease agreements generally provide
for minimum rentals. Some leases also include additional contingent rental amounts based upon
specified percentages of sales above predetermined levels. Rental costs associated with
operating leases that are incurred during a construction period are recognized as rental
expense. Rental expense for operating leases is comprised of the following:
 Fiscal Year2009
    
    
    2008
    
    
    2007Minimum rentals
    
    $
    26,581
    
    
    $
    25,903
    
    
    $
    24,892Contingent rentals
    
    
    222
    
    
    
    267
    
    
    
    297Less sublease income
    
    
    (127
    )
    
    
    (130
    )
    
    
    (162
    )Rental expense
    
    $
    26,676
    
    
    $
    26,040
    
    
    $
    25,027
 Future minimum lease payments under non-cancelable operating leases as of January 31, 2010
are:
 2010
    
    $
    23,6422011
    
    
    24,5532012
    
    
    21,9132013
    
    
    19,3882014
    
    
    16,557Thereafter
    
    
    61,303Total minimum lease payments
    
    
    167,356Less sublease income
    
    
    92Net minimum lease payments under
operating leases
    
    $
    167,264
  50




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##### Table of Contents



(9)
    
    Income Taxes
 Income tax expense is comprised of the following:
 Fiscal Year2009
    
    
    2008
    
    
    2007Current federal
    
    $
    504
    
    
    $
    10,589
    
    
    $
    5,870Current state and local
    
    
    449
    
    
    
    235
    
    
    
    (377
    )Deferred federal, state, and local
    
    
    4,434
    
    
    
    (7,375
    )
    
    
    (542
    )$
    5,387
    
    
    $
    3,449
    
    
    $
    4,951
 The difference between expected federal income tax expense based upon statutory rates and actual
income tax expense is as follows:
 Fiscal Year2009
    
    
    2008
    
    
    2007Computed expected income tax expense
    
    $
    4,312
    
    
    
    35.0
    %
    
    $
    2,628
    
    
    
    35.0
    %
    
    $
    5,319
    
    
    
    35.0
    %State and local income taxes, net of
federal income tax effect
    
    
    551
    
    
    
    4.4
    %
    
    
    238
    
    
    
    3.2
    %
    
    
    471
    
    
    
    3.1
    %Interest on settlement of federal tax exam
    
    
    
    
    
    
    
    
    
    
    800
    
    
    
    10.7
    %
    
    
    
    
    
    
    Other adjustments
    
    
    524
    
    
    
    4.3
    %
    
    
    (217
    )
    
    
    (3.0
    %)
    
    
    (839
    )
    
    
    (5.5
    %)$
    5,387
    
    
    
    43.7
    %
    
    $
    3,449
    
    
    
    45.9
    %
    
    $
    4,951
    
    
    
    32.6
    %
 The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are presented below:
 Fiscal Year2009
    
    
    2008Deferred tax assets:Deferred gift card revenue
    
    $
    4,321
    
    
    $
    7,238Abandoned leases
    
    
    
    
    
    
    12Deferred rent and lease incentives
    
    
    2,238
    
    
    
    1,879Inventories
    
    
    1,523
    
    
    
    2,269Property and equipment
    
    
    6,554
    
    
    
    8,654Other
    
    
    1,582
    
    
    
    1,557Total deferred tax assets
    
    
    16,218
    
    
    
    21,609Deferred tax liabilities:Rental assets
    
    
    (7,104
    )
    
    
    (7,995
    )Total deferred tax liabilities
    
    
    (7,104
    )
    
    
    (7,995
    )Net deferred tax assets
    
    $
    9,114
    
    
    $
    13,614
  51




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##### Table of Contents



Effective February 1, 2007, we adopted provisions of ASC 740, Income Taxes,addressing the
determination of whether tax benefits claimed or expected to be claimed on a tax return should be
recorded in the financial statements. The tax benefit from an uncertain tax position is
recognized only if it is more likely than not the tax position will be sustained on examination
by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the financial statements from such a position are measured based on the largest
benefit that has a greater than fifty percent likelihood, on a cumulative basis, of being
realized upon ultimate settlement. Upon adoption of the provisions of ASC 740 on February 1,
2007, we recognized an increase in the liability for uncertain tax positions plus total interest
and penalties which totaled $838,000 with a corresponding adjustment to retained earnings as of
February 1, 2007. A reconciliation of the beginning and ending amount of unrecognized tax
benefits is as follows:
 Fiscal Year2009
    
    
    2008
    
    
    2007Unrecognized tax positions at beginning of period
    
    $
    186
    
    
    $
    186
    
    
    $
    808Increases in tax positions from prior years
    
    
    
    
    
    
    
    
    
    
    Decreases in tax positions from prior years
    
    
    
    
    
    
    
    
    
    
    Increases in tax positions from current year
    
    
    
    
    
    
    
    
    
    
    Settlements with taxing authorities
    
    
    
    
    
    
    
    
    
    
    (622
    )Lapse in statute of limitations
    
    
    
    
    
    
    
    
    
    
    Unrecognized tax positions at end of period
    
    $
    186
    
    
    $
    186
    
    
    $
    186
 As of January 31, 2010 and January 31, 2009, the Company had unrecognized tax benefits related to
certain state jurisdictions in the amount of approximately $186,000. If recognized, this amount
would result in a favorable effect on our effective tax rate.
 We classify interest expense and penalties related to our uncertain tax positions as a component
of income tax expense in the statement of earnings. As of January 31, 2010 and 2009, we had
current liabilities for penalties and interest in the amount of approximately $229,000 and
$211,000, respectively. We recognized approximately $12,000 of interest as a component of income
tax during each of the fiscal years ending January 31, 2010, 2009, and 2008.
 Hastings and its subsidiary file a consolidated U.S. Federal income tax return as well as
separate, unitary and combined income tax returns in several state jurisdictions. During fiscal
2008, the Internal Revenue Service (IRS) completed an audit of our previously filed U.S.
federal tax returns for fiscal years 2004, 2005 and 2006. We recorded a discrete tax charge of
approximately $0.8 million related to this audit in fiscal year 2008. The IRS audit resulted in
a change in our tax method used to account for gift cards, and the $0.8 million represents
interest due as a result of the audit. During fiscal 2009, the IRS initiated an audit of our
U.S. federal tax return for fiscal year 2007. This audit was completed in February 2010, with no
proposed changes. The Company is subject to U.S. Federal income tax examinations for fiscal
years after 2007, and state jurisdictions have statutes of limitations generally ranging from
three to five years.
  52




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##### Table of Contents



(10)
    
    Earnings Per Share
 The computations of basic and diluted earnings per share are as follows:
 Fiscal Year2009
    
    
    2008
    
    
    2007Net income
    
    $
    6,933
    
    
    $
    4,059
    
    
    $
    10,245Average shares outstanding:Basic
    
    
    9,610
    
    
    
    10,122
    
    
    
    10,797Effect of dilutive stock-based awards
    
    
    142
    
    
    
    202
    
    
    
    258Diluted
    
    
    9,752
    
    
    
    10,324
    
    
    
    11,055Earnings per share:Basic
    
    $
    0.72
    
    
    $
    0.40
    
    
    $
    0.95Diluted
    
    $
    0.71
    
    
    $
    0.39
    
    
    $
    0.93
 Options to purchase 275,677, 334,151, and 185,794 shares of Common Stock outstanding at
January 31, 2010, 2009, and 2008, respectively, were not included in the computation of
diluted income per share because their inclusion would have been anti-dilutive.
 (11)
    
    Benefit Plans
 Our 401(k) plan permits full-time employees who have attained age 21 and part-time employees
who have worked a minimum of 1,000 hours in a year and have attained age 21 to participate in
the 401(k) plan and elect to contribute up to 25% of their salary, subject to federal
limitations, to the plan. Employer contributions include a quarterly guaranteed match of 25%
of employee contributions up to a maximum of 6% deferral of compensation and are allocated
solely to those employees who are participating in the plan and are employed on the last day
of the plan quarter or who became disabled or have died or retired during the plan quarter.
Also included is a discretionary match based on specific criteria reviewed every fiscal
six-month period by management and approved by the Board of Directors. This discretionary
match is allocated solely to those employees who are participating in the plan and are
employed on the last day of the six-month period. Discretionary matching amounts are not
material to the financial statements or results of operations.
 Our Associate Stock Ownership Plan (ASOP) permits full-time employees who have attained age
21 and completed one year of service and part-time employees who have worked a minimum of
1,000 hours in a year and have attained age 21 to participate in the ASOP. Employer
contributions are determined at the discretion of the Board of Directors (Board). The Board
elected not to contribute to the ASOP during fiscal years 2009, 2008, or 2007, nor do they
plan to contribute to the plan during fiscal 2010. The contribution is based on a percentage
of participants eligible compensation. Common shares held by the ASOP were 412,215, 485,234,
and 512,368, at January 31, 2010, 2009, and 2008, respectively. Shares issued and held under
the ASOP are included as outstanding shares for the purposes of calculating earnings per
share.
 Amounts expensed related to the 401(k) plan were approximately $0.2 million, $0.3 million, and
$0.3 million for fiscal 2009, 2008, and 2007, respectively.
  53




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We maintain a defined contribution supplemental executive retirement plan (SERP). The SERP
provides eligible executives with supplemental pension benefits in addition to amounts
received under our other retirement plans. Annual contributions range from 5% to 10% of base
pay plus bonus depending upon the participants age. For each of the five plan years
beginning January 1, 2006 and ending December 31, 2010,
we will contribute as a transitional contribution an additional 10% of base pay plus bonus for
participants, the sum of whose age and service with the Company was at least 60 on January 1,
2006. Contributions into the SERP are invested in available-for-sale securities. As of
January 31, 2010 and 2009, we had approximately $1.0 million and $0.7 million, respectively in
SERP assets, which are recorded at fair value on the consolidated balance sheets in Other
Assets. The SERP accounts vest on the earliest occurrence of (i) the date the sum of the
participants age and service with the Company equals 60, (ii) the participants death, (iii)
the participants disability, (iv) the date of involuntary termination occurring within two
years from the date of a change in control, or (v) the date the participants employment is
terminated without cause, all as defined in the SERP. We recorded expenses related to the
SERP of approximately $0.3 million during each of the fiscal years ended January 31, 2010,
2009, and 2008.
 (12)
    
    Shareholders Equity
 We have seven stock option plans: the 1991 and 1994 Stock Option Plans; the 1996, 2002, and
2006 Incentive Stock Plans; and the 1996 and 2002 Outside Directors Plans (for non-employee
directors). A total of 505,900 shares may be granted under each of the 1991 and 1994 Stock
Option Plans, 632,375 shares may be granted under the 1996 Incentive Stock Plan, 500,000
shares may be granted under each of the 2002 and 2006 Incentive Stock Plans, 101,180 shares
may be granted under the 1996 Outside Directors Plan and 200,000 shares may be granted under
the 2002 Outside Directors Plan. As of January 31, 2010, we had 156,917 shares available for
future grants under all stock option plans.
 The 1991 and 1994 Stock Option Plans and the 1996, 2002, and 2006 Incentive Stock Plans
authorize the award of both incentive stock options and non-qualified stock options to
purchase common stock to officers, other associates and directors of the Company. The
exercise price per share of incentive stock options may not be less than the market price of
our common stock on the date the option is granted. The term of each option is determined by
the Board of Directors and generally will not exceed ten years from the date of grant. In
general, each option award vests at twenty percent per year over five years.
 The 1996, 2002, and 2006 Incentive Stock Plans also authorize the granting of stock
appreciation rights, restricted stock, dividend equivalent rights, stock awards, and other
stock-based awards to officers, other associates, directors, and consultants of the Company.
 We also have two stock grant plans: the 1998 and 2002 Stock Grant Plans for Outside Directors.
These plans authorize the granting of shares of stock to outside directors. We issue
annual grants of shares of common stock valued at $10,000 per outside director from these
plans.
 On December 4, 2009, we entered into a stock transfer agreement with the Marmaduke Family
Limited Partnership (the Partnership). Under the stock transfer agreement, for a period of
three years following the death of Mr. John H. Marmaduke, the Companys President and Chief
Executive Officer, the Partnership may tender for purchase to the Company, and, if so
tendered, the Company will be required to purchase, the number of shares of the Companys
common stock belonging to the Partnership that equal an aggregate fair market value of $5.0
million. During this three year period, the Partnership may elect to tender portions of such
_____shares in various lots and parcels, at any time and from time to time, and any tender shall
not exhaust or limit the Partnerships right to tender an additional amount of such shares,
subject to the limitations set within the stock transfer agreement. Under the stock transfer
agreement, the Company is not obligated to purchase, and the Partnership does not have the
right to tender, any amount of such shares with an aggregate fair market value in excess of
$5.0 million. In the event that Mr. Marmaduke resigns as an officer or director of the
Company prior to his death, the Partnerships right to tender the shares to the Company shall
terminate. The stock transfer agreement shall terminate on the earlier of February 9, 2019,
or four years after the death of Mr. Marmaduke. The Company is currently the beneficiary of a
$10 million key-man life insurance policy on Mr. Marmaduke; a portion of the proceeds of which
would be used to complete any purchases of shares resulting from the stock transfer agreement.
  54




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##### Table of Contents



(13)
    
    Stock-Based Compensation
 Compensation expense for all stock option awards is measured at fair value on the date of the
grant and such cost is recognized over the service period for awards that are expected to
vest. The fair value of non-vested performance-based restricted stock grants and restricted
stock units are based on the number of shares granted and the average of the opening and
closing stock price on the day on which they are granted. We use the Black-Scholes valuation
model in order to determine the fair value of stock option grants on the date of grant. The
determination of performance-based restricted stock awards that are expected to ultimately
vest requires significant estimates, and to the extent that actual results or updated
estimates differ from current estimates, such amounts will be recorded as a cumulative
adjustment in the period that estimates are revised. Actual results and future changes in
estimates may differ substantially from the current estimates.
 Stock Options
 Under our incentive stock plans, options may be granted to directors, officers and associates
with an exercise price equal to the fair market value of our common stock on the date of
grant. Stock option grants generally vest ratably over five years and expire within ten years
after the date of grant. Shares issued upon exercise of options are issued from treasury
_____shares.
 The following assumptions were used in the calculation of fair value:
 Fiscal Year2009
    
    
    2008
    
    
    2007Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Risk-free interest rate
    
    
    2.11
    %
    
    
    2.08
    %
    
    
    3.30
    %Expected life in years
    
    
    4.67
    
    
    
    4.57
    
    
    
    4.47Historical Volatility
    
    
    0.50
    
    
    
    0.47
    
    
    
    0.44
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A summary of information with respect to stock option plans for fiscal years 2009, 2008, and
2007, and changes during the periods then ended, is presented below.
 Weighted-Options (in
    
    
    average exerciseactual shares)
    
    
    priceOutstanding at January 31, 2007
    
    
    1,048,501
    
    
    $
    5.26Granted
    
    
    75,150
    
    
    
    9.39Exercised
    
    
    (149,768
    )
    
    
    4.74Forfeited and expired
    
    
    (68,510
    )
    
    
    8.37Outstanding at January 31, 2008
    
    
    905,373
    
    
    $
    5.45Granted
    
    
    162,650
    
    
    
    3.08Exercised
    
    
    (88,428
    )
    
    
    3.70Forfeited and expired
    
    
    (18,150
    )
    
    
    9.44Outstanding at January 31, 2009
    
    
    961,445
    
    
    $
    5.14Granted
    
    
    183,650
    
    
    
    4.30Exercised
    
    
    (4,666
    )
    
    
    3.51Forfeited under option exchange
    
    
    (406,717
    )
    
    
    7.05Forfeited and expired
    
    
    (40,981
    )
    
    
    6.82Outstanding at January 31, 2010
    
    
    692,731
    
    
    $
    3.70
 The total intrinsic value of stock options exercised for the fiscal years ended January 31,
2010, 2009 and 2008 was approximately $4,000, $405,000 and $439,000, respectively. The total
fair value of stock options granted for the fiscal years ended January 31, 2010, 2009, and
2008 was approximately $335,000, $201,000, and $271,000, respectively. The total fair value
of stock option shares vested during the fiscal years ended January 31, 2010 and 2009 was
approximately $83,000 and $132,000, respectively. No stock option shares vested during the
fiscal year ended January 31, 2008.
 As of January 31, 2010 and 2009, we had a total of 305,753 option shares with a weighted
average exercise price of $3.73 and 138,383 option shares with a weighted average exercise
price of $8.52, respectively, that were unvested.
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##### Table of Contents



At January 31, 2010, the options outstanding, both exercisable and unexercisable, and their
related weighted-average exercise price, and the weighted-average remaining contractual life
for the ranges of exercise prices are shown in the table below.
 Weighted-Weighted-
    
    
    average
    
    
    Aggregateaverage exercise
    
    
    remaining
    
    
    intrinsic valueOptions
    
    
    price
    
    
    contractual life
    
    
    (in thousands)Range: $1.33 to $4.99Options outstanding and
exercisable at January
31, 2010
    
    
    317,721
    
    
    $
    3.10
    
    
    2.73 years
    
    
    $
    342,554Options outstanding and
unexercisable at January
31, 2010
    
    
    282,983
    
    
    $
    3.40
    
    
    8.52 years
    
    
    $
    248,382Range: $5.00 to $8.70Options outstanding and
exercisable at January
31, 2010
    
    
    69,257
    
    
    $
    6.36
    
    
    5.40 years
    
    
    
    Options outstanding and
unexercisable at January
31, 2010
    
    
    22,770
    
    
    $
    7.92
    
    
    7.60 years
    
    
    
    
 At January 31, 2010, the number of options exercisable was 386,978 and the weighted-average
exercise price of those options was $3.68.
 The per share weighted-average exercise price and the per share weighted-average fair value of
stock options at the date of grant, using the Black-Scholes option-pricing model is as
follows:
 Weighted Average Exercise price for
    
    
    Weighted Average Fair value forFiscal Year
    
    
    Fiscal Year2009
    
    
    2008
    
    
    2007
    
    
    2009
    
    
    2008
    
    
    2007Options granted at
market price
    
    $
    4.23
    
    
    $
    3.29
    
    
    $
    8.97
    
    
    $
    1.89
    
    
    $
    1.36
    
    
    $
    3.86Options granted at
prices exceeding market
price
    
    $
    4.68
    
    
    $
    1.86
    
    
    $
    10.64
    
    
    $
    1.50
    
    
    $
    0.53
    
    
    $
    2.83Total options granted
    
    $
    4.30
    
    
    $
    3.08
    
    
    $
    9.39
    
    
    $
    1.82
    
    
    $
    1.24
    
    
    $
    3.60
 Option Exchange
 On June 3, 2009, Hastings shareholders approved a proposal to allow for a one-time stock
option exchange program (Option Exchange), designed to provide eligible associates with an
opportunity to exchange certain under-water stock options for a lesser amount of restricted
stock units. Stock options eligible for exchange were those with an exercise price of $5.00
or greater, regardless of whether the options were vested or not. Hastings commenced the
Option Exchange on June 15, 2009, and the Option Exchange expired on July 13, 2009. A total
of 406,717 eligible stock options were tendered by employees, representing 97.2% of the
total stock options eligible for exchange. On July 14, 2009, Hastings granted 135,575
restricted stock units in exchange for the eligible stock options surrendered. The Option
Exchange resulted in an incremental cost of $126,098, which represents the difference
between the fair value of the restricted stock units granted and the exchange date fair
value of the eligible options surrendered. The grant date fair value of the restricted
stock units was $4.20, which represents the average of the opening and closing prices of
Hastings Common Stock on July 14, 2009. The exchange date fair value of the eligible
options surrendered was determined using the Black-Scholes option pricing model. The
incremental cost
associated with the Option Exchange is being recognized over the vesting period of the
restricted stock units, which vest ratably over two years from the date of grant.
Approximately $34,000 of the incremental cost was recognized as compensation expense during
fiscal 2009.
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Restricted Stock Awards
 Restricted stock awards, including restricted stock units and performance-based restricted
stock awards, may be granted to eligible directors, officers, and associates with a grant
date fair value equal to the average of the opening and closing stock price of Hastings
Common Stock on the day on which they are granted. Restricted stock units entitle the
grantee to receive shares of stock at the end of a vesting period, based solely on the
grantees continuing employment. Restricted stock units will typically vest ratably over
two years from the date of grant. Performance-based restricted stock awards have specific
performance conditions that must be met before shares will be issued. Once issued, the
_____shares typically vest ratably over two years from the date the performance conditions are
achieved. Compensation expense for performance-based restricted stock awards is recognized
from the date of grant through the vesting date, once it is deemed probable that the
performance conditions will be met.
 A summary of information with respect to restricted stock awards for fiscal years 2009,
2008, and 2007, and changes during the periods then ended, is presented below.
 Awards
    
    
    Weighted-average(in actual shares)
    
    
    grant date fair valueOutstanding at January 31, 2007
    
    
    130,830
    
    
    $
    6.55Granted
    
    
    152,500
    
    
    
    9.67Vested
    
    
    
    
    
    
    Forfeited and expired
    
    
    
    
    
    
    Outstanding at January 31, 2008
    
    
    283,330
    
    
    $
    8.23Granted
    
    
    
    
    
    
    Vested
    
    
    
    
    
    
    Forfeited and expired
    
    
    (108,330
    )
    
    
    7.78Outstanding at January 31, 2009
    
    
    175,000
    
    
    $
    8.50Granted
    
    
    288,075
    
    
    
    4.25Vested
    
    
    (23,750
    )
    
    
    5.37Forfeited and expired
    
    
    (130,000
    )
    
    
    9.67Outstanding at January 31, 2010
    
    
    309,325
    
    
    $
    4.40
 During fiscal 2007, the performance conditions related to 47,500 performance-based
restricted stock awards were met, and these awards were issued during fiscal 2008. We
recognized approximately $32,000, $96,000 and $75,000 of stock compensation expense related
to these awards during fiscal 2009, 2008 and 2007, respectively. During fiscal 2009, 23,750
of these performance-based restricted stock awards vested, with the remaining 23,750
scheduled to vest during fiscal 2010. As of January 31, 2010, we had not achieved the
performance conditions related to 127,500 outstanding performance-based restricted stock
awards and the period to do so expired. As a result, 127,500 performance-based restricted
stock awards expired during the fiscal year and will not be awarded. As of January 31,
2010, all stock compensation expense related to outstanding and vested performance-based
restricted stock awards has been recognized.
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(14)
    
    Supplemental Cash Flow Information
 Cash payments for interest during fiscal 2009, 2008 and 2007 totaled $1.1 million, $2.1
million, and $3.2 million, respectively. Cash payments for income taxes during fiscal 2009,
2008 and 2007 totaled $7.6 million, $6.4 million and $4.8 million, respectively.
 (15)
    
    Commitments and Contingencies
 The Company is obligated to pay certain studios minimum amounts associated with certain
revenue-sharing agreements related to rental assets. As of January 31, 2010, such minimum
future payments approximated $0.4 million, which are expected to be paid during fiscal 2010.
 We are involved in various claims and legal actions arising in the ordinary course of
business. In the opinion of management, the ultimate disposition of these matters will not
have a material adverse effect on our financial position, results of operations or cash flows.
 (16)
    
    Involuntary Conversion of Property and Equipment
 In December, 2008, our Flagstaff, Arizona store sustained a roof collapse. The buildings
contents were declared a total loss. We were adequately insured to enable us to recover the
retail value of our merchandise inventory and replace all of our property and equipment that
was destroyed. For fiscal 2009, we recorded a gain from this involuntary conversion of assets
of approximately $1.4 million, which is included in Other Income on the Consolidated
Statements of Earnings. The insurance proceeds were reinvested in the store which reopened in
fiscal 2009.
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(17)
    
    Interim Financial Results (Unaudited)
 QuarterFiscal year 2009:
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues (1)
    
    $
    125,693
    
    
    $
    117,192
    
    
    $
    112,338
    
    
    $
    176,123Total cost of revenues
    
    
    78,707
    
    
    
    73,680
    
    
    
    71,333
    
    
    
    112,778Gross profit
    
    
    46,986
    
    
    
    43,512
    
    
    
    41,005
    
    
    
    63,345Selling, general and administrative expenses (2)
    
    
    43,898
    
    
    
    43,878
    
    
    
    45,732
    
    
    
    49,905Pre-opening expenses
    
    
    2
    
    
    
    1
    
    
    
    
    
    
    
    Operating income (loss)
    
    
    3,086
    
    
    
    (367
    )
    
    
    (4,727
    )
    
    
    13,440Interest (expense) and other income, net (3)
    
    
    (277
    )
    
    
    (211
    )
    
    
    (194
    )
    
    
    1,570Income (loss) before taxes
    
    
    2,809
    
    
    
    (578
    )
    
    
    (4,921
    )
    
    
    15,010Income tax expense (benefit)
    
    
    1,107
    
    
    
    (182
    )
    
    
    (1,485
    )
    
    
    5,947Net income (loss)
    
    
    1,702
    
    
    
    (396
    )
    
    
    (3,436
    )
    
    
    9,063Basic income (loss) per share
    
    $
    0.17
    
    
    $
    (0.04
    )
    
    $
    (0.36
    )
    
    $
    0.95Diluted income (loss) per share
    
    $
    0.17
    
    
    $
    (0.04
    )
    
    $
    (0.36
    )
    
    $
    0.94
 QuarterFiscal year 2008:
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthTotal revenues
    
    $
    131,936
    
    
    $
    125,666
    
    
    $
    114,268
    
    
    $
    166,878Total cost of revenues
    
    
    82,923
    
    
    
    79,779
    
    
    
    72,997
    
    
    
    111,029Gross profit
    
    
    49,013
    
    
    
    45,887
    
    
    
    41,271
    
    
    
    55,849Selling, general and administrative expenses (2)
    
    
    43,694
    
    
    
    44,348
    
    
    
    45,860
    
    
    
    48,609Pre-opening expenses
    
    
    2
    
    
    
    11
    
    
    
    98
    
    
    
    122Operating income (loss)
    
    
    5,317
    
    
    
    1,528
    
    
    
    (4,687
    )
    
    
    7,118Interest (expense) and other income, net
    
    
    (455
    )
    
    
    (430
    )
    
    
    (444
    )
    
    
    (439
    )Income (loss) before taxes
    
    
    4,862
    
    
    
    1,098
    
    
    
    (5,131
    )
    
    
    6,679Income tax expense (benefit)
    
    
    1,873
    
    
    
    438
    
    
    
    (1,475
    )
    
    
    2,613Net income (loss)
    
    
    2,989
    
    
    
    660
    
    
    
    (3,656
    )
    
    
    4,066Basic income (loss) per share
    
    $
    0.29
    
    
    $
    0.06
    
    
    $
    (0.36
    )
    
    $
    0.41Diluted income (loss) per share
    
    $
    0.28
    
    
    $
    0.06
    
    
    $
    (0.36
    )
    
    $
    0.41
 (1)
    
    The fourth quarter of fiscal 2009 includes approximately $8.5 million of gift card breakage
revenue.(2)
    
    Includes store asset impairments of approximately $1.6 million and $0.9 million recognized in
the fourth quarter of fiscal 2009 and 2008, respectively.(3)
    
    The fourth quarter of fiscal 2009 includes approximately $1.4 million related to gain from
insurance proceeds.  60




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES.
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
      Changes in Internal Control over Financial Reporting
  Report of Independent Registered Public Accounting Firm
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.
   
  62




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ITEM 9A(T). CONTROLS AND PROCEDURES
  
 ITEM 9B. OTHER INFORMATION
  
 PART III
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
  Section 16(a) Beneficial Ownership Reporting Compliance
  Code of Ethics and Other Corporate Governance Information
  
 ITEM 11. EXECUTIVE COMPENSATION.
  
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
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ITEM 14.
    
    PRINCIPAL ACCOUNTANT FEES AND SERVICES.
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##### Table of Contents



PART IV
 
 ITEM 15.
    
    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
  Report of Independent Registered Public Accounting Firm
    
    
    35Consolidated Balance Sheets as of January 31, 2010 and 2009
    
    
    36Consolidated Statements of Earnings for the years ended
January 31, 2010, 2009, and 2008
    
    
    37Consolidated Statements of Shareholders Equity for the years
ended January 31, 2010, 2009, and 2008
    
    
    38Consolidated Statements of Cash Flows for the years ended
January 31, 2010, 2009, and 2008
    
    
    39Notes to Consolidated Financial Statements
    
    
    402. The following financial statement schedule and other information
required to be filed by Items 8 and 15(d) of Form 10-K are
included in Part IV:Financial Statement Schedule II  Valuation and Qualifying Accounts
and Reserves
    
    
    68All other schedules are omitted because they are not applicable, not required or the
required information is included in the Consolidated Financial Statements and notes thereto.3. The following exhibits are filed herewith or incorporated by reference as indicated
as required by Item 601 of Regulation S-K. The exhibits designated by an asterisk are
management contracts and/or compensatory plans or arrangements required to be filed as
exhibits to this report.
 ExhibitNumber
    
    Description3.1
    (1)
    
    Third Restated Articles of Incorporation of the Company.3.1
    (11)
    
    Amended and Restated Bylaws of the Company.4.1
    (2)
    
    Specimen of Certificate of Common Stock of the Company.4.2
    (1)
    
    Third Restated Articles of Incorporation of the Company (see 3.1 above).4.3
    (11)
    
    Amended and Restated Bylaws of the Company (see 3.1 above).10.1
    (1)
    
    Form of Indemnification Agreement by and between the Company and its
directors and executive officers.10.2
    * (1)
    
    Hastings Amended 1996 Incentive Stock Plan.10.3
    * (2)
    
    Hastings 1994 Stock Option Plan.10.4
    * (2)
    
    Hastings 1991 Stock Option Plan.10.5
    * (1)
    
    Hastings Entertainment, Inc. Associates 401(k) Plan and Trust.10.6
    * (1)
    
    Hastings Employee Stock Ownership Plan Trust Agreement.10.7
    * (2)
    
    Chief Executive Officer Stock Option, as amended.10.8
    * (1)
    
    Corporate Officer Incentive Plan.10.9
    * (1)
    
    Management Stock Purchase Plan.10.10
    * (1)
    
    Management Incentive Plan.10.11
    * (1)
    
    Salary Incentive Plan.10.12
    * (1)
    
    Hastings Entertainment, Inc. Stock Option Plan for Outside Directors.10.13
    * (3)
    
    Agreement, dated January 31, 2001 between John H. Marmaduke and the Company10.14
    (4)
    
    Lease Agreement, dated August 3, 1994, as amended, between Omni Capital Corporation and the
Company, for warehouse space located at Sunset Center in Amarillo, Texas.10.15
    (1)
    
    Lease Agreement, dated May 28, 1992, between the City of Amarillo and the Company for space
located at 1900 W. 7th Avenue in Amarillo, Texas.10.16
    * (2)
    
    Stock Grant Plan for Outside Directors.10.17
    * (2)
    
    Form of Employment Agreement by and between the Company and certain of its executives.
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ExhibitNumber
    
    Description10.18
    (5)
    
    Amended Lease Agreement, dated October 13, 1999, between Omni Capital Corporation and the
Company, for office space located at Sunset Center in Amarillo, Texas.10.19
    (6)
    
    Loan and Security Agreement, dated August 29, 2000 between Hastings Entertainment, Inc. and
Fleet Retail Finance, Inc., Agent.10.20
    (7)
    
    International Swap Dealers Association, Inc. Master Agreement between Hastings Entertainment,
Inc. and Fleet National Bank.10.21
    (8)
    
    Amended Loan and Security Agreement, dated December 9, 2003, between Hastings Entertainment,
Inc. and Fleet Retail Finance, Inc., Agent.10.22
    (9)
    
    Severance Agreement and Release with Robert Berman, dated March 19, 2005.10.23
    (9)
    
    Amended Loan and Security Agreement, dated July 11, 2005, between Hastings Entertainment, Inc.
and Fleet Retail Group, LLC., Agent, and CIT Group/Business Credit, Inc., Co-Agent.10.24
    (9)
    
    Severance Agreement and Release with Steve Hicks, dated December 16, 2005.10.25
    (9)
    
    Amended Loan and Security Agreement, dated February 28, 2006, between Hastings Entertainment,
Inc. and Fleet Retail Group, LLC., Agent, and CIT Group/Business Credit, Inc., Co-Agent.10.26
    (10)
    
    Severance Agreement and Release with David Moffatt, dated April 5, 2006.10.27
    (10)
    
    Employment Agreement with Michael Rigby, dated December 5, 2005.10.28
    (10)
    
    Amended Loan and Security Agreement, dated February 27, 2007, between Hastings Entertainment,
Inc. and Fleet Retail Group, LLC., Agent, and CIT Group/Business Credit, Inc., Co-Agent.10.29
    (12)
    
    Amendments to the Employment Agreement by and between the Company and Dan Crow, dated August
1, 2008.10.30
    (12)
    
    Amendments to the Employment Agreement by and between the Company and Alan Van Ongevalle (as
described in the Form 8-K filed by the Company on February 9, 2007), dated August 1, 2008.10.31
    (12)
    
    Amendments to the Employment Agreement by and between the Company and Susan Dasse (as
described in the Form 8-K filed by the Company on May 2, 2008), dated August 1, 2008.10.32
    (12)
    
    Amendments to the Employment Agreement by and between the Company and Kevin Ball, dated August
1, 2008.10.33
    (12)
    
    Amendments to the Employment Agreement by and between the Company and John Hintz (as described
in the Form 8-K filed by the Company on February 9, 2007), dated August 1, 2008.10.34
    (12)
    
    Amendments to the Employment Agreement by and between the Company and Victor Fuentes (as
described in the Form 8-K filed by the Company on October 18, 2007), dated August 1, 2008.10.35
    (12)
    
    Amendments to the Employment Agreement by and between the Company and Philip McConnell (as
described in the Form 8-K filed by the Company on June 12, 2006), dated August 1, 2008.10.36
    (13)
    
    Amendments to the Employment Agreement by and between the Company and John H Marmaduke, dated
February 1, 2009.10.37
    (14)
    
    Stock transfer agreement between the Company and the John H. Marmaduke Family Limited
Partnership.21.1
    (15)
    
    Subsidiaries of the Company.23.1
    (15)
    
    Consent of Ernst & Young LLP.24.1
    (15)
    
    Powers of Attorney (included on signature page).31.1
    (15)
    
    Certification of Chief Executive Officer of Registrant Pursuant to SEC Rule
13a-14(a)/15d-14(a).31.2
    (15)
    
    Certification of Chief Financial Officer of Registrant Pursuant to SEC Rule
13a-14(a)/15d-14(a).32.1
    (15)
    
    Certification of Chief Executive Officer and Chief Financial Officer of Registrant Pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  66




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(1)
    
    Previously filed as an exhibit to the Companys Registration Statement on Form
S-1, dated March 18, 1998 (File No. 333-47969) and with a corresponding exhibit number
herein and are incorporated herein by reference.(2)
    
    Previously filed as an exhibit to the Companys Registration Statement on Form
S-1/A, dated May 19, 1998 (File No. 333-47969) and with a corresponding exhibit number
herein and are incorporated herein by reference.(3)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2001, and incorporated herein by reference.(4)
    
    Previously filed as an exhibit to the Companys Registration Statement on Form
S-1/A, dated June 11, 1998 (File No. 333-47969) and with a corresponding exhibit number
herein and are incorporated herein by reference.(5)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K, as
amended, for the fiscal year ended January 31, 2000, and incorporated herein by
reference.(6)
    
    Previously filed as an exhibit to the Companys Quarterly Report on Form 10-Q,
as amended, for the quarterly period ended July 31, 2000, and incorporated herein by
reference.(7)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2002, and incorporated herein by reference.(8)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2004, and incorporated herein by reference.(9)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2006, and incorporated herein by reference.(10)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2007, and incorporated herein by reference.(11)
    
    Previously filed as an exhibit to the Companys Form 8-K (File No. 000-24381)
filed on January 17, 2008, and incorporated herein by reference.(12)
    
    Previously filed as an exhibit to the Companys Annual Report on Form 10-K for
the fiscal year ended January 31, 2009, and incorporated herein by reference(13)
    
    Previously filed as an exhibit to the Companys Form 8-K (File No. 000-24381)
filed on April 16, 2009, and incorporated herein by reference.(14)
    
    Previously filed as an exhibit to the Companys Form 8-K (File No. 000-24381)
filed December 4, 2009, and incorporated herein by reference.(15)
    
    Filed herewith.  67




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Financial Statement Schedule II 
 HASTINGS ENTERTAINMENT, INC.
 Fiscal Year2009
    
    
    2008
    
    
    2007Reserves deducted from assets:Allowance for shrinkage and inventory obsolescence:Balance at the beginning of period
    
    $
    5,750
    
    
    $
    5,612
    
    
    $
    4,916Additions charged to costs and expenses
    
    
    13,194
    
    
    
    13,481
    
    
    
    13,816Deductions for write-offs
    
    
    (13,656
    )
    
    
    (13,343
    )
    
    
    (13,120
    )Balance at end of period
    
    $
    5,288
    
    
    $
    5,750
    
    
    $
    5,612Reserves added to liabilities:Allowance for costs of inventory returns:Balance at the beginning of period
    
    $
    962
    
    
    $
    1,343
    
    
    $
    1,586Additions charged to costs and expenses
    
    
    4,352
    
    
    
    5,247
    
    
    
    4,665Deductions for write-offs and payments
    
    
    (4,423
    )
    
    
    (5,628
    )
    
    
    (4,908
    )Balance at end of period
    
    $
    891
    
    
    $
    962
    
    
    $
    1,343
  68




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##### Table of Contents



SIGNATURES
  HASTINGS ENTERTAINMENT, INC.Date: January 28, 2011
    By:
    /s/ Dan CrowDan CrowVice President and Chief Financial Officer
(Principal Financial and Accounting Officer) POWER OF ATTORNEY
   Signature
    
    Title
    
    Date/s/ John H. Marmaduke
    
    Chairman of the Board, President and Chief Executive
Officer
    
    January 28, 2011John H. Marmaduke
    
    (Principal Executive Officer)/s/ Danny W. Gurr

Danny W. Gurr
    
    Director
    
    January 28, 2011/s/ Daryl L. Lansdale

Daryl L. Lansdale
    
    Director
    
    January 28, 2011/s/ Ann S. Lieff

Ann S. Lieff
    
    Director
    
    January 28, 2011/s/ Frank O. Marrs

Frank O. Marrs
    
    Director
    
    January 28, 2011/s/ Jeffrey G. Shrader

Jeffrey G. Shrader
    
    Director
    
    January 28, 2011/s/ Dan Crow

Dan Crow
    
    Vice President and Chief Financial Officer (Principal
Financial and Accounting Officer)
    
    January 28, 2011
  69