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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-9482
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HANCOCK FABRICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 64-0740905
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3406 WEST MAIN ST., TUPELO, MS 38801
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code
(601) 842-2834
Securities Registered Pursuant to Section 12(b) of the Act:
Name of each exchange
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Title of each class on which registered
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Common Stock ($.01 par value) New York Stock Exchange
Rights New York Stock Exchange
Securities Registered Pursuant To Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
As of April 13, 1995 there were 21,176,958 shares of Hancock Fabrics, Inc. $.01
par value common stock held by non-affiliates with an aggregate market value of
$214,416,699.75. As of April 13, 1995, there were 21,518,535 shares of Hancock
Fabrics, Inc. $.01 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement for the Annual Meeting of Shareholders to be
held on June 8, 1995, to be filed with the Securities and Exchange Commission
within 120 days after the end of the fiscal year, are incorporated by reference
in Part III of this Annual Report on Form 10-K.
Portions of the Hancock Fabrics, Inc. 1994 Annual Report to Shareholders
(Exhibit 13 hereto) are incorporated by reference in Parts I and II of this
Annual Report on Form 10-K. With the exception of those portions that are
specifically incorporated by reference in this Annual Report on Form 10-K, the
Hancock Fabrics, Inc. 1994 Annual Report to Shareholders is not to be deemed
filed as part of this Annual Report on Form 10-K.
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HANCOCK FABRICS, INC.
1994 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
Number
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<S> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . 4
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . 6
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . 7
Item 4. Submission of Matters to a Vote
of Security Holders . . . . . . . . . . . . . . . . . . 7
Executive Officers of Registrant . . . . . . . . . . . . . . . . . . . 8
PART II
Item 5. Market for the Registrant's Common Stock and
Related Stockholder Matters . . . . . . . . . . . . . . 9
Item 6. Selected Financial Data . . . . . . . . . . . . . . . . . 9
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . 10
Item 8. Financial Statements and Supplementary Data . . . . . . . 10
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure . . . . . . . . 10
PART III
Item 10. Directors and Executive Officers of Registrant . . . . . . 11
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . . . . 11
Item 13. Certain Relationships and Related Transactions . . . . . . 11
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K . . . . . . . . . . . . . . . . . . 12
Undertaking in Connection with Registration Statements
on Form S-8 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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PART I
ITEM 1: BUSINESS
Hancock Fabrics, Inc., a Delaware corporation ("Hancock"), was incorporated in
1987 and succeeded to the retail and wholesale fabric business of Hancock
Textile Co., Inc., a Mississippi corporation and a wholly owned subsidiary of
Lucky Stores, Inc., a Delaware corporation ("Lucky").
Founded in 1957, Hancock operated as a private Company until 1972 when it was
acquired by Lucky. Hancock became a publicly owned company as a result of the
distribution of the shares of its common stock to the shareholders of Lucky on
May 4, 1987.
Hancock and its subsidiary are engaged in the retail and wholesale fabric
business, selling fabrics, crafts and related accessories to the home sewing
and home decorating market and at wholesale to independent retailers. Hancock
is one of the largest fabric retailers in the United States. At January 29,
1995, Hancock operated 500 fabric stores in 33 states under the names "Hancock
Fabrics," "Minnesota Fabrics," "Fabric Warehouse" and "Fabric Market." As a
wholesaler of fabrics and related items, Hancock sells to independent retail
fabric stores through its wholesale distribution facility in Tupelo,
Mississippi.
OPERATIONS
Hancock offers a wide selection of apparel fabrics, notions (which include
sewing aids and accessories such as zippers, buttons, threads and
ornamentation), patterns, quilting materials and supplies, home decorating
products (which include drapery and upholstery fabrics), craft items and
related supplies. Each of Hancock's retail stores maintains an inventory that
includes cotton, woolen and synthetic staple fabrics such as broadcloth,
poplin, gaberdine, unbleached muslin and corduroy, as well as seasonal and
current fashion fabrics.
Hancock's stores are primarily located in neighborhood shopping centers.
Hancock opened 23 and 18 net stores in 1992 and 1993, respectively. Hancock
did not have an increase in the total number of stores during 1994 and no
change in the net number of units is planned for 1995.
As a wholesaler, Hancock sells to almost 200 independent retailers in locations
in which Hancock has elected not to open its own stores. These wholesale
customers accounted for less than 5% of Hancock's total sales for the fiscal
year ended January 29, 1995.
MARKETING
Hancock principally serves the home sewing and home decorating markets, which
largely consists of value conscious women who make clothing for their families
and decorations for their homes or who
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hire professional home seamstresses to sew for them. Quilters, crafters and
hobbyists also comprise a growing base of customers, as do consumers of bridal,
party, prom and special occasion merchandise.
Hancock offers its customers a wide selection of products at prices that it
believes are generally lower than the prices charged by its competitors. In
addition to staple fabrics and notions for clothing and home decoration,
Hancock provides a variety of seasonal and current fashion apparel merchandise.
Hancock uses aggressive promotional advertising, primarily through newspapers,
direct mail and television, to reach its target customers. Hancock mails eight
to ten direct mail promotions each year to approximately two million
households, including the "Directions" magazine which contains discount
coupons, sewing instructions and fashion ideas as well as product
advertisements.
During 1994, Hancock entered into an agreement with the Home and Garden
Television Network to sponsor a weekly sewing show called "Sew Perfect(TM)."
The program, which will reach almost 10 million U.S. households, is designed for
the beginning and intermediate skilled seamstress.
DISTRIBUTION AND SUPPLY
Hancock's retail stores and its wholesale customers are served by Hancock's
525,000 square foot warehouse, distribution and office facility in Tupelo,
Mississippi. Hancock believes this facility is adequate for the near term and
has no expansion plans for 1995.
Contract trucking firms, common carriers and parcel delivery are used to
deliver merchandise to Hancock's retail stores and to its wholesale customers.
A substantial portion of the deliveries to Hancock's stores and wholesale
customers are made directly by vendors.
Bulk quantities of fabric are purchased from mills, fabric jobbers and
importers. Hancock has no long-term contracts for the purchase of merchandise
and did not purchase more than 5% of its merchandise from any one supplier
during the fiscal year ended January 29, 1995. Hancock has experienced no
difficulty in maintaining satisfactory sources of supply.
COMPETITION
Hancock is among the largest fabric retailers in the United States. The retail
fabric business has become increasingly competitive due to excess capacity in
many geographical markets resulting from the entry and expansion of other major
fabric retailers. Hancock principally competes with other national and
regional fabric store chains on the basis of price, selection, quality, service
and location.
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Hancock's competition has changed significantly with two major competitors in
bankruptcy and two large competitors consolidating with other fabric chains.
In the past year, over 300 full size stores have closed and liquidated.
SEASONALITY
Hancock's business is slightly seasonal. Peak sales periods occur during the
fall and pre-Easter weeks, while the lowest sales periods occur during
pre-Christmas and mid-summer.
EMPLOYEES
At January 29, 1995, Hancock employed approximately 7,100 people on a full-time
and part-time basis, approximately 6,750 of whom work in the Company's retail
stores. The remainder work in the Tupelo warehouse, distribution and office
facility. Currently, thirty-six (36) of Hancock's employees are covered by a
collective bargaining agreement.
GOVERNMENT REGULATION
Hancock is subject to the Fair Labor Standards Act, which governs such matters
as minimum wages, overtime and other working conditions. A significant number
of Hancock's employees are paid at rates related to federal and state minimum
wages and, accordingly, increases in minimum wages affect Hancock's labor cost.
Legislation under the Americans With Disabilities Act requiring, among other
things, that "reasonable accommodation" to the Company's facilities be afforded
to employees and to the general public has resulted in additional costs to
Hancock under the revised guidelines. Additionally, legislation providing for
family leave to employees has resulted in higher costs to the Company in labor,
unemployment and health insurance, and reduced productivity due to replacement
hiring constraints while employees are on family leave.
ITEM 2: PROPERTIES
Hancock's 500 retail stores are located principally in neighborhood shopping
centers. Most of Hancock's retail stores range in size from 9,000 to 12,000
square feet. Hancock's sixty-three (63) "Fabric Warehouse" stores range in
size from 10,300 to 30,000 square feet. Hancock's six (6) "Fabric Market"
stores average 12,600 square feet.
With the exception of five (5) locations, Hancock's retail stores are leased.
The original lease terms generally range from 10 to 20 years and most leases
contain one or more renewal options, usually of five years in length. At
January 29, 1995, the remaining terms of the leases for stores in operation,
including renewal options, averaged approximately 13 years. During 1995, 39
store leases will
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expire. Hancock is currently negotiating renewals on certain of these leases.
Hancock's 525,000 square foot warehouse, distribution and office facility in
Tupelo, Mississippi is owned by Hancock and is not subject to any mortgage or
similar encumbrance. Hancock also owns approximately 40 acres of land adjacent
to its Tupelo facility, providing room for future expansion.
Reference is made to the information contained in Note 5 to the Consolidated
Financial Statements included in the accompanying Hancock Fabrics, Inc. 1994
Annual Report to Shareholders (Exhibit 13 hereto) for information concerning
Hancock's long-term obligations under leases.
ITEM 3: LEGAL PROCEEDINGS
Hancock is not a party to, nor is any of its properties the subject of, any
material pending legal proceedings, other than ordinary and routine litigation
incidental to its business.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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Executive Officers of Registrant
<TABLE>
<CAPTION>
Office Presently Held and Business
Name Age Experience During Past Five Years
- - ---- --- ---------------------------------
<S> <C> <C>
Morris O. Jarvis 54 Chairman of the Board and Chief Executive Officer.
President prior to June 1994.
Larry G. Kirk 48 President from June 1994, Director from December 1990
and Chief Financial Officer from December 1989. Formerly,
Senior Vice President, Treasurer and Secretary.
Jack W. Busby, Jr. 52 Executive Vice President and Chief Operating Officer from
June 1994; Executive Vice President and Director of Retail
Operations, prior thereto.
</TABLE>
The term of each of the officers expires June 8, 1995.
There are no family relationships among the executive officers.
There are no arrangements or understandings pursuant to which any person was
selected as an officer.
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
Hancock's common stock and the associated common stock purchase rights are
listed on the New York Stock Exchange and trade under the symbol HKF. The
following table sets forth the high and low sales price for Hancock's common
stock as reported in "New York Stock Exchange - Composite Transactions" and the
dividends paid per share for Hancock's common stock:
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low Dividend
-------------------- ---- --- --------
<S> <C> <C> <C>
May 2, 1993 . . . . . . . . . . $14.00 $10.38 $.08
August 1, 1993 . . . . . . . . . 11.00 8.00 .08
October 31, 1993 . . . . . . . . 9.88 8.13 .08
January 30, 1994 . . . . . . . . 10.00 9.00 .08
May 1, 1994 . . . . . . . . . . $10.00 $ 8.13 $.08
July 31, 1994 . . . . . . . . . 8.75 7.00 .08
October 30, 1994 . . . . . . . . 7.75 6.75 .08
January 29, 1995 . . . . . . . . 10.00 7.13 .08
</TABLE>
As of April 13, 1995, there were 12,283 holders of record of Hancock's common
stock. Holders of shares of common stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor (subject to the prior payment of cumulative dividends on any
outstanding shares of preferred stock, of which none are outstanding).
ITEM 6: SELECTED FINANCIAL DATA
The selected financial data for the five years ended January 29, 1995, which
appears on page 9, of the Hancock Fabrics, Inc. 1994 Annual Report to
Shareholders, is incorporated by reference in this Annual Report on Form 10-K.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The management's discussion and analysis of financial condition and results of
operations appearing on pages 10 to 11 of the Hancock Fabrics, Inc. 1994 Annual
Report to Shareholders is incorporated by reference in this Annual Report on
Form 10-K.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Price Waterhouse
LLP dated March 3, 1995, appearing on pages 12 to 21 of the Hancock Fabrics,
Inc. 1994 Annual Report to Shareholders are incorporated by reference in this
Annual Report on Form 10-K.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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PART III
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
ITEM 11: EXECUTIVE COMPENSATION
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Except as noted below, for information with respect to Items 10, 11, 12 and 13,
see the Proxy Statement for the Annual Meeting of Shareholders to be held June
8, 1995, to be filed with the Securities and Exchange Commission within 120
days after the end of the fiscal year, which is incorporated herein by
reference.
The information concerning "Executive Officers of the Registrant" is included
in Part I of this Form 10-K in accordance with Instruction 3 of paragraph (b)
of Item 401 of Regulation S-K.
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PART IV
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page
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Number #
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<S> <C>
(a) The following documents are filed as part of this report:
(1) Consolidated Financial Statements:
Report of Independent Accountants . . . . . . . . . . . . . . . . . . 22
Consolidated Statement of Earnings for the
three years ended January 29, 1995 . . . . . . . . . . . . . . . . . 13
Consolidated Balance Sheet at January 29, 1995
and January 30, 1994 . . . . . . . . . . . . . . . . . . . . . . . . 14
Consolidated Statement of Cash Flows
for the three years ended January 29, 1995 . . . . . . . . . . . . . 15
Consolidated Statement of Shareholders' Equity
for the three years ended January 29, 1995 . . . . . . . . . . . . . 16
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 17-22
(2) Consolidated Financial Statement Schedules:
All schedules are omitted because they are not applicable or the
required information is shown in the consolidated financial statements
or notes thereto.
Supplementary data:
Selected Quarterly Financial Data . . . . . . . . . . . . . . . . . . 9
</TABLE>
# Incorporated by reference from the indicated pages of the Hancock
Fabrics, Inc. 1994 Annual Report to Shareholders.
(3) Those exhibits required to be filed as Exhibits to this Annual Report
on Form 10-K pursuant to Item 601 of Regulation S-K are as follows:
Exhibit No.
3.1**** Certificate of Incorporation of Registrant.
3.2*** By-laws of Registrant.
4.1**** Certificate of Incorporation of Registrant.
4.2*** By-laws of Registrant.
4.3*** Rights Agreement between Registrant and C & S/Sovran
Trust Company (Georgia), N.A., as amended March 14,
1991 and restated as of April 2, 1991.
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4.4****** Amendment to Rights Agreement between Registrant and
NationsBank of Georgia, N.A. (formerly C & S/Sovran
Trust Company (Georgia), N.A.) dated June 25, 1992.
4.5****** Agreement between Registrant and Continental Stock
Transfer & Trust Company (as Rights Agent) dated as
of July 16, 1992.
4.6**** Note Purchase Agreement between Registrant and
Nationwide Life Insurance Company, West Coast Life
Insurance Company, Financial Horizons Insurance
Company, Farmland Life Insurance Company and
Wisconsin Health Care Liability Insurance Plan ("Note
Purchase Agreement") dated as of January 15, 1992.
4.7****** Amendment to Note Purchase Agreement dated as of
November 4, 1992.
4.8******* Credit Agreement among Registrant and NationsBank of
Georgia, National Association, as Agent and Lenders
as Signatories Hereto ("Credit Agreement") dated as
of September 20, 1993.
10.1**** Swap Transaction between Registrant and Continental
Bank N.A. dated November 1, 1991.
10.2**** Note Purchase Agreement dated as of January 15, 1992.
10.3****** Amendment to Note Purchase Agreement dated as of
November 4, 1992.
10.4******* Credit Agreement dated as of September 20, 1993.
10.5****** +Form of Indemnification Agreements dated March 23,
1987 between Registrant and each of Don L. Fruge,
Morris O. Jarvis, Ivan Owen and Donna L. Weaver.
10.6 +Indemnification Agreement between Registrant and
R. Randolph Devening dated as of March 9, 1995.
10.7****** +Form of Indemnification Agreements dated March 23,
1987 between Registrant and each of Dean W. Abraham,
Jack W. Busby, Jr., David H. Jensen, Larry G. Kirk,
Billy M. Morgan, William D. Smothers, Charles R.
Warren and Carl W. Zander.
10.8** Indemnification Agreement between Registrant and
James A. Gilmore dated as of March 2, 1989.
10.9**** Indemnification Agreement between Registrant and
James A. Nolting dated as of December 12, 1991.
10.10****** Indemnification Agreement between Registrant and
David A. Lancaster dated as of March 10, 1993.
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10.11******* Indemnification Agreement between Registrant and
Bradley A. Berg dated as of March 10, 1994.
10.12 Indemnification Agreement between Registrant and
Larry D. Fair dated as of June 9, 1994.
10.13****** +Agreement between Registrant and Morris O. Jarvis
dated as of May 3, 1987.
10.14* +Amendment to Severance Agreement and to Deferred
Compensation Agreement between Registrant and Morris
O. Jarvis dated as of June 9, 1988.
10.15* +Agreement to Secure Certain Contingent Payments
between Registrant and Morris O. Jarvis dated as of
June 9, 1988.
10.16** +Amendment and Renewal of Severance Agreement and
Amendment of Other Related Agreements between
Registrant and Morris O. Jarvis dated as of March 8,
1990.
10.17*** +Agreement between Registrant and Jack W. Busby, Jr.
dated as of June 9, 1988.
10.18*** +Agreement to Secure Certain Contingent Payments
between Registrant and Jack W. Busby, Jr. dated as of
June 9, 1988.
10.19** +Agreement between Registrant and Larry G. Kirk dated
as of June 9, 1988.
10.20** +Agreement to Secure Certain Contingent Payments
between Registrant and Larry G. Kirk dated as of June
9, 1988.
10.21*** +Form of Amendments and Renewals of Severance
Agreement and Amendments of Other Related Agreements
between Registrant and each of Jack W. Busby, Jr. and
Larry G. Kirk dated as of March 8, 1990.
10.22****** +Amendment, Extension and Restatement of Severance
Agreement between Registrant and Morris O. Jarvis
dated as of March 10, 1993.
10.23****** +Form of Amendment, Extension and Restatement of
Severance Agreements dated as of March 10, 1993
between Registrant and each of Jack W. Busby, Jr. and
Larry G. Kirk.
10.24 +Supplemental Retirement Plan, as amended.
10.25***** +1987 Stock Option Plan, as amended.
10.26**** +Extra Compensation Plan.
10.27** +1989 Restricted Stock Plan.
10.28***** +1991 Stock Compensation Plan for Nonemployee
Directors.
11 Computation of Earnings Per Share.
13 Portions of the Hancock Fabrics, Inc. 1994 Annual
Report to Shareholders (for the fiscal year ended
January 29, 1995) incorporated by reference in this
filing.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
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_____________________
* Incorporated by reference from Registrant's Form 10-K dated
April 26, 1989 as filed with the Securities and Exchange
Commission.
** Incorporated by reference from Registrant's Form 10-K dated
April 26, 1990 as filed with the Securities and Exchange
Commission.
*** Incorporated by reference from Registrant's Form 10-K dated
April 26, 1991 as filed with the Securities and Exchange
Commission.
**** Incorporated by reference from Registrant's Form 10-K dated
April 27, 1992 as filed with the Securities and Exchange
Commission.
***** Incorporated by reference from Registrant's Form 10-Q dated
June 12, 1992 as filed with the Securities and Exchange
Commission.
****** Incorporated by reference from Registrant's Form 10-K dated
April 26, 1993 as filed with the Securities and Exchange
Commission.
******* Incorporated by reference from Registrant's Form 10-K dated
April 27, 1994 as filed with the Securities and Exchange
Commission.
+ Denotes management contract or compensatory plan or
arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the last quarter of
the period covered by this report.
Shareholders may obtain copies of any of these exhibits by writing to the
Secretary at the executive offices of the Company. Please include payment in
the amount of $1.00 for each document, plus $.25 for each page ordered, to
cover copying, handling and mailing charges.
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UNDERTAKING IN CONNECTION WITH
REGISTRATION STATEMENTS ON FORM S-8
For purposes of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933 (the "Act"), the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-17215 (filed September 15, 1987) and 33-29138 (filed June 12, 1989).
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the registrant
pursuant to the provisions described in Item 512(h) of Regulation S-K, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, ON THIS 24TH DAY OF
APRIL, 1995.
HANCOCK FABRICS, INC.
BY /s/ Morris O. Jarvis
-------------------------------
Morris O. Jarvis
Chairman of the Board
and Chief Executive Officer
BY /s/ Larry G. Kirk
-------------------------------
Larry G. Kirk
President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
PURSUANT TO THE REQUIREMENT OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT
HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE
CAPACITIES INDICATED ON THIS 24TH DAY OF APRIL, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Morris O. Jarvis Chairman of the Board,
- - ----------------------------------- Chief Executive Officer and
(Morris O. Jarvis) Director
/s/ Larry G. Kirk President,
- - ----------------------------------- Chief Financial Officer and
(Larry G. Kirk) Director
/s/ R. Randolph Devening Director
- - -----------------------------------
(R. Randolph Devening)
/s/ Don L. Fruge Director
- - -----------------------------------
(Don L. Fruge)
/s/ Ivan Owen Director
- - -----------------------------------
(Ivan Owen)
/s/ Donna L. Weaver Director
- - -----------------------------------
(Donna L. Weaver)
</TABLE>
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EXHIBIT 10.6
INDEMNIFICATION AGREEMENT
This Agreement is made as of March 9, 1995, by and between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and R. Randolph Devening
("Director").
W I T N E S S E T H :
WHEREAS, corporations are experiencing increasing difficulty in
obtaining directors' and officers' liability insurance, significantly higher
premiums for such insurance than has historically been charged, and reductions
in the coverage of such insurance below what has historically been afforded;
and
WHEREAS, the Company understands that there can be no assurance that
such insurance will continue to be available to the Company and Director, and
believes that it is possible that the cost of such insurance, if obtainable,
may not be acceptable to the Company; and
WHEREAS, Director is unwilling to serve, or continue to serve, the
Company as a director without assurances that adequate liability insurance,
indemnification or a combination thereof will be provided; and
WHEREAS, the Company, in order to induce Director to continue to serve
the Company, has agreed to provide Director with the benefits contemplated by
this Agreement, which benefits are intended to supplement or, if necessary,
replace directors' and officers' liability insurance; and
WHEREAS, as a result of the provision of such benefits Director has
agreed to serve or to continue to serve as a director of the Company;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including Director's service
to the Company, the Company and Director hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have
the following respective meanings:
"Covered Amount" means Loss and Expenses which, in type or
amount, are not insured under directors' and officers' liability insurance
maintained by the Company from time to time.
"Covered Act" means any breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done or wrongfully
attempted by Director or any of the foregoing alleged by any claimant or any
claim against Director by reason of Director's serving as or being a director,
officer, employee, or
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agent of the Company, or by reason of Director's serving at the request of the
Company as a director, officer, partner, member, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
"D&O Insurance" means a policy or policies of the directors'
and officers' liability insurance issued to the Company and its directors and
officers.
"Determination" means a determination, based on the facts
known at the time, made by:
(i) A majority of the directors who are not parties to the
action, suit or proceeding for which indemnification is considered or being
considered, even though less than a quorum; or
(ii) Independent legal counsel in a written opinion if there
be no such directors, or if such directors so direct; or
(iii) A majority of the shareholders of the Company; or
(iv) A final adjudication by a court of competent
jurisdiction.
"Determined" shall have a correlative meaning.
"Excluded Claim" means any payment for Losses or Expenses in
connection with any claim:
(i) Based upon or attributable to Director gaining in fact
any personal profit or advantage to which Director is not entitled; or
(ii) For the return by Director of any remuneration, for
which prior approval of the shareholders of the Company was required but not
obtained; or
(iii) For an accounting of profits in fact made from the
purchase or sale by Director of securities of the Company within the meaning of
Section 16 of the Securities Exchange Act of 1934 as amended, or similar
provisions of any state law; or
(iv) Resulting from Director's knowingly fraudulent,
dishonest or willful misconduct; or
(v) The payment of which by the Company under this
Agreement is not permitted by applicable law; or
(vi) Which are not within the Covered Amount.
2
<PAGE> 3
"Expenses" means any reasonable expenses incurred by Director
as a result of a claim or claims made against Director for Covered Acts
including, without limitation, counsel fees and costs of investigative,
judicial or administrative proceedings or appeals, but shall not include fines.
"Loss" means any amount which Director is legally obligated to
pay as a result of a claim or claims made against Director for Covered Acts
including, without limitation, damages and judgments and sums paid in
settlement of a claim or claims, but shall not include fines.
2. Maintenance of D&O Insurance.
(a) The Company represents that it presently has in force
and effect policies of D&O Insurance. The Company hereby covenants that it
will use its best efforts to maintain a policy or policies no less beneficial
to the Company and Director than the policies in effect on the date hereof.
The Company shall not be required, however, to maintain such policy or policies
if such insurance is not reasonably available or if, in the reasonable business
judgment of the then directors of the Company, either (i) the premium cost for
such insurance is disproportionate to the amount of coverage, or (ii) the
coverage provided by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance.
(b) In all policies of D&O Insurance, Director shall be
named as an insured in such a manner as to provide Director the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
3. Indemnification. The Company shall indemnify Director
against, and hold Director harmless from, the Covered Amount of any and all
Losses and Expenses subject, in each case, to the further provisions of this
Agreement.
4. Excluded Coverage.
(a) The Company shall have no obligation to indemnify
Director against, and hold Director harmless from, any Loss or Expense which
has been Determined to constitute an Excluded Claim.
(b) The Company shall have no obligation to indemnify
Director against, and hold Director harmless from, any Loss or Expenses to the
extent that Director is indemnified by the Company pursuant to the provisions
of the Company's Certificate of Incorporation or is otherwise in fact
indemnified.
3
<PAGE> 4
5. Indemnification Procedures.
(a) Promptly after receipt by Director of notice of the
commencement or the threat of commencement of any action, suit or proceeding,
Director shall notify the Company of the commencement thereof if
indemnification with respect thereto may be sought from the Company under this
Agreement; but the omission so to notify the Company shall not relieve it from
any liability that it may have to Director otherwise than under this Agreement.
Such notice may be given by mailing the same by United States mail, registered
or certified, return receipt requested, postage prepaid, addressed to the
Company at: P.O. Box 2400, Tupelo, Mississippi 38803-2400, Attention:
Secretary (or to such other address as the Company may from time to time
designate by written notice to Director).
(b) If, at the time of the receipt of such notice, the
Company has D&O Insurance in effect, the Company shall give prompt notice of
the commencement of such action, suit or proceeding to the insurers in
accordance with the procedures set forth in the respective policies in favor of
Director. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of Director, all Losses and Expenses
payable as a result of such action, suit or proceeding in accordance with the
terms of such policies.
(c) To the extent the Company does not, at the time of
the commencement or the threat of commencement of such action, suit or
proceeding, have applicable D&O Insurance, or if a Determination is made that
any Expenses arising out of such action, suit or proceeding will not be payable
under the D&O Insurance then in effect, or if for any reason a D&O insurer does
not timely pay such Expenses, the Company shall be obligated to pay the
Expenses of any such action, suit or proceeding in advance of the final
disposition thereof and the Company, if appropriate, shall be entitled to
assume the defense of such action, suit or proceeding, with counsel
satisfactory to Director, upon the delivery to Director of written notice of
its election so to do. After delivery of such notice, the Company will not be
liable to Director under this Agreement for any legal or other Expenses
subsequently incurred by Director in connection with such defense other than
reasonable Expenses incurred at the request of the Company provided that
Director shall have the right to employ its counsel in any such action, suit or
proceeding but the fees and expenses of such counsel incurred after delivery of
notice from the Company of its assumption of such defense shall be at
Director's expense, provided further that if (i) the employment of counsel by
Director has been previously authorized by the Company, (ii) Director shall
have reasonably concluded that there may be a conflict of interest between the
Company and Director in the conduct of any such defense or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such action,
the fees and expenses of counsel shall be at the expense of the Company.
4
<PAGE> 5
(d) All payments on account of the Company's
indemnification obligations under this Agreement shall be made within thirty
(30) days of Director's written request therefor unless a Determination is made
that the claims giving rise to Director's request are Excluded Claims or
otherwise not payable under this Agreement, provided that all payments on
account of the Company's obligations under Paragraph 5(c) of this Agreement
prior to the final disposition of any action, suit or proceeding shall be made
within twenty (20) days of Director's written request therefor and such
obligation shall not be subject to any such Determination but shall be subject
to Paragraph 5(e) of this Agreement.
(e) Director agrees to reimburse the Company for all
Losses and Expenses paid by the Company in connection with any action, suit or
proceeding against Director in the event and only to the extent that a
Determination shall have been made that Director is not entitled to be
indemnified by the Company because the claim is an Excluded Claim or because
Director is otherwise not entitled to payment under this Agreement.
6. Settlement. The Company shall have no obligation to indemnify
Director under this Agreement for any amounts paid in settlement of any action,
suit or proceeding effected without the Company's prior written consent. The
Company shall not settle any claim in any manner which would impose any fine or
any obligation on Director without Director's written consent. Neither the
Company nor Director shall unreasonably withhold consent to any proposed
settlement.
7. Subrogation. To the extent of any payment under this
Agreement, the Company shall be subrogated to all of the rights of recovery of
Director. Director shall execute all papers required and shall do everything
that may be necessary to secure such rights, including the execution of such
documents as are necessary to enable the Company effectively to bring suit to
enforce such rights.
8. Rights Not Exclusive. The rights provided hereunder shall not
be deemed exclusive of any other rights to which Director may be entitled under
any provision of the Delaware General Corporation Law or any other provisions
of law, the Company's Certificate of Incorporation, its by-laws, or any
agreement, vote of shareholders or of disinterested directors or otherwise,
both as to action in an official capacity and as to action in any other
capacity by holding such office, and shall continue after Director ceases to
serve the Company as a director.
9. Enforcement.
(a) An adverse Determination shall not foreclose an
action to enforce Director's rights under this Agreement to the extent allowed
by law. If a prior adverse Determination has been
5
<PAGE> 6
made, the burden of proving that indemnification is required under this
Agreement shall be on Director. The Company shall have the burden of proving
that indemnification is not required under this Agreement if no prior adverse
Determination shall have been made.
(b) In the event that any action is instituted by
Director under this Agreement, or to enforce or interpret any of the terms of
this Agreement, Director shall be entitled to be paid all court costs and
expenses, including reasonable counsel fees, incurred by Director with respect
to such action, unless the court determines that each of the material
assertions made by Director as a basis for such action was not made in good
faith or was frivolous.
10. Continuation of Agreement. All agreements and obligations of
the Company contained herein shall continue during the period Director is a
director, officer, employee or agent of the Company (or serving at the request
of the Company as a director, officer, partner, member, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise) and shall continue thereafter so long as Director shall be subject
to any possible demand, claim or threatened, pending or completed proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that Director was a director of the Company or serving in any other capacity
referred to in this paragraph.
11. Severability. In the event that any provision of this
Agreement is determined by a court to require the Company to do or to fail to
do an act which is in violation of applicable law, such provision shall be
limited or modified in its application to the minimum extent necessary to avoid
a violation of law, and such provision, as so limited or modified, and the
balance of this Agreement shall be enforceable in accordance with their terms.
12. Choice of Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
13. Consent to Jurisdiction. The Company and Director each hereby
irrevocably consents to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agrees that any action instituted under
this Agreement shall be brought only in the state courts of the State of
Delaware.
14. Successor and Assigns. This Agreement shall be (i) binding
upon all successors and assigns of the Company (including any transferee of all
or substantially all of its assets and any successor by, merger or otherwise by
operation of
6
<PAGE> 7
law) and (ii) shall be binding on and inure to the benefit of the heirs,
personal representatives and estate of Director.
15. Amendment. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company and Director have executed this
agreement as of the day and year first above written.
HANCOCK FABRICS, INC.,
a Delaware corporation
By: /s/ Morris Jarvis
-----------------------------------
Its: CEO
-----------------------------------
"Company"
/s/ R. Randolph Devening
---------------------------------------
R. Randolph Devening
"Director"
7
<PAGE> 1
EXHIBIT 10.12
INDEMNIFICATION AGREEMENT
This Agreement is made as of June 9, 1994, by and between Hancock
Fabrics, Inc., a Delaware corporation (the "Company") and Larry D. Fair
("Officer").
W I T N E S S E T H :
WHEREAS, corporations are experiencing increasing difficulty in
obtaining directors' and officers' liability insurance, significantly higher
premiums for such insurance than has historically been charged, and reductions
in the coverage of such insurance below what has historically been afforded;
and
WHEREAS, the Company understands that there can be no assurance that
such insurance will continue to be available to the Company and Officer, and
believes that it is possible that the cost of such insurance, if obtainable,
may not be acceptable to the Company; and
WHEREAS, Officer is unwilling to serve, or continue to serve, the
Company as an officer without assurances that adequate liability insurance,
indemnification or a combination thereof will be provided; and
WHEREAS, the Company, in order to induce Officer to continue to serve
the Company, has agreed to provide Officer with the benefits contemplated by
this Agreement, which benefits are intended to supplement or, if necessary,
replace directors' and officers' liability insurance; and
WHEREAS, as a result of the provision of such benefits Officer has
agreed to serve or to continue to serve as an officer of the Company;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including the Officer's
service to the Company, the Company and Officer hereby agree as follows:
1. Definitions. The following terms, as used herein, shall have
the following respective meanings:
"Covered Amount" means Loss and Expenses which, in type or
amount, are not insured under directors' and officers' liability insurance
maintained by the Company from time to time.
"Covered Act" means any breach of duty, neglect, error,
misstatement, misleading statement, omission or other act done or wrongfully
attempted by Officer or any of the foregoing alleged by any claimant or any
claim against Officer by reason of Officer's serving as or being a director,
officer, employee, or
1
<PAGE> 2
agent of the Company, or by reason of Officer's serving at the request of the
Company as a director, officer, partner, member, trustee, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise.
"D&O Insurance" means a policy or policies of the directors'
and officers' liability insurance issued to the Company and its directors and
officers.
"Determination" means a determination, based on the facts
known at the time, made by:
(i) A majority vote of a quorum of disinterested
directors; or
(ii) Independent legal counsel in a written opinion if a
quorum of disinterested directors is not obtainable, or even if obtainable, if
a quorum of disinterested directors so directs; or
(iii) A majority of the stockholders of the Company; or
(iv) A final adjudication by a court of competent
jurisdiction.
"Determined" shall have a correlative meaning.
"Excluded Claim" means any payment for Losses or Expenses in
connection with any claim:
(i) Based upon or attributable to Officer gaining in fact
any personal profit or advantage to which Officer is not entitled; or
(ii) For the return by Officer of any remuneration, for
which prior approval of the stockholders of the Company was required but not
obtained; or
(iii) For an accounting of profits in fact made from the
purchase or sale by Officer of securities of the Company within the meaning of
Section 16 of the Securities Exchange Act of 1934 as amended, or similar
provisions of any state law; or
(iv) Resulting from Officer's knowingly fraudulent,
dishonest or willful misconduct; or
(v) The payment of which by the Company under this
Agreement is not permitted by applicable law; or
(vi) Which are not within the Covered Amount.
"Expenses" means any reasonable expenses incurred by Officer
as a result of a claim or claims made against Officer for
2
<PAGE> 3
Covered Acts including, without limitation, counsel fees and costs of
investigative, judicial or administrative proceedings or appeals, but shall not
include fines.
"Loss" means any amount which Officer is legally obligated to
pay as a result of a claim or claims made against Officer for Covered Acts
including, without limitation, damages and judgments and sums paid in
settlement of a claim or claims, but shall not include fines.
2. Maintenance of D&O Insurance.
(a) The Company represents that it presently has in force
and effect policies of D&O Insurance. The Company hereby covenants that it
will use its best efforts to maintain a policy or policies no less beneficial
to the Company and Officer than the policies in effect on the date hereof. The
Company shall not be required, however, to maintain such policy or policies if
such insurance is not reasonably available or if, in the reasonable business
judgment of the then directors of the Company, either (i) the premium cost for
such insurance is disproportionate to the amount of coverage, or (ii) the
coverage provided by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance.
(b) In all policies of D&O Insurance, Officer shall be
named as an insured in such a manner as to provide Officer the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors or officers most favorably insured by such policy.
3. Indemnification. The Company shall indemnify Officer against,
and hold Officer harmless from, the Covered Amount of any and all Losses and
Expenses subject, in each case, to the further provisions of this Agreement.
4. Excluded Coverage.
(a) The Company shall have no obligation to indemnify
Officer against, and hold Officer harmless from, any Loss or Expense which has
been Determined to constitute an Excluded Claim.
(b) The Company shall have no obligation to indemnify
Officer against, and hold Officer harmless from, any Loss or Expenses to the
extent that Officer is indemnified by the Company pursuant to the provisions of
the Company's Restated Certificate of Incorporation or is otherwise in fact
indemnified.
5. Indemnification Procedures.
(a) Promptly after receipt by Officer of notice of the
commencement or the threat of commencement of any action, suit or proceeding,
Officer shall notify the Company of the commencement
3
<PAGE> 4
thereof if indemnification with respect thereto may be sought from the Company
under this Agreement; but the omission so to notify the Company shall not
relieve it from any liability that it may have to Officer otherwise than under
this Agreement. Such notice may be given by mailing the same by United States
mail, registered or certified, return receipt requested, postage prepaid,
addressed to the Company at: P.O. Box 2400, Tupelo, Mississippi 38803-2400,
Attention: Secretary (or to such other address as the Company may from time to
time designate by written notice to Officer).
(b) If, at the time of the receipt of such notice, the
Company has D&O Insurance in effect, the Company shall give prompt notice of
the commencement of such action, suit or proceeding to the insurers in
accordance with the procedures set forth in the respective policies in favor of
Officer. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of Officer, all Losses and Expenses
payable as a result of such action, suit or proceeding in accordance with the
terms of such policies.
(c) To the extent the Company does not, at the time of
the commencement or the threat of commencement of such action, suit or
proceeding, have applicable D&O Insurance, or if a Determination is made that
any Expenses arising out of such action, suit or proceeding will not be payable
under the D&O Insurance then in effect, or if for any reason a D&O insurer does
not timely pay such Expenses, the Company shall be obligated to pay the
Expenses of any such action, suit or proceeding in advance of the final
disposition thereof and the Company, if appropriate, shall be entitled to
assume the defense of such action, suit or proceeding, with counsel
satisfactory to Officer, upon the delivery to Officer of written notice of its
election so to do. After delivery of such notice, the Company will not be
liable to Officer under this Agreement for any legal or other Expenses
subsequently incurred by Officer in connection with such defense other than
reasonable Expenses incurred at the request of the Company provided that
Officer shall have the right to employ its counsel in any such action, suit or
proceeding but the fees and expenses of such counsel incurred after delivery of
notice from the Company of its assumption of such defense shall be at the
Officer's expense, provided further that if (i) the employment of counsel by
Officer has been previously authorized by the Company, (ii) Officer shall have
reasonably concluded that there may be a conflict of interest between the
Company and Officer in the conduct of any such defense or (iii) the Company
shall not, in fact, have employed counsel to assume the defense of such action,
the fees and expenses of counsel shall be at the expense of the Company.
(d) All payments on account of the Company's
indemnification obligations under this Agreement shall be made within thirty
(30) days of Officer's written request therefor unless a Determination is made
that the claims giving rise to Officer's
4
<PAGE> 5
request are Excluded Claims or otherwise not payable under this Agreement,
provided that all payments on account of the Company's obligations under
Paragraph 5(c) of this Agreement prior to the final disposition of any action,
suit or proceeding shall be made within twenty (20) days of Officer's written
request therefor and such obligation shall not be subject to any such
Determination but shall be subject to Paragraph 5(e) of this Agreement.
(e) Officer agrees to reimburse the Company for all
Losses and Expenses paid by the Company in connection with any action, suit or
proceeding against Officer in the event and only to the extent that a
Determination shall have been made that Officer is not entitled to be
indemnified by the Company because the claim is an Excluded Claim or because
Officer is otherwise not entitled to payment under this Agreement.
6. Settlement. The Company shall have no obligation to indemnify
Officer under this Agreement for any amounts paid in settlement of any action,
suit or proceeding effected without the Company's prior written consent. The
Company shall not settle any claim in any manner which would impose any fine or
any obligation on Officer without Officer's written consent. Neither the
Company nor Officer shall unreasonably withhold consent to any proposed
settlement.
7. Subrogation. To the extent of any payment under this
Agreement, the Company shall be subrogated to all of the rights of recovery of
Officer. Officer shall execute all papers required and shall do everything
that may be necessary to secure such rights, including the execution of such
documents as are necessary to enable the Company effectively to bring suit to
enforce such rights.
8. Rights Not Exclusive. The rights provided hereunder shall not
be deemed exclusive of any other rights to which Officer may be entitled under
any provision of the Delaware General Corporation Law or any other provisions
of law, the Company's Restated Certificate of Incorporation, its by-laws, or
any agreement, vote of stockholders or of disinterested directors or otherwise,
both as to action in an official capacity and as to action in any other
capacity by holding such office, and shall continue after Officer ceases to
serve the Company as an officer.
9. Enforcement.
(a) An adverse Determination shall not foreclose an
action to enforce Officer's rights under this Agreement to the extent allowed
by law. If a prior adverse Determination has been made, the burden of proving
that indemnification is required under this Agreement shall be on Officer. The
Company shall have the burden of proving that indemnification is not required
under this Agreement if no prior adverse Determination shall have been made.
5
<PAGE> 6
(b) In the event that any action is instituted by Officer
under this Agreement, or to enforce or interpret any of the terms of this
Agreement, Officer shall be entitled to be paid all court costs and expenses,
including reasonable counsel fees, incurred by Officer with respect to such
action, unless the court determines that each of the material assertions made
by Officer as a basis for such action was not made in good faith or was
frivolous.
10. Continuation of Agreement. All agreements and obligations of
the Company contained herein shall continue during the period Officer is a
director, officer, employee or agent of the Company (or serving at the request
of the Company as a director, officer, partner, member, trustee, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise) and shall continue thereafter so long as Officer shall be subject
to any possible demand, claim or threatened, pending or completed proceeding,
whether civil, criminal, administrative or investigative, by reason of the fact
that Officer was an officer of the Company or serving in any other capacity
referred to in this paragraph.
11. Severability. In the event that any provision of this
Agreement is determined by a court to require the Company to do or to fail to
do an act which is in violation of applicable law, such provision shall be
limited or modified in its application to the minimum extent necessary to avoid
a violation of law, and such provision, as so limited or modified, and the
balance of this Agreement shall be enforceable in accordance with their terms.
12. Choice of Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Delaware.
13. Consent to Jurisdiction. The Company and Officer each hereby
irrevocably consents to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out
of or relates to this Agreement and agrees that any action instituted under
this Agreement shall be brought only in the state courts of the State of
Delaware.
14. Successor and Assigns. This Agreement shall be (i) binding
upon all successors and assigns of the Company (including any transferee of all
or substantially all of its assets and any successor by, merger or otherwise by
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Officer.
6
<PAGE> 7
15. Amendment. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless made in a writing
signed by each of the parties hereto.
IN WITNESS WHEREOF, the Company and Officer have executed this
agreement as of the day and year first above written.
Hancock Fabrics, Inc.,
a Delaware corporation
By: /s/ Morris Jarvis
------------------------------------
Its Chief Executive Officer
-------------------------------------
"Company"
/s/ Larry D. Fair
----------------------------------------
Larry D. Fair
"Officer"
7
<PAGE> 1
EXHIBIT 10.24
Through 03/09/95
HANCOCK FABRICS, INC.
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
<PAGE> 2
SECTION I
DEFINITIONS
The following words and phrases as used herein shall have the following
meanings unless a different meaning is plainly required by the context:
1.1 "Plan" shall mean this Hancock Fabrics, Inc. Supplemental Retirement
Benefit Plan, either in its present form or any properly amended form.
1.2 "Effective Date of the Plan" shall mean July 1, 1982.
1.3 "Retirement Plan" shall mean, with respect to periods prior to
January 1, 1988, the Hancock Fabrics, Inc. Consolidated Retirement Plan, and
with respect to periods after December 31, 1987, the Hancock Fabics, Inc.
Consolidated Retirement Plan, either in its present form or any properly
amended form.
1.4 "Employer" shall mean any "Employer" under the Retirement Plan.
1.5 "Employee" shall mean any person employed by the Employer.
1.6 "Administrative Committee" shall mean the same Administrative
Committee as is, at any particular time, operating as the Administrative
Committee under the Retirement Plan.
1.7 "Member" shall mean an Employee included in the membership of the Plan
as provided in Section III hereof.
1.8 "Plan Year" shall mean the calendar year.
1.9 "Retirement" shall have the same meaning as under the Retirement
Plan.
1.10 "Extra Compensation Plan" for all periods prior to May 3, 1987, the
date of that Conveyance Ageement by which Hancock Textile Co., Inc. transferred
its fabric business to Hancock Fabrics, Inc., shall mean the Lucky Stores, Inc.
Extra Compensation Plan and for all periods on or after such date, shall mean
the Hancock Fabrics, Inc. Extra Compensation Plan.
1.11 "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
SECTION II
INTENT AND PURPOSE OF THE PLAN
The Plan is a non-qualified, unfunded plan intended to supplement, in
certain specified circumstances, benefits payable under the Retirement Plan to a
select group of management Employees. Certain Employees are permitted to defer
receipt of bonus earned under the Extra Compensation Plan. The Retirement
Plan cannot legally include deferred bonuses as compensation for purposes of
calculating
<PAGE> 3
benefits. The purposes of this Plan are (i) to provide a supplemental pension
benefit which when added to the Retirement Benefit from the Retirement Plan
will equal the amount that would have been payable under the Retirement Plan,
had deferred bonuses been included within the definition of "Compensation"
under the Retirement Plan and had Compensation under the Retirement Plan not
been limited as provided in Section 401(a)(17) of the Code, and (ii) to be an
excess benefit plan as defined in Section 3(36) of ERISA.
SECTION III
MEMBERSHIP
An employee shall be a Member of this Plan for any Plan Year during
which the following three requirements are met: (1) for such year the Employee
has earned a benefit under the Retirement Plan; (2) absent an election to defer
receipt, the Employee would have been entitled to receive, during such year, a
bonus under the Extra Compensation Plan; and (3) the Employee has elected,
pursuant to the Extra Compensation Plan, to defer receipt of that bonus to a
later year.
An Employee shall also become a member of this Plan at such time as his
accrued Retirement Benefit calculated under the terms of the Retirement Plan
without reflecting the maximum benefit limitations of Section 415 of the
Internal Revenue Code shall first exceed such maximum benefit limitations.
An Employee shall also become a member of this Plan if with respect to any
Plan Year his benefit accrual under the Retirement Plan is smaller than it
would have been if the limit set forth in Section 401(a)(17) of the Code were
not applicable for that Plan Year.
SECTION IV
BENEFITS
4.1 For each Plan Year during which an Employee is a Member of this Plan,
he shall receive, as a supplememt to the benefit received under the Retirement
Plan, a benefit equal to:
(i) the benefit which would have been earned under the Retirement
Plan (A) had the definition of "Compensation" in Subsection 2.9 of the
Retirement Plan included all bonuses with respect to which a Member had elected
to defer receipt under the Hancock Fabrics, Inc. Extra Compensation Plan (such
inclusion to be made in the Plan Year during which such bonus would have been
received but for such deferral), (B) had the only limit stated in paragraph
7.4(a) of the Retirement Plan been that limit presently set forth in
subparagraph 7.4(a)(2), and (C) had the limit set in Section 401(a)(17) of the
Code not been applicable with respect to such Plan Year.
less -
(ii) the benefit actually earned with respect to that year under the
Retirement Plan.
4.2 The benefit described in Subsection 4.1 is a single-life annuity
payable to the Member commencing at his or her Normal Retirement Date under the
Retirement Plan, assuming that the Member remains employed by the Employer to
Retirement. If the
-2-
<PAGE> 4
benefit is paid in any different form or under any different circumstances, the
amount of the benefit shall be adjusted in the same manner as the normal
retirement benefit under the Retirement Plan is adjusted to reflect such
different form and circumstances.
4.3 No benefit will be paid to a Member of this Plan with respect to any
Plan Year for which no benefit has been earned under the Retirement Plan.
4.4 The timing and form of any benefit payable under the Plan shall be
governed by the timing and the form of the corresponding benefit payable under
the Retirement Plan. There shall be no options or elections available under
this plan that would provide for a different time, manner, or form of payment
than the time, manner, and form of the corresponding benefit payable under the
Retirement Plan. By way of example but not by way of limitation, if a member
of the Retirement Plan has elected to take early retirement and have his or her
benefit paid in the form of a full joint and survivor annuity, the benefit
payable hereunder shall be discounted in the same manner as the benefit payable
unde the Retirement Plan and paid as an early retirement benefit in the form of
a full joint and survivor annuity.
4.5 Except to the extent inconsistent herewith, the provisions of the
Retirement Plan are incorporated herein by reference. This Plan shall be
administered and interpreted, to the greatest extent practicable, to provide a
benefit which is merely an addition to the benefit payable under the Retirement
Plan. To that end, all elections made and options chosen under the Retirement
Plan shall be deemed made and chosen under this Plan.
4.6 Notwithstanding any provision of this Plan to the contrary, (i) if a
Change of Control (as defined in this Subsection 4.6) shall occur and is a
Member's employment with the Employer terminates within 3 years thereafter
other than for cause (as defined herein), the present value (determined as
provided in this Subsection 4.6) of a Member's benefits accrued under this
Section IV and vested under Section VI shall be paid to the Member in a lump sum
within ten (10) days after his termination of employment, and (ii) if a Change
in Control (as defined in this Section 4.6) shall occur and if a Member's
employment with the Employer shall have terminated before the Change in
Control, the present value (determined as provided in this Subsection 4.6), of
such Member's then remaining unpaid benefits under this Plan, if any, shall be
paid to the Member in a lump sum within ten (10) days after the Change in
Control. The term "Change in Control" shall mean a change in control of
Hancock Fabrics, Inc., a Delaware corporation, ("Hancock") of a nature that
would be required to be reported in response to Item 1(a) of the Current
Report on Form 8-K (or its successor Item or Form, as the case may be), as in
effect on June 9, 1988 (or from time to time thereafter), pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 (the "Exhange Act");
provided that, without limitation, a "Change of Control" shall be deemed to
have occurred if: (i) a third person, including a "group" as defined in Section
13(d)(3) of the Exchange Act, becomes beneficial owner, directly or
indirectly, of 20% or more of the combined voting power of Hancock's
outstanding voting securities ordinarily having the right to vote for the
election of directors of Hancock; or (ii) individuals who constitute the Board
of Directors of Hancock as of June 9, 1988 (the "Incumbent Board") cease for
any reson to constitute at least two-thirds thereof, provided that any person
becoming a director subsequent to such date whose election, or nomination for
election by Hancock's shareholders, was approved by a vote of at least
three-quarters of (or if less, all but one of) the directors comprising the
Incumbent Board (other than an election or nomination in connection with an
actual or threatened election contest relating to the election of director of
Hancock, as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act) shall be, for purposes of this Plan, considered as
though such person were a member of the Incumbent Board. A termination of
employment "for cause" for purposes of this Subsection 4.6 shall mean (i) an
act or acts of fraud or misrepresentaion on the Member's part that result in or
are intended to result in his personal enrichment at the expense of the
Employer or one of its affiliated companies, or (ii) conviction of a felony.
The determination of present value for purposes of this Section 4.6 shall be in
accordance with the following:
(a) Present value shall be determined as of the last day of the
calendar quarter ending most recently prior to the termination of employment
("Valuation Date").
-3-
<PAGE> 5
(b) The interest rate and other actuarial assumptions used to
determine present value shall be the same as those which would be required to
be used as of the Valuation Date to determine the amount of a lump sum
distribution under the Retirement Plan.
(c) The determination of present value shall be made by Hewitt
Associates, or such other actuarial firm as shall, at the time of the
determination, be the actuary for the Retirement Plan ("Actuary Firm"). The
Employer shall provide to the Actuary Firm all information in its possession
reasonably requested by the Actuary Firm for the purpose of making such
present value determination.
(d) The payment of benefits under this Subsection 4.6 shall be made
within the time limits set forth in this Subsection based upon the present value
determination made by the Actuarial Firm, and such determination shall be
binding upon the Employer and the Member.
SECTION V
CONTRIBUTIONS AND FUNDING
This Plan is unfunded. The obligation to pay benefits under this Plan
is a general obligation of the Employer, and Members of the Plan who have
earned benefits under this Plan shall, with repsect to those benefits, be
general creditors of the Employer. There shall be no trust into which funds
for the purpose of paying benefits hereunder shall be deposited.
SECTION VI
VESTING
The right to a benefit under this Plan with respect to any given Plan
Year shall vest only upon the vesting of the Member's right to a benefit with
respect to the same year under the Retirement Plan.
SECTION VII
ADMINISTRATION OF THE PLAN
This Plan shall be administered by an Administrative Committee, which
shall be the Administrative Committee for the Retirement Plan, as from time to
time constituted. The Administrative Committee shall have all powers necessary
to supervise the administration of the Plan and control its operation in
accordance with its terms.
-4-
<PAGE> 6
SECTION VIII
BENEFITS AND RIGHTS INALIENABLE
The same limitations as are imposed on the alienability of benefits
under the Retirement Plan by the provisions of Article 13 of the Retirement
Plan, shall limit the alienability of benefits under this Plan.
SECTION IX
MODIFICATION OR TERMINATION OF THE PLAN
The Board of Directors reserves the right to alter, amend or terminate
this Plan or any part thereof, at any time, in such manner as it may determine
in its discretion; provided, however, that no such action shall have any
effect on any benefit under this Plan accrued prior to the taking of such
action by the Board.
SECTION X
MISCELLANEOUS
Neither the establishment of this Plan, the granting of a benefit
hereunder, nor any action of the Employer or Admnistrative Committee shall be
held or construed to confer upon any person any right to be continued as an
Employee, nor upon dismissal, to any right or interest to benefits other than
as herein provided.
-5-
<PAGE> 1
HANCOCK FABRICS, INC. EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------
(dollars in thousands, except for
per share amounts) Year Ended
-----------------------------------
January 29, January 30,
1995 1994
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Primary earnings per share
Net earnings $ 10,139 $ 5,438
=========== ===========
Weighted average number of
common shares outstanding
during 21,433,771 21,382,160
Additional shares attributable
to common stock equivalents 81,009 111,056
Shares attributable to tax
effect of restricted stock and
related deferred compensation (396,499) (332,066)
----------- -----------
21,118,281 21,161,150
=========== ===========
Earnings per share $ 0.48 $ 0.26
=========== ===========
- - ---------------------------------------------------------------------------------------------------
Fully diluted earnings per share
Net earnings $ 10,139 $ 5,438
=========== ===========
Weighted average number of
common shares outstanding
during period 21,433,771 21,382,160
Additional shares attributable
to common stock equivalents 125,066 108,554
Shares attributable to tax
effect of restricted stock and
related deferred compensation (396,499) (332,067)
----------- -----------
21,162,338 21,158,647
=========== ===========
Earnings per share $ 0.48 $ 0.26
=========== ===========
</TABLE>
<PAGE> 1
EXHIBIT 13
FIVE-YEAR SUMMARY OF SIGNIFICANT FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER
SHARE AND NUMBER OF STORES) 1994 1993 1992 1991 1990(3)
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $366,816 $367,745 $380,375 $388,001 $386,882
Earnings before income taxes and
cumulative effect of changes in
accounting methods (1) 16,826 8,665 19,105 36,590 44,520
Earnings before cumulative effect
of changes in accounting methods 10,139 5,438 12,118 22,964 28,105
Net earnings 10,139 5,438 12,118 17,307 28,105
Earnings per common share (2)
Before cumulative effect of changes
in accounting methods 0.48 0.26 0.57 1.03 1.23
Net earnings 0.48 0.26 0.57 .78 1.23
Total assets 208,622 208,548 214,227 215,225 196,183
Capital expenditures 4,043 2,786 4,240 6,260 4,930
Long- and short-term indebtedness 37,000 45,000 58,000 50,000 35,000
Common shareholders' equity 97,089 93,542 94,501 97,229 93,459
- - --------------------------------------------------------------------------------------------------------------
Common shares outstanding, net (2) 21,380 21,397 21,306 22,038 22,347
Stores in operation 500 500 482 459 437
</TABLE>
(1) Including decrease from effect of LIFO as follows (in thousands):
1994, $(500); 1993, $(6,600); 1992, $(6,998); 1991, $(4,280); and
1990, $(5,598).
(2) Retroactively restated for a two-for-one stock split effected in the
form of a 100% stock dividend on April 1, 1991.
(3) Results for 1990 include 53 weeks.
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 29, 1995 AND JANUARY 30, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER COMMON SHARE
-------------------------
GROSS NET NET CASH
SALES MARGIN EARNINGS EARNINGS(1) DIVIDEND
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
First Quarter $ 92,894 $ 40,165 $ 1,024 $0.05 $0.08
Second Quarter 81,813 39,167 868 0.04 0.08
Third Quarter 96,505 46,041 3,913 0.18 0.08
Fourth Quarter 95,604 46,014 4,334 0.21 0.08
- - --------------------------------------------------------------------------------------------------------------
$366,816 $171,387 $10,139 $0.48 $0.32
==============================================================================================================
1993
First Quarter $ 92,814 $ 39,978 $ 809 $0.04 $0.08
Second Quarter 83,577 37,487 104 0.00 0.08
Third Quarter 99,038 44,214 3,291 0.16 0.08
Fourth Quarter 92,316 39,812 1,234 0.06 0.08
- - --------------------------------------------------------------------------------------------------------------
$367,745 $161,491 $ 5,438 $0.26 $0.32
==============================================================================================================
</TABLE>
(1) Per share amounts are based on average shares outstanding during each
quarter and may not add to the total for the year.
1
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table presents the percentage of sales for the periods indicated
and percentage changes from period to period of certain items included in the
Consolidated Statement of Earnings:
<TABLE>
<CAPTION>
PERCENT CHANGE
PERCENT OF NET SALES FROM PRIOR YEAR
------------------------------------ -------------------
1994 1993 1992 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% (.3%) (3.3%)
Comparable store sales (.7%) (5.6%)
Gross margin 46.7% 43.9% 45.5%
Selling, general and
administrative expenses 40.4% 39.8% 38.7% 1.1% (.6%)
Pre-tax earnings 4.6% 2.4% 5.0% 94.2% (54.6%)
Net earnings 2.8% 1.5% 3.2% 86.4% (55.1%)
</TABLE>
Hancock's sales declined in 1993 and 1994. Sales for 1994 decreased by $929
thousand from 1993 after a decline of $12.6 million in 1993 from 1992. A
decline in comparable store sales was responsible for the reduction in sales
for the 1994 and 1993 fiscal years. Hancock did not increase its store base in
1994, but sales benefitted from the addition of 18 net new stores in 1993.
Several factors adversely affected sales results in 1994. Excess store capacity
in the retail fabric industry was a primary cause of Hancock's sales results for
the last three years. Hancock's sales and gross margins came under pressure as
a result of the aggressive promotional activity, which escalated in 1993. The
struggle for market share put pressure on sales and gross margins, forcing the
piece goods industry to begin the process of reducing excess capacity. During
1994, Hancock's sales were hindered by inventory liquidations as competitors'
stores closed due to consolidations or worsening financial conditions.
Continuing weakness in demand for apparel fabrics also contributed to the
decline in same store sales. Growth in alternate product lines was insufficient
to offset the apparel category, which constituted the largest segment of the
sales mix. Management believes that competitor's inventory liquidations could
continue to place pressure on sales results in the near term.
Hancock's gross margin in 1994, before the effect of LIFO, improved from 1993
levels despite the promotional environment and the liquidation of competitors'
inventories. The improvement resulted primarily from changes in the product mix
to less promotional lines of merchandise. Reported gross margins were reduced
by LIFO changes of $500 thousand, $6.6 million and $7.0 million for 1994, 1993
and 1992, respectively.
Selling, general and administrative expenses increased as a percentage of sales
in 1994 due to an increase of about 1% in actual expenses. Occupancy and
compensation costs contributed primarily to the increased selling, general and
administrative expense dollars. Management anticipates that expenses will
remain at or near the 1994 dollar level until net store growth resumes.
Hancock plans to open approximately 20 retail fabric stores in 1995 and close
or relocate a similar number resulting in no net increase in retail fabric
stores. Hancock's management believes that redeploying inventories and other
assets from less productive locations to new openings will be a more effective
utilization of assets during this period of industry consolidation.
2
<PAGE> 3
FINANCIAL POSITION
Hancock traditionally maintains a strong financial position as evidenced by the
following information as of the end of fiscal years 1994, 1993 and 1992
(dollars in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents $ 3,855 $ 4,327 $ 8,971
Net cash flows provided by
operating activities $ 19,211 $ 18,275 $ 16,542
Working capital $123,795 $127,054 $137,520
Long-term indebtedness to
total capitalization 27.6% 32.5% 38.0%
</TABLE>
During 1994, cash provided by operations was favorably impacted by increased
earnings and a reduction of inventory, which was partially offset by a decrease
in accounts payable. These funds were used to purchase property and equipment,
retire debt and pay dividends. Historically, Hancock has financed the expansion
of its operations with internally generated cash flow. In 1993, cash provided
by operations was adversely affected by reduced earnings while inventory growth
offset an increase in accounts payable. These funds were used to retire debt,
pay dividends and expand the store base.
Hancock purchased treasury stock of $1.0 million, $800 thousand and $9.1
million in 1994, 1993 and 1992, respectively. Hancock plans to use future
excess cash for the retirement of debt and the purchase of treasury stock as
market and financial conditions dictate.
Current assets decreased primarily due to a reduction in inventories which
offset the increases in deferred taxes and prepaid expenses. In 1994,
inventories were reduced at the retail stores and distribution facility in
addition to the reduction associated with the $500 thousand increase in the
LIFO reserve. Current liabilities were higher due to an increase in income
taxes payable and accrued liabilities which offset a decrease in accounts
payable.
CAPITAL REQUIREMENTS
Hancock's primary capital requirements are for the financing of inventories
and, to a lesser extent, for capital expenditures relating to store locations
and its distributing facility. Funds for such purposes are generated from
Hancock's operations and, if necessary, supplemented by borrowings from
commercial lenders.
Capital expenditures amounted to $4.0 million in 1994, $2.8 million in 1993 and
$4.2 million in 1992. These expenditures reflect, in part, the capital required
for the acquisition of certain properties in 1994, and a net increase of 18 and
23 retail fabric stores in 1993 and 1992, respectively.
Hancock estimates that capital expenditures for 1995 will approximate $4.0
million. Expenditures include the costs for 20 planned replacement stores and
maintenance on the existing retail stores and distribution center. Internally
generated funds will be sufficient to finance these capital requirements.
EFFECT OF INFLATION
The impact of inflation on labor and occupancy costs can significantly affect
Hancock's operations. Many of Hancock's employees are paid hourly rates related
to the Federal minimum wage; according, any increases will affect Hancock.
Proposed Federal minimum wage hikes would have an adverse effect on earnings
although the impact cannot be readily quantified. In addition, payroll taxes,
employee benefits and other employee related costs continue to increase. Costs
of leases for new store locations remained stable, but the renewal costs of
older leases continue to increase. Taxes, maintenance and insurance costs have
also risen. Hancock believes the practice of maintaining adequate operating
margins through a combination of price adjustments and cost controls, careful
evaluation of occupancy needs and efficient purchasing practices are the most
effective tools for coping with increased costs and expenses.
SEASONALITY
Hancock's business is slightly seasonal. Peak sales periods occur during the
fall and pre-Easter weeks, while the lowest sales periods occur during
pre-Christmas and midsummer.
3
<PAGE> 4
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 29, 1995, JANUARY 30, 1994 AND JANUARY 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $366,816 $367,745 $380,375
Cost of goods sold 195,429 206,254 207,300
- - ----------------------------------------------------------------------------------------------------------
Gross margin 171,387 161,491 173,075
- - ----------------------------------------------------------------------------------------------------------
Expenses (income)
Selling, general and administrative 148,149 146,509 147,323
Depreciation and amortization 4,182 4,241 4,280
Interest expense 2,442 2,314 2,644
Interest income (212) (238) (277)
- - ----------------------------------------------------------------------------------------------------------
Total operating and interest expenses 154,561 152,826 153,970
- - ----------------------------------------------------------------------------------------------------------
Earnings before taxes 16,826 8,665 19,105
Income taxes 6,687 3,227 6,987
- - ----------------------------------------------------------------------------------------------------------
Net earnings $ 10,139 $ 5,438 $ 12,118
==========================================================================================================
Earnings per share $ 0.48 $ 0.26 $ 0.57
==========================================================================================================
Weighted average number of common shares and
common equivalent shares outstanding 21,118 21,161 21,414
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 5
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
JANUARY 29, 1995 AND JANUARY 30, 1994
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) 1994 1993
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,855 $ 4,327
Receivables, less allowance for doubtful
accounts of $145 in 1994 and 1993 1,842 1,309
Inventories 169,128 173,297
Deferred tax asset 2,629 330
Prepaid expenses 2,382 1,068
- - ----------------------------------------------------------------------------------------------------------
Total current assets 179,836 180,331
Property and equipment, at depreciated cost 21,673 21,911
Deferred tax asset 6,753 6,190
Other assets 360 116
- - ----------------------------------------------------------------------------------------------------------
Total assets $208,622 $208,548
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,305 $ 37,032
Accrued liabilities 15,935 14,100
Income taxes 4,801 2,145
- - ----------------------------------------------------------------------------------------------------------
Total current liabilities 56,041 53,277
Long-term debt obligations 37,000 45,000
Postretirement benefit liability other than pensions 16,572 15,267
Other deferred liabilities 1,920 1,462
- - ----------------------------------------------------------------------------------------------------------
Total liabilities 111,533 115,006
- - ----------------------------------------------------------------------------------------------------------
Commitments and contingencies (Notes 6 and 11)
- - ----------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.01 par value; 80,000,000 shares authorized;
26,794,064 issued and outstanding; (26,684,410 in 1993) 268 267
Paid-in capital 16,425 15,524
Retained earnings 163,339 160,063
Less - Treasury stock, at cost, 5,413,941
shares held (5,287,026 in 1993) (78,883) (77,930)
Less - Deferred compensation on restricted
stock incentive plan (4,060) (4,382)
- - ----------------------------------------------------------------------------------------------------------
Total shareholders' equity 97,089 93,542
- - ----------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $208,622 $208,548
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE> 6
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 29, 1995, JANUARY 30, 1994 AND JANUARY 31, 1993
(IN THOUSANDS) 1994 1993 1992
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $10,139 $ 5,438 $12,118
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 4,182 4,241 4,280
LIFO charge 500 6,600 6,998
Deferred income taxes (2,862) (1,833) (728)
Amortization of deferred compensation on
restricted stock incentive plan 1,154 876 799
(Increase) decrease in assets
Receivables and prepaid expenses (1,847) 1,279 (52)
Inventory reduction (growth) at current cost 3,669 (7,595) (723)
Other noncurrent assets (244) 146 102
Increase (decrease) in liabilities
Accounts payable (1,727) 6,952 (8,359)
Accrued liabilities 1,835 (851) 540
Current income tax obligations 2,649 610 (314)
Postretirement benefit liability
other than pensions 1,305 1,939 1,839
Other deferred liabilities 458 473 42
- - ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 19,211 18,275 16,542
- - ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (4,043) (2,786) (4,240)
Disposition of property and equipment 99 270 408
- - ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (3,944) (2,516) (3,832)
- - ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Long-term borrowings (repayments) (8,000) (13,000) 8,000
Purchase of treasury stock (953) (841) (9,124)
Proceeds from exercise of stock options 4 209 159
Issuance of shares under directors' stock plan 73 75
Cash dividends paid (6,863) (6,846) (6,884)
- - ----------------------------------------------------------------------------------------------------------
Net cash used in financing activities (15,739) (20,403) (7,849)
- - ----------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents (472) (4,644) (7,849)
Beginning of year cash and cash equivalents 4,327 8,971 4,110
- - ----------------------------------------------------------------------------------------------------------
End of year cash and cash equivalents $ 3,855 $ 4,327 $ 8,971
==========================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,980 $ 2,283 $ 2,291
Income taxes $ 6,901 $ 4,419 $ 8,004
==========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE> 7
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED JANUARY 29, 1995, JANUARY 30, 1994 AND JANUARY 31, 1993
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
ADDITIONAL TOTAL
PAID-IN RETAINED DEFERRED SHAREHOLDERS'
COMMON STOCK CAPITAL EARNINGS TREASURY STOCK COMPENSATION EQUITY
- - -----------------------------------------------------------------------------------------------------------------------------------
SHARES AMOUNT SHARES AMOUNT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance February 2, 1992 26,408,387 $264 $12,046 $156,237 (4,370,386) $(67,965) $(3,353) $97,229
Net earnings 12,118 12,118
Cash dividends (6,884) (6,884)
Exercise of stock options 22,700 221 221
Issuance of restricted stock 76,000 1 1,177 (1,178)
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 142 799 941
Purchase of treasury stock (830,765) (9,124) (9,124)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance January 31, 1993 26,507,087 265 13,586 161,471 (5,201,151) (77,089) (3,732) 94,501
Net earnings 5,438 5,438
Cash dividends (6,846) (6,846)
Exercise of stock options 32,275 249 249
Issuance of restricted stock 146,100 2 1,620 (1,622)
Cancellation of restricted stock (7,800) (96) 96
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 90 876 966
Issuance of shares under directors'
stock plan 6,748 75 75
Purchase of treasury stock (85,875) (841) (841)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance January 30, 1994 26,684,410 267 15,524 160,063 (5,287,026) (77,930) (4,382) 93,542
Net earnings 10,139 10,139
Cash dividends (6,863) (6,863)
Exercise of stock options 600 5 5
Issuance of restricted stock 107,300 1 884 (885)
Cancellation of restricted stock (6,400) (53) 53
Amortization and vesting of
deferred compensation on
restricted stock incentive plan (8) 1,154 1,146
Issuance of shares under directors'
stock plan 8,154 73 73
Purchase of treasury stock (126,915) (953) (953)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance January 29, 1995 26,794,064 $268 $16,425 $163,339 (5,413,941) $(78,883) $(4,060) $97,089
===================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS
Hancock Fabrics, Inc. ("Hancock") is a retail and wholesale merchant of
fabrics, crafts and related home sewing accessories. Hancock operates 500
stores in 33 states under the following trade names: "Hancock Fabrics,"
"Minnesota Fabrics," "Fabric Warehouse" and "Fabric Market" and supplies almost
200 independent wholesale customers.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Hancock and its
wholly owned subsidiary. All significant intercompany accounts and
transactions are eliminated. Hancock maintains its financial records on a
52-53 week fiscal year ending on the Sunday closest to January 31.
CASH AND CASH EQUIVALENTS include cash on hand, amounts due from banks and
repurchase agreements having original maturities of three months or less and
are reflected as such for purposes of reporting cash flows.
INVENTORIES consist of fabrics, sewing notions and crafts held for resale
and are valued at the lower of cost or market; cost is determined by the
last-in, first-out (LIFO) method. The current cost of inventories exceeded the
LIFO cost by $39.1 million, $38.6 million and $32.0 million at January 29,
1995, January 30, 1994 and January 31, 1993, respectively.
DEPRECIATION is computed by use of the straight-line method over the
estimated useful lives of buildings, fixtures and equipment. Leasehold costs
and improvements are amortized over the lesser of their estimated useful
lives or the remaining lease term. Average depreciable lives are: building and
improvements 15-20 years; fixtures and equipment 3-10 years; and
transportation equipment 3-5 years.
MAINTENANCE AND REPAIRS are charged to expense as incurred and major
improvements are capitalized.
ADVERTISING, including production costs, is charged to expense the first date
of the advertising period.
PREOPENING COSTS of new stores are charged to expense in the year that the
store opens. These costs primarily include labor to stock the store,
preopening advertising, store supplies and other expendable items.
EARNINGS PER SHARE are based on the weighted average number of common
shares and common equivalent shares outstanding. Common equivalent shares
represent dilutive stock options and restricted stock shares, reduced by
the number of shares which could be repurchased at the average fair market
value during the year with the proceeds of the options and the income tax
savings available from recognizing compensation expense as a tax deduction.
NOTE 3 - PROPERTY AND EQUIPMENT (in thousands)
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Buildings and improvements $11,041 $10,636
Leasehold improvements 8,822 9,032
Fixtures and equipment 35,457 34,065
Transportation equipment 1,376 1,312
Assets under capital leases 218 428
------- -------
56,914 55,473
Less accumulated depreciation and amortization 37,624 34,648
------- -------
19,290 20,825
Land 2,383 1,086
------- -------
$21,673 $21,911
======= =======
</TABLE>
Note 4 - ACCRUED LIABILITIES (in thousands)
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Payroll and benefits $ 6,557 $ 5,459
Property taxes 3,194 3,099
Sales taxes 1,685 1,476
Other 4,499 4,066
------- -------
$15,935 $14,100
======= =======
</TABLE>
NOTE 5 - LONG-TERM DEBT OBLIGATIONS (in thousands)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Revolving credit agreement $10,000 $20,000
Notes payable to banks 2,000
Note payable to insurance company 25,000 25,000
------- -------
$37,000 $45,000
======= =======
</TABLE>
In 1993, Hancock entered into a $60 million revolving credit agreement with
NationsBank of Georgia as agent. The agreement provides for a maturity date of
September 20, 1997 on any outstanding borrowings and an annual facility fee of
1/8 of 1%. The agreement has a one-year extension option. Borrowings under the
revolving credit agreement bear interest at a negotiated rate, a floating rate
(the higher of federal funds rate plus 1/2% or the prime rate), a rate
derived from the Certificate of Deposit Rate or a rate derived from the
London Interbank Offered Rate.
8
<PAGE> 9
Additionally, Hancock has other credit arrangements with various lending
institutions aggregating $55 million. A total of $25 million with an insurance
company was outstanding at January 29, 1995 and January 30, 1994 and provides
for repayment on November 5, 1995. At January 29, 1995, an additional $2
million was outstanding under certain of the remaining facilities. These notes
payable are classified as long-term obligations due to Hancock's ability and
intent to refinance these arrangements under the revolving credit agreement.
During 1992, a lending institution repurchased an interest rate swap agreement
from Hancock for $1.6 million. The gain was deferred and is being amortized
over the three-year life of the related debt.
At January 29, 1995, the effective interest rates on all outstanding borrowings
ranged from 5.04% to 6.24% with a weighted average of 5.42%. Under the most
restrictive covenants of these agreements, Hancock is required to maintain a
specified consolidated tangible net worth and an interest coverage ratio.
NOTE 6 - LONG-TERM LEASES
Hancock leases its retail fabric store locations under noncancelable operating
leases expiring at various dates through 2014. Certain of the leases for store
locations provide for additional rent based on sales volume.
Rent expense consists of the following (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Minimum rent under operating leases $27,789 $27,070 $25,804
Additional rent based on sales under all leases 163 164 280
------- ------- -------
$27,952 $27,234 $26,084
======= ======= =======
</TABLE>
Minimum rental payments under all operating leases as of January 29, 1995 are
as follows (in thousands):
<TABLE>
<S> <C>
1995 $ 24,688
1996 22,819
1997 19,986
1998 17,858
1999 15,885
Thereafter 62,578
--------
Total minimum lease payments $163,814
========
</TABLE>
NOTE 7 - INCOME TAXES
The components of income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Currently payable
Federal $ 7,967 $ 4,475 $ 6,782
State 1,582 585 933
------- ------- -------
9,549 5,060 7,715
------- ------- -------
Deferred
Current (2,299) (1,043) 186
Noncurrent (563) (790) (914)
------- ------- -------
(2,862) (1,833) (728)
------- ------- -------
$ 6,687 $ 3,227 $ 6,987
======= ======= =======
</TABLE>
Deferred income taxes are provided in recognition of temporary differences in
reporting certain revenues and expenses for financial statement and income tax
purposes.
The net current deferred tax asset (liability) is comprised of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1993
------ ------
<S> <C> <C>
Current deferred tax liabilities
Inventory valuation methods $ (256)
Other items $ (56) (55)
------ ------
Gross current deferred tax liabilities (56) (311)
------ ------
Current deferred tax assets
Inventory valuation methods 1,570
Accrual for medical insurance 593 281
Accrual for workers compensation 233
Other items 289 360
------ ------
Gross current deferred tax assets 2,685 641
------ ------
$2,629 $ 330
====== ======
</TABLE>
9
<PAGE> 10
The net noncurrent deferred tax asset is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Noncurrent deferred tax liabilities
Depreciation $(1,687) $(1,720)
------- -------
Noncurrent deferred tax assets
Postretirement benefits other than pensions 5,963 5,452
Accrual for pension liability 943 1,047
Deferred gain on swap repurchase 154 358
Difference in recognition of restricted stock expense 356 216
Deferred compensation liability 431 362
Other deferred deduction items 593 475
------- -------
Gross deferred tax assets 8,440 7,910
------- -------
$ 6,753 $ 6,190
======= =======
</TABLE>
The ultimate realization of a significant portion of this asset is dependent
upon the generation of future taxable income sufficient to offset the related
deductions on future tax periods in which they reverse.
A reconciliation of the statutory Federal income tax rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 35.0% 34.0%
State income taxes, net of Federal income tax effect 3.9 2.9 2.9
Other .8 (.7) (.3)
---- ---- ----
Effective tax rate 39.7% 37.2% 36.6%
==== ==== ====
</TABLE>
NOTE 8 - SHAREHOLDERS' INTEREST
AUTHORIZED CAPITAL
Hancock's authorized capital includes five million shares of $.01 par value
preferred stock, none of which have been issued.
COMMON STOCK PURCHASE RIGHTS
Hancock has entered into a Common Stock Purchase Rights Agreement, as amended,
(the "Rights Agreement"), with Continental Stock Transfer & Trust Company, as
Rights Agent. The Rights Agreement in certain circumstances would permit
shareholders to purchase common stock at prices which would be substantially
below market value.
STOCK REPURCHASE PLAN
On March 2, 1989, Hancock's Board of Directors approved the repurchase from
time to time of up to two million shares of common stock through open market
purchases or privately negotiated transactions. Through February 3, 1991,
Hancock had repurchased 1,971,630 shares (before restatement for the effect
of the two-for-one stock split on April 1, 1991) of the authorized amount.
On December 6, 1990 and on June 11, 1992, Hancock's Board of Directors
approved additional repurchases aggregating in total up to two million shares
of common stock. During 1994, 1993 and 1992, 126,915, 85,875 and 830,765
shares, respectively, have been repurchased under these authorizations which
were not adjusted by the Board for the stock split.
NOTE 9 - EMPLOYEE BENEFIT PLANS
STOCK OPTIONS
In 1987, Hancock adopted a stock option plan which, as amended, authorized
the granting of options to employees for up to two million shares of common
stock, at an exercise price of no less than 50% of fair market value on the
date the options are granted. With the exception of the initial options
granted, the exercise price has equaled the fair market value on the date all
options are granted. On March 19, 1992, Hancock's Board of Directors increased
the authorized option shares by one million.
At January 29, 1995, options for a total of 2,736,400 shares of common stock
had been granted under the plan, including 449,770 shares for which options
have been subsequently exercised and 428,360 shares for which options have
terminated unexercised. Options outstanding at January 29, 1995 expire in 1997
through 2004.
10
<PAGE> 11
A summary of activity in the plan for the years ended January 29, 1995, January
30, 1994 and January 31, 1993 follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Outstanding at beginning of year 1,707,670 1,264,245 1,093,505
Options granted
$8.25 share 274,400
$10.00 share 567,800
$10.75 share 254,000
--------- --------- ---------
Total granted 274,400 567,800 254,000
Options exercised
$13.63 share (400)
$ 8.44 share (3,200) (6,800)
$ 6.25 share (600) (6,075) (7,700)
$ 5.00 share (23,000) (7,800)
--------- --------- ---------
Total exercised (600) (32,275) (22,700)
--------- --------- ---------
Options canceled (123,200) (92,100) (60,560)
--------- --------- ---------
Outstanding at end of year 1,858,270 1,707,670 1,264,245
========= ========= =========
Exercisable at end of year 1,359,470 1,059,670 886,845
========= ========= =========
</TABLE>
The options exercisable at January 29, 1995 are exercisable at prices ranging
from $3.13 to $22.88 per share.
RESTRICTED STOCK
Hancock adopted the 1989 Restricted Stock Plan under which as many as one
million shares of common stock, as adjusted, may be issued to key employees at
no cost to the employees. During 1994, 1993 and 1992, 107,300, 146,100 and
76,000 restricted shares, respectively, were issued under the plan to officers
and key employees. Compensation expense related to the shares issued is
recognized over the period for which restrictions apply.
RETIREMENT PLANS
Substantially all full-time employees are covered by a trusteed,
noncontributory retirement plan maintained by Hancock. The retirement benefits
provided by this plan are primarily based on years of service and employee
compensation. Pension costs are funded by quarterly contributions to the trust.
Net periodic pension costs for the years ended January 29, 1995, January
30, 1994 and January 31, 1993, included the following benefit and cost
components based on an actuarial valuation for the years ended December 31,
1994, 1993 and 1992, respectively (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service costs $ 1,575 $ 1,374 $ 1,345
Interest costs 1,735 1,540 1,401
Return of plan assets 508 (2,422) (1,605)
Amortization of unrecognized net transition asset (254) (254) (254)
Deferral of investment gains (losses) in
excess of (less than) expected returns (2,558) 588 (165)
Amortization of unrecognized prior service costs 115 56 56
------- ------- -------
Net periodic pension costs $ 1,121 $ 882 $ 778
======= ======= =======
</TABLE>
The funded status and the amounts recognized in Hancock's consolidated balance
sheet for defined benefit plans based on an actuarial valuation as the
measurement dates of December 31, 1994 and 1993 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Accumulated benefit obligation
Vested $ 21,289 $ 20,266
Nonvested 1,957 2,337
-------- --------
$ 23,246 $ 22,603
======== ========
Plan assets at market value $ 22,127 $ 22,619
Actuarial present value of projected benefit obligation (24,573) (24,022)
-------- --------
Funded status (2,446) (1,403)
Unrecognized net transition asset (1,526) (1,780)
Unrecognized net (gain) (501) (1,024)
Unrecognized prior service costs 1,197 1,443
-------- --------
Accrued pension costs $ (3,276) $ (2,764)
======== ========
</TABLE>
Plan assets include commingled funds, corporate and government debt securities,
common stock and real estate. The unrecognized net transition asset is being
amortized over 15 years beginning in 1986.
11
<PAGE> 12
Actuarial assumptions used in the period end valuations were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Discount rate 8.00% 7.50% 8.25%
Rate of increase in compensation levels 5.00% 4.50% 5.50%
Expected long-term rate of return on assets 9.00% 9.00% 9.00%
</TABLE>
INCENTIVE COMPENSATION PLANS
Hancock's store management and key management personnel participate in
incentive compensation plans. Approximately 600 employees are covered under
the plans. Provision for payments to be made under the plans is based primarily
on pretax earnings in excess of a specified return on capital employed in the
operations. The amounts expensed under the plans were $2.6 million, $2.0
million and $2.3 million in 1994, 1993 and 1992, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
Certain health care benefits are provided by Hancock to substantially all
retired employees with more than 15 years of credited service. At December 31,
1994 and 1993, Hancock's accumulated postretirement benefit obligation is as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Retiree benefit obligation $ 2,516 $ 2,737
Fully eligible active benefit obligation 432 840
Other active benefit obligation 8,815 9,321
------- -------
11,763 12,898
Unrecognized net gain 4,809 2,369
------- -------
$16,572 $15,267
======= =======
</TABLE>
The medical care cost trend rates used in determining this obligation for
employees before age 65 is 11.25% decreasing by .75% annually before leveling
at 5.5%. For individuals 65 and over, the rate is 8.75% decreasing by .75%
annually before leveling at 5%. This trend rate assumption has a significant
effect on the amounts reported. To illustrate, increasing the combined health
care cost trend by 1% would increase the accumulated postretirement benefit
obligation by $2.2 million.
The discount and the salary scale rates used in calculating the obligations
were 8.0% and 5.0%, respectively at December 31, 1994 and 7.5% and 4.5%,
respectively at December 31, 1993.
Net periodic postretirement benefit costs included the following (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Service cost (benefit attributable to current year service) $1,002 $1,148 $1,072
Interest cost 840 975 871
Amortization of unrecognized gain (174) (11)
------ ------ ------
$1,668 $2,112 $1,943
====== ====== ======
</TABLE>
Hancock's policy is to fund claims as incurred. Claims paid in 1994, 1993 and
1992 totaled $364,000, $173,000 and $132,000, respectively.
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
At January 29, 1995, Hancock did not have any outstanding financial derivative
instruments. The following table presents the carrying amounts and estimated
fair values of Hancock's financial instruments at January 29, 1995 and January
30, 1994 pursuant to Financial Accounting Standards Board Statement No. 107,
"Disclosures about Fair Value of Financial Instruments" (in thousands).
<TABLE>
<CAPTION>
1994 1993
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- -------
<S> <C> <C> <C> <C>
Financial assets
Cash and cash equivalents $ 3,855 $ 3,855 $ 4,327 $ 4,327
Receivables 1,842 1,842 1,309 1,309
Financial liabilities
Long-term debt 37,000 36,500 45,000 45,000
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument:
Cash and receivables: The carrying amounts approximate fair value because of
the short maturity of those instruments.
Long-term debt: The fair value of Hancock's long-term debt is estimated based
on the current borrowing rates available to Hancock for bank loans with similar
terms and average maturities.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject Hancock to concentrations of
risk are primarily cash and cash equivalents. Hancock places its cash and cash
equivalents in insured depository institutions and limits the amount of credit
exposure to any one institution.
12
<PAGE> 13
LITIGATION
Hancock is a party to several pending legal proceedings and claims. Although
the outcome of such proceedings and claims cannot be determined with
certainty, Hancock's management is of the opinion that it is unlikely that
these proceedings and claims will have a material effect on the financial
condition or operating results of Hancock.
NOTE 12 - OTHER FINANCIAL INFORMATION
The following items were charged to cost and expenses (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Maintenance and repairs $ 1,398 $ 1,362 $ 1,259
Advertising costs 14,773 15,250 16,911
Taxes, other than payroll and income taxes:
Real estate and personal property 5,574 5,326 5,072
Other 753 432 722
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Hancock Fabrics, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of earnings, of shareholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Hancock Fabrics, Inc. and its subsidiary at January 29, 1995 and January
30, 1994, and the results of their operations and their cash flows for each
of three years in the period ended January 29, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICE WATERHOUSE, LLP
- - -------------------------
Memphis, Tennessee
March 3, 1995
13
<PAGE> 1
EXHIBIT 21
Subsidiaries of Hancock Fabrics, Inc.
<TABLE>
<CAPTION>
Names Under Which
State of Subsidiary
Name Incorporation Does Business
---- ------------- -------------
<S> <C> <C>
Minnesota Fabrics, Inc. Minnesota Minnesota Fabrics
Fabric Market
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements of Form S-8 (Nos. 33-17215, 33-29138 and 33-55419) of Hancock
Fabrics, Inc. of our report dated March 3, 1995 appearing on page 21 of the
Annual Report to Shareholders which is incorporated in this Annual Report on
Form 10-K.
PRICE WATERHOUSE LLP
Memphis, Tennessee
April 24, 1995
