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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 FEBRUARY 1, 1998
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 (I.R.S. Employer
of 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:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
Common Stock ($.01 par value) New York Stock Exchange
Rights New York Stock Exchange
</TABLE>
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
--- ---
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. [ ]
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As of April 15, 1998, there were 21,017,927 shares of Hancock Fabrics, Inc. $.01
par value common stock held by non-affiliates with an aggregate market value of
$307,387,182. As of April 15, 1998, there were 21,266,587 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 11, 1998, 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. 1997 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. 1997 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.
1997 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
Number
------
<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............................................... 17
Signatures................................................. 18
</TABLE>
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PART I
ITEM 1: BUSINESS
Hancock Fabrics, Inc., a Delaware corporation ("Hancock"), was incorporated in
1987 as a successor 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 subsidiaries are engaged in the retail and wholesale fabric
business, selling fabrics 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 February 1, 1998, Hancock
operated 481 fabric stores in 38 states under the names "Hancock Fabrics,"
"Minnesota Fabrics," "Fabric Warehouse" and "Northwest Fabrics and Crafts." 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
increased its total stores by 19 in 1997, including the acquisition of 48
Northwest Fabrics and Crafts stores. During 1998, Hancock plans to open
approximately 40 stores and close approximately 25 stores.
As a wholesaler, Hancock sells to approximately 100 independent retailers in
locations in which Hancock has elected not to open its own stores. These
wholesale customers accounted for approximately 2% of Hancock's total sales for
the fiscal year ended February 1, 1998.
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MARKETING
Hancock principally serves the home sewing and home decorating markets, which
largely consist of women who make clothing for their families and decorations
for their homes or who hire professional home seamstresses to sew for them.
Quilters, crafters and hobbyists also comprise a portion of the 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 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 1.2 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 reaches almost 40 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 major expansion plans for 1998.
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 domestic and foreign 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 February 1, 1998. Hancock has experienced
no difficulty in maintaining satisfactory sources of supply.
COMPETITION
Hancock is among the largest fabric retailers in the United States.
Hancock principally competes with other national and regional
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fabric store chains on the basis of price, selection, quality, service and
location.
Hancock's competition has changed significantly in recent years due to rapid
expansion that began in the fabric industry in the late 1980's which ultimately
led to financial difficulties for many of the Company's competitors and to
significant industry consolidation. Store closings and associated inventory
liquidations by competitors continued during 1997, although at a slower pace, as
the piece goods retail capacity adjusted more closely to customer demand.
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.
EMPLOYEES
At February 1, 1998, Hancock employed approximately 6,700 people on a full-time
and part-time basis, approximately 6,400 of whom work in the Company's retail
stores. The remainder work in the Tupelo warehouse, distribution and office
facility.
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, any increase in the minimum wage would affect Hancock's labor
cost.
ITEM 2: PROPERTIES
Hancock's 481 retail stores are located principally in neighborhood shopping
centers. Most of Hancock's retail stores average approximately 12,000 square
feet.
With the exception of four (4) owned 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
February 1, 1998, the remaining terms of the leases for stores in operation,
including renewal options, averaged approximately 11 years. During 1998, 57
store leases will 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,
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providing room for future expansion.
Reference is made to the information contained in Note 7 to the Consolidated
Financial Statements included in the accompanying Hancock Fabrics, Inc. 1997
Annual Report to Shareholders (Exhibit 13 hereto) for information concerning
Hancock's long-term obligations under leases.
ITEM 3: LEGAL PROCEEDINGS
Hancock is a party to several 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.
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>
Larry G. Kirk 51 Chairman of the Board and Chief
Executive Officer from June 1997,
Chief Executive Officer and
President from June 1996, President
and Chief Financial Officer from
June 1994, Senior Vice President and
Chief Financial Officer prior
thereto, Director from December
1990.
Jack W. Busby, Jr. 55 President, Chief Operating Officer
and Director from June 1997.
Executive Vice President and Chief
Operating Officer from June 1996;
Executive Vice President and
Director of Retail Operations, prior
thereto.
Bruce D. Smith 39 Senior Vice President, Chief
Financial Officer and Treasurer from
March 1997, Senior Vice President
from November 1996. Prior thereto,
Executive Vice President and Chief
Financial Officer with Fred's, Inc.
</TABLE>
The term of each of the officers expires June 11, 1998.
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>
April 28, 1996 ............... $11.63 $ 9.38 $.08
July 28, 1996 ................ 11.63 8.75 .08
October 27, 1996 ............. 9.25 8.38 .08
February 2, 1997 ............. 12.88 8.13 .08
May 4, 1997 .................. 13.13 10.50 .08
August 3, 1997 ............... 13.75 11.75 .08
November 2, 1997 ............. 14.19 11.13 .10
February 1, 1998 ............. 15.56 13.69 .10
</TABLE>
As of April 15, 1998, there were 9,365 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 February 1, 1998, which
appears on page 8 of the Hancock Fabrics, Inc. 1997 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
Management's discussion and analysis of financial condition and results of
operations appearing on pages 9 to 11 of the Hancock Fabrics, Inc. 1997 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 6, 1998, appearing on pages 12 to 21 of the Hancock Fabrics,
Inc. 1997 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
11, 1998, 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
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.................... 21
Consolidated Statement of Earnings for the
three years ended February 1, 1998................. 12
Consolidated Balance Sheet at February 1, 1998
and February 2, 1997............................... 13
Consolidated Statement of Cash Flows
for the three years ended February 1, 1998......... 14
Consolidated Statement of Shareholders' Equity
for the three years ended February 1, 1998......... 15
Notes to Consolidated Financial Statements........... 16-21
(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.................... 8
</TABLE>
* Incorporated by reference from the indicated pages of the Hancock
Fabrics, Inc. 1997 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:
<TABLE>
<CAPTION>
Exhibit No.
<S> <C>
3.1 d Certificate of Incorporation of Registrant.
3.2 i By-Laws of Registrant.
4.1 d Certificate of Incorporation of Registrant.
4.2 i By-Laws of Registrant.
4.3 c 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.
</TABLE>
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<TABLE>
<S> <C>
4.4 f 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 f Agreement between Registrant and Continental Stock Transfer &
Trust Company(as Rights Agent) dated as of July 16, 1992.
4.6 g 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 g Credit Agreement dated as of September 20, 1993.
10.2 i Amendment to Credit Agreement dated as of May 31, 1995.
10.3 Amendment to Credit Agreement dated as of April 1, 1998.
10.4 i Form of Indemnification Agreements dated June 8, 1995 between
Registrant and each of R. Randolph Devening, Don L. Fruge,
Morris O. Jarvis, Larry G. Kirk and Donna L. Weaver.
10.5 i Form of Indemnification Agreements dated June 8, 1995 between
Registrant and each of Dean W. Abraham, Bradley A. Berg, Jack
W. Busby, Jr., Larry D. Fair, James A. Gilmore, David A.
Lancaster, Billy M. Morgan, James A. Nolting, William D.
Smothers, and Carl W. Zander.
10.6 j Form of Indemnification Agreement dated June 13, 1996 between
the Registrant and each of Tom R. Collins, Jeffie L. Gatlin,
Ellen J. Kennedy, Bruce E. Rockstad and William A. Sheffield,
Jr.
10.7 j Indemnification Agreement between Registrant and Bruce D.
Smith dated as of December 10, 1996.
10.8 Indemnification Agreement between Registrant and Phil L. Munie
dated as of March 13, 1997.
10.9 f * Agreement between Registrant and Morris O. Jarvis dated as of
May 3, 1987.
10.10 a * Amendment to Severance Agreement and to Deferred Compensation
Agreement between Registrant and Morris O. Jarvis dated as of
June 9, 1988.
10.11 a * Agreement to Secure Certain Contingent Payments between
Registrant and Morris O. Jarvis dated as of June 9, 1988.
10.12 c * Agreement between Registrant and Jack W. Busby, Jr. dated as
of June 9, 1988.
10.13 c * Agreement to Secure Certain Contingent Payments between
Registrant and Jack W. Busby, Jr. dated as of June 9, 1988.
10.14 b * Agreement between Registrant and Larry G. Kirk dated as of
June 9, 1988.
10.15 b * Agreement to Secure Certain Contingent Payments between
Registrant and Larry G. Kirk dated as of June 9, 1988.
</TABLE>
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<TABLE>
<S> <C>
10.16 f * 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.
10.17 i * Form of Amendment, Extension and Restatement of Severance
Agreement between Registrant and each of Jack W. Busby, Jr.
and Larry G. Kirk dated as of March 14, 1996.
10.18 j * Retirement Agreement between Registrant and Morris O. Jarvis
dated as of April 2, 1996.
10.19 j * Amendment to Deferred Compensation Agreement, Severance
Agreement, and Agreement to Secure Certain Contingent Payments
between Registrant and Larry G. Kirk dated as of June 13,
1996.
10.20 j * Amendment to Deferred Compensation, and Agreement to Secure
Certain Contingent Payments between Registrant and Jack W.
Busby, Jr., dated as of June 13, 1996.
10.21 j * Agreement between Registrant and Bruce D. Smith dated as of
December 10, 1996.
10.22 j * Severance Agreement between Registrant and Bruce D. Smith
dated as of December 10, 1996.
10.23 j * Agreement to Secure Certain Contingent Payments between
Registrant and Bruce D. Smith dated as of December 10, 1996.
10.24 h * Supplemental Retirement Plan, as amended.
10.25 e * 1987 Stock Option Plan, as amended.
10.26 j * 1996 Stock Option Plan.
10.27 d * Extra Compensation Plan.
10.28 b * 1989 Restricted Stock Plan.
10.29 j * 1995 Restricted Stock Plan.
10.30 i * 1991 Stock Compensation Plan for Nonemployee Directors, as
amended.
11 Computation of Earnings Per Share.
13 Portions of the Hancock Fabrics, Inc. 1997 Annual Report to
Shareholders (for the fiscal year ended February 1, 1998)
incorporated by reference in this filing.
21 Subsidiaries of the Registrant.
23 Consent of Price Waterhouse LLP.
27.1 Financial Data Schedule - 1997
27.2 Financial Data Schedule - 1996
27.3 Financial Data Schedule - 1995
</TABLE>
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a Incorporated by reference from Registrant's Form 10-K dated
April 26, 1989 as filed with the Securities and Exchange
Commission.
b Incorporated by reference from Registrant's Form 10-K dated
April 26, 1990 as filed with the Securities and Exchange
Commission.
c Incorporated by reference from Registrant's Form 10-K dated
April 26, 1991 as filed with the Securities and Exchange
Commission.
d Incorporated by reference from Registrant's Form 10-K dated
April 27, 1992 as filed with the Securities and Exchange
Commission.
e Incorporated by reference from Registrant's Form 10-Q dated
June 12, 1992 as filed with the Securities and Exchange
Commission.
f Incorporated by reference from Registrant's Form 10-K dated
April 26, 1993 as filed with the Securities and Exchange
Commission.
g Incorporated by reference from Registrant's Form 10-K dated
April 27, 1994 as filed with the Securities and Exchange
Commission.
h Incorporated by reference from Registrant's Form 10-K dated
April 24, 1995 as filed with the Securities and Exchange
Commission.
i Incorporated by reference from Registrant's Form 10-K dated
April 22, 1996 as filed with the Securities and Exchange
Commission.
j Incorporated by reference from Registrant's Form 10-K dated
April 22, 1997 as filed with the Securities and Exchange
Commission.
* Denotes management contract or compensatory plan or
arrangement.
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(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), 33-29138 (filed June 12, 1989)and
33-55419, (filed September 9, 1994):
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 27th day of April,
1998.
HANCOCK FABRICS, INC.
By /s/ Larry G. Kirk
-------------------------------
Larry G. Kirk
Chairman of the Board and
Chief Executive Officer
By /s/ Bruce D. Smith
-------------------------------
Bruce D. Smith
Senior Vice President and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements 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 27th day of April, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Larry G. Kirk Chairman of the Board, Chief Executive
- ---------------------------- Officer and Director
(Larry G. Kirk)
/s/ Jack W. Busby, Jr. President, Chief Operating Officer and
- ---------------------------- Director
(Jack W. Busby, Jr.)
/s/ R. Randolph Devening Director
- ----------------------------
(R. Randolph Devening)
/s/ Don L. Fruge Director
- ----------------------------
(Don L. Fruge)
/s/ Donna L. Weaver Director
- ----------------------------
(Donna L. Weaver)
</TABLE>
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EXHIBIT 10.3
AMENDMENT NO. 2
THIS AMENDMENT AGREEMENT NO. 2 (the "Amendment Agreement") is made and
entered into as of this 1st day of April, 1998 by and among HANCOCK FABRICS,
INC., a Delaware corporation (the "Borrower"), and NATIONSBANK, N.A. (formerly
NationsBank of Georgia, National Association), a national banking association,
in its capacity as Agent for each of the Lenders party to the Credit Agreement
(as defined below) (the "Agent"), and each of the undersigned Lenders. Unless
the context otherwise requires, all terms used herein without definition shall
have the respective meanings assigned thereto in the Credit Agreement.
WITNESSETH:
WHEREAS, the Borrower, the Agent and the Lenders have entered into that
certain Credit Agreement dated as of September 20, 1993, as amended by that
certain Amendment Agreement No. 1 dated as of May 31, 1995, whereby the Lenders
have made available to the Borrower, a $60,000,000 revolving credit facility (as
at any time hereafter amended, restated, modified or supplemented, the "Credit
Agreement"); and
WHEREAS, the Borrower has requested that the Agent and the Lenders make
certain amendments to the Credit Agreement; and
WHEREAS, the Agent and the Lenders are willing to so amend the Credit
Agreement upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the premises and conditions herein
set forth, it is hereby agreed as follows:
1. Credit Agreement Amendment. Subject to the conditions hereof, the
Credit Agreement is hereby amended, effective as of the date hereof, as follows;
(a) The definition of "Termination Date" appearing in Section
1.1 of the Credit Agreement is hereby amended to read in its entirety
as follows:
"Termination Date means September 20, 2000, as the
same may be extended from time to time in accordance with
Section 2.11 hereof, but in all events not later than
September 20, 2002."
(b) Section 2.11 of the Credit Agreement is hereby amended in
its entirety to read as follows:
"Provided Borrower shall have furnished to the Agent
and the Lenders the financial statements referred to in
Section 7.3 within the time set forth therein, the Borrower
may request not sooner than thirty (30) days preceding each of
September 20, 1998 and September 20, 1999, as applicable, that
the Termination Date be
<PAGE> 2
extended for an additional period of one year, provided that the
Termination Date may not extend beyond September 20, 2002. The Agent
shall notify the Borrower in writing, within sixty (60) days of such
request of the decision of the Lenders of whether to extend the
Termination Date. Failure by the Agent to give such notice shall
constitute refusal by the Lenders to extend the Termination Date.
The Termination Date shall be extended only upon written consent of
all Lenders."
2. Representations and Warranties. In order to induce the Agent and the
Lenders to enter into this Amendment Agreement, the Borrower hereby represents
and warrants that the Credit Agreement has been re-examined by the Borrower and
that except as disclosed by the Borrower in writing to the Agent as of the date
hereof:
(a) The representations and warranties made by the Borrower in
Article V thereof are true on and as of the date hereof;
(b) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its Subsidiaries
since the date of the most recent consolidated financial statements of
the Borrower and its Subsidiaries delivered to the Agent under Section
7.3 thereof;
(c) The business and properties of the Borrower and its
Subsidiaries are not, and since the date of the most recent
consolidated financial statements of the Borrower and its Subsidiaries
delivered to the Lender under Section 7.3 thereof, have not been,
adversely affected in any substantial way as the result of any fire,
explosion, earthquake, accident, strike, lockout, combination of
workers, flood, embargo, riot, activities of armed forces, war or acts
of God or the public enemy, or cancellation or loss of any major
contracts; and
(d) After giving effect to this Amendment Agreement, no
condition exists which, upon the effectiveness of the amendment
contemplated hereby, would constitute a Default or an Event of Default
on the part of the Borrower under the Credit Agreement or the other
Loan Documents, either immediately or with the lapse of time or the
giving of notice, or both.
3. Conditions Precedent. The effectiveness of this Amendment Agreement
is subject to the receipt by the Agent of the following:
(i) six (6) counterparts of this Amendment Agreement duly
executed by all signatories hereto;
(ii) resolutions of the Board of Directors or other governing
body of the Borrower approving this Amendment Agreement certified by
the Secretary of the Borrower; and
(iii) copies of all additional agreements, instruments and
documents which the Lender may reasonably request, such documents,
when appropriate to be certified by appropriate governmental
authorities.
2
<PAGE> 3
All proceedings of the Borrower relating to the matters provided for herein
shall be satisfactory to the Agent and its counsel.
4. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, condition, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,
representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any party to
the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing,
signed by all the parties hereto, specifying such change, modification, waiver
or cancellation of such terms or conditions, or of any proceeding or succeeding
breach thereof.
5. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
6. Counterparts. This Amendment Agreement may be executed in any
number of counterparts, each of which shall be deemed an original as against any
party whose signature appears thereof, and all of which shall together
constitute one and the same instrument.
7. GOVERNING LAW. THIS AMENDMENT AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY THE LAW OF THE STATE OF GEORGIA, WITHOUT REGARD TO ANY OTHERWISE
APPLICABLE PRINCIPLES OF CONFLICT OF LAWS. THE BORROWER HEREBY (i) SUBMITS TO
THE JURISDICTION AND VENUE OF THE STATE AND FEDERAL COURTS OF GEORGIA FOR THE
PURPOSES OF RESOLVING DISPUTES HEREUNDER OR UNDER ANY OF THE OTHER LOAN
DOCUMENTS TO WHICH IT IS A PARTY OR FOR PURPOSES OF COLLECTION AND (ii) WAIVES
TRIAL BY JURY IN CONNECTION WITH ANY SUCH LITIGATION.
8. Enforceability. Should any one or more of the provisions of this
Amendment Agreement be determined to be illegal or unenforceable as to one or
more of the parties hereto, all other provisions nevertheless shall remain
effective and binding on the parties hereto.
9. Credit Agreement. All references in any of the Loan Documents to
the Credit Agreement shall mean and include the Credit Agreement as amended
hereby.
10. Successors and Assigns. This Amendment Agreement shall be binding
upon and inure to the benefit of each of the Borrower, the Lenders, the Agent
and their respective successors, assigns and legal representatives; provided,
however, that the Borrower, without the prior consent of the Lenders, may not
assign any rights, powers, duties or obligations hereunder.
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.
BORROWER:
HANCOCK FABRICS, INC.
By: /s/ Bruce D. Smith
-----------------------------------
Name: Bruce D. Smith
-----------------------
Title: Chief Financial Officer
-----------------------
Signature Page 1 of 5
<PAGE> 5
NATIONSBANK, N.A. (formerly NationsBank of
Georgia, National Association), as Agent for
the Lenders
By: /s/ Greg McCrery
---------------------------------------
Name: Greg McCrery
---------------------------
Title: Vice President
---------------------------
NATIONSBANK, N.A. (formerly NationsBank of
Georgia, National Association), as Lender
By: /s/ Greg McCrery
---------------------------------------
Name: Greg McCrery
---------------------------
Title: Vice President
---------------------------
Signature Page 2 of 5
<PAGE> 6
WACHOVIA BANK OF GEORGIA, N.A.
By: /s/ C. Dee O'Dell, II
---------------------------------------
Name: Charles Dee O'Dell, II
---------------------------
Title: Senior Vice President
---------------------------
Signature Page 3 of 5
<PAGE> 7
SUNTRUST BANK, ATLANTA
By: /s/ R. B. King
---------------------------------------
Name: Raymond B. King
---------------------------
Title: Vice President
---------------------------
/s/ Jeffrey D. Drucker
----------------------------------
Jeffrey D. Drucker
Banking Officer
Signature Page 4 of 5
<PAGE> 8
BANK OF MISSISSIPPI
By: /s/ Coy Livingston
--------------------------------------
Name: Coy Livingston
---------------------------
Title: Executive Vice President
---------------------------
Signature Page 5 of 5
<PAGE> 1
EXHIBIT 10.8
INDEMNIFICATION AGREEMENT
This Agreement is made as of March 13, 1997, by and between Hancock
Fabrics, Inc., a Delaware corporation (the "Company"), and Philip L. Munie
("Officer").
W I T N E S S E T H :
WHEREAS, the Company understands that there can be no assurance that
directors' and officers' liability 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 or the coverage
of such insurance, if obtainable, may be reduced below what has historically
been afforded; and
WHEREAS, Officer 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 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 a director of the Company;
NOW, THEREFORE, in consideration of the promises, conditions,
representations and warranties set forth herein, including 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 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:
-1-
<PAGE> 2
(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 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 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 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 Covered Acts
including, without limitation, counsel fees and costs of investigative, judicial
or administrative proceedings or appeals, but, where prohibited by law or public
policy, 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, where prohibited by law or public policy, 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
-2-
<PAGE> 3
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 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 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
-3-
<PAGE> 4
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 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 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
-4-
<PAGE> 5
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 Officer ceases to serve the Company as a
director.
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.
(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 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 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
-5-
<PAGE> 6
operation of law) and (ii) shall be binding on and inure to the benefit of the
heirs, personal representatives and estate of Officer.
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/ Larry G. Kirk
----------------------------------------
Its: CEO
---------------------------------------
"Company"
/s/ Philip L. Munie
-------------------------------------------
Philip L. Munie
"Officer"
-6-
<PAGE> 1
EXHIBIT 11
HANCOCK FABRICS, INC.
COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------
(dollars in thousands, except for
per share amounts) Year Ended
----------------------------
February 2, January 28,
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Basic earnings per share
Net earnings $ 15,324 $ 12,481
=========== ===========
Weighted average number of common shares
outstanding during period 20,833,778 21,136,824
=========== ===========
Basic Earnings per share $ 0.74 $ 0.59
=========== ===========
- ----------------------------------------------------------- -----------
Diluted earnings per share
Net earnings $ 15,324 $ 12,481
=========== ===========
Weighted average number of common shares
outstanding during period 20,833,778 21,136,824
Stock Options 391,098 230,553
Restricted stock 92,503 174,020
----------- -----------
21,317,379 21,541,397
=========== ===========
Diluted earnings per share $ 0.72 $ 0.58
=========== ===========
</TABLE>
<PAGE> 1
Exhibit 13
FIVE-YEAR SUMMARY OF SIGNIFICANT FINANCIAL INFORMATION
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER
SHARE AND STORE AMOUNTS) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $381,910 $378,218 $364,192 $366,816 $367,745
Earnings before income taxes (1) 24,842 20,282 14,721 16,826 8,665
Net earnings 15,324 12,481 8,951 10,139 5,438
Earnings per common share
Basic 0.74 0.59 0.43 0.48 0.26
Diluted 0.72 0.58 0.42 0.48 0.26
Total assets 195,558 187,843 201,835 208,622 208,548
Capital expenditures 2,712 2,314 1,890 4,043 2,786
Long- and short-term indebtedness 10,000 3,000 30,000 37,000 45,000
Common shareholders' equity 106,691 105,273 100,421 97,089 93,542
- --------------------------------------------------------------------------------------------------
Common shares outstanding, net 21,114 21,315 21,508 21,380 21,397
Stores in operation 481 462 498 500 500
</TABLE>
(1) Including increase (decrease) from effect of LIFO as follows (in
thousands): 1997, $700; 1996, $(2,505); 1995, $(3,016); 1994, $(500); and
1993, $(6,600).
QUARTERLY FINANCIAL DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEARS ENDED FEBRUARY 1, 1998 AND FEBRUARY 2, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) PER COMMON SHARE
-------------------------------
NET EARNINGS
GROSS NET ------------------ CASH
SALES PROFIT EARNINGS BASIC DILUTED DIVIDEND
- ----------------------------------------------------------------------------------------------
1997
<S> <C> <C> <C> <C> <C> <C>
First Quarter $ 92,000 $ 43,450 $ 2,339 $0.11 $ 0.11 $ 0.08
Second Quarter 79,954 40,073 1,689 0.08 0.08 0.08
Third Quarter 96,459 47,973 4,924 0.24 0.23 0.10
Fourth Quarter 113,497 55,268 6,372 0.31 0.30 0.10
- ----------------------------------------------------------------------------------------------
$381,910 $186,764 $ 15,324 $0.74 $ 0.72 $ 0.36
==============================================================================================
1996
First Quarter $ 91,629 $ 42,203 $ 1,636 $0.08 $ 0.08 $ 0.08
Second Quarter 82,780 40,833 1,312 0.06 0.06 0.08
Third Quarter 94,369 46,928 3,878 0.18 0.18 0.08
Fourth Quarter 109,440 53,361 5,655 0.27 0.26 0.08
- ----------------------------------------------------------------------------------------------
$378,218 $183,325 $ 12,481 $0.59 $ 0.58 $ 0.32
==============================================================================================
</TABLE>
8
<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
-------------------------- -------------------------
1997 1996 1995 1997 1996 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sales 100.0% 100.0% 100.0% 1.0% 3.9% (0.7%)
Comparable store sales 4.6% 4.9% 0.3%
Gross margin 48.9% 48.5% 47.3%
Selling, general and
administrative expenses 41.5% 41.9% 41.6% 0.1% 4.5% 2.3%
Pretax earnings 6.5% 5.4% 4.0% 22.5% 37.8% (12.5%)
Net earnings 4.0% 3.3% 2.5% 22.8% 39.4% (11.7%)
</TABLE>
1997 VS. 1996
Sales for 1997 increased $3.7 million from 1996, benefiting by $15.5 million
from an increase in comparable store sales of 4.6%. The comparable store sales
increase was partially offset by a $6.3 million reduction in sales resulting
from 1997 having one less week than 1996 and a $5.5 million decrease from closed
stores, net of new and acquired stores. Including the acquisition of 48
Northwest Fabrics and Crafts stores at the beginning of the fourth quarter,
Hancock added 19 net stores in 1997 for a total of 481 stores at year end.
Several factors influenced the positive comparable store sales results in 1997.
New product offerings such as sewing machines and cut-to-order programs in
drapery and upholstery, strong demand for home decorating goods, store level
incentives, more productive advertising and improvement in the quality of
merchandise contributed to higher comparable sales.
Hancock's gross margin declined slightly on a FIFO (first-in, first-out) basis
in 1997 due to the conversion of inventories from 43 closed stores. Reported
gross margins were higher due to a reduction in the LIFO (last-in, first-out)
reserve of $700 thousand compared with a $2.5 million increase in the LIFO
reserve in 1996.
Selling, general and administrative expenses decreased as a percentage of sales
in 1997 as a result of expense leverage attained in 1997 from higher comparable
store sales. In addition, expenses included $1.7 million of nonrecurring
retirement related charges in 1996. These factors were more than enough to
offset higher payroll costs associated with minimum wage increases mandated in
both 1996 and 1997. Interest expense decreased by $800 thousand in 1997 due to a
lower level of average outstanding borrowings.
Hancock plans to open approximately 40 retail fabric stores in 1998 and close 25
stores. Management closely tracks and assesses the contribution of each store
and the effect on total company returns on sales and assets. Store closing
decisions are based on a store's current and anticipated productivity, existing
lease terms and the rent commissions or sublease prospects.
Income tax expense increased by $1.7 million due to the increase in pretax
earnings. The effective tax rate was 38.3% in 1997 and 38.5% in 1996.
1996 VS. 1995
Sales for 1996 increased by $14.0 million from 1995, benefiting by $17.0 million
from a 4.9% increase in comparable sales and $6.3 million from an extra week in
1996. The sales gain was partially offset by a $9.3 million net loss of sales
from store opening and closing activity, and wholesale sales declines. Hancock
reduced its store base by a net of 36 stores in 1996.
Several factors influenced the positive comparable store sales results in 1996.
Improving demand for apparel fabric combined with more productive advertising,
store-level sales incentives, new products, strong demand for home decorating
goods, better seasonal goods and improvements in overall merchandise quality
contributed to higher comparable sales, as well as higher gross margins.
Hancock's gross margin in 1996 continued to improve despite the conversion of
inventories from closed stores. Reported gross margins were reduced by increases
in the LIFO reserve of $2.5 million for 1996 compared with $3.0 million in 1995.
9
<PAGE> 3
Selling, general and administrative expenses increased as a percentage of sales
in 1996 due to a 4.5% increase ($6.8 million) in actual expenses. Compensation
costs, including mandatory and elective wage adjustments, together with
nonrecurring retirement related charges of $1.7 million, contributed to the
increased selling, general and administrative expenses. Interest expense
decreased $1.1 million in 1996 due to a lower level of average outstanding
borrowings and lower rates.
Income tax expense increased by $2.0 million due to the increase in pretax
earnings. The effective tax rate was 38.5% in 1996 and 39.2% in 1995.
FINANCIAL POSITION
Hancock traditionally maintains a strong financial position as evidenced by the
following information as of the end of fiscal years 1997, 1996 and 1995 (dollars
in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash and cash equivalents $ 7,057 $ 6,870 $ 5,026
Net cash flows provided (used):
Operating activities $ 17,357 $ 41,257 $ 17,068
Investing activities $ (7,436) $ (2,115) $ (1,737)
Financing activities $ (9,734) $(37,298) $(14,160)
Working capital $108,848 $102,958 $122,904
Long-term indebtedness to total capitalization 8.6% 2.8% 23.0%
</TABLE>
During 1997, cash provided by operations was positively impacted by increased
earnings and more productive inventory management. Cash flows from operations,
supplemented by $7 million in borrowings, were used to acquire Northwest Fabrics
and Crafts, purchase property and equipment, pay dividends and repurchase
treasury stock. Historically, Hancock has financed the expansion of its
operations with internally generated cash flow. During 1996, cash provided by
operations was positively impacted by increased earnings, extended accounts
payable and the reduction of inventory.
Hancock purchased treasury stock of $14.2 million, $5.5 million, and $431
thousand in 1997, 1996 and 1995, respectively. Hancock plans to use future cash
in excess of expansion needs for the retirement of debt and the purchase of
treasury stock as market and financial conditions dictate.
Current assets increased in 1997 due to the increase in inventories related to
the acquisition of the Northwest stores, partially offset by the conversion of
inventory from closed stores and a 2% reduction in comparable store inventories.
Current liabilities were lower due to the timing of income tax payments made for
the respective fiscal years.
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
distribution facility. Funds for such purposes are generated from Hancock's
operations and, if necessary, supplemented by borrowings from commercial
lenders.
Capital expenditures amounted to $2.7 million in 1997, $2.3 million in 1996 and
$1.9 million in 1995. New stores and capital maintenance on existing retail
stores and the distribution center accounted for the majority of these
expenditures.
Hancock estimates that the capital expenditures for 1998 will approximate $11
million. Anticipated expenditures include the costs for 40 planned new stores,
remodeling of 140-150 stores, conversion of all Minnesota Fabrics, Fabric
Warehouse, and Northwest Fabrics and Crafts store signage to the Hancock Fabrics
name and increased capital maintenance in the existing retail stores and
distribution center. Internally generated funds are expected to be sufficient to
finance these capital requirements.
In addition to operating cash flows, Hancock has available credit of $50 million
as of February 1, 1998 under Hancock's $60 million revolving credit facility
which matures September 20, 2000. In addition, Hancock has $35 million available
from other banks on an uncommitted basis. Hancock believes the total of $95
million is adequate for Hancock's needs in the near term.
10
<PAGE> 4
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; accordingly, any increases will affect Hancock. In
addition, payroll taxes, employee benefits and other employee related costs
continue to increase. Costs of leases for new store locations remain relatively
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 is the most effective tool 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.
YEAR 2000 IMPACT
The year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing a disruption of operations.
Hancock recognizes the potential impact that the year 2000 issue may have
relative to its systems and has implemented an action plan to ensure that all of
its systems will be fully year 2000 compliant. The action plan centers around a
combination of modifications that have been or will be completed either
internally or through software upgrades received from Hancock's software
vendors. Modifications for the systems are in various stages of completion. Some
have been fully implemented and satisfactorily tested, while others are in
lesser stages of completion. Hancock is confident that all systems will be
appropriately modified in a timely manner to handle the turn of the century
computer issues and that the related costs of compliance will not have a
material impact on its financial condition or results of operations.
Hancock has also developed plans for communications with all of its significant
merchandise suppliers and service providers to determine the extent to which
Hancock is vulnerable to those third parties' failure to remediate their own
year 2000 issues. Although the failure by other companies to timely convert
their systems would have an insignificant impact on Hancock's systems (because
of very limited interface), there can be no assurance that such failure would
not impair these companies' ability to supply Hancock with merchandise or
services on a timely basis.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share." This Statement established standards for computing and presenting
earnings per share (EPS), simplifying the standards previously provided in APB
Opinion 15. It replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures
and requires a reconciliation of the numerator and denominator of the basic EPS
computation to the numerator and denominator of the diluted EPS computation. The
impact of this statement on the Company's earnings per share has been reflected
on the face of the statement of earnings.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income" and
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." For fiscal years beginning after December 15, 1997, these
statements respectively require (i) the reporting and display of comprehensive
income and its components and (ii) the reporting of certain information about
operating segments and related information about the products and services of
such segments. The Company does not anticipate the adoption of these statements
to have a significant impact on the reporting of results of operations.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
for certain qualifying forward-looking statements. Certain information included
herein contains statements that are forward-looking, such as statements related
to financial items and results, plans for future expansion, store closure and
other business development activities, capital spending or financing sources,
capital structure, stability of interest rates during periods of borrowing and
the effects of regulation and competition. Such forward-looking information
involves important risks and uncertainties that could significantly impact
anticipated results in the future. Accordingly, such results may differ
materially from those expressed in any forward-looking statements by or on
behalf of Hancock. These risks and uncertainties include, but are not limited
to, those described above.
11
<PAGE> 5
CONSOLIDATED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 1, 1998, FEBRUARY 2, 1997 AND JANUARY 28, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales $ 381,910 $ 378,218 $ 364,192
Cost of goods sold 195,146 194,893 192,023
- ---------------------------------------------------------------------------------------------------------------
Gross profit 186,764 183,325 172,169
- ---------------------------------------------------------------------------------------------------------------
Expenses (income)
Selling, general and administrative 158,497 158,354 151,563
Depreciation and amortization 3,263 3,732 3,948
Interest expense 407 1,200 2,300
Interest income (245) (243) (363)
- ---------------------------------------------------------------------------------------------------------------
Total operating and interest expenses 161,922 163,043 157,448
- ---------------------------------------------------------------------------------------------------------------
Earnings before taxes 24,842 20,282 14,721
Income taxes 9,518 7,801 5,770
- ---------------------------------------------------------------------------------------------------------------
Net earnings $ 15,324 $ 12,481 $ 8,951
===============================================================================================================
Earnings per share
Basic $ 0.74 $ 0.59 $ 0.43
Diluted $ 0.72 $ 0.58 $ 0.42
===============================================================================================================
Weighted average shares outstanding
Basic 20,834 21,137 21,052
Diluted 21,317 21,541 21,294
===============================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 6
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
FEBRUARY 1, 1998 AND FEBRUARY 2, 1997
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE AMOUNTS) 1997 1996
- -------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7,057 $ 6,870
Receivables, less allowance for doubtful
accounts of $107 in 1997 and 1996 1,136 1,102
Inventories 149,486 147,973
Deferred tax asset 3,312 2,761
Prepaid expenses 3,806 2,080
- -------------------------------------------------------------------------------------
Total current assets 164,797 160,786
Property and equipment, at depreciated cost 18,989 17,845
Deferred tax asset 9,065 8,771
Other assets 2,707 441
- -------------------------------------------------------------------------------------
Total assets $ 195,558 $ 187,843
=====================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 35,491 $ 34,993
Accrued liabilities 16,418 16,533
Income taxes 4,040 6,302
- -------------------------------------------------------------------------------------
Total current liabilities 55,949 57,828
Long-term debt obligations 10,000 3,000
Postretirement benefits other than pensions 19,746 19,163
Other liabilities 3,172 2,579
- -------------------------------------------------------------------------------------
Total liabilities 88,867 82,570
- -------------------------------------------------------------------------------------
Commitments and contingencies (Notes 7 and 12)
Shareholders' equity:
Common stock, $.01 par value; 80,000,000 shares
authorized; 28,253,013 and 27,342,472 issued and
outstanding, respectively 283 273
Additional paid-in capital 31,382 21,369
Retained earnings 178,643 170,973
Treasury stock, at cost, 7,139,074 and
6,027,503 shares held, respectively (99,047) (84,820)
Deferred compensation on restricted
stock incentive plan (4,570) (2,522)
- -------------------------------------------------------------------------------------
Total shareholders' equity 106,691 105,273
- -------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 195,558 $ 187,843
=====================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 7
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 1, 1998, FEBRUARY 2, 1997 AND JANUARY 28, 1996
(IN THOUSANDS)
1997 1996 1995
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 15,324 $ 12,481 $ 8,951
Adjustments to reconcile net earnings to
cash provided by operating activities
Depreciation and amortization 3,263 3,732 3,948
LIFO charge (credit) (700) 2,505 3,016
Deferred income taxes (845) (1,025) (1,125)
Amortization of deferred compensation on
restricted stock incentive plan 1,282 2,354 1,516
Loss on disposal of fixed assets 634
(Increase) decrease in assets
Receivables and prepaid expenses (1,760) 149 893
Inventory at current cost (813) 12,437 3,197
Other noncurrent assets 129 153 (234)
Increase (decrease) in liabilities
Accounts payable 498 2,420 (2,732)
Accrued liabilities (115) 1,816 (1,218)
Current income tax obligations (716) 2,425 (584)
Postretirement benefits other than pensions 583 1,379 1,212
Other liabilities 593 431 228
- -------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,357 41,257 17,068
- -------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Additions to property and equipment (2,712) (2,314) (1,890)
Proceeds from disposition of property and equipment 71 199 153
Acquisition of Northwest stores (3,986)
Other (809)
- -------------------------------------------------------------------------------------------------------
Net cash used in investing activities (7,436) (2,115) (1,737)
- -------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net borrowings (repayments) on revolving credit agreement 7,000 (27,000) (7,000)
Purchase of treasury stock (14,227) (5,506) (431)
Proceeds from exercise of stock options 5,069 2,035 85
Issuance of shares under directors' stock plan 78 85 72
Cash dividends paid (7,654) (6,912) (6,886)
- -------------------------------------------------------------------------------------------------------
Net cash used in financing activities (9,734) (37,298) (14,160)
- -------------------------------------------------------------------------------------------------------
Increase in cash and cash equivalents 187 1,844 1,171
Cash and cash equivalents:
Beginning of year 6,870 5,026 3,855
- -------------------------------------------------------------------------------------------------------
End of year $ 7,057 $ 6,870 $ 5,026
=======================================================================================================
Supplemental disclosures
Cash paid during the year for:
Interest $ 405 $ 1,229 $ 3,117
Income taxes $ 11,127 $ 6,506 $ 7,479
=======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 8
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED FEBRUARY 1, 1998, FEBRUARY 2, 1997 AND JANUARY 28, 1996
(IN THOUSANDS, EXCEPT NUMBER OF SHARES)
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------ PAID-IN RETAINED ---------------------- DEFERRED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT COMPENSATION EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance January 29, 1995 26,794,064 $ 268 $ 16,425 $163,339 (5,413,941) $ (78,883) $ (4,060) $ 97,089
Net earnings 8,951 8,951
Cash dividends ($0.32 per share) (6,886) (6,886)
Exercise of stock options 13,200 103 103
Issuance of restricted stock 148,800 2 1,654 (1,656)
Cancellation of restricted stock (2,200) (23) 23
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 7 1,516 1,523
Issuance of shares under
directors' stock plan 8,251 72 72
Purchase of treasury stock (40,156) (431) (431)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance January 28, 1996 26,962,115 270 18,238 165,404 (5,454,097) (79,314) (4,177) 100,421
Net earnings 12,481 12,481
Cash dividends ($0.32 per share) (6,912) (6,912)
Exercise of stock options 296,800 3 2,498 2,501
Issuance of restricted stock 115,700 1,162 (1,162)
Cancellation of restricted stock (40,600) (463) 463
Amortization and vesting of
deferred compensation on
restricted stock incentive plan (151) 2,354 2,203
Issuance of shares under
directors' stock plan 8,457 85 85
Purchase of treasury stock (573,406) (5,506) (5,506)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance February 2, 1997 27,342,472 273 21,369 170,973 (6,027,503) (84,820) (2,522) 105,273
Net earnings 15,324 15,324
Cash dividends ($0.36 per share) (7,654) (7,654)
Exercise of stock options 640,120 7 5,062 5,069
Issuance of restricted stock 264,600 3 3,337 (3,340)
Cancellation of restricted stock (800) (10) 10
Amortization and vesting of
deferred compensation on
restricted stock incentive plan 1,546 1,282 2,828
Issuance of shares under
directors' stock plan 6,621 78 78
Purchase of treasury stock (1,111,571) (14,227) (14,227)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance February 1, 1998 28,253,013 $ 283 $ 31,382 $178,643 (7,139,074) $ (99,047) $ (4,570) $ 106,691
====================================================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 9
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 481 stores in 38
states under the following trade names: "Hancock Fabrics," "Minnesota Fabrics,"
"Fabric Warehouse" and "Northwest Fabrics and Crafts." Hancock also supplies
approximately 100 independent wholesale customers.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
CONSOLIDATED FINANCIAL STATEMENTS include the accounts of Hancock and its
wholly-owned subsidiaries. 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. Fiscal years 1997,
1996 and 1995, as used herein, refer to the years ended February 1, 1998,
February 2, 1997 and January 28, 1996, respectively. Fiscal 1996 contained 53
weeks while fiscal 1997 and 1995 each contained 52 weeks.
USE OF ESTIMATES AND ASSUMPTIONS that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amount of revenues and expenses during
the reporting period is required by management in the preparation of the
financial statements in accordance with generally accepted accounting
principles. Actual results could differ from those estimates.
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 approximately $40 million at February 1, 1998 and February 2, 1997.
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 as follows: buildings
and improvements 15-20 years; fixtures and equipment 3-8 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 day of
the advertising period. Advertising expense for 1997, 1996 and 1995 was $16.4
million, $16.2 million and $15.3 million, respectively.
PREOPENING COSTS of new stores are charged to expense when the store opens.
These costs primarily include labor to stock the store, store supplies and other
expendable items.
LONG-TERM INVESTMENTS are recorded using the equity method of accounting.
EARNINGS PER SHARE is calculated in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings per Share," which requires the
presentation of basic and diluted earnings per share. Basic earnings per share
excludes dilution and is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share reflects the potential dilution that could
occur if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company (see Note 11).
FINANCIAL INSTRUMENTS are evaluated pursuant to Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments." 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. The carrying amounts
approximate fair value because of the short maturity of those instruments.
Throughout 1997, Hancock did not have any financial derivative instruments
outstanding.
NOTE 3 - ACQUISITION OF NORTHWEST FABRICS AND CRAFTS
Effective November 1, 1997, the Company purchased the assets of Northwest
Fabrics and Crafts ("Northwest") from Silas Creek Retail, L.P., pursuant to an
assignment of rights agreement between the Company and Carolina Sales, Inc. The
total consideration paid for these assets was approximately $20.9 million. This
acquisition was accounted for as a purchase; accordingly, the acquired assets
and liabilities were recorded at their estimated fair values at the date of
acquisition. The value of goodwill assigned to this acquisition was
approximately $1,500,000 and is being amortized on a straight-line basis over 15
years. Operating results for Northwest have been included with those of the
Company beginning November 1, 1997.
NOTE 4 - PROPERTY AND EQUIPMENT (in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Buildings and improvements $11,016 $10,958
Leasehold improvements 7,447 8,238
Fixtures and equipment 37,696 35,575
Transportation equipment 1,526 1,563
Construction in progress 195
-------- --------
57,880 56,334
Accumulated depreciation and amortization (41,230) (40,828)
-------- --------
16,650 15,506
Land 2,339 2,339
-------- --------
$18,989 $17,845
======== ========
</TABLE>
16
<PAGE> 10
NOTE 5 - ACCRUED LIABILITIES (in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Payroll and benefits $ 6,607 $ 7,026
Property taxes 3,663 3,254
Sales taxes 1,783 2,156
Other 4,365 4,097
-------- --------
$16,418 $16,533
======== ========
</TABLE>
NOTE 6 - LONG-TERM DEBT Obligations (in thousands)
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Revolving credit agreement $10,000 $ 3,000
======== ========
</TABLE>
In 1993, Hancock entered into a $60 million revolving credit agreement with
NationsBank of Georgia as agent. This agreement provides for a maturity date of
September 20, 1998 and an annual facility fee of 1/8 of 1%. Subsequent to year
end, the agreement was amended to allow for the extension of the maturity date
until September 20, 2000. 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.
Additionally, Hancock has other credit arrangements with various lending
institutions aggregating $25 million. 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. Hancock also has an
arrangement to provide for $10 million in letters of credit.
At February 1, 1998, the effective interest rate on the outstanding borrowings
was 5.83%. Under the most restrictive covenants of this agreement, Hancock is
required to maintain a specified consolidated tangible net worth, a debt to cash
flow ratio and an interest coverage ratio.
NOTE 7 - LONG-TERM LEASES
Hancock leases its retail fabric store locations under noncancelable operating
leases expiring at various dates through 2018. 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>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Minimum rent $ 27,714 $ 28,177 $ 28,204
Additional rent based on sales 189 203 125
-------- -------- --------
$ 27,903 $ 28,380 $ 28,329
======== ======== ========
</TABLE>
Minimum rental payments as of February 1, 1998 are as follows (in thousands):
<TABLE>
Fiscal Year
<S> <C>
1998 $ 27,549
1999 24,961
2000 22,049
2001 18,487
2002 14,419
Thereafter 42,177
--------
Total minimum lease payments $149,642
========
</TABLE>
NOTE 8 - INCOME TAXES
The components of income tax expense (benefit) are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Currently payable
Federal $ 8,680 $ 7,467 $ 5,804
State 1,683 1,359 1,091
-------- -------- --------
10,363 8,826 6,895
-------- -------- --------
Deferred
Current (551) 353 (485)
Noncurrent (294) (1,378) (640)
-------- -------- --------
(845) (1,025) (1,125)
-------- -------- --------
$ 9,518 $ 7,801 $ 5,770
======== ======== ========
</TABLE>
Deferred income taxes are provided in recognition of temporary differences in
reporting certain revenues and expenses for financial statement and income tax
purposes.
17
<PAGE> 11
The current deferred tax asset is comprised of the following (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current deferred tax assets
Inventory valuation methods $ 1,826 $ 1,213
Accrual for medical insurance 929 800
Accrual for workers' compensation 301 272
Other items 256 476
------- -------
$ 3,312 $ 2,761
======= =======
</TABLE>
The net noncurrent deferred tax asset is comprised of the following (in
thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Noncurrent deferred tax assets
Postretirement benefits other than pensions $ 7,347 $ 7,120
Accrual for pension liability 1,034 907
Difference in recognition of restricted stock expense 137 784
Deferred compensation liability 751 625
Other deferred deduction items 619 546
------- -------
Gross noncurrent deferred tax assets 9,888 9,982
Noncurrent deferred tax liabilities - depreciation (823) (1,211)
------- -------
$ 9,065 $ 8,771
======= =======
</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.
A reconciliation of the statutory Federal income tax rate to the effective tax
rate is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Statutory Federal income tax rate 35.0% 35.0% 35.0%
State income taxes, net of Federal income tax effect 3.9 3.9 3.9
Other (.6) (.4) .3
---- ---- ----
Effective tax rate 38.3% 38.5% 39.2%
==== ==== ====
</TABLE>
NOTE 9 - 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. These circumstances include the
earlier of (i) the tenth day after an announcement that a person or group has
acquired beneficial ownership of 20% or more of the Hancock shares, with certain
exceptions such as a tender offer that is approved by a majority of Hancock's
Board of Directors, or (ii) the tenth day, or such later date as set by
Hancock's Board of Directors, after a person or group commences, or announces
its intention to commence, a tender or exchange offer, the consummation of which
would result in beneficial ownership of 30% or more of the Hancock shares.
STOCK REPURCHASE PLAN. In prior years and continuing in fiscal 1997, repurchases
of up to 6,000,000 shares have been authorized. As of February 1, 1998, 832,556
shares are available for repurchase under these authorizations.
NOTE 10 - 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 were granted. On March 19, 1992, Hancock's Board of Directors increased
the authorized option shares by one million. The plan provides that when shares
granted under the plan are canceled, they become available for future option
grants. As promulgated in the plan prospectus, the 1987 Stock Option Plan
expired on March 22, 1997; however, options granted under the 1987 plan extend
beyond the termination date.
At February 1, 1998, options for a total of 5,743,675 shares of common stock had
been granted under the plan, including 1,399,890 shares for which options have
been subsequently exercised and 2,169,735 shares for which options have
terminated unexercised. Options outstanding at February 1, 1998 expire in 2005
through 2006.
On June 7, 1995, Hancock's Board of Directors approved a plan to cancel those
outstanding options with option prices higher than the fair market value of
Hancock's common stock price on June 6, 1995 ($8.13) and grant options
(designated collectively as "substitute options") for shares equal to the number
of shares as to which options were canceled. The aggregate number of substitute
options granted was 1,523,075, which became exercisable on June 8, 1996.
18
<PAGE> 12
A summary of activity in the plan for the years ended February 1, 1998, February
2, 1997 and January 28, 1996 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------ ----------------------- ------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 2,212,770 $ 8.65 2,089,970 $ 7.68 1,858,270 $11.67
Granted 651,200 13.17 493,200 10.92 1,867,275 8.13
Canceled (49,800) 10.34 (73,600) 8.94 (1,622,375) 12.77
Exercised (640,120) 7.85 (296,800) 5.56 (13,200) 5.53
--------- --------- ----------
Outstanding at end of year 2,174,050 10.20 2,212,770 8.65 2,089,970 7.68
========= ========= ==========
Exercisable at end of year 1,291,150 8.62 1,578,870 8.01 290,195 4.94
========= ========= ==========
</TABLE>
The options outstanding at February 1, 1998 are exercisable at prices ranging
from $8.13 to $14.25 per share. The weighted average remaining contractual life
of all outstanding options was 8.16 years at February 1, 1998.
On April 22, 1996, Hancock adopted the 1996 Stock Option Plan (the "1996 Plan")
to provide for the continued issuance of stock options to employees when the
shares available for grants under the 1987 Stock Option Plan (the "1987 Plan")
have been depleted. The aggregate number of shares that may be issued or
reserved for grants pursuant to the 1996 Plan shall not exceed two million
shares. The terms of the 1996 Plan are consistent with those of the 1987 Plan.
As of February 1, 1998, 651,200 options have been granted under the 1996 Plan.
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its
stock-based compensation plans other than for restricted stock awards. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant date for awards in 1997 and 1996 consistent with the
method prescribed by SFAS No. 123, "Accounting for Stock-Based Compensation,"
the Company's net earnings for 1997 and 1996 would have been reduced by
approximately $1.1 million and $1.4 million, respectively. Diluted earnings per
share would have been reduced by $.05 and $.06 for 1997 and 1996, respectively.
These pro forma results will not be representative of the impact on future years
because only grants made in 1997, 1996 and 1995 were considered. The weighted
average grant-date fair value of options granted during 1997, 1996 and 1995 was
$4.14, $3.81 and $2.46, respectively. The fair value of each option grant is
estimated on the date of the grant using the Black-Scholes option pricing model
with the following weighted-average assumptions for 1997, 1996 and 1995,
respectively: dividend yields of 1.72%, 2.13% and 2.75%; average expected
volatility of .34, .35 and .36; risk-free interest rates of 5.71%, 6.69% and
5.93%; and an average expected life of 4.1 years.
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 1997, 1996 and 1995, 264,600,
115,700 and 148,800 restricted shares, respectively, were issued to officers and
key employees under the plan. As of February 1, 1998, 482,900 shares are
outstanding for which restrictions have not been lifted. On December 6, 1995,
Hancock adopted the 1995 Restricted Stock Plan to provide the continued issuance
of restricted stock awards to employees when the reserve of shares available for
awards under the 1989 Restricted Stock Plan had been depleted. The aggregate
number of shares that may be issued or reserved for issuance pursuant to the
1995 Restricted Stock Plan shall not exceed one million shares (subject to
adjustment as provided in the Plan). Compensation expense related to restricted
shares issued is recognized over the period for which restrictions apply. This
expense totaled $1,282,000, $2,354,000 and $1,516,000 in 1997, 1996 and 1995,
respectively.
RETIREMENT PLANS. Substantially all full-time employees are covered by a
trusteed, noncontributory defined benefit 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 included the following benefit and cost components
based on an actuarial valuation for the years ended December 31, 1997, 1996 and
1995, respectively (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Service costs $1,713 $ 1,703 $ 1,496
Interest costs 2,286 2,079 1,911
Return on plan assets (5,626) (3,709) (5,280)
Amortization of unrecognized net transition asset (254) (254) (254)
Deferral of investment gains (losses) in
excess of (less than) expected returns 2,786 1,175 3,303
Amortization of unrecognized prior service costs 115 115 115
------- ------- -------
Net periodic pension costs $1,020 $1,109 $ 1,291
======= ======= ========
</TABLE>
19
<PAGE> 13
The funded status and the amounts recognized in Hancock's consolidated balance
sheet for defined benefit plans based on an actuarial valuation as of the
measurement dates of December 31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Accumulated benefit obligation
Vested $ 30,702 $ 27,229
Nonvested 2,305 2,154
-------- --------
$ 33,007 $ 29,383
======== ========
Plan assets at market value $ 36,869 $ 32,012
Actuarial present value of projected benefit obligation (34,759) (30,843)
-------- --------
Funded status 2,110 1,169
Unrecognized net transition asset (763) (1,017)
Unrecognized net gain (4,860) (3,462)
Unrecognized prior service costs 853 968
-------- --------
Accrued pension costs $ (2,660) $ (2,342)
======== ========
</TABLE>
Plan assets include fixed income and equity funds, comprising corporate and
government debt securities, common stock, and real estate. The unrecognized net
transition asset is being amortized over 15 years beginning in 1986.
Actuarial assumptions used in the period-end valuations were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate 7.25% 7.50% 7.25%
Rate of increase in compensation levels 4.25% 4.25% 4.00%
Expected long-term rate of return on assets 9.25% 9.00% 9.00%
</TABLE>
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, 1997 and 1996, Hancock's accumulated
postretirement benefit obligation is as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Retiree benefit obligation $ 3,047 $ 3,049
Fully eligible active benefit obligation 801 1,552
Other active benefit obligation 8,192 7,152
------- -------
12,040 11,753
Unrecognized net gain 5,363 4,885
Unrecognized prior service cost 2,343 2,525
------- -------
$19,746 $19,163
======= =======
</TABLE>
The medical care cost trend rate used in determining this obligation for
employees before age 65 is 9.07%, decreasing by .68% annually before leveling at
5.00%. For individuals 65 and over, the rate is 6.56%, decreasing by .69%
annually before leveling at 4.50%. 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 $1.9 million.
The discount and the salary scale rates used in calculating the obligations were
7.25% and 4.25%, respectively, at December 31, 1997 and 7.50% and 4.25%,
respectively, at December 31, 1996.
Net periodic postretirement benefit costs included the following (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Service cost (benefit attributable to
current year service) $ 672 $ 974 $ 885
Interest cost 769 909 893
Amortization of unrecognized gain (366) (253) (299)
Amortization of prior service cost (182)
------- ------- -------
$ 893 $ 1,630 $ 1,479
======= ======= =======
</TABLE>
Hancock's policy is to fund claims as incurred. Claims paid in 1997, 1996 and
1995 totaled $310,000, $252,000 and $267,000, respectively.
20
<PAGE> 14
NOTE 11 - EARNINGS PER SHARE
A reconciliation of basic earnings per share to diluted earnings per share
follows (in thousands, except per share data):
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------------------------------------------------------------
FEBRUARY 1, 1998 FEBRUARY 2, 1997 JANUARY 28, 1996
------------------------------- ------------------------------- ------------------------------
NET PER SHARE NET PER SHARE NET PER SHARE
EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT EARNINGS SHARES AMOUNT
-------- ------ --------- -------- ------ --------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BASIC EPS
Earnings available to
common shareholders $ 15,324 20,834 $ 0.74 $ 12,481 21,137 $ 0.59 $ 8,951 21,052 $ 0.43
EFFECT OF DILUTIVE SECURITIES
Stock options 391 230 228
Restricted stock 92 174 14
------ ------ ------
DILUTED EPS
Earnings available to
common shareholders -------- ------ --------- -------- ------ --------- -------- ------ ---------
plus assumed conversions $ 15,324 21,317 $ 0.72 $ 12,481 21,541 $ 0.58 $ 8,951 21,294 $ 0.42
======== ====== ========= ======== ====== ========= ======== ====== =========
</TABLE>
Options to purchase shares of the Company's common stock were outstanding during
the year ending February 1, 1998 but were not included in the computation of
diluted EPS because the exercise price was greater that the average price of
common shares. These options were still outstanding as of February 1, 1998.
NOTE 12 - 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.
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.
REPORT OF INDEPENDENT ACCOUNTANTS
[PRICE WATERHOUSE LOGO]
To the Board of Directors and
Shareholders of Hancock Fabrics, Inc.
In our opinion, the accompanying consolidated balance sheets 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 subsidiaries at February 1, 1998 and February 2, 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended February 1, 1998, 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
- ------------------------
Price Waterhouse LLP
Memphis, Tennessee
March 6, 1998
21
<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
HF Enterprises, Inc. Delaware HF Enterprises
HF Resources, Inc. Delaware HF Resources
HF Merchandising, Inc. Delaware HF Merchandising
</TABLE>
<PAGE> 1
EXHIBIT 23
Consent of Independent Accountants
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-17215, 33-29138 and 33-55419) of Hancock
Fabrics, Inc. of our report dated March 6, 1998 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 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET P. 13 1997 HANCOCK ANNUAL REPORT, CONSOLIDATED STATEMENT OF
EARNINGS P. 12 1997 HANCOCK ANNUAL REPORT - EXHIBIT 13 FORM 10K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10K
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-01-1998
<PERIOD-START> FEB-03-1997
<PERIOD-END> FEB-01-1998
<CASH> 7,057
<SECURITIES> 0
<RECEIVABLES> 1,136
<ALLOWANCES> 0
<INVENTORY> 149,486
<CURRENT-ASSETS> 164,797
<PP&E> 18,989
<DEPRECIATION> 0
<TOTAL-ASSETS> 195,558
<CURRENT-LIABILITIES> 55,949
<BONDS> 0
0
0
<COMMON> 283
<OTHER-SE> 106,408
<TOTAL-LIABILITY-AND-EQUITY> 195,558
<SALES> 381,910
<TOTAL-REVENUES> 381,910
<CGS> 195,146
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 161,515
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 407
<INCOME-PRETAX> 24,842
<INCOME-TAX> 9,518
<INCOME-CONTINUING> 15,324
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,324
<EPS-PRIMARY> .74
<EPS-DILUTED> .72
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET P.13 1996 HANCOCK ANNUAL REPORT, CONSOLIDATED STATEMENT OF
EARNINGS P.12 1996 HANCOCK ANNUAL REPORT - EXHIBIT 13 FORM 10K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10K.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-02-1997
<PERIOD-START> JAN-28-1996
<PERIOD-END> FEB-02-1997
<CASH> 6,870
<SECURITIES> 0
<RECEIVABLES> 1,102
<ALLOWANCES> 0
<INVENTORY> 147,973
<CURRENT-ASSETS> 160,786
<PP&E> 17,845
<DEPRECIATION> 0
<TOTAL-ASSETS> 187,843
<CURRENT-LIABILITIES> 57,828
<BONDS> 0
0
0
<COMMON> 273
<OTHER-SE> 105,000
<TOTAL-LIABILITY-AND-EQUITY> 187,843
<SALES> 378,218
<TOTAL-REVENUES> 378,218
<CGS> 194,893
<TOTAL-COSTS> 173,411
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,200
<INCOME-PRETAX> 20,282
<INCOME-TAX> 7,801
<INCOME-CONTINUING> 12,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,481
<EPS-PRIMARY> .59
<EPS-DILUTED> .58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
BALANCE SHEET P. 13 1995 HANCOCK ANNUAL REPORT, CONSOLIDATED STATEMENT OF
EARNINGS P. 12 1995 HANCOCK ANNUAL REPORT - EXHIBIT 13 FORM 10K AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10K
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> JAN-28-1996
<CASH> 5,026
<SECURITIES> 0
<RECEIVABLES> 1,025
<ALLOWANCES> 0
<INVENTORY> 162,915
<CURRENT-ASSETS> 174,386
<PP&E> 19,462
<DEPRECIATION> 0
<TOTAL-ASSETS> 201,835
<CURRENT-LIABILITIES> 51,482
<BONDS> 0
0
0
<COMMON> 270
<OTHER-SE> 100,151
<TOTAL-LIABILITY-AND-EQUITY> 201,835
<SALES> 364,192
<TOTAL-REVENUES> 364,192
<CGS> 192,023
<TOTAL-COSTS> 155,148
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,300
<INCOME-PRETAX> 14,721
<INCOME-TAX> 5,770
<INCOME-CONTINUING> 8,951
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,951
<EPS-PRIMARY> .43
<EPS-DILUTED> .42
</TABLE>
