Back to GetFilings.com

Table of Contents

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

[ X ] Annual Report Pursuant to Section 13 or 15 (d) of the     
Securities Exchange Act of 1934
For the fiscal year ended February 3, 2002
or
[   ] Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934

Commission File Number 1 – 9482

Registrant’s telephone number, including area code
(662) 842-2834

Securities Registered Pursuant to Section 12 (b) of the Act:

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 the Form 10–K or any amendment to this Form 10–K.   [ X ]

As of April 15, 2002, there were 18,235,569 shares of Hancock Fabrics, Inc. $ .01 par value stock held by non-affiliates with an aggregate market value of $341,916,919. As of April 15, 2002, there were 18,840,855 shares of Hancock Fabrics, Inc. $ .01 par value common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Table of Contents

2001 ANNUAL REPORT ON FORM 10–K

TABLE OF CONTENTS

2

Table of Contents

PART I

Item 1.     BUSINESS

Hancock Fabrics, Inc. (the “Company”, which may be referred to as we, us or our) 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, we operated as a private company until 1972 when we were acquired by Lucky. We became a publicly owned company as a result of the distribution of shares of common stock to the shareholders of Lucky on May 4, 1987.

The Company is engaged in the retail and wholesale fabric business, selling fabrics and related accessories to the sewing and home decorating market and at wholesale to independent retailers. We are one of the largest fabric retailers in the United States. At February 3, 2002, we operated 439 fabric stores in 42 states. As a wholesaler of fabrics and related items, we sell to independent retail fabric stores through our wholesale distribution facility in Tupelo, Mississippi.

Operations

Our stores offer a wide selection of apparel fabrics, home decorating products (which include drapery and upholstery fabrics and home accent pieces), notions (which include sewing aids and accessories such as zippers, buttons, threads and ornamentation), sewing machines, patterns, quilting materials and supplies and related items. Each of our 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.

Our stores are primarily located in neighborhood shopping centers. During 2001, we opened 28 stores and closed 32.

As a wholesaler, we sell to independent retailers in markets in which the Company has elected not to open our own stores. These wholesale customers accounted for approximately 1% of our total sales for the fiscal year ended February 3, 2002.

Marketing

We principally serve the 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 seamstresses to sew for them. Quilters and hobbyists also comprise a portion of the base of customers, as do consumers of bridal, party, prom and special occasion merchandise.

3

Table of Contents

We offer our customers a wide selection of products at prices that we believe are generally lower than the prices charged by our competitors. In addition to staple fabrics and notions for clothing and home decoration, we provide a variety of seasonal and current fashion apparel merchandise.

We use promotional advertising, primarily through direct mail, newspapers and television, to reach target customers. We mail fourteen to sixteen direct mail promotions each year to approximately 1.2 million households. The “Accents on Style” magazine published by Southern Progress, which contains sewing instructions, fashion ideas and product advertisements is available at no charge in our stores. In addition to local television promotional advertising, we advertise on cable and networks nationally for corporate image and promotions.

Distribution and Supply

Our retail stores and wholesale customers are served by our 525,000 square foot warehouse, distribution and headquarters facility in Tupelo, Mississippi.

Contract trucking firms, common carriers and parcel delivery are used to deliver merchandise from our warehouse and vendors to our retail stores and wholesale customers.

Bulk quantities of fabric are purchased from domestic and foreign mills, fabric jobbers and importers. We have no long-term contracts for the purchase of merchandise and did not purchase more than 5% of our merchandise from any one supplier during the fiscal year ended February 3, 2002. We have experienced no difficulty in maintaining satisfactory sources of supply.

Competition

We are among the largest fabric retailers in the United States. We principally compete with other national and regional fabric store chains on the basis of price, selection, quality, service and location.

Our 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 our competitors and to significant industry consolidation.

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 the Summer and the month of January.

Employees

At February 3, 2002, we employed approximately 6,500 people on a full-time and part-time basis, approximately 6,200 of who work in our retail stores. The remainder work in the Tupelo warehouse, distribution and headquarters facility.

4

Table of Contents

Government Regulation

The Company is subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime and other working conditions. A significant number of our employees are paid at rates related to Federal and state minimum wages and, accordingly, any increase in the minimum wage would affect our labor cost.

Item 2.     PROPERTIES

The Company’s 439 retail stores average approximately 13,100 square feet and are located principally in neighborhood shopping centers.

With the exception of five owned locations, our 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 3, 2002, the remaining terms of the leases for stores in operation including renewal options, averaged approximately 11 years. During 2002, 70 store leases will expire. We are currently negotiating renewals on certain of these leases.

The 525,000 square foot warehouse, distribution and headquarters facility in Tupelo, Mississippi is owned by the Company and is not subject to any mortgage or similar encumbrance. This facility is located on approximately 59 acres of land.

Reference is made to the information contained in Note 7 to the Consolidated Financial Statements included in the accompanying 2001 Annual Report to Shareholders for information concerning our long-term obligations under leases.

Item 3.     LEGAL PROCEEDINGS

The Company is a party to several legal proceedings and claims. Although the outcome of such proceedings and claims cannot be determined with certainty, we are 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 the Company.

Item 4.     SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

5

Table of Contents

PART II

The Company’s common stock and the associated common stock purchase rights are listed on the New York Stock Exchange and trade under the symbol HKF. Additional information required by this item is incorporated by reference from the table “Quarterly Financial Data” on page 8 and the table “Market Information” on page 25 of the 2001 Annual Report to Shareholders.

Historical financial information is incorporated by reference from the table “Five-Year Summary of Significant Financial Information” on page 8 of the 2001 Annual Report to Shareholders.

Management’s discussion and analysis of financial condition and results of operations is incorporated by reference from pages 9 to 11 of the 2001 Annual Report to Shareholders.

The Company does not hold derivative financial or commodity instruments at February 3, 2002. The Company is exposed to financial market risks, including changes in interest rates. All borrowings under the Company’s Revolving Credit Agreement bear interest at a negotiated rate, a floating rate (the higher of the federal funds rate plus 1/2% or the prime rate), a rate derived from the money market rate, or a rate derived from the London Interbank Offered Rate. An increase in interest rates of 100 basis points would not significantly affect the Company’s results. All of the Company’s business is transacted in U. S. dollars and, accordingly, foreign exchange rate fluctuations have never had a significant impact on the Company, and they are not expected to in the foreseeable future.

Information required by this item is incorporated by reference from the “Report of Independent Accountants” found on page 21 and from the Consolidated Financial Statements on pages 12-21 of the 2001 Annual Report to Shareholders.

Not applicable.

6

Table of Contents

PART III

Item 10.     DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information about the Directors of the Company is incorporated by reference from the discussion under Item 1 of our Proxy Statement for the 2002 Annual Meeting of Shareholders.

The term of each of the officers expires June 13, 2002.

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.

7

Table of Contents

Item 11.     EXECUTIVE COMPENSATION

Information about executive compensation is incorporated by reference from the discussion under the heading “Compensation of Executive Officers and Directors” in our Proxy Statement for the 2002 Annual Meeting of Shareholders.

Item 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information about security ownership of certain beneficial owners and management is incorporated by reference from the table on page 2 of the Proxy Statement for the 2002 Annual Meeting of Shareholders.

Item 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information about certain relationships and related transactions concerning “Executive Officers of the Registrant” is included in Part I of this report.

PART IV

Item 14.     EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

8

Table of Contents

14 (a) (3)

9

Table of Contents

     Documents incorporated by reference:

10

Table of Contents

     (b)  Reports on Form 8 – K

The registrant filed no reports on Form 8 – K 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.

11

Table of Contents

SIGNATURES

Pursuant to the requirement 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 the 29th day of April 2002.

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 29th day of April 2002.

12