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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 1999
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
(662) 842-2834
Securities Registered Pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock ($.01 par value) New York Stock Exchange
Rights New York Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 15, 1999, there were 18,730,141 shares of Hancock Fabrics, Inc. $.01
par value common stock held by non-affiliates with an aggregate market value of
$111,210,212. As of April 15, 1999, there were 19,129,597 shares of Hancock
Fabrics, Inc. $.01 par value common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1998 Annual Report
to Shareholders Parts I, II, and IV
Portions of the Proxy Statement
for the 1999 Annual meeting of
shareholders Part III
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1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
PART I Page
----
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.............. 9
Item 8. Financial Statements and Supplementary Data....... 9
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure........... 9
PART III
Item 10. Directors and Executive Officers of Registrant.... 10
Item 11. Executive Compensation............................ 10
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................... 10
Item 13. Certain Relationships and Related Transactions.... 10
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.............................. 11
Signatures................................................. 17
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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 home sewing and home decorating market
and at wholesale to independent retailers. We are one of the largest fabric
retailers in the United States. At January 31, 1999, we operated 462 fabric
stores in 40 states. As a wholesaler of fabrics and related items, we sell to
independent retail fabric stores through the wholesale distribution facility in
Tupelo, Mississippi.
OPERATIONS
Our stores offer 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 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. The number of
stores decreased by 19 in 1998.
As a wholesaler, we sell to
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over 100 independent retailers in markets in which the Company has elected not
to open our own stores. These wholesale customers accounted for approximately 2%
of our total sales for the fiscal year ended January 31, 1999.
MARKETING
We principally serve 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.
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 newspapers, direct mail and
television, to reach target customers. We mail six to ten direct mail promotions
each year to approximately 1.2 million households, including the "Directions"
magazine which contains discount coupons, sewing instructions, fashion ideas and
product advertisements.
During 1994, we 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 over 50 million U.S. households, is designed for the beginning and
intermediate skilled seamstress.
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. This
facility is adequate for the near term and has no major expansion plans for
1999.
Contract trucking firms, common carriers and parcel delivery are used to deliver
merchandise from our warehouse to our retail stores and wholesale customers.
Substantially all of the deliveries direct to our stores and wholesale customers
from vendors are made by common carriers.
Bulk quantities of fabric are purchased from domestic and foreign mills, fabric
jobbers and importers. We have no long-term contracts for the
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purchase of merchandise and did not purchase more than 5% of our merchandise
from any one supplier during the fiscal year ended January 31, 1999. 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. Store closings and associated inventory liquidations by
competitors continued during the first half of 1998, as the piece goods retail
capacity adjusted more closely to customer demand.
SEASONALITY
Our 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 January 31, 1999, we employed approximately 6,500 people on a full-time and
part-time basis, approximately 6,200 of whom work in our retail stores. The
remainder work in the Tupelo warehouse, distribution and headquarters facility.
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 462 retail stores average approximately 12,600 square feet and are
located principally in neighborhood shopping centers.
With the exception of four (4) 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
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five years in length. At January 31, 1999, the remaining terms of the leases for
stores in operation, including renewal options, averaged approximately 12 years.
During 1999, 67 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. We also own approximately 46 acres of land adjacent to
our Tupelo facility, providing room for future expansion.
Reference is made to the information contained in Note 7 to the Consolidated
Financial Statements included in the accompanying 1998 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
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Executive Officers of the Company
Office Presently Held and Business
Name Age Experience During Past Five Years
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Larry G. Kirk 52 Chairman of the Board and Chief
Executive Officer from June 1997,
Chief Executive Officer and President
from June 1996, President and Chief
Financial Officer prior thereto,
Director from December 1990.
Jack W. Busby, Jr. 56 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 40 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.
The term of each of the officers expires June 7, 1999.
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
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 1998 Annual Report to Shareholders.
ITEM 6. SELECTED FINANCIAL DATA
Historical financial information is incorporated by reference from the table
"Five-Year Summary of Significant Financial Information" on page 8 of the 1998
Annual Report to Shareholders.
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 is incorporated by reference from pages 9 to 11 of the 1998 Annual
Report to Shareholders.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 1998 Annual Report to Shareholders.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
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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 1999 Annual Meeting
of Shareholders. The balance of the response to this item is contained in the
discussion entitled "Executive Officers of the Company" in Part I of this
report.
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 1999 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 1999 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information about certain relationships and related transaction concerning
"Executive Officers of the Registrant" is included in Part I.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Pages in the 1998
Annual Report to
14 (a) (1) Financial Statements Shareholders
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Report of Independent Accountants................ 21
Consolidated Statement of Earnings............... 12
Consolidated Balance Sheet ...................... 13
Consolidated Statement of Cash Flows ............ 14
Consolidated Statement of Shareholders' Equity... 15
Notes to Consolidated Financial Statements....... 16-21
14 (a) (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.
Supplementary data:
Selected Quarterly Financial Data................ 8
14 (a) (3)
3.1 e Certificate of Incorporation of Registrant.
3.2 h By-Laws of Registrant.
4.1 c Certificate of Incorporation of Registrant.
4.2 h By-Laws of Registrant.
4.3 b Rights Agreement between Registrant and
C & S/Sovran Trust Company (Georgia), N.A.,
as amended March 14, 1991 and restated as of
April 2, 1991.
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4.4 e 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 e Agreement between Registrant and Continental
Stock Transfer & Trust Company (as Rights Agent)
dated as of July 16, 1992.
4.6 f 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.
4.7 Credit Agreement among Registrant and Wachovia Bank
as Agent and Lenders as Signatories Hereto
("Wachovia Credit Agreement") dated as of April 16,
1999.
10.1 f Credit Agreement dated as of September 20, 1993.
10.2 h Amendment to Credit Agreement dated as of May
31, 1995.
10.3 j Amendment to Credit Agreement dated as of April 1,
1998.
10.4 Amendment to Credit Agreement dated as of June 10,
1998.
10.5 Wachovia Credit Agreement dated as of April 16,
1999, incorporated by reference to Exhibit 4.7
filed herewith.
10.6 Termination of Credit Agreement among Registrant and
NationsBank of Georgia, National Association, as
Agent dated as of April 16, 1999.
10.7 h Form of Indemnification Agreements dated June 8,
1995 between Registrant and each of Jack W. Busby,
Jr., R. Randolph Devening, Don L. Fruge, Larry G.
Kirk and Donna L. Weaver.
10.8 h Form of Indemnification Agreements dated June 8,
1995 between Registrant and each of Dean W.
Abraham, Bradley A. Berg, Larry D. Fair, James A.
Gilmore, David A. Lancaster, Billy M. Morgan, James
A. Nolting, William D. Smothers, and Carl W.
Zander.
10.9 i 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.
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10.10 i Indemnification Agreement between Registrant and
Bruce D. Smith dated as of December 10, 1996.
10.11 j Indemnification Agreement between Registrant and
Phil L. Munie dated as of March 13, 1997.
10.12 b * Agreement between Registrant and Jack W. Busby, Jr.
dated as of June 9, 1988.
10.13 b * Agreement to Secure Certain Contingent Payments
between Registrant and Jack W. Busby, Jr. dated as
of June 9, 1988.
10.14 a * Agreement between Registrant and Larry G. Kirk dated
as of June 9, 1988.
10.15 a * Agreement to Secure Certain Contingent Payments
between Registrant and Larry G. Kirk dated as of June
9, 1988.
10.16 h * 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.
10.17 i * 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.
10.18 i * Amendment to Deferred Compensation, and Agreement
to Secure Certain Contingent Payments between
Registrant and Jack W. Busby, Jr., dated as of June
13, 1996.
10.19 i * Agreement between Registrant and Bruce D. Smith
dated as of December 10, 1996.
10.20 i * Severance Agreement between Registrant and Bruce D.
Smith dated as of December 10, 1996.
10.21 i * Agreement to Secure Certain Contingent Payments
between Registrant and Bruce D. Smith dated as of
December 10, 1996.
10.22 g * Supplemental Retirement Plan, as amended.
10.23 d * 1987 Stock Option Plan, as amended.
10.24 i * 1996 Stock Option Plan.
10.25 c * Extra Compensation Plan.
10.26 a * 1989 Restricted Stock Plan.
10.27 i * 1995 Restricted Stock Plan.
10.28 h * 1991 Stock Compensation Plan for Nonemployee
Directors, as amended.
10.29 * Officer Incentive Compensation Plan.
11 Computation of Earnings Per Share.
13 Portions of the Hancock Fabrics, Inc. 1998 Annual
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Report to Shareholders (for the fiscal year ended
January 31, 1999) incorporated by reference in this
filing.
21 Subsidiaries of the Registrant.
23 Consent of PricewaterhouseCoopers LLP.
27 Financial Data Schedule (for SEC use only)
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a Incorporated by reference from Registrant's Form 10-K dated April
26, 1990 as filed with the Securities and Exchange Commission.
b Incorporated by reference from Registrant's Form 10-K dated
April 26, 1991 as filed with the Securities and Exchange
Commission.
c Incorporated by reference from Registrant's Form 10-K dated
April 27, 1992 as filed with the Securities and Exchange
Commission.
d Incorporated by reference from Registrant's Form 10-Q dated
June 12, 1992 as filed with the Securities and Exchange
Commission.
e Incorporated by reference from Registrant's Form 10-K dated
April 26, 1993 as filed with the Securities and Exchange
Commission.
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f Incorporated by reference from Registrant's Form 10-K dated
April 27, 1994 as filed with the Securities and Exchange
Commission.
g Incorporated by reference from Registrant's Form 10-K dated
April 24, 1995 as filed with the Securities and Exchange
Commission.
h Incorporated by reference from Registrant's Form 10-K dated
April 22, 1996 as filed with the Securities and Exchange
Commission.
i Incorporated by reference from Registrant's Form 10-K dated
April 22, 1997 as filed with the Securities and Exchange
Commission.
j Incorporated by reference from Registrant's Form 10-K dated
April 27, 1998 as filed with the Securities and Exchange
Commission.
* Denotes management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the registrant during the last quarter of
the period covered by this report.
Shareholders may obtain copies of any of these exhibits by writing to the
Secretary at the executive offices of the Company. Please include payment in the
amount of $1.00 for each document, plus $.25 for each page ordered, to cover
copying, handling and mailing charges.
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UNDERTAKING IN CONNECTION WITH
REGISTRATION STATEMENTS ON FORM S-8
For purposes of complying with the amendments to the rules governing Form S-8
(effective July 13, 1990) under the Securities Act of 1933 (the "Act"), the
undersigned registrant hereby undertakes as follows, which undertaking shall be
incorporated by reference into registrant's Registration Statements on Form S-8
Nos. 33-17215 (filed September 15, 1987), 33-29138 (filed June 12, 1989),
333-32295 (filed July 28, 1997) and 333-32229 (filed July 28, 1997):
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 the 30th day of April,
1999.
HANCOCK FABRICS, INC
By /s/ Larry G. Kirk
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Larry G. Kirk
Chairman of the Board and
Chief Executive Officer
By /s/ Bruce D. Smith
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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 30th day of April, 1999
SIGNATURE TITLE
/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)
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