BALDWYN — Hancock Fabrics Inc.’s board has adopted an amendment to the company’s rights agreement designed to preserve substantial tax assets for future use.
Through fiscal year-end 2008, Hancock had tax attributes, including net operating losses, which would offset approximately $60 million of future taxable income. Hancock can utilize these tax attributes in certain circumstances to offset taxable income and reduce its federal income tax liability.
Hancock said its ability to use the tax attributes would be substantially limited if there were an “ownership change” as defined under Section 382 of the Internal Revenue Code. In general, an ownership change would occur if Hancock’s “5% shareholders,” as defined under Section 382, collectively increase their ownership in Hancock by more than 50 percentage points over a rolling three-year period.
As a result of this amendment, the company’s rights agreement is now similar to tax benefit preservation plans adopted by many other public companies with significant tax attributes.
Additional information regarding the amendment will be contained in a Form 8-K that Hancock is filing with the Securities and Exchange Commission.