##### Table of Contents



United States
Securities and Exchange Commission
 WASHINGTON, D.C. 20549
 
 Form 10-Q
 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the Quarterly Period Ended October 31, 2009
 Commission File No. 1-6695
 
 Jo-Ann Stores, Inc.
  Ohio
    
    34-0720629(State or other jurisdiction of
    
    (I.R.S. Employer Identification No.)incorporation or organization)5555 Darrow Road, Hudson, Ohio
    
    44236(Address of principal executive offices)
    
    (Zip Code)
 (330) 656-2600
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 Yes o No þ




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##### 



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended October 31, 2009
 Page NumbersPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  October 31, 2009 (Unaudited), November 1, 2008 (Unaudited) and January 31, 2009
    
    
    1Unaudited Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended October 31, 2009 and November 1, 2008
    
    
    2Unaudited Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 31, 2009 and November 1, 2008
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    14Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26Part II. Other InformationItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults Upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other Information
    
    
    28Item 6. Exhibits
    
    
    28Signatures
    
    
    29Exhibit 31.1Exhibit 31.2Exhibit 32.1




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Jo-Ann Stores, Inc.
 
 Consolidated Balance Sheets
 (Unaudited)October 31,
    
    
    November 1,
    
    
    January 31,2009
    
    
    2008
    
    
    2009(Dollars in millions, except share and per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    97.7
    
    
    $
    24.8
    
    
    $
    80.6Inventories
    
    
    485.4
    
    
    
    522.3
    
    
    
    429.4Deferred income taxes
    
    
    22.5
    
    
    
    24.9
    
    
    
    23.5Prepaid expenses and other current assets
    
    
    28.1
    
    
    
    29.0
    
    
    
    31.7Total current assets
    
    
    633.7
    
    
    
    601.0
    
    
    
    565.2Property, equipment and leasehold improvements, net
    
    
    297.7
    
    
    
    311.6
    
    
    
    314.8Goodwill
    
    
    11.6
    
    
    
    11.8
    
    
    
    11.6Other assets
    
    
    8.3
    
    
    
    13.9
    
    
    
    9.5Total assets
    
    $
    951.3
    
    
    $
    938.3
    
    
    $
    901.1Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    171.3
    
    
    $
    171.4
    
    
    $
    145.1Accrued expenses
    
    
    115.3
    
    
    
    104.2
    
    
    
    112.5Total current liabilities
    
    
    286.6
    
    
    
    275.6
    
    
    
    257.6Long-term debt
    
    
    47.5
    
    
    
    112.7
    
    
    
    66.0Long-term deferred income taxes
    
    
    1.4
    
    
    
    
    
    
    
    3.2Lease obligations and other long-term liabilities
    
    
    96.3
    
    
    
    94.9
    
    
    
    96.6Commitments and contingencies (Note 5)Shareholders equity:Preferred stock, no par value, 5,000,000 shares authorized, none issued
    
    
    
    
    
    
    
    
    
    
    Common stock, stated value $0.05 per share; 150,000,000 authorized;
issued 29,665,217; 28,859,179 and 28,872,085 shares, respectively
    
    
    1.5
    
    
    
    1.4
    
    
    
    1.4Additional paid-in capital
    
    
    225.5
    
    
    
    209.5
    
    
    
    211.7Retained earnings
    
    
    339.9
    
    
    
    290.0
    
    
    
    310.4566.9
    
    
    
    500.9
    
    
    
    523.5Treasury stock, at cost; 3,768,059; 3,662,786 and 3,667,677 shares, respectively
    
    
    (47.4
    )
    
    
    (45.8
    )
    
    
    (45.8
    )Total shareholders equity
    
    
    519.5
    
    
    
    455.1
    
    
    
    477.7Total liabilities and shareholders equity
    
    $
    951.3
    
    
    $
    938.3
    
    
    $
    901.1
   1




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Jo-Ann Stores, Inc.
 
 Consolidated Statements of Operations
 (Unaudited)
 Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    October 31,
    
    
    November 1,2009
    
    
    2008
    
    
    2009
    
    
    2008(Dollars in millions, except share and per share data)Net sales
    
    $
    509.1
    
    
    $
    480.1
    
    
    $
    1,388.5
    
    
    $
    1,329.2Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    249.3
    
    
    
    244.8
    
    
    
    699.2
    
    
    
    695.3Gross margin
    
    
    259.8
    
    
    
    235.3
    
    
    
    689.3
    
    
    
    633.9Selling, general and administrative expenses
    
    
    202.0
    
    
    
    199.5
    
    
    
    585.7
    
    
    
    575.6Store pre-opening and closing costs
    
    
    2.2
    
    
    
    4.7
    
    
    
    8.6
    
    
    
    10.0Depreciation and amortization
    
    
    14.1
    
    
    
    13.8
    
    
    
    42.0
    
    
    
    40.1Operating profit
    
    
    41.5
    
    
    
    17.3
    
    
    
    53.0
    
    
    
    8.2Gain on purchase of senior subordinated notes
    
    
    (0.1
    )
    
    
    (2.1
    )
    
    
    (1.3
    )
    
    
    (2.1
    )Interest expense, net
    
    
    1.6
    
    
    
    2.6
    
    
    
    4.7
    
    
    
    7.2Income before income taxes
    
    
    40.0
    
    
    
    16.8
    
    
    
    49.6
    
    
    
    3.1Income tax provision
    
    
    15.9
    
    
    
    6.6
    
    
    
    20.1
    
    
    
    1.6Net income
    
    $
    24.1
    
    
    $
    10.2
    
    
    $
    29.5
    
    
    $
    1.5Net income per common share  basic
    
    $
    0.94
    
    
    $
    0.41
    
    
    $
    1.16
    
    
    $
    0.06Net income per common share  diluted
    
    $
    0.90
    
    
    $
    0.40
    
    
    $
    1.12
    
    
    $
    0.06Weighted average shares outstanding (in thousands):Basic
    
    
    25,737
    
    
    
    25,044
    
    
    
    25,518
    
    
    
    24,792Diluted
    
    
    26,751
    
    
    
    25,738
    
    
    
    26,301
    
    
    
    25,435
   2




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Jo-Ann Stores, Inc.
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,2009
    
    
    2008(Dollars in millions)Net cash flows provided by operating activities:Net income
    
    $
    29.5
    
    
    $
    1.5Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    42.0
    
    
    
    40.1Deferred income taxes
    
    
    (0.8
    )
    
    
    (0.5
    )Stock-based compensation expense
    
    
    6.5
    
    
    
    7.2Amortization of deferred financing costs
    
    
    0.5
    
    
    
    0.7Loss on disposal of fixed assets
    
    
    1.1
    
    
    
    0.9Gain on purchase of senior subordinated notes
    
    
    (1.3
    )
    
    
    (2.1
    )Changes in operating assets and liabilities:Increase in inventories
    
    
    (56.0
    )
    
    
    (50.1
    )Decrease (increase) in prepaid expenses and other current assets
    
    
    3.6
    
    
    
    (5.2
    )Increase in accounts payable
    
    
    26.2
    
    
    
    42.0Increase (decrease) in accrued expenses
    
    
    2.8
    
    
    
    (5.8
    )(Decrease) increase in lease obligations, net
    
    
    (1.4
    )
    
    
    5.0Increase (decrease) in other long-term liabilities
    
    
    1.1
    
    
    
    (0.1
    )Other, net
    
    
    0.6
    
    
    
    1.3Net cash provided by operating activities
    
    
    54.4
    
    
    
    34.9Cash flows used for investing activities:Capital expenditures
    
    
    (26.1
    )
    
    
    (55.1
    )Cash used for investing activities
    
    
    (26.1
    )
    
    
    (55.1
    )Net cash flows (used for) provided by financing activities:Purchase of senior subordinated notes
    
    
    (17.0
    )
    
    
    (18.0
    )Net change in revolving credit facility
    
    
    
    
    
    
    33.1Proceeds from stock-based compensation plans
    
    
    7.2
    
    
    
    6.0Other, net
    
    
    (1.4
    )
    
    
    (1.5
    )Net cash (used for) provided by financing activities
    
    
    (11.2
    )
    
    
    19.6Net increase (decrease) in cash and cash equivalents
    
    
    17.1
    
    
    
    (0.6
    )Cash and cash equivalents at beginning of period
    
    
    80.6
    
    
    
    25.4Cash and cash equivalents at end of period
    
    $
    97.7
    
    
    $
    24.8Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    5.5
    
    
    $
    8.5Income taxes, net of refunds
    
    
    18.3
    
    
    
    2.2
   3




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Notes to Consolidated Financial Statements (Unaudited)
 Jo-Ann Stores, Inc
 Note 1  Basis of Presentation
        Note 2  Earnings Per Share
   4




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Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    October 31,
    
    
    November 1,2009
    
    
    2008
    
    
    2009
    
    
    2008Weighted average shares outstanding:Basic common shares
    
    
    25,737
    
    
    
    25,044
    
    
    
    25,518
    
    
    
    24,792Incremental shares from assumed
exercise of stock options
    
    
    414
    
    
    
    262
    
    
    
    260
    
    
    
    254Incremental restricted shares
    
    
    600
    
    
    
    432
    
    
    
    523
    
    
    
    389Diluted common shares
    
    
    26,751
    
    
    
    25,738
    
    
    
    26,301
    
    
    
    25,435
   Note 3  Shareholders Equity
  Common
    
    
    Additional
    
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Treasury
    
    
    
    Stock Stated
    
    
    Paid-In
    
    
    Treasury
    
    
    Retained
    
    
    ShareholdersShares
    
    
    Shares
    
    
    
    Value
    
    
    Capital
    
    
    Stock
    
    
    Earnings
    
    
    Equity(Shares in thousands)
    
    
    
    (Dollars in millions)Balance, January 31, 2009
    
    
    25,204
    
    
    
    3,668
    
    
    
    $
    1.4
    
    
    $
    211.7
    
    
    $
    (45.8
    )
    
    $
    310.4
    
    
    $
    477.7Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29.5
    
    
    
    29.5Exercise of stock options
    
    
    328
    
    
    
    
    
    
    
    
    
    
    
    
    5.5
    
    
    
    
    
    
    
    
    
    
    
    5.5Excess tax benefits (deficits) on
equity compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    0.2Stock-based compensation
    
    
    342
    
    
    
    
    
    
    
    
    0.1
    
    
    
    6.4
    
    
    
    
    
    
    
    
    
    
    
    6.5Purchase of common stock
    
    
    (100
    )
    
    
    100
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.6
    )Associate Stock Ownership Plan
    
    
    123
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Year-to-date activity
    
    
    693
    
    
    
    100
    
    
    
    
    0.1
    
    
    
    13.8
    
    
    
    (1.6
    )
    
    
    29.5
    
    
    
    41.8Balance, October 31, 2009
    
    
    25,897
    
    
    
    3,768
    
    
    
    $
    1.5
    
    
    $
    225.5
    
    
    $
    (47.4
    )
    
    $
    339.9
    
    
    $
    519.5
   5




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Note 4  Financing
    Note 5  Commitments and Contingencies
   Note 6  Segment Reporting
    6




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##### Table of Contents



Large-format
    
    
    Small-format(Dollars in millions)
    
    Stores
    
    
    Stores
    
    
    Other
    
    
    ConsolidatedThirteen Weeks Ended October 31, 2009Net sales
    
    $
    272.0
    
    
    $
    228.5
    
    
    $
    8.6
    
    
    $
    509.1Store pre-opening and closing costs
    
    
    0.8
    
    
    
    1.4
    
    
    
    
    
    
    
    2.2Depreciation and amortization
    
    
    7.9
    
    
    
    2.7
    
    
    
    3.5
    
    
    
    14.1Operating profit (loss)
    
    
    37.2
    
    
    
    40.5
    
    
    
    (36.2
    )
    
    
    41.5Capital expenditures
    
    
    2.8
    
    
    
    5.0
    
    
    
    1.6
    
    
    
    9.4Thirteen Weeks Ended November 1, 2008Net sales
    
    $
    250.2
    
    
    $
    221.8
    
    
    $
    8.1
    
    
    $
    480.1Store pre-opening and closing costs
    
    
    1.6
    
    
    
    3.1
    
    
    
    
    
    
    
    4.7Depreciation and amortization
    
    
    8.0
    
    
    
    2.7
    
    
    
    3.1
    
    
    
    13.8Operating profit (loss)
    
    
    21.2
    
    
    
    25.9
    
    
    
    (29.8
    )
    
    
    17.3Capital expenditures
    
    
    10.3
    
    
    
    4.5
    
    
    
    6.6
    
    
    
    21.4Thirty-Nine Weeks Ended October 31, 2009Net sales
    
    $
    747.1
    
    
    $
    615.8
    
    
    $
    25.6
    
    
    $
    1,388.5Store pre-opening and closing costs
    
    
    3.1
    
    
    
    5.5
    
    
    
    
    
    
    
    8.6Depreciation and amortization
    
    
    23.8
    
    
    
    7.9
    
    
    
    10.3
    
    
    
    42.0Operating profit (loss)
    
    
    73.2
    
    
    
    83.5
    
    
    
    (103.7
    )
    
    
    53.0Capital expenditures
    
    
    7.6
    
    
    
    10.7
    
    
    
    7.8
    
    
    
    26.1Property, equipment and leasehold
improvements, net
    
    
    156.5
    
    
    
    51.7
    
    
    
    89.5
    
    
    
    297.7Thirty-Nine Weeks Ended November 1, 2008Net sales
    
    $
    695.8
    
    
    $
    610.0
    
    
    $
    23.4
    
    
    $
    1,329.2Store pre-opening and closing costs
    
    
    4.4
    
    
    
    5.6
    
    
    
    
    
    
    
    10.0Depreciation and amortization
    
    
    23.8
    
    
    
    7.0
    
    
    
    9.3
    
    
    
    40.1Operating profit (loss)
    
    
    42.8
    
    
    
    62.5
    
    
    
    (97.1
    )
    
    
    8.2Capital expenditures
    
    
    21.4
    
    
    
    12.5
    
    
    
    21.2
    
    
    
    55.1Property, equipment and leasehold
improvements, net
    
    
    158.1
    
    
    
    36.7
    
    
    
    116.8
    
    
    
    311.6
  7




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Note 7  Recent Accounting Pronouncements
    
    
    a requirement that disclosures regarding fair value of financial instruments be
disclosed on an interim
as well as on an annual basis;
 
    
    additional guidance regarding (1) estimating the fair value of an asset or liability
when the volume
and level of activity for the asset or liability have significantly declined and (2)
identifying
transactions that are not orderly, as well as requiring disclosures in interim periods of
the inputs and valuation techniques used to measure fair value.
     8




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Note 8  Consolidating Financial Statements (Unaudited)
   Consolidating Balance Sheets  October 31, 2009
 GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    97.7
    
    
    $
    
    
    
    $
    
    
    
    $
    97.7Inventories
    
    
    485.4
    
    
    
    
    
    
    
    
    
    
    
    485.4Deferred income taxes
    
    
    20.3
    
    
    
    2.2
    
    
    
    
    
    
    
    22.5Prepaid expenses and other current assets
    
    
    23.4
    
    
    
    4.7
    
    
    
    
    
    
    
    28.1Total current assets
    
    
    626.8
    
    
    
    6.9
    
    
    
    
    
    
    
    633.7Property, equipment and leasehold improvements,
net
    
    
    286.9
    
    
    
    10.8
    
    
    
    
    
    
    
    297.7Goodwill
    
    
    
    
    
    
    11.6
    
    
    
    
    
    
    
    11.6Other assets
    
    
    4.4
    
    
    
    3.9
    
    
    
    
    
    
    
    8.3Investment in subsidiaries
    
    
    37.4
    
    
    
    
    
    
    
    (37.4
    )
    
    
    Intercompany receivable
    
    
    
    
    
    
    21.5
    
    
    
    (21.5
    )
    
    
    Total assets
    
    $
    955.5
    
    
    $
    54.7
    
    
    $
    (58.9
    )
    
    $
    951.3Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    166.9
    
    
    $
    4.4
    
    
    $
    
    
    
    $
    171.3Accrued expenses
    
    
    95.7
    
    
    
    19.6
    
    
    
    
    
    
    
    115.3Total current liabilities
    
    
    262.6
    
    
    
    24.0
    
    
    
    
    
    
    
    286.6Long-term debt
    
    
    47.5
    
    
    
    
    
    
    
    
    
    
    
    47.5Long-term deferred income taxes
    
    
    12.5
    
    
    
    (11.1
    )
    
    
    
    
    
    
    1.4Lease obligations and other long-term liabilities
    
    
    91.9
    
    
    
    4.4
    
    
    
    
    
    
    
    96.3Intercompany payable
    
    
    21.5
    
    
    
    
    
    
    
    (21.5
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Additional paid-in capital
    
    
    225.5
    
    
    
    
    
    
    
    
    
    
    
    225.5Retained earnings
    
    
    339.9
    
    
    
    37.4
    
    
    
    (37.4
    )
    
    
    339.9566.9
    
    
    
    37.4
    
    
    
    (37.4
    )
    
    
    566.9Treasury stock, at cost
    
    
    (47.4
    )
    
    
    
    
    
    
    
    
    
    
    (47.4
    )Total shareholders equity
    
    
    519.5
    
    
    
    37.4
    
    
    
    (37.4
    )
    
    
    519.5Total liabilities and shareholders equity
    
    $
    955.5
    
    
    $
    54.7
    
    
    $
    (58.9
    )
    
    $
    951.3
  9




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Note 8  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Balance Sheets  January 31, 2009
 GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    55.0
    
    
    $
    25.6
    
    
    $
    
    
    
    $
    80.6Inventories
    
    
    206.5
    
    
    
    222.9
    
    
    
    
    
    
    
    429.4Deferred income taxes
    
    
    16.2
    
    
    
    7.3
    
    
    
    
    
    
    
    23.5Prepaid expenses and other current assets
    
    
    25.5
    
    
    
    6.2
    
    
    
    
    
    
    
    31.7Total current assets
    
    
    303.2
    
    
    
    262.0
    
    
    
    
    
    
    
    565.2Property, equipment and leasehold improvements,
net
    
    
    165.5
    
    
    
    149.3
    
    
    
    
    
    
    
    314.8Goodwill
    
    
    11.6
    
    
    
    
    
    
    
    
    
    
    
    11.6Other assets
    
    
    (3.9
    )
    
    
    13.4
    
    
    
    
    
    
    
    9.5Investment in subsidiaries
    
    
    100.0
    
    
    
    
    
    
    
    (100.0
    )
    
    
    Intercompany receivable
    
    
    307.7
    
    
    
    
    
    
    
    (307.7
    )
    
    
    Total assets
    
    $
    884.1
    
    
    $
    424.7
    
    
    $
    (407.7
    )
    
    $
    901.1Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    158.6
    
    
    $
    (13.5
    )
    
    $
    
    
    
    $
    145.1Accrued expenses
    
    
    112.5
    
    
    
    
    
    
    
    
    
    
    
    112.5Total current liabilities
    
    
    271.1
    
    
    
    (13.5
    )
    
    
    
    
    
    
    257.6Long-term debt
    
    
    66.0
    
    
    
    
    
    
    
    
    
    
    
    66.0Long-term deferred income taxes
    
    
    (3.4
    )
    
    
    6.6
    
    
    
    
    
    
    
    3.2Lease obligations and other long-term liabilities
    
    
    72.7
    
    
    
    23.9
    
    
    
    
    
    
    
    96.6Intercompany payable
    
    
    
    
    
    
    307.7
    
    
    
    (307.7
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    211.7
    
    
    
    
    
    
    
    
    
    
    
    211.7Retained earnings
    
    
    310.4
    
    
    
    100.0
    
    
    
    (100.0
    )
    
    
    310.4523.5
    
    
    
    100.0
    
    
    
    (100.0
    )
    
    
    523.5Treasury stock, at cost
    
    
    (45.8
    )
    
    
    
    
    
    
    
    
    
    
    (45.8
    )Total shareholders equity
    
    
    477.7
    
    
    
    100.0
    
    
    
    (100.0
    )
    
    
    477.7Total liabilities and shareholders equity
    
    $
    884.1
    
    
    $
    424.7
    
    
    $
    (407.7
    )
    
    $
    901.1
  10




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##### Table of Contents



Note 8  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations  Thirteen Weeks Ended October 31, 2009 and November 1, 2008
 October 31, 2009GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net sales
    
    $
    500.5
    
    
    $
    8.6
    
    
    $
    
    
    
    $
    509.1Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    243.2
    
    
    
    6.1
    
    
    
    
    
    
    
    249.3Gross margin
    
    
    257.3
    
    
    
    2.5
    
    
    
    
    
    
    
    259.8Selling, general and administrative expenses
    
    
    205.3
    
    
    
    (3.3
    )
    
    
    
    
    
    
    202.0Store pre-opening and closing costs
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    2.2Depreciation and amortization
    
    
    12.3
    
    
    
    1.8
    
    
    
    
    
    
    
    14.1Operating profit
    
    
    37.5
    
    
    
    4.0
    
    
    
    
    
    
    
    41.5Gain on purchase of senior subordinated notes
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Interest expense, net
    
    
    1.7
    
    
    
    (0.1
    )
    
    
    
    
    
    
    1.6Income before income taxes
    
    
    35.9
    
    
    
    4.1
    
    
    
    
    
    
    
    40.0Income tax provision
    
    
    14.3
    
    
    
    1.6
    
    
    
    
    
    
    
    15.9Income before equity income
    
    
    21.6
    
    
    
    2.5
    
    
    
    
    
    
    
    24.1Equity income from subsidiaries
    
    
    2.5
    
    
    
    
    
    
    
    (2.5
    )
    
    
    Net income
    
    $
    24.1
    
    
    $
    2.5
    
    
    $
    (2.5
    )
    
    $
    24.1
 November 1, 2008GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net sales
    
    $
    261.2
    
    
    $
    383.2
    
    
    $
    (164.3
    )
    
    $
    480.1Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    146.3
    
    
    
    262.8
    
    
    
    (164.3
    )
    
    
    244.8Gross margin
    
    
    114.9
    
    
    
    120.4
    
    
    
    
    
    
    
    235.3Selling, general and administrative expenses
    
    
    100.9
    
    
    
    98.6
    
    
    
    
    
    
    
    199.5Store pre-opening and closing costs
    
    
    2.8
    
    
    
    1.9
    
    
    
    
    
    
    
    4.7Depreciation and amortization
    
    
    7.2
    
    
    
    6.6
    
    
    
    
    
    
    
    13.8Operating profit
    
    
    4.0
    
    
    
    13.3
    
    
    
    
    
    
    
    17.3Gain on purchase of senior subordinated notes
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Interest expense, net
    
    
    1.2
    
    
    
    1.4
    
    
    
    
    
    
    
    2.6Income before income taxes
    
    
    4.9
    
    
    
    11.9
    
    
    
    
    
    
    
    16.8Income tax provision
    
    
    1.8
    
    
    
    4.8
    
    
    
    
    
    
    
    6.6Income before equity income
    
    
    3.1
    
    
    
    7.1
    
    
    
    
    
    
    
    10.2Equity income from subsidiaries
    
    
    7.1
    
    
    
    
    
    
    
    (7.1
    )
    
    
    Net income
    
    $
    10.2
    
    
    $
    7.1
    
    
    $
    (7.1
    )
    
    $
    10.2
  11




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##### Table of Contents



Note 8  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations  Thirty-Nine Weeks Ended October 31, 2009 and November 1, 2008
 October 31, 2009GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net sales
    
    $
    1,039.0
    
    
    $
    567.8
    
    
    $
    (218.3
    )
    
    $
    1,388.5Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    539.9
    
    
    
    377.6
    
    
    
    (218.3
    )
    
    
    699.2Gross margin
    
    
    499.1
    
    
    
    190.2
    
    
    
    
    
    
    
    689.3Selling, general and administrative expenses
    
    
    439.3
    
    
    
    146.4
    
    
    
    
    
    
    
    585.7Store pre-opening and closing costs
    
    
    6.6
    
    
    
    2.0
    
    
    
    
    
    
    
    8.6Depreciation and amortization
    
    
    29.2
    
    
    
    12.8
    
    
    
    
    
    
    
    42.0Operating profit
    
    
    24.0
    
    
    
    29.0
    
    
    
    
    
    
    
    53.0Gain on purchase of senior subordinated notes
    
    
    (1.3
    )
    
    
    
    
    
    
    
    
    
    
    (1.3
    )Interest expense, net
    
    
    3.4
    
    
    
    1.3
    
    
    
    
    
    
    
    4.7Income before income taxes
    
    
    21.9
    
    
    
    27.7
    
    
    
    
    
    
    
    49.6Income tax provision
    
    
    10.5
    
    
    
    9.6
    
    
    
    
    
    
    
    20.1Income before equity income
    
    
    11.4
    
    
    
    18.1
    
    
    
    
    
    
    
    29.5Equity income from subsidiaries
    
    
    18.1
    
    
    
    
    
    
    
    (18.1
    )
    
    
    Net income
    
    $
    29.5
    
    
    $
    18.1
    
    
    $
    (18.1
    )
    
    $
    29.5
 November 1, 2008GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net sales
    
    $
    715.0
    
    
    $
    1,024.0
    
    
    $
    (409.8
    )
    
    $
    1,329.2Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    407.1
    
    
    
    698.0
    
    
    
    (409.8
    )
    
    
    695.3Gross margin
    
    
    307.9
    
    
    
    326.0
    
    
    
    
    
    
    
    633.9Selling, general and administrative expenses
    
    
    288.3
    
    
    
    287.3
    
    
    
    
    
    
    
    575.6Store pre-opening and closing costs
    
    
    5.9
    
    
    
    4.1
    
    
    
    
    
    
    
    10.0Depreciation and amortization
    
    
    20.4
    
    
    
    19.7
    
    
    
    
    
    
    
    40.1Operating (loss) profit
    
    
    (6.7
    )
    
    
    14.9
    
    
    
    
    
    
    
    8.2Gain on purchase of senior subordinated notes
    
    
    (2.1
    )
    
    
    
    
    
    
    
    
    
    
    (2.1
    )Interest expense, net
    
    
    3.2
    
    
    
    4.0
    
    
    
    
    
    
    
    7.2(Loss) income before income taxes
    
    
    (7.8
    )
    
    
    10.9
    
    
    
    
    
    
    
    3.1Income tax (benefit) provision
    
    
    (2.9
    )
    
    
    4.5
    
    
    
    
    
    
    
    1.6(Loss) income before equity income
    
    
    (4.9
    )
    
    
    6.4
    
    
    
    
    
    
    
    1.5Equity income from subsidiaries
    
    
    6.4
    
    
    
    
    
    
    
    (6.4
    )
    
    
    Net income
    
    $
    1.5
    
    
    $
    6.4
    
    
    $
    (6.4
    )
    
    $
    1.5
  12




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##### Table of Contents



Note 8  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Cash Flows  Thirty-Nine Weeks Ended October 31, 2009 and November 1, 2008
 October 31, 2009GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net cash provided by (used for) operating activities
    
    $
    75.3
    
    
    $
    (20.9
    )
    
    $
    
    
    
    $
    54.4Cash flows used for investing activities:Capital expenditures
    
    
    (21.4
    )
    
    
    (4.7
    )
    
    
    
    
    
    
    (26.1
    )Cash used for investing activities
    
    
    (21.4
    )
    
    
    (4.7
    )
    
    
    
    
    
    
    (26.1
    )Net cash flows used for financing activities:Purchase of senior subordinated notes
    
    
    (17.0
    )
    
    
    
    
    
    
    
    
    
    
    (17.0
    )Proceeds from stock-based compensation plans
    
    
    7.2
    
    
    
    
    
    
    
    
    
    
    
    7.2Other, net
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (1.4
    )Net cash used for financing activities
    
    
    (11.2
    )
    
    
    
    
    
    
    
    
    
    
    (11.2
    )Net increase (decrease) in cash and cash equivalents
    
    
    42.7
    
    
    
    (25.6
    )
    
    
    
    
    
    
    17.1Cash and cash equivalents at beginning of period
    
    
    55.0
    
    
    
    25.6
    
    
    
    
    
    
    
    80.6Cash and cash equivalents at end of period
    
    $
    97.7
    
    
    $
    
    
    
    $
    
    
    
    $
    97.7
 November 1, 2008GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    24.1
    
    
    $
    10.8
    
    
    $
    
    
    
    $
    34.9Cash flows used for investing activities:Capital expenditures
    
    
    (43.3
    )
    
    
    (11.8
    )
    
    
    
    
    
    
    (55.1
    )Cash used for investing activities
    
    
    (43.3
    )
    
    
    (11.8
    )
    
    
    
    
    
    
    (55.1
    )Net cash flows provided by financing activities:Purchase of senior subordinated notes
    
    
    (18.0
    )
    
    
    
    
    
    
    
    
    
    
    (18.0
    )Net change in revolving credit facility
    
    
    33.1
    
    
    
    
    
    
    
    
    
    
    
    33.1Proceeds from stock-based compensation plans
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0Other, net
    
    
    (1.5
    )
    
    
    
    
    
    
    
    
    
    
    (1.5
    )Net cash provided by financing activities
    
    
    19.6
    
    
    
    
    
    
    
    
    
    
    
    19.6Net increase (decrease) in cash and cash equivalents
    
    
    0.4
    
    
    
    (1.0
    )
    
    
    
    
    
    
    (0.6
    )Cash and cash equivalents at beginning of period
    
    
    (1.0
    )
    
    
    26.4
    
    
    
    
    
    
    
    25.4Cash and cash equivalents at end of period
    
    $
    (0.6
    )
    
    $
    25.4
    
    
    $
    
    
    
    $
    24.8
  13




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
  General Overview
    Executive Overview
    
    
    Our strategic plan continues to have a positive impact on results. The initiatives to
revitalize our store portfolio, enhance our merchandising programs and provide a more
compelling in-store shopping experience are all making a meaningful difference for our
customers.
 
    
    We believe that the competitive environment is providing an opportunity for us to
capture market share. In the specialty retail channel, we believe we are capturing market
share from weaker competitors, based on our sales trend relative to other craft and fabric
retailers. In addition, Wal-Mart continues to remove fabric departments as they remodel
stores.
  14




---



##### Table of Contents




    
    While consumer confidence is still
reported to be tenuous, we are beginning to see improving sales trends in some categories
that have been struggling through the recession.
    
    
    More direct sourcing of products from Asia;
 
    
    Lower transportation expenses;
 
    
    Product cost deflation on imported merchandise;
 
    
    Reduced seasonal and fashion merchandise; and
 
    
    Improvements in markdown controls from our new POS system enhancements.
      15




---



##### Table of Contents



Recent Developments and Business Update
 Outlook for Fiscal 2010
  
    
    Same-store sales increase of approximately 2.3% to 2.7% for the year;
 
    
    Gross margin rate improvement for the year greater than our trend for the first nine
months of the year;
 
    
    SG&A, as a percentage of net sales, improvement for the year, but less than our trend
for the first nine months of the year;
 
    
    Capital expenditures, net of landlord allowances, for the full year of approximately $30
million;
 
    
    Earnings per diluted share in the range of $1.95 to $2.05 for the year (excluding any
gains on debt purchases);
 
    
    Free cash flow in the range of $88 to $91 million for the year (free cash flow defined
as net income plus depreciation and amortization, stock-based compensation expense and
changes in working capital, less capital expenditures);
 
    
    Weighted-average diluted share count of approximately 26.5 million shares for the year.
  Results of Operations
  Percentage of Net SalesThirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedOct 31,
    
    
    Nov 1,
    
    
    Oct 31,
    
    
    Nov 1,2009
    
    
    2008
    
    
    2009
    
    
    2008Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross margin
    
    
    51.0
    %
    
    
    49.0
    %
    
    
    49.6
    %
    
    
    47.7
    %Selling, general and administrative
expenses
    
    
    39.7
    %
    
    
    41.6
    %
    
    
    42.2
    %
    
    
    43.3
    %Store pre-opening and closing costs
    
    
    0.4
    %
    
    
    1.0
    %
    
    
    0.6
    %
    
    
    0.8
    %Depreciation and amortization
    
    
    2.7
    %
    
    
    2.8
    %
    
    
    3.0
    %
    
    
    3.0
    %Operating profit
    
    
    8.2
    %
    
    
    3.6
    %
    
    
    3.8
    %
    
    
    0.6
    %
  16




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##### Table of Contents



Net
Sales.
 Consolidated
Net Sales:
 Thirteen Weeks Ended
    
    
    
    
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    Percentage
    
    
    October 31,
    
    
    November 1,
    
    
    Percentage(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeConsolidated net sales
    
    $
    509.1
    
    
    $
    480.1
    
    
    
    6.0
    %
    
    $
    1,388.5
    
    
    $
    1,329.2
    
    
    
    4.5
    %Increase from prior year
    
    $
    29.0
    
    
    
    
    
    
    
    
    
    
    $
    59.3Same-store sales
percentage change
    
    
    4.3
    %
    
    
    (1.5
    )%
    
    
    
    
    
    
    2.5
    %
    
    
    1.9
    %
 Comparison of the Thirteen Weeks Ended October 31, 2009 to November 1, 2008
    Comparison of the Thirty-Nine Weeks Ended October 31, 2009 to November 1, 2008
    17




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##### Table of Contents



Sales by Segment:
 Thirteen Weeks Ended
    
    
    
    
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    Percentage
    
    
    October 31,
    
    
    November 1,
    
    
    Percentage(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeLarge-format storesNet sales
    
    $
    272.0
    
    
    $
    250.2
    
    
    
    8.7
    %
    
    $
    747.1
    
    
    $
    695.8
    
    
    
    7.4
    %Increase from prior year
    
    $
    21.8
    
    
    
    
    
    
    
    
    
    
    $
    51.3Same-store
sales percentage change
    
    
    2.3
    %
    
    
    (3.8
    )%
    
    
    
    
    
    
    0.7
    %
    
    
    0.3
    %Small-format storesNet sales
    
    $
    228.5
    
    
    $
    221.8
    
    
    
    3.0
    %
    
    $
    615.8
    
    
    $
    610.0
    
    
    
    1.0
    %Increase from prior year
    
    $
    6.7
    
    
    
    
    
    
    
    
    
    
    $
    5.8Same-store sales
percentage change
    
    
    6.7
    %
    
    
    1.2
    %
    
    
    
    
    
    
    4.7
    %
    
    
    3.7
    %OtherNet sales
    
    $
    8.6
    
    
    $
    8.1
    
    
    
    6.2
    %
    
    $
    25.6
    
    
    $
    23.4
    
    
    
    9.4
    %Increase from prior year
    
    $
    0.5
    
    
    
    
    
    
    
    
    
    
    $
    2.2
 Comparison of the Thirteen Weeks Ended October 31, 2009 to November 1, 2008
       18




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##### Table of Contents



Comparison of the Thirty-Nine Weeks Ended October 31, 2009 to November 1, 2008
      Gross Margin.
  19




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##### Table of Contents



Gross Margin:
 Thirteen Weeks Ended
    
    
    
    
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    Percentage
    
    
    October 31,
    
    
    November 1,
    
    
    Percentage(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeGross margin
    
    $
    259.8
    
    
    $
    235.3
    
    
    
    10.4
    %
    
    $
    689.3
    
    
    $
    633.9
    
    
    
    8.7
    %Increase from prior year
    
    $
    24.5
    
    
    
    
    
    
    
    
    
    
    $
    55.4Percentage of
consolidated net
sales
    
    
    51.0
    %
    
    
    49.0
    %
    
    
    
    
    
    
    49.6
    %
    
    
    47.7
    %
    Selling, general and administrative expenses.
 Selling, General and Administrative Expenses:
 Thirteen Weeks Ended
    
    
    
    
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    Percentage
    
    
    October 31,
    
    
    November 1,
    
    
    Percentage(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeSG&A
    
    $
    202.0
    
    
    $
    199.5
    
    
    
    1.3
    %
    
    $
    585.7
    
    
    $
    575.6
    
    
    
    1.8
    %Increase from prior year
    
    $
    2.5
    
    
    
    
    
    
    
    
    
    
    $
    10.1Percentage of
consolidated net sales
    
    
    39.7
    %
    
    
    41.6
    %
    
    
    
    
    
    
    42.2
    %
    
    
    43.3
    %
    20




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##### Table of Contents



Store pre-opening and closing costs.
     Depreciation and amortization.
   21




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##### Table of Contents



Operating Profit (Loss):
 Thirteen Weeks Ended
    
    
    
    
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    Percentage
    
    
    October 31,
    
    
    November 1,
    
    
    Percentage(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeOperating profit
    
    $
    41.5
    
    
    $
    17.3
    
    
    
    139.9
    %
    
    $
    53.0
    
    
    $
    8.2
    
    
    
    546.3
    %Increase from prior year
    
    $
    24.2
    
    
    
    
    
    
    
    
    
    
    $
    44.8
  Operating Profit (Loss) by Segment:
 Thirteen Weeks Ended
    
    
    
    
    
    
    Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,
    
    
    Percentage
    
    
    October 31,
    
    
    November 1,
    
    
    Percentage(Dollars in millions)
    
    2009
    
    
    2008
    
    
    Change
    
    
    2009
    
    
    2008
    
    
    ChangeLarge-format storesOperating profit
    
    $
    37.2
    
    
    $
    21.2
    
    
    
    75.5
    %
    
    $
    73.2
    
    
    $
    42.8
    
    
    
    71.0
    %Increase from prior year
    
    $
    16.0
    
    
    
    
    
    
    
    
    
    
    $
    30.4Small-format storesOperating profit
    
    $
    40.5
    
    
    $
    25.9
    
    
    
    56.4
    %
    
    $
    83.5
    
    
    $
    62.5
    
    
    
    33.6
    %Increase from prior year
    
    $
    14.6
    
    
    
    
    
    
    
    
    
    
    $
    21.0OtherOperating loss
    
    $
    (36.2
    )
    
    $
    (29.8
    )
    
    
    21.5
    %
    
    $
    (103.7
    )
    
    $
    (97.1
    )
    
    
    6.8
    %Increase from prior year
    
    $
    (6.4
    )
    
    
    
    
    
    
    
    
    
    $
    (6.6
    )
 Comparison of the Thirteen Weeks Ended October 31, 2009 to November 1, 2008
    Comparison of the Thirty-Nine Weeks Ended October 31, 2009 to November 1, 2008
    22




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##### Table of Contents



Gain on purchase of senior subordinated notes.
   Interest expense.
  Income taxes .
 Liquidity and Capital Resources
   23




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##### Table of Contents



Dollars in millions
    
    2010
    
    
    2009Net cash provided by operating activities
    
    $
    54.4
    
    
    $
    34.9Cash used for investing activities
    
    
    (26.1
    )
    
    
    (55.1
    )Net cash (used for) provided by financing activities
    
    
    (11.2
    )
    
    
    19.6Net increase (decrease) in cash and cash equivalents
    
    $
    17.1
    
    
    $
    (0.6
    )Ending cash and cash equivalents
    
    $
    97.7
    
    
    $
    24.8
 Net cash provided by operating activities
  Cash used for investing activities
  Thirty-Nine Weeks EndedOctober 31,
    
    
    November 1,Dollars in millions
    
    2009
    
    
    2008Cash
    
    $
    17.0
    
    
    $
    49.0Cash  landlord reimbursed
    
    
    9.1
    
    
    
    6.1Total
    
    $
    26.1
    
    
    $
    55.1
   24




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##### Table of Contents



Net cash (used for) provided by financing activities
    Off-Balance Sheet Transactions
  Seasonality and Inflation
   Critical Accounting Policies
   25




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##### Table of Contents



Contractual Obligations
  Cautionary Statement Concerning Forward-Looking Statements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
   26




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
   
 Item 1A. Risk Factors
   27




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##### Table of Contents



Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by Jo-Ann Stores, Inc.
 Total Number of
    
    
    Maximum NumberShares Purchased
    
    
    of Shares that MayTotal Number
    
    
    Average
    
    
    as Part of Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Under the Plans orPurchased
    
    
    per Share
    
    
    or Programs
    
    
    ProgramsAugust 2  29, 2009
    
    
    3,535
    
    
    $
    23.35
    
    
    
    1,199,720
    
    
    
    950,280August 30  October 3, 2009
    
    
    8,164
    
    
    $
    27.48
    
    
    
    1,207,884
    
    
    
    942,116October 4  October 31, 2009
    
    
    232
    
    
    $
    27.94
    
    
    
    1,208,116
    
    
    
    941,884Total
    
    
    11,931
    
    
    $
    26.27
    
    
    
    1,208,116
    
    
    
    941,884
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
  
 Item 6. Exhibits
 Exhibits
 No.
    
    Exhibit Description31.1
    
    
    Section 302 Certification By Chief Executive Officer31.2
    
    
    Section 302 Certification By Chief Financial Officer32.1
    
    
    Section 906 Certification of Principal Executive Officer and
Principal Financial Officer
  28




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##### Table of Contents



SIGNATURES
  JO-ANN STORES, INC.DATE: December 8, 2009
    /s/ Darrell WebbDarrell WebbPresident and Chief Executive Officer/s/ James KerrJames KerrExecutive Vice President and Chief Financial Officer  29