##### 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 May 3, 2008
 Commission File No. 1-6695
 
 JO-ANN STORES, INC.
  Ohio
(State or other jurisdiction of 
incorporation or organization)
    
    34-0720629
(I.R.S. Employer Identification No.)
 5555 Darrow Road, Hudson, Ohio
(Address of principal executive offices)
    
    44236
(Zip Code)
 (330) 656-2600
 þ o
  Large accelerated filer  o
    
    Accelerated filer  þNon-accelerated filer  o
    
    Smaller reporting company  o(Do not check if a smaller reporting company)
 o þ




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##### 



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended May 3, 2008
  
 Page NumbersPart I.
    
    Financial InformationItem 1.
    
    Financial StatementsConsolidated Balance Sheets  May 3, 2008 (Unaudited),
May 5, 2007 (Unaudited) and February 2, 2008
    
    
    1Unaudited Consolidated Statements of Operations for the Thirteen
Weeks Ended May 3, 2008 and May 5, 2007
    
    
    2Unaudited Consolidated Statements of Cash Flows for the
Thirteen Weeks Ended May 3, 2008 and May 5, 2007
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2.
    
    Managements Discussion and Analysis of Financial Condition
and Results of Operations
    
    
    12Item 3.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    19Item 4.
    
    Controls and Procedures
    
    
    19Part II.
    
    Other InformationItem 1.
    
    Legal Proceedings
    
    
    20Item 1A.
    
    Risk Factors
    
    
    20Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    20Item 3.
    
    Defaults Upon Senior Securities
    
    
    20Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    20Item 5.
    
    Other Information
    
    
    20Item 6.
    
    Exhibits
    
    
    21Signatures
    
    
    22EX-31.1EX-31.2EX-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)May 3,
    
    
    May 5,
    
    
    February 2,2008
    
    
    2007
    
    
    2008(Dollars in millions,except share and per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    57.9
    
    
    $
    19.9
    
    
    $
    25.4Inventories
    
    
    426.9
    
    
    
    434.9
    
    
    
    472.2Deferred income taxes
    
    
    25.6
    
    
    
    38.3
    
    
    
    26.4Prepaid expenses and other current assets
    
    
    23.3
    
    
    
    27.7
    
    
    
    23.8Total current assets
    
    
    533.7
    
    
    
    520.8
    
    
    
    547.8Property, equipment and leasehold improvements, net
    
    
    297.5
    
    
    
    306.4
    
    
    
    297.5Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    11.8Other assets
    
    
    11.8
    
    
    
    10.1
    
    
    
    12.3Total assets
    
    $
    854.8
    
    
    $
    837.3
    
    
    $
    869.4Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    138.7
    
    
    $
    134.5
    
    
    $
    145.3Accrued expenses
    
    
    85.4
    
    
    
    72.0
    
    
    
    97.1Total current liabilities
    
    
    224.1
    
    
    
    206.5
    
    
    
    242.4Long-term debt
    
    
    100.0
    
    
    
    117.8
    
    
    
    100.0Long-term deferred income taxes
    
    
    
    
    
    
    14.4
    
    
    
    Lease obligations and other long-term liabilities
    
    
    86.0
    
    
    
    84.6
    
    
    
    87.0Shareholders 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 28,319,612; 27,921,041 and 28,072,032 shares, respectively
    
    
    1.4
    
    
    
    1.4
    
    
    
    1.4Additional paid-in capital
    
    
    197.2
    
    
    
    185.3
    
    
    
    194.6Retained earnings
    
    
    291.5
    
    
    
    271.4
    
    
    
    288.5490.1
    
    
    
    458.1
    
    
    
    484.5Treasury stock, at cost; 3,645,488; 3,569,214 and 3,586,872 shares, respectively
    
    
    (45.4
    )
    
    
    (44.1
    )
    
    
    (44.5
    )Total shareholders equity
    
    
    444.7
    
    
    
    414.0
    
    
    
    440.0Total liabilities and shareholders equity
    
    $
    854.8
    
    
    $
    837.3
    
    
    $
    869.4
  1




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##### Table of Contents



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Operations
(Unaudited)
 Thirteen Weeks EndedMay 3,
    
    
    May 5,2008
    
    
    2007(Dollars in millions,except share and per share data)Net sales
    
    $
    446.1
    
    
    $
    424.2Cost of sales (exclusive of depreciation and
amortization shown separately
below)
    
    
    239.3
    
    
    
    223.6Gross margin
    
    
    206.8
    
    
    
    200.6Selling, general and administrative expenses
    
    
    184.5
    
    
    
    185.5Store pre-opening and closing costs
    
    
    1.8
    
    
    
    2.4Depreciation and amortization
    
    
    13.1
    
    
    
    12.6Operating profit
    
    
    7.4
    
    
    
    0.1Interest expense, net
    
    
    2.4
    
    
    
    2.7Income (loss) before income taxes
    
    
    5.0
    
    
    
    (2.6
    )Income tax provision (benefit)
    
    
    2.0
    
    
    
    (0.9
    )Net income (loss)
    
    $
    3.0
    
    
    $
    (1.7
    )Net income (loss) per common share  basic
    
    $
    0.12
    
    
    $
    (0.07
    )Net income (loss) per common share  diluted
    
    $
    0.12
    
    
    $
    (0.07
    )Weighted average shares outstanding (in thousands):Basic
    
    
    24,542
    
    
    
    24,039Diluted
    
    
    25,043
    
    
    
    24,039
  2




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##### Table of Contents



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Cash Flows
(Unaudited)
 Thirteen Weeks EndedMay 3,
    
    
    May 5,2008
    
    
    2007(Dollars in millions)Net cash flows provided by operating activities:Net income (loss)
    
    $
    3.0
    
    
    $
    (1.7
    )Adjustments to reconcile net income (loss) to net cash provided
by operating activities:Depreciation and amortization
    
    
    13.1
    
    
    
    12.6Deferred income taxes
    
    
    0.4
    
    
    
    3.5Stock-based compensation expense
    
    
    2.0
    
    
    
    1.2Amortization of deferred financing costs
    
    
    0.2
    
    
    
    0.2Loss on disposal of fixed assets
    
    
    0.2
    
    
    
    0.2Changes in operating assets and liabilities:Decrease in inventories
    
    
    45.3
    
    
    
    18.5Decrease in prepaid expenses and other current assets
    
    
    0.5
    
    
    
    2.7Decrease in accounts payable
    
    
    (6.6
    )
    
    
    (13.0
    )Decrease in accrued expenses
    
    
    (11.7
    )
    
    
    (14.0
    )(Decrease) increase in lease obligations, net
    
    
    (1.0
    )
    
    
    0.3Decrease in other long-term liabilities
    
    
    
    
    
    
    (0.8
    )Other, net
    
    
    0.3
    
    
    
    0.4Net cash provided by operating activities
    
    
    45.7
    
    
    
    10.1Net cash flows used for investing activities:Capital expenditures
    
    
    (13.3
    )
    
    
    (7.4
    )Net cash used for investing activities
    
    
    (13.3
    )
    
    
    (7.4
    )Net cash flows provided by (used for) financing activities:Net change in revolving credit facility
    
    
    
    
    
    
    (7.5
    )Proceeds from stock-based compensation plans
    
    
    1.0
    
    
    
    6.0Other, net
    
    
    (0.9
    )
    
    
    0.3Net cash provided by (used for) financing activities
    
    
    0.1
    
    
    
    (1.2
    )Net increase in cash and cash equivalents
    
    
    32.5
    
    
    
    1.5Cash and cash equivalents at beginning of period
    
    
    25.4
    
    
    
    18.4Cash and cash equivalents at end of period
    
    $
    57.9
    
    
    $
    19.9Supplemental disclosures of cash flow information:Cash paid during the period for:Interest
    
    $
    4.0
    
    
    $
    4.4Income taxes, net of refunds
    
    
    1.7
    
    
    
    
  3




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Notes to Consolidated Financial Statements (Unaudited)
Jo-Ann Stores, Inc
 Note 1  Basis of Presentation
     Note 2  Earnings (Loss) Per Share
   Thirteen Weeks EndedMay 3,
    
    May 5,2008
    
    2007Weighted average shares outstanding:Basic common shares
    
    
    24,542
    
    
    
    24,039Incremental shares from assumed exercise of stock options
    
    
    177
    
    
    
    Incremental restricted shares
    
    
    324
    
    
    
    Diluted common shares
    
    
    25,043
    
    
    
    24,039
 4




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Note 3  Shareholders Equity
  CommonStock
    
    Additional
    
    
    
    
    
    
    
    
    
    TotalCommon
    
    Treasury
    
    
    Stated
    
    Paid-In
    
    Retained
    
    Treasury
    
    ShareholdersShares
    
    Shares
    
    
    Value
    
    Capital
    
    Earnings
    
    Stock
    
    Equity(Shares in thousands)
    
    
    (Dollars in millions)Balance, February 2, 2008
    
    
    24,485
    
    
    
    3,587
    
    
    
    $
    1.4
    
    
    $
    194.6
    
    
    $
    288.5
    
    
    
    ($44.5
    )
    
    $
    440.0Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.0
    
    
    
    
    
    
    
    3.0Exercise of stock options
    
    
    3
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Tax on equity compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.4
    )
    
    
    
    
    
    
    
    
    
    
    (0.4
    )Stock-based compensation
    
    
    166
    
    
    
    
    
    
    
    
    
    
    
    
    2.0
    
    
    
    
    
    
    
    
    
    
    
    2.0Purchase of common stock
    
    
    (59
    )
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (0.9
    )
    
    
    (0.9
    )Associate stock ownership plan
    
    
    79
    
    
    
    
    
    
    
    
    
    
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Year-to-date activity
    
    
    189
    
    
    
    59
    
    
    
    
    
    
    
    
    2.6
    
    
    
    3.0
    
    
    
    (0.9
    )
    
    
    4.7Balance, May 3, 2008
    
    
    24,674
    
    
    
    3,646
    
    
    
    $
    1.4
    
    
    $
    197.2
    
    
    $
    291.5
    
    
    
    ($45.4
    )
    
    $
    444.7
  Note 4  Recent Accounting Pronouncements
 Statement of Financial Accounting Standards No. 157, Fair Value Measurements
  Statement of Financial Accounting Standards No. 141 (revised 2007), Business Combinations
  5




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Statement of Financial Accounting Standards No. 160, Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51
  Note 5  Segment Reporting
    6




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Large-format
    
    Small-formatStores
    
    Stores
    
    Other
    
    ConsolidatedThirteen Weeks Ended May 3, 2008Net sales
    
    $
    230.2
    
    
    $
    207.7
    
    
    $
    8.2
    
    
    $
    446.1Store pre-opening and closing costs
    
    
    1.2
    
    
    
    0.6
    
    
    
    
    
    
    
    1.8Depreciation and amortization
    
    
    7.8
    
    
    
    2.2
    
    
    
    3.1
    
    
    
    13.1Operating profit (loss)
    
    
    15.5
    
    
    
    24.9
    
    
    
    (33.0
    )
    
    
    7.4Capital expenditures
    
    
    4.5
    
    
    
    0.8
    
    
    
    8.0
    
    
    
    13.3Property, equipment and leasehold
improvements, net
    
    
    161.4
    
    
    
    34.9
    
    
    
    101.2
    
    
    
    297.5
 Large-format
    
    Small-formatStores
    
    Stores
    
    Other
    
    ConsolidatedThirteen Weeks Ended May 5, 2007Net sales
    
    $
    219.3
    
    
    $
    204.9
    
    
    $
    
    
    
    $
    424.2Store pre-opening and closing costs
    
    
    0.9
    
    
    
    1.5
    
    
    
    
    
    
    
    2.4Depreciation and amortization
    
    
    7.6
    
    
    
    2.2
    
    
    
    2.8
    
    
    
    12.6Operating profit (loss)
    
    
    10.8
    
    
    
    21.4
    
    
    
    (32.1
    )
    
    
    0.1Capital expenditures
    
    
    6.4
    
    
    
    0.5
    
    
    
    0.5
    
    
    
    7.4Property, equipment and leasehold
improvements, net
    
    
    170.9
    
    
    
    38.9
    
    
    
    96.6
    
    
    
    306.4
 Note 6  Consolidating Financial Statements (Unaudited)
  7




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Note 6  Consolidating Financial Statements (Unaudited)  CONTINUED
  Consolidating Balance Sheets
May 3, 2008
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    31.5
    
    
    $
    26.4
    
    
    $
    
    
    
    $
    57.9Inventories
    
    
    205.1
    
    
    
    221.8
    
    
    
    
    
    
    
    426.9Deferred income taxes
    
    
    18.7
    
    
    
    6.9
    
    
    
    
    
    
    
    25.6Prepaid expenses and other current assets
    
    
    18.2
    
    
    
    5.1
    
    
    
    
    
    
    
    23.3Total current assets
    
    
    273.5
    
    
    
    260.2
    
    
    
    
    
    
    
    533.7Property, equipment and leasehold improvements,
net
    
    
    146.1
    
    
    
    151.4
    
    
    
    
    
    
    
    297.5Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    
    
    
    
    11.8Other assets
    
    
    17.4
    
    
    
    (5.6
    )
    
    
    
    
    
    
    11.8Investment in subsidiaries
    
    
    72.8
    
    
    
    
    
    
    
    (72.8
    )
    
    
    Intercompany receivable
    
    
    318.7
    
    
    
    
    
    
    
    (318.7
    )
    
    
    Total assets
    
    $
    840.3
    
    
    $
    406.0
    
    
    $
    (391.5
    )
    
    $
    854.8Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    150.7
    
    
    
    ($12.0
    )
    
    $
    
    
    
    $
    138.7Accrued expenses
    
    
    89.2
    
    
    
    (3.8
    )
    
    
    
    
    
    
    85.4Total current liabilities
    
    
    239.9
    
    
    
    (15.8
    )
    
    
    
    
    
    
    224.1Long-term debt
    
    
    100.0
    
    
    
    
    
    
    
    
    
    
    
    100.0Long-term deferred income taxes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Lease obligations and other long-term liabilities
    
    
    55.7
    
    
    
    30.3
    
    
    
    
    
    
    
    86.0Intercompany payable
    
    
    
    
    
    
    318.7
    
    
    
    (318.7
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    197.2
    
    
    
    
    
    
    
    
    
    
    
    197.2Retained earnings
    
    
    291.5
    
    
    
    72.8
    
    
    
    (72.8
    )
    
    
    291.5490.1
    
    
    
    72.8
    
    
    
    (72.8
    )
    
    
    490.1Treasury stock, at cost
    
    
    (45.4
    )
    
    
    
    
    
    
    
    
    
    
    (45.4
    )Total shareholders equity
    
    
    444.7
    
    
    
    72.8
    
    
    
    (72.8
    )
    
    
    444.7Total liabilities and shareholders equity
    
    $
    840.3
    
    
    $
    406.0
    
    
    $
    (391.5
    )
    
    $
    854.8
 8




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Note 6  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Balance Sheets
February 2, 2008
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    (1.0
    )
    
    $
    26.4
    
    
    $
    
    
    
    $
    25.4Inventories
    
    
    208.5
    
    
    
    263.7
    
    
    
    
    
    
    
    472.2Deferred income taxes
    
    
    20.1
    
    
    
    6.3
    
    
    
    
    
    
    
    26.4Prepaid expenses and other current assets
    
    
    17.8
    
    
    
    6.0
    
    
    
    
    
    
    
    23.8Total current assets
    
    
    245.4
    
    
    
    302.4
    
    
    
    
    
    
    
    547.8Property, equipment and leasehold improvements,
net
    
    
    142.8
    
    
    
    154.7
    
    
    
    
    
    
    
    297.5Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    
    
    
    
    11.8Other assets
    
    
    12.8
    
    
    
    (0.5
    )
    
    
    
    
    
    
    12.3Investment in subsidiaries
    
    
    70.9
    
    
    
    
    
    
    
    (70.9
    )
    
    
    Intercompany receivable
    
    
    355.5
    
    
    
    
    
    
    
    (355.5
    )
    
    
    Total assets
    
    $
    839.2
    
    
    $
    456.6
    
    
    $
    (426.4
    )
    
    $
    869.4Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    151.6
    
    
    $
    (6.3
    )
    
    $
    
    
    
    $
    145.3Accrued expenses
    
    
    96.5
    
    
    
    0.6
    
    
    
    
    
    
    
    97.1Total current liabilities
    
    
    248.1
    
    
    
    (5.7
    )
    
    
    
    
    
    
    242.4Long-term debt
    
    
    100.0
    
    
    
    
    
    
    
    
    
    
    
    100.0Long-term deferred income taxes
    
    
    (5.2
    )
    
    
    5.2
    
    
    
    
    
    
    
    Lease obligations and other long-term liabilities
    
    
    56.3
    
    
    
    30.7
    
    
    
    
    
    
    
    87.0Intercompany payable
    
    
    
    
    
    
    355.5
    
    
    
    (355.5
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    194.6
    
    
    
    
    
    
    
    
    
    
    
    194.6Retained earnings
    
    
    288.5
    
    
    
    70.9
    
    
    
    (70.9
    )
    
    
    288.5484.5
    
    
    
    70.9
    
    
    
    (70.9
    )
    
    
    484.5Treasury stock, at cost
    
    
    (44.5
    )
    
    
    
    
    
    
    
    
    
    
    (44.5
    )Total shareholders equity
    
    
    440.0
    
    
    
    70.9
    
    
    
    (70.9
    )
    
    
    440.0Total liabilities and shareholders equity
    
    $
    839.2
    
    
    $
    456.6
    
    
    $
    (426.4
    )
    
    $
    869.4
 9




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##### Table of Contents



Note 6  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Thirteen Weeks Ended May 3, 2008 and May 5, 2007
 May 3, 2008GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    238.6
    
    
    $
    336.6
    
    
    $
    (129.1
    )
    
    $
    446.1Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    139.6
    
    
    
    228.8
    
    
    
    (129.1
    )
    
    
    239.3Gross margin
    
    
    99.0
    
    
    
    107.8
    
    
    
    
    
    
    
    206.8Selling, general and administrative expenses
    
    
    88.4
    
    
    
    96.1
    
    
    
    
    
    
    
    184.5Store pre-opening and closing costs
    
    
    0.9
    
    
    
    0.9
    
    
    
    
    
    
    
    1.8Depreciation and amortization
    
    
    6.5
    
    
    
    6.6
    
    
    
    
    
    
    
    13.1Operating profit
    
    
    3.2
    
    
    
    4.2
    
    
    
    
    
    
    
    7.4Interest expense, net
    
    
    1.1
    
    
    
    1.3
    
    
    
    
    
    
    
    2.4Income before income taxes
    
    
    2.1
    
    
    
    2.9
    
    
    
    
    
    
    
    5.0Income tax provision
    
    
    1.0
    
    
    
    1.0
    
    
    
    
    
    
    
    2.0Income before equity income
    
    
    1.1
    
    
    
    1.9
    
    
    
    
    
    
    
    3.0Equity income from subsidiaries
    
    
    1.9
    
    
    
    
    
    
    
    (1.9
    )
    
    
    Net income
    
    $
    3.0
    
    
    $
    1.9
    
    
    $
    (1.9
    )
    
    $
    3.0
 May 5, 2007GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    233.1
    
    
    $
    275.9
    
    
    $
    (84.8
    )
    
    $
    424.2Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    128.3
    
    
    
    180.1
    
    
    
    (84.8
    )
    
    
    223.6Gross margin
    
    
    104.8
    
    
    
    95.8
    
    
    
    
    
    
    
    200.6Selling, general and administrative expenses
    
    
    93.3
    
    
    
    92.2
    
    
    
    
    
    
    
    185.5Store pre-opening and closing costs
    
    
    0.9
    
    
    
    1.5
    
    
    
    
    
    
    
    2.4Depreciation and amortization
    
    
    6.2
    
    
    
    6.4
    
    
    
    
    
    
    
    12.6Operating profit (loss)
    
    
    4.4
    
    
    
    (4.3
    )
    
    
    
    
    
    
    0.1Interest expense, net
    
    
    1.2
    
    
    
    1.5
    
    
    
    
    
    
    
    2.7Income (loss) before income taxes
    
    
    3.2
    
    
    
    (5.8
    )
    
    
    
    
    
    
    (2.6
    )Income tax provision (benefit)
    
    
    0.5
    
    
    
    (1.4
    )
    
    
    
    
    
    
    (0.9
    )Income (loss) before equity income (loss)
    
    
    2.7
    
    
    
    (4.4
    )
    
    
    
    
    
    
    (1.7
    )Equity loss from subsidiaries
    
    
    (4.4
    )
    
    
    
    
    
    
    4.4
    
    
    
    Net loss
    
    $
    (1.7
    )
    
    $
    (4.4
    )
    
    $
    4.4
    
    
    $
    (1.7
    )
 10




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##### Table of Contents



Note 7  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Cash Flows
Thirteen Weeks Ended May 3, 2008 and May 5, 2007
 May 3, 2008GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    42.3
    
    
    $
    3.4
    
    
    $
    
    
    
    $
    45.7Net cash flows used for investing activities:Capital expenditures
    
    
    (9.9
    )
    
    
    (3.4
    )
    
    
    
    
    
    
    (13.3
    )Net cash used for investing activities
    
    
    (9.9
    )
    
    
    (3.4
    )
    
    
    
    
    
    
    (13.3
    )Net cash flows provided by financing activities:Proceeds from stock-based compensation plans
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Other, net
    
    
    (0.9
    )
    
    
    
    
    
    
    
    
    
    
    (0.9
    )Net cash provided by financing activities
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    0.1Net increase in cash and cash equivalents
    
    
    32.5
    
    
    
    
    
    
    
    
    
    
    
    32.5Cash and cash equivalents at beginning of period
    
    
    (1.0
    )
    
    
    26.4
    
    
    
    
    
    
    
    25.4Cash and cash equivalents at end of period
    
    $
    31.5
    
    
    $
    26.4
    
    
    $
    
    
    
    $
    57.9
 May 5, 2007GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    4.8
    
    
    $
    5.3
    
    
    $
    
    
    
    $
    10.1Net cash flows used for investing activities:Capital expenditures
    
    
    (2.1
    )
    
    
    (5.3
    )
    
    
    
    
    
    
    (7.4
    )Net cash used for investing activities
    
    
    (2.1
    )
    
    
    (5.3
    )
    
    
    
    
    
    
    (7.4
    )Net cash flows used for financing activities:Net change in revolving credit facility
    
    
    (7.5
    )
    
    
    
    
    
    
    
    
    
    
    (7.5
    )Proceeds from stock-based compensation plans
    
    
    6.0
    
    
    
    
    
    
    
    
    
    
    
    6.0Other, net
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    0.3Net cash used for financing activities
    
    
    (1.2
    )
    
    
    
    
    
    
    
    
    
    
    (1.2
    )Net increase in cash and cash equivalents
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    1.5Cash and cash equivalents at beginning of period
    
    
    (8.8
    )
    
    
    27.2
    
    
    
    
    
    
    
    18.4Cash and cash equivalents at end of period
    
    $
    (7.3
    )
    
    $
    27.2
    
    
    $
    
    
    
    $
    19.9
 11




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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
     12




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##### Table of Contents




    
    Our forecasting methodology for weekly sales and labor needs;
    
    Our process for handling back-stock and shelf replenishment; and
    
    Our procedures to prepare for and execute physical inventories.
    Recent Developments and Business Update
  
    
    Same-store sales growth of 1% to 3% for the year;
    
    Gross margin rate improvement for the year;
 13




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##### Table of Contents




    
    SG&A expense leverage improvement as a percentage of net sales for the year;
    
    Capital expenditures for the full year of $50 to $55 million;
    
    Earnings per diluted share in the range of $0.75 to $0.85 for the year versus
the previously announced range of $0.70 to $0.85; and
    
    Weighted-average diluted share count of approximately 25.5 million shares for
the year.
 Results of Operations
  Percentage of Net SalesThirteen Weeks EndedMay 3, 2008
    
    May 5, 2007Net sales
    
    
    100.0%
    
    
    
    100.0%Gross margin
    
    
    46.4%
    
    
    
    47.3%Selling, general and administrative expenses
    
    
    41.4%
    
    
    
    43.7%Store pre-opening and closing costs
    
    
    0.4%
    
    
    
    0.6%Depreciation and amortization
    
    
    2.9%
    
    
    
    3.0%Operating profit
    
    
    1.7%
    
    
    
    0.0%
 Comparison of the Thirteen Weeks Ended May 3, 2008 to May 5, 2007
 Net Sales .
     14




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##### Table of Contents



Gross Margin.
 Selling, general and administrative expenses.
  Store pre-opening and closing costs.
  15




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##### Table of Contents



Depreciation and amortization.
 Operating profit.
   Interest expense.
 Income taxes.
 Liquidity and Capital Resources
   Dollars in millions
    
    2009
    
    2008Net cash provided by operating activities
    
    $
    45.7
    
    
    $
    10.1Net cash used for investing activities
    
    
    (13.3
    )
    
    
    (7.4
    )Net cash provided by (used for) financing activities
    
    
    0.1
    
    
    
    (1.2
    )Net increase in cash and cash equivalents
    
    $
    32.5
    
    
    $
    1.5Ending cash and cash equivalents
    
    $
    57.9
    
    
    $
    19.9
 16




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##### Table of Contents



Net cash provided by operating activities
  Net cash used for investing activities
  Thirteen Weeks EndedMay 3,
    
    
    May 5,Dollars in millions
    
    2008
    
    
    2007Cash
    
    $
    12.7
    
    
    $
    4.5Cash  landlord reimbursed
    
    
    0.6
    
    
    
    2.9Total
    
    $
    13.3
    
    
    $
    7.4
  Net cash provided by (used for) financing activities
  17




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##### Table of Contents



Off-Balance Sheet Transactions
  Seasonality and Inflation
   Critical Accounting Policies
  Contractual Obligations
  18




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##### Table of Contents



Cautionary Statement Concerning Forward-Looking Statements
  
 Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4.
    
    Controls and Procedures
   19




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##### Table of Contents



PART II.  OTHER INFORMATION
 
 Item 1.
    
    Legal Proceedings
  
 Item 1A.
    
    Risk Factors
  
 Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
 Purchases of Equity Securities by Jo-Ann Stores, Inc.
 Maximum Number ofTotal Number of Shares
    
    Shares that May YetPurchased as Part of
    
    Be Purchased UnderTotal Number
    
    Average Price Paid
    
    Publicly Announced
    
    the Plans orof Shares Purchased
    
    per Share
    
    Plans or Programs
    
    ProgramsFebruary 3  March 1, 2008
    
    
    926
    
    
    $
    15.20
    
    
    
    1,027,855
    
    
    
    1,122,145March 2  April 5, 2008
    
    
    57,690
    
    
    $
    14.79
    
    
    
    1,085,545
    
    
    
    1,064,455April 6  May 3, 2008
    
    
    
    
    
    $
    
    
    
    
    1,085,545
    
    
    
    1,064,455Total
    
    
    58,616
    
    
    $
    14.80
    
    
    
    1,085,545
    
    
    
    1,064,455
  
 Item 3.
    
    Defaults Upon Senior Securities
  
 Item 4.
    
    Submission of Matters to a Vote of Security Holders
  
 Item 5.
    
    Other Information
  20




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##### Table of Contents



Item 6.
    
    Exhibits
 a)
    
    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
 21




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##### Table of Contents



SIGNATURES
  JO-ANN STORES, INC.DATE:  June 12, 2008
    /s/ Darrell WebbDarrell Webb,President and Chief Executive Officer /s/ James KerrJames Kerr,Executive Vice President and Chief Financial Officer 22