##### 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 November 1, 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
    
    44236(Address of principal executive offices)
    
    (Zip Code)
 (330) 656-2600
 þ o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 Yes o No þ




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##### 



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended November 1, 2008
 Page NumbersPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  November 1, 2008 (Unaudited), November 3, 2007 (Unaudited) and February 2, 2008
    
    
    1Unaudited Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended November 1, 2008 and November 3, 2007
    
    
    2Unaudited Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended November 1, 2008 and November 3, 2007
    
    
    3Notes to Unaudited Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24Part II. Other InformationItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26Signatures
    
    
    27Exhibit 10.1Exhibit 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)November 1,
    
    
    November 3,
    
    
    February 2,2008
    
    
    2007
    
    
    2008(Dollars in millions, except share and per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    24.8
    
    
    $
    29.4
    
    
    $
    25.4Inventories
    
    
    522.3
    
    
    
    570.9
    
    
    
    472.2Deferred income taxes
    
    
    24.9
    
    
    
    29.4
    
    
    
    26.4Prepaid expenses and other current assets
    
    
    29.0
    
    
    
    24.3
    
    
    
    23.8Total current assets
    
    
    601.0
    
    
    
    654.0
    
    
    
    547.8Property, equipment and leasehold improvements, net
    
    
    311.6
    
    
    
    301.9
    
    
    
    297.5Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    11.8Other assets
    
    
    13.9
    
    
    
    9.9
    
    
    
    12.3Total assets
    
    $
    938.3
    
    
    $
    965.8
    
    
    $
    869.4Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    182.6
    
    
    $
    186.4
    
    
    $
    145.3Accrued expenses
    
    
    94.9
    
    
    
    67.6
    
    
    
    97.1Total current liabilities
    
    
    277.5
    
    
    
    254.0
    
    
    
    242.4Long-term debt
    
    
    112.7
    
    
    
    202.0
    
    
    
    100.0Long-term deferred income taxes
    
    
    
    
    
    
    16.2
    
    
    
    Lease obligations and other long-term liabilities
    
    
    93.0
    
    
    
    82.7
    
    
    
    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 28,859,179; 28,071,432 and 28,072,032 shares, respectively
    
    
    1.4
    
    
    
    1.4
    
    
    
    1.4Additional paid-in capital
    
    
    209.5
    
    
    
    193.0
    
    
    
    194.6Retained earnings
    
    
    290.0
    
    
    
    261.0
    
    
    
    288.5500.9
    
    
    
    455.4
    
    
    
    484.5Treasury stock, at cost; 3,662,786; 3,586,206 and 3,586,872 shares, respectively
    
    
    (45.8
    )
    
    
    (44.5
    )
    
    
    (44.5
    )Total shareholders equity
    
    
    455.1
    
    
    
    410.9
    
    
    
    440.0Total liabilities and shareholders equity
    
    $
    938.3
    
    
    $
    965.8
    
    
    $
    869.4
   1




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Jo-Ann Stores, Inc.
 
 Consolidated Statements of Operations
 (Unaudited)
 Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedNovember 1,
    
    
    November 3,
    
    
    November 1,
    
    
    November 3,2008
    
    
    2007
    
    
    2008
    
    
    2007(Dollars in millions, except share and per share data)Net sales
    
    $
    480.1
    
    
    $
    480.2
    
    
    $
    1,329.2
    
    
    $
    1,292.9Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    244.8
    
    
    
    249.7
    
    
    
    695.3
    
    
    
    684.4Gross margin
    
    
    235.3
    
    
    
    230.5
    
    
    
    633.9
    
    
    
    608.5Selling, general and administrative expenses
    
    
    199.5
    
    
    
    199.1
    
    
    
    575.6
    
    
    
    572.7Store pre-opening and closing costs
    
    
    4.7
    
    
    
    1.5
    
    
    
    10.0
    
    
    
    6.6Depreciation and amortization
    
    
    13.8
    
    
    
    13.2
    
    
    
    40.1
    
    
    
    38.6Operating profit (loss)
    
    
    17.3
    
    
    
    16.7
    
    
    
    8.2
    
    
    
    (9.4
    )Gain on repurchase of notes
    
    
    (2.1
    )
    
    
    
    
    
    
    (2.1
    )
    
    
    Interest expense, net
    
    
    2.6
    
    
    
    3.9
    
    
    
    7.2
    
    
    
    9.3Income (loss) before income taxes
    
    
    16.8
    
    
    
    12.8
    
    
    
    3.1
    
    
    
    (18.7
    )Income tax provision (benefit)
    
    
    6.6
    
    
    
    4.8
    
    
    
    1.6
    
    
    
    (6.6
    )Net income (loss)
    
    $
    10.2
    
    
    $
    8.0
    
    
    $
    1.5
    
    
    $
    (12.1
    )Net income (loss) per common share  basic
    
    $
    0.41
    
    
    $
    0.33
    
    
    $
    0.06
    
    
    $
    (0.50
    )Net income (loss) per common share  diluted
    
    $
    0.40
    
    
    $
    0.32
    
    
    $
    0.06
    
    
    $
    (0.50
    )Weighted average shares outstanding (in thousands):Basic
    
    
    25,044
    
    
    
    24,407
    
    
    
    24,792
    
    
    
    24,247Diluted
    
    
    25,738
    
    
    
    25,011
    
    
    
    25,435
    
    
    
    24,247
   2




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##### Table of Contents



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Thirty-Nine Weeks EndedNovember 1,
    
    
    November 3,2008
    
    
    2007(Dollars in millions)Net cash flows provided by (used for) operating activities:Net income (loss)
    
    $
    1.5
    
    
    $
    (12.1
    )Adjustments to reconcile net income (loss) to net cash provided
by (used for) operating activities:Depreciation and amortization
    
    
    40.1
    
    
    
    38.6Deferred income taxes
    
    
    (0.5
    )
    
    
    14.2Stock-based compensation expense
    
    
    7.2
    
    
    
    6.9Amortization of deferred financing costs
    
    
    0.7
    
    
    
    0.7Loss on disposal of fixed assets
    
    
    0.9
    
    
    
    0.7Gain on repurchase of notes
    
    
    (2.1
    )
    
    
    Changes in operating assets and liabilities:Increase in inventories
    
    
    (50.1
    )
    
    
    (117.5
    )(Increase) decrease in prepaid expenses and other current assets
    
    
    (5.2
    )
    
    
    6.1Increase in accounts payable
    
    
    37.3
    
    
    
    38.9Decrease in accrued expenses
    
    
    (2.2
    )
    
    
    (18.4
    )Increase (decrease) in lease obligations, net
    
    
    6.1
    
    
    
    (1.8
    )Decrease in other long-term liabilities
    
    
    (0.1
    )
    
    
    (0.6
    )Other, net
    
    
    1.3
    
    
    
    0.4Net cash provided by (used for) operating activities
    
    
    34.9
    
    
    
    (43.9
    )Net cash flows used for investing activities:Capital expenditures
    
    
    (55.1
    )
    
    
    (29.4
    )Net cash used for investing activities
    
    
    (55.1
    )
    
    
    (29.4
    )Net cash flows provided by financing activities:Purchase of senior subordinated notes
    
    
    (18.0
    )
    
    
    Net change in revolving credit facility
    
    
    33.1
    
    
    
    76.7Proceeds from stock-based compensation plans
    
    
    6.0
    
    
    
    7.7Other, net
    
    
    (1.5
    )
    
    
    (0.1
    )Net cash provided by financing activities
    
    
    19.6
    
    
    
    84.3Net (decrease) increase in cash and cash equivalents
    
    
    (0.6
    )
    
    
    11.0Cash and cash equivalents at beginning of period
    
    
    25.4
    
    
    
    18.4Cash and cash equivalents at end of period
    
    $
    24.8
    
    
    $
    29.4Supplemental disclosures of cash flow information:Cash paid (received) during the period for:Interest
    
    $
    8.5
    
    
    $
    9.9Income taxes, net of refunds
    
    
    2.2
    
    
    
    (7.3
    )
   3




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##### Table of Contents



Notes to Consolidated Financial Statements (Unaudited)
 Jo-Ann Stores, Inc
 Note 1  Basis of Presentation
     Note 2  Earnings (Loss) Per Share
   Thirteen Weeks Ended
    
    
    Thirty-Nine Weeks EndedNovember 1,
    
    
    November 3,
    
    
    November 1,
    
    
    November 3,2008
    
    
    2007
    
    
    2008
    
    
    2007Weighted average shares outstanding:Basic common shares
    
    
    25,044
    
    
    
    24,407
    
    
    
    24,792
    
    
    
    24,247Incremental shares from assumed
exercise of stock options
    
    
    262
    
    
    
    290
    
    
    
    254
    
    
    
    Incremental restricted shares
    
    
    432
    
    
    
    314
    
    
    
    389
    
    
    
    Diluted common shares
    
    
    25,738
    
    
    
    25,011
    
    
    
    25,435
    
    
    
    24,247
  4




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##### Table of Contents



Note 3  Shareholders Equity
  Common
    
    
    Additional
    
    
    
    
    
    
    
    
    TotalCommon
    
    
    Treasury
    
    
    Stock 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.5
    
    
    
    
    
    
    
    1.5Exercise of stock options
    
    
    406
    
    
    
    
    
    
    
    
    
    
    
    4.1
    
    
    
    
    
    
    
    
    
    
    
    4.1Tax on equity compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.7
    
    
    
    
    
    
    
    
    
    
    
    1.7Stock-based compensation
    
    
    235
    
    
    
    
    
    
    
    
    
    
    
    7.2
    
    
    
    
    
    
    
    
    
    
    
    7.2Purchase of common stock
    
    
    (76
    )
    
    
    76
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.3
    )
    
    
    (1.3
    )Associate Stock Ownership
Plan
    
    
    146
    
    
    
    
    
    
    
    
    
    
    
    1.9
    
    
    
    
    
    
    
    
    
    
    
    1.9Year-to-date activity
    
    
    711
    
    
    
    76
    
    
    
    
    
    
    
    14.9
    
    
    
    1.5
    
    
    
    (1.3
    )
    
    
    15.1Balance, November 1, 2008
    
    
    25,196
    
    
    
    3,663
    
    
    $
    1.4
    
    
    $
    209.5
    
    
    $
    290.0
    
    
    $
    (45.8
    )
    
    $
    455.1
  Note 4  Financing
   5




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Note 5  Recent Accounting Pronouncements
 Financial Accounting Standards Board Staff Position No. 157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active
  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 November 1, 2008Net sales
    
    $
    247.2
    
    
    $
    224.8
    
    
    $
    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)
    
    
    20.7
    
    
    
    26.4
    
    
    
    (29.8
    )
    
    
    17.3Capital expenditures
    
    
    11.3
    
    
    
    4.4
    
    
    
    5.7
    
    
    
    21.4Thirteen Weeks Ended November 3, 2007Net sales
    
    $
    252.6
    
    
    $
    227.6
    
    
    $
    
    
    
    $
    480.2Store pre-opening and closing costs
    
    
    0.5
    
    
    
    1.0
    
    
    
    
    
    
    
    1.5Depreciation and amortization
    
    
    7.9
    
    
    
    2.2
    
    
    
    3.1
    
    
    
    13.2Operating profit (loss)
    
    
    21.0
    
    
    
    27.4
    
    
    
    (31.7
    )
    
    
    16.7Capital expenditures
    
    
    2.5
    
    
    
    2.1
    
    
    
    3.0
    
    
    
    7.6Thirty-Nine Weeks Ended November 1,
2008Net sales
    
    $
    687.5
    
    
    $
    618.3
    
    
    $
    23.4
    
    
    $
    1,329.2Store pre-opening and closing costs
    
    
    4.4
    
    
    
    5.6
    
    
    
    
    
    
    
    10.0Depreciation and amortization
    
    
    23.6
    
    
    
    7.2
    
    
    
    9.3
    
    
    
    40.1Operating profit (loss)
    
    
    41.9
    
    
    
    63.4
    
    
    
    (97.1
    )
    
    
    8.2Capital expenditures
    
    
    22.3
    
    
    
    12.5
    
    
    
    20.3
    
    
    
    55.1Property, equipment and leasehold
improvements, net
    
    
    157.4
    
    
    
    37.4
    
    
    
    116.8
    
    
    
    311.6Thirty-Nine Weeks Ended November 3,
2007Net sales
    
    $
    675.8
    
    
    $
    617.1
    
    
    $
    
    
    
    $
    1,292.9Store pre-opening and closing costs
    
    
    2.3
    
    
    
    4.3
    
    
    
    
    
    
    
    6.6Depreciation and amortization
    
    
    23.3
    
    
    
    6.6
    
    
    
    8.7
    
    
    
    38.6Operating profit (loss)
    
    
    29.9
    
    
    
    55.9
    
    
    
    (95.2
    )
    
    
    (9.4
    )Capital expenditures
    
    
    14.2
    
    
    
    8.2
    
    
    
    7.0
    
    
    
    29.4Property, equipment and leasehold
improvements, net
    
    
    169.8
    
    
    
    38.4
    
    
    
    93.7
    
    
    
    301.9
  7




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Note 7  Consolidating Financial Statements (Unaudited)
   Consolidating Balance Sheets
November 1, 2008
 GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    (0.6
    )
    
    $
    25.4
    
    
    $
    
    
    
    $
    24.8Inventories
    
    
    235.9
    
    
    
    286.4
    
    
    
    
    
    
    
    522.3Deferred income taxes
    
    
    19.0
    
    
    
    5.9
    
    
    
    
    
    
    
    24.9Prepaid expenses and other current assets
    
    
    22.1
    
    
    
    6.9
    
    
    
    
    
    
    
    29.0Total current assets
    
    
    276.4
    
    
    
    324.6
    
    
    
    
    
    
    
    601.0Property, equipment and leasehold improvements,
net
    
    
    165.0
    
    
    
    146.6
    
    
    
    
    
    
    
    311.6Goodwill
    
    
    11.8
    
    
    
    
    
    
    
    
    
    
    
    11.8Other assets
    
    
    6.3
    
    
    
    7.6
    
    
    
    
    
    
    
    13.9Investment in subsidiaries
    
    
    77.3
    
    
    
    
    
    
    
    (77.3
    )
    
    
    Intercompany receivable
    
    
    360.8
    
    
    
    
    
    
    
    (360.8
    )
    
    
    Total assets
    
    $
    897.6
    
    
    $
    478.8
    
    
    $
    (438.1
    )
    
    $
    938.3Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    169.6
    
    
    $
    13.0
    
    
    $
    
    
    
    $
    182.6Accrued expenses
    
    
    98.5
    
    
    
    (3.6
    )
    
    
    
    
    
    
    94.9Total current liabilities
    
    
    268.1
    
    
    
    9.4
    
    
    
    
    
    
    
    277.5Long-term debt
    
    
    112.7
    
    
    
    
    
    
    
    
    
    
    
    112.7Lease obligations and other long-term liabilities
    
    
    61.7
    
    
    
    31.3
    
    
    
    
    
    
    
    93.0Intercompany payable
    
    
    
    
    
    
    360.8
    
    
    
    (360.8
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    209.5
    
    
    
    
    
    
    
    
    
    
    
    209.5Retained earnings
    
    
    290.0
    
    
    
    77.3
    
    
    
    (77.3
    )
    
    
    290.0500.9
    
    
    
    77.3
    
    
    
    (77.3
    )
    
    
    500.9Treasury stock, at cost
    
    
    (45.8
    )
    
    
    
    
    
    
    
    
    
    
    (45.8
    )Total shareholders equity
    
    
    455.1
    
    
    
    77.3
    
    
    
    (77.3
    )
    
    
    455.1Total liabilities and shareholders equity
    
    $
    897.6
    
    
    $
    478.8
    
    
    $
    (438.1
    )
    
    $
    938.3
  8




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##### Table of Contents



Note 7  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 7- Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Thirteen Weeks Ended November 1, 2008 and November 3, 2007
 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 repurchase of 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
 November 3 , 2007GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net sales
    
    $
    262.5
    
    
    $
    388.2
    
    
    $
    (170.5
    )
    
    $
    480.2Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    147.1
    
    
    
    273.1
    
    
    
    (170.5
    )
    
    
    249.7Gross margin
    
    
    115.4
    
    
    
    115.1
    
    
    
    
    
    
    
    230.5Selling, general and administrative expenses
    
    
    98.4
    
    
    
    100.7
    
    
    
    
    
    
    
    199.1Store pre-opening and closing costs
    
    
    0.9
    
    
    
    0.6
    
    
    
    
    
    
    
    1.5Depreciation and amortization
    
    
    6.7
    
    
    
    6.5
    
    
    
    
    
    
    
    13.2Operating profit
    
    
    9.4
    
    
    
    7.3
    
    
    
    
    
    
    
    16.7Interest expense, net
    
    
    1.6
    
    
    
    2.3
    
    
    
    
    
    
    
    3.9Income before income taxes
    
    
    7.8
    
    
    
    5.0
    
    
    
    
    
    
    
    12.8Income tax provision
    
    
    2.5
    
    
    
    2.3
    
    
    
    
    
    
    
    4.8Income before equity income
    
    
    5.3
    
    
    
    2.7
    
    
    
    
    
    
    
    8.0Equity income from subsidiaries
    
    
    2.7
    
    
    
    
    
    
    
    (2.7
    )
    
    
    Net income
    
    $
    8.0
    
    
    $
    2.7
    
    
    $
    (2.7
    )
    
    $
    8.0
  10




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##### Table of Contents



Note 7  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Thirty-Nine Weeks Ended November 1, 2008 and November 3, 2007
 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 repurchase of 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
 November 3, 2007GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net sales
    
    $
    706.9
    
    
    $
    965.6
    
    
    $
    (379.6
    )
    
    $
    1,292.9Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    396.9
    
    
    
    667.1
    
    
    
    (379.6
    )
    
    
    684.4Gross margin
    
    
    310.0
    
    
    
    298.5
    
    
    
    
    
    
    
    608.5Selling, general and administrative expenses
    
    
    286.3
    
    
    
    286.4
    
    
    
    
    
    
    
    572.7Store pre-opening and closing costs
    
    
    3.1
    
    
    
    3.5
    
    
    
    
    
    
    
    6.6Depreciation and amortization
    
    
    19.2
    
    
    
    19.4
    
    
    
    
    
    
    
    38.6Operating profit (loss)
    
    
    1.4
    
    
    
    (10.8
    )
    
    
    
    
    
    
    (9.4
    )Interest expense, net
    
    
    4.1
    
    
    
    5.2
    
    
    
    
    
    
    
    9.3Loss before income taxes
    
    
    (2.7
    )
    
    
    (16.0
    )
    
    
    
    
    
    
    (18.7
    )Income tax benefit
    
    
    (1.2
    )
    
    
    (5.4
    )
    
    
    
    
    
    
    (6.6
    )Loss before equity loss
    
    
    (1.5
    )
    
    
    (10.6
    )
    
    
    
    
    
    
    (12.1
    )Equity loss from subsidiaries
    
    
    (10.6
    )
    
    
    
    
    
    
    10.6
    
    
    
    Net loss
    
    $
    (12.1
    )
    
    $
    (10.6
    )
    
    $
    10.6
    
    
    $
    (12.1
    )
  11




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##### Table of Contents



Note 7  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Cash Flows
Thirty-Nine Weeks Ended November 1, 2008 and November 3, 2007
 November 1, 2008GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    24.1
    
    
    $
    10.8
    
    
    $
    
    
    
    $
    34.9Net cash flows used for investing activities:Capital expenditures
    
    
    (43.3
    )
    
    
    (11.8
    )
    
    
    
    
    
    
    (55.1
    )Net 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
 November 3, 2007GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net cash (used for) provided by operating activities
    
    $
    (57.0
    )
    
    $
    13.1
    
    
    $
    
    
    
    $
    (43.9
    )Net cash flows used for investing activities:Capital expenditures
    
    
    (15.6
    )
    
    
    (13.8
    )
    
    
    
    
    
    
    (29.4
    )Net cash used for investing activities
    
    
    (15.6
    )
    
    
    (13.8
    )
    
    
    
    
    
    
    (29.4
    )Net cash flows provided by financing activities:Net change in revolving credit facility
    
    
    76.7
    
    
    
    
    
    
    
    
    
    
    
    76.7Proceeds from stock-based compensation plans
    
    
    7.7
    
    
    
    
    
    
    
    
    
    
    
    7.7Other, net
    
    
    (0.1
    )
    
    
    
    
    
    
    
    
    
    
    (0.1
    )Net cash provided by financing activities
    
    
    84.3
    
    
    
    
    
    
    
    
    
    
    
    84.3Net increase (decrease) in cash and cash equivalents
    
    
    11.7
    
    
    
    (0.7
    )
    
    
    
    
    
    
    11.0Cash and cash equivalents at beginning of period
    
    
    (8.8
    )
    
    
    27.2
    
    
    
    
    
    
    
    18.4Cash and cash equivalents at end of period
    
    $
    2.9
    
    
    $
    26.5
    
    
    $
    
    
    
    $
    29.4
  12




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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
     13




---



##### Table of Contents



14




---



##### Table of Contents



Recent Developments and Business Update
 Outlook for Fiscal 2009 and Fiscal 2010
  
    
    Same-store sales approximately flat for the year versus the previously announced range
of 2.0% to 3.5% for the year;
    
    Gross margin rate improvement for the year;
    
    SG&A expense as a percentage of net sales will improve slightly versus the prior year;
    
    Capital expenditures for the full-year of approximately $60 million;
    
    Earnings per diluted share in the range of $0.75 to $0.85 for the year versus the
previously announced range of $0.95 to $1.05; and
    
    Weighted-average diluted share count of approximately 25.5 million shares for the year.
  Goodwill
 Goodwill and Other Intangible Assets
  15




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##### Table of Contents



Results of Operations
  Percentage of Net SalesThirteen
    
    
    Thirty-NineWeeks Ended
    
    
    Weeks EndedNovember 1,
    
    
    November 3,
    
    
    November 1,
    
    
    November 3,2008
    
    
    2007
    
    
    2008
    
    
    2007Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross margin
    
    
    49.0
    %
    
    
    48.0
    %
    
    
    47.7
    %
    
    
    47.1
    %Selling, general and administrative
expenses
    
    
    41.6
    %
    
    
    41.5
    %
    
    
    43.3
    %
    
    
    44.3
    %Store pre-opening and closing costs
    
    
    1.0
    %
    
    
    0.3
    %
    
    
    0.8
    %
    
    
    0.5
    %Depreciation and amortization
    
    
    2.8
    %
    
    
    2.7
    %
    
    
    3.0
    %
    
    
    3.0
    %Operating profit (loss)
    
    
    3.6
    %
    
    
    3.5
    %
    
    
    0.6
    %
    
    
    (0.7
    )%
 Comparison of the Thirteen Weeks Ended November 1, 2008 to November 3, 2007
 Net Sales.
       16




---



##### Table of Contents



Gross Margin.
 Selling, general and administrative expenses.
 Store pre-opening and closing costs.
  Depreciation and amortization.
 Operating profit.
    17




---



##### Table of Contents



Gain on repurchase of notes.
 Interest expense.
 Income taxes.
 Comparison of the Thirty-Nine Weeks Ended November 1, 2008 to November 3, 2007
 Net Sales.
      18




---



##### Table of Contents



Gross Margin.
 Selling, general and administrative expenses.
  Store pre-opening and closing costs.
   Depreciation and amortization.
  19




---



##### Table of Contents



Operating profit (loss).
   Gain on repurchase of notes.
 Interest expense.
 Income taxes.
 Liquidity and Capital Resources
    20




---



##### Table of Contents



Dollars in millions
    
    2009
    
    
    2008Net cash provided by (used for) operating activities
    
    $
    34.9
    
    
    $
    (43.9
    )Net cash used for investing activities
    
    
    (55.1
    )
    
    
    (29.4
    )Net cash provided by financing activities
    
    
    19.6
    
    
    
    84.3Net (decrease) increase in cash and cash equivalents
    
    $
    (0.6
    )
    
    $
    11.0Ending cash and cash equivalents
    
    $
    24.8
    
    
    $
    29.4
 Net cash provided by (used for) operating activities
  Net cash used for investing activities
  Thirty-Nine Weeks EndedNovember 1,
    
    
    November 3,Dollars in millions
    
    2008
    
    
    2007Cash
    
    $
    49.0
    
    
    $
    22.9Cash  landlord reimbursed
    
    
    6.1
    
    
    
    6.5Total
    
    $
    55.1
    
    
    $
    29.4
   21




---



##### Table of Contents



Net cash provided by financing activities
       22




---



##### Table of Contents



Off-Balance Sheet Transactions
  Seasonality and Inflation
   Critical Accounting Policies
  Contractual Obligations
  Cautionary Statement Concerning Forward-Looking Statements
   23




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##### Table of Contents



Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
    
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
   24




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##### Table of Contents



The effect of general economic conditions and the current financial crisis
    
 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 PlansPurchased
    
    
    per Share
    
    
    or Programs
    
    
    or ProgramsAugust 3  30, 2008
    
    
    3,876
    
    
    $
    22.83
    
    
    
    1,101,691
    
    
    
    1,048,309August 31  October 4, 2008
    
    
    1,018
    
    
    $
    25.32
    
    
    
    1,102,709
    
    
    
    1,047,291October 5  November 1,
2008
    
    
    134
    
    
    $
    17.71
    
    
    
    1,102,843
    
    
    
    1,047,157Total
    
    
    5,028
    
    
    $
    23.20
    
    
    
    1,102,843
    
    
    
    1,047,157
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
   25




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##### Table of Contents



Item 5. Other Information
  
 Item 6. Exhibits
 Exhibits
 No.
    
    Exhibit Description10.1
    
    Amended and Restated Credit Agreement, dated as of September 5, 2008,
among the Company as Lead Borrower, the Lenders party thereto, Bank
of America, N.A., as Issuing Bank, Administrative Agent and
Collateral Agent, Wells Fargo Retail Finance, LLC, National City
Business Credit, Inc. and U.S. Bank National Association, as
Co-Documentation Agents, and Banc of America Securities LLC, as Sole
Lead Arranger and Book Manager.31.1
    
    Section 302 Certification By Chief Executive Officer.31.2
    
    Section 302 Certification By Chief Financial Officer.32.1
    
    Section 906 Certification of Principal Executive Officer and
Principal Financial Officer.
  26




---



##### Table of Contents



SIGNATURES
  JO-ANN STORES, INC.DATE: December 11, 2008
    /s/ Darrell WebbDarrell Webb,President and Chief Executive Officer/s/ James KerrJames Kerr,Executive Vice President and Chief Financial Officer  27




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##### Table of Contents



EXHIBIT INDEX
 No.
    
    Exhibit Description10.1
    
    Amended and Restated Credit Agreement, dated as of September 5, 2008,
among the Company as Lead Borrower, the Lenders party thereto, Bank
of America, N.A., as Issuing Bank, Administrative Agent and
Collateral Agent, Wells Fargo Retail Finance, LLC, National City
Business Credit, Inc. and U.S. Bank National Association, as
Co-Documentation Agents, and Banc of America Securities LLC, as Sole
Lead Arranger and Book Manager.31.1
    
    Section 302 Certification By Chief Executive Officer.31.2
    
    Section 302 Certification By Chief Financial Officer.32.1
    
    Section 906 Certification of Principal Executive Officer and
Principal Financial Officer.
  28