##### 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 3, 2007
 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
  o þ o
 o þ




---



##### 



Jo-Ann Stores, Inc.
Form 10-Q Index
For the Quarter Ended November 3, 2007
 Page NumbersPart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets  November 3, 2007 (Unaudited),
October 28, 2006 (Unaudited) and February 3, 2007
    
    
    1Unaudited Consolidated Statements of Operations for the Thirteen
and Thirty-Nine Weeks Ended November 3, 2007 and October 28, 2006
    
    
    2Unaudited Consolidated Statements of Cash Flows for the
Thirty-Nine Weeks Ended November 3, 2007 and October 28, 2006
    
    
    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
    
    
    23Item 4. Controls and Procedures
    
    
    23Part II. Other InformationItem 1. Legal Proceedings
    
    
    23Item 1A. Risk Factors
    
    
    23Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    24Item 3. Defaults Upon Senior Securities
    
    
    24Item 4. Submission of Matters to a Vote of Security Holders
    
    
    24Item 5. Other Information
    
    
    24Item 6. Exhibits
    
    
    25Signatures
    
    
    26Exhibit 10.1Exhibit 10.2Exhibit 10.3Exhibit 10.4Exhibit 10.5Exhibit 10.6Exhibit 10.7Exhibit 31.1Exhibit 31.2Exhibit 32.1




---



##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 Jo-Ann Stores, Inc.
 
 Consolidated Balance Sheets
 (Unaudited)November 3,
    
    
    October 28,
    
    
    February 3,2007
    
    
    2006
    
    
    2007(Dollars in millions, except share and per share data)AssetsCurrent assets:Cash and cash equivalents
    
    $
    29.4
    
    
    $
    20.9
    
    
    $
    18.4Inventories
    
    
    570.9
    
    
    
    535.8
    
    
    
    453.4Deferred income taxes
    
    
    29.4
    
    
    
    38.0
    
    
    
    41.6Prepaid expenses and other current assets
    
    
    24.3
    
    
    
    25.5
    
    
    
    30.4Total current assets
    
    
    654.0
    
    
    
    620.2
    
    
    
    543.8Property, equipment and leasehold improvements, net
    
    
    301.9
    
    
    
    313.7
    
    
    
    311.8Other assets
    
    
    9.9
    
    
    
    9.8
    
    
    
    10.7Total assets
    
    $
    965.8
    
    
    $
    943.7
    
    
    $
    866.3Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    186.4
    
    
    $
    186.2
    
    
    $
    147.5Accrued expenses
    
    
    67.6
    
    
    
    69.3
    
    
    
    84.4Total current liabilities
    
    
    254.0
    
    
    
    255.5
    
    
    
    231.9Long-term debt
    
    
    202.0
    
    
    
    200.3
    
    
    
    125.3Deferred income taxes
    
    
    16.2
    
    
    
    23.2
    
    
    
    14.2Lease obligations and other long-term liabilities
    
    
    82.7
    
    
    
    84.8
    
    
    
    85.1Shareholders 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 28,071,432; 27,270,851 and 27,400,347 shares, respectively
    
    
    1.4
    
    
    
    1.4
    
    
    
    1.4Additional paid-in capital
    
    
    193.0
    
    
    
    173.0
    
    
    
    176.9Retained earnings
    
    
    261.0
    
    
    
    248.9
    
    
    
    274.7455.4
    
    
    
    423.3
    
    
    
    453.0Treasury stock, at cost, 3,586,206; 3,573,673 and 3,542,885 shares, respectively
    
    
    (44.5
    )
    
    
    (43.4
    )
    
    
    (43.2
    )Total shareholders equity
    
    
    410.9
    
    
    
    379.9
    
    
    
    409.8Total liabilities and shareholders equity
    
    $
    965.8
    
    
    $
    943.7
    
    
    $
    866.3
  1




---



##### Table of Contents



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Operations
 (Unaudited)
 Thirteen Weeks Ended
    
    Thirty-Nine Weeks EndedNovember 3,
    
    October 28,
    
    November 3,
    
    October 28,2007
    
    2006
    
    2007
    
    2006(Dollars in millions, except share and per share data)Net sales
    
    $
    480.2
    
    
    $
    461.9
    
    
    $
    1,292.9
    
    
    $
    1,249.8Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    249.7
    
    
    
    242.8
    
    
    
    684.4
    
    
    
    660.4Gross margin
    
    
    230.5
    
    
    
    219.1
    
    
    
    608.5
    
    
    
    589.4Selling, general and administrative expenses
    
    
    199.1
    
    
    
    198.5
    
    
    
    572.7
    
    
    
    575.1Store pre-opening and closing costs
    
    
    1.5
    
    
    
    3.0
    
    
    
    6.6
    
    
    
    11.1Depreciation and amortization
    
    
    13.2
    
    
    
    12.6
    
    
    
    38.6
    
    
    
    36.5Operating profit (loss)
    
    
    16.7
    
    
    
    5.0
    
    
    
    (9.4
    )
    
    
    (33.3
    )Interest expense, net
    
    
    3.9
    
    
    
    4.9
    
    
    
    9.3
    
    
    
    12.3Income (loss) before income taxes
    
    
    12.8
    
    
    
    0.1
    
    
    
    (18.7
    )
    
    
    (45.6
    )Income tax provision (benefit)
    
    
    4.8
    
    
    
    
    
    
    
    (6.6
    )
    
    
    (16.9
    )Income (loss) before cumulative effect of
accounting change
    
    
    8.0
    
    
    
    0.1
    
    
    
    (12.1
    )
    
    
    (28.7
    )Cumulative effect of change in accounting
principle, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.0Net income (loss)
    
    $
    8.0
    
    
    $
    0.1
    
    
    $
    (12.1
    )
    
    $
    (27.7
    )Income (loss) per common share  basic:Income (loss) before cumulative effect of
accounting change
    
    $
    0.33
    
    
    $
    
    
    
    $
    (0.50
    )
    
    $
    (1.22
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.04Net income (loss)
    
    $
    0.33
    
    
    $
    
    
    
    $
    (0.50
    )
    
    $
    (1.18
    )Income (loss) per common share  diluted:Income (loss) before cumulative effect of
accounting change
    
    $
    0.32
    
    
    $
    
    
    
    $
    (0.50
    )
    
    $
    (1.22
    )Cumulative effect of change in accounting
principle
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.04Net income (loss)
    
    $
    0.32
    
    
    $
    
    
    
    $
    (0.50
    )
    
    $
    (1.18
    )Weighted average shares outstanding (in thousands):Basic
    
    
    24,407
    
    
    
    23,548
    
    
    
    24,247
    
    
    
    23,442Diluted
    
    
    25,011
    
    
    
    23,986
    
    
    
    24,247
    
    
    
    23,442
  2




---



##### Table of Contents



Jo-Ann Stores, Inc.
 
 Consolidated Statements of Cash Flows
 (Unaudited)
 Thirty-Nine Weeks EndedNovember 3,
    
    
    October 28,2007
    
    
    2006(Dollars in millions)Net cash flows (used for) provided by operating activities:Net loss
    
    $
    (12.1
    )
    
    $
    (27.7
    )Adjustments to reconcile net loss to net cash
(used for) provided by operating activities:Depreciation and amortization
    
    
    38.6
    
    
    
    36.5Deferred income taxes
    
    
    14.2
    
    
    
    Stock-based compensation expense
    
    
    6.9
    
    
    
    5.5Cumulative effect of change in accounting principle
    
    
    
    
    
    
    (1.0
    )Tax benefit on stock-based compensation plan awards
    
    
    0.3
    
    
    
    Amortization of deferred financing costs
    
    
    0.7
    
    
    
    0.7Loss on disposal of fixed assets
    
    
    0.7
    
    
    
    1.0Changes in operating assets and liabilities:Increase in inventories
    
    
    (117.5
    )
    
    
    (21.1
    )Decrease in prepaid expenses and other current assets
    
    
    6.1
    
    
    
    9.7Increase in accounts payable
    
    
    38.9
    
    
    
    39.6Decrease in accrued expenses
    
    
    (18.4
    )
    
    
    (25.4
    )(Decrease) increase in lease obligations, net
    
    
    (1.8
    )
    
    
    3.6Decrease in other long-term liabilities
    
    
    (0.6
    )
    
    
    (0.1
    )Other, net
    
    
    0.1
    
    
    
    (1.0
    )Net cash (used for) provided by operating activities
    
    
    (43.9
    )
    
    
    20.3Net cash flows used for investing activities:Capital expenditures
    
    
    (29.4
    )
    
    
    (42.7
    )Net proceeds from sale-leaseback transaction
    
    
    
    
    
    
    24.7Net cash used for investing activities
    
    
    (29.4
    )
    
    
    (18.0
    )Net cash flows provided by financing activities:Net change in revolving credit facility
    
    
    76.7
    
    
    
    (3.4
    )Proceeds from stock-based compensation plans
    
    
    7.7
    
    
    
    3.1Tax benefits in excess of recognized compensation cost for stock-based
awards
    
    
    1.3
    
    
    
    Other, net
    
    
    (1.4
    )
    
    
    1.0Net cash provided by financing activities
    
    
    84.3
    
    
    
    0.7Net increase in cash and cash equivalents
    
    
    11.0
    
    
    
    3.0Cash and cash equivalents at beginning of period
    
    
    18.4
    
    
    
    17.9Cash and cash equivalents at end of period
    
    $
    29.4
    
    
    $
    20.9Supplemental disclosures of cash flow information:Cash paid (received) during the period for:Interest
    
    $
    9.9
    
    
    $
    13.7Income taxes, net of refunds
    
    
    (7.3
    )
    
    
    5.3
  3




---



##### 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 3,
    
    October 28,
    
    November 3,
    
    October 28,2007
    
    2006
    
    2007
    
    2006Weighted average shares outstanding:Basic common shares
    
    
    24,407
    
    
    
    23,548
    
    
    
    24,247
    
    
    
    23,442Incremental shares from assumed
exercise of stock options
    
    
    290
    
    
    
    150
    
    
    
    
    
    
    
    Incremental restricted shares
    
    
    314
    
    
    
    288
    
    
    
    
    
    
    
    Diluted common shares
    
    
    25,011
    
    
    
    23,986
    
    
    
    24,247
    
    
    
    23,442
 4




---



##### Table of Contents



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 3, 2007
    
    
    23,857
    
    
    
    3,543
    
    
    
    $
    1.4
    
    
    $
    176.9
    
    
    $
    274.7
    
    
    
    ($43.2
    )
    
    $
    409.8Change in accounting principle
(Note 4)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.6
    )
    
    
    
    
    
    
    (1.6
    )Adjusted balance at February 3, 2007
    
    
    23,857
    
    
    
    3,543
    
    
    
    $
    1.4
    
    
    $
    176.9
    
    
    $
    273.1
    
    
    
    ($43.2
    )
    
    $
    408.2Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12.1
    )
    
    
    
    
    
    
    (12.1
    )Exercise of stock options
    
    
    349
    
    
    
    (16
    )
    
    
    
    
    
    
    
    5.5
    
    
    
    
    
    
    
    0.1
    
    
    
    5.6Tax benefits in excess of recognized
compensation cost for stock-based
awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1.6
    
    
    
    
    
    
    
    
    
    
    
    1.6Stock-based compensation
    
    
    203
    
    
    
    
    
    
    
    
    
    
    
    
    6.9
    
    
    
    
    
    
    
    
    
    
    
    6.9Purchase of common stock
    
    
    (59
    )
    
    
    59
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1.4
    )
    
    
    (1.4
    )Associate stock ownership plan
    
    
    135
    
    
    
    
    
    
    
    
    
    
    
    
    2.1
    
    
    
    
    
    
    
    
    
    
    
    2.1Year-to-date activity
    
    
    628
    
    
    
    43
    
    
    
    
    
    
    
    
    16.1
    
    
    
    (12.1
    )
    
    
    (1.3
    )
    
    
    2.7Balance, November 3, 2007
    
    
    24,485
    
    
    
    3,586
    
    
    
    $
    1.4
    
    
    $
    193.0
    
    
    $
    261.0
    
    
    
    ($44.5
    )
    
    $
    410.9
  Note 4  Income Taxes
   5




---



##### Table of Contents



Note 5  Recent Accounting Pronouncements
 Statement of Financial Accounting Standards No. 157, Fair Value Measurement
  Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets
and Financial Liabilities
  Note 6  Segment Reporting
    6




---



##### Table of Contents



Large-format
    
    Small-formatStores
    
    Stores
    
    Other
    
    ConsolidatedThirteen Weeks Ended November 3, 2007Net sales
    
    $
    247.0
    
    
    $
    233.2
    
    
    $
    
    
    
    $
    480.2Store pre-opening and closing costs
    
    
    0.5
    
    
    
    1.0
    
    
    
    
    
    
    
    1.5Depreciation and amortization
    
    
    7.8
    
    
    
    2.3
    
    
    
    3.1
    
    
    
    13.2Operating profit (loss)
    
    
    20.1
    
    
    
    28.4
    
    
    
    (31.8
    )
    
    
    16.7Capital expenditures
    
    
    2.5
    
    
    
    2.1
    
    
    
    3.0
    
    
    
    7.6Thirteen Weeks Ended October 28, 2006Net sales
    
    $
    229.0
    
    
    $
    232.9
    
    
    $
    
    
    
    $
    461.9Store pre-opening and closing costs
    
    
    1.9
    
    
    
    1.1
    
    
    
    
    
    
    
    3.0Depreciation and amortization
    
    
    7.3
    
    
    
    2.4
    
    
    
    2.9
    
    
    
    12.6Operating profit (loss)
    
    
    14.2
    
    
    
    23.2
    
    
    
    (32.4
    )
    
    
    5.0Capital expenditures
    
    
    6.2
    
    
    
    2.5
    
    
    
    0.8
    
    
    
    9.5Thirty-Nine Weeks Ended November 3,
2007Net sales
    
    $
    661.3
    
    
    $
    631.6
    
    
    $
    
    
    
    $
    1,292.9Store pre-opening and closing costs
    
    
    2.2
    
    
    
    4.4
    
    
    
    
    
    
    
    6.6Depreciation and amortization
    
    
    22.9
    
    
    
    7.0
    
    
    
    8.7
    
    
    
    38.6Operating profit (loss)
    
    
    28.4
    
    
    
    57.5
    
    
    
    (95.3
    )
    
    
    (9.4
    )Capital expenditures
    
    
    14.2
    
    
    
    8.2
    
    
    
    7.0
    
    
    
    29.4Property, equipment and leasehold
improvements, net
    
    
    169.8
    
    
    
    38.4
    
    
    
    93.7
    
    
    
    301.9Thirty-Nine Weeks Ended October 28,
2006Net sales
    
    $
    597.9
    
    
    $
    651.9
    
    
    $
    
    
    
    $
    1,249.8Store pre-opening and closing costs
    
    
    5.6
    
    
    
    5.5
    
    
    
    
    
    
    
    11.1Depreciation and amortization
    
    
    20.8
    
    
    
    7.0
    
    
    
    8.7
    
    
    
    36.5Operating profit (loss)
    
    
    22.6
    
    
    
    48.9
    
    
    
    (104.8
    )
    
    
    (33.3
    )Capital expenditures
    
    
    26.7
    
    
    
    6.9
    
    
    
    9.1
    
    
    
    42.7Property, equipment and leasehold
improvements, net
    
    
    182.8
    
    
    
    39.3
    
    
    
    91.6
    
    
    
    313.7
 7




---



##### Table of Contents



Note 7  Consolidating Financial Statements (Unaudited)
   Consolidating Balance Sheets  November 3, 2007
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    2.9
    
    
    $
    26.5
    
    
    $
    
    
    
    $
    29.4Inventories
    
    
    247.7
    
    
    
    323.2
    
    
    
    
    
    
    
    570.9Deferred income taxes
    
    
    17.9
    
    
    
    11.5
    
    
    
    
    
    
    
    29.4Prepaid expenses and other current assets
    
    
    18.7
    
    
    
    5.6
    
    
    
    
    
    
    
    24.3Total current assets
    
    
    287.2
    
    
    
    366.8
    
    
    
    
    
    
    
    654.0Property, equipment and leasehold improvements,
net
    
    
    145.0
    
    
    
    156.9
    
    
    
    
    
    
    
    301.9Other assets
    
    
    8.2
    
    
    
    1.7
    
    
    
    
    
    
    
    9.9Investment in subsidiaries
    
    
    39.7
    
    
    
    
    
    
    
    (39.7
    )
    
    
    Intercompany receivable
    
    
    419.1
    
    
    
    
    
    
    
    (419.1
    )
    
    
    Total assets
    
    $
    899.2
    
    
    $
    525.4
    
    
    $
    (458.8
    )
    
    $
    965.8Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    162.3
    
    
    $
    24.1
    
    
    $
    
    
    
    $
    186.4Accrued expenses
    
    
    72.3
    
    
    
    (4.7
    )
    
    
    
    
    
    
    67.6Total current liabilities
    
    
    234.6
    
    
    
    19.4
    
    
    
    
    
    
    
    254.0Long-term debt
    
    
    202.0
    
    
    
    
    
    
    
    
    
    
    
    202.0Deferred income taxes
    
    
    (0.9
    )
    
    
    17.1
    
    
    
    
    
    
    
    16.2Lease obligations and other long-term liabilities
    
    
    52.6
    
    
    
    30.1
    
    
    
    
    
    
    
    82.7Intercompany payable
    
    
    
    
    
    
    419.1
    
    
    
    (419.1
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    193.0
    
    
    
    
    
    
    
    
    
    
    
    193.0Retained earnings
    
    
    261.0
    
    
    
    39.7
    
    
    
    (39.7
    )
    
    
    261.0455.4
    
    
    
    39.7
    
    
    
    (39.7
    )
    
    
    455.4Treasury stock, at cost
    
    
    (44.5
    )
    
    
    
    
    
    
    
    
    
    
    (44.5
    )Total shareholders equity
    
    
    410.9
    
    
    
    39.7
    
    
    
    (39.7
    )
    
    
    410.9Total liabilities and shareholders equity
    
    $
    899.2
    
    
    $
    525.4
    
    
    $
    (458.8
    )
    
    $
    965.8
 8




---



##### Table of Contents



Note 7  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Balance Sheets
February 3, 2007
 GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)AssetsCurrent assets:Cash and cash equivalents
    
    $
    (8.8
    )
    
    $
    27.2
    
    
    $
    
    
    
    $
    18.4Inventories
    
    
    200.8
    
    
    
    252.6
    
    
    
    
    
    
    
    453.4Deferred income taxes
    
    
    35.2
    
    
    
    6.4
    
    
    
    
    
    
    
    41.6Prepaid expenses and other current assets
    
    
    20.7
    
    
    
    9.7
    
    
    
    
    
    
    
    30.4Total current assets
    
    
    247.9
    
    
    
    295.9
    
    
    
    
    
    
    
    543.8Property, equipment and leasehold improvements,
net
    
    
    149.6
    
    
    
    162.2
    
    
    
    
    
    
    
    311.8Other assets
    
    
    9.2
    
    
    
    1.5
    
    
    
    
    
    
    
    10.7Investment in subsidiaries
    
    
    50.3
    
    
    
    
    
    
    
    (50.3
    )
    
    
    Intercompany receivable
    
    
    358.1
    
    
    
    
    
    
    
    (358.1
    )
    
    
    Total assets
    
    $
    815.1
    
    
    $
    459.6
    
    
    $
    (408.4
    )
    
    $
    866.3Liabilities and Shareholders EquityCurrent liabilities:Accounts payable
    
    $
    144.2
    
    
    $
    3.3
    
    
    $
    
    
    
    $
    147.5Accrued expenses
    
    
    82.8
    
    
    
    1.6
    
    
    
    
    
    
    
    84.4Total current liabilities
    
    
    227.0
    
    
    
    4.9
    
    
    
    
    
    
    
    231.9Long-term debt
    
    
    125.3
    
    
    
    
    
    
    
    
    
    
    
    125.3Deferred income taxes
    
    
    (1.5
    )
    
    
    15.7
    
    
    
    
    
    
    
    14.2Lease obligations and other long-term liabilities
    
    
    54.5
    
    
    
    30.6
    
    
    
    
    
    
    
    85.1Intercompany payable
    
    
    
    
    
    
    358.1
    
    
    
    (358.1
    )
    
    
    Shareholders equity:Preferred stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Common stock
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    1.4Additional paid-in capital
    
    
    176.9
    
    
    
    
    
    
    
    
    
    
    
    176.9Retained earnings
    
    
    274.7
    
    
    
    50.3
    
    
    
    (50.3
    )
    
    
    274.7453.0
    
    
    
    50.3
    
    
    
    (50.3
    )
    
    
    453.0Treasury stock, at cost
    
    
    (43.2
    )
    
    
    
    
    
    
    
    
    
    
    (43.2
    )Total shareholders equity
    
    
    409.8
    
    
    
    50.3
    
    
    
    (50.3
    )
    
    
    409.8Total liabilities and shareholders equity
    
    $
    815.1
    
    
    $
    459.6
    
    
    $
    (408.4
    )
    
    $
    866.3
 9




---



##### Table of Contents



Note 7  Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Thirteen Weeks Ended November 3, 2007 and October 28, 2006
 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
 October 28, 2006GuarantorParent
    
    Subsidiaries
    
    Eliminations
    
    Consolidated(Dollars in millions)Net sales
    
    $
    256.6
    
    
    $
    361.7
    
    
    $
    (156.4
    )
    
    $
    461.9Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    138.9
    
    
    
    260.3
    
    
    
    (156.4
    )
    
    
    242.8Gross margin
    
    
    117.7
    
    
    
    101.4
    
    
    
    
    
    
    
    219.1Selling, general and administrative expenses
    
    
    101.2
    
    
    
    97.3
    
    
    
    
    
    
    
    198.5Store pre-opening and closing costs
    
    
    1.5
    
    
    
    1.5
    
    
    
    
    
    
    
    3.0Depreciation and amortization
    
    
    6.1
    
    
    
    6.5
    
    
    
    
    
    
    
    12.6Operating profit (loss)
    
    
    8.9
    
    
    
    (3.9
    )
    
    
    
    
    
    
    5.0Interest expense, net
    
    
    1.9
    
    
    
    3.0
    
    
    
    
    
    
    
    4.9Income (loss) before income taxes
    
    
    7.0
    
    
    
    (6.9
    )
    
    
    
    
    
    
    0.1Income tax provision (benefit)
    
    
    2.5
    
    
    
    (2.5
    )
    
    
    
    
    
    
    Income (loss) before equity loss
    
    
    4.5
    
    
    
    (4.4
    )
    
    
    
    
    
    
    0.1Equity loss from subsidiaries
    
    
    (4.4
    )
    
    
    
    
    
    
    4.4
    
    
    
    Net income (loss)
    
    $
    0.1
    
    
    $
    (4.4
    )
    
    $
    4.4
    
    
    $
    0.1
 10




---



##### Table of Contents



Note 7
 Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Operations
Thirty-Nine Weeks Ended November 3, 2007 and October 28, 2006
 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
    )
 October 28, 2006GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net sales
    
    $
    692.2
    
    
    $
    943.2
    
    
    $
    (385.6
    )
    
    $
    1,249.8Cost of sales (exclusive of depreciation and
amortization shown separately below)
    
    
    389.6
    
    
    
    656.4
    
    
    
    (385.6
    )
    
    
    660.4Gross margin
    
    
    302.6
    
    
    
    286.8
    
    
    
    
    
    
    
    589.4Selling, general and administrative expenses
    
    
    292.6
    
    
    
    282.5
    
    
    
    
    
    
    
    575.1Store pre-opening and closing costs
    
    
    5.1
    
    
    
    6.0
    
    
    
    
    
    
    
    11.1Depreciation and amortization
    
    
    18.3
    
    
    
    18.2
    
    
    
    
    
    
    
    36.5Operating loss
    
    
    (13.4
    )
    
    
    (19.9
    )
    
    
    
    
    
    
    (33.3
    )Interest expense, net
    
    
    5.1
    
    
    
    7.2
    
    
    
    
    
    
    
    12.3Loss before income taxes
    
    
    (18.5
    )
    
    
    (27.1
    )
    
    
    
    
    
    
    (45.6
    )Income tax benefit
    
    
    (6.9
    )
    
    
    (10.0
    )
    
    
    
    
    
    
    (16.9
    )Loss before equity loss & cumulative
effect
    
    
    (11.6
    )
    
    
    (17.1
    )
    
    
    
    
    
    
    (28.7
    )Equity loss from subsidiaries
    
    
    (17.1
    )
    
    
    
    
    
    
    17.1
    
    
    
    Loss before cumulative effect
    
    
    (28.7
    )
    
    
    (17.1
    )
    
    
    17.1
    
    
    
    (28.7
    )Cumulative effect of accounting change, net
of
tax
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Net loss
    
    $
    (27.7
    )
    
    $
    (17.1
    )
    
    $
    17.1
    
    
    $
    (27.7
    )
 11




---



##### Table of Contents



Note 7
 Consolidating Financial Statements (Unaudited)  CONTINUED
 Consolidating Statements of Cash Flows
Thirty-Nine Weeks Ended November 3, 2007 and October 28, 2006
 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
    
    
    
    
    
    
    
    
    
    
    
    7.7Tax benefits in excess of recognized compensation cost for
stock-based awards
    
    
    1.3
    
    
    
    
    
    
    
    
    
    
    
    1.3Other, net
    
    
    (1.4
    )
    
    
    
    
    
    
    
    
    
    
    (1.4
    )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
 October 28, 2006GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    Consolidated(Dollars in millions)Net cash provided by operating activities
    
    $
    14.8
    
    
    $
    5.5
    
    
    $
    
    
    
    $
    20.3Net cash flows used for investing activities:Capital expenditures
    
    
    (13.0
    )
    
    
    (29.7
    )
    
    
    
    
    
    
    (42.7
    )Net proceeds from sale-leaseback transaction
    
    
    
    
    
    
    24.7
    
    
    
    
    
    
    
    24.7Net cash used for investing activities
    
    
    (13.0
    )
    
    
    (5.0
    )
    
    
    
    
    
    
    (18.0
    )Net cash flows provided by financing activities:Net change in revolving credit facility
    
    
    (3.4
    )
    
    
    
    
    
    
    
    
    
    
    (3.4
    )Proceeds from stock-based compensation plans
    
    
    3.1
    
    
    
    
    
    
    
    
    
    
    
    3.1Other, net
    
    
    1.0
    
    
    
    
    
    
    
    
    
    
    
    1.0Net cash provided by financing activities
    
    
    0.7
    
    
    
    
    
    
    
    
    
    
    
    0.7Net increase in cash and cash equivalents
    
    
    2.5
    
    
    
    0.5
    
    
    
    
    
    
    
    3.0Cash and cash equivalents at beginning of period
    
    
    15.5
    
    
    
    2.4
    
    
    
    
    
    
    
    17.9Cash and cash equivalents at end of period
    
    $
    18.0
    
    
    $
    2.9
    
    
    $
    
    
    
    $
    20.9
 12




---



##### Table of Contents



Note 8  Subsequent Event
   
 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




    
    Net sales increased 4.0% to $480.2 million from $461.9 million last year. Net sales
from stores open one year or more (same-store sales) increased 2.4% versus a 5.4%
same-store sales decrease for the third quarter last year.
    
    Large-format store net sales for the third quarter increased 7.9% to $247.0 million from
$229.0 million last year. Same-store sales for large-format stores increased 2.4% for the
quarter, versus a same-store sales decrease of 7.6% in the third quarter last year.
Small-format stores net sales for the third quarter of fiscal 2008 were relatively flat at
$233.2 million compared with $232.9 million in the prior year. Our same-store sales
performance for small-format stores increased 2.4% versus a same-store sales decrease of
3.5% for fiscal 2007.
    
    Our gross margin rate increased by 60 basis points to 48.0% of net sales this quarter
versus 47.4% for the third quarter last year. This improvement was due in part to the
timing of clearance markdowns related to plan-o-gram resets. This year the clearance
markdowns occurred primarily in the second quarter versus the second, third and fourth
quarters of the previous year.
    
    Our SG&A, excluding those expenses separately identified in the statement of operations,
decreased 150 basis points to 41.5% of net sales from 43.0% of net sales in the third
quarter last year. The improvement in SG&A expenses as a percentage of sales was due to
our continued efforts to control expenses combined with the benefit of higher sales.
    
    Store pre-opening and closing costs decreased $1.5 million for the third quarter of
fiscal 2008 to $1.5 million, compared with $3.0 million in the third quarter last year, due
to fewer store openings and closings year-over-year.
    
    Third quarter net income was $8.0 million or $0.32 earnings per diluted share, versus
net income of $0.1 million or $0.00 per diluted share last year.
 Recent Developments and Business Update
  15




---



##### Table of Contents




    
    Same-store sales improving to positive;
    
    Gross margin rate improvement;
    
    SG&A expenses improving as a percentage of net sales;
    
    Capital spending for the full year of $30 to $32 million; and
    
    Earnings per diluted share in the range of $0.55 to $0.65 from the previously
communicated range of $0.60 to $0.70.
 Results of Operations
  Percentage of Net SalesThirteen
    
    Thirty-NineWeeks Ended
    
    Weeks EndedNovember 3,
    
    October 28,
    
    November 3,
    
    October 28,2007
    
    2006
    
    2007
    
    2006Net sales
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Gross margin
    
    
    48.0
    %
    
    
    47.4
    %
    
    
    47.1
    %
    
    
    47.2
    %Selling, general and administrative
expenses
    
    
    41.5
    %
    
    
    43.0
    %
    
    
    44.3
    %
    
    
    46.0
    %Store pre-opening and closing costs
    
    
    0.3
    %
    
    
    0.6
    %
    
    
    0.5
    %
    
    
    0.9
    %Depreciation and amortization
    
    
    2.7
    %
    
    
    2.7
    %
    
    
    3.0
    %
    
    
    3.0
    %Operating profit (loss)
    
    
    3.5
    %
    
    
    1.1
    %
    
    
    (0.7
    )%
    
    
    (2.7
    )%
 Comparison of the Thirteen Weeks Ended November 3, 2007 to October 28, 2006
 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



Interest expense.
 Income taxes.
 Comparison of the Thirty-Nine Weeks Ended November 3, 2007 to October 28, 2006
 Net Sales .
     18




---



##### Table of Contents



Gross Margin.
 Selling, general and administrative expenses.
 Store pre-opening and closing costs.
 Depreciation and amortization.
 Operating profit (loss).
  Interest expense.
 Income taxes.
 19




---



##### Table of Contents



Cumulative effect of change in accounting principle. Share-Based Payment,
 Liquidity and Capital Resources
   Dollars in millions
    
    2008
    
    
    2007Net cash (used for) provided by operating activities
    
    $
    (43.9
    )
    
    $
    20.3Net cash used for investing activities
    
    
    (29.4
    )
    
    
    (18.0
    )Net cash provided by financing activities
    
    
    84.3
    
    
    
    0.7Net decrease in cash and cash equivalents
    
    $
    11.0
    
    
    $
    3.0Ending cash and cash equivalents
    
    $
    29.4
    
    
    $
    20.9
 Net cash (used for) provided by operating activities
  20




---



##### Table of Contents



Net cash used for investing activities
   Thirty-Nine Weeks EndedNovember 3,
    
    
    October 28,Dollars in millions
    
    2007
    
    
    2006Cash
    
    $
    22.9
    
    
    $
    30.8Cash  landlord reimbursed
    
    
    6.5
    
    
    
    11.9Total
    
    $
    29.4
    
    
    $
    42.7
    Net cash provided by financing activities
   21




---



##### Table of Contents



Off-Balance Sheet Transactions
  Seasonality and Inflation
   Critical Accounting Policies
  Contractual Obligations
  Cautionary Statement Concerning Forward-Looking Statements
  22




---



##### 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
  23




---



##### 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 or
    
    Under the Plans orPurchased
    
    per Share
    
    Programs
    
    ProgramsAugust 5  Sept. 1, 2007
    
    
    3,931
    
    
    $
    23.72
    
    
    
    1,025,797
    
    
    
    1,124,203Sept. 2  October 6, 2007
    
    
    466
    
    
    $
    21.08
    
    
    
    1,026,263
    
    
    
    1,123,737October 7  Nov. 3, 2007
    
    
    
    
    
    $
    
    
    
    
    1,026,263
    
    
    
    1,123,737Total
    
    
    4,397
    
    
    $
    23.44
    
    
    
    1,026,263
    
    
    
    1,123,737
  
 Item 3. Defaults Upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
  
 Item 5. Other Information
   24




---



##### Table of Contents



Item 6. Exhibits
 Exhibits
 No.
    
    Exhibit Description10.1
    
    Sixth Amendment to Credit Agreement dated November 5, 200710.2
    
    Employment Agreement dated November 19, 2007 between the Company and
Ken Haverkost *10.3
    
    Jo-Ann Stores, Inc. Supplemental Retirement Benefit Plan, as amended. *10.4
    
    Schedule to Jo-Ann Stores, Inc. Supplemental Retirement Benefit Plan,
effective as of November 13, 2007 *10.5
    
    Letter Agreement entered into on September 12, 2007 between the
Registrant and David Holmberg regarding the termination of Mr.
Holmbergs employment with the Company *10.6
    
    Amendment to the Jo-Ann Stores, Inc. (formerly Fabri-Centers of
America, Inc.) 1998 Incentive Compensation Plan, as amended, dated
November 13, 2007 *10.7
    
    Amended Deferred Compensation Plan *31.1
    
    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
 
 *
    
    Indicates a management contract or compensatory plan or arrangement 25




---



##### Table of Contents



SIGNATURES
  JO-ANN STORES, INC.DATE: December 13, 2007
    
    
    
    /s/ Darrell WebbDarrell Webb,President and Chief Executive Officer/s/ James KerrJames Kerr,Executive Vice President and Chief Financial Officer
 26