##### Table of Contents









UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





FORM 10-K


ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES EXCHANGE ACT of 1934


For the fiscal year-ended January 29, 2005


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


Securities registered pursuant to Section 12(b) of the
Act:


|                                |  |                        
|------------------------------- |  | -----------------------
|                                |  | Name of Each Exchange  
|Title of Class                  |  | on Which Registered    
|                                |  |                        
|Common Stock, Without Par Value |  | New York Stock Exchange




x o


x


x o










| |                                                                                                       
| | ------------------------------------------------------------------------------------------------------
| | Proxy Statement for 2005 Annual Meeting of
    Shareholders  Items 10, 11, 12 and 14
    of Part III.









---

TABLE OF CONTENTS



|                                                                  |                                                                                                                      |                                                 |  |  |  |  |  | 
|----------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- |  |  |  |  |  | 
|PART I                                                           
|                                                                  | Item 1. Business                                                                                                    
|                                                                  | Item 2. Properties                                                                                                  
|                                                                  | Item 3. Legal Proceedings                                                                                           
|                                                                  | Item 4. Submission of Matters to a Vote of Security Holders                                                         
|PART II                                                          
|                                                                  | Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|                                                                  | Item 6. Selected Financial Data                                                                                     
|                                                                  | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations                       
|                                                                  | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                                 
|                                                                  | Item 8. Financial Statements and Supplementary Data                                                                 
|Index to Consolidated Financial Statements                       
|Report of Independent Registered Public Accounting Firm          
|                                                                  |                                                                                                                      | Consolidated Balance Sheets                    
|                                                                  |                                                                                                                      | Consolidated Statements of Operations          
|                                                                  |                                                                                                                      | Consolidated Statements of Cash Flows          
|                                                                  |                                                                                                                      | Consolidated Statements of Shareholders Equity
|Notes to Consolidated Financial Statements                       
|Note 1 -- Significant Accounting Policies                        
|                                                                  | Note 2 -- Restatement of Prior Financial Information                                                                
|                                                                  | Note 4 -- Store Closings                                                                                            
|                                                                  | Note 5 -- Income Taxes                                                                                              
|                                                                  | Note 6 -- Financing                                                                                                 
|                                                                  | Note 7 -- Capital Stock                                                                                             
|                                                                  | Note 8 -- Stock-Based Compensation                                                                                  
|                                                                  | Restricted Stock -- Time-Based Awards                                                                               
|                                                                  | Note 9 -- Savings Plan and Postretirement Benefits                                                                  
|                                                                  | Note 10 -- Commitments and Contingencies                                                                            
|                                                                  | Note 11 -- Leases                                                                                                   
|                                                                  | Note 12 -- Quarterly Financial Information (Unaudited)                                                              
|                                                                  | Note 13 -- Consolidating Financial Statements                                                                       
|                                                                  | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                        
|                                                                  | Item 9A. Controls and Procedures                                                                                    
|Report of Independent Registered Public Accounting Firm          
|                                                                  | Item 9B. Other Information                                                                                          
|PART III                                                         
|                                                                  | Item 10. Directors and Executive Officers of the Registrant                                                         
|                                                                  | Item 11. Executive Compensation                                                                                     
|                                                                  | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters             
|Equity Compensation Plan Information                             
|                                                                  | Item 13. Certain Relationships and Related Transactions                                                             
|                                                                  | Item 14. Principal Accountant Fees and Services                                                                     
|PART IV                                                          
|                                                                  | Item 15. Exhibits and Financial Statement Schedules                                                                 
|Index to Exhibits                                                
|SIGNATURES                                                       
|EX-10.2 List of Executive Officers in Split Dollar Life Insurance
|EX-10.4 List of Executive Officers in Supplemental Retirement    
|EX-10.7 List of Executive Officers in Employment Agreement       
|EX-23 Consent of Ernst & Young                                   
|EX-24 Power of Attorney                                          
|EX-31.1 302 Certification by CEO                                 
|EX-31.2 302 Certification by CFO                                 
|EX-32.1 906 Certification                                        



---



##### Table of Contents






PART I









|        |         
|------- | --------
|Item 1. | Business

Jo-Ann Fabrics and Crafts Jo-Ann










1



---



##### Table of Contents





Business Strategy




Open Additional Superstores.


Grow Same-Store Sales.


Improve Margins.


Improve Inventory Productivity.


2



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##### Table of Contents



Product Selection




|                        |                        |                   |  |             |     |             |  |    |     |   |  |    |     |  
|----------------------- | ---------------------- | ----------------- |  | ----------- | --- | ----------- |  | -- | --- | - |  | -- | --- | -
|                        |                        | Fiscal Year-Ended
|                        |                        |                  
|                        |                        | January 29,       |  | January 31, |     | February 1,
|                        |                        | 2005              |  | 2004        |     | 2003       
|                        |                        |                   |  |             |     |            
|Principal product line: |                        |                   |  |             |     |             |  |    |     |   |  |   
|                        | Softlines              |                   |  | 56          | %   |             |  | 57 | %   |   |  | 57 | %  
|                        | Hardlines and seasonal |                   |  | 44          | %   |             |  | 43 | %   |   |  | 43 | %  
|                        |                        |                   |  |             |     |             |  |    |     |   |  |   
|                        |                        | Total             |  |             | 100 | %           |  |    | 100 | % |  |    | 100 | %
|                        |                        |                   |  |             |     |             |  |    |     |   |  |   



| |          
| | ---------
| | Softlines





| |   |                                                                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | fashion and sportswear fabrics, used primarily in the
    construction of garments for the customer seeking a unique,
    fashion forward look;                                                                                                                         
|
| |  | special occasion fabrics used to construct evening wear, bridal
    and special occasion outfits;                                                                                                                                                                       
|
| |  | craft fabrics, used primarily in the construction of quilts,
    craft and seasonal projects for the home;                                                                                                                                                              
|
| |  | juvenile designs for the construction of garments as well as
    blankets and décor accessories;                                                                                                                                                                        
|
| |  | special-buy or fabrics representing extreme values for our
    customer;                                                                                                                                                                                                
|
| |  | home decorating fabrics and accessories used in home related
    projects such as window treatments, furniture and bed coverings
    (in addition to the in-store assortment, we offer a special
    order capability for additional designs);                          
|
| |  | a wide array of notions, which represent items incidental to
    sewing-related projects  including cutting
    implements, threads, zippers, trims, tapes, pins, elastics,
    buttons and ribbons as well as the patterns necessary for most
    sewing projects; and
|
| |  | sewing-related accessories including lighting, organizers, and
    sewing machines. Our high volume stores offer a wider selection
    of sewing machines through leased departments with third parties
    from whom we receive sublease income.                       



| |                       
| | ----------------------
| | Hardlines and Seasonal





| |   |                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | yarn and accessories as well as needlecraft kits and supplies;                                                                                                   
|
| |  | paper crafting components, such as albums, papers, stickers,
    stamps, and books used in the popular home based activities of
    scrapbooking and card making;
|
| |  | craft materials, including items used for stenciling, jewelry
    making, decorative painting, wall décor, and kids crafting;                                    
|
| |  | brand-name fine art materials, including items such as pastels,
    water colors, oil paints, acrylics, easels, brushes, paper and
    canvas;                   
|
| |  | a comprehensive assortment of books and magazines to provide
    inspiration for our customer;                                                                   

3



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | framed art, photo albums and ready-made frames and, in
    superstores, full service in-store framing departments;                                                                                                                                        
|
| |  | floral products, including artificial flowers, dried flowers and
    artificial plants, sold separately or in ready-made and custom
    floral arrangements and a broad selection of accessories
    essential for floral arranging and wreath making; and
|
| |  | home décor accessories including baskets, candles and
    accent collections designed to complement our home décor
    fashions.                                                                                                                          

tm tm






Marketing














4



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##### Table of Contents



Purchasing




Logistics






Store Operations


Site Selection.




Costs of Opening Stores.


Store Management.


5



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##### Table of Contents







Stores




|               |  |             |     |            |  |       |     |  |  |    
|-------------- |  | ----------- | --- | ---------- |  | ----- | --- |  |  | ---
|               |  | Traditional |     | Superstore |  | Total
|               |  |             |     |            |  |      
|Alabama        |  |             | 1   |            |  |       |    |  |  | 1  
|Alaska         |  |             | 6   |            |  |       |    |  |  | 6  
|Arizona        |  |             | 10  |            |  |       | 5   |  |  | 15 
|Arkansas       |  |             | 1   |            |  |       |    |  |  | 1  
|California     |  |             | 88  |            |  |       | 7   |  |  | 95 
|Colorado       |  |             | 9   |            |  |       | 3   |  |  | 12 
|Connecticut    |  |             | 13  |            |  |       | 2   |  |  | 15 
|Delaware       |  |             | 2   |            |  |       | 1   |  |  | 3  
|Florida        |  |             | 44  |            |  |       | 9   |  |  | 53 
|Georgia        |  |             | 8   |            |  |       | 4   |  |  | 12 
|Idaho          |  |             | 9   |            |  |       |    |  |  | 9  
|Illinois       |  |             | 37  |            |  |       | 5   |  |  | 42 
|Indiana        |  |             | 26  |            |  |       | 3   |  |  | 29 
|Iowa           |  |             | 11  |            |  |       |    |  |  | 11 
|Kansas         |  |             | 6   |            |  |       | 2   |  |  | 8  
|Kentucky       |  |             | 4   |            |  |       |    |  |  | 4  
|Louisiana      |  |             | 7   |            |  |       |    |  |  | 7  
|Maine          |  |             | 5   |            |  |       |    |  |  | 5  
|Maryland       |  |             | 16  |            |  |       | 4   |  |  | 20 
|Massachusetts  |  |             | 24  |            |  |       |    |  |  | 24 
|Michigan       |  |             | 39  |            |  |       | 14  |  |  | 53 
|Minnesota      |  |             | 16  |            |  |       | 6   |  |  | 22 
|Missouri       |  |             | 12  |            |  |       | 1   |  |  | 13 
|Montana        |  |             | 7   |            |  |       |    |  |  | 7  
|Nebraska       |  |             | 5   |            |  |       |    |  |  | 5  
|Nevada         |  |             | 4   |            |  |       | 2   |  |  | 6  
|New Hampshire  |  |             | 8   |            |  |       |    |  |  | 8  
|New Jersey     |  |             | 13  |            |  |       |    |  |  | 13 
|New Mexico     |  |             | 6   |            |  |       |    |  |  | 6  
|New York       |  |             | 36  |            |  |       | 8   |  |  | 44 
|North Carolina |  |             | 7   |            |  |       |    |  |  | 7  
|North Dakota   |  |             | 4   |            |  |       |    |  |  | 4  
|Ohio           |  |             | 52  |            |  |       | 12  |  |  | 64 
|Oklahoma       |  |             | 4   |            |  |       |    |  |  | 4  
|Oregon         |  |             | 25  |            |  |       |    |  |  | 25 
|Pennsylvania   |  |             | 44  |            |  |       | 5   |  |  | 49 
|Rhode Island   |  |             | 1   |            |  |       |    |  |  | 1  
|South Carolina |  |             | 2   |            |  |       |    |  |  | 2  
|South Dakota   |  |             | 2   |            |  |       |    |  |  | 2  
|Tennessee      |  |             | 2   |            |  |       | 3   |  |  | 5  
|Texas          |  |             | 39  |            |  |       | 5   |  |  | 44 
|Utah           |  |             | 10  |            |  |       | 1   |  |  | 11 
|Vermont        |  |             | 4   |            |  |       |    |  |  | 4  
|Virginia       |  |             | 22  |            |  |       |    |  |  | 22 
|Washington     |  |             | 24  |            |  |       | 9   |  |  | 33 
|West Virginia  |  |             | 5   |            |  |       |    |  |  | 5  
|Wisconsin      |  |             | 17  |            |  |       | 3   |  |  | 20 
|               |  |             |     |            |  |       |     |  |  |    
|Total          |  |             | 737 |            |  |       | 114 |  |  | 851
|               |  |             |     |            |  |       |     |  |  |    

6



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##### Table of Contents





|       |  |        |    |        |  |              |     |              |  |         |       |  |  |  |    |  |  |  |        | 
|------ |  | ------ | -- | ------ |  | ------------ | --- | ------------ |  | ------- | ----- |  |  |  | -- |  |  |  | ------ | 
|       |  |        |    |        |  | Stores in    |     |              |  | Total  
|Fiscal |  | Stores |    | Stores |  | Operation at |     | Expanded     |  | Square 
|Year   |  | Opened |    | Closed |  | Year-End     |     | or Relocated |  | Footage
|       |  |        |    |        |  |              |     |              |  |        
|2001   |  |        | 18 |        |  |              | (37 | )            |  |         | 1,007 |  |  |  | 9  |  |  |  | 16,068 | 
|2002   |  |        | 12 |        |  |              | (60 | )            |  |         | 959   |  |  |  | 10 |  |  |  | 15,897 | 
|2003   |  |        | 3  |        |  |              | (43 | )            |  |         | 919   |  |  |  | 6  |  |  |  | 15,435 | 
|2004   |  |        | 19 |        |  |              | (46 | )            |  |         | 892   |  |  |  |   |  |  |  | 15,377 | 
|2005   |  |        | 31 |        |  |              | (72 | )            |  |         | 851   |  |  |  | 2  |  |  |  | 15,453 | 





Information Technology








7



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##### Table of Contents



Status of Product or Line of Business




Trademarks




Seasonal Business




Customer Base




Backlog of Orders




Competitive Conditions








| |   |                                                                                                
| | - | -----------------------------------------------------------------------------------------------
| |  | purchasing power;                                                                              
|
| |  | ability to support efficient nationwide distribution; and                                      
|
| |  | the financial resources to execute our strategy and capital
    investment needs going forward.

8



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##### Table of Contents



Research and Development




Environmental Disclosure




Employees






Foreign Operations and Export Sales






Other Available Information




9



---



##### Table of Contents












|        |           
|------- | ----------
|Item 2. | Properties











|                        |       |              |     |     | 
|----------------------- | ----- | ------------ | --- | --- | 
|                        |       | Number of   
|Year Lease Terms Expire |       | Store Leases
|                        |       |             
|Month-to-month          |       |              | 34  |    
|2006                    |       |              | 51  |    
|2007                    |       |              | 36  |    
|2008                    |       |              | 32  |    
|2009                    |       |              | 23  |    
|2010                    |       |              | 13  |    
|Thereafter              |       |              | 661 |    
|                        |       |              |     |    
|                        | Total |              |     | 850 | 
|                        |       |              |     |    

10



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##### Table of Contents






Item 3. Legal Proceedings







Item 4. Submission of Matters to a Vote of Security
Holders




Executive Officers of the Registrant






|                      |  |     |    |  |          |                                                             
|--------------------- |  | --- | -- |  | -------- | ------------------------------------------------------------
|Name                  |  | Age |    |  | Position
|                      |  |     |    |  |         
|Alan Rosskamm         |  |     | 55 |  |          | Chairman of the Board, President and Chief Executive Officer
|Dave Bolen            |  |     | 53 |  |          | Executive Vice President, Merchandising and Marketing       
|Brian Carney          |  |     | 44 |  |          | Executive Vice President, Chief Financial Officer           
|Valerie Gentile Sachs |  |     | 49 |  |          | Executive Vice President, General Counsel and Secretary     
|David Holmberg        |  |     | 46 |  |          | Executive Vice President, Operations                        
|Rosalind Thompson     |  |     | 55 |  |          | Executive Vice President, Human Resources                   

Alan Rosskamm


Dave Bolen


Brian Carney


Valerie Gentile Sachs


David Holmberg


11



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Rosalind Thompson





PART II







|        |                                                                                                                 
|------- | ----------------------------------------------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity, Related
    Stockholder Matters and Issuer Purchases of Equity Securities









|                 |  |               |       |              |  |              |       |     |  |      |       |     |  |   |       |  |  |   |       |  |  |   |       | 
|---------------- |  | ------------- | ----- | ------------ |  | ------------ | ----- | --- |  | ---- | ----- | --- |  | - | ----- |  |  | - | ----- |  |  | - | ----- | 
|                 |  |               |       | Class A      |  | Class B     
|                 |  | Common Shares |       | Common Stock |  | Common Stock
|                 |  |               |       |              |  |             
|                 |  | High          |       | Low          |  | High         |       | Low |  | High |       | Low
|                 |  |               |       |              |  |              |       |     |  |      |       |    
|Fiscal 2005:     |  |               |       |              |  |              |       |     |  |      |       |     |  |   |       |  |  |   |       |  |  |   |       | 
|January 29, 2005 |  | $             | 28.81 |              |  | $            | 24.21 |     |  |      |      |     |  |   |      |  |  |   |      |  |  |   |      | 
|October 30, 2004 |  |               | 28.78 |              |  |              | 23.36 |     |  |      |      |     |  |   |      |  |  |   |      |  |  |   |      | 
|July 31, 2004    |  |               | 29.87 |              |  |              | 23.87 |     |  |      |      |     |  |   |      |  |  |   |      |  |  |   |      | 
|May 1, 2004      |  |               | 30.49 |              |  |              | 23.40 |     |  |      |      |     |  |   |      |  |  |   |      |  |  |   |      | 
|                
|Fiscal 2004:     |  |               |       |              |  |              |       |     |  |      |       |     |  |   |       |  |  |   |       |  |  |   |       | 
|January 31, 2004 |  | $             | 26.92 |              |  | $            | 18.55 |     |  | $    | 31.14 |     |  | $ | 30.35 |  |  | $ | 27.08 |  |  | $ | 26.43 | 
|November 1, 2003 |  |               |      |              |  |              |      |     |  |      | 32.01 |     |  |   | 25.40 |  |  |   | 27.87 |  |  |   | 22.24 | 
|August 2, 2003   |  |               |      |              |  |              |      |     |  |      | 27.95 |     |  |   | 19.57 |  |  |   | 24.84 |  |  |   | 16.91 | 
|May 3, 2003      |  |               |      |              |  |              |      |     |  |      | 26.30 |     |  |   | 16.75 |  |  |   | 23.30 |  |  |   | 14.00 | 





12



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|                                    |  |                                                       |        |                  |               |   |                |                     |  |  |                 |  |  |  |           | 
|----------------------------------- |  | ----------------------------------------------------- | ------ | ---------------- | ------------- | - | -------------- | ------------------- |  |  | --------------- |  |  |  | --------- | 
|                                    |  | Purchases of Equity Securities by Jo-Ann Stores, Inc. |       
|                                    |  |                                                       |       
|                                    |  |                                                       |        | Maximum Number   |              
|                                    |  |                                                       |        | Total Number of  |               |   | of Shares that |                    
|                                    |  |                                                       |        | Shares Purchased |               |   | May Yet Be     |                    
|                                    |  | Total Number                                          |        |                  | Average Price |   |                | as Part of Publicly |  |  | Purchased Under | 
|                                    |  | of Shares                                             |        |                  | Paid          |   |                | Announced Plans     |  |  | the Plans or    | 
|                                    |  | Purchased                                             |        |                  | per Share     |   |                | or Programs         |  |  | Programs        | 
|                                    |  |                                                       |        |                  |               |   |                |                     |  |  |                 | 
|October 31  November 27, 2004      |  |                                                       | 2,244  |                  |               | $ | 25.73          |                     |  |  | 862,317         |  |  |  | 1,287,683 | 
|November 28, 2004  January 1, 2005 |  |                                                       | 1,855  |                  |               | $ | 26.69          |                     |  |  | 864,172         |  |  |  | 1,285,828 | 
|January 2  29, 2005                |  |                                                       | 7,020  |                  |               | $ | 26.90          |                     |  |  | 871,192         |  |  |  | 1,278,808 | 
|                                    |  |                                                       |        |                  |               |   |                |                     |  |  |                 | 
|Total                               |  |                                                       | 11,119 |                  |               | $ | 26.63          |                     |  |  | 871,192         |  |  |  | 1,278,808 | 
|                                    |  |                                                       |        |                  |               |   |                |                     |  |  |                 | 



13



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##### Table of Contents






Item 6. Selected Financial Data


Managements Discussion and Analysis of Financial
Condition and Results of Operations,


|                                                            |                                              |                                              |         |             |   |             |         |             |   |             |         |     |   |   |         |     |   |   |         |     |  
|----------------------------------------------------------- | -------------------------------------------- | -------------------------------------------- | ------- | ----------- | - | ----------- | ------- | ----------- | - | ----------- | ------- | --- | - | - | ------- | --- | - | - | ------- | --- | -
|                                                            |                                              | Fiscal Year-Ended(a)                        
|                                                            |                                              |                                             
|                                                            |                                              | January 29,                                  |         | January 31, |   | February 1, |         | February 2, |   | February 3,
|                                                            |                                              | 2005                                         |         | 2004        |   | 2003        |         | 2002        |   | 2001       
|                                                            |                                              |                                              |         |             |   |             |         |             |   |            
|                                                            |                                              |                                              |         | (Restated)  |   | (Restated)  |         | (Restated)  |   | (Restated) 
|                                                            |                                              |                                              |         |             |   |             |         | (Unaudited) |   | (Unaudited)
|                                                            |                                              | (Dollars in millions, except per share data)
|Operating Results:                                          |                                              |                                              |         |             |   |             |         |             |   |             |         |     |   |   |         |     |   |   |         |    
|Net sales                                                   |                                              | $                                            | 1,812.4 |             |   | $           | 1,734.1 |             |   | $           | 1,682.0 |     |   | $ | 1,570.3 |     |   | $ | 1,483.3 |    
|                                                            | Total net sales percentage increase          |                                              |         | 4.5         | % |             |         | 3.1         | % |             |         | 7.1 | % |   |         | 5.9 | % |   |         | 7.4 | %
|                                                            | Same-store sales percentage
    increase (b) |                                              |         | 3.2         | % |             |         | 3.6         | % |             |         | 8.4 | % |   |         | 5.9 | % |   |         | 1.3 | %
|Gross margin                                                |                                              |                                              | 862.1   |             |   |             | 810.6   |             |   |             | 777.5   |     |   |   | 693.1   |     |   |   | 645.1   |    
|Selling, general and administrative
    expenses (c)        |                                              |                                              | 719.3   |             |   |             | 678.1   |             |   |             | 639.5   |     |   |   | 643.7   |     |   |   | 589.3   |    
|Depreciation and amortization                               |                                              |                                              | 43.0    |             |   |             | 39.0    |             |   |             | 37.9    |     |   |   | 40.6    |     |   |   | 39.4    |    
|Stock-based compensation
    expense (d)                    |                                              |                                              | 7.7     |             |   |             | 6.4     |             |   |             | 0.2     |     |   |   | 0.5     |     |   |   | 0.4     |    
|Debt repurchase and share reclassification
    expenses (e) |                                              |                                              | 4.2     |             |   |             | 5.5     |             |   |             | 1.9     |     |   |   | 1.0     |     |   |   |        |    
|                                                            |                                              |                                             
|Operating profit                                            |                                              |                                              | 87.9    |             |   |             | 81.6    |             |   |             | 98.0    |     |   |   | 7.3     |     |   |   | 16.0    |    
|                                                            | Operating profit as a percent of net sales   |                                              |         | 4.8         | % |             |         | 4.7         | % |             |         | 5.8 | % |   |         | 0.5 | % |   |         | 1.1 | %
|Interest expense                                            |                                              |                                              | 13.7    |             |   |             | 16.5    |             |   |             | 24.7    |     |   |   | 31.4    |     |   |   | 27.8    |    
|Net income (loss)                                           |                                              | $                                            | 46.2    |             |   | $           | 40.1    |             |   | $           | 45.4    |     |   | $ | (14.9   | )   |   | $ | (13.9   | )  
|Net income (loss) as a percent of net sales                 |                                              |                                              | 2.5     | %           |   |             | 2.3     | %           |   |             | 2.7     | %   |   |   | (0.9    | )%  |   |   | (0.9    | )% 
|Per Share
    Data (f):                                     |                                              |                                              |         |             |   |             |         |             |   |             |         |     |   |   |         |     |   |   |         |    
|Net income (loss)  diluted                                 |                                              | $                                            | 2.02    |             |   | $           | 1.82    |             |   | $           | 2.10    |     |   | $ | (0.75   | )   |   | $ | (0.72   | )  
|Average shares outstanding  diluted (000s)                |                                              |                                              | 22,887  |             |   |             | 22,003  |             |   |             | 21,632  |     |   |   | 19,888  |     |   |   | 19,420  |    
|                                                            |                                              |                                             
|                                                           
|Financial Position:                                         |                                              |                                              |         |             |   |             |         |             |   |             |         |     |   |   |         |     |   |   |         |    
|Cash and cash equivalents                                   |                                              | $                                            | 79.6    |             |   | $           | 17.4    |             |   | $           | 63.2    |     |   | $ | 21.1    |     |   | $ | 17.5    |    
|Inventories                                                 |                                              |                                              | 439.7   |             |   |             | 404.6   |             |   |             | 363.1   |     |   |   | 369.0   |     |   |   | 451.0   |    
|Inventory turnover                                          |                                              |                                              | 2.3x    |             |   |             | 2.4x    |             |   |             | 2.5x    |     |   |   | 2.1x    |     |   |   | 1.8x    |    
|Current assets                                              |                                              |                                              | 562.9   |             |   |             | 467.4   |             |   |             | 468.6   |     |   |   | 435.4   |     |   |   | 503.3   |    
|Property, equipment and leasehold improvements, net         |                                              |                                              | 238.0   |             |   |             | 218.4   |             |   |             | 203.2   |     |   |   | 224.6   |     |   |   | 203.3   |    
|Total assets                                                |                                              |                                              | 839.3   |             |   |             | 719.8   |             |   |             | 714.3   |     |   |   | 705.4   |     |   |   | 752.8   |    
|Current liabilities                                         |                                              |                                              | 258.8   |             |   |             | 198.2   |             |   |             | 205.8   |     |   |   | 205.4   |     |   |   | 223.5   |    
|Long-term debt                                              |                                              |                                              | 100.0   |             |   |             | 113.7   |             |   |             | 162.9   |     |   |   | 223.7   |     |   |   | 240.0   |    
|Shareholders equity                                        |                                              |                                              | 408.9   |             |   |             | 340.8   |             |   |             | 285.0   |     |   |   | 227.8   |     |   |   | 243.8   |    
|Long-term debt to total capitalization                      |                                              |                                              | 19.7    | %           |   |             | 25.0    | %           |   |             | 36.4    | %   |   |   | 49.5    | %   |   |   | 49.6    | %  
|Long-term debt to total capitalization, net of cash         |                                              |                                              | 4.8     | %           |   |             | 22.0    | %           |   |             | 25.9    | %   |   |   | 47.1    | %   |   |   | 47.7    | %  
|Per Share
    Data (f):                                     |                                              |                                              |         |             |   |             |         |             |   |             |         |     |   |   |         |     |   |   |         |    
|Book
    value (g)                                          |                                              | $                                            | 18.10   |             |   | $           | 15.61   |             |   | $           | 13.52   |     |   | $ | 11.33   |     |   | $ | 12.43   |    
|Shares outstanding, net of treasury shares (000s)          |                                              |                                              | 22,585  |             |   |             | 21,828  |             |   |             | 21,079  |     |   |   | 20,106  |     |   |   | 19,612  |    

14



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##### Table of Contents



Item 6. Selected Financial Data (Continued)


|                                     |                                       |                                              |        |             |  |             |        |             |  |             |        |      |  |  |        |      |  |  |        |      | 
|------------------------------------ | ------------------------------------- | -------------------------------------------- | ------ | ----------- |  | ----------- | ------ | ----------- |  | ----------- | ------ | ---- |  |  | ------ | ---- |  |  | ------ | ---- | 
|                                     |                                       | Fiscal Year-Ended(a)                        
|                                     |                                       |                                             
|                                     |                                       | January 29,                                  |        | January 31, |  | February 1, |        | February 2, |  | February 3,
|                                     |                                       | 2005                                         |        | 2004        |  | 2003        |        | 2002        |  | 2001       
|                                     |                                       |                                              |        |             |  |             |        |             |  |            
|                                     |                                       |                                              |        | (Restated)  |  | (Restated)  |        | (Restated)  |  | (Restated) 
|                                     |                                       |                                              |        |             |  |             |        | (Unaudited) |  | (Unaudited)
|                                     |                                       | (Dollars in millions, except per share data)
|Other Financial Information:         |                                       |                                              |        |             |  |             |        |             |  |             |        |      |  |  |        |      |  |  |        |     
|Return on average
    equity (h)     |                                       |                                              | 12.3   | %           |  |             | 12.8   | %           |  |             | 17.7   | %    |  |  | (6.3   | )%   |  |  | (5.6   | )%  
|Capital expenditures:                |                                       |                                              |        |             |  |             |        |             |  |             |        |      |  |  |        |      |  |  |        |     
|                                     | Cash                                  |                                              | $      | 58.2        |  |             | $      | 52.2        |  |             | $      | 22.7 |  |  | $      | 66.5 |  |  | $      | 35.9 | 
|                                     | Cash  landlord
    reimbursement (i) |                                              |        | 8.9         |  |             |        | 5.4         |  |             |        | 0.5  |  |  |        | 3.2  |  |  |        | 3.8  | 
|                                     |                                       |                                             
|                                     | Total capital expenditures            |                                              |        | 67.1        |  |             |        | 57.6        |  |             |        | 23.2 |  |  |        | 69.7 |  |  |        | 39.7 | 
|                                     |                                       |                                             
|Store Count:                         |                                       |                                              |        |             |  |             |        |             |  |             |        |      |  |  |        |      |  |  |        |     
|Traditional stores                   |                                       |                                              | 737    |             |  |             | 806    |             |  |             | 847    |      |  |  | 889    |      |  |  | 949    |     
|Superstores                          |                                       |                                              | 114    |             |  |             | 86     |             |  |             | 72     |      |  |  | 70     |      |  |  | 58     |     
|                                     |                                       |                                             
|Total                                |                                       |                                              | 851    |             |  |             | 892    |             |  |             | 919    |      |  |  | 959    |      |  |  | 1,007  |     
|                                     |                                       |                                             
|                                    
|Store Square Footage
    (000s) (j) |                                       |                                              |        |             |  |             |        |             |  |             |        |      |  |  |        |      |  |  |        |     
|Traditional stores                   |                                       |                                              | 10,721 |             |  |             | 11,646 |             |  |             | 12,165 |      |  |  | 12,684 |      |  |  | 13,381 |     
|Superstores                          |                                       |                                              | 4,732  |             |  |             | 3,731  |             |  |             | 3,270  |      |  |  | 3,213  |      |  |  | 2,687  |     
|                                     |                                       |                                             
|Total                                |                                       |                                              | 15,453 |             |  |             | 15,377 |             |  |             | 15,435 |      |  |  | 15,897 |      |  |  | 16,068 |     
|                                     |                                       |                                             



|      |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Note: | The Company restated its consolidated financial statements for
    all previous years presented, due to revision of certain lease
    accounting practices. The restatement is discussed in
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations and in
    Note 2  Restatement of Prior Financial
    Information contained in the notes to consolidated
    financial statements. The consolidated financial statements and
    related schedule of the Company as of February 2, 2002 and
    February 3, 2001 and for the years then ended were audited
    by auditors who have ceased operations. As a result of the
    restatement discussed above, the audit report of the auditors
    who have ceased operations should no longer be relied upon.






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(a) | All years include 52 weeks except for the fiscal year-ended
    February 3, 2001, which includes 53 weeks.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   
|(b) | Same-store sales are defined as net sales from stores that have
    been open one year or more. Net sales are included in the
    same-store sales calculation on the first day of the first month
    following the one-year anniversary of a stores opening. In
    conjunction with the expansion or relocation of our stores, we
    exclude the net sales results from these stores in our
    same-store sales calculation until the first day of the first
    month following the one-year anniversary of its expansion or
    relocation. Further, in a 53-week year, net sales are compared
    to the comparable 53 weeks of the prior period.
|   
|   
|(c) | Includes store pre-opening and closing costs which the Company
    reports separately in its consolidated statements of operations
    for the three-years ended January 29, 2005. See the
    consolidated financial statements and accompanying notes to
    consolidated financial statements included elsewhere in this
    Annual Report on Form 10-K.                                                                                                                                                                                                                                                                                               
|   
|   
|(d) | Stock-based compensation expense includes the expensing of stock
    options under Statement of Financial Accounting Standard
    (SFAS) No. 123, Accounting for
    Stock-Based Compensation Expense, which we adopted in the
    first quarter of fiscal 2004, and the amortization of the fair
    value of restricted stock granted to employees. See
    Managements Discussion and Analysis of Financial
    Condition and Results of Operations and
    Note 8  Stock-Based Compensation
    contained in the notes to consolidated financial statements.                                                                                

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Item 6. Selected Financial Data (Continued)




|    |                                                                                                                                                                                                                                                                                          
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(e) | Debt repurchase and share reclassification expenses include
    expenses related to the early extinguishment of debt and costs
    associated with the share reclassification. See
    Note 3  Share Reclassification
    contained in the notes to consolidated financial statements.



|    |                                                                                                                                                                                                                                                                                                                                                                
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(f) | Shares outstanding, as well as average basic and diluted shares
    outstanding used to calculate earnings per share, reflect the
    impact of the increased shares outstanding as a result of the
    share reclassification that was approved by shareholders on
    November 4, 2003. Per share data reflect the impact of this
    share reclassification.



|    |                                                                                                                                                                                 
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(g) | Book value is calculated by dividing shareholders equity
    by shares outstanding, net of treasury shares.                                                                    
|   
|   
|(h) | Return on average equity is calculated by dividing net income by
    the average of the Company shareholders equity as of the
    beginning and end of its current fiscal year.



|    |                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------
|(i) | Capital expenditures reimbursed by the landlord represents the
    cost of assets acquired through the utilization of landlord
    lease incentives.
|   
|   
|(j) | Total store square footage includes selling floor space and
    inventory storage areas.                                                            

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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis of Financial
    Condition and Results of Operations



Overview


Jo-Ann Fabrics and Crafts Jo-Ann








| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net sales, including same-store sales by our two store formats,
    traditional stores and superstores. Net sales measures our
    overall sales growth and same-store sales measures whether our
    existing stores continue to grow their sales volume. We also
    closely monitor per transaction average ticket value and
    customer traffic, both in total and by store format. These
    indicators help measure our effectiveness in attracting
    customers into our stores and the effectiveness of our product
    assortment, promotions and service on sales. We also measure our
    sales per square foot performance in both of our store formats
    and compare them with our immediate competitors.
|
| |  | Gross margin rate to sales. In addition, gross margin return on
    investment (GMROI) is used by our merchandising
    organization to evaluate the gross margin performance relative
    to the average inventory investment. Merchandise selection and
    future decisions are, in part, based on the GMROI performance.                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Selling, general and administrative expense as a rate to sales.
    We also compare operating margins to those of our competitors.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

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##### Table of Contents





| |   |                                                                                                                                                                                                                                                                                 
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Inventory turnover. We monitor and focus extensive effort on
    managing our inventory investment, which is our single largest
    invested asset. Increasing inventory turnover is critical to
    improving our working capital position and improving our overall
    GMROI.
|
| |  | Debt to total capitalization. We have a goal of maintaining our
    year-end debt to total capitalization ratios at or below the
    current level.                                                                                                                             

Restatement of Financial Statements












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##### Table of Contents



Executive Overview of Fiscal 2005










| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Continued the rollout of our new 35,000 square foot
    prototype superstore, opening 29 of these stores during fiscal
    2005. Our current superstore prototype is 20 percent
    smaller than our larger superstore format and displays our
    destination assortment of fabric and crafts in a visually
    exciting, yet productive format.                                                                                                                                                                                                                                                                                                          
|
| |  | Refinanced our subordinated debt and amended our bank credit
    facility. In February 2004, we issued $100 million of
    7.500 percent senior subordinated notes, which enabled us
    to repurchase the remaining $64.4 million of our
    10.375 percent senior subordinated notes that were
    outstanding at the beginning of the year. In April 2004, we
    amended our senior credit facility, extending the term until May
    2009 and reducing the commitment to $350 million (See
    Note 6  Financing). These financing
    actions position us to successfully execute our planned growth
    strategy over the next three to five years.





| |   |                                                                                                                                                                                                                                                                                                                                                                      
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net sales increased 4.5 percent to $1.812 billion.
    Same-store sales increased 3.2 percent versus a same-store
    sales increase of 3.6 percent in the prior year.                                                                                                                                                                                               
|
| |  | We expanded our gross profit margin by 90 basis points, to
    47.6 percent of net revenue from 46.7 percent in
    fiscal 2004. This improvement was primarily due to our strategic
    decision to be less promotional.                                                                                                                                            
|
| |  | We grew net earnings by 11 percent. Net income was
    $2.02 per diluted share, compared to $1.82 per diluted
    share in fiscal 2004. We delivered this solid earnings growth in
    spite of the higher expenses caused by increased store openings
    and closings, and investments in our future. We opened 29
    superstores compared with 16 in fiscal 2004.
|
| |  | We continued to focus on debt reduction and the strengthening of
    our balance sheet and lowered our debt levels, net of cash, by
    $76 million.                                                                                                                                                                                                                 

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##### Table of Contents



Results of Operations




|                                                    |                  |                         |       |            |   |            |       |     |   |  |       |     |  
|--------------------------------------------------- | ---------------- | ----------------------- | ----- | ---------- | - | ---------- | ----- | --- | - |  | ----- | --- | -
|                                                    |                  | Percentage of Net Sales
|                                                    |                  |                        
|                                                    |                  | Fiscal Year-Ended      
|                                                    |                  |                        
|                                                    |                  | Jan 29,                 |       | Jan 31,    |   | Feb 1,    
|                                                    |                  | 2005                    |       | 2004       |   | 2003      
|                                                    |                  |                         |       |            |   |           
|                                                    |                  |                         |       | (Restated) |   | (Restated)
|Net sales                                           |                  |                         | 100.0 | %          |   |            | 100.0 | %   |   |  | 100.0 | %  
|Gross margin                                        |                  |                         | 47.6  | %          |   |            | 46.7  | %   |   |  | 46.2  | %  
|Selling, general and administrative expenses        |                  |                         | 38.7  | %          |   |            | 38.3  | %   |   |  | 37.6  | %  
|Store pre-opening and closing costs                 |                  |                         | 1.0   | %          |   |            | 0.8   | %   |   |  | 0.4   | %  
|Depreciation and amortization                       |                  |                         | 2.4   | %          |   |            | 2.2   | %   |   |  | 2.3   | %  
|Stock-based compensation expense                    |                  |                         | 0.5   | %          |   |            | 0.4   | %   |   |  |      |    
|Debt repurchase and share reclassification expenses |                  |                         | 0.2   | %          |   |            | 0.3   | %   |   |  | 0.1   | %  
|                                                    |                  |                         |       |            |   |            |       |     |   |  |       |    
|                                                    | Operating profit |                         |       | 4.8        | % |            |       | 4.7 | % |  |       | 5.8 | %
|                                                    |                  |                         |       |            |   |            |       |     |   |  |       |    

Comparison of the 52 Weeks Ended January 29, 2005 and
January 31, 2004


Net sales.






Gross margin.


20



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##### Table of Contents







Selling, general and administrative expenses.


Depreciation and amortization. Liquidity and Capital Resources.


Store pre-opening and closing costs.


Stock-based compensation expense.


Debt repurchase and share reclassification expenses.




Liquidity and Capital
Resources.


Operating profit.


21



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##### Table of Contents



Interest expense.


Income taxes.


Comparison of the 52 Weeks Ended January 31, 2004 and
February 1, 2003


Net sales.






Gross margin.


Selling, general and administrative expenses.


Depreciation and amortization.


22



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##### Table of Contents



Store pre-opening and closing costs.


Stock-based compensation expense Note 1 
Significant Accounting Policies  Stock-Based
Compensation


Debt repurchase and share reclassification expenses.


Operating profit.


Interest expense.


Income taxes.


Store Closing Charges






23



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##### Table of Contents





Note 1  Significant
Accounting Policies,






|                                   |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |      |  
|---------------------------------- | -------- | --------------------- | ---- | ----------- | - | ----- | --- | ----- | - | - | --- | ---- | - | - | ---- | ---- | -
|                                   |          | Non-cancelable        |      |             |   |       |     |      
|                                   |          | Lease                 |      | Asset       |   | Other |     |      
|                                   |          | Obligations           |      | Impairments |   | Costs |     | Total
|                                   |          |                       |      |             |   |       |     |      
|                                   |          | (Dollars in millions)
|Balance at February 2, 2002        |          | $                     | 11.2 |             |   | $     |    |       |   | $ | 1.2 |      |   | $ | 12.4 |     
|Amounts charged to income          |          |                       | (5.9 | )           |   |       | 6.7 |       |   |   | 0.7 |      |   |   | 1.5  |     
|Utilization:                       |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |     
|                                   | Cash     |                       |      | (1.8        | ) |       |     |      |   |   |     | (0.9 | ) |   |      | (2.7 | )
|                                   | Non-Cash |                       |      |            |   |       |     | (6.7  | ) |   |     | (0.1 | ) |   |      | (6.8 | )
|                                   |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |     
|Balance at February 1,
    2003(1) |          |                       | 3.5  |             |   |       |    |       |   |   | 0.9 |      |   |   | 4.4  |     
|Amounts charged to income          |          |                       | (0.1 | )           |   |       | 2.1 |       |   |   | 1.7 |      |   |   | 3.7  |     
|Utilization:                       |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |     
|                                   | Cash     |                       |      | (1.6        | ) |       |     |      |   |   |     | (1.3 | ) |   |      | (2.9 | )
|                                   | Non-Cash |                       |      |            |   |       |     | (2.1  | ) |   |     | (0.3 | ) |   |      | (2.4 | )
|                                   |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |     
|Balance at January 31,
    2004(1) |          |                       | 1.8  |             |   |       |    |       |   |   | 1.0 |      |   |   | 2.8  |     
|Amounts charged to income          |          |                       | 1.4  |             |   |       | 2.5 |       |   |   | 5.0 |      |   |   | 8.9  |     
|Utilization:                       |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |     
|                                   | Cash     |                       |      | (2.7        | ) |       |     |      |   |   |     | (5.2 | ) |   |      | (7.9 | )
|                                   | Non-Cash |                       |      |            |   |       |     | (2.5  | ) |   |     |     |   |   |      | (2.5 | )
|                                   |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |     
|Balance at January 29, 2005        |          | $                     | 0.5  |             |   | $     |    |       |   | $ | 0.8 |      |   | $ | 1.3  |     
|                                   |          |                       |      |             |   |       |     |       |   |   |     |      |   |   |      |     






|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fiscal years 2004 and 2003 have been restated to reflect changes
    discussed in Note 2  Restatement of Prior
    Financial Information.

Non-cancelable lease obligations


24



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##### Table of Contents



Asset impairments


Other costs


Liquidity and Capital Resources






|                                                     |  |      |       |            |  |            |       |   |  |   |       |  
|---------------------------------------------------- |  | ---- | ----- | ---------- |  | ---------- | ----- | - |  | - | ----- | -
|                                                     |  | 2005 |       | 2004       |  | 2003      
|                                                     |  |      |       |            |  |           
|                                                     |  |      |       | (Restated) |  | (Restated)
|Net cash provided by operating activities            |  | $    | 141.9 |            |  | $          | 51.7  |   |  | $ | 119.7 |  
|Net cash used for investing activities               |  |      | (67.1 | )          |  |            | (51.1 | ) |  |   | (23.2 | )
|Net cash used for financing activities               |  |      | (12.6 | )          |  |            | (46.4 | ) |  |   | (54.4 | )
|                                                     |  |      |       |            |  |            |       |   |  |   |       |  
|Net increase (decrease) in cash and cash equivalents |  | $    | 62.2  |            |  | $          | (45.8 | ) |  | $ | 42.1  |  
|                                                     |  |      |       |            |  |            |       |   |  |   |       |  
|Ending cash and cash equivalents                     |  | $    | 79.6  |            |  | $          | 17.4  |   |  | $ | 63.2  |  
|                                                     |  |      |       |            |  |            |       |   |  |   |       |  

Net Cash Provided By Operating Activities








25



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##### Table of Contents



Net Cash Used For Investing Activities


Capital
Expenditures.




Capital Expenditures




|                           |  |         |           |      |  |      |      |      |  |   |      |  |  |   |      | 
|-------------------------- |  | ------- | --------- | ---- |  | ---- | ---- | ---- |  | - | ---- |  |  | - | ---- | 
|                           |  | 2006    |           |      |  |      |      |     
|                           |  | Outlook |           | 2005 |  | 2004 |      | 2003
|                           |  |         |           |      |  |      |      |     
|Cash                       |  |         | $110-$120 |      |  | $    | 58.2 |      |  | $ | 52.2 |  |  | $ | 22.7 | 
|Cash  landlord reimbursed |  |         | $ 20      |      |  |      | 8.9  |      |  |   | 5.4  |  |  |   | 0.5  | 
|                           |  |         |           |      |  |      |      |      |  |   |      |  |  |   |      | 
|Total                      |  |         | $130-$140 |      |  | $    | 67.1 |      |  | $ | 57.6 |  |  | $ | 23.2 | 
|                           |  |         |           |      |  |      |      |      |  |   |      |  |  |   |      | 











Net Cash Used For Financing Activities




26



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Sources of Liquidity








Common Share Repurchases




Sources of Liquidity










Senior Bank Credit Facility.


27



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Senior Subordinated Notes.





/




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Restricted Stock Program






Off-Balance Sheet Transactions




Contractual Obligations and Commitments




|                                                       |  |                            |         |           |  |           |       |           |  |         |       |  |  |   |       |  |  |   |       | 
|------------------------------------------------------ |  | -------------------------- | ------- | --------- |  | --------- | ----- | --------- |  | ------- | ----- |  |  | - | ----- |  |  | - | ----- | 
|                                                       |  | Payments Due by Period (1)
|                                                       |  |                           
|                                                       |  |                            |         | Less than |  |           |       | After    
|                                                       |  | Total                      |         | 1 year    |  | 1-3 years |       | 4-5 years |  | 5 years
|                                                       |  |                            |         |           |  |           |       |           |  |        
|7.5 percent senior subordinated notes                  |  | $                          | 100.0   |           |  | $         |      |           |  | $       |      |  |  | $ |      |  |  | $ | 100.0 | 
|7.5 percent senior subordinated notes
    interest (1) |  |                            | 56.3    |           |  |           | 7.5   |           |  |         | 22.5  |  |  |   | 15.0  |  |  |   | 11.3  | 
|Letters of
    credit (2)                              |  |                            | 67.9    |           |  |           | 67.9  |           |  |         |      |  |  |   |      |  |  |   |      | 
|Operating
    leases (3)                               |  |                            | 787.6   |           |  |           | 134.1 |           |  |         | 236.3 |  |  |   | 148.4 |  |  |   | 268.8 | 
|                                                       |  |                            |         |           |  |           |       |           |  |         |       |  |  |   |       |  |  |   |       | 
|Total Contractual Cash Obligations                     |  | $                          | 1,011.8 |           |  | $         | 209.5 |           |  | $       | 258.8 |  |  | $ | 163.4 |  |  | $ | 380.1 | 
|                                                       |  |                            |         |           |  |           |       |           |  |         |       |  |  |   |       |  |  |   |       | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Interest is included as a contractual obligation on the
    7.500 percent senior subordinated notes only. The
    calculation of interest on the senior bank credit facility is
    dependent on the average borrowings during the year and a
    variable interest rate, which currently approximates
    4.25 percent (set at 125 basis points over LIBOR). We
    did not include these amounts due to their subjectivity and
    estimation required. See Liquidity and Capital
    Resources  Sources of Liquidityfor further
    discussion of the senior bank credit facility.
|   
|(2) | Includes commercial letters of credit of $41.3 million and
    $26.6 million of standby letters of credit.                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(3) | The remaining cash payments include $2.5 million associated
    with lease obligations for stores closed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

Seasonality and Inflation




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|                                   |  |             |       |       |             |       |            |       |  |   |       |    |       |   |       |   |       |  |   |       |   |  |   |       |   |  |   |       |   |  |   |       |  
|---------------------------------- |  | ----------- | ----- | ----- | ----------- | ----- | ---------- | ----- |  | - | ----- | -- | ----- | - | ----- | - | ----- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                   |  | Fiscal 2005 |       |       | Fiscal 2004
|                                   |  |             |       |       |            
|                                   |  | Qtr 1       |       | Qtr 2 |             | Qtr 3 |            | Qtr 4 |  |   | Qtr 1 |    | Qtr 2 |   | Qtr 3 |   | Qtr 4
|                                   |  |             |       |       |             |       |            |       |  |   |       |    |       |   |       |   |      
|                                   |  | (Restated)  |       |       |             |       | (Restated)
|                                   |  |             |       |       |             |       |           
|Net sales                          |  | $           | 404.9 |       |             | $     | 371.0      |       |  | $ | 448.3 |    |       | $ | 588.2 |   |       |  | $ | 374.8 |   |  | $ | 359.2 |   |  | $ | 447.5 |   |  | $ | 552.6 |  
|Same-store sales percentage change |  |             | 6.6   | %     |             |       | 3.1        | %     |  |   | (0.9  | )% |       |   | 4.3   | % |       |  |   | 2.6   | % |  |   | 2.4   | % |  |   | 4.2   | % |  |   | 4.5   | %
|Gross margin                       |  | $           | 199.0 |       |             | $     | 181.9      |       |  | $ | 214.2 |    |       | $ | 267.0 |   |       |  | $ | 180.5 |   |  | $ | 172.6 |   |  | $ | 215.1 |   |  | $ | 242.4 |  
|Gross margin percent to sales      |  |             | 49.1  | %     |             |       | 49.0       | %     |  |   | 47.8  | %  |       |   | 45.4  | % |       |  |   | 48.2  | % |  |   | 48.1  | % |  |   | 48.1  | % |  |   | 43.9  | %
|Operating profit                   |  | $           | 14.5  |       |             | $     | 3.9        |       |  | $ | 14.7  |    |       | $ | 54.8  |   |       |  | $ | 11.0  |   |  | $ | 0.0   |   |  | $ | 23.4  |   |  | $ | 47.2  |  
|Operating profit percent to sales  |  |             | 3.6   | %     |             |       | 1.1        | %     |  |   | 3.3   | %  |       |   | 9.3   | % |       |  |   | 2.9   | % |  |   | 0.0   | % |  |   | 5.2   | % |  |   | 8.5   | %
|Net income (loss)                  |  | $           | 6.7   |       |             | $     | 0.3        |       |  | $ | 6.9   |    |       | $ | 32.3  |   |       |  | $ | 3.9   |   |  | $ | (2.4  | ) |  | $ | 11.9  |   |  | $ | 26.7  |  
|Inventories                        |  |             | 420.1 |       |             |       | 508.4      |       |  |   | 530.2 |    |       |   | 439.7 |   |       |  |   | 369.1 |   |  |   | 471.6 |   |  |   | 520.3 |   |  |   | 404.6 |  
|Long-term debt                     |  |             | 106.6 |       |             |       | 161.7      |       |  |   | 200.0 |    |       |   | 100.0 |   |       |  |   | 124.9 |   |  |   | 190.5 |   |  |   | 237.4 |   |  |   | 113.7 |  



Critical Accounting Policies and Estimates




Inventory Valuation








30



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Vendor Allowances




Gift cards




Valuation of Long-Lived Assets






Accrued Store Closing Costs






Accrued Expenses




31



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Operating Leases






Income Taxes






Recent Accounting Pronouncements




Statement of Financial Accounting Standard
(SFAS) No. 123(Revised 2004), Share-Based Payment






32



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FASB Interpretation No. 46, Consolidation of Variable
Interest Entities




Cautionary Statement Concerning Forward-Looking Statements









|         |                                                           
|-------- | ----------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures About Market Risk









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Item 8. Financial Statements and Supplementary Data


Jo-Ann Stores, Inc.







Index to Consolidated Financial Statements


|                                                                                                                                |  |      |    | 
|------------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                                                                |  | Page |   
|                                                                                                                                |  |      |   
|Report of Independent Registered Public
    Accountants                                                                         |  |      | 36 | 
|Consolidated Balance Sheets as of
    January 29, 2005 and January 31, 2004                                                     |  |      | 37 | 
|Consolidated Statements of Operations for
    each of the three fiscal years in the period ended
    January 29, 2005           |  |      | 38 | 
|Consolidated Statements of Cash Flows for
    each of the three fiscal years in the period ended
    January 29, 2005           |  |      | 39 | 
|Consolidated Statements of
    Shareholders Equity for each of the three fiscal years in
    the period ended January 29, 2005 |  |      | 40 | 
|Notes to Consolidated Financial
    Statements                                                                                  |  |      | 41 | 

35



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Report of Independent Registered Public Accounting Firm
















| |                      
| | ---------------------
| | /s/ Ernst & Young LLP





36



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Jo-Ann Stores, Inc.







Consolidated Balance Sheets


|                                                    |                                                                                                                        |                              |       |             |   |   |       |       |  
|--------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------- | ---------------------------- | ----- | ----------- | - | - | ----- | ----- | -
|                                                    |                                                                                                                        | January 29,                  |       | January 31,
|                                                    |                                                                                                                        | 2005                         |       | 2004       
|                                                    |                                                                                                                        |                              |       |            
|                                                    |                                                                                                                        |                              |       | (Restated) 
|                                                    |                                                                                                                        | (Dollars in millions, except
|                                                    |                                                                                                                        | share and per share data)   
|Assets                                              |                                                                                                                        |                              |       |             |   |   |       |      
|Current assets:                                     |                                                                                                                        |                              |       |             |   |   |       |      
|                                                    | Cash and cash equivalents                                                                                              |                              | $     | 79.6        |   |   | $     | 17.4  |  
|                                                    | Inventories                                                                                                            |                              |       | 439.7       |   |   |       | 404.6 |  
|                                                    | Deferred income taxes                                                                                                  |                              |       | 21.3        |   |   |       | 21.9  |  
|                                                    | Prepaid expenses and other current assets                                                                              |                              |       | 22.3        |   |   |       | 23.5  |  
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      
|Total current assets                                |                                                                                                                        |                              | 562.9 |             |   |   | 467.4 |      
|Property, equipment and leasehold improvements, net |                                                                                                                        |                              | 238.0 |             |   |   | 218.4 |      
|Goodwill, net                                       |                                                                                                                        |                              | 27.1  |             |   |   | 26.5  |      
|Other assets                                        |                                                                                                                        |                              | 11.3  |             |   |   | 7.5   |      
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      
|Total assets                                        |                                                                                                                        | $                            | 839.3 |             |   | $ | 719.8 |      
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      
|                                                   
|Liabilities and Shareholders Equity                |                                                                                                                        |                              |       |             |   |   |       |      
|Current liabilities:                                |                                                                                                                        |                              |       |             |   |   |       |      
|                                                    | Accounts payable                                                                                                       |                              | $     | 167.2       |   |   | $     | 122.0 |  
|                                                    | Accrued expenses                                                                                                       |                              |       | 91.6        |   |   |       | 76.2  |  
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      
|Total current liabilities                           |                                                                                                                        |                              | 258.8 |             |   |   | 198.2 |      
|Long-term debt                                      |                                                                                                                        |                              | 100.0 |             |   |   | 113.7 |      
|Deferred income taxes                               |                                                                                                                        |                              | 27.6  |             |   |   | 32.9  |      
|Lease obligations and other long-term liabilities   |                                                                                                                        |                              | 44.0  |             |   |   | 34.2  |      
|Commitments and contingencies (Note 10)             |                                                                                                                        |                              |       |             |   |   |       |      
|Shareholders equity:                               |                                                                                                                        |                              |       |             |   |   |       |      
|                                                    | Preferred stock, no par value, 5,000,000 shares authorized,
    none issued                                            |                              |       |            |   |   |       |      |  
|                                                    | Common stock, stated value $0.05 per share; 150,000,000
    authorized, issued 26,321,934 and 25,603,035, respectively |                              |       | 1.3         |   |   |       | 1.3   |  
|                                                    | Additional paid-in capital                                                                                             |                              |       | 151.8       |   |   |       | 129.0 |  
|                                                    | Retained earnings                                                                                                      |                              |       | 299.6       |   |   |       | 253.4 |  
|                                                    | Accumulated other comprehensive loss                                                                                   |                              |       |            |   |   |       | (1.6  | )
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      
|                                                    |                                                                                                                        |                              | 452.7 |             |   |   | 382.1 |      
|                                                    | Treasury stock, at cost, 3,737,407 shares and
    3,774,800 shares, respectively                                       |                              |       | (43.8       | ) |   |       | (41.3 | )
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      
|Total shareholders equity                          |                                                                                                                        |                              | 408.9 |             |   |   | 340.8 |      
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      
|Total liabilities and shareholders equity          |                                                                                                                        | $                            | 839.3 |             |   | $ | 719.8 |      
|                                                    |                                                                                                                        |                              |       |             |   |   |       |      

See notes to consolidated financial statements


37



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Jo-Ann Stores, Inc.







Consolidated Statements of Operations


|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |       | 
|--------------------------------------------------- | -------------------------- | ------------------------------- | ------- | ----------- |  | ----------- | ------- | ----- |  | - | ------- | ----- | 
|                                                    |                            | Fiscal Year-Ended              
|                                                    |                            |                                
|                                                    |                            | January 29,                     |         | January 31, |  | February 1,
|                                                    |                            | 2005                            |         | 2004        |  | 2003       
|                                                    |                            |                                 |         |             |  |            
|                                                    |                            |                                 |         | (Restated)  |  | (Restated) 
|                                                    |                            | (Dollars in millions,          
|                                                    |                            | except earnings per share data)
|Net sales                                           |                            | $                               | 1,812.4 |             |  | $           | 1,734.1 |       |  | $ | 1,682.0 |      
|Cost of sales                                       |                            |                                 | 950.3   |             |  |             | 923.5   |       |  |   | 904.5   |      
|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |      
|                                                    | Gross margin               |                                 |         | 862.1       |  |             |         | 810.6 |  |   |         | 777.5 | 
|Selling, general and administrative expenses        |                            |                                 | 700.8   |             |  |             | 664.8   |       |  |   | 633.2   |      
|Store pre-opening and closing costs                 |                            |                                 | 18.5    |             |  |             | 13.3    |       |  |   | 6.3     |      
|Depreciation and amortization                       |                            |                                 | 43.0    |             |  |             | 39.0    |       |  |   | 37.9    |      
|Stock-based compensation expense                    |                            |                                 | 7.7     |             |  |             | 6.4     |       |  |   | 0.2     |      
|Debt repurchase and share reclassification expenses |                            |                                 | 4.2     |             |  |             | 5.5     |       |  |   | 1.9     |      
|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |      
|                                                    | Operating profit           |                                 |         | 87.9        |  |             |         | 81.6  |  |   |         | 98.0  | 
|Interest expense, net                               |                            |                                 | 13.7    |             |  |             | 16.5    |       |  |   | 24.7    |      
|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |      
|                                                    | Income before income taxes |                                 |         | 74.2        |  |             |         | 65.1  |  |   |         | 73.3  | 
|Income tax provision                                |                            |                                 | 28.0    |             |  |             | 25.0    |       |  |   | 27.9    |      
|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |      
|Net income                                          |                            | $                               | 46.2    |             |  | $           | 40.1    |       |  | $ | 45.4    |      
|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |      
|Basic net income per common share                   |                            | $                               | 2.09    |             |  | $           | 1.88    |       |  | $ | 2.20    |      
|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |      
|Diluted net income per common share                 |                            | $                               | 2.02    |             |  | $           | 1.82    |       |  | $ | 2.10    |      
|                                                    |                            |                                 |         |             |  |             |         |       |  |   |         |      

See notes to consolidated financial statements


38



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Jo-Ann Stores, Inc.







Consolidated Statements of Cash Flows


|                                                     |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |       |      |  
|---------------------------------------------------- | ------------------------------------------------------------------------------------- | ---------------------------------------------------------- | ----- | ----------- | ----- | ----------- | ----- | ----- | ----- | - | ----- | ----- | ---- | -
|                                                     |                                                                                       | Fiscal Year-Ended                                         
|                                                     |                                                                                       |                                                           
|                                                     |                                                                                       | January 29,                                                |       | January 31, |       | February 1,
|                                                     |                                                                                       | 2005                                                       |       | 2004        |       | 2003       
|                                                     |                                                                                       |                                                            |       |             |       |            
|                                                     |                                                                                       |                                                            |       | (Restated)  |       | (Restated) 
|                                                     |                                                                                       | (Dollars in millions)                                     
|Net cash flows from operating activities:            |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|                                                     | Net income                                                                            |                                                            | $     | 46.2        |       |             | $     | 40.1  |       |   | $     | 45.4  |     
|                                                     | Adjustments to reconcile net income to net cash provided by
    operating activities: |                                                            |       |             |       |             |       |       |       |   |       |       |     
|                                                     |                                                                                       | Depreciation and amortization                              |       |             | 43.0  |             |       |       | 39.0  |   |       |       | 37.9 |  
|                                                     |                                                                                       | Deferred income taxes                                      |       |             | (6.3  | )           |       |       | 4.1   |   |       |       | 16.0 |  
|                                                     |                                                                                       | Stock-based compensation expense                           |       |             | 7.7   |             |       |       | 6.4   |   |       |       | 0.2  |  
|                                                     |                                                                                       | Tax benefit on stock-based compensation plan awards        |       |             | 4.9   |             |       |       | 2.4   |   |       |       | 3.6  |  
|                                                     |                                                                                       | Amortization of deferred financing costs                   |       |             | 2.0   |             |       |       | 1.5   |   |       |       | 1.8  |  
|                                                     |                                                                                       | Loss on disposal of fixed assets                           |       |             | 4.4   |             |       |       | 2.9   |   |       |       | 2.4  |  
|                                                     |                                                                                       | Loss associated with purchase of senior subordinated notes |       |             | 4.2   |             |       |       | 4.3   |   |       |       | 1.9  |  
|                                                     | Changes in operating assets and liabilities:                                          |                                                            |       |             |       |             |       |       |       |   |       |       |     
|                                                     |                                                                                       | (Increase) decrease in inventories                         |       |             | (35.1 | )           |       |       | (41.5 | ) |       |       | 5.9  |  
|                                                     |                                                                                       | Increase (decrease) in accounts payable                    |       |             | 45.2  |             |       |       | (7.9  | ) |       |       | 6.8  |  
|                                                     |                                                                                       | Increase (decrease) in accrued expenses                    |       |             | 15.4  |             |       |       | 0.2   |   |       |       | (6.5 | )
|                                                     |                                                                                       | Other, net                                                 |       |             | 10.3  |             |       |       | 0.2   |   |       |       | 4.3  |  
|                                                     |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|Net cash provided by operating activities            |                                                                                       |                                                            | 141.9 |             |       |             | 51.7  |       |       |   | 119.7 |      
|Net cash flows used for investing activities:        |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|                                                     | Capital expenditures                                                                  |                                                            |       | (67.1       | )     |             |       | (57.6 | )     |   |       | (23.2 | )   
|                                                     | Proceeds from sale of equity investment                                               |                                                            |       |            |       |             |       | 6.5   |       |   |       |      |     
|                                                     |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|Net cash used for investing activities               |                                                                                       |                                                            | (67.1 | )           |       |             | (51.1 | )     |       |   | (23.2 | )    
|Net cash flows used for financing activities:        |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|                                                     | Proceeds from issuance of 7.5% senior subordinated notes,
    net                     |                                                            |       | 97.4        |       |             |       |      |       |   |       |      |     
|                                                     | Purchase of
    103/8% senior
    subordinated notes                                  |                                                            |       | (66.6       | )     |             |       | (61.7 | )     |   |       | (28.3 | )   
|                                                     | Net change in revolving credit facility                                               |                                                            |       | (49.3       | )     |             |       | 9.3   |       |   |       | (33.7 | )   
|                                                     | Proceeds from stock-based compensation plans                                          |                                                            |       | 10.0        |       |             |       | 6.6   |       |   |       | 10.0  |     
|                                                     | Other, net                                                                            |                                                            |       | (4.1        | )     |             |       | (0.6  | )     |   |       | (2.4  | )   
|                                                     |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|Net cash used for financing activities               |                                                                                       |                                                            | (12.6 | )           |       |             | (46.4 | )     |       |   | (54.4 | )    
|                                                     |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|Net increase (decrease) in cash and cash equivalents |                                                                                       |                                                            | 62.2  |             |       |             | (45.8 | )     |       |   | 42.1  |      
|Cash and cash equivalents at beginning of year       |                                                                                       |                                                            | 17.4  |             |       |             | 63.2  |       |       |   | 21.1  |      
|                                                     |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|Cash and cash equivalents at end of year             |                                                                                       | $                                                          | 79.6  |             |       | $           | 17.4  |       |       | $ | 63.2  |      
|                                                     |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|Supplemental disclosures of cash flow information:   |                                                                                       |                                                            |       |             |       |             |       |       |       |   |       |      
|                                                     | Cash paid during the year for:                                                        |                                                            |       |             |       |             |       |       |       |   |       |       |     
|                                                     |                                                                                       | Interest                                                   |       | $           | 11.2  |             |       | $     | 17.5  |   |       | $     | 22.5 |  
|                                                     |                                                                                       | Income taxes, net of refunds                               |       |             | 23.6  |             |       |       | 8.0   |   |       |       | 4.9  |  

See notes to consolidated financial statements


39



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Jo-Ann Stores, Inc.







Consolidated Statements of Shareholders Equity


|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |      |      | 
|-------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------- | ------ | -------- | --------------------- |  | ------ | ---- | ---------- |  | -------- | --- | -------- |  | ----------- | ----- | ------------- |  | - | ----- | ---- | - | - | ----- | ---- | - | - | ---- | --- |  | - | ----- | ---- | ---- | 
|                                                   |                                                                            |                            |        |          |                       |  | Common |      |            |  |          |     |          |  | Accumulated |       |              
|                                                   |                                                                            | Net                        |        |          |                       |  | Stock  |      | Additional |  |          |     |          |  | Other       |       | Total        
|                                                   |                                                                            | Common                     |        | Treasury |                       |  | Stated |      | Paid-In    |  | Treasury |     | Retained |  | Comprehen-  |       | Shareholders
|                                                   |                                                                            | Shares                     |        | Shares   |                       |  | Value  |      | Capital    |  | Stock    |     | Earnings |  | sive Loss   |       | Equity       
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |              
|                                                   |                                                                            | (Shares in thousands)      |        |          | (Dollars in millions)
|Balance, February 2, 2002 (as previously reported) |                                                                            |                            | 20,106 |          |                       |  | 3,689  |      |            |  | $        | 1.2 |          |  | $           | 99.0  |               |  | $ | (37.3 | )    |   | $ | 172.9 |      |   | $ | (3.0 | )   |  | $ | 232.8 |     
|                                                   | Cumulative effect of restatement on prior years (see Note 2)               |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       |              |  |   |       |     |   |   |       | (5.0 | ) |   |      |    |  |   |       | (5.0 | )   
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     
|Balance, February 2, 2002 (as restated)            |                                                                            |                            | 20,106 |          |                       |  | 3,689  |      |            |  |          | 1.2 |          |  |             | 99.0  |               |  |   | (37.3 | )    |   |   | 167.9 |      |   |   | (3.0 | )   |  |   | 227.8 |     
|                                                   | Net income                                                                 |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       |              |  |   |       |     |   |   |       | 45.4 |   |   |      |    |  |   |       | 45.4 |     
|                                                   | Change in fair value of derivatives, net of $0.2 million
    tax provision |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       |              |  |   |       |     |   |   |       |     |   |   |      | 0.4 |  |   |       | 0.4  |     
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     
|                                                   |                                                                            | Total comprehensive income |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |      | 45.8 | 
|                                                   | Exercise of stock options                                                  |                            |        | 844      |                       |  |        |     |            |  |          |     | 0.1      |  |             |       | 8.4           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 8.5  |     
|                                                   | Tax benefit on equity compensation                                         |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       | 3.6           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 3.6  |     
|                                                   | Restricted stock awards activity, net                                      |                            |        | (5       | )                     |  |        |     |            |  |          |     |         |  |             |       | 0.2           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 0.2  |     
|                                                   | Purchase of common stock                                                   |                            |        | (164     | )                     |  |        | 164  |            |  |          |     |         |  |             |       |              |  |   |       | (3.4 | ) |   |       |     |   |   |      |    |  |   |       | (3.4 | )   
|                                                   | Issuance of treasury shares                                                |                            |        | 47       |                       |  |        | (47  | )          |  |          |     |         |  |             |       | 0.6           |  |   |       | 0.3  |   |   |       |     |   |   |      |    |  |   |       | 0.9  |     
|                                                   | Issuance of common stock  Associate Stock Ownership
    Plan              |                            |        | 251      |                       |  |        |     |            |  |          |     |         |  |             |       | 1.5           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 1.5  |     
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     
|Balance, February 1, 2003 (as restated)            |                                                                            |                            | 21,079 |          |                       |  | 3,806  |      |            |  |          | 1.3 |          |  |             | 113.3 |               |  |   | (40.4 | )    |   |   | 213.3 |      |   |   | (2.6 | )   |  |   | 284.9 |     
|                                                   | Net income                                                                 |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       |              |  |   |       |     |   |   |       | 40.1 |   |   |      |    |  |   |       | 40.1 |     
|                                                   | Change in fair value of derivatives, net of $0.6 million
    tax provision |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       |              |  |   |       |     |   |   |       |     |   |   |      | 1.0 |  |   |       | 1.0  |     
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     
|                                                   |                                                                            | Total comprehensive income |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |      | 41.1 | 
|                                                   | Exercise of stock options                                                  |                            |        | 418      |                       |  |        |     |            |  |          |     |         |  |             |       | 4.0           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 4.0  |     
|                                                   | Tax benefit on equity compensation                                         |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       | 2.4           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 2.4  |     
|                                                   | Stock-based compensation                                                   |                            |        | 150      |                       |  |        |     |            |  |          |     |         |  |             |       | 6.4           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 6.4  |     
|                                                   | Purchase of common stock                                                   |                            |        | (75      | )                     |  |        | 75   |            |  |          |     |         |  |             |       |              |  |   |       | (1.6 | ) |   |       |     |   |   |      |    |  |   |       | (1.6 | )   
|                                                   | Issuance of treasury shares                                                |                            |        | 106      |                       |  |        | (106 | )          |  |          |     |         |  |             |       | 0.7           |  |   |       | 0.7  |   |   |       |     |   |   |      |    |  |   |       | 1.4  |     
|                                                   | Issuance of common stock  Associate Stock Ownership
    Plan              |                            |        | 150      |                       |  |        |     |            |  |          |     |         |  |             |       | 2.2           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 2.2  |     
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     
|Balance, January 31, 2004 (as restated)            |                                                                            |                            | 21,828 |          |                       |  | 3,775  |      |            |  |          | 1.3 |          |  |             | 129.0 |               |  |   | (41.3 | )    |   |   | 253.4 |      |   |   | (1.6 | )   |  |   | 340.8 |     
|                                                   | Net income                                                                 |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       |              |  |   |       |     |   |   |       | 46.2 |   |   |      |    |  |   |       | 46.2 |     
|                                                   | Change in fair value of derivatives, net of $1.0 million
    tax provision |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       |              |  |   |       |     |   |   |       |     |   |   |      | 1.6 |  |   |       | 1.6  |     
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     
|                                                   |                                                                            | Total comprehensive income |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |      | 47.8 | 
|                                                   | Exercise of stock options                                                  |                            |        | 768      |                       |  |        | (119 | )          |  |          |     |         |  |             |       | 7.0           |  |   |       | 0.6  |   |   |       |     |   |   |      |    |  |   |       | 7.6  |     
|                                                   | Tax benefit on equity compensation                                         |                            |        |         |                       |  |        |     |            |  |          |     |         |  |             |       | 4.9           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 4.9  |     
|                                                   | Stock-based compensation                                                   |                            |        | (36      | )                     |  |        |     |            |  |          |     |         |  |             |       | 7.7           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 7.7  |     
|                                                   | Purchase of common stock                                                   |                            |        | (119     | )                     |  |        | 119  |            |  |          |     |         |  |             |       |              |  |   |       | (3.3 | ) |   |       |     |   |   |      |    |  |   |       | (3.3 | )   
|                                                   | Issuance of treasury shares                                                |                            |        | 38       |                       |  |        | (38  | )          |  |          |     |         |  |             |       | 0.8           |  |   |       | 0.2  |   |   |       |     |   |   |      |    |  |   |       | 1.0  |     
|                                                   | Issuance of common stock  Associate Stock Ownership
    Plan              |                            |        | 106      |                       |  |        |     |            |  |          |     |         |  |             |       | 2.4           |  |   |       |     |   |   |       |     |   |   |      |    |  |   |       | 2.4  |     
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     
|Balance, January 29, 2005                          |                                                                            |                            | 22,585 |          |                       |  | 3,737  |      |            |  | $        | 1.3 |          |  | $           | 151.8 |               |  | $ | (43.8 | )    |   | $ | 299.6 |      |   | $ |     |     |  | $ | 408.9 |     
|                                                   |                                                                            |                            |        |          |                       |  |        |      |            |  |          |     |          |  |             |       |               |  |   |       |      |   |   |       |      |   |   |      |     |  |   |       |     

See notes to consolidated financial statements


40



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##### Table of Contents



Jo-Ann Stores, Inc.





Notes to Consolidated Financial Statements





Note 1  Significant Accounting
Policies


Nature of Operations






Basis of Presentation




Use of Estimates




Fiscal Year




Cash and Cash Equivalents




Inventories






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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 1  Significant Accounting Policies
(Continued)




Property, Equipment and Leasehold Improvements






|                                                    |  |             |        |            |  |   |        |  
|--------------------------------------------------- |  | ----------- | ------ | ---------- |  | - | ------ | -
|                                                    |  | Fiscal Year
|                                                    |  |            
|                                                    |  | 2005        |        | 2004      
|                                                    |  |             |        |           
|                                                    |  |             |        | (Restated)
|Land and buildings                                  |  | $           | 58.4   |            |  | $ | 54.9   |  
|Furniture, fixtures and equipment                   |  |             | 333.9  |            |  |   | 305.3  |  
|Leasehold improvements                              |  |             | 102.7  |            |  |   | 92.3   |  
|Construction in progress                            |  |             | 13.8   |            |  |   | 8.6    |  
|                                                    |  |             |        |            |  |   |        |  
|                                                    |  |             | 508.8  |            |  |   | 461.1  |  
|Less accumulated depreciation and amortization      |  |             | (270.8 | )          |  |   | (242.7 | )
|                                                    |  |             |        |            |  |   |        |  
|Property, equipment and leasehold improvements, net |  | $           | 238.0  |            |  | $ | 218.4  |  
|                                                    |  |             |        |            |  |   |        |  

Software Development




Goodwill






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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 1  Significant Accounting Policies
(Continued)


Impairment of Long-Lived Assets






Accrued Store Closing Costs






Accrued Expenses




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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 1  Significant Accounting Policies
(Continued)




|                       |  |             |      |      |  |   |      | 
|---------------------- |  | ----------- | ---- | ---- |  | - | ---- | 
|                       |  | Fiscal Year
|                       |  |            
|                       |  | 2005        |      | 2004
|                       |  |             |      |     
|Accrued taxes          |  | $           | 29.6 |      |  | $ | 21.5 | 
|Accrued compensation   |  |             | 21.5 |      |  |   | 16.8 | 
|Accrued insurance      |  |             | 15.7 |      |  |   | 12.1 | 
|Other accrued expenses |  |             | 24.8 |      |  |   | 25.8 | 
|                       |  |             |      |      |  |   |      | 
|                       |  | $           | 91.6 |      |  | $ | 76.2 | 
|                       |  |             |      |      |  |   |      | 

Financial Instruments








Income Taxes




44



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 1  Significant Accounting Policies
(Continued)






Revenue Recognition








Cost of Sales






45



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




Note 1  Significant Accounting Policies
(Continued)


Operating Leases






Store Pre-Opening Costs




Advertising Costs




Earnings Per Share




|                                               |         |                                                           |      |            |      |   |            |        |     |   |      |        |     | 
|---------------------------------------------- | ------- | --------------------------------------------------------- | ---- | ---------- | ---- | - | ---------- | ------ | --- | - | ---- | ------ | --- | 
|                                               |         | Fiscal Year-Ended                                         |     
|                                               |         |                                                           |     
|                                               |         | 2005                                                      |      |            | 2004 |   |            | 2003   |    
|                                               |         |                                                           |      |            |      |   |            |        |    
|                                               |         |                                                           |      | (Restated) |      |   | (Restated) |       
|                                               |         | (Dollars in millions, except per share data)              |     
|Net income                                     |         | $                                                         | 46.2 |            |      | $ | 40.1       |        |     | $ | 45.4 |       
|                                               |         |                                                           |      |            |      |   |            |        |    
|Weighted average shares (shares in thousands): |         |                                                           |      |            |      |   |            |        |     |   |      |       
|                                               | Basic   |                                                           |      | 22,155     |      |   |            | 21,372 |     |   |      | 20,682 |    
|                                               |         | Incremental shares from assumed exercise of stock options |      |            | 624  |   |            |        | 564 |   |      |        | 950 | 
|                                               |         | Incremental restricted shares                             |      |            | 108  |   |            |        | 67  |   |      |        |    | 
|                                               |         |                                                           |      |            |      |   |            |        |    
|                                               | Diluted |                                                           |      | 22,887     |      |   |            | 22,003 |     |   |      | 21,632 |    
|                                               |         |                                                           |      |            |      |   |            |        |    
|Basic net income per common share              |         | $                                                         | 2.09 |            |      | $ | 1.88       |        |     | $ | 2.20 |       
|                                               |         |                                                           |      |            |      |   |            |        |    
|Diluted net income per common share            |         | $                                                         | 2.02 |            |      | $ | 1.82       |        |     | $ | 2.10 |       
|                                               |         |                                                           |      |            |      |   |            |        |    



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




Note 1  Significant Accounting Policies
(Continued)




Stock-Based Compensation








|                                    |  |                   |     |  |      |   |     |      |  |   |     | 
|----------------------------------- |  | ----------------- | --- |  | ---- | - | --- | ---- |  | - | --- | 
|                                    |  | Fiscal Year-Ended |    
|                                    |  |                   |    
|                                    |  | 2005              |     |  | 2004 |   |     | 2003 | 
|                                    |  |                   |     |  |      |   |     |      | 
|Stock option compensation expense   |  | $                 | 3.4 |  |      | $ | 5.7 |      |  | $ |    | 
|Restricted stock award amortization |  |                   | 4.3 |  |      |   | 0.7 |      |  |   | 0.2 | 
|                                    |  |                   |     |  |      |   |     |      | 
|                                    |  | $                 | 7.7 |  |      | $ | 6.4 |      |  | $ | 0.2 | 
|                                    |  |                   |     |  |      |   |     |      | 



|                                                                                      |             |                   |      |            |      |   |            |      |  |   |      |      | 
|------------------------------------------------------------------------------------- | ----------- | ----------------- | ---- | ---------- | ---- | - | ---------- | ---- |  | - | ---- | ---- | 
|                                                                                      |             | Fiscal Year-Ended |     
|                                                                                      |             |                   |     
|                                                                                      |             | 2005              |      |            | 2004 |   |            | 2003 | 
|                                                                                      |             |                   |      |            |      |   |            |      | 
|                                                                                      |             |                   |      | (Restated) |      |   | (Restated) |     
|Net income as reported                                                                |             | $                 | 46.2 |            |      | $ | 40.1       |      |  | $ | 45.4 |     
|Add: Stock-based compensation expense included in reported net
    income, net of tax |             |                   | 4.8  |            |      |   | 3.9        |      |  |   | 0.1  |     
|Less: Stock-based compensation determined under the fair value
    method, net of tax |             |                   | (4.8 | )          |      |   | (3.9       | )    |  |   | (2.3 | )   
|                                                                                      |             |                   |      |            |      |   |            |      | 
|Pro forma net income                                                                  |             | $                 | 46.2 |            |      | $ | 40.1       |      |  | $ | 43.2 |     
|                                                                                      |             |                   |      |            |      |   |            |      | 
|Basic income per common share:                                                        |             |                   |      |            |      |   |            |      |  |   |      |     
|                                                                                      | As reported |                   | $    | 2.09       |      |   | $          | 1.88 |  |   | $    | 2.20 | 
|                                                                                      | Pro forma   |                   | $    | 2.09       |      |   | $          | 1.88 |  |   | $    | 2.09 | 
|Diluted income per common share:                                                      |             |                   |      |            |      |   |            |      |  |   |      |     
|                                                                                      | As reported |                   | $    | 2.02       |      |   | $          | 1.82 |  |   | $    | 2.10 | 
|                                                                                      | Pro forma   |                   | $    | 2.02       |      |   | $          | 1.82 |  |   | $    | 2.00 | 

47



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 1  Significant Accounting Policies
(Continued)




|                                                |  |                   |              |      |  |      |              |  |  |   |              | 
|----------------------------------------------- |  | ----------------- | ------------ | ---- |  | ---- | ------------ |  |  | - | ------------ | 
|                                                |  | Fiscal Year-Ended
|                                                |  |                  
|                                                |  | 2005              |              | 2004 |  | 2003
|                                                |  |                   |              |      |  |     
|Weighted average fair value of options granted  |  | $                 | 14.16        |      |  | $    | 9.61         |  |  | $ | 9.88         | 
|Expected volatility of underlying stock         |  |                   | .594 to .653 |      |  |      | .570 to .660 |  |  |   | .466 to .555 | 
|Risk-free interest rates                        |  |                   | 2.4% to 3.7% |      |  |      | 2.4% to 3.6% |  |  |   | 3.0% to 4.9% | 
|Expected life                                   |  |                   | 4 years      |      |  |      | 4-5.5 years  |  |  |   | 5-6 years    | 
|Expected life  Employee Stock Purchase Program |  |                   | 6 months     |      |  |      | 6 months     |  |  |   | 6 months     | 

Recent Accounting Pronouncements






| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | Statement of Financial Accounting Standard
    (SFAS) No. 123(Revised 2004), Share-Based Payment







| |                                                                            
| | ---------------------------------------------------------------------------
| | FASB Interpretation No. 46, Consolidation of Variable
    Interest Entities



48



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)







Note 2  Restatement of Prior Financial
Information










Consolidated Balance Sheet


|                                                    |  |                                    |       |             |  |             |      |   |  |   |       | 
|--------------------------------------------------- |  | ---------------------------------- | ----- | ----------- |  | ----------- | ---- | - |  | - | ----- | 
|                                                    |  | Fiscal Year-Ended January 31, 2004
|                                                    |  |                                   
|                                                    |  | Before                             |       |            
|                                                    |  | Restatement                        |       | Adjustments |  | As Restated
|                                                    |  |                                    |       |             |  |            
|Property, equipment and leasehold improvements, net |  | $                                  | 203.2 |             |  | $           | 15.2 |   |  | $ | 218.4 | 
|Total Assets                                        |  |                                    | 707.7 |             |  |             | 12.1 |   |  |   | 719.8 | 
|Deferred income taxes, net                          |  |                                    | 14.4  |             |  |             | (3.4 | ) |  |   | 11.0  | 
|Other long-term liabilities                         |  |                                    | 10.3  |             |  |             | 23.9 |   |  |   | 34.2  | 
|Retained earnings                                   |  |                                    | 258.8 |             |  |             | (5.4 | ) |  |   | 253.4 | 
|Total shareholders equity                           |  |                                    | 346.2 |             |  |             | (5.4 | ) |  |   | 340.8 | 
|Total liabilities and shareholders equity          |  | $                                  | 707.7 |             |  | $           | 12.1 |   |  | $ | 719.8 | 

Consolidated Statements of Operations


|                                             |  |                                    |       |             |  |             |       |   |  |   |       | 
|-------------------------------------------- |  | ---------------------------------- | ----- | ----------- |  | ----------- | ----- | - |  | - | ----- | 
|                                             |  | Fiscal Year-Ended January 31, 2004
|                                             |  |                                   
|                                             |  | Before                             |       |            
|                                             |  | Restatement                        |       | Adjustments |  | As Restated
|                                             |  |                                    |       |             |  |            
|Selling, general and administrative expenses |  | $                                  | 667.8 |             |  | $           | (3.0  | ) |  | $ | 664.8 | 
|Store pre-opening and closing costs          |  |                                    | 10.9  |             |  |             | 2.4   |   |  |   | 13.3  | 
|Depreciation and amortization                |  |                                    | 37.0  |             |  |             | 2.0   |   |  |   | 39.0  | 
|Operating profit                             |  |                                    | 83.0  |             |  |             | (1.4  | ) |  |   | 81.6  | 
|Net income                                   |  | $                                  | 41.0  |             |  | $           | (0.9  | ) |  | $ | 40.1  | 
|Basic net income per common share            |  | $                                  | 1.92  |             |  | $           | (0.04 | ) |  | $ | 1.88  | 
|Diluted net income per common share          |  | $                                  | 1.86  |             |  | $           | (0.04 | ) |  | $ | 1.82  | 

49



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 2  Restatement of Prior Financial
Information (Continued)


|                                             |  |                                    |       |             |  |             |      |   |  |   |       | 
|-------------------------------------------- |  | ---------------------------------- | ----- | ----------- |  | ----------- | ---- | - |  | - | ----- | 
|                                             |  | Fiscal Year-Ended February 1, 2003
|                                             |  |                                   
|                                             |  | Before                             |       |            
|                                             |  | Restatement                        |       | Adjustments |  | As Restated
|                                             |  |                                    |       |             |  |            
|Selling, general and administrative expenses |  | $                                  | 636.4 |             |  | $           | (3.2 | ) |  | $ | 633.2 | 
|Store pre-opening and closing costs          |  |                                    | 5.9   |             |  |             | 0.4  |   |  |   | 6.3   | 
|Depreciation and amortization                |  |                                    | 35.9  |             |  |             | 2.0  |   |  |   | 37.9  | 
|Operating profit                             |  |                                    | 97.2  |             |  |             | 0.8  |   |  |   | 98.0  | 
|Net income                                   |  | $                                  | 44.9  |             |  | $           | 0.5  |   |  | $ | 45.4  | 
|Basic net income per common share            |  | $                                  | 2.17  |             |  | $           | 0.03 |   |  | $ | 2.20  | 
|Diluted net income per common share          |  | $                                  | 2.08  |             |  | $           | 0.02 |   |  | $ | 2.10  | 

Consolidated Statements of Cash Flows


|                                          |  |                                    |       |             |  |             |      |   |  |   |       |  
|----------------------------------------- |  | ---------------------------------- | ----- | ----------- |  | ----------- | ---- | - |  | - | ----- | -
|                                          |  | Fiscal Year-Ended January 31, 2004
|                                          |  |                                   
|                                          |  | Before                             |       |            
|                                          |  | Restatement                        |       | Adjustments |  | As Restated
|                                          |  |                                    |       |             |  |            
|Net cash provided by operating activities |  | $                                  | 46.3  |             |  | $           | 5.4  |   |  | $ | 51.7  |  
|Net cash used for investing activities    |  | $                                  | (45.7 | )           |  | $           | (5.4 | ) |  | $ | (51.1 | )

|                                          |  |                                    |       |   |  |   |      |   |  |   |       |  
|----------------------------------------- |  | ---------------------------------- | ----- | - |  | - | ---- | - |  | - | ----- | -
|                                          |  | Fiscal Year-Ended February 1, 2003
|                                          |  |                                   
|Net cash provided by operating activities |  | $                                  | 119.2 |   |  | $ | 0.5  |   |  | $ | 119.7 |  
|Net cash used for investing activities    |  | $                                  | (22.7 | ) |  | $ | (0.5 | ) |  | $ | (23.2 | )

Note 3  Share Reclassification











Note 4  Store Closings




50



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 4  Store Closings (Continued)




|                       |                                  |                       |     |            |  |            |     |      |   |   |     |      |  
|---------------------- | -------------------------------- | --------------------- | --- | ---------- |  | ---------- | --- | ---- | - | - | --- | ---- | -
|                       |                                  | Fiscal Year-Ended    
|                       |                                  |                      
|                       |                                  | 2005                  |     | 2004       |  | 2003      
|                       |                                  |                       |     |            |  |           
|                       |                                  |                       |     | (Restated) |  | (Restated)
|                       |                                  |                       |     |            |  |           
|                       |                                  | (Dollars in millions)
|Store Closing Charges: |                                  |                       |     |            |  |            |     |      |   |   |     |     
|                       | Non-cancelable lease obligations |                       | $   | 1.4        |  |            | $   | (0.1 | ) |   | $   | (5.9 | )
|                       | Asset impairment                 |                       |     | 2.5        |  |            |     | 2.1  |   |   |     | 6.7  |  
|                       | Other costs                      |                       |     | 5.0        |  |            |     | 1.7  |   |   |     | 0.7  |  
|                       |                                  |                       |     |            |  |            |     |      |   |   |     |     
|Total                  |                                  | $                     | 8.9 |            |  | $          | 3.7 |      |   | $ | 1.5 |     
|                       |                                  |                       |     |            |  |            |     |      |   |   |     |     

Non-cancelable lease obligations


Asset impairments


Other costs


51



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




Note 4  Store Closings (Continued)




|                                    |          |                |      |                       |             |   |     |       |   |   |       |      |   |   |      |      |  
|----------------------------------- | -------- | -------------- | ---- | --------------------- | ----------- | - | --- | ----- | - | - | ----- | ---- | - | - | ---- | ---- | -
|                                    |          | Non-cancelable |      |                       |             |   |     |       |  
|                                    |          | Lease          |      |                       | Asset       |   |     | Other |   |   |      
|                                    |          | Obligations    |      |                       | Impairments |   |     | Costs |   |   | Total |     
|                                    |          |                |      |                       |             |   |     |       |   |   |       |     
|                                    |          |                |      | (Dollars in millions) |             |   |    
|Balance at February 2, 2002         |          | $              | 11.2 |                       |             | $ |    |       |   | $ | 1.2   |      |   | $ | 12.4 |     
|Amounts charged to income           |          |                | (5.9 | )                     |             |   | 6.7 |       |   |   | 0.7   |      |   |   | 1.5  |     
|Utilization:                        |          |                |      |                       |             |   |     |       |   |   |       |      |   |   |      |     
|                                    | Cash     |                |      | (1.8                  | )           |   |     |      |   |   |       | (0.9 | ) |   |      | (2.7 | )
|                                    | Non-Cash |                |      |                      |             |   |     | (6.7  | ) |   |       | (0.1 | ) |   |      | (6.8 | )
|                                    |          |                |      |                       |             |   |     |       |   |   |       |     
|Balance at February 1,
    2003 (1) |          |                | 3.5  |                       |             |   |    |       |   |   | 0.9   |      |   |   | 4.4  |     
|Amounts charged to income           |          |                | (0.1 | )                     |             |   | 2.1 |       |   |   | 1.7   |      |   |   | 3.7  |     
|Utilization:                        |          |                |      |                       |             |   |     |       |   |   |       |      |   |   |      |     
|                                    | Cash     |                |      | (1.6                  | )           |   |     |      |   |   |       | (1.3 | ) |   |      | (2.9 | )
|                                    | Non-Cash |                |      |                      |             |   |     | (2.1  | ) |   |       | (0.3 | ) |   |      | (2.4 | )
|                                    |          |                |      |                       |             |   |     |       |   |   |       |     
|Balance at January 31,
    2004 (1) |          |                | 1.8  |                       |             |   |    |       |   |   | 1.0   |      |   |   | 2.8  |     
|Amounts charged to income           |          |                | 1.4  |                       |             |   | 2.5 |       |   |   | 5.0   |      |   |   | 8.9  |     
|Utilization:                        |          |                |      |                       |             |   |     |       |   |   |       |      |   |   |      |     
|                                    | Cash     |                |      | (2.7                  | )           |   |     |      |   |   |       | (5.2 | ) |   |      | (7.9 | )
|                                    | Non-Cash |                |      |                      |             |   |     | (2.5  | ) |   |       |     |   |   |      | (2.5 | )
|                                    |          |                |      |                       |             |   |     |       |   |   |       |     
|Balance at January 29, 2005         |          | $              | 0.5  |                       |             | $ |    |       |   | $ | 0.8   |      |   | $ | 1.3  |     
|                                    |          |                |      |                       |             |   |     |       |   |   |       |     






|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Fiscal years 2004 and 2003 have been restated to reflect changes
    discussed in Note 2  Restatement of Prior
    Financial Information.






|         |             
|-------- | ------------
|Note 5  | Income Taxes



|                     |                 |                   |      |            |      |   |            |      |  |   |      |     | 
|-------------------- | --------------- | ----------------- | ---- | ---------- | ---- | - | ---------- | ---- |  | - | ---- | --- | 
|                     |                 | Fiscal Year-Ended |     
|                     |                 |                   |     
|                     |                 | 2005              |      |            | 2004 |   |            | 2003 | 
|                     |                 |                   |      |            |      |   |            |      | 
|                     |                 |                   |      | (Restated) |      |   | (Restated) |     
|                     |                 |                   |      |            |      |   |            |     
|Current:             |                 |                   |      |            |      |   |            |      |  |   |      |    
|                     | Federal         |                   | $    | 30.7       |      |   | $          | 18.7 |  |   | $    | 9.0 | 
|                     | State and local |                   |      | 3.6        |      |   |            | 2.2  |  |   |      | 2.9 | 
|                     |                 |                   |      |            |      |   |            |      | 
|                     |                 |                   | 34.3 |            |      |   | 20.9       |      |  |   | 11.9 |    
|Deferred             |                 |                   | (6.3 | )          |      |   | 4.1        |      |  |   | 16.0 |    
|                     |                 |                   |      |            |      |   |            |      | 
|Income tax provision |                 | $                 | 28.0 |            |      | $ | 25.0       |      |  | $ | 27.9 |    
|                     |                 |                   |      |            |      |   |            |      | 

52



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




Note 5  Income Taxes (Continued)




|                                         |                       |                   |      |            |      |   |            |      |  |   |      |      |  
|---------------------------------------- | --------------------- | ----------------- | ---- | ---------- | ---- | - | ---------- | ---- |  | - | ---- | ---- | -
|                                         |                       | Fiscal Year-Ended |     
|                                         |                       |                   |     
|                                         |                       | 2005              |      |            | 2004 |   |            | 2003 | 
|                                         |                       |                   |      |            |      |   |            |      | 
|                                         |                       |                   |      | (Restated) |      |   | (Restated) |     
|Federal income tax at the statutory rate |                       | $                 | 26.0 |            |      | $ | 22.8       |      |  | $ | 25.7 |     
|Effect of:                               |                       |                   |      |            |      |   |            |      |  |   |      |     
|                                         | State and local taxes |                   |      | 2.4        |      |   |            | 1.8  |  |   |      | 2.9  |  
|                                         | Other, net            |                   |      | (0.4       | )    |   |            | 0.4  |  |   |      | (0.7 | )
|                                         |                       |                   |      |            |      |   |            |      | 
|Income tax provision                     |                       | $                 | 28.0 |            |      | $ | 25.0       |      |  | $ | 27.9 |     
|                                         |                       |                   |      |            |      |   |            |      | 



|                                       |                                         |                   |       |            |      |   |       |       |  
|-------------------------------------- | --------------------------------------- | ----------------- | ----- | ---------- | ---- | - | ----- | ----- | -
|                                       |                                         | Fiscal Year       |      
|                                       |                                         | Asset/(Liability) |      
|                                       |                                         |                   |      
|                                       |                                         | 2005              |       |            | 2004 |  
|                                       |                                         |                   |       |            |      |  
|                                       |                                         |                   |       | (Restated) |     
|Current                                |                                         |                   |       |            |      |   |       |      
|Deferred tax assets:                   |                                         |                   |       |            |      |   |       |      
|                                       | Inventory items                         |                   | $     | 17.4       |      |   | $     | 14.4  |  
|                                       | Lease obligations                       |                   |       | 0.9        |      |   |       | 4.8   |  
|                                       | Employee benefits                       |                   |       | 0.8        |      |   |       | 1.2   |  
|                                       | Other                                   |                   |       | 2.2        |      |   |       | 2.9   |  
|                                       |                                         |                   |       |            |      |  
|                                       |                                         |                   | 21.3  |            |      |   | 23.3  |      
|Deferred tax liabilities:              |                                         |                   |       |            |      |   |       |      
|                                       | Basis difference in net assets acquired |                   |       |           |      |   |       | (1.4  | )
|                                       |                                         |                   |       |            |      |  
|Net current deferred tax asset         |                                         | $                 | 21.3  |            |      | $ | 21.9  |      
|                                       |                                         |                   |       |            |      |  
|Non-current                            |                                         |                   |       |            |      |   |       |      
|Deferred tax assets:                   |                                         |                   |       |            |      |   |       |      
|                                       | Lease Obligations                       |                   | $     | 16.9       |      |   | $     | 12.2  |  
|                                       | Equity investment                       |                   |       | 2.5        |      |   |       | 2.5   |  
|                                       | Other                                   |                   |       | 4.5        |      |   |       | 1.9   |  
|                                       | Valuation allowance                     |                   |       | (2.5       | )    |   |       | (2.5  | )
|                                       |                                         |                   |       |            |      |  
|                                       |                                         |                   | 21.4  |            |      |   | 14.1  |      
|Deferred tax liabilities:              |                                         |                   |       |            |      |   |       |      
|                                       | Depreciation                            |                   |       | (48.5      | )    |   |       | (46.7 | )
|                                       | Basis difference in net assets acquired |                   |       | (0.7       | )    |   |       | (0.7  | )
|                                       | Other                                   |                   |       | 0.2        |      |   |       | 0.4   |  
|                                       |                                         |                   |       |            |      |  
|                                       |                                         |                   | (49.0 | )          |      |   | (47.0 | )    
|                                       |                                         |                   |       |            |      |  
|Net non-current deferred tax liability |                                         | $                 | (27.6 | )          |      | $ | (32.9 | )    
|                                       |                                         |                   |       |            |      |  



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)







Note 6  Financing




|                                         |  |             |       |  |      |   |       | 
|---------------------------------------- |  | ----------- | ----- |  | ---- | - | ----- | 
|                                         |  | Fiscal Year |      
|                                         |  |             |      
|                                         |  | 2005        |       |  | 2004 |  
|                                         |  |             |       |  |      |  
|Senior bank credit facility              |  | $           |      |  |      | $ |      | 
|Prior senior bank credit facility        |  |             |      |  |      |   | 49.3  | 
|7.500 percent senior subordinated notes  |  |             | 100.0 |  |      |   |      | 
|10.375 percent senior subordinated notes |  |             |      |  |      |   | 64.4  | 
|                                         |  |             |       |  |      |  
|Total Long-term debt                     |  | $           | 100.0 |  |      | $ | 113.7 | 
|                                         |  |             |       |  |      |  

Secured Credit Facilities













54



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




Note 6  Financing (Continued)


Senior Subordinated Notes















|         |              
|-------- | -------------
|Note 7  | Capital Stock

Shareholders Rights Plan




Right to Acquire Shares




55



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)









|         |                         
|-------- | ------------------------
|Note 8  | Stock-Based Compensation





|                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                 
|----------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Plan                                                                                      |  | Overview                                                                                                                                                                                                                                                                                                                                                                        
|                                                                                          |  |                                                                                                                                                                                                                                                                                                                                                                                 
|1998 Incentive Compensation Plan (the 1998 Plan)                                        |  | Allows for the grant of stock options, restricted stock, and
    stock equivalent units to employees and non-employee directors.
    It also allows the operation of an employee stock purchase
    program and a deferred stock program for non-employee directors.                                                                                                            
|1996 Stock Option Plan for Non-Employee Directors (the
    Directors Stock Option Plan) |  | Previously used to award stock options to non-employee
    directors. The plan is no longer used to grant stock options.                                                                                                                                                                                                                                                        
|1994 Executive Incentive Plan (the Executive Plan)                                      |  | Previously used to award restricted stock awards to executive
    officers, senior management and other key employees. This plan
    terminated on January 31, 2004. The termination of the plan
    does not affect shares that are currently outstanding under the
    plan. At January 29, 2005, 132,455 restricted shares
    remained outstanding under the Executive Plan.
|1990 Employee Stock Option and Stock Appreciation Rights Plan
    (the 1990 Plan)       |  | Previously used to award stock options to officers and key
    employees. This plan terminated on March 14, 2000. The
    termination of the plan does not affect shares that are
    currently outstanding under the plan.                                                                                                                                                     

1998 Plan




| |              
| | -------------
| | Stock Options





| |                        
| | -----------------------
| | Restricted Stock Awards



56



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




|         |                                     
|-------- | ------------------------------------
|Note 8  | Stock-Based Compensation (Continued)





| |                          
| | -------------------------
| | Shares Available to Grant





|                              |                                        |         |  |            |   |       |  |          |   |  |           |          |  
|----------------------------- | -------------------------------------- | ------- |  | ---------- | - | ----- |  | -------- | - |  | --------- | -------- | -
|                              |                                        | Stock   |  | Restricted |   |      
|                              |                                        | Options |  | Stock      |   | Total
|                              |                                        |         |  |            |   |      
|Available at February 2, 2002 |                                        |         |  |            |   |       |  |          |   |  | 618,056   |         
|                              | Fiscal year 2003 incremental available |         |  |            |   |       |  |          |   |  |           | 804,236  |  
|                              | Granted                                |         |  | (204,125   | ) |       |  |         |   |  |           | (204,125 | )
|                              | Cancellations                          |         |  | 163,189    |   |       |  | 3,450    |   |  |           | 166,639  |  
|                              |                                        |         |  |            |   |       |  |          |   |  |           |         
|Available at February 1, 2003 |                                        |         |  |            |   |       |  |          |   |  | 1,384,806 |         
|                              | Fiscal year 2004 incremental available |         |  |            |   |       |  |          |   |  |           | 843,162  |  
|                              | Granted                                |         |  | (806,387   | ) |       |  | (11,500  | ) |  |           | (817,887 | )
|                              | Cancellations                          |         |  | 124,313    |   |       |  | 3,450    |   |  |           | 127,763  |  
|                              |                                        |         |  |            |   |       |  |          |   |  |           |         
|Available at February 1, 2004 |                                        |         |  |            |   |       |  |          |   |  | 1,537,844 |         
|                              | Fiscal year 2005 incremental available |         |  |            |   |       |  |          |   |  |           | 255,073  |  
|                              | Granted  Time-Based Awards            |         |  | (142,200   | ) |       |  | (224,300 | ) |  |           | (366,500 | )
|                              | Granted  Performance-Based Awards     |         |  |           |   |       |  | (616,350 | ) |  |           | (616,350 | )
|                              | Cancellations                          |         |  | 156,430    |   |       |  | 121,500  |   |  |           | 277,930  |  
|                              |                                        |         |  |            |   |       |  |          |   |  |           |         
|Available at January 29, 2005 |                                        |         |  |            |   |       |  |          |   |  | 1,087,997 |         
|                              |                                        |         |  |            |   |       |  |          |   |  |           |         



| |                                
| | -------------------------------
| | Employee Stock Purchase Program



57



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 8  Stock-Based Compensation
(Continued)






| |                                              
| | ---------------------------------------------
| | Non-Employee Directors Deferred Stock Program



Award Activity






| |              
| | -------------
| | Stock Options



|                               |           |        |           |          |   |        |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |       |       | 
|------------------------------ | --------- | ------ | --------- | -------- | - | ------ | ----- | -------- |  | ------ | --------- | -------- | - | - | ----- | ----- |  |  | --------- | -------- | - | - | ----- | ----- | 
|                               |           | 2005   |           | 2004     |   | 2003  
|                               |           |        |           |          |   |       
|                               |           |        |           | Weighted |   |        |       | Weighted |  |        |           | Weighted
|                               |           |        |           | Average  |   |        |       | Average  |  |        |           | Average 
|                               |           | Shares |           | Price    |   | Shares |       | Price    |  | Shares |           | Price   
|                               |           |        |           |          |   |        |       |          |  |        |           |         
|Outstanding, beginning of year |           |        | 3,077,917 |          |   | $      | 12.42 |          |  |        | 2,881,419 |          |   | $ | 10.37 |       |  |  | 3,817,757 |          |   | $ | 9.90  |      
|                               | Granted   |        |           | 142,200  |   |        |       | 27.89    |  |        |           | 806,387  |   |   |       | 17.97 |  |  |           | 204,125  |   |   |       | 18.34 | 
|                               | Exercised |        |           | (767,773 | ) |        |       | 9.94     |  |        |           | (478,973 | ) |   |       | 9.30  |  |  |           | (844,884 | ) |   |       | 10.10 | 
|                               | Cancelled |        |           | (158,547 | ) |        |       | 14.20    |  |        |           | (130,916 | ) |   |       | 12.67 |  |  |           | (295,579 | ) |   |       | 10.49 | 
|                               |           |        |           |          |   |        |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |       |      
|Outstanding, end of year       |           |        | 2,293,797 |          |   | $      | 14.09 |          |  |        | 3,077,917 |          |   | $ | 12.42 |       |  |  | 2,881,419 |          |   | $ | 10.37 |      
|                               |           |        |           |          |   |        |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |       |      
|Exercisable, end of year       |           |        | 1,591,632 |          |   | $      | 11.54 |          |  |        | 1,490,091 |          |   | $ | 11.49 |       |  |  | 1,174,103 |          |   | $ | 12.77 |      
|                               |           |        |           |          |   |        |       |          |  |        |           |          |   |   |       |       |  |  |           |          |   |   |       |      

58



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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




|         |                                     
|-------- | ------------------------------------
|Note 8  | Stock-Based Compensation (Continued)



|                    |           |                     |  |          |                |             |  |             |       |          |  |  |           |  |  |  |           |  |  |   |       | 
|------------------- | --------- | ------------------- |  | -------- | -------------- | ----------- |  | ----------- | ----- | -------- |  |  | --------- |  |  |  | --------- |  |  | - | ----- | 
|Options Outstanding |           | Options Exercisable
|                    |           |                    
|                    |           | Weighted            |  |         
|                    |           | Weighted            |  | Average  |                |             |  | Weighted   
|                    |           | Range of            |  | Average  |                | Remaining   |  |             |       | Average 
|Number              |           | Exercise            |  | Exercise |                | Contractual |  | Number      |       | Exercise
|Outstanding         |           | Prices              |  | Price    |                | Life        |  | Exercisable |       | Price   
|                    |           |                     |  |          |                |             |  |             |       |         
|                    | 817,863   |                     |  | $        | 2.40 to $7.75  |             |  | $           | 6.89  |          |  |  | 5.0 years |  |  |  | 804,984   |  |  | $ | 6.94  | 
|                    | 873,660   |                     |  |          | 7.99 to 16.80  |             |  |             | 14.80 |          |  |  | 4.3 years |  |  |  | 493,134   |  |  |   | 13.31 | 
|                    | 602,274   |                     |  |          | 18.19 to 29.38 |             |  |             | 22.85 |          |  |  | 4.9 years |  |  |  | 293,514   |  |  |   | 21.18 | 
|                    |           |                     |  |          |                |             |  |             |       |          |  |  |           |  |  |  |           |  |  |   |       | 
|                    | 2,293,797 |                     |  | $        | 2.40 to $29.38 |             |  | $           | 14.09 |          |  |  | 4.7 years |  |  |  | 1,591,632 |  |  | $ | 11.54 | 
|                    |           |                     |  |          |                |             |  |             |       |          |  |  |           |  |  |  |           |  |  |   |       | 




Restricted Stock 
Time-Based Awards






|                               |  |                  |         |      |  |      |         |   |  |  |          |  
|------------------------------ |  | ---------------- | ------- | ---- |  | ---- | ------- | - |  |  | -------- | -
|                               |  | Number of Shares
|                               |  |                 
|Fiscal Year                    |  | 2005             |         | 2004 |  | 2003
|                               |  |                  |         |      |  |     
|Outstanding, beginning of year |  |                  | 212,035 |      |  |      | 73,025  |   |  |  | 180,550  |  
|Granted                        |  |                  | 224,300 |      |  |      | 162,355 |   |  |  | 10,350   |  
|Exercised                      |  |                  | (14,375 | )    |  |      | (10,925 | ) |  |  | (102,350 | )
|Cancelled/ Forfeited           |  |                  | (63,180 | )    |  |      | (12,420 | ) |  |  | (15,525  | )
|                               |  |                  |         |      |  |      |         |   |  |  |          |  
|Outstanding, end of year       |  |                  | 358,780 |      |  |      | 212,035 |   |  |  | 73,025   |  
|                               |  |                  |         |      |  |      |         |   |  |  |          |  





| |                                            
| | -------------------------------------------
| | Restricted Stock  Performance-Based Awards





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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




|         |                                     
|-------- | ------------------------------------
|Note 8  | Stock-Based Compensation (Continued)





|                       |  |                           |         |        |  |          |         |   |  |  |         |  
|---------------------- |  | ------------------------- | ------- | ------ |  | -------- | ------- | - |  |  | ------- | -
|                       |  | Estimated Future Payouts 
|                       |  | Under 1998 Incentive Plan
|                       |  |                          
|Fiscal 2005 Award (1)  |  | Threshold                 |         | Target |  | Superior
|                       |  |                           |         |        |  |         
|Assigned               |  |                           | 205,450 |        |  |          | 410,900 |   |  |  | 616,350 |  
|Cancelled/ Forfeited   |  |                           | (26,800 | )      |  |          | (53,600 | ) |  |  | (80,400 | )
|                       |  |                           |         |        |  |          |         |   |  |  |         |  
|Remaining, end of year |  |                           | 178,650 |        |  |          | 357,300 |   |  |  | 535,950 |  
|                       |  |                           |         |        |  |          |         |   |  |  |         |  






|    |                                                                                                                                                                                
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The number of shares represents the award amounts payable
    beginning in fiscal 2008 if earned for the fiscal years 2005-
    2007 and would be granted at a price of $27.95.






|         |                                         
|-------- | ----------------------------------------
|Note 9  | Savings Plan and Postretirement Benefits










|          |                              
|--------- | -----------------------------
|Note 10  | Commitments and Contingencies








|          |       
|--------- | ------
|Note 11  | Leases





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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 11  Leases (Continued)


minimums. In certain instances, the Company is required to
pay its pro rata share of real estate taxes and common area
maintenance expenses.




|                      |  |         |       | 
|--------------------- |  | ------- | ----- | 
|                      |  | Minimum
|Fiscal Year-Ended     |  | Rentals
|                      |  |        
|(Dollars in millions) |  |        
|2006                  |  | $       | 134.1 | 
|2007                  |  |         | 126.2 | 
|2008                  |  |         | 110.1 | 
|2009                  |  |         | 80.8  | 
|2010                  |  |         | 67.6  | 
|Thereafter            |  |         | 268.8 | 
|                      |  |         |       | 
|                      |  | $       | 787.6 | 
|                      |  |         |       | 



|                      |  |      |       |            |  |            |       |   |  |   |       |  
|--------------------- |  | ---- | ----- | ---------- |  | ---------- | ----- | - |  | - | ----- | -
|Fiscal Year-Ended     |  | 2005 |       | 2004       |  | 2003      
|                      |  |      |       |            |  |           
|(Dollars in millions) |  |      |       | (Restated) |  | (Restated)
|Minimum rentals       |  | $    | 132.5 |            |  | $          | 126.2 |   |  | $ | 119.8 |  
|Contingent rentals    |  |      | 3.6   |            |  |            | 3.6   |   |  |   | 4.1   |  
|Sublease rentals      |  |      | (9.4  | )          |  |            | (8.6  | ) |  |   | (7.5  | )
|                      |  |      |       |            |  |            |       |   |  |   |       |  
|                      |  | $    | 126.7 |            |  | $          | 121.2 |   |  | $ | 116.4 |  
|                      |  |      |       |            |  |            |       |   |  |   |       |  






|          |                                            
|--------- | -------------------------------------------
|Note 12  | Quarterly Financial Information (Unaudited)



|                                             |         |            |       |            |  |            |       |         |  |   |       |      |  |   |       |      | 
|-------------------------------------------- | ------- | ---------- | ----- | ---------- |  | ---------- | ----- | ------- |  | - | ----- | ---- |  | - | ----- | ---- | 
|                                             |         | First      |       | Second     |  | Third      |       | Fourth 
|Fiscal 2005                                  |         | Quarter    |       | Quarter    |  | Quarter    |       | Quarter
|                                             |         |            |       |            |  |            |       |        
|(Dollars in millions, except per share data) |         | (Restated) |       | (Restated) |  | (Restated) |       |        
|Net sales                                    |         | $          | 404.9 |            |  | $          | 371.0 |         |  | $ | 448.3 |      |  | $ | 588.2 |     
|Gross margin                                 |         |            | 199.0 |            |  |            | 181.9 |         |  |   | 214.2 |      |  |   | 267.0 |     
|Net income                                   |         |            | 6.7   |            |  |            | 0.3   |         |  |   | 6.9   |      |  |   | 32.3  |     
|Net income per common share:                 |         |            |       |            |  |            |       |         |  |   |       |      |  |   |       |     
|                                             | Basic   |            | $     | 0.31       |  |            | $     | 0.01    |  |   | $     | 0.31 |  |   | $     | 1.44 | 
|                                             | Diluted |            |       | 0.30       |  |            |       | 0.01    |  |   |       | 0.30 |  |   |       | 1.40 | 



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)




|          |                                                        
|--------- | -------------------------------------------------------
|Note 12  | Quarterly Financial Information (Unaudited) (Continued)



|                                             |         |            |       |      |            |   |       |            |   |   |            |      |  |   |       |      | 
|-------------------------------------------- | ------- | ---------- | ----- | ---- | ---------- | - | ----- | ---------- | - | - | ---------- | ---- |  | - | ----- | ---- | 
|                                             |         | First      |       |      | Second     |   |       | Third      |   |   | Fourth     |     
|Fiscal 2004                                  |         | Quarter    |       |      | Quarter    |   |       | Quarter    |   |   | Quarter    |     
|                                             |         |            |       |      |            |   |       |            |   |   |            |     
|(Dollars in millions, except per share data) |         | (Restated) |       |      | (Restated) |   |       | (Restated) |   |   | (Restated) |     
|Net sales                                    |         | $          | 374.8 |      |            | $ | 359.2 |            |   | $ | 447.5      |      |  | $ | 552.6 |     
|Gross margin                                 |         |            | 180.5 |      |            |   | 172.6 |            |   |   | 215.1      |      |  |   | 242.4 |     
|Net income                                   |         |            | 3.9   |      |            |   | (2.4  | )          |   |   | 11.9       |      |  |   | 26.7  |     
|Net income per common share:                 |         |            |       |      |            |   |       |            |   |   |            |      |  |   |       |     
|                                             | Basic   |            | $     | 0.18 |            |   | $     | (0.11      | ) |   | $          | 0.55 |  |   | $     | 1.24 | 
|                                             | Diluted |            |       | 0.18 |            |   |       | (0.11      | ) |   |            | 0.53 |  |   |       | 1.20 | 








|          |                                   
|--------- | ----------------------------------
|Note 13  | Consolidating Financial Statements



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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 13  Consolidating Financial Statements
(Continued)




|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |       |  
|--------------------------------------------------- | ----------------------------------------- | --------------------- | ----- | --------------------------- | - | ------------ | ----- | ------------ |  | --------- | ------ | ------------ | - | ------------ | ----- | ------------ | - | - | ----- | ----- | - | - | ----- | ----- | - | - | ------ | ----- | - | - | ----- | ----- | -
|                                                    |                                           | January 29, 2005      |       | January 31, 2004 (Restated)
|                                                    |                                           |                       |       |                            
|Consolidating                                       |                                           |                       |       | Guarantor                   |   |              |       |              |  | Guarantor |        |             
|Balance Sheets                                      |                                           | Parent                |       | Subsidiaries                |   | Eliminations |       | Consolidated |  | Parent    |        | Subsidiaries |   | Eliminations |       | Consolidated
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |             
|                                                    |                                           | (Dollars in millions)
|Assets                                              |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Current assets:                                     |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|                                                    | Cash and cash equivalents                 |                       | $     | 76.6                        |   |              | $     | 3.0          |  |           | $      |              |   |              | $     | 79.6         |   |   | $     | 14.3  |   |   | $     | 3.1   |   |   | $      |       |   |   | $     | 17.4  |  
|                                                    | Inventories                               |                       |       | 159.6                       |   |              |       | 280.1        |  |           |        |              |   |              |       | 439.7        |   |   |       | 154.0 |   |   |       | 250.6 |   |   |        |       |   |   |       | 404.6 |  
|                                                    | Deferred income taxes                     |                       |       | 16.5                        |   |              |       | 4.8          |  |           |        |              |   |              |       | 21.3         |   |   |       | 17.6  |   |   |       | 4.3   |   |   |        |       |   |   |       | 21.9  |  
|                                                    | Prepaid expenses and other current assets |                       |       | 14.3                        |   |              |       | 8.0          |  |           |        |              |   |              |       | 22.3         |   |   |       | 15.1  |   |   |       | 8.4   |   |   |        |       |   |   |       | 23.5  |  
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Total current assets                                |                                           |                       | 267.0 |                             |   |              | 295.9 |              |  |           |       |              |   |              | 562.9 |              |   |   | 201.0 |       |   |   | 266.4 |       |   |   |       |       |   |   | 467.4 |      
|Property, equipment and leasehold improvements, net |                                           |                       | 106.9 |                             |   |              | 131.1 |              |  |           |        |              |   |              | 238.0 |              |   |   | 89.1  |       |   |   | 129.3 |       |   |   |        |       |   |   | 218.4 |      
|Goodwill, net                                       |                                           |                       |      |                             |   |              | 27.1  |              |  |           |        |              |   |              | 27.1  |              |   |   |      |       |   |   | 26.5  |       |   |   |        |       |   |   | 26.5  |      
|Other assets                                        |                                           |                       | 9.8   |                             |   |              | 1.5   |              |  |           |        |              |   |              | 11.3  |              |   |   | 6.1   |       |   |   | 1.4   |       |   |   |        |       |   |   | 7.5   |      
|Investment in subsidiaries                          |                                           |                       | 90.6  |                             |   |              |      |              |  |           | (90.6  | )            |   |              |      |              |   |   | 53.3  |       |   |   |      |       |   |   | (53.3  | )     |   |   |      |      
|Intercompany receivable                             |                                           |                       | 295.4 |                             |   |              |      |              |  |           | (295.4 | )            |   |              |      |              |   |   | 331.7 |       |   |   |      |       |   |   | (331.7 | )     |   |   |      |      
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Total assets                                        |                                           | $                     | 769.7 |                             |   | $            | 455.6 |              |  | $         | (386.0 | )            |   | $            | 839.3 |              |   | $ | 681.2 |       |   | $ | 423.6 |       |   | $ | (385.0 | )     |   | $ | 719.8 |      
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Liabilities and Shareholders Equity                |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Current liabilities:                                |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|                                                    | Accounts payable                          |                       | $     | 155.8                       |   |              | $     | 11.4         |  |           | $      |              |   |              | $     | 167.2        |   |   | $     | 112.0 |   |   | $     | 10.0  |   |   | $      |       |   |   | $     | 122.0 |  
|                                                    | Accrued expenses                          |                       |       | 71.8                        |   |              |       | 19.8         |  |           |        |              |   |              |       | 91.6         |   |   |       | 78.9  |   |   |       | (2.7  | ) |   |        |       |   |   |       | 76.2  |  
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Total current liabilities                           |                                           |                       | 227.6 |                             |   |              | 31.2  |              |  |           |       |              |   |              | 258.8 |              |   |   | 190.9 |       |   |   | 7.3   |       |   |   |       |       |   |   | 198.2 |      
|Long-term debt                                      |                                           |                       | 100.0 |                             |   |              |      |              |  |           |        |              |   |              | 100.0 |              |   |   | 113.7 |       |   |   |      |       |   |   |        |       |   |   | 113.7 |      
|Deferred income taxes                               |                                           |                       | 7.8   |                             |   |              | 19.8  |              |  |           |        |              |   |              | 27.6  |              |   |   | 15.1  |       |   |   | 17.8  |       |   |   |        |       |   |   | 32.9  |      
|Lease obligations and other long-term liabilities   |                                           |                       | 25.4  |                             |   |              | 18.6  |              |  |           |        |              |   |              | 44.0  |              |   |   | 20.7  |       |   |   | 13.5  |       |   |   |        |       |   |   | 34.2  |      
|Intercompany payable                                |                                           |                       |      |                             |   |              | 295.4 |              |  |           | (295.4 | )            |   |              |      |              |   |   |      |       |   |   | 331.7 |       |   |   | (331.7 | )     |   |   |      |      
|Shareholders equity:                               |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|                                                    | Preferred stock                           |                       |       |                            |   |              |       |             |  |           |        |              |   |              |       |             |   |   |       |      |   |   |       |      |   |   |        |       |   |   |       |      |  
|                                                    | Common stock                              |                       |       | 1.3                         |   |              |       |             |  |           |        |              |   |              |       | 1.3          |   |   |       | 1.3   |   |   |       |      |   |   |        |       |   |   |       | 1.3   |  
|                                                    | Additional paid-in capital                |                       |       | 151.8                       |   |              |       |             |  |           |        |              |   |              |       | 151.8        |   |   |       | 129.0 |   |   |       |      |   |   |        |       |   |   |       | 129.0 |  
|                                                    | Retained earnings                         |                       |       | 299.6                       |   |              |       | 90.6         |  |           |        | (90.6        | ) |              |       | 299.6        |   |   |       | 253.4 |   |   |       | 53.3  |   |   |        | (53.3 | ) |   |       | 253.4 |  
|                                                    | Accumulated other comprehensive loss      |                       |       |                            |   |              |       |             |  |           |        |              |   |              |       |             |   |   |       | (1.6  | ) |   |       |      |   |   |        |       |   |   |       | (1.6  | )
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|                                                    |                                           |                       | 452.7 |                             |   |              | 90.6  |              |  |           | (90.6  | )            |   |              | 452.7 |              |   |   | 382.1 |       |   |   | 53.3  |       |   |   | (53.3  | )     |   |   | 382.1 |      
|                                                    | Treasury stock, at cost                   |                       |       | (43.8                       | ) |              |       |             |  |           |        |              |   |              |       | (43.8        | ) |   |       | (41.3 | ) |   |       |      |   |   |        |      |   |   |       | (41.3 | )
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Total shareholders equity                          |                                           |                       | 408.9 |                             |   |              | 90.6  |              |  |           | (90.6  | )            |   |              | 408.9 |              |   |   | 340.8 |       |   |   | 53.3  |       |   |   | (53.3  | )     |   |   | 340.8 |      
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      
|Total liabilities and shareholders equity          |                                           | $                     | 769.7 |                             |   | $            | 455.6 |              |  | $         | (386.0 | )            |   | $            | 839.3 |              |   | $ | 681.2 |       |   | $ | 423.6 |       |   | $ | (385.0 | )     |   | $ | 719.8 |      
|                                                    |                                           |                       |       |                             |   |              |       |              |  |           |        |              |   |              |       |              |   |   |       |       |   |   |       |       |   |   |        |       |   |   |       |      

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##### Table of Contents



Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 13  Consolidating Financial Statements
(Continued)


|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |              |  |   |       |       |  |   |         |       |  |   |        |   |  |   |         |       | 
|--------------------------------------------------- | --------------------------- | --------------------- | ----- | --------------------------- |  | ------------ | ------- | ------------ |  | --------- | ------ | ------------ |  | ------------ | ------- | ------------ |  | - | ----- | ----- |  | - | ------- | ----- |  | - | ------ | - |  | - | ------- | ----- | 
|                                                    |                             | Fiscal Year-Ended    
|                                                    |                             |                      
|                                                    |                             | January 29, 2005      |       | January 31, 2004 (Restated)
|                                                    |                             |                       |       |                            
|Consolidating Statement                             |                             |                       |       | Guarantor                   |  |              |         |              |  | Guarantor |        |             
|of Operations                                       |                             | Parent                |       | Subsidiaries                |  | Eliminations |         | Consolidated |  | Parent    |        | Subsidiaries |  | Eliminations |         | Consolidated
|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |             
|                                                    |                             | (Dollars in millions)
|Net sales                                           |                             | $                     | 986.9 |                             |  | $            | 1,293.0 |              |  | $         | (467.5 | )            |  | $            | 1,812.4 |              |  | $ | 950.3 |       |  | $ | 1,153.2 |       |  | $ | (369.4 | ) |  | $ | 1,734.1 |      
|Cost of sales                                       |                             |                       | 590.0 |                             |  |              | 827.8   |              |  |           | (467.5 | )            |  |              | 950.3   |              |  |   | 567.5 |       |  |   | 725.4   |       |  |   | (369.4 | ) |  |   | 923.5   |      
|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |              |  |   |       |       |  |   |         |       |  |   |        |   |  |   |         |      
|                                                    | Gross margin                |                       |       | 396.9                       |  |              |         | 465.2        |  |           |        |             |  |              |         | 862.1        |  |   |       | 382.8 |  |   |         | 427.8 |  |   |        |  |  |   |         | 810.6 | 
|Selling, general and administrative expenses        |                             |                       | 341.7 |                             |  |              | 359.1   |              |  |           |        |              |  |              | 700.8   |              |  |   | 329.3 |       |  |   | 335.5   |       |  |   |        |   |  |   | 664.8   |      
|Store pre-opening and closing costs                 |                             |                       | 9.6   |                             |  |              | 8.9     |              |  |           |        |              |  |              | 18.5    |              |  |   | 6.4   |       |  |   | 6.9     |       |  |   |        |   |  |   | 13.3    |      
|Depreciation and amortization                       |                             |                       | 18.4  |                             |  |              | 24.6    |              |  |           |        |              |  |              | 43.0    |              |  |   | 15.3  |       |  |   | 23.7    |       |  |   |        |   |  |   | 39.0    |      
|Stock-based compensation expense                    |                             |                       | 7.7   |                             |  |              |        |              |  |           |        |              |  |              | 7.7     |              |  |   | 6.4   |       |  |   |        |       |  |   |        |   |  |   | 6.4     |      
|Debt repurchase and share reclassification expenses |                             |                       | 4.2   |                             |  |              |        |              |  |           |        |              |  |              | 4.2     |              |  |   | 5.5   |       |  |   |        |       |  |   |        |   |  |   | 5.5     |      
|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |              |  |   |       |       |  |   |         |       |  |   |        |   |  |   |         |      
|                                                    | Operating profit            |                       |       | 15.3                        |  |              |         | 72.6         |  |           |        |             |  |              |         | 87.9         |  |   |       | 19.9  |  |   |         | 61.7  |  |   |        |  |  |   |         | 81.6  | 
|Interest expense, net                               |                             |                       | 0.9   |                             |  |              | 12.8    |              |  |           |        |              |  |              | 13.7    |              |  |   | 5.1   |       |  |   | 11.4    |       |  |   |        |   |  |   | 16.5    |      
|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |              |  |   |       |       |  |   |         |       |  |   |        |   |  |   |         |      
|                                                    | Income before income taxes  |                       |       | 14.4                        |  |              |         | 59.8         |  |           |        |             |  |              |         | 74.2         |  |   |       | 14.8  |  |   |         | 50.3  |  |   |        |  |  |   |         | 65.1  | 
|Income tax provision                                |                             |                       | 5.5   |                             |  |              | 22.5    |              |  |           |        |              |  |              | 28.0    |              |  |   | 7.2   |       |  |   | 17.8    |       |  |   |        |   |  |   | 25.0    |      
|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |              |  |   |       |       |  |   |         |       |  |   |        |   |  |   |         |      
|                                                    | Income before equity income |                       |       | 8.9                         |  |              |         | 37.3         |  |           |        |             |  |              |         | 46.2         |  |   |       | 7.6   |  |   |         | 32.5  |  |   |        |  |  |   |         | 40.1  | 
|Equity income from subsidiaries                     |                             |                       | 37.3  |                             |  |              |        |              |  |           | (37.3  | )            |  |              |        |              |  |   | 32.5  |       |  |   |         |       |  |   | (32.5  | ) |  |   |        |      
|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |              |  |   |       |       |  |   |         |       |  |   |        |   |  |   |         |      
|Net income                                          |                             | $                     | 46.2  |                             |  | $            | 37.3    |              |  | $         | (37.3  | )            |  | $            | 46.2    |              |  | $ | 40.1  |       |  | $ | 32.5    |       |  | $ | (32.5  | ) |  | $ | 40.1    |      
|                                                    |                             |                       |       |                             |  |              |         |              |  |           |        |              |  |              |         |              |  |   |       |       |  |   |         |       |  |   |        |   |  |   |         |      

|                                                    |                             |                                               |       |              |  |              |         |              |  |   |        |   |  |   |         |       | 
|--------------------------------------------------- | --------------------------- | --------------------------------------------- | ----- | ------------ |  | ------------ | ------- | ------------ |  | - | ------ | - |  | - | ------- | ----- | 
|                                                    |                             | Fiscal Year-Ended February 1, 2003 (Restated)
|                                                    |                             |                                              
|                                                    |                             |                                               |       | Guarantor    |  |             
|Consolidating Statement of Operations               |                             | Parent                                        |       | Subsidiaries |  | Eliminations |         | Consolidated
|                                                    |                             |                                               |       |              |  |              |         |             
|                                                    |                             | (Dollars in millions)                        
|Net sales                                           |                             | $                                             | 924.7 |              |  | $            | 1,525.6 |              |  | $ | (768.3 | ) |  | $ | 1,682.0 |      
|Cost of sales                                       |                             |                                               | 562.1 |              |  |              | 1,110.7 |              |  |   | (768.3 | ) |  |   | 904.5   |      
|                                                    |                             |                                               |       |              |  |              |         |              |  |   |        |   |  |   |         |      
|                                                    | Gross margin                |                                               |       | 362.6        |  |              |         | 414.9        |  |   |        |  |  |   |         | 777.5 | 
|Selling, general and administrative expenses        |                             |                                               | 318.2 |              |  |              | 315.0   |              |  |   |        |   |  |   | 633.2   |      
|Store pre-opening and closing costs                 |                             |                                               | (0.5  | )            |  |              | 6.8     |              |  |   |        |   |  |   | 6.3     |      
|Depreciation and amortization                       |                             |                                               | 14.0  |              |  |              | 23.9    |              |  |   |        |   |  |   | 37.9    |      
|Stock-based compensation expense                    |                             |                                               | 0.2   |              |  |              |        |              |  |   |        |   |  |   | 0.2     |      
|Debt repurchase and share reclassification expenses |                             |                                               | 1.9   |              |  |              |        |              |  |   |        |   |  |   | 1.9     |      
|                                                    |                             |                                               |       |              |  |              |         |              |  |   |        |   |  |   |         |      
|                                                    | Operating profit            |                                               |       | 28.8         |  |              |         | 69.2         |  |   |        |  |  |   |         | 98.0  | 
|Interest expense, net                               |                             |                                               | 8.5   |              |  |              | 16.2    |              |  |   |        |   |  |   | 24.7    |      
|                                                    |                             |                                               |       |              |  |              |         |              |  |   |        |   |  |   |         |      
|                                                    | Income before income taxes  |                                               |       | 20.3         |  |              |         | 53.0         |  |   |        |  |  |   |         | 73.3  | 
|Income tax provision                                |                             |                                               | 9.1   |              |  |              | 18.8    |              |  |   |        |   |  |   | 27.9    |      
|                                                    |                             |                                               |       |              |  |              |         |              |  |   |        |   |  |   |         |      
|                                                    | Income before equity income |                                               |       | 11.2         |  |              |         | 34.2         |  |   |        |  |  |   |         | 45.4  | 
|Equity income from subsidiaries                     |                             |                                               | 34.2  |              |  |              |        |              |  |   | (34.2  | ) |  |   |        |      
|                                                    |                             |                                               |       |              |  |              |         |              |  |   |        |   |  |   |         |      
|Net income                                          |                             | $                                             | 45.4  |              |  | $            | 34.2    |              |  | $ | (34.2  | ) |  | $ | 45.4    |      
|                                                    |                             |                                               |       |              |  |              |         |              |  |   |        |   |  |   |         |      

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Jo-Ann Stores, Inc.


Notes to Consolidated Financial Statements
(Continued)


Note 13  Consolidating Financial Statements
(Continued)


|                                                     |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |       |  
|---------------------------------------------------- | ----------------------------------------------------------------- | --------------------- | ----- | --------------------------- | - | ------------ | ----- | ------------ | - | --------- | - | ------------ |  | ------------ | ----- | ------------ | - | - | ----- | ----- | - | - | ----- | ----- | - | - | - | - |  | - | ----- | ----- | -
|                                                     |                                                                   | Fiscal Year-Ended    
|                                                     |                                                                   |                      
|                                                     |                                                                   | January 29, 2005      |       | January 31, 2004 (Restated)
|                                                     |                                                                   |                       |       |                            
|Consolidating Statements                             |                                                                   |                       |       | Guarantor                   |   |              |       |              |   | Guarantor |   |             
|of Cash Flows                                        |                                                                   | Parent                |       | Subsidiaries                |   | Eliminations |       | Consolidated |   | Parent    |   | Subsidiaries |  | Eliminations |       | Consolidated
|                                                     |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |             
|                                                     |                                                                   | (Dollars in millions)
|Net cash provided by operating activities            |                                                                   | $                     | 117.5 |                             |   | $            | 24.4  |              |   | $         |  |              |  | $            | 141.9 |              |   | $ | 31.0  |       |   | $ | 20.7  |       |   | $ |  |   |  | $ | 51.7  |      
|Net cash flows used for investing activities:        |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |      
|                                                     | Capital expenditures                                              |                       |       | (42.6                       | ) |              |       | (24.5        | ) |           |   |             |  |              |       | (67.1        | ) |   |       | (37.0 | ) |   |       | (20.6 | ) |   |   |  |  |   |       | (57.6 | )
|                                                     | Proceeds from sale of equity investment                           |                       |       |                            |   |              |       |             |   |           |   |             |  |              |       |             |   |   |       | 6.5   |   |   |       |      |   |   |   |  |  |   |       | 6.5   |  
|                                                     |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |      
|Net cash used for investing activities               |                                                                   |                       | (42.6 | )                           |   |              | (24.5 | )            |   |           |  |              |  |              | (67.1 | )            |   |   | (30.5 | )     |   |   | (20.6 | )     |   |   |  |   |  |   | (51.1 | )    
|Net cash flows used for financing activities:        |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |      
|                                                     | Proceeds from issuance of 7.5% senior subordinated notes,
    net |                       |       | 97.4                        |   |              |       |             |   |           |   |             |  |              |       | 97.4         |   |   |       |      |   |   |       |      |   |   |   |  |  |   |       |      |  
|                                                     | Purchase of
    103/8% senior
    subordinated notes              |                       |       | (66.6                       | ) |              |       |             |   |           |   |             |  |              |       | (66.6        | ) |   |       | (61.7 | ) |   |       |      |   |   |   |  |  |   |       | (61.7 | )
|                                                     | Net change in revolving credit facility                           |                       |       | (49.3                       | ) |              |       |             |   |           |   |             |  |              |       | (49.3        | ) |   |       | 9.3   |   |   |       |      |   |   |   |  |  |   |       | 9.3   |  
|                                                     | Proceeds from stock-based compensation plans                      |                       |       | 10.0                        |   |              |       |             |   |           |   |             |  |              |       | 10.0         |   |   |       | 6.6   |   |   |       |      |   |   |   |  |  |   |       | 6.6   |  
|                                                     | Other, net                                                        |                       |       | (4.1                        | ) |              |       |             |   |           |   |             |  |              |       | (4.1         | ) |   |       | (0.6  | ) |   |       |      |   |   |   |  |  |   |       | (0.6  | )
|                                                     |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |      
|Net cash used for financing activities               |                                                                   |                       | (12.6 | )                           |   |              |      |              |   |           |  |              |  |              | (12.6 | )            |   |   | (46.4 | )     |   |   |      |       |   |   |  |   |  |   | (46.4 | )    
|                                                     |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |      
|Net increase (decrease) in cash and cash equivalents |                                                                   |                       | 62.3  |                             |   |              | (0.1  | )            |   |           |  |              |  |              | 62.2  |              |   |   | (45.9 | )     |   |   | 0.1   |       |   |   |  |   |  |   | (45.8 | )    
|Cash and cash equivalents at beginning of year       |                                                                   |                       | 14.3  |                             |   |              | 3.1   |              |   |           |  |              |  |              | 17.4  |              |   |   | 60.2  |       |   |   | 3.0   |       |   |   |  |   |  |   | 63.2  |      
|                                                     |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |      
|Cash and cash equivalents at end of year             |                                                                   | $                     | 76.6  |                             |   | $            | 3.0   |              |   | $         |  |              |  | $            | 79.6  |              |   | $ | 14.3  |       |   | $ | 3.1   |       |   | $ |  |   |  | $ | 17.4  |      
|                                                     |                                                                   |                       |       |                             |   |              |       |              |   |           |   |              |  |              |       |              |   |   |       |       |   |   |       |       |   |   |   |   |  |   |       |      

|                                                     |                                                      |                                               |       |              |   |              |       |              |   |   |   |   |  |   |       |       |  
|---------------------------------------------------- | ---------------------------------------------------- | --------------------------------------------- | ----- | ------------ | - | ------------ | ----- | ------------ | - | - | - | - |  | - | ----- | ----- | -
|                                                     |                                                      | Fiscal Year-Ended February 1, 2003 (Restated)
|                                                     |                                                      |                                              
|                                                     |                                                      |                                               |       | Guarantor    |   |             
|Consolidating Statements of Cash Flows               |                                                      | Parent                                        |       | Subsidiaries |   | Eliminations |       | Consolidated
|                                                     |                                                      |                                               |       |              |   |              |       |             
|                                                     |                                                      | (Dollars in millions)                        
|Net cash provided by operating activities            |                                                      | $                                             | 107.6 |              |   | $            | 12.1  |              |   | $ |  |   |  | $ | 119.7 |      
|Net cash flows used for investing activities:        |                                                      |                                               |       |              |   |              |       |              |   |   |   |   |  |   |       |      
|                                                     | Capital expenditures                                 |                                               |       | (10.5        | ) |              |       | (12.7        | ) |   |   |  |  |   |       | (23.2 | )
|                                                     |                                                      |                                               |       |              |   |              |       |              |   |   |   |   |  |   |       |      
|Net cash used for investing activities               |                                                      |                                               | (10.5 | )            |   |              | (12.7 | )            |   |   |  |   |  |   | (23.2 | )    
|Net cash flows used for financing activities:        |                                                      |                                               |       |              |   |              |       |              |   |   |   |   |  |   |       |      
|                                                     | Purchase of
    103/8% senior
    subordinated notes |                                               |       | (28.3        | ) |              |       |             |   |   |   |  |  |   |       | (28.3 | )
|                                                     | Net change in revolving credit facility              |                                               |       | (33.7        | ) |              |       |             |   |   |   |  |  |   |       | (33.7 | )
|                                                     | Proceeds from stock-based compensation plans         |                                               |       | 10.0         |   |              |       |             |   |   |   |  |  |   |       | 10.0  |  
|                                                     | Other, net                                           |                                               |       | (2.4         | ) |              |       |             |   |   |   |  |  |   |       | (2.4  | )
|                                                     |                                                      |                                               |       |              |   |              |       |              |   |   |   |   |  |   |       |      
|Net cash used for financing activities               |                                                      |                                               | (54.4 | )            |   |              |      |              |   |   |  |   |  |   | (54.4 | )    
|Net increase (decrease) in cash and cash equivalents |                                                      |                                               | 42.7  |              |   |              | (0.6  | )            |   |   |  |   |  |   | 42.1  |      
|Cash and cash equivalents at beginning of year       |                                                      |                                               | 17.5  |              |   |              | 3.6   |              |   |   |  |   |  |   | 21.1  |      
|                                                     |                                                      |                                               |       |              |   |              |       |              |   |   |   |   |  |   |       |      
|Cash and cash equivalents at end of year             |                                                      | $                                             | 60.2  |              |   | $            | 3.0   |              |   | $ |  |   |  | $ | 63.2  |      
|                                                     |                                                      |                                               |       |              |   |              |       |              |   |   |   |   |  |   |       |      

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes in and Disagreements with Accountants on Accounting
    and Financial Disclosure








|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

Disclosure Controls and Procedures








Managements Annual Report on Internal Control over
Financial Reporting


Internal Control 
Integrated Framework.




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Internal Control  Integrated
Framework.




Remediation Steps to Address Material
Weakness


Changes in Internal Control Over Financial
Reporting


67



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##### Table of Contents






Report of Independent Registered Public Accounting Firm














68



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##### Table of Contents









| |                      
| | ---------------------
| | /s/ Ernst & Young LLP










|         |                  
|-------- | -----------------
|Item 9B. | Other Information






PART III







|         |                                                   
|-------- | --------------------------------------------------
|Item 10. | Directors and Executive Officers of the Registrant














|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation



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|         |                                                                                                   
|-------- | --------------------------------------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial Owners and
    Management and Related Stockholder Matters






Equity Compensation Plan Information


|                                                                   |  |                         |           |                      |  |                      |       |  |  |  |           | 
|------------------------------------------------------------------ |  | ----------------------- | --------- | -------------------- |  | -------------------- | ----- |  |  |  | --------- | 
|                                                                   |  |                         |           |                      |  | Number of securities
|                                                                   |  |                         |           |                      |  | remaining available 
|                                                                   |  |                         |           |                      |  | for future issuance 
|                                                                   |  | Number of securities to |           |                      |  | under equity        
|                                                                   |  | be issued upon          |           | Weighted-average     |  | compensation plans  
|                                                                   |  | exercise of             |           | exercise price of    |  | (excluding          
|                                                                   |  | outstanding options,    |           | outstanding options, |  | securities reflected
|                                                                   |  | warrants and rights     |           | warrants and rights  |  | in column (a))      
|Plan category                                                      |  | (a)                     |           | (b)                  |  | (c)                 
|                                                                   |  |                         |           |                      |  |                     
|Equity compensation plans approved by security holders             |  |                         | 2,248,797 |                      |  | $                    | 14.22 |  |  |  | 1,087,997 | 
|Equity compensation plans not approved by security
    holders (1) |  |                         | 45,000    |                      |  |                      | 7.75  |  |  |  |          | 
|                                                                   |  |                         |           |                      |  |                      |       |  |  |  |           | 
|Total                                                              |  |                         | 2,293,797 |                      |  | $                    | 14.09 |  |  |  | 1,087,997 | 
|                                                                   |  |                         |           |                      |  |                      |       |  |  |  |           | 






|    |                                                                                                                                                                                                                                                                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | On February 9, 2001, the Company registered
    319,000 common shares to be issued in connection with
    options to purchase common shares pursuant to award agreements
    with certain employees. The options were granted under the rules
    provided for in the 1998 Incentive Compensation Plan. As of
    January 29, 2005, 45,000 of the 319,000 securities
    registered remain to be issued.






|         |                                               
|-------- | ----------------------------------------------
|Item 13. | Certain Relationships and Related Transactions










|         |                                       
|-------- | --------------------------------------
|Item 14. | Principal Accountant Fees and Services



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PART IV







|         |                                           
|-------- | ------------------------------------------
|Item 15. | Exhibits and Financial Statement Schedules





| |     |                     
| | --- | --------------------
| | (1) | Financial Statements





| |     |                              
| | --- | -----------------------------
| | (2) | Financial Statement Schedules





| |     |         
| | --- | --------
| | (3) | Exhibits






Index to Exhibits


|        |      |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|------- | ---- | ------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |      |                    
|Number  |      | Exhibit Description
|        |      |                    
|        | 3.1  |                     |  | Amended and Restated Articles of Incorporation of Jo-Ann Stores,
    Inc. (filed as an Exhibit 3.1 to the Registrants Form
    10-Q filed with the Commission on December 15, 2003 and
    incorporated herein by reference)                                                                                                                                                                                                                                  
|        | 3.2  |                     |  | Amended and Restated Code of Regulations (filed as an
    Exhibit 3.2 to the Registrants Form 10-Q filed
    with the Commission on December 15, 2003 and incorporated
    herein by reference)                                                                                                                                                                                                                                                               
|        | 4.1  |                     |  | Second Amended and Restated Rights Agreement, dated
    November 4, 2003, between the Registrant and National City
    Bank, as Rights Agent (filed as an Exhibit 4.1 to the
    Registrants Form 10-K filed with the Commission on
    April 15, 2004 and incorporated herein by reference)                                                                                                                                                                  
|        | 4.2  |                     |  | Indenture between the Registrant and Jo-Ann Stores Supply Chain
    Management, Inc., Team Jo-Ann, Inc., FCA of Ohio, Inc., and
    House of Fabrics, Inc., as guarantors, and National City Bank,
    as trustee relating to the 7.50% Senior Subordinated Notes
    due 2012, including the form of note (filed as an
    Exhibit 4.4 to the Registrants Form 10-K filed with
    the Commission on April 15, 2004 and incorporated herein by
    reference)
|        | 10.1 |                     |  | Form of Split Dollar Life Insurance Agreement between the
    Registrant and certain of its officers (filed as an
    Exhibit 10.1 to the Registrants Form 10-K filed with
    the Commission on May 2, 2003 and incorporated herein by
    reference)*                                                                                                                                                                                                       
|        | 10.2 |                     |  | List of Executive Officers who are parties to the Split Dollar
    Life Insurance Agreement with the Registrant*                                                                                                                                                                                                                                                                                                                                               
|        | 10.3 |                     |  | Jo-Ann Stores, Inc. Supplemental Retirement Benefit Plan, as
    amended (filed as an Exhibit 10.5 to the Registrants
    Form 10-K filed with the Commission on May 2, 2003 and
    incorporated herein by reference)*                                                                                                                                                                                                                                       
|        | 10.4 |                     |  | List of Executive Officers who participate in the
    Registrants Supplemental Retirement Plan, as amended*                                                                                                                                                                                                                                                                                                                                                   
|        | 10.5 |                     |  | Employment Agreement dated July 30, 2001 between the
    Registrant and Alan Rosskamm (filed as an Exhibit 10.7 to
    the Registrants Form 10-K filed with the Commission on
    May 2, 2002 and incorporated herein by reference)*                                                                                                                                                                                                                          
|        | 10.6 |                     |  | Form of Employment Agreement between the Registrant and certain
    Executive Officers (filed as an Exhibit 10.7.1 to the
    Registrants Form 10-K filed with the Commission on
    May 2, 2002 and incorporated herein by reference)*                                                                                                                                                                                                                       
|        | 10.7 |                     |  | List of Executive Officers who are parties to an Employment
    Agreement with the Registrant*                                                                                                                                                                                                                                                                                                                                                                 

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|        |       |  |                     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|------- | ----- |  | ------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |       |  |                    
|Number  |       |  | Exhibit Description
|        |       |  |                    
|        | 10.8  |  |                     | Fabri-Centers of America, Inc. 1990 Employees Stock Option and
    Stock Appreciation Rights Plan, as amended (filed as an
    Exhibit 10.8 to the Registrants Form 10-K filed with
    the Commission on May 2, 2003 and incorporated herein by
    reference)*                                                                                                                                                                                                                                                                                                                                                          
|        | 10.9  |  |                     | Jo-Ann Stores, Inc. (formerly Fabri-Centers of America, Inc.)
    1998 Incentive Compensation Plan, as amended (filed as an
    Exhibit 10.9 to the Registrants Form 10-K filed with
    the Commission on April 15, 2004 and incorporated herein by
    reference)*                                                                                                                                                                                                                                                                                                                                                      
|        | 10.10 |  |                     | Agreement dated October 30, 2003 among Jo-Ann Stores, Inc.,
    Betty Rosskamm and Alma Zimmerman (Second Amended and Restated)
    (filed as an Exhibit 10.10 to the Registrants Form
    10-K filed with the Commission on April 15, 2004 and
    incorporated herein by reference)*                                                                                                                                                                                                                                                                                                                                    
|        | 10.11 |  |                     | Credit Agreement dated as of April 24, 2001 among the
    Registrant, as borrower, Fleet National Bank, as Issuing Bank,
    Fleet Retail Finance Inc., as Administrative Agent and
    Collateral Agent, Congress Financial Corporation, as
    Documentation Agent, GMAC Commercial Credit, LLC, National City
    Commercial Finance, Inc. and The CIT Group/ Business Credit,
    Inc., as Co-Agents, and Fleet Securities Inc., as Arranger and
    Syndication Agent (filed as an Exhibit 10.1 to the
    Registrants Form 10-Q filed with the Commission on
    June 19, 2001 and incorporated herein by reference)
|        | 10.12 |  |                     | Amendment No. 1 to Credit Agreement dated as of
    April 24, 2001 (filed as an Exhibit 10.2 to the
    Registrants Form 10-Q filed with the Commission on
    June 19, 2001 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 10.13 |  |                     | Second Amendment to Credit Agreement dated as of March 17,
    2003 (filed as an Exhibit 10.13 to the Registrants
    Form 10-K filed with the Commission on April 15, 2004 and
    incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 10.14 |  |                     | Third Amendment to Credit Agreement dated as of
    February 18, 2004 (filed as an Exhibit 10.14 to the
    Registrants Form 10-K filed with the Commission on
    April 15, 2004 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                   
|        | 10.15 |  |                     | Fourth Amendment to Credit Agreement dated April 16, 2004
    (filed as an Exhibit 10.15 to the Registrants
    Form S-4 filed with the Commission on May 24, 2004 and
    incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                              
|        | 10.16 |  |                     | Fabri-Centers of America, Inc. Executive Incentive Plan (filed
    as an Exhibit 11 to the Registrants Form 10-K filed
    with the Commission on May 2, 2003 and incorporated herein
    by reference)*                                                                                                                                                                                                                                                                                                                                                                                                                  
|        | 10.17 |  |                     | Fabri-Centers of America, Inc. 1996 Stock Option Plan for
    Non-Employee Directors (filed as an Exhibit 10.11 to the
    Registrants Form 10-K filed with the Commission on
    May 4, 2001 and incorporated herein by reference)*                                                                                                                                                                                                                                                                                                                                                                                      
|        | 10.18 |  |                     | Form of Restricted Stock Award Agreement of the Registrant
    (filed as an Exhibit 10.1 to the Registrants Form 8-K
    filed with the Commission on March 23, 2005 and
    incorporated herein by reference)*                                                                                                                                                                                                                                                                                                                                                                                                           
|        | 10.19 |  |                     | Description of Executive Compensation Arrangements of the
    Registrant (incorporated herein by reference to Item 1.01
    of Form 8-K, filed with the Commission on March 23, 2005)*                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        | 14    |  |                     | Code of Business Conduct and Ethics (filed as an Exhibit 14
    to the Registrants Form 10-K filed with the Commission on
    April 15, 2004 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 21    |  |                     | Subsidiaries of Jo-Ann Stores, Inc. (filed as an Exhibit 21
    to the Registrants Form 10-K filed with the Commission on
    April 15, 2004 and incorporated herein by reference)                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        | 23    |  |                     | Consent of Ernst & Young LLP, Independent Auditors                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        | 24    |  |                     | Power of Attorney                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        | 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                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               






|  |                                                                        
|- | -----------------------------------------------------------------------
|* | Indicates a management contract or compensatory plan or
    arrangement

72



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##### Table of Contents






SIGNATURES




Jo-Ann Stores, Inc.


|                                                                                |  |               
|------------------------------------------------------------------------------- |  | --------------
|By: /s/ Alan
    RosskammAlan
    RosskammPresident and Chief Executive Officer |  | April 14, 2005



|                                                      |  |                                                                                    
|----------------------------------------------------- |  | -----------------------------------------------------------------------------------
|Signature                                             |  | Title                                                                              
|                                                      |  |                                                                                    
|/s/ Alan RosskammAlan
    Rosskamm                    |  | Chairman of the Board and Director
    (Chief Executive Officer)                   
|                                                     
|/s/ Brian P. Carney*Brian
    P. Carney               |  | Executive Vice President and Chief Financial Officer
    (Chief Accounting Officer)
|                                                     
|/s/ Scott Cowen*Scott
    Cowen                       |  | Director                                                                           
|                                                     
|/s/ Ira Gumberg*Ira
    Gumberg                       |  | Director                                                                           
|                                                     
|/s/ Patricia Morrison*Patricia
    Morrison           |  | Director                                                                           
|                                                     
|/s/ Frank Newman*Frank
    Newman                     |  | Director                                                                           
|                                                     
|/s/ Beryl Raff*Beryl
    Raff                         |  | Director                                                                           
|                                                     
|/s/ Gregg Searle*Gregg
    Searle                     |  | Director                                                                           
|                                                     
|/s/ Tracey Thomas
    Travis*Tracey
    Thomas Travis |  | Director                                                                           



|                                                               |  |               
|-------------------------------------------------------------- |  | --------------
|*By: /s/ Alan
    RosskammAlan
    Rosskamm, Attorney-in- Fact |  | April 14, 2005

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