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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10 - Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED NOVEMBER 2, 2002
COMMISSION FILE NO. 1-6695
JO-ANN STORES, INC.
(Exact name of Registrant as specified in its charter)
OHIO 34-0720629
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 DARROW ROAD, HUDSON, OHIO 44236
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 656-2600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Shares of Class A Common Stock outstanding at December 10, 2002:
10,232,278
Shares of Class B Common Stock outstanding at December 10, 2002:
9,260,914
Page 1
JO-ANN STORES, INC.
FORM 10-Q INDEX
FOR THE QUARTER ENDED NOVEMBER 2, 2002
Page Numbers
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of November 2, 2002, February 2, 2002
and November 3, 2001 3
Consolidated Statements of Operations for the Thirteen and Thirty-Nine
Weeks Ended November 2, 2002 and November 3, 2001 4
Consolidated Statements of Cash Flows for the Thirty-Nine Weeks
Ended November 2, 2002 and November 3, 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 18
Item 4. Controls and Procedures 18
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults Upon Senior Securities 19
Item 4. Submission of Matters to a Vote of Security Holders 19
Item 5. Other Information 19
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
Certification by Chief Executive Officer 21
Certification by Chief Financial Officer 22
Page 2
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
JO-ANN STORES, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED) (UNAUDITED)
NOVEMBER 2, FEBRUARY 2, NOVEMBER 3,
2002 2002 2001
------- ------- -------
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
ASSETS
Current assets:
Cash and temporary cash investments $ 21.6 $ 21.1 $ 29.1
Inventories 483.4 369.0 467.1
Prepaid expenses and other current assets 46.4 48.1 39.9
------- ------- -------
Total current assets 551.4 438.2 536.1
Property, equipment and leasehold improvements, net 195.6 210.1 220.9
Goodwill, net 26.5 26.5 26.7
Other assets 17.0 18.9 19.1
------- ------- -------
Total assets $ 790.5 $ 693.7 $ 802.8
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 140.9 $ 123.1 $ 151.5
Accrued expenses 80.4 82.3 51.4
------- ------- -------
Total current liabilities 221.3 205.4 202.9
Long-term debt 276.2 223.7 356.0
Deferred income taxes 23.7 23.6 23.5
Other long-term liabilities 8.9 8.2 8.1
Shareholders' equity:
Common stock:
Class A, stated value $0.05 per share; issued
and outstanding 10,252,583, 9,825,802 and
9,798,356, respectively 0.5 0.5 0.5
Class B, stated value $0.05 per share; issued
and outstanding 9,247,167, 8,806,211 and
8,806,211, respectively 0.5 0.4 0.4
Additional paid-in capital 109.7 99.7 99.8
Unamortized restricted stock awards (0.3) (0.6) (0.8)
Retained earnings 192.5 172.9 154.0
Accumulated other comprehensive loss (3.1) (3.0) (4.4)
------- ------- -------
299.8 269.9 249.5
Treasury stock, at cost (39.4) (37.1) (37.2)
------- ------- -------
Total shareholders' equity 260.4 232.8 212.3
------- ------- -------
Total liabilities and shareholders' equity $ 790.5 $ 693.7 $ 802.8
======= ======= =======
See notes to consolidated financial statements
Page 3
JO-ANN STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
--------------------------------------------------------
NOVEMBER 2, NOVEMBER 3, NOVEMBER 2, NOVEMBER 3,
2002 2001 2002 2001
----------- ----------- ----------- -----------
(DOLLARS IN MILLIONS, EXCEPT SHARE AND PER SHARE DATA)
Net sales $430.1 $413.0 $1,156.2 $1,072.1
Cost of sales 232.7 230.4 606.4 599.2
------ ------ -------- --------
Gross margin 197.4 182.6 549.8 472.9
Selling, general and administrative expenses 166.9 182.4 471.1 472.3
Depreciation and amortization 9.1 9.9 27.0 29.7
------ ------ -------- --------
Operating profit (loss) 21.4 (9.7) 51.7 (29.1)
Interest expense 7.1 8.6 20.1 24.5
------ ------ -------- --------
Income (loss) before income taxes 14.3 (18.3) 31.6 (53.6)
Income tax provision (benefit) 5.4 (7.0) 12.0 (20.4)
------ ------ -------- --------
Income (loss) before extraordinary item 8.9 (11.3) 19.6 (33.2)
Extraordinary item, loss related to early retirement of
debt, net of tax benefit of $0.4 million -- -- -- (0.6)
------ ------ -------- --------
Net income (loss) $ 8.9 $(11.3) $ 19.6 $ (33.8)
====== ====== ======== ========
Net income (loss) per common share - basic:
Net income (loss) before extraordinary item $ 0.46 $(0.61) $ 1.03 $ (1.81)
Extraordinary item, net of tax benefit -- -- -- (0.03)
------ ------ -------- --------
Net income (loss) $ 0.46 $(0.61) $ 1.03 $ (1.84)
====== ====== ======== ========
Net income (loss) per common share - diluted:
Net income (loss) before extraordinary item $ 0.44 $(0.61) $ 0.98 $ (1.81)
Extraordinary item, net of tax benefit -- -- -- (0.03)
------ ------ -------- --------
Net income (loss) $ 0.44 $(0.61) $ 0.98 $ (1.84)
====== ====== ======== ========
Weighted average shares outstanding (in millions):
Basic 19.4 18.5 19.1 18.4
====== ====== ======== ========
Diluted 20.4 18.5 20.0 18.4
====== ====== ======== ========
See notes to consolidated financial statements
Page 4
JO-ANN STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THIRTY-NINE WEEKS ENDED
-----------------------
NOVEMBER 2, NOVEMBER 3,
2002 2001
------- --------
(DOLLARS IN MILLIONS)
Operating activities:
Net income (loss) $ 19.6 $ (33.8)
Adjustments to reconcile net income (loss) to net cash
used for operating activities:
Depreciation and amortization 27.0 29.7
Other 1.9 0.6
Changes in operating assets and liabilities:
Increase in inventories (114.4) (16.1)
Decrease in prepaid expenses and other current assets 1.7 0.9
Increase (decrease) in accounts payable 17.8 (12.5)
Increase (decrease) in accrued expenses and other 0.1 (9.4)
------- --------
Net cash used for operating activities (46.3) (40.6)
------- --------
Investing activities:
Capital expenditures (12.4) (60.4)
Other, net -- (1.1)
------- --------
Net cash used for investing activities (12.4) (61.5)
------- --------
Financing activities:
Net increase in bank credit facilities 79.6 116.0
Repurchase of senior subordinated notes (28.3) --
Other, net 7.9 (2.3)
------- --------
Net cash provided by financing activities 59.2 113.7
------- --------
Net increase in cash 0.5 11.6
Cash and temporary cash investments at beginning of period 21.1 17.5
------- --------
Cash and temporary cash investments at end of period $ 21.6 $ 29.1
======= ========
Supplemental disclosures of cash flow information: Cash paid during the period
for:
Interest $ 21.8 $ 25.9
Income taxes, net of refunds 4.2 0.8
See notes to consolidated financial statements
Page 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JO-ANN STORES, INC.
NOTE 1 - BASIS OF PRESENTATION
Jo-Ann Stores, Inc. (the "Company"), an Ohio corporation, is a fabric
and craft retailer operating 941 retail stores in 49 states at November 2, 2002.
The 870 traditional stores and 71 superstores feature a broad line of apparel,
craft and home decorating fabrics, notions, crafts, seasonal and home
accessories and floral and framing products.
The consolidated financial statements include the accounts of the
Company and its subsidiaries and have been prepared without audit, pursuant to
the rules of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to those rules and regulations, although
the Company believes that the disclosures herein are adequate to make the
information not misleading. Certain amounts in the fiscal 2002 year-end and
interim financial statements have been reclassified in order to conform to the
current year presentation. The statements should be read in conjunction with the
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the fiscal year ended February 2, 2002. The
fiscal year refers to the year in which the period ends (e.g., fiscal 2002 ended
February 2, 2002).
Typical of most retail companies, the Company's business is highly
seasonal with the majority of revenues and operating profits generated in the
second half of the fiscal year. Accordingly, earnings or losses for a particular
interim period are not indicative of full year results. Due to the seasonal
nature of the Company's business, a comparable balance sheet as of November 3,
2001 has been provided. In the opinion of management, the consolidated financial
statements contain all adjustments (consisting only of normal recurring
accruals) necessary for a fair statement of results for the interim periods
presented.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per common share are computed by dividing net income
(loss) by the weighted average number of shares outstanding during the period.
Diluted earnings per share include the effect of the assumed exercise of
dilutive stock options under the treasury stock method. Stock options have not
been included in the earnings per common share calculation for the thirteen and
thirty-nine week periods ended November 3, 2001, as their inclusion would have
been anti-dilutive.
The following table presents information necessary to calculate basic
and diluted earnings per common share for the periods presented (shares in
millions).
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------- ---------------------------
NOVEMBER 2, NOVEMBER 3, NOVEMBER 2, NOVEMBER 3,
2002 2001 2002 2001
---- ---- ---- ----
BASIC COMMON SHARES:
Weighted average shares outstanding 19.4 18.5 19.1 18.4
==== ==== ==== ====
DILUTED COMMON SHARES:
Weighted average shares outstanding 19.4 18.5 19.1 18.4
Incremental shares from assumed exercise of stock
options 1.0 -- 0.9 --
---- ---- ---- ----
20.4 18.5 20.0 18.4
==== ==== ==== ====
Page 6
NOTE 3 - STORE CLOSING CHARGES
As part of the Company's previously announced turnaround plan, the
Company undertook a comprehensive review of its existing store base. During
fiscal years 2001 and 2002, a total of 144 traditional stores were identified
for closing. In addition, the Company identified four superstores to downsize or
buyout the remaining lease obligations. A total of $26.4 million in pre-tax
charges were recorded for these 148 store closings (the "Store Closing Charges")
in fiscal years 2001 and 2002. The Store Closing Charges included asset
write-downs associated with the identified stores, and the estimated closing
costs for stores that will be closed by the end of this fiscal year. Through the
end of the third quarter, 97 of the 148 stores identified for closing have been
closed, and the Company expects to close 23 additional stores in the fourth
quarter of fiscal year 2003. The balance of the stores identified for closing
are expected to close in fiscal year 2004.
Below is a summary of the activity in the Store Closing Charges
liability balance for the first three quarters of fiscal year 2003. The Company
believes that the remaining reserve balance at November 2, 2002 is adequate to
cover the remaining obligations associated with the Store Closing Charges.
NON-CANCELABLE
Dollars in millions LEASE OBLIGATIONS OTHER TOTAL
---- ---- -----
Balance - February 2, 2002 $9.6 $1.2 $10.8
Cash payments (1.2) (0.8) (2.0)
---- ---- -----
Balance - November 2, 2002 $8.4 $0.4 $ 8.8
==== ==== =====
In July 2002, the FASB issued SFAS No. 146 "Accounting for Costs
Associated with Exit or Disposal Activities." SFAS No.146 requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
SFAS No. 146 replaces EITF Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS No. 146 is to be applied
prospectively to exit or disposal activities initiated after December 31, 2002.
NOTE 4 - FAIR VALUE OF DERIVATIVE FINANCIAL INSTRUMENTS
The Company is subject to risk resulting from interest rate
fluctuations, as interest on the Company's Credit Facility is based on variable
rates. The Company's objective in managing its interest rate exposure is to
limit the impact of interest rate changes on earnings and cash flows. Interest
rate swaps are primarily utilized to achieve this objective, effectively
converting a portion of its variable-rate exposures to fixed interest rates. The
Company has interest rate swap agreements on $90 million of its borrowings under
its Credit Facility, $50.0 million of which expire in May 2003 and $40.0 million
of which expire in April 2005.
In accordance with SFAS No. 133 "Accounting for Derivative Instruments
and Hedging Activities", the Company has reviewed and designated all of its
interest rate swap agreements as cash flow hedges and now recognizes the fair
value of its interest rate swap agreements on the balance sheet. Changes in the
fair value of these agreements are recorded in other comprehensive income (loss)
and reclassified into earnings as the underlying hedged item affects earnings.
Page 7
Other comprehensive income (loss) includes the effects of derivative
transactions accounted for under SFAS No. 133, net of related tax. Comprehensive
income (loss) consists of the following:
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------- -----------------------
NOVEMBER 2, NOVEMBER 3, NOVEMBER 2, NOVEMBER 3,
Dollars in millions 2002 2001 2002 2001
----- ------ ----- ------
Net income (loss) $ 8.9 $(11.3) $19.6 $(33.8)
Cumulative effect of change in accounting principle -- -- -- (1.7)
Other comprehensive income (loss) 0.1 (1.7) (0.1) (2.7)
----- ------ ----- ------
Comprehensive income (loss) $ 9.0 $(13.0) $19.5 $(38.2)
===== ====== ===== ======
NOTE 5 - RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the FASB issued SFAS No. 142, "Goodwill and Intangible
Assets" ("SFAS No. 142"). SFAS No. 142 establishes accounting standards for
intangible assets and goodwill. The Company adopted SFAS No. 142 on February 3,
2002. The Company performed the first of the required impairment tests of
goodwill and based upon the transition impairment test performed on recorded
goodwill, no impairment to goodwill exists. Application of the non-amortization
provision of SFAS No. 142 reduces amortization expense by approximately $0.7
million for the fiscal year ending February 1, 2003. The prior fiscal year third
quarter and third quarter year-to-date included amortization expense of $0.2
million and $0.6 million, respectively.
In April 2002, the FASB issued SFAS No. 145, "Recission of FASB
Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical
Corrections" ("SFAS 145"). SFAS No. 145 concludes that debt extinguishments used
as part of a company's risk management strategy should not be classified as an
extraordinary item. SFAS No. 145 also requires sale-leaseback accounting for
certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. SFAS No. 145 is effective for transactions
occurring after May 15, 2002. Management believes that SFAS No. 145 will not
have a significant impact on the Company's consolidated financial statements.
Once adopted, the prior year extraordinary item will be reclassified to conform
with presentation requirements under SFAS 145. In the first quarter of the prior
year, the Company entered into a new $365 million senior secured credit
facility. Deferred finance charges written-off under the prior senior credit
facility totaled $0.6 million after-tax, or $0.03 per diluted share, and were
recorded as an extraordinary item.
Page 8
NOTE 6 - CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED)
The Company's 10-3/8% senior subordinated notes and Credit Facility are
fully and unconditionally guaranteed, on a joint and several basis, by the
wholly-owned subsidiaries of the Company. The senior subordinated notes are
subordinated to the Company's Credit Facility. Summarized consolidating
financial information of the Company (excluding its subsidiaries) and the
guarantor subsidiaries as of November 2, 2002 and February 2, 2002 and for the
thirteen and thirty-nine weeks ended November 2, 2002 and November 3, 2001 are
as follows:
CONSOLIDATING BALANCE SHEETS
NOVEMBER 2, 2002
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------
(Dollars in millions)
ASSETS
Current assets:
Cash and temporary cash investments $ 18.0 $ 3.6 $ -- $ 21.6
Inventories 187.5 295.9 -- 483.4
Prepaid expenses and other current assets 36.1 10.3 -- 46.4
------- -------- --------- -------
Total current assets 241.6 309.8 -- 551.4
Property, equipment and leasehold improvements,
net 62.4 133.2 -- 195.6
Goodwill, net -- 26.5 -- 26.5
Other assets 15.6 1.4 -- 17.0
Investment in subsidiaries 25.1 -- (25.1) --
Intercompany receivable 455.8 -- (455.8) --
------- -------- --------- -------
Total assets $ 800.5 $ 470.9 $ (480.9) $ 790.5
======= ======== ========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 131.6 $ 9.3 $ -- $ 140.9
Accrued expenses 112.8 (32.4) -- 80.4
------- -------- --------- -------
Total current liabilities 244.4 (23.1) -- 221.3
Long-term debt 276.2 -- -- 276.2
Deferred income taxes 14.4 9.3 -- 23.7
Other long-term liabilities 5.1 3.8 -- 8.9
Intercompany payable -- 455.8 (455.8) --
Shareholders' equity:
Common stock 1.0 -- -- 1.0
Additional paid-in capital 109.7 -- -- 109.7
Unamortized restricted stock awards (0.3) -- -- (0.3)
Retained earnings 192.5 25.1 (25.1) 192.5
Accumulated other comprehensive loss (3.1) -- -- (3.1)
------- -------- --------- -------
299.8 25.1 (25.1) 299.8
Treasury stock, at cost (39.4) -- -- (39.4)
------- -------- --------- -------
Total shareholders' equity 260.4 25.1 (25.1) 260.4
------- -------- --------- -------
Total liabilities and shareholders' equity $ 800.5 $ 470.9 $ (480.9) $ 790.5
======= ======== ========= =======
Page 9
NOTE 6 - CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
CONSOLIDATING BALANCE SHEETS
FEBRUARY 2, 2002
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------
(Dollars in millions)
ASSETS
Current assets:
Cash and temporary cash investments $ 17.5 $ 3.6 $ -- $ 21.1
Inventories 152.8 216.2 -- 369.0
Prepaid expenses and other current assets 35.8 12.3 -- 48.1
------- -------- --------- ---------
Total current assets 206.1 232.1 -- 438.2
Property, equipment and leasehold improvements,
net 64.7 145.4 -- 210.1
Goodwill, net -- 26.5 -- 26.5
Other assets 17.3 1.6 -- 18.9
Investment in subsidiaries 3.6 -- (3.6) --
Intercompany receivable 418.0 -- (418.0) --
------- -------- --------- ---------
Total assets $ 709.7 $ 405.6 $ (421.6) $ 693.7
======= ======== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 122.7 $ 0.4 $ -- $ 123.1
Accrued expenses 111.2 (28.9) -- 82.3
------- -------- --------- ---------
Total current liabilities 233.9 (28.5) -- 205.4
Long-term debt 223.7 -- -- 223.7
Deferred income taxes 14.6 9.0 -- 23.6
Other long-term liabilities 4.7 3.5 -- 8.2
Intercompany payable -- 418.0 (418.0) --
Shareholders' equity:
Common stock 0.9 -- -- 0.9
Additional paid-in capital 99.7 -- -- 99.7
Unamortized restricted stock awards (0.6) -- -- (0.6)
Retained earnings 172.9 3.6 (3.6) 172.9
Accumulated other comprehensive loss (3.0) -- -- (3.0)
------- -------- --------- ---------
269.9 3.6 (3.6) 269.9
Treasury stock, at cost (37.1) -- -- (37.1)
------- -------- --------- ---------
Total shareholders' equity 232.8 3.6 (3.6) 232.8
------- -------- --------- ---------
Total liabilities and shareholders' equity $ 709.7 $ 405.6 $ (421.6) $ 693.7
======= ======== ========= =========
Page 10
NOTE 6 - CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
CONSOLIDATING STATEMENTS OF OPERATIONS
THIRTEEN WEEKS ENDED NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
NOVEMBER 2, 2002
---------------------------------------------------
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
(Dollars in millions)
Net sales $ 236.0 $ 335.0 $ (140.9) $ 430.1
Cost of sales 139.4 234.2 (140.9) 232.7
-------- -------- -------- --------
Gross margin 96.6 100.8 -- 197.4
Selling, general and administrative expenses 86.3 80.6 -- 166.9
Depreciation and amortization 3.3 5.8 -- 9.1
-------- -------- -------- --------
Operating profit 7.0 14.4 -- 21.4
Interest expense 2.8 4.3 -- 7.1
-------- -------- -------- --------
Income before income taxes 4.2 10.1 -- 14.3
Income tax provision (benefit) 5.5 (0.1) -- 5.4
-------- -------- -------- --------
Income (loss) before equity income (1.3) 10.2 -- 8.9
Equity income from subsidiaries 10.2 -- (10.2) --
-------- -------- -------- --------
Net income $ 8.9 $ 10.2 $ (10.2) $ 8.9
======== ======== ======== ========
NOVEMBER 2, 2002
---------------------------------------------------
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
(Dollars in millions)
Net sales $227.2 $423.4 $ (237.6) $ 413.0
Cost of sales 139.4 328.6 (237.6) 230.4
------ ------ -------- -------
Gross margin 87.8 94.8 -- 182.6
Selling, general and administrative expenses 104.1 78.3 -- 182.4
Depreciation and amortization 3.7 6.2 -- 9.9
------ ------ -------- -------
Operating profit (loss) (20.0) 10.3 -- (9.7)
Interest expense 4.1 4.5 -- 8.6
------ ------ -------- -------
Income (loss) before income taxes (24.1) 5.8 -- (18.3)
Income tax benefit (7.0) -- -- (7.0)
------ ------ -------- -------
Income (loss) before equity income (17.1) 5.8 -- (11.3)
Equity income from subsidiaries 5.8 -- (5.8) --
------ ------ -------- -------
Net income (loss) $(11.3) $ 5.8 $ (5.8) $ (11.3)
====== ====== ======== =======
Page 11
NOTE 6 - CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
CONSOLIDATING STATEMENTS OF OPERATIONS
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
NOVEMBER 2, 2002
--------------------------------------------------
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
(Dollars in millions)
Net sales $632.1 $ 883.9 $(359.8) $1,156.2
Cost of sales 367.4 598.8 (359.8) 606.4
------ -------- ------- --------
Gross margin 264.7 285.1 -- 549.8
Selling, general and administrative expenses 236.1 235.0 -- 471.1
Depreciation and amortization 9.8 17.2 -- 27.0
------ -------- ------- --------
Operating profit 18.8 32.9 -- 51.7
Interest expense 8.4 11.7 -- 20.1
------ -------- ------- --------
Income before income taxes 10.4 21.2 -- 31.6
Income tax provision (benefit) 12.3 (0.3) -- 12.0
------ -------- ------- --------
Income (loss) before equity income (1.9) 21.5 -- 19.6
Equity income from subsidiaries 21.5 -- (21.5) --
------ -------- ------- --------
Net income $ 19.6 $ 21.5 $ (21.5) $ 19.6
====== ======== ======= ========
NOVEMBER 2, 2002
--------------------------------------------------
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------
(Dollars in millions)
Net sales $585.1 $1,110.8 $(623.8) $1,072.1
Cost of sales 360.1 862.9 (623.8) 599.2
------ -------- ------- --------
Gross margin 225.0 247.9 -- 472.9
Selling, general and administrative expenses 250.8 221.5 -- 472.3
Depreciation and amortization 11.8 17.9 -- 29.7
------ -------- ------- --------
Operating profit (loss) (37.6) 8.5 -- (29.1)
Interest expense 10.8 13.7 -- 24.5
------ -------- ------- --------
Loss before income taxes (48.4) (5.2) -- (53.6)
Income tax benefit (20.2) (0.2) -- (20.4)
------ -------- ------- --------
Loss before equity loss and extraordinary
item (28.2) (5.0) -- (33.2)
Equity loss from subsidiaries (5.0) -- 5.0 --
------ -------- ------- --------
Loss before extraordinary item (33.2) (5.0) 5.0 (33.2)
Extraordinary item, net of tax benefit (0.6) -- -- (0.6)
------ -------- ------- --------
Net loss $(33.8) $ (5.0) $ 5.0 $ (33.8)
====== ======== ======= ========
Page 12
NOTE 6 - CONSOLIDATING FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
CONSOLIDATING STATEMENTS OF CASH FLOWS
THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
NOVEMBER 2, 2002
--------------------------------------------------
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
(Dollars in millions)
Net cash (used for) provided by operating activities $(49.8) $ 3.5 $ -- $(46.3)
Net cash flows used for investing activities:
Capital expenditures (8.9) (3.5) -- (12.4)
------ ------ ------ ------
Net cash used for investing activities (8.9) (3.5) -- (12.4)
Net cash flows provided by financing activities:
Net increase in credit facilities 79.6 -- -- 79.6
Repurchase sub notes (28.3) -- -- (28.3)
Other, net 7.9 -- -- 7.9
------ ------ ------ ------
Net cash provided by financing activities 59.2 -- -- 59.2
------ ------ ------ ------
Net increase in cash 0.5 -- -- 0.5
Cash and temporary cash investments at beginning of
period 17.5 3.6 -- 21.1
------ ------ ------ ------
Cash and temporary cash investments at end of period $ 18.0 $ 3.6 $ -- $ 21.6
====== ====== ====== ======
NOVEMBER 2, 2002
--------------------------------------------------
GUARANTOR
PARENT SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------
(Dollars in millions)
Net cash (used for) provided by operating activities $(93.2) $ 52.6 $ -- $(40.6)
Net cash flows used for investing activities:
Capital expenditures (8.3) (52.1) -- (60.4)
Other, net (1.3) 0.2 -- (1.1)
------ ------- ------
Net cash used for investing activities (9.6) (51.9) -- (61.5)
Net cash flows provided by financing activities:
Net increase in credit facilities 116.0 -- -- 116.0
Other, net (2.3) -- -- (2.3)
------ ------- ------- ------
Net cash provided by financing activities 113.7 -- -- 113.7
------ ------- ------- ------
Net increase in cash 10.9 0.7 -- 11.6
Cash and temporary cash investments at beginning of
period 13.8 3.7 -- 17.5
------ ------- ------- ------
Cash and temporary cash investments at end of period $ 24.7 $ 4.4 $ -- $ 29.1
====== ======= ======= ======
Page 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
As part of our previously announced turnaround plan, we undertook a
comprehensive review of our existing store base. We evaluated all of our stores
based on return on investment parameters and decided to close those stores that
were under-performing relative to our required performance levels. During fiscal
2001 and 2002, we identified a total of 144 traditional stores for closing. In
addition, we identified four superstores to downsize or buyout the remaining
lease obligations. A total of $26.4 million in pre-tax charges were recorded for
these 148 store closings (the "Store Closing Charges") in fiscal 2001 and 2002.
The Store Closing Charges included asset write-downs associated with the
identified stores and the estimated closing costs for stores whose closings will
be completed by the end of this fiscal year. Through the end of the third
quarter of fiscal 2003, 97 of the 148 stores identified for closing have been
closed, and we expect to close 23 additional stores during the balance of fiscal
2003. The balance of the stores identified for closing are expected to close in
fiscal 2004.
Of the $26.4 million in Store Closing Charges, $6.7 million for 42
store closings was recorded during the fourth quarter of fiscal 2001, and $19.7
million for 106 store closings was recorded during the third quarter of fiscal
2002. The majority of the $19.7 million charge, $17.1 million, is recorded in
selling, general and administrative expenses ("SG&A") with the balance, $2.6
million, recorded in cost of sales.
For comparability purposes, the following table sets forth the
statement of operations as a percentage of net sales, excluding last year's
$19.7 million store closing charge.
PERCENTAGE OF NET SALES
-----------------------
13 WEEKS ENDED 39 WEEKS ENDED
-------------- --------------
NOV 2, 2002 NOV 3, 2001 NOV 2, 2002 NOV 3, 2001
----------- ----------- ----------- -----------
Net Sales 100.0% 100.0% 100.0% 100.0%
Gross margin 45.9 44.8 47.6 44.4
Selling, general and administrative expenses 38.8 40.0 40.7 42.5
Depreciation and amortization 2.1 2.4 2.4 2.8
--- --- --- ----
Operating profit 5.0% 2.4% 4.5% (0.9)%
=== === === ====
To provide a more meaningful comparison of operating performance
between fiscal years, the following discussion excludes the impact of the $19.7
million store closing charge. This Management's Discussion and Analysis of
Financial Condition and Results of Operations should be read in conjunction with
our consolidated financial statements and related notes thereto.
COMPARISON OF THE THIRTEEN WEEKS ENDED NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
Net sales for the third quarter of fiscal 2003 increased 4.1%, or $17.1
million, to $430.1 million from $413.0 million in the prior year. Sales from
stores open one year or more ("same-store sales") increased 6.5% for the third
quarter of fiscal 2003 compared with a same-store sales increase of 8.0% for the
prior year third quarter. Same-store sales generated substantially all of the
overall sales increase for the quarter, as we operated 33 fewer stores at the
end of the third quarter this year versus the prior year. At November 2, 2002,
we operated 870 traditional stores and 71 superstores versus 904 traditional
stores and 70 superstores on November 3, 2001.
By store format, our same-store sales performance for traditional
stores increased 6.2% for the quarter, driven entirely by an increase in average
ticket. Same-store sales for superstores increased 7.6% for the quarter, with
approximately 70% of the increase coming from increased customer traffic and the
balance from an increase in average ticket. We attribute the improvement in
same-store sales to improved
Page 14
merchandising initiatives as well as an improved inventory in-stock position on
key basic items and advertised items in our stores. All major product lines
achieved positive same-store sales gains, with particular strength in the core
segments of our business: sewing and home decorating.
As a percent of net sales, gross margin was 45.9% for the third quarter
of fiscal 2003 compared with 44.8% for the same quarter a year earlier, an
increase of 110 basis points. This increase was driven by improvements in store
shrink rates (100 basis points) and the absence of the non-recurring impact of
clearance sales recorded at zero gross margin (150 basis points) during the
prior year from our SKU Reduction Initiative ($13.0 million of sales in the
prior year third quarter at zero margin dollars). These improvements to gross
margin were partially offset by lower realized margins on sales of certain
seasonal product. Overall, selling gross margins, excluding the SKU Reduction
Initiative, were down approximately 140 basis points in the third quarter
against last year, as a result of the higher level of promotional activity to
sell-through summer, fall and Halloween seasonal product.
SG&A expenses were $166.9 million in the third quarter of fiscal 2003
versus $165.3 million in the same period of the prior year. As a percentage of
sales, SG&A expenses decreased 120 basis points to 38.8% of net sales, versus
40.0% of net sales for the third quarter of fiscal 2002. This decrease was due
to positive expense leverage realized in store expenses, with strong cost
controls complementing the favorable impact of improved same-store sales growth.
Depreciation and amortization expense decreased $0.8 million to $9.1
million from $9.9 million. This decrease is attributable to discontinuing
goodwill amortization, pursuant to the adoption of SFAS No. 142, and a slowdown
in our capital expenditures.
Operating income for the third quarter of fiscal 2003 was $21.4
million, compared to an operating income of $10.0 million for the third quarter
of fiscal 2002.
Interest expense in the third quarter of fiscal 2003 decreased $1.5
million to $7.1 million from $8.6 million in the third quarter of fiscal 2002.
The decrease is due to the impact of a lower average interest rate and lower
average borrowings. During the third quarter we repurchased, in the open market,
$7.4 million of our 10-3/8% subordinated notes at a purchase price of
approximately 4.7% over par. The premium we paid on the purchase plus a pro-rata
portion of the capitalized deferred finance charges, totaling $0.5 million
pre-tax, $0.3 million after-tax or $0.02 per share, was written off during the
third quarter. These charges were recorded in SG&A expense. Average borrowings
for the third quarter of fiscal 2003 decreased $54 million, to $173 million from
$227 million in the prior year third quarter. The decrease in average borrowings
is due to improved operating performance, as well as a reduction in average
working capital of $20 million year-over-year.
Our effective income tax rate of 38.0% for the third quarter of fiscal
2003 was consistent with the rate for the third quarter of fiscal 2002.
COMPARISON OF THE THIRTY-NINE WEEKS ENDED NOVEMBER 2, 2002 AND NOVEMBER 3, 2001
Net sales for the first three quarters of fiscal 2003 increased 7.8%,
or $84.1 million, to $1,156.2 million from $1,072.1 million in the prior year.
Same-store sales increased 9.0% for the fiscal 2003 third quarter year-to-date
compared with a same-store sales increase of 5.2% for the same period in the
prior year. Same-store sales generated substantially all of the overall sales
increase, as we operated 33 fewer stores at the end of the third quarter this
year than a year ago.
By store format, our same-store sales performance for traditional
stores increased 8.9% year-to-date, with approximately 80% of the increase
coming from average ticket and the balance from an increase in customer count.
Same-store sales for superstores, which accounted for 25% of total revenues
year-to-date,
Page 15
increased 9.5% year-to-date with the increase split evenly between higher
average ticket and increased customer traffic. We attribute the improvement in
same-store sales to improved merchandising initiatives as well as an improved
inventory in-stock position on key basic items and advertised items in our
stores, as well as strong sales trends in our sewing and home decor businesses.
As a percent of net sales, gross margin was 47.6% for the third quarter
year-to-date of fiscal 2003 compared with 44.4% for the third quarter
year-to-date of fiscal 2002, an increase of 320 basis points. This increase was
driven by higher realized selling margins in a majority of our product
categories due to improved merchandising initiatives, the non-recurring impact
of clearance sales recorded at zero margin during the prior year from our SKU
Reduction Initiative ($30.0 million of sales in the prior year), as well as
improvements in store shrink rates. Approximately 140 basis points of the
improvement related to the non-recurring impact of the clearance sales, while
improvement in the store shrink rate accounted for another 140 basis points.
SG&A expenses were $471.1 million for the third quarter year-to-date of
fiscal 2003 versus $455.2 million in the same period of the prior year. As a
percentage of sales, SG&A expenses decreased 170 basis points to 40.7% of net
sales versus 42.5% of net sales for the same period of fiscal 2002. This
decrease was due to positive expense leverage realized primarily in store
expenses, with strong cost controls complementing the favorable impact of
improved same-store sales growth.
Depreciation and amortization expense in the third quarter year-to-date
of fiscal 2003 decreased $2.7 million to $27.0 million from $29.7 million. This
decrease is attributable to discontinuing goodwill amortization, pursuant to the
adoption of SFAS No. 142, and a slowdown in our capital expenditures.
Operating income for the third quarter year-to-date of fiscal 2003 was
$51.7 million, compared to an operating loss of $9.4 million for the third
quarter year-to-date of fiscal 2002.
Interest expense in the third quarter year-to-date of fiscal 2003
decreased $4.4 million to $20.1 million from $24.5 million in the same period of
fiscal 2002. The decrease is due to the impact of a lower average interest rate
and lower average borrowings. During the third quarter year-to-date of fiscal
2003 we repurchased, in the open market, $27.1 million of our 10-3/8%
subordinated notes at a purchase price of approximately 4.3% over par. The
premium we paid on the purchase plus a pro-rata portion of the capitalized
deferred finance charges totaling $1.9 million pre-tax, $1.2 million after-tax
or $0.06 per share, were written off and recorded in SG&A expense. Average
borrowings for fiscal 2003 year-to-date decreased $69 million to $115 million
from $184 million in the prior year. The decrease in average borrowings is due
to improved operating performance, as well as a reduction in average working
capital of $26 million year-over-year.
Our effective income tax rate of 38.0% for the third quarter
year-to-date of fiscal 2003 was consistent with the rate for the third quarter
year-to-date of fiscal 2002.
In the first quarter of the prior year, we entered into a new $365
million senior secured credit facility (Credit Facility). Deferred finance
charges written-off under the prior senior credit facility totaled $0.6 million
after-tax, or $0.03 per diluted share, and were recorded as an extraordinary
item.
LIQUIDITY AND CAPITAL RESOURCES
We believe that our Credit Facility, coupled with cash on hand and cash
from operations, will be sufficient to cover our working capital, capital
expenditure and debt service requirement needs for the foreseeable future.
Page 16
Cash, including temporary cash investments, increased $0.5 million
during the first three quarters of fiscal 2003 to $21.6 million as of November
2, 2002.
Net cash used by operating activities was $46.3 million, compared with
$40.6 million in the first three quarters of fiscal 2002. Inventories, net of
payables support, increased $96.6 million in the first three quarters of fiscal
2003, compared with an increase of $28.6 million in the first three quarters of
the prior year. Inventory typically builds during the first three quarters of
the fiscal year as we build for the peak selling season in the fourth quarter.
The current year increase in inventory levels of $96.6 million represents a more
normalized level of seasonal inventory build for the fourth quarter selling
season. The smaller increase in the prior year is attributable to the successful
execution of our plans to reduce overall inventory levels through the
combination of the SKU Reduction Initiative and better utilization of the
forecasting and replenishment capabilities aided by the SAP system. Inventory
balances at the end of the third quarter for fiscal 2003 and 2002 totaled $483.4
million and $467.1 million, respectively.
Net cash used for investing activities totaled $12.4 million compared
with $61.5 million in the first three quarters of fiscal 2002. Capital
expenditures in the first three quarters of fiscal 2003 totaled $12.4 million
and related primarily to store projects. Capital expenditures in fiscal 2002
totaled $60.4 million and included approximately $40.0 million related to the
unwinding of a synthetic lease facility. The synthetic lease facility was used
to finance the construction of our West Coast distribution center and was
replaced by the term portion of our Credit Facility.
Capital spending for the full year fiscal 2003 is anticipated to be
approximately $20 million. This capital spending level represents our lowest
capital budget in six years, as we limit capital spending to focus on our
previously communicated strategy of further debt reduction. We have no material
commitments in connection with our planned capital expenditures.
During the first three quarters of fiscal 2003, we opened one new
superstore, we relocated three traditional stores and closed 19 smaller or
under-performing traditional stores. For the balance of the year, we expect to
close 23 additional stores and to convert two large traditional stores to the
new superstore format. All stores closed or to be closed in the current year are
store locations that were identified for closing in fiscal year 2002 as part of
our turnaround plan and were included in the Store Closing Charge.
Net cash provided by financing activities was $59.2 million compared
with $113.7 million in the first three quarters of fiscal 2002, reflecting
approximately a $54 million reduction in borrowings under our Credit Facility
between quarters, due to our improved operating performance and continued focus
on working capital management. We expect to reduce our year-end debt levels at
the end of fiscal 2003 by approximately $50 million from our year-end fiscal
2002 levels of $223.7 million.
BUSINESS OUTLOOK
We expect to generate between $2.00 to $2.10 in net income per diluted
share in fiscal 2003. This earnings per share guidance is predicated upon
approximately 20.2 million fully diluted shares outstanding. We raised our
earlier provided guidance due to our third-quarter performance and a reduction
in our estimated shares outstanding. Same-store sales growth is expected to
approximate 2-3% for the fourth quarter.
Much more difficult same-store sales comparisons exist in the fourth
quarter than earlier this fiscal year (last year's same-store sales increased
7.4% in the fourth quarter). The fourth quarter performance last year benefited
from mild weather and six additional selling days between Thanksgiving and
Christmas. Last year, virtually no store days were lost due to inclement winter
weather.
The operating margin rate is expected to be flat or slightly down for
the fourth quarter versus last year. We do not expect any improvement in gross
margin rate; in fact, we may experience some rate
Page 17
pressure if the retail environment continues to become increasingly competitive.
In addition, with a lower store count and a modest same-store sales increase
expected for the fourth quarter, we do not expect to achieve any leverage in our
SG&A expense rate in the quarter.
SEASONALITY AND INFLATION
Our business exhibits seasonality, which is typical for most retail
companies. Our net sales are much stronger in the second half of the year than
the first half of the year. Net earnings are highest during the months of
September through December when sales volumes provide significant operating
leverage. Capital requirements needed to finance our operations fluctuate during
the year and reach their highest levels during the second and third fiscal
quarters as we increase our inventory in preparation for our peak selling
season.
We believe that inflation has not had a significant effect on net sales
or net income. There can be no assurance, however, that our operating results
will not be affected by inflation in the future.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical
facts are forward-looking statements that are subject to certain risks and
uncertainties. When used herein, the terms "anticipates," "plans," "estimates,"
"expects," "believes," and similar expressions as they relate to us are intended
to identify such forward-looking statements. Our actual results, performance or
achievements may materially differ from those expressed or implied in the
forward-looking statements. Risks and uncertainties that could cause or
contribute to such material differences include, but are not limited to, general
economic conditions, changes in customer demand, changes in trends in the fabric
and craft industry, seasonality, the availability of merchandise, changes in the
competitive pricing for products, and the impact of our and our competition's
store openings and closings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We use derivative financial instruments at various times to manage the
risk associated with interest rate fluctuations. We are subject to risk
resulting from interest rate fluctuations, as interest on our credit facility is
based on variable rates. Our objective in managing our interest rate exposure is
to limit the impact of interest rate changes on earnings and cash flows.
Interest rate swaps are primarily utilized to achieve this objective,
effectively converting a portion of our variable-rate exposures to fixed
interest rates (See Note 4 - Fair Value of Derivative Financial Instruments).
ITEM 4. CONTROLS AND PROCEDURES
Within the 90 days prior to the date this Form 10-Q was filed with the
Securities and Exchange Commission, we carried out an evaluation, under the
supervision and with the participation of our management, including the Chairman
and Chief Executive Officer along with the Chief Financial Officer and Chief
Accounting Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in Exchange Act Rule 13a-14c and
15d-14c). Based upon that evaluation, our Chairman and Chief Executive Officer
along with our Chief Financial Officer and Chief Accounting Officer concluded
that our disclosure controls and procedures are effective in timely alerting
them to material information relating to the Company and its consolidated
subsidiaries required to be included in our periodic reports filed with the SEC.
There have been no significant changes in our internal controls or in other
factors that could significantly affect internal controls subsequent to the date
we carried out the evaluation.
Page 18
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are involved in various litigation matters in the ordinary course
of our business. We are not currently involved in any litigation which we
expect, either individually or in the aggregate, to have a material adverse
effect on our financial condition or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not Applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable.
ITEM 5. OTHER INFORMATION
Not Applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 99.1 - Section 906 Certificate of Principal Executive
Officer
Exhibit 99.2 - Section 906 Certificate of Principal Financial
Officer
b) Reports on Form 8-K
Not Applicable.
Page 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JO-ANN STORES, INC.
DATE: December 17, 2002 /s/ Alan Rosskamm
-----------------
Alan Rosskamm,
President and Chief Executive Officer
/s/ Brian P. Carney
-------------------
Brian P. Carney,
Executive Vice President and Chief
Financial Officer
Page 20
CERTIFICATION BY CHIEF EXECUTIVE OFFICER
I, Alan Rosskamm, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Jo-Ann Stores,
Inc. (the "Registrant");
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this Quarterly Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this Quarterly Report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this Quarterly Report (the "Evaluation
Date"); and
c) Presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of Registrant's board of directors (or
persons performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in
this Quarterly Report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: December 17, 2002
/s/ Alan Rosskamm
Alan Rosskamm,
President and Chief Executive Officer
Page 21
CERTIFICATION BY CHIEF FINANCIAL OFFICER
I, Brian P. Carney, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Jo-Ann Stores,
Inc. (the "Registrant");
2. Based on my knowledge, this Quarterly Report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this Quarterly Report;
3. Based on my knowledge, the financial statements, and other financial
information included in this Quarterly Report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Registrant as of, and for, the periods presented
in this Quarterly Report;
4. The Registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant
and we have:
a) Designed such disclosure controls and procedures to ensure
that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this Quarterly Report is being prepared;
b) Evaluated the effectiveness of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this Quarterly Report (the "Evaluation
Date"); and
c) Presented in this Quarterly Report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The Registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the Registrant's auditors
and the audit committee of Registrant's board of directors (or
persons performing the equivalent function):
a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
Registrant's ability to record, process, summarize and report
financial data and have identified for the Registrant's
auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Registrant's internal controls; and
6. The Registrant's other certifying officer and I have indicated in
this Quarterly Report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: December 17, 2002
/s/ Brian P. Carney
Brian P. Carney,
Executive Vice President and Chief
Financial Officer
Page 22