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 30, 2010
Commission File
No. 1-6695
JO-ANN STORES, INC.
(Exact name of Registrant as
specified in its charter)
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Ohio
(State or other jurisdiction
of
incorporation or organization)
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34-0720629
(I.R.S. Employer Identification
No.)
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5555 Darrow Road, Hudson, Ohio
(Address of principal executive
offices)
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44236
(Zip Code)
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Registrants telephone number, including area code:
(330) 656-2600
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Common Shares, Without Par Value
Common Share Purchase Rights
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New York Stock Exchange
New York Stock Exchange
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Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
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 þ No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrants knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer þ
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act.): Yes o No þ
The aggregate market value of the common stock of the registrant
held by non-affiliates of the registrant as of August 1,
2009 was $570.6 million, based upon the closing sales price
of the registrants common stock on that date as reported
on the New York Stock Exchange. All executive officers and
directors of the registrant have been deemed, solely for the
purpose of the foregoing calculation, to be
affiliates of the registrant.
The number of the registrants Common Shares outstanding,
as of April 1, 2010, was 27,311,007.
Documents incorporated by reference: Portions of the following
documents are incorporated by reference:
Proxy Statement for 2010 Annual Meeting of
Shareholders Items 10, 11, 12, 13 and 14 of
Part III.
PART I
Except as otherwise stated, the information contained in this
report is given as of January 30, 2010, the end of our
latest fiscal year. The words Jo-Ann Stores, Inc.,
Jo-Ann Stores, Jo-Ann Fabrics and
Crafts, Jo-Ann Fabric and Craft Stores,
Joann.com, Registrant,
company, we, our and
us refer to Jo-Ann Stores, Inc. and, unless the
context requires otherwise, to our subsidiaries. Jo-Ann Stores,
Inc. is an Ohio corporation, founded in 1943. Our fiscal year
ends on the Saturday closest to January 31 and refers to the
year in which the period ends (e.g., fiscal 2010 refers to the
period ended January 30, 2010). Fiscal years consist of
52 weeks, unless noted otherwise.
We are the nations largest specialty retailer of fabrics
and one of the largest specialty retailers of crafts, serving
customers in their pursuit of apparel and craft sewing,
crafting, home decorating and other creative endeavors. Our
retail stores (operating as Jo-Ann Fabric and Craft
stores and Jo-Ann stores) and website (www.Joann.com)
feature a variety of competitively priced merchandise used in
sewing, crafting and home decorating projects, including
fabrics, notions, crafts, frames, paper crafting material,
artificial floral, home accents, finished seasonal and home
décor merchandise.
We consider stores that generally average more than
approximately 24,000 square feet of retail space as
large-format stores. Our small-format stores generally average
less than approximately 24,000 square feet. The size of the
store is not the only factor in determining its classification
as large-format or small-format. The most important distinction
for determining the classification of a large-format store is
whether or not stores in the range have been recently built or
remodeled and contain a broad assortment of craft categories.
As of January 30, 2010, we operated 746 stores in
48 states (518 small-format stores and 228 large-format
stores). Our small-format stores offer a complete selection of
fabric and a convenience assortment of crafts, artificial
floral, finished seasonal and home décor merchandise. They
average approximately 14,700 square feet and generated
average net sales per store of approximately $1.7 million
in fiscal 2010. We opened five small-format stores in fiscal
2010. Our large-format stores offer an expanded and more
comprehensive product assortment than our small-format stores.
Our large-format stores also generally offer custom framing and
educational programs that our small-format stores do not. They
average approximately 36,500 square feet and generated
average net sales per store of approximately $4.7 million
in fiscal 2010. We opened 15 large-format stores in fiscal 2010.
We provide a one-stop shopping experience for craft and sewing
projects under one roof, with employees who are encouraged to
advise customers in creating and completing creative projects.
Many of our store level employees are sewing
and/or
crafting enthusiasts, which we believe enables them to provide
exceptional customer service. We believe our focus on service
contributes to a high proportion of repeat business from our
customers.
We believe that our large-format stores are uniquely designed to
offer a destination location for our customers. We offer
approximately 70,000 stock-keeping units (SKUs)
across two broad product categories: sewing and non-sewing
merchandise. We manage our vast product selection with SAP
Retail systems. Through the core SAP application and integration
with peripheral processing systems, we continue to drive
operational improvements and streamline operations. During
fiscal 2010, we completed an implementation of the JDA
Demand & Fulfillment system, enhancing our merchandise
management portfolio of merchandise planning, space planning and
product replenishment.
Our industry is highly fragmented and is served by multi-store
fabric retailers, arts and crafts retailers, mass merchandisers,
small local specialty retailers, mail order and Internet vendors
and a variety of other retailers. The Craft & Hobby
Association estimates that the craft and hobby industry sales in
the United States are approximately $30 billion annually.
We believe stability in our sales and our industry is partially
a function of recession-resistant characteristics. For example,
according to a 2009 study conducted by the Craft &
Hobby Association, approximately 56 percent of all
U.S. households participated in crafts and hobbies, flat
compared to the prior year. While
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expenditures for such projects are generally discretionary in
nature, our average sales ticket during fiscal 2010 was $23 in
our large-format stores and $19 in our small-format stores.
Business
Strategy
The following core objectives serve as the foundation of our
operational and merchandising initiatives:
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Improve the customer shopping experience. We
are committed to improving the customer shopping experience by
removing excess inventory and clutter from our stores, raising
expectations for store cleanliness, improving our in-stock
availability of basic merchandise and improving our customer
service.
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Enhance our marketing and merchandising
offers. We will drive sales growth by enhancing
our marketing and merchandising offers. Marketing enhancements
include changes in the appearance, content and distribution of
our advertising. We will continue to consider new vendor
programs. We will continue to improve our plan-o-gram processes
in order to offer compelling and fresh product assortments that
inspire customers. We will continue to make tighter buys on
fashion and seasonal items for faster turns and improved margins.
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Refine our store development programs. We will
continue to refine our new store programs in order to generate
better performance from new stores. In addition, we will
continue to refine our remodel programs in order to generate
better performance from our small-format stores and older
large-format stores.
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We have completed the following operational and merchandising
initiatives, which were developed from our core objectives:
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Implementation of technology.
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During fiscal 2009, we completed the implementation of a new
point-of-sale
and store systems SAP Retail package, including new human
resources and workforce management applications. The new package
has provided additional functionality for managing markdowns,
the ability to offer new promotional capabilities to enhance
margins and payroll efficiencies.
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During fiscal 2010, we completed an implementation of the JDA
Demand & Fulfillment system, enhancing our merchandise
management portfolio of merchandise planning, space planning and
product replenishment.
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Continued integration of our Joann.com Internet business.
Fiscal 2009 represented our first full year of
operations for Joann.com. During fiscal 2010, we improved and
enhanced the integration of our Internet business. We expect
that full integration of our Internet business will achieve
stronger synergies with our retail stores and provide an
additional outlet for marketing opportunities.
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Store remodel and optimization
programs. During fiscal 2009, we re-merchandised
approximately 200 of our small-format stores, over and above
those we had scheduled for remodels during that year. Our store
remodel and optimization programs continued to generate
incremental sales. During fiscal 2010, we re-merchandised
approximately 180 additional small-format stores. Our core
sewing and craft business delivered positive same-store sales,
even as the economy was deteriorating during fiscal 2009 and
into fiscal 2010.
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Our current operating priorities also stem from the above
objectives:
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Accelerate new store growth and remodel
projects. During fiscal 2010, we opened 20 stores
and remodeled 30 stores. We will increase our new store openings
to at least 30 during fiscal 2011. We then expect to increase
the number of new store openings by at least 10 stores per year
over each of the following four years, for a compounded annual
growth rate for retail square footage of about 2.5 percent
over the five-year period between fiscal 2011 and 2015. We also
plan to increase remodel activity in a similar fashion. We will
complete at least 40 remodels during fiscal 2011, plus an
incremental 10 projects per year over the following four years.
This new store and remodel program will result in
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95 percent of our store portfolio as either new or
remodeled within the past 10 years by the time we complete
fiscal 2015.
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Drive same-store sales. We intend to achieve
this priority by:
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Rolling out several dynamic new product assortments and
merchandising programs;
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Enhancing in-store presentations;
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Providing new branded quilt fabrics;
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Regionalizing fabric assortments;
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Performing strategic targeted marketing programs; and
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Focusing on in-store education and demonstrations.
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Margin expansion. We continue to believe
margin expansion provides a significant opportunity to improve
financial results. During fiscal 2010, we achieved margin
expansion primarily due to the following:
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Increased the percentage of products that we source directly
from Asia;
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Product cost deflation on products sourced from Asia;
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Decreased freight expense as a result of lower oil prices,
reducing our cost of sourcing products both globally and
domestically;
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Purchased significantly less fashion and seasonal merchandise in
fiscal 2010, reducing our exposure to promotional and clearance
markdowns; and
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Benefited from a full-year impact of the new store systems that
we rolled-out during fiscal 2009.
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During fiscal 2011, we expect further improvements in margin due
to continued expansion of direct sourcing of product from
overseas and the realization of benefits from operating for a
full year on the JDA Demand & Fulfillment system.
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Enhance management training. We have developed
a new management training program and will continue to expand
the program to enhance the skills of our store management teams.
We will implement a new performance management system that
provides on-line access to performance reviews, compensation
management and succession planning. In addition, we will
introduce a mystery shopper program to provide independent
feedback on store conditions and service, so we can react
quickly to address areas of opportunity.
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Enhance technology. Projects for fiscal 2011
will focus on rationalizing hardware infrastructure to reduce
information technology operating costs. We will update our
distribution center hardware and further enhance our
point-of-sale
and labor management applications.
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Product
Selection
The following table shows our net sales by principal product
line as a percentage of total net sales:
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Fiscal Year-Ended
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January 30,
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January 31,
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February 2,
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2010
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2009
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2008
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Principal product lines:
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Sewing
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52
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%
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51
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%
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50
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%
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Non-sewing
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48
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%
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49
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%
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50
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%
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Total
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100
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%
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100
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%
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100
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%
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3
Sewing
We offer a broad and comprehensive assortment of fabrics and
sewing accessories in both our small-format and large-format
stores. These fabrics are merchandised by end use and are
sourced from throughout the world to offer our customers a
combination of unique design, fashion forward trends and value.
Our stores are organized in the following categories for the
convenience of the sewer:
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fashion and sportswear fabrics, used primarily in the
construction of garments for the customer seeking a unique,
fashion forward look;
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special occasion fabrics used to construct evening wear, bridal
and special occasion outfits;
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craft fabrics used primarily in the construction of quilts,
craft and seasonal projects for the home;
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juvenile designs for the construction of garments, as well as
blankets and décor accessories;
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fleece fabrics in both prints and solids used for the
construction of sportswear, blankets and craft projects for the
home;
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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);
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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
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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.
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Non-sewing
We offer a broad assortment of non-sewing merchandise for the
creative enthusiast. Our large-format stores offer the complete
array of categories while our small-format stores, due to their
smaller size, carry edited assortments of the best-selling
items. We offer the following non-sewing selections in our
large-format stores:
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yarn and accessories, as well as needlecraft kits and supplies;
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paper crafting components, such as albums, papers, stickers,
stamps and books used in the popular home based activities of
scrapbooking and card making;
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craft materials, including items used for stenciling, jewelry
making, decorative painting, wall décor, food crafting and
kids crafting;
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fine art materials, including items such as pastels, water
colors, oil paints, acrylics, easels, brushes, paper and canvas;
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a comprehensive assortment of books and magazines to provide
inspiration for our customer;
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framed art, photo albums and ready-made frames and full service
in-store custom framing departments;
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floral products, including artificial flowers, dried flowers and
artificial plants, sold separately or in ready-made floral
arrangements and a broad selection of accessories essential for
floral arranging and wreath making; and
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home décor accessories including baskets, candles and
accent collections designed to complement our home décor
fashions.
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In addition to the basic categories described above, our stores
regularly feature seasonal products, which fit with our core
merchandising strategy. Our seasonal offerings span all product
lines and include finished decorations, gifts and accessories
that focus on holidays, as well as seasonal categories such as
patio/garden.
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During the Christmas selling season, a significant portion of
floor and shelf space is devoted to seasonal crafts, decorating
and gift-making merchandise. Due to the project-oriented nature
of these items, our peak selling season starts earlier than that
of other retailers and generally runs from September through
December. In fiscal 2010, approximately 56 percent of our
net sales occurred in the third and fourth quarters, and
approximately 30 percent occurred in the fourth quarter
alone.
During fiscal 2010, sewing and non-sewing net sales represented
44 percent and 56 percent of total net sales for our
large-format stores, respectively. Sewing and non-sewing net
sales represented 62 percent and 38 percent of total
net sales for our small-format stores for the same period,
respectively.
Marketing
Our marketing efforts are key to the ongoing success and growth
of our sales. Our primary focus is on acquiring and retaining
customers through an integrated direct and mass marketing
program.
We use our proprietary customer database to provide ongoing
communication to our best customers through a robust direct mail
and e-mail
program. This allows us to efficiently and effectively reach our
target market on a regular basis throughout the year. To drive
customer acquisition, we supplement our direct mail advertising
with weekly newspaper insert advertising, primarily in
large-format store markets. Our direct mail and newspaper
inserts showcase our sales events, feature numerous products
offered at competitive prices, and provide inspiration by
showcasing customers interacting with our products.
As we market the Jo-Ann Stores concept, we also focus on
developing long-term relationships with our customers. These
efforts include providing inspiration and building knowledge
through in-store classes, demonstrations and projects.
Our grand opening program plays an integral role in the
successful opening of each new store. We utilize our existing
customer base to build awareness and excitement in each market
around the opening of each new store. This is paired with
newspaper inserts, in-store promotions and public relations
efforts during the grand opening weekend to drive customer
traffic. We continue to drive customer awareness and traffic
following grand openings through ongoing advertising efforts in
the market.
We also reach our customers through our Joann.com
e-commerce
business. The website was upgraded in the fourth quarter of
fiscal 2010, resulting in significantly improved site stability
and performance. As part of the upgrade initiative, the site was
redesigned and re-launched with improved navigation, a more
visually compelling design, and increased emphasis on
inspiration through lifestyle imagery used to promote how
products might be used.
The Jo-Ann online community was also upgraded and re-launched.
The upgrade, which took place in the third quarter of fiscal
2010, addressed capacity issues, updated platform software and
brought the look, feel and branding of the community into
alignment with the
e-commerce
site. Like the
e-commerce
sites re-launch, this community upgrade improved stability
and performance for its community members, which grew from
40,000 members at the end of fiscal 2009 (having expanded from
approximately 11,500 at the beginning of fiscal 2009) to
just over 66,000 members by the closing of fiscal 2010.
Social networking is playing an increasingly significant role in
marketing, public relations and customer relations for Jo-Ann.
Facebook, which was originally utilized as an engagement tool to
share inspiration, promote sales, and introduce new products,
demonstrated added value during fiscal 2010 as a vehicle for
responding to customers when traditional customer service
relation channels were experiencing high volume. Facebook fans
grew from just under 800 at the start of fiscal 2010 to nearly
15,000 fans by year-end.
Purchasing
We have numerous domestic and international sources of supply
available for each category of product that we sell. During
fiscal 2010, approximately 77 percent of our purchases were
sourced domestically and 23 percent were sourced
internationally. As a percent of purchases, our international
sourcing decreased three percent from 26 percent in fiscal
2009, primarily due to our planned reduction in seasonal and
fashion
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purchases during fiscal 2010. However, we continue to increase
the amount of products we buy directly from factories in Asia,
rather than purchasing through domestic agents
and/or
trading companies. Our domestic suppliers source internationally
some of the products they sell to us. Although we have very few
long-term purchase commitments with any of our suppliers, we
strive to maintain continuity with them. All purchases are
centralized through our store support center, allowing store
team leaders and store team members to focus on customer sales
and service and enabling us to negotiate volume discounts,
control product mix and ensure quality. Currently, our top
supplier represents approximately three percent of our annual
purchase volume and the top ten suppliers represent
approximately 23 percent of our total annual purchase
volume. We currently utilize approximately 605 merchandise
suppliers, with the top 123 representing more than
80 percent of our purchasing volume.
Logistics
We operate three distribution centers in Hudson, Ohio, Visalia,
California and Opelika, Alabama, all of which ship merchandise
to our stores on a weekly basis. Based on purchase dollars,
approximately 77 percent of the products in our stores are
shipped through our distribution center network, with the
remaining 23 percent of our purchases shipped directly from
our suppliers to our stores. Approximately 45 percent of
our store base is supplied from the Hudson distribution center,
28 percent from our Visalia distribution center and
27 percent from our Opelika distribution center.
We transport product from our distribution centers to our stores
utilizing contract carriers. Merchandise is shipped directly
from our distribution centers to our stores using dedicated core
carriers for approximately 95 percent of our store base.
For the remainder of our chain, we transport product to the
stores using less than truckload carriers or through a regional
hub where product is cross-docked for local
delivery. We do not own either the regional hub or the local
delivery vehicles.
Store
Operations
Site Selection. We believe that our store
locations are integral to our success. New sites are selected
through a coordinated effort of our real estate, finance and
operations management teams. In evaluating the desirability of a
potential store site, we consider both market demographics and
site-specific criteria. Market criteria that we consider
important include, but are not limited to, our existing store
sales performance in that immediate market, distance to other
Jo-Ann store locations, as well as total population, number of
households, median household income, percentage of home
ownership versus rental, and historical and projected population
growth over a ten-year period. Site-specific criteria that we
consider important include, but are not limited to, rental
terms, the store location, position and visibility within the
shopping center, size of the shopping center, co-tenants,
proximity to highway access, traffic patterns, availability of
convenient parking and ease of entry from the major roadways
framing the location.
Costs of Opening Stores. Standard operating
procedures are employed to efficiently open new stores and
integrate them into our information management and distribution
systems. We have developed a standardized floor plan, inventory
layout and marketing program for each store that we open. We
typically open stores during the period from February through
October to maximize sales and to minimize disruption to store
operations during our fourth-quarter peak selling season.
Store Management. Small-format stores
generally have five full-time team members and 10 to
15 part-time team members, while large-format stores
typically have approximately nine full-time team members and 35
to 40 part-time team members. Store team leaders generally
are compensated with a base salary plus a bonus, which is tied
to quarterly store sales and annual store controllable profit.
Our store team leaders typically are promoted from within our
assistant manager ranks as a result of their high performance
and completion of our internal management training program. Some
of our store team leaders started as our customers. This
continuity serves to solidify long-standing relationships
between our stores and our customers. When a smaller store is
closed due to a new larger store opened in the market, we
generally retain its team members to staff the new store. Each
store is under the supervision of a district team leader who
reports to a regional vice president.
6
The following table shows our stores by type and state on
January 30, 2010:
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Small-
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Large-
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Small-
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Large-
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format
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format
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Total
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format
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format
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Total
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Alabama
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1
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1
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2
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Nebraska
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4
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4
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Alaska
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4
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2
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6
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Nevada
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2
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3
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5
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Arizona
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3
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10
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13
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New Hampshire
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8
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8
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Arkansas
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1
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1
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New Jersey
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11
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1
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12
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California
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59
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22
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81
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New Mexico
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6
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6
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Colorado
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8
|
|
|
|
6
|
|
|
|
14
|
|
|
New York
|
|
|
27
|
|
|
|
9
|
|
|
|
36
|
|
Connecticut
|
|
|
5
|
|
|
|
5
|
|
|
|
10
|
|
|
North Carolina
|
|
|
6
|
|
|
|
1
|
|
|
|
7
|
|
Delaware
|
|
|
2
|
|
|
|
1
|
|
|
|
3
|
|
|
North Dakota
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Florida
|
|
|
28
|
|
|
|
21
|
|
|
|
49
|
|
|
Ohio
|
|
|
34
|
|
|
|
18
|
|
|
|
52
|
|
Georgia
|
|
|
6
|
|
|
|
6
|
|
|
|
12
|
|
|
Oklahoma
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Idaho
|
|
|
7
|
|
|
|
1
|
|
|
|
8
|
|
|
Oregon
|
|
|
20
|
|
|
|
4
|
|
|
|
24
|
|
Illinois
|
|
|
21
|
|
|
|
12
|
|
|
|
33
|
|
|
Pennsylvania
|
|
|
30
|
|
|
|
12
|
|
|
|
42
|
|
Indiana
|
|
|
18
|
|
|
|
8
|
|
|
|
26
|
|
|
Rhode Island
|
|
|
|
|
|
|
1
|
|
|
|
1
|
|
Iowa
|
|
|
10
|
|
|
|
|
|
|
|
10
|
|
|
South Carolina
|
|
|
2
|
|
|
|
|
|
|
|
2
|
|
Kansas
|
|
|
6
|
|
|
|
2
|
|
|
|
8
|
|
|
South Dakota
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
Kentucky
|
|
|
3
|
|
|
|
1
|
|
|
|
4
|
|
|
Tennessee
|
|
|
|
|
|
|
5
|
|
|
|
5
|
|
Louisiana
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
|
Texas
|
|
|
22
|
|
|
|
14
|
|
|
|
36
|
|
Maine
|
|
|
4
|
|
|
|
1
|
|
|
|
5
|
|
|
Utah
|
|
|
6
|
|
|
|
4
|
|
|
|
10
|
|
Maryland
|
|
|
11
|
|
|
|
5
|
|
|
|
16
|
|
|
Vermont
|
|
|
4
|
|
|
|
|
|
|
|
4
|
|
Massachusetts
|
|
|
22
|
|
|
|
1
|
|
|
|
23
|
|
|
Virginia
|
|
|
19
|
|
|
|
4
|
|
|
|
23
|
|
Michigan
|
|
|
20
|
|
|
|
21
|
|
|
|
41
|
|
|
Washington
|
|
|
17
|
|
|
|
11
|
|
|
|
28
|
|
Minnesota
|
|
|
14
|
|
|
|
6
|
|
|
|
20
|
|
|
West Virginia
|
|
|
5
|
|
|
|
|
|
|
|
5
|
|
Mississippi
|
|
|
1
|
|
|
|
|
|
|
|
1
|
|
|
Wisconsin
|
|
|
14
|
|
|
|
5
|
|
|
|
19
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Missouri
|
|
|
8
|
|
|
|
3
|
|
|
|
11
|
|
|
Total
|
|
|
518
|
|
|
|
228
|
|
|
|
746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Montana
|
|
|
6
|
|
|
|
1
|
|
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table reflects the number of stores opened,
expanded or downsized and closed during each of the past five
fiscal years (square footage in thousands):
Total
Stores
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Fiscal
|
|
|
|
|
|
|
|
In Operation at
|
|
|
Expanded
|
|
|
Square Footage
|
|
Year
|
|
Opened
|
|
|
Closed
|
|
|
Year-End
|
|
|
or Downsized
|
|
|
at Year-End
|
|
|
2006
|
|
|
44
|
|
|
|
(57
|
)
|
|
|
838
|
|
|
|
|
|
|
|
16,198
|
|
2007
|
|
|
26
|
|
|
|
(63
|
)
|
|
|
801
|
|
|
|
|
|
|
|
16,215
|
|
2008
|
|
|
6
|
|
|
|
(33
|
)
|
|
|
774
|
|
|
|
1
|
|
|
|
15,932
|
|
2009
|
|
|
21
|
|
|
|
(31
|
)
|
|
|
764
|
|
|
|
1
|
|
|
|
16,002
|
|
2010
|
|
|
20
|
|
|
|
(38
|
)
|
|
|
746
|
|
|
|
1
|
|
|
|
15,943
|
|
Our new store opening costs depend on the building type, store
size and general cost levels in the geographical area. During
fiscal 2010, we opened 15 large-format stores with an average
size of approximately 27,900 square feet. Our average net
investment in a large-format store is approximately
$1.2 million, which includes leasehold improvements, net of
landlord allowances, furniture, fixtures and equipment,
inventory (net of payable support) and pre-opening expenses.
Five small-format stores were opened in fiscal 2010 with an
average size of approximately 19,500 square feet. Our
average net investment in a small-format store is
7
approximately $0.8 million, which includes leasehold
improvements, net of landlord allowances, furniture, fixtures
and equipment, inventory (net of payable support) and
pre-opening expenses.
During fiscal 2011, we expect to open approximately 30 new
stores and close approximately 30 stores. We also plan to
remodel at least 40 stores. As we accelerate our new store
growth, we will focus on a smaller prototype store. The average
size of our standard prototype will be approximately
22,000 square feet, with a small market or urban prototype
of approximately 15,000 square feet. During fiscal 2011,
the 30 new stores we expect to open will average
20,500 square feet, with 13 of the stores under
20,000 square feet.
Information
Technology
Our
point-of-sale
registers and scanning devices record the sale of product at a
SKU level at our stores. Those transactions are collected and
transmitted to our host systems throughout the day and interface
with both our financial and merchandising systems on a nightly
basis. Information obtained from item-level scanning through our
point-of-sale
system enables us to identify important trends, increase
in-stock levels of more popular SKUs, eliminate less profitable
SKUs, analyze product margins and generate data for the purpose
of evaluating our advertising and promotions.
We utilize handheld radio frequency devices for a variety of
store tasks including price
look-up,
perpetual inventory exception counting, merchandise receiving,
vendor returns and fabric sales processing. Our retail stores
are equipped with broadband communication and central
controllers, resulting in an enhanced customer checkout
experience and a better platform to further automate internal
store communications. Our in-store system allows us to provide
better customer service by increasing the speed and accuracy of
register checkout, enabling us to more rapidly restock
merchandise and efficiently re-price sale items.
We operate our core financial, merchandise, human resource and
retail processes on SAP Retail, complemented by point software
solutions for key business processes. During fiscal 2010, we
completed an implementation of the JDA Demand &
Fulfillment system, enhancing our merchandise management
portfolio of merchandise planning, space planning and product
replenishment. We also completed a redesign and upgrade of our
e-commerce
technologies, improving stability and providing a platform for
continued growth of our Joann.com business.
Status of Product
or Line of Business
During fiscal 2010, there was no public announcement nor is
there a public announcement anticipated about either a new
product line or line of business involving the investment of a
material portion of our assets.
Trademarks
We do business under trademarks for
Jo-Ann®,
Joann.com®,
Jo-Ann
ETC®,
Jo-Ann
Fabrics®,
Jo-Ann Fabric and Craft
Stores®,
Jo-Ann Fabrics &
Crafts®,
Jo-Ann Fabrics and
Crafts®,
and GoGreen Jo-Ann Fabric and Craft
Stores®,
and we also own numerous trademarks relating to our private
label products. We believe that our trademarks provide
significant value to our business.
Seasonal
Business
Our business exhibits seasonality that is typical for most
retail companies, with much stronger sales in the second half of
the year than in the first half of the year. Net earnings are
highest during the months of September through December when
sales volumes provide significant operating leverage. In fiscal
2010, approximately 56 percent of our net sales occurred in
the third and fourth quarters, and approximately 30 percent
occurred in the fourth quarter alone.
8
Customer
Base
We are engaged in the retail sale of merchandise to the general
public and, accordingly, no part of our business is dependent
upon a single customer or a few customers. During fiscal 2010,
no single store accounted for more than one percent of total net
sales.
Backlog of
Orders
We sell merchandise to the general public on a cash and carry
basis and, accordingly, we have no significant backlog of orders.
Regulation
Various aspects of our operations are subject to federal, state,
local and foreign laws, rules and regulations, any of which may
change from time to time. We are impacted, in particular, by the
U.S. Consumer Product Safety Improvement Act of 2008, which
includes new limitations on lead and phthalates and imposes
product testing and certification requirements with respect to
many of the products we sell.
Competitive
Conditions
We are the nations largest specialty retailer of fabrics
and one of the largest specialty retailers of crafts, serving
customers in their pursuit of apparel and craft sewing,
crafting, home decorating and other creative endeavors. Our
stores compete with other specialty fabric and craft retailers
and selected mass merchants, including Wal-Mart, that dedicate a
portion of their selling space to a limited selection of fabrics
and craft supply items. In addition, alternative methods of
selling fabrics and crafts, such as over the Internet, could
result in additional competitors in the future and increased
price competition since our customers could more readily
comparison shop. We compete on the basis of product assortment,
price, convenience and customer service. We believe that the
combination of our product assortment under one roof, quality
sales events and knowledgeable and customer focused team members
provides us with a competitive advantage.
There are three companies that we primarily compete with
nationally in the fabric and craft specialty retail industry,
one in the fabric segment (Hancock Fabrics, Inc.), one in the
craft segment (Michaels Stores, Inc.) and one in the craft
segment that also carries fabrics (Hobby Lobby). There is also a
regional operator, A.C. Moore Arts & Crafts, Inc.,
which competes in the craft segment. The balance of our
competition is comprised of smaller regional and local
operators. We believe that we have several advantages over most
of our smaller competitors, including:
|
|
|
|
|
purchasing power;
|
|
|
|
brand recognition as the number one resource for fabric-related
categories;
|
|
|
|
ability to support efficient nationwide distribution; and
|
|
|
|
the financial resources to execute our strategy going forward.
|
Research and
Development
During the three fiscal years ended January 30, 2010, we
have not incurred any material expense for research activities
relating to the development of new products or services or the
improvement of existing products or services.
Environmental
Disclosure
We are not engaged in manufacturing. Accordingly, we do not
believe that compliance with federal, state and local provisions
regulating the discharge of material into the environment or
otherwise relating to the protection of the environment will
have a material adverse effect upon our capital expenditures,
income or competitive position.
9
Employees
As of January 30, 2010, we had approximately 21,135 full
and part-time employees, of whom 19,618 worked in our stores,
371 were employed in our Hudson, Ohio distribution center, 212
were employed in our Visalia, California distribution center,
182 were employed in our Opelika, Alabama distribution center
and 752 were employed at our store support center in Hudson,
Ohio. The number of part-time employees is substantially higher
during our peak selling season. We believe our employee turnover
is below average for retailers, primarily because our stores
often are staffed with sewing and crafting enthusiasts. In
addition, we provide an attractive work environment, employee
discounts, flexible hours and competitive compensation packages
within the local labor markets. Our ability to offer flexible
scheduling is important in attracting and retaining these
employees, since approximately 75 percent of our employees
work part-time.
The United Steelworkers of America, Upholstery and Allied
Industries Division currently represents employees who work in
our Hudson, Ohio distribution center. Our current contract
expires on May 5, 2011. We believe that our relationship
with our employees and the union is good. Otherwise, none of our
employees are unionized.
Foreign
Operations and Export Sales
In fiscal 2010, we purchased approximately 23 percent of
our products directly from manufacturers located in foreign
countries. These foreign suppliers are located primarily in
China and other Asian countries. In addition, many of our
domestic suppliers purchase a portion of their products from
foreign suppliers. Because a large percentage of our products
are manufactured or sourced abroad, we are required to order
these products further in advance than would be the case if the
products were manufactured domestically. We do not have material
long-term contracts with any manufacturers.
Other Available
Information
We make available, free of charge, on our website at
www.Joann.com, our annual reports on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K
and amendments to reports filed or furnished pursuant to
Section 13(a) or 15(d) of the Securities Exchange Act of
1934, as amended (the Exchange Act) as soon as we
file such material with, or furnish it to, the Securities and
Exchange Commission (SEC). We have posted on our
website the charters of our Audit, Compensation and Corporate
Governance Committees, our Corporate Governance Guidelines and
our Code of Business Conduct and Ethics (which also serves as
the Code of Ethics for the Chief Executive Officer and Financial
Officers), and will post any amendments or waivers thereto.
As required by Section 303A.12 of the Listed Company Manual
of the New York Stock Exchange (the NYSE), our Chief
Executive Officer submitted to the NYSE his annual certification
on July 6, 2009 stating that he was not aware of any
violation by our company of the corporate governance listing
standards of the NYSE. In addition, we have filed, as exhibits
to this annual report on
Form 10-K
for the year-ended January 30, 2010, the certifications of
our principal executive officer and principal financial officer
required under Sections 302 and 906 of the Sarbanes-Oxley
Act of 2002.
Our business and financial performance is subject to various
risks and uncertainties. In addition, we may, from time to time
make written or oral forward-looking statements. These
forward-looking statements are based on our current views and
assumptions and, as a result, are subject to risks and
uncertainties that could cause actual results to differ
materially from those projected.
There are many factors that affect our business and financial
performance, some of which are beyond our control. In addition
to the factors discussed elsewhere in this Report, the following
risks and uncertainties could materially adversely affect our
business, prospects, financial condition, results of operations,
liquidity and access to the capital markets. Other factors not
presently known to us, or that we presently believe are not
material, could also affect our business and financial
performance. The risks discussed below could cause
10
our actual results to differ materially from our historical
experience and from results predicted by forward-looking
statements made by us or on our behalf related to conditions or
events that we anticipate may occur in the future. All
forward-looking statements made by us or on our behalf are
qualified by the risks described below.
General economic factors may adversely affect our
business, revenue and profitability
General economic conditions may adversely affect our financial
performance. Consumer demand for the products that we sell could
be adversely affected by higher interest rates, higher fuel and
other energy costs, weakness in the housing market, inflation,
deflation, recession, higher levels of unemployment,
unavailability of consumer credit, higher consumer debt levels,
consumer confidence in future economic conditions, weather,
higher tax rates and other changes in tax laws, overall economic
slowdown and other economic factors. Our sales generally
represent discretionary spending by our customers and thus we
may be more susceptible to factors negatively affecting consumer
demand than other retailers selling less discretionary products.
Lower consumer demand for our products would cause our revenues,
and possibly our profitability, to decline, while a prolonged
economic downturn could have a material adverse effect on our
business, financial condition and results of operations.
Our cost structure, and thus our operations and operating
results, could be negatively impacted by higher interest rates;
higher fuel and other energy costs; higher transportation costs;
higher costs of labor, insurance and healthcare; inflation in
other costs; higher tax rates and other changes in the tax laws;
changes in other laws and regulations; increased regulatory
enforcement; increased litigation; and other economic factors.
These factors affect not only our operations, but also the
operations of suppliers from which we purchase goods and
services, which may result in cost increases to us and a
negative impact on our operations and operating results.
Natural disasters and geo-political events could
adversely affect our business operations and financial
performance
The occurrence of one or more natural disasters, such as fires,
hurricanes, tornados and earthquakes, and geo-political events,
such as civil unrest in a country in which our suppliers are
located or terrorist or military activities disrupting
transportation, communication or utility systems, could
adversely affect our operations and financial performance. Such
events could result in physical damage to or destruction or
disruption of one or more of our properties (including our
headquarters, distribution centers and stores), the lack of an
adequate workforce in parts or all of our operations, supply
chain disruptions, data and communications disruptions, the
inability of our customers to shop in our stores and the
inability to operate our
e-commerce
business. These factors could also cause consumer confidence and
spending to decrease or result in increased volatility in the
United States and global financial markets and economy. Such
occurrences could significantly impact our operating results and
financial performance and result in increased volatility of the
market price for our common shares.
We may not be able to achieve the expected benefits
from the implementation of marketing initiatives
Our marketing initiatives designed to drive sales growth include
marketing enhancements such as changes in the appearance,
content and distribution of our advertising, new vendor programs
and improved plan-o-gram processes. Our goal is to further
enhance our customer shopping experience by modifying our
marketing content to deliver a stronger value message, enhancing
our industry-leading education and in-store demonstration
programs and expanding the product offering and functionality of
the Joann.com website.
We may not be able to successfully execute our marketing
initiatives to realize the intended benefits and growth
prospects. Certain risks such as increased competition and
economic factors may limit our ability to capitalize on business
opportunities and expand our business. Our efforts to drive
sales growth may not bring the intended result. Assumptions
underlying estimates of expected revenue growth or overall cost
savings may not be met or economic conditions may deteriorate.
Customer acceptance of our marketing initiatives may not be as
anticipated.
11
Failure to timely respond to changes in consumer trends
could negatively impact our business
The success of our business depends in part on our ability to
identify and respond to evolving trends in demographics and
consumer preferences. The long lead times associated with our
foreign-sourced products exacerbate this challenge. Failure to
identify and effectively respond to changing consumer tastes,
preferences and spending patterns on a timely basis could
negatively affect our relationship with our customers and the
demand for our products. This, in turn, could have a material
adverse effect on our business and prospects.
Competition could negatively impact our results
Competition is intense in the retail fabric and craft industry,
with low entry barriers. We must remain competitive in the areas
of quality, price, selection, customer service, convenience and
reputation.
Our primary competition is comprised of specialty fabric
retailers and specialty craft retailers such as Michaels Stores,
Inc., a national chain that operates craft and framing stores,
Hobby Lobby, a national chain that operates craft stores that
also carries fabrics, Hancock Fabrics, Inc., a national chain
that operates fabric stores, and A.C. Moore Arts &
Crafts, Inc., a regional chain that operates craft stores in the
eastern United States. We also compete with mass merchants,
including Wal-Mart, that dedicate a portion of their selling
space to a limited selection of fabrics, craft supplies and
seasonal and holiday merchandise. Some of our competitors have
stores nationwide, several operate regional chains and numerous
others are local merchants. Some of our competitors,
particularly the mass merchants, are larger and have greater
financial resources than we do. The performance of competitors
as well as changes in their pricing and promotional policies,
marketing activities, new store openings, merchandising and
operational strategies could impact our sales and profitability.
Our sales and profitability could also be impacted by store
liquidations of our competitors. In addition, alternative
methods of selling fabrics and crafts, such as over the
Internet, could result in additional competitors in the future
and increased price competition since our customers could more
readily comparison shop. Moreover, we ultimately compete against
alternative sources of entertainment and leisure activities for
our customers that are unrelated to the fabric and craft
industry. This competition could negatively affect our sales and
profitability.
Risks associated with our suppliers could adversely
affect our operations and financial performance
Our business success is highly dependent on our ability to find
qualified suppliers who can deliver products in a timely and
efficient manner, and in compliance with our vendor standards
and all applicable laws and regulations. Many of our suppliers
are small companies with limited resources and lack of financial
flexibility. Some of our suppliers are susceptible to cash flow
issues, production difficulties, quality control issues and
problems in delivering
agreed-upon
quantities on schedule and in compliance with regulatory
requirements. We cannot assure that we would be able, if
necessary, to return products to these suppliers and obtain
refunds of our purchase price or obtain reimbursement or
indemnification from them if their products prove defective, not
in compliance with regulatory requirements or in violation of
third-party intellectual property rights. In addition, many of
these suppliers require extensive advance notice of our
requirements in order to supply products in the quantities we
desire. This long lead time requires us to place orders far in
advance of the time when certain products will be offered for
sale, exposing us to shifts in demand. In addition, some of our
suppliers may be unable to withstand a downturn in economic
conditions. The inability of key suppliers to access financing,
or their insolvency, could lead to their failure to deliver
merchandise or services. If we are unable to procure products
and services when needed, our sales and cash flows could be
negatively impacted in future periods. Significant failures on
the part of our key suppliers could have a material adverse
effect on our operating results.
The significant product safety requirements arising under the
U.S. Consumer Product Safety Improvement Act of 2008 and
state product safety laws may represent a compliance challenge
to some of our suppliers, could negatively impact the ability of
such suppliers to deliver compliant products to us and thus
negatively impact our business operations and performance.
Delivery of non-compliant products could result in liability to
our company; while we obtain indemnifications from our suppliers
with respect to compliance issues, some suppliers might not have
the financial resources to stand behind their indemnifications
and we could also suffer damage to our reputation.
12
Our dependence on foreign suppliers subjects us to
possible delays in receipt of merchandise and to the risks
involved in foreign operations
We are heavily dependent on foreign suppliers. In fiscal 2010,
we purchased approximately 23 percent of our products
directly from manufacturers located in foreign countries (in
particular, in China and other Asian countries). In addition,
many of our domestic suppliers purchase a portion of their
products from foreign suppliers.
Foreign sourcing subjects us to a number of risks, including
long lead times; work stoppages; transportation delays and
interruptions; product quality issues; employee rights issues;
other social concerns; epidemics; political instability;
economic disruptions; the imposition of tariffs, duties, quotas,
import and export controls and other trade restrictions; changes
in governmental policies; and other events. If any of these
events occur, it could result in a material adverse effect on
our business, financial condition, results of operations and
prospects. In addition, reductions in the value of the
U.S. dollar or revaluation of the Chinese currency, or
other foreign currencies, could ultimately increase the prices
that we pay for our products. All of our products manufactured
overseas and imported into the United States are subject to
duties collected by the United States Customs Service. We may be
subjected to additional duties, significant monetary penalties,
the seizure and forfeiture of the products we are attempting to
import or the loss of import privileges, if we or our suppliers
are found to be in violation of U.S. laws and regulations
applicable to the importation of our products.
Our business depends on shopping center
traffic
Our stores generally are located in strip shopping centers and
big box shopping centers. Our sales are dependent in
part on a high volume of shopping center traffic. Shopping
center traffic may be adversely affected by, among other things,
economic downturns, rising fuel costs, gasoline shortages, the
closing of anchor stores, shopping center occupancy rates and
mix, new shopping centers and other retail developments, or
changes in customer shopping preferences. A decline in the
popularity of shopping center shopping among our target
customers could have a material adverse effect on customer
traffic and reduce our sales and net earnings.
The seasonality of our sales may negatively impact our
operating results
Our business is seasonal, with a significant amount of sales and
earnings occurring in the third, and in particular, the fourth
fiscal quarters. Our inventory levels and related short-term
financing needs also are seasonal, with the greatest
requirements occurring during our third fiscal quarter as we
increase our inventory in preparation for our peak selling
season. Weak sales during the second half of the year will
negatively impact our operating results and cash flow generation.
Disruption to the transportation system or increases in
transportation costs may negatively impact our operating
results
We rely upon various means of transportation, including
shipments by air, sea, rail and truck, to deliver products to
our distribution centers from vendors and from our distribution
centers to our stores, as well as for direct shipments from
vendors to stores. Labor shortages or capacity constraints in
the transportation industry, disruptions to the national and
international transportation infrastructure, fuel shortages, or
transportation cost increases (such as increases in fuel costs
or port fees) could adversely affect our business and operating
results.
The failure to attract and retain qualified employees
could limit our growth and negatively impact our
operations
Our continued success depends on our ability to attract and
retain qualified management, administrative and store personnel.
Our inability to do so may have a material adverse effect on our
business and prospects. Our success depends to a significant
extent both upon the continued services of our current executive
and senior management team, as well as our ability to attract,
hire, motivate and retain additional qualified management in the
future. Competition for key executives in the retail industry is
intense, and our operations could be adversely affected if we
cannot attract and retain qualified management.
13
Many of our employees are in entry level and part-time positions
with historically high rates of turnover. Our ability to meet
our labor needs while controlling our costs is subject to
external factors such as unemployment levels, prevailing wage
rates, benefits costs, minimum wage legislation, changes in
employment legislation and regulations, workers compensation
costs and changing demographics. If we are unable to attract,
retain and motivate a sufficient number of quality employees at
a reasonable cost, our operating results could be impacted
adversely.
The United Steelworkers of America, Upholstery and Allied
Industries Division currently represents employees who work in
our Hudson, Ohio distribution center. Our current contract
expires on May 5, 2011. We believe that our relations with
our employees and the union are good, but if a strike were to
occur it may adversely affect our business, financial conditions
and results of operations.
Failure to manage inventory effectively could
negatively impact our operations
Due to the nature of our business, we purchase much of our
inventory well in advance of each selling season. If we misjudge
consumer preferences or demands, we could have excess inventory
that may need to be held for a long period of time, written
down, sold at prices lower than expected, or discarded in order
to clear excess inventory at the end of a selling season.
Conversely, if we underestimate consumer demand, we may not be
able to provide products to our customers to meet their demand.
Either event could have a material adverse impact on our
business, financial condition and results of operations.
In addition, inventory shrink (inventory theft or loss) rates
can significantly impact our business performance and financial
results. Failure to manage inventory shrink rates could
materially adversely affect our business, financial condition
and results of operations.
The loss of, or disruption in, or our inability to
efficiently operate our distribution network could have a
negative impact on our business
We operate three distribution centers to support our business.
If complications arise with any one facility or any facility is
severely damaged or destroyed, our other distribution centers
may not be able to support the resulting additional distribution
demands. This may adversely affect our ability to receive and
deliver inventory on a timely basis.
The majority of our inventory is shipped directly from suppliers
to our distribution centers where the inventory is then
processed, sorted, picked and shipped to our stores. We rely in
large part on the orderly operation of this receiving and
distribution process, which depends on adherence to shipping
schedules and effective management of our distribution network.
Although we believe that our receiving and distribution process
is efficient and well-positioned to support our operating and
strategic plans, we cannot assure that we have anticipated all
issues or that events beyond our control, such as disruptions in
operations due to natural disasters or other catastrophic
events, labor disagreements or shipping problems, will not
result in delays in the delivery of merchandise to our stores.
Such delays could negatively impact our business.
Disruptions to our information systems, or our failure
to adequately support, maintain and upgrade these systems, could
negatively impact our operations and financial
results.
We depend on a variety of information systems for the efficient
functioning of our business. In particular, we rely on our
information systems to effectively process transactions, manage
inventory, purchase, sell and ship goods on a timely basis and
maintain cost-efficient operations. Disruptions to our
information systems, or our failure to adequately support,
maintain and upgrade these systems could have a material adverse
impact on our operations and financial results.
While we have implemented a disaster recovery plan intended to
minimize the effect of any disruption to our information
systems, the failure of our information systems to perform as
designed could disrupt our business and harm sales and
profitability. Any material disruption or slowdown of our
systems could cause information to be lost or delayed, which
could have a negative impact on our business. We may experience
operational problems with our information systems as a result of
power outages, computer and telecommunication failures, other
system failures, viruses, security breaches, natural disasters,
terrorist and criminal activities, employee usage errors or
other causes. If our computer systems are damaged or cease to
function
14
properly, we may have to make a significant investment to fix or
replace them, and we may suffer interruptions in our operations
in the interim.
In addition, costs and potential problems and interruptions
associated with the implementation of new or upgraded systems
and technology or with maintenance or adequate support of
existing systems could also disrupt or reduce the efficiency of
our operations. We also rely heavily on our information
technology staff. If we cannot meet our staffing needs in this
area, we may not be able to fulfill our technology or business
initiatives while continuing to provide maintenance on existing
systems. Our inability to fulfill these initiatives and to
maintain the existing systems adequately could materially
adversely affect our operations and financial results.
Financing needs could restrict our operations
Our business is dependent on the availability of credit to fund
working capital, capital expenditures, acquisitions and other
general corporate requirements. We currently have in place a
secured credit facility, which expires in September 2013. We
believe that this financing is adequate to meet our foreseeable
needs. If our financing needs were to increase, we might not be
able to obtain such financing on acceptable terms, or at all,
which could have a material adverse affect on our business.
Failure to comply with the restrictions placed on us by
our lenders could have a material adverse effect on our
business
Our secured credit facility agreement contains restrictive and
financial covenants, which limit our ability to borrow money,
make investments, or make payments on our capital stock, incur
liens and take other actions. We currently are in compliance
with all of these covenants and do not foresee any issues in
continuing to comply with these covenants in the future.
However, our ability to remain in compliance with these
covenants and tests may be affected by unanticipated events or
events beyond our control. If we fail to meet these tests or
breach any of the covenants, the lenders under the secured
credit facility could declare all amounts outstanding under the
facility, including accrued interest, to be immediately due and
payable.
Failure to adequately maintain the security of our
electronic and other confidential information could materially
adversely affect our financial condition and results of
operations
We are dependent upon automated information technology
processes. As part of our normal business activities, we collect
and store certain confidential information, including personal
information with respect to customers and employees. We may
share some of this information with vendors who assist us with
certain aspects of our business. Moreover, the success of our
e-commerce
operations depends upon the secure transmission of confidential
and personal data over public networks, including the use of
cashless payments. Any failure on the part of us or our vendors
to maintain the security of our confidential data and our
employees and customers personal information,
including via the penetration of our network security and the
misappropriation of confidential and personal information, could
result in business disruption, damage to our reputation,
financial obligations to third parties, fines, penalties,
regulatory proceedings and private litigation with potentially
large costs, and also result in deterioration in our
employees and customers confidence in us and other
competitive disadvantages, and thus have a material adverse
impact on our business, financial condition and results of
operations. In addition, a security breach could require that we
expend significant additional resources to enhance our
information security systems and could result in a disruption to
our operations.
We currently are certified as being in compliance with the
Payment Card Industry Data Security Standard (PCI
DSS), but must be recertified on a regular basis with the
next recertification scheduled in August 2010 for our stores and
Joann.com. A company processing, storing, or transmitting
payment card data must be PCI DSS compliant or risk losing its
ability to process credit card payments and being audited
and/or
fined. Failure to maintain our PCI certification could result in
our inability to accept credit card payments or subject us to
penalties and thus could have a material negative effect on our
operations.
15
Failure to comply with various regulations, or
increased litigation, may result in damage to our
business
Our policies and procedures are designed to comply with all
applicable laws and regulations, including those imposed by the
SEC and NYSE. Additional legal and regulatory requirements such
as the Sarbanes-Oxley Act have increased the complexity of the
regulatory environment. Also, various aspects of our operations
are subject to federal, state, local and foreign laws, rules and
regulations, any of which may change from time to time. We are
impacted, in particular, by the U.S. Consumer Product
Safety Improvement Act of 2008, which includes new limitations
on lead and phthalates and imposes product testing and
certification requirements with respect to many of the products
we sell, and state product safety laws and regulations.
Additionally, we are regularly involved in various litigation
matters that arise in the ordinary course of our business,
including liability claims, employment-related claims,
contractual disputes and allegations that we have infringed
third-party intellectual property rights.
Litigation or regulatory developments could adversely affect our
business operations and financial performance. Also, failure to
comply with the various regulations may result in damage to our
reputation, civil and criminal liability, fines and penalties,
increased cost of regulatory compliance and restatements of
financial statements.
We may not be able to successfully implement our store
growth strategy
Our store growth strategy includes opening new stores in
existing and new markets, replacing some of our small-format
stores with large-format stores and remodeling some of our
stores. We face significant competition from other retailers for
suitable locations. We also may face difficulties in negotiating
leases on acceptable terms. New store openings involve certain
risks, including constructing, furnishing, supplying and
staffing a store in a timely and cost effective manner and
accurately assessing the demographic or retail environment for a
particular location. Our future sales at new and remodeled
stores may not meet our projections, which could adversely
impact our return on investment. Our inability to execute our
store growth strategy in a manner that generates appropriate
returns on investment could have an adverse impact on our future
growth and profitability.
Changes in accounting standards
A change in accounting standards or practices can have a
significant effect on our reported results of operations. New
accounting pronouncements and interpretations of existing
accounting rules and practices have occurred and may occur in
the future. Changes to existing rules may adversely affect our
reported financial results.
Effective tax rate
Our effective tax rate is derived from a combination of
applicable tax rates in jurisdictions in which we operate. Our
effective tax rate may be lower or higher than our tax rates
have been in the past due to numerous factors including the
sources of our income, any agreements we may have with taxing
authorities in various jurisdictions, changes in tax laws and
the tax filing positions we take in various jurisdictions. We
base our estimate of an effective tax rate at any given point in
time upon a calculated mix of the tax rates applicable to our
company and to estimates of the amount of business likely to be
done in any given jurisdiction. The loss of one or more
agreements with taxing jurisdictions, a change in the mix of our
business, changes in rules related to accounting for income
taxes, changes in tax laws in any of the taxing jurisdictions,
or adverse outcomes from tax audits could result in an
unfavorable change in our effective tax rate, which could have
an adverse effect on our business and results of operations.
Inadequacy of our insurance coverage could have a
material adverse effect on our company
We maintain third party insurance coverage against various
liability risks and risks of property loss, as well directors
and officers liability insurance coverage. While we believe
these arrangements are an effective way to insure against
liability and property damage risks, the potential liabilities
associated with those risks or other events could exceed the
coverage provided by such arrangements. Significant uninsured
liabilities could have a material adverse effect on our company.
16
Cash and cash equivalents held at financial
institutions exceed federally insured limits
We have a significant amount of cash and cash equivalents (money
market funds) at financial institutions that are in excess of
federally insured limits. With the current financial environment
and the instability of financial institutions, we cannot be
assured that we will not experience losses on our deposits.
Our stock price is subject to significant
volatility
Our stock price is affected by a number of factors, including
quarterly variations in financial results; the competitive
landscape; general economic and market conditions; estimates,
projections and speculation by the investment community and
press; and rating agency upgrades and downgrades. As a result,
our stock price is subject to significant volatility.
Events harming our companys reputation could have
a material adverse effect on our business prospects, financial
results and stock price
We are dependent on our reputation. Events that can damage our
reputation include, but are not limited to, legal violations,
actual or perceived ethical problems, product safety issues,
actual or perceived poor employee relations, actual or perceived
poor customer service, store appearance or operational issues,
or events outside of our control which generate negative
publicity with respect to our company. Any event that has the
potential to negatively impact our reputation with customers,
employees, suppliers, communities, governmental officials and
others could have a materially adverse effect on our business
prospects, financial results and stock price.
Other Factors
The foregoing list of risk factors is not all inclusive. Other
factors and unanticipated events could adversely affect our
business. We do not undertake to revise or update these risks to
reflect events or circumstances that occur after the date of
this report.
|
|
Item 1B.
|
Unresolved Staff
Comments
|
None.
Our store support center and Hudson distribution center are
located in a 1.4 million square foot facility on
105 acres in Hudson, Ohio. We own both the facility and the
real estate. The distribution center occupies 1.0 million
square feet and the remainder is used as our store support
center, a large-format store, and office and retail space we
lease to two other tenants. In addition, we own 65 acres of
land adjacent to our Hudson, Ohio facility.
We lease and operate a 630,000 square foot distribution
center located on an
80-acre site
in Visalia, California. We also opened our third distribution
center in April 2006. We own this 705,000 square foot
facility and the
105-acre
site that it is located on in Opelika, Alabama.
The remaining properties that we occupy are leased retail store
facilities, located primarily in high-traffic shopping centers.
All store leases are operating leases and generally have initial
terms of 5 to 15 years with renewal options for up to
20 years. Certain store leases contain escalation clauses
and contingent rents based on a percent of net sales in excess
of defined minimums. During fiscal 2010, we incurred
$182.2 million of rental expense, including common area
maintenance, taxes and insurance for store locations. Despite
closing 222 stores over the last five years, as of
January 30, 2010, we were only paying rent on eight closed
store locations for which we have been unable to reach an early
lease termination settlement with the landlord or sublease the
property.
17
As of January 30, 2010, the current terms of our store
leases, assuming we exercise all lease renewal options, were as
follows:
|
|
|
|
|
|
|
Number of
|
|
Fiscal Year Lease Terms Expire
|
|
Store Leases
|
|
|
Month-to-month
|
|
|
18
|
|
2011
|
|
|
65
|
|
2012
|
|
|
57
|
|
2013
|
|
|
59
|
|
2014
|
|
|
25
|
|
2015
|
|
|
28
|
|
Thereafter
|
|
|
516
|
|
|
|
|
|
|
Total
|
|
|
768
|
|
|
|
|
|
|
|
|
Item 3.
|
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, will have a material adverse effect on our financial
condition or results of operations.
Executive
Officers of the Registrant
The following information is set forth pursuant to
Item 401(b) of
Regulation S-K.
Our executive officers are as follows:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Darrell Webb
|
|
|
52
|
|
|
Chairman of the Board, President and Chief Executive Officer;
effective as of January 31, 2010, Chairman of the Board and
Chief Executive Officer
|
Travis Smith
|
|
|
37
|
|
|
Chief Operating Officer; effective as of January 31, 2010,
President and Chief Operating Officer
|
Kenneth Haverkost
|
|
|
53
|
|
|
Executive Vice President, Store Operations
|
James Kerr
|
|
|
47
|
|
|
Executive Vice President, Chief Financial Officer
|
Darrell Webb has been our Chairman of the Board and Chief
Executive Officer since July 2006. From July 2006 to
January 30, 2010, Mr. Webb also served as our
President. Previously, he was President of Fred Meyer Stores, a
division of The Kroger Company, a large supermarket retailer,
from 2002 until July 2006; and President of Krogers
Quality Food Center Division from 1999 to 2002.
Travis Smith has been our President and Chief Operating
Officer since January 31, 2010. Mr. Smith was our
Chief Operating Officer from February 2009 to January 30,
2010. Prior to February 2009, Mr. Smith was our Executive
Vice President, Merchandising and Marketing from July 2006 to
January 2009. For eight years prior to assuming this role,
Mr. Smith held merchandising and marketing positions of
increasing responsibility with Fred Meyer Stores, a division of
The Kroger Company. Immediately prior to joining us,
Mr. Smith was Senior Vice President, General Merchandise of
Fred Meyer Stores.
Kenneth Haverkost has been our Executive Vice President,
Store Operations since October 2007. For the 22 years prior
to assuming his current role, Mr. Haverkost held positions
of increasing responsibility with Fred Meyer Stores, a division
of The Kroger Company. Immediately prior to joining us,
Mr. Haverkost was Senior Vice President and Director of
Store Operations of Fred Meyer Stores.
James Kerr has been our Executive Vice President, Chief
Financial Officer since July 2006. For the eight years prior to
assuming his current role, Mr. Kerr was our Vice President,
Controller and he also served as the Chief Accounting Officer
from February through July 2006.
18
PART II
|
|
Item 5.
|
Market for
Registrants Common Equity, Related Stockholder Matters and
Issuer Purchases of Equity Securities
|
Our common shares are traded on the NYSE under the ticker symbol
JAS. As of April 1, 2010, there were
424 shareholders of record. The closing price of the shares
on April 1, 2010 was $42.57.
The quarterly high and low closing stock prices for fiscal 2010
and 2009 are presented in the table below:
|
|
|
|
|
|
|
|
|
|
|
Common Shares
|
|
|
|
High
|
|
|
Low
|
|
|
Quarter Ended Fiscal 2010:
|
|
|
|
|
|
|
|
|
January 30, 2010
|
|
$
|
38.14
|
|
|
$
|
25.44
|
|
October 31, 2009
|
|
|
31.32
|
|
|
|
22.50
|
|
August 1, 2009
|
|
|
23.97
|
|
|
|
18.25
|
|
May 2, 2009
|
|
|
19.07
|
|
|
|
10.79
|
|
Quarter Ended Fiscal 2009:
|
|
|
|
|
|
|
|
|
January 31, 2009
|
|
$
|
19.60
|
|
|
$
|
10.31
|
|
November 1, 2008
|
|
|
27.00
|
|
|
|
14.20
|
|
August 2, 2008
|
|
|
24.95
|
|
|
|
18.25
|
|
May 3, 2008
|
|
|
19.91
|
|
|
|
12.22
|
|
We did not pay cash dividends on our common shares during fiscal
2010 and fiscal 2009. Our dividend policy has been to retain
earnings for operations and reinvestment into our business.
Payments of dividends, if any, in the future will be determined
by the Board of Directors in light of business conditions and
other considerations. Under our secured credit facility, cash
dividends are allowed up to a maximum of $20 million
annually as long as we maintain a certain level of excess
availability as defined in our secured credit facility.
See Part III, Item 12 for information regarding our
equity compensation plans.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of Equity Securities by Jo-Ann Stores, Inc.
|
|
|
|
|
|
|
|
|
|
Total Number of
|
|
|
Maximum Number of
|
|
|
|
|
|
|
|
|
|
Shares Purchased as
|
|
|
Shares that May Yet
|
|
|
|
|
|
|
Average
|
|
|
Part of Publicly
|
|
|
Be Purchased Under
|
|
|
|
Total Number of
|
|
|
Price Paid
|
|
|
Announced Plans or
|
|
|
the Plans or
|
|
|
|
Shares Purchased
|
|
|
per Share
|
|
|
Programs
|
|
|
Programs
|
|
|
November 1 28, 2009
|
|
|
1,466
|
|
|
$
|
32.93
|
|
|
|
1,209,582
|
|
|
|
940,418
|
|
November 29, 2009 January 2, 2010
|
|
|
4,365
|
|
|
$
|
32.33
|
|
|
|
1,213,947
|
|
|
|
936,053
|
|
January 3 30, 2010
|
|
|
|
|
|
|
|
|
|
|
1,213,947
|
|
|
|
936,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5,831
|
|
|
$
|
32.48
|
|
|
|
1,213,947
|
|
|
|
936,053
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In December 1998, our Board of Directors authorized a
discretionary program that allowed us to buy back 2,150,000
common shares. That program does not have a stated expiration
date. In the table above, the total number of shares purchased
represents shares repurchased directly from the market, as well
as shares repurchased from employees in connection with the
vesting of restricted shares that were provided to us to satisfy
minimum statutory tax withholding requirements. During the first
quarter of fiscal 2011 through April 9, 2010, we bought
back 452,517 shares at an average price paid per share of
$41.73.
19
STOCK PERFORMANCE
GRAPH
The following graph compares the yearly changes in total
shareholder return on our common shares with the total return of
the S&P Composite 500 Stock Index, the S&P
Specialty Stores Index and our peer group for the last five
years. In each case, we assumed an initial investment of $100 on
the market close on the last trading day before the beginning of
the registrants fifth preceding fiscal year. Each
subsequent date on the chart represents the last day of the
indicated fiscal year. We did not pay any dividends during such
five-year period. The S&P Specialty Stores Index is the
same index that we used last year, which we titled
S&P 600 Specialty Stores Index in our last
Form 10-K.
The peer group index consists of the following publicly held
companies:
|
|
|
|
|
A.C. Moore Arts & Crafts
|
|
Mens Warehouse
|
|
|
Big 5 Sporting Goods
|
|
Pep Boys Manny, Moe &
Jack
|
|
|
Borders Group
|
|
PetSmart
|
|
|
Brown Shoe
|
|
Pier 1 Imports
|
|
|
Cabelas
|
|
Stage Stores
|
|
|
Charming Shoppes
|
|
Ulta Salon Cosmetics & Fragrances
|
|
|
Collective Brands (formerly Payless
Shoesource)
|
|
Williams-Sonoma
|
|
|
Dicks Sporting Goods
|
|
Zale
|
|
|
DSW
|
|
|
|
|
20
Item 6.
Selected Financial Data
The following table presents our selected financial data for
each of our five fiscal years ending January 30, 2010. The
selected financial data for all fiscal years presented was
derived from the audited financial statements and should be read
in conjunction with Managements Discussion and
Analysis of Financial Condition and Results of Operations,
the consolidated financial statements and notes thereto. We
reclassified certain amounts in the financial statements for our
four fiscal years ending January 31, 2009 to conform to the
current year presentation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
(a)
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
|
|
|
Operating Results:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,990.7
|
|
|
$
|
1,901.1
|
|
|
$
|
1,878.8
|
|
|
$
|
1,850.6
|
|
|
$
|
1,882.8
|
|
Total net sales percentage increase (decrease)
|
|
|
4.7
|
%
|
|
|
1.2
|
%
|
|
|
1.5
|
%
|
|
|
(1.7
|
)%
|
|
|
3.9
|
%
|
Same-store sales percentage increase (decrease)
(b)
|
|
|
3.1
|
%
|
|
|
0.5
|
%
|
|
|
3.5
|
%
|
|
|
(5.9
|
)%
|
|
|
(0.8
|
)%
|
Gross margin
|
|
|
975.7
|
|
|
|
882.5
|
|
|
|
872.4
|
|
|
|
859.8
|
|
|
|
859.2
|
|
Selling, general and administrative expenses
|
|
|
793.6
|
|
|
|
775.3
|
|
|
|
774.8
|
|
|
|
790.5
|
|
|
|
774.0
|
|
Store pre-opening and closing costs
|
|
|
11.7
|
|
|
|
12.3
|
|
|
|
8.4
|
|
|
|
11.1
|
|
|
|
23.4
|
|
Depreciation and amortization
|
|
|
56.3
|
|
|
|
54.2
|
|
|
|
51.8
|
|
|
|
49.2
|
|
|
|
42.2
|
|
Goodwill impairment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
27.1
|
|
|
|
|
Operating profit (loss)
|
|
|
114.1
|
|
|
|
40.7
|
|
|
|
37.4
|
|
|
|
9.0
|
|
|
|
(7.5
|
)
|
Operating profit (loss) as a percent of net sales
|
|
|
5.7
|
%
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
|
|
0.5
|
%
|
|
|
(0.4
|
)%
|
Gain on purchase of senior subordinated notes
(c)
|
|
|
(1.3
|
)
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
6.3
|
|
|
|
9.4
|
|
|
|
12.5
|
|
|
|
15.6
|
|
|
|
12.8
|
|
Income (loss) before cumulative effect of accounting change
|
|
|
66.6
|
|
|
|
21.9
|
|
|
|
15.4
|
|
|
|
(2.9
|
)
|
|
|
(23.0
|
)
|
Cumulative effect of change in accounting principle, net of tax
(d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.0
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
66.6
|
|
|
$
|
21.9
|
|
|
$
|
15.4
|
|
|
$
|
(1.9
|
)
|
|
$
|
(23.0
|
)
|
Net income (loss) as a percent of net sales
|
|
|
3.3
|
%
|
|
|
1.2
|
%
|
|
|
0.8
|
%
|
|
|
(0.1
|
)%
|
|
|
(1.2
|
)%
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) per common share diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before cumulative effect of accounting change
|
|
$
|
2.51
|
|
|
$
|
0.86
|
|
|
$
|
0.62
|
|
|
$
|
(0.12
|
)
|
|
$
|
(1.01
|
)
|
Cumulative effect of change in accounting principle
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.04
|
|
|
|
|
|
|
|
|
Net income (loss) diluted
|
|
$
|
2.51
|
|
|
$
|
0.86
|
|
|
$
|
0.62
|
|
|
$
|
(0.08
|
)
|
|
$
|
(1.01
|
)
|
Weighted average shares outstanding diluted
(000s)
|
|
|
26,535
|
|
|
|
25,483
|
|
|
|
24,950
|
|
|
|
23,519
|
|
|
|
22,716
|
|
|
|
|
Financial Position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
217.1
|
|
|
$
|
80.6
|
|
|
$
|
25.4
|
|
|
$
|
18.4
|
|
|
$
|
17.9
|
|
Inventories
|
|
|
416.8
|
|
|
|
429.4
|
|
|
|
472.2
|
|
|
|
453.4
|
|
|
|
514.7
|
|
Inventory turnover
|
|
|
2.4
|
x
|
|
|
2.3
|
x
|
|
|
2.2
|
x
|
|
|
2.0
|
x
|
|
|
2.1
|
x
|
Current assets
|
|
|
686.1
|
|
|
|
563.8
|
|
|
|
547.8
|
|
|
|
543.8
|
|
|
|
605.8
|
|
Property, equipment and leasehold improvements, net
|
|
|
293.7
|
|
|
|
314.8
|
|
|
|
297.5
|
|
|
|
311.8
|
|
|
|
331.7
|
|
Total assets
|
|
|
1,000.4
|
|
|
|
899.7
|
|
|
|
869.4
|
|
|
|
866.3
|
|
|
|
946.8
|
|
Current liabilities
(e)
|
|
|
327.2
|
|
|
|
248.0
|
|
|
|
228.7
|
|
|
|
225.5
|
|
|
|
242.6
|
|
|
|
|
21
|
|
Item 6.
|
Selected
Financial Data (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
(a)
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
February 3,
|
|
|
January 28,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
66.0
|
|
|
|
100.0
|
|
|
|
125.3
|
|
|
|
203.7
|
|
Shareholders equity
|
|
|
565.6
|
|
|
|
477.7
|
|
|
|
440.0
|
|
|
|
409.8
|
|
|
|
399.4
|
|
Debt to total capitalization
|
|
|
7.7
|
%
|
|
|
12.1
|
%
|
|
|
18.5
|
%
|
|
|
23.4
|
%
|
|
|
33.8
|
%
|
Debt to total capitalization, net of cash and cash equivalents
|
|
|
(42.8
|
)%
|
|
|
(3.2
|
)%
|
|
|
14.5
|
%
|
|
|
20.7
|
%
|
|
|
31.7
|
%
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value
(f)
|
|
$
|
21.57
|
|
|
$
|
18.95
|
|
|
$
|
17.97
|
|
|
$
|
17.18
|
|
|
$
|
17.09
|
|
Shares outstanding, net of treasury shares (000s)
|
|
|
26,216
|
|
|
|
25,204
|
|
|
|
24,485
|
|
|
|
23,857
|
|
|
|
23,375
|
|
Other Financial Information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
29.2
|
|
|
$
|
63.6
|
|
|
$
|
28.6
|
|
|
$
|
44.6
|
|
|
$
|
118.9
|
|
Cash landlord reimbursement
(g)
|
|
|
10.5
|
|
|
|
11.1
|
|
|
|
9.1
|
|
|
|
13.5
|
|
|
|
23.9
|
|
|
|
|
Total capital expenditures
|
|
$
|
39.7
|
|
|
$
|
74.7
|
|
|
$
|
37.7
|
|
|
$
|
58.1
|
|
|
$
|
142.8
|
|
|
|
|
|
|
|
Store Count:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small-format stores
|
|
|
518
|
|
|
|
554
|
|
|
|
578
|
|
|
|
615
|
|
|
|
676
|
|
Large-format stores
|
|
|
228
|
|
|
|
210
|
|
|
|
196
|
|
|
|
186
|
|
|
|
162
|
|
|
|
|
Total
|
|
|
746
|
|
|
|
764
|
|
|
|
774
|
|
|
|
801
|
|
|
|
838
|
|
|
|
|
|
|
|
Store Square Footage (000s)
(h)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small-format stores
|
|
|
7,619
|
|
|
|
8,141
|
|
|
|
8,477
|
|
|
|
9,034
|
|
|
|
9,810
|
|
Large-format stores
|
|
|
8,324
|
|
|
|
7,861
|
|
|
|
7,455
|
|
|
|
7,181
|
|
|
|
6,388
|
|
|
|
|
Total
|
|
|
15,943
|
|
|
|
16,002
|
|
|
|
15,932
|
|
|
|
16,215
|
|
|
|
16,198
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
All years include 52 weeks
except for the fiscal year-ended February 3, 2007, 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 stores opening. In conjunction with the expansion or
relocation of a store, the net sales results from that store is
excluded from the same-store sales calculation until the first
day of the first month following the one-year anniversary of
that stores expansion or relocation. Further, in a 53-week
year, net sales of the first 52 weeks are compared to the
comparable 52 weeks of the prior period.
|
|
(c) |
|
Gain on purchase of senior
subordinated notes includes the gain, net of related write-off
of applicable deferred financing costs, on the purchase of the
companys senior subordinated notes. See
Note 6 Financing, contained in the notes to
consolidated financial statements.
|
|
(d) |
|
Effective January 29, 2006,
the company changed its measurement of stock-based compensation
using the fair value method of accounting, resulting in a
cumulative after-tax adjustment related to estimated forfeitures.
|
|
(e) |
|
On March 1, 2010, the company
redeemed all outstanding principal amount of its
7.5 percent senior subordinated notes of approximately
$47.5 million at par early, which was announced on
January 5, 2010. As such, the company has classified the
senior subordinated notes as short-term as of January 30,
2010.
|
|
(f) |
|
Book value is calculated by
dividing shareholders equity by shares outstanding, net of
treasury shares.
|
|
(g) |
|
Capital expenditures reimbursed by
the landlord represent the cost of assets acquired through the
utilization of landlord lease incentives.
|
|
(h) |
|
Total store square footage
includes selling floor space and inventory storage areas.
|
22
|
|
Item 7.
|
Managements
Discussion and Analysis of Financial Condition and Results of
Operations
|
This discussion provides the reader with information that will
assist in an overall understanding of our financial statements,
changes in certain key indicators from year to year, the factors
that account for those changes and how certain accounting
principles have impacted our financial statements. This
discussion should be read in conjunction with the audited
consolidated financial statements and notes to the consolidated
financial statements presented in this
Form 10-K.
In addition, the financial information presented for years prior
to fiscal 2010 has been reclassified for certain amounts to
conform to the current year presentation.
Overview
We are the nations largest specialty retailer of fabrics
and one of the largest specialty retailers of crafts, serving
customers in their pursuit of apparel and craft sewing,
crafting, home decorating and other creative endeavors. Our
retail stores and website feature a variety of competitively
priced merchandise used in sewing, crafting and home decorating
projects, including fabrics, notions, crafts, frames, paper
crafting material, artificial floral, home accents, finished
seasonal and home décor merchandise.
We review and manage to a number of key indicators in evaluating
financial performance, the most significant of which are:
|
|
|
|
|
Net sales. We closely monitor our net sales,
including net sales from stores open one year or more
(same-store sales), by our two store formats,
small-format stores and large-format stores. Net sales in the
aggregate and by store type are compared to previous periods to
measure our overall sales growth, and same-store sales are
compared to previous periods to determine whether existing
stores are growing their sales volume. We also closely monitor
average ticket value, both in total and by store format. Average
ticket represents total sales divided by the total number of
customer transactions. Customer transactions are impacted by the
number of customers that shop in our stores. These indicators
help to measure the effectiveness of our product assortments,
promotions and service.
|
|
|
|
Gross margin. Our management uses gross margin
to evaluate merchandising, marketing and operating effectiveness
for the company. Merchandise selection and other future
decisions such as pricing and promotional activity are, in part,
based on gross margin performance.
|
|
|
|
Selling, general and administrative expense as a percent of
sales. We monitor the leveraging of selling,
general and administrative expense in relation to our sales in
order to measure our effectiveness in managing expenses.
|
|
|
|
Inventory. We closely monitor our inventory
investment, which is our single largest invested asset, and our
inventory turnover rate. Due to the large investment in
inventory, changes in inventory levels can have a significant
impact on our liquidity. Also, inventory turnover is an
indicator of how effectively we manage our inventory levels in
relation to our sales.
|
|
|
|
Debt to total capitalization and excess credit
availability. We monitor our debt balances and
leverage as a percent of total capitalization. We also monitor
current and projected excess availability, as defined under our
senior bank credit facility, in order to ensure that adequate
flexibility is available to execute our operating and strategic
plans.
|
An overview of our fiscal 2010 performance compared with fiscal
2009 performance follows:
|
|
|
|
|
Net sales increased 4.7 percent to $1.991 billion.
Same-store sales increased 3.1 percent versus a
0.5 percent same-store sales increase for the prior year.
The increase in same-store sales primarily was driven by a
3.8 percent increase in customer transactions, our store
remodel and optimization programs, more effective marketing and
the benefit of competitive withdrawals in the sewing business.
|
|
|
|
Our gross margin rate, as a percentage of net sales, increased
260 basis points from 46.4 percent to
49.0 percent, primarily due to direct sourcing, product
cost deflation on imports and new systems capabilities.
|
23
|
|
|
|
|
Our selling, general and administrative expenses
(SG&A), as a percentage of net sales, excluding
those expenses separately identified in the statement of
operations, decreased 90 basis points from
40.8 percent during fiscal 2009 to 39.9 percent during
fiscal 2010. The decrease is primarily due to expense leverage
from the increase in sales as well as the result of our
continued efforts to control expenses.
|
|
|
|
Inventory decreased by $12.6 million in fiscal 2010. Our
inventory turnover improved from 2.3 turns for fiscal 2009 to
2.4 turns for fiscal 2010. The improvement is the result of our
inventory initiatives to reduce seasonal and fashion
merchandise, which have a higher promotional and clearance risk
than our basic inventory categories.
|
|
|
|
Our debt to total capitalization ratio improved 440 basis
points from 12.1 percent for fiscal 2009 to
7.7 percent for fiscal 2010. During the year, we purchased
$18.5 million of our senior subordinated notes. As of
fiscal 2010 year end, we had approximately
$242.5 million of excess availability under our senior bank
credit facility.
|
Executive
Overview of Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Qtr 1
|
|
Qtr 2
|
|
Qtr 3
|
|
Qtr 4
|
|
Total
|
|
|
(dollars in millions)
|
|
Net sales
|
|
$
|
460.0
|
|
|
$
|
419.4
|
|
|
$
|
509.1
|
|
|
$
|
602.2
|
|
|
$
|
1,990.7
|
|
Same-store sales percent change
|
|
|
1.0
|
%
|
|
|
1.8
|
%
|
|
|
4.3
|
%
|
|
|
4.4
|
%
|
|
|
3.1
|
%
|
Gross margin
|
|
$
|
222.9
|
|
|
$
|
206.6
|
|
|
$
|
259.8
|
|
|
$
|
286.4
|
|
|
$
|
975.7
|
|
Gross margin percent
|
|
|
48.5
|
%
|
|
|
49.3
|
%
|
|
|
51.0
|
%
|
|
|
47.6
|
%
|
|
|
49.0
|
%
|
Gross margin basis point change from prior year
|
|
|
210
|
|
|
|
170
|
|
|
|
200
|
|
|
|
410
|
|
|
|
260
|
|
Selling, general and administrative expenses
|
|
$
|
190.4
|
|
|
$
|
193.3
|
|
|
$
|
202.0
|
|
|
$
|
207.9
|
|
|
$
|
793.6
|
|
SG&A percent to sales
|
|
|
41.4
|
%
|
|
|
46.1
|
%
|
|
|
39.7
|
%
|
|
|
34.5
|
%
|
|
|
39.9
|
%
|
SG&A basis point decrease from prior year
|
|
|
|
|
|
|
140
|
|
|
|
190
|
|
|
|
40
|
|
|
|
90
|
|
Net income (loss)
|
|
$
|
8.6
|
|
|
$
|
(3.2
|
)
|
|
$
|
24.1
|
|
|
$
|
37.1
|
|
|
$
|
66.6
|
|
Net income (loss) percent to sales
|
|
|
1.9
|
%
|
|
|
(0.8
|
)%
|
|
|
4.7
|
%
|
|
|
6.2
|
%
|
|
|
3.3
|
%
|
Net income (loss) basis point change from prior year
|
|
|
120
|
|
|
|
210
|
|
|
|
260
|
|
|
|
260
|
|
|
|
210
|
|
During fiscal 2010, we achieved sales, margin, earnings and cash
flow improvement and our financial results exceeded our original
expectations, primarily due to the execution of the following
operating initiatives:
|
|
|
|
|
Revitalizing our store portfolio;
|
|
|
|
Expanding gross margin rates;
|
|
|
|
Capitalizing on the competitive market changes; and
|
|
|
|
Leveraging our new systems.
|
Our store remodel and optimization programs continued to
generate incremental sales. During the year, we opened 20 new
stores, completed 30 store remodels and optimized over 180
small-format stores.
Gross margin increased 260 basis points during fiscal 2010.
The following four key factors that we discussed in previous
quarters continued to positively impact gross margin:
|
|
|
|
|
More direct sourcing of products from Asia;
|
|
|
|
Lower transportation expenses;
|
|
|
|
Product cost deflation on imported merchandise; and
|
|
|
|
Improvements in markdown controls from our new POS system
enhancements.
|
24
We believe that the competitive environment provided us an
opportunity to capture market share during fiscal 2010. In the
specialty retail channel, we believe we are capturing market
share from weaker competitors, based on our sales trend relative
to other craft and fabric retailers. In addition, Wal-Mart
continues to remove fabric departments as they remodel stores.
While executing the above operating initiatives, we maintained
tight controls over expenses, inventory and capital spend. We
focused on controlling those variables that were within our
control when it appeared that top-line sales growth would be
challenging, due to the recession. However, we exceeded our
expectation for sales growth. Lowering our expense structure by
implementing more efficient work processes in our stores and
distribution centers, we were able to achieve the best financial
results in the history of our company.
We expect the gross margin and expense improvements that we
achieved during fiscal 2010 to be sustainable into fiscal 2011.
In addition, we expect to increase gross margin and leverage
expenses further during fiscal 2011, and to increase our
operating margin above six percent. We plan to accomplish this
continued improvement by executing our updated strategic plan,
which we continue to refine with targeted new initiatives each
year. All of these initiatives are designed to help us:
|
|
|
|
|
Revitalize our store portfolio;
|
|
|
|
Enhance our marketing and merchandising programs; and
|
|
|
|
Improve our customer shopping experience.
|
Some examples of new initiatives for fiscal 2011 include:
|
|
|
|
|
Accelerate our new store growth and remodel activity;
|
|
|
|
Roll out several dynamic new product assortments and
merchandising programs;
|
|
|
|
Expand our management training program to enhance the skills of
our store management teams; and
|
|
|
|
Introduce a mystery shopper program to provide independent
feedback on store conditions and service, so we can react
quickly to address areas of opportunity.
|
Based on the strong performance from our new, smaller prototype
stores, we will increase our new store openings to at least 30
during fiscal 2011. We then expect to increase the number of new
store openings by at least 10 stores per year over each of the
following four years, for a compounded annual growth rate for
retail square footage of about 2.5 percent over the
five-year period between fiscal 2011 and fiscal 2015.
We plan to increase remodel activity in a similar fashion, since
these projects continue to deliver favorable returns. We will
complete at least 40 remodels during fiscal 2011, plus an
incremental 10 projects per year over the following four years.
This new store and remodel program will result in
95 percent of our store portfolio being either new or
remodeled within the past 10 years, by the time we complete
fiscal 2015.
As the U.S. census is getting underway, early forecasts
suggest that all age groups over 50 will grow by 20 percent
or more for the next decade. These age groups are among our most
active sewers and crafters, so we believe the demographic trends
are favorable for our business in the years to come. At the same
time, we continue to cultivate the next generation of sewers and
crafters with initiatives like our education program, prom
contest and expanded kids craft assortment.
Finally, we believe the improving economy will provide a
continued favorable environment for our performance during
fiscal 2011. We believe that a modest recovery will provide
meaningful benefit, as sales in those categories that struggled
during the recession exert less pressure on same-store sales
trends and promotional and clearance markdowns.
Recent
Developments and Business Update
We are pleased with the progress we have made during fiscal
2010, in one of the most uncertain periods in
U.S. retailing, which made our results challenging to
forecast. As we move into fiscal 2011, we expect a
25
more normalized environment. Based upon our operating
assumptions, our key considerations underlying our outlook for
fiscal 2011 include:
|
|
|
|
|
Same-store sales increase of approximately 2.5% to 3.5% for the
year;
|
|
|
|
Gross margin rate improvement of 20 to 50 basis points for
the year;
|
|
|
|
Selling, general and administrative expenses, as a percentage of
net sales, improvement of 20 to 50 basis points for the
year;
|
|
|
|
Capital expenditures, net of landlord allowances, for the full
year of approximately $50 million;
|
|
|
|
Earnings per diluted share in the range of $2.75 to $2.90 for
the year;
|
|
|
|
Free cash flow in the range of $75 to $80 million for the
year (free cash flow defined as net income plus depreciation and
amortization, stock-based compensation expense and changes in
working capital, less capital expenditures, net of landlord
allowances);
|
|
|
|
Weighted-average diluted share count of approximately
27.7 million shares for the year.
|
We expect fiscal 2011 pre-opening and closing costs of
approximately $13.0 million to $14.0 million as we
plan to open approximately 30 stores and close approximately 30
stores.
We expect fiscal 2011 interest expense to be approximately
$2.5 million, due to commitment fees, the amortization of
deferred financing costs and one month of interest associated
with our senior subordinated notes, all of which were redeemed
at 100 percent of par on March 1, 2010. See
Note 6 Financing, for further detail.
In order to minimize the earnings per share dilution that
results from the issuance of shares under our equity incentive
and employee stock purchase plans, we intend to make limited
share repurchases during fiscal 2011 pursuant to our existing
share repurchase authorization. We have approximately
936,000 shares remaining under this existing authorization.
Our guidance does not reflect future share purchases.
Results of
Operations
The following table sets forth our financial information through
operating profit, expressed as a percentage of net sales. The
following discussion should be read in conjunction with our
consolidated financial statements and related notes.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
Jan 30, 2010
|
|
|
Jan 31, 2009
|
|
|
Feb 2, 2008
|
|
|
Net sales
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
Gross margin
|
|
|
49.0
|
%
|
|
|
46.4
|
%
|
|
|
46.4
|
%
|
Selling, general and administrative expenses
|
|
|
39.9
|
%
|
|
|
40.8
|
%
|
|
|
41.2
|
%
|
Store pre-opening and closing costs
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
|
|
0.4
|
%
|
Depreciation and amortization
|
|
|
2.8
|
%
|
|
|
2.9
|
%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
5.7
|
%
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26
Comparison of the
52 Weeks Ended January 30, 2010, January 31, 2009 and
February 2, 2008
Net sales. Net sales represent retail sales,
net of estimated returns and exclude sales taxes. The following
tables summarize the
year-over-year
comparison of our consolidated net sales and sales by segment
for the periods indicated:
Consolidated Net
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
(Dollars in millions)
|
|
FY10
|
|
|
FY09
|
|
|
FY08
|
|
|
FY10 vs. FY09
|
|
|
FY09 vs. FY08
|
|
|
|
|
Consolidated net sales
|
|
|
$1,990.7
|
|
|
|
$1,901.1
|
|
|
|
$1,878.8
|
|
|
|
4.7
|
%
|
|
|
1.2
|
%
|
Increase from prior year
|
|
|
$89.6
|
|
|
|
$22.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-store sales percentage change
|
|
|
3.1
|
%
|
|
|
0.5
|
%
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010:
Consolidated net sales increased for fiscal
2010. With respect to our stores, same-store sales
increased 3.1 percent compared with a same-store sales
increase of 0.5 percent for fiscal 2009. The increase in
fiscal 2010 same-store sales primarily was driven by an
approximate 3.8 percent increase in customer transactions,
our store remodel and optimization programs, more effective
marketing and the benefit of competitive withdrawals in the
sewing business. Our total store count at the end of the year of
746 was down 18 stores compared with fiscal 2009 and total store
square footage decreased slightly from 16.0 million square
feet at the end of fiscal 2009 to 15.9 million square feet
at the end of fiscal 2010. In total, we opened 20 new stores and
closed 38 stores during fiscal 2010, compared to fiscal 2009
when we opened 21 new stores and closed 31 stores.
Our sewing businesses represented 52 percent of our fiscal
2010 sales volume as compared to 51 percent of our fiscal
2009 sales volume. During fiscal 2010, our sewing businesses
increased approximately 5.6 percent on a same-store sales
basis as compared to an increase of approximately
3.9 percent during fiscal 2009. During fiscal 2010, we
experienced positive same-store sales in the majority of our
fabric and sewing notions merchandise categories, especially in
quilting and sewing notions.
Our non-sewing businesses represented 48 percent of our
fiscal 2010 sales volume compared to 49 percent of our
fiscal 2009 sales volume. During fiscal 2010, our non-sewing
businesses increased 0.3 percent on a same-store sales
basis primarily due to sales in our core craft categories,
particularly paper crafting, yarn and basic crafts. The increase
in our non-sewing businesses was partially offset by a decline
in seasonal categories.
Fiscal
2009:
Overall, consolidated net sales increased for fiscal 2009
primarily due to increased sales in our Joann.com entity. Fiscal
2009 represented our first full year of sales since we acquired
the entity in the fourth quarter of fiscal 2008. With respect to
our stores, same-store sales increased 0.5 percent compared
with a same-store sales increase of 3.5 percent for fiscal
2008. The increase in fiscal 2009 same-store sales primarily was
driven by an approximate 0.5 percent increase in average
ticket due to a continuation of better in-stocks, more effective
marketing and the benefit of competitive withdrawals in the
sewing business. Our total store count at the end of the year of
764 was down ten stores compared with fiscal 2008; however,
total store square footage increased slightly from
15.9 million square feet at the end of fiscal 2008 to
16.0 million square feet at the end of fiscal 2009. In
total, we opened 21 new stores and closed 31 stores during
fiscal 2009, compared to fiscal 2008 when we opened six new
stores and closed 33 stores.
On a category basis, our sewing businesses represented
51 percent of our fiscal 2009 sales volume as compared to
50 percent of our fiscal 2008 sales volume. During fiscal
2009, our sewing businesses increased approximately
3.9 percent on a same-store sales basis as compared to an
increase of approximately 5.6 percent during fiscal 2008.
During fiscal 2009, we experienced positive same-store sales in
the majority of our fabric and sewing notions merchandise
categories, especially in quilting and fleece.
27
Our non-sewing businesses represented 49 percent of our
fiscal 2009 sales volume compared to 50 percent of our
fiscal 2008 sales volume. During fiscal 2009, our non-sewing
businesses decreased 3.4 percent on a same-store sales
basis primarily due to sales declines in seasonal categories.
Excluding seasonal categories, craft same-store sales were
slightly positive during fiscal 2009, with particular strength
in the yarn and basic craft shops.
Sales by
Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
(Dollars in millions)
|
|
FY10
|
|
|
FY09
|
|
|
FY08
|
|
|
FY10 vs. FY09
|
|
|
FY09 vs. FY08
|
|
|
|
|
Large-format stores
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$1,072.9
|
|
|
|
$997.7
|
|
|
|
$989.4
|
|
|
|
7.5
|
%
|
|
|
0.8
|
%
|
Increase from prior year
|
|
|
$75.2
|
|
|
|
$8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-store sales percentage change
|
|
|
1.4
|
%
|
|
|
(1.0
|
)%
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
Small-format stores
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$879.9
|
|
|
|
$867.7
|
|
|
|
$877.5
|
|
|
|
1.4
|
%
|
|
|
(1.1
|
)%
|
Increase (decrease) from prior year
|
|
|
$12.2
|
|
|
|
$(9.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Same-store sales percentage change
|
|
|
5.1
|
%
|
|
|
2.1
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
$37.9
|
|
|
|
$35.7
|
|
|
|
$11.9
|
|
|
|
6.2
|
%
|
|
|
200.0
|
%
|
Increase from prior year
|
|
|
$2.2
|
|
|
|
$23.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010:
Sales for large-format stores increased for fiscal 2010
primarily due to the net increase in the number of new stores
and positive same-store sales.
Same-store sales for large-format stores increased
1.4 percent for fiscal 2010, versus a same-store sales
decrease of 1.0 percent for the same period last year. Our
large-format stores performed well; however, they have a greater
mix of seasonal product and higher ticket items compared to our
small-format stores, which negatively impacted their same-store
sales during fiscal 2010. Customer transactions for large-format
stores increased by approximately 3.4 percent while average
ticket decreased 2.0 percent. Large-format stores accounted
for 53.9 percent and 52.5 percent of total net sales
during fiscal 2010 and fiscal 2009, respectively.
The number of large-format stores increased to 228 from 210 in
fiscal 2009, which is the net result of 15 new stores and six
small-format stores that were reclassified as large-format
stores due to remodeling efforts during fiscal 2010, less the
closing of three large-format stores.
Sales for small-format stores increased for fiscal 2010 due to
the increase in same-store sales, partially offset by the
decrease in store count. We continued to see the ongoing
benefits from store remodels and optimizations in our
small-format stores during fiscal 2010.
The number of small-format stores decreased to 518 in fiscal
2010 from 554 in the prior year, which is the net result of the
opening of five new small-format stores, the closing of 35
small-format stores and the previously mentioned
reclassification of six small-format stores to large-format
stores during the year.
Same-store sales performance for small-format stores increased
5.1 percent for fiscal 2010 versus a same-store sales
increase of 2.1 percent for fiscal 2009. The fiscal 2010
increase in same-store sales for small-format stores was due to
an approximate 4.2 percent increase in customer
transactions combined with an approximate 0.9 percent
increase in average ticket. Small-format stores accounted for
44.2 percent and 45.6 percent of total net sales
during fiscal 2010 and fiscal 2009, respectively.
Sales included in our other segment represent sales
from Joann.com, which was acquired in the fourth quarter of
fiscal 2008.
28
Fiscal
2009:
Sales for large-format stores increased for fiscal 2009
primarily due to the net increase in the number of new stores,
partially offset by negative same-store sales.
Same-store sales for large-format stores decreased
1.0 percent for fiscal 2009, versus a same-store sales
increase of 3.9 percent for fiscal 2008. Large-format
stores have a greater mix of seasonal product and higher ticket
items compared to our small-format stores, which contributed to
the weaker performance of the large-format stores during fiscal
2009. Customer transactions and average ticket for large-format
stores decreased by approximately 0.6 percent and
0.4 percent, respectively. Large-format stores accounted
for 52.5 percent and 52.7 percent of total net sales
during fiscal 2009 and fiscal 2008, respectively.
The number of large-format stores increased to 210 from 196 in
fiscal 2009, which is the net result of eleven new stores and
five small-format stores that were reclassified as large-format
stores due to remodeling efforts during fiscal 2009, less the
closing of two large-format stores.
Sales for small-format stores decreased for fiscal 2009 due to
the decrease in total store count, partially offset by the
increase in same-store sales.
The number of small-format stores decreased to 554 in fiscal
2009 from 578 in the prior year, which is the net result of the
closing of 29 small-format stores, the opening of ten new
small-format stores and the previously mentioned
reclassification of five small-format stores to large-format
stores during the year.
Same-store sales performance for small-format stores increased
2.1 percent for fiscal 2009 versus a same-store sales
increase of 3.0 percent for fiscal 2008. The fiscal 2009
increase in same-store sales for small-format stores was due to
an approximate 1.8 percent increase in average ticket
combined with an approximate 0.3 percent increase in
customer transactions. Small-format stores accounted for
45.6 percent and 46.7 percent of total net sales
during fiscal 2009 and fiscal 2008, respectively.
Sales included in our other segment represent sales
from Joann.com, which was acquired in the fourth quarter of
fiscal 2008. The increase in sales for fiscal 2009 is
attributable to experiencing a full year of sales from Joann.com
as compared to one quarter in fiscal 2008.
Gross
Margin:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
FY10
|
|
|
FY09
|
|
|
FY08
|
|
|
FY10 vs. FY09
|
|
|
FY09 vs. FY08
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
$975.7
|
|
|
|
$882.5
|
|
|
|
$872.4
|
|
|
|
10.6
|
%
|
|
|
1.2
|
%
|
|
|
|
|
|
|
|
|
Increase from prior year
|
|
|
$93.2
|
|
|
|
$10.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of consolidated net sales
|
|
|
49.0
|
%
|
|
|
46.4
|
%
|
|
|
46.4
|
%
|
|
|
260 bps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin increased for fiscal 2010 in relation to the
increase in net sales. As a percent of net sales, gross margin
increased 260 basis points compared with fiscal 2009. The
improvement in the gross margin rate for fiscal 2010 primarily
was due to reduced product costs from global sourcing, product
cost deflation on imports and new systems capabilities. In
addition, our seasonal sell-through for the holiday season
during fiscal 2010 was better than the prior year and allowed us
to sell through seasonal product earlier in the season,
resulting in improved margins.
Gross margin increased for fiscal 2009 in relation to the
increase in net sales. As a percent of net sales, gross margin
was flat compared with fiscal 2008. The margin rate during the
first nine months of fiscal 2009 was up as compared to the same
time period of fiscal 2008, but markdowns taken during the
fourth quarter of fiscal 2009 resulted in comparable gross
margin rates
year-over-year.
In order to ensure a reasonable sell-through of seasonal
merchandise during the fourth quarter of fiscal 2009, we elected
to take pricing actions on seasonal products earlier in the
fourth quarter as compared to the fourth quarter of fiscal 2008.
Selling, general and administrative
expenses. SG&A expenses include store and
administrative payroll, employee benefits, stock-based
compensation, certain distribution costs, store occupancy costs,
advertising
29
expenses and administrative expenses. Some of our competitors
and other retailers include distribution costs and store
occupancy costs in gross margin. The types of distribution costs
that we classify as selling, general and administrative expense
include administrative, occupancy, depreciation, labor and other
indirect costs that are incurred to support the distribution
network. These costs are not directly associated with the value
of the merchandise sold in our stores, but rather they relate
primarily to the handling of merchandise for delivery to our
stores and are expensed as incurred.
Distribution costs included within SG&A amounted to
$49.0 million, $54.3 million and $59.5 million
for fiscal 2010, 2009 and 2008, respectively. Store occupancy
costs included within SG&A amounted to $186.6 million,
$180.5 million and $178.2 million for fiscal 2010,
2009 and 2008, respectively.
Selling, general
and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
FY10
|
|
|
FY09
|
|
|
FY08
|
|
|
FY10 vs. FY09
|
|
|
FY09 vs. FY08
|
|
|
|
|
|
|
|
|
|
|
SG&A
|
|
|
$793.6
|
|
|
|
$775.3
|
|
|
|
$774.8
|
|
|
|
2.4
|
%
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
Increase from prior year
|
|
|
$18.3
|
|
|
|
$0.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of consolidated net sales
|
|
|
39.9
|
%
|
|
|
40.8
|
%
|
|
|
41.2
|
%
|
|
|
(90 bps
|
)
|
|
|
(40 bps
|
)
|
|
|
|
|
|
|
|
|
|
|
SG&A for fiscal 2010 decreased as a percentage of net
sales. Our improved SG&A leverage reflects our continued
focus on controlling costs, which have increased by
2.4 percent during fiscal 2010, while, for the same period,
net sales increased by 4.7 percent as compared to fiscal
2009.
Stock-based compensation expense, which is included within
SG&A, was $10.9 million for fiscal 2010, compared with
$9.4 million in fiscal 2009. Included within stock-based
compensation expense for fiscal 2010 is $1.9 million
related to the Stock Value Bonus Plan.
SG&A for fiscal 2009 decreased as a percentage of net sales
primarily due to our continued efforts to control expenses. The
additional full year sales during fiscal 2009 from Joann.com,
which has a lower expense structure than the retail stores, also
contributed to the improved leverage. Fiscal 2008 only included
three months of sales from Joann.com because the acquisition of
the Internet business was not finalized until the beginning of
the fourth quarter of fiscal 2008.
Stock-based compensation expense, which is included within
SG&A, was $9.4 million for fiscal 2009, compared with
$8.3 million in fiscal 2008.
Store pre-opening and closing
costs. Pre-opening costs are expensed as
incurred. These costs include lease costs recognized prior to
the store opening, hiring and training costs for new employees
and processing of initial merchandise. Store closing costs,
which are also expensed as incurred, consist of lease
termination costs, lease costs for closed locations, loss on
disposal of fixtures and equipment, severance for employees,
third-party inventory liquidator costs and other costs
incidental to store closings.
30
Store pre-opening
and closing costs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
(Dollars in millions)
|
|
FY10
|
|
|
FY09
|
|
|
FY08
|
|
|
FY10 vs. FY09
|
|
|
FY09 vs. FY08
|
|
|
|
|
Store pre-opening and closing costs
|
|
$
|
11.7
|
|
|
$
|
12.3
|
|
|
$
|
8.4
|
|
|
|
(4.9
|
)%
|
|
|
46.4
|
%
|
(Decrease) increase from prior year
|
|
$
|
(0.6
|
)
|
|
$
|
3.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of consolidated net sales
|
|
|
0.6
|
%
|
|
|
0.6
|
%
|
|
|
0.4
|
%
|
|
|
|
|
|
|
20 bps
|
|
|
|
Store pre-opening costs
|
|
$
|
5.5
|
|
|
$
|
7.8
|
|
|
$
|
3.1
|
|
|
|
(29.5
|
)%
|
|
|
151.6
|
%
|
(Decrease) increase from prior year
|
|
$
|
(2.3
|
)
|
|
$
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores opened
|
|
|
20
|
|
|
|
21
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
Store closing costs
|
|
$
|
6.2
|
|
|
$
|
4.5
|
|
|
$
|
5.3
|
|
|
|
37.8
|
%
|
|
|
(15.1
|
)%
|
Increase (decrease) from prior year
|
|
$
|
1.7
|
|
|
$
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Stores closed
|
|
|
38
|
|
|
|
31
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
Store pre-opening and closing costs decreased in fiscal 2010.
Pre-opening costs decreased during fiscal 2010 due to fewer
store openings as well as the timing of the opening of the new
stores in fiscal 2010 compared to fiscal 2009. Store closing
costs increased during fiscal 2010 since we closed seven more
stores in fiscal 2010 compared with fiscal 2009.
Store pre-opening and closing costs increased in fiscal 2009,
due to a net increase in new store activity during fiscal 2009.
Pre-opening costs increased during fiscal 2009 since we opened
more stores in fiscal 2009 than in fiscal 2008. Store closing
costs decreased during fiscal 2009 since we closed fewer stores
in fiscal 2009 compared with fiscal 2008.
Depreciation and amortization. Depreciation
and amortization expense increased $2.1 million to
$56.3 million in fiscal 2010. The increase in depreciation
and amortization expense during fiscal 2010 was due to
incremental depreciation associated with fiscal 2009 and 2010
expenditures related to technology as well as spending on new
stores and remodels.
Depreciation and amortization expense increased
$2.4 million to $54.2 million in fiscal 2009. The
increase in depreciation and amortization expense during fiscal
2009 was due to incremental depreciation associated with our
investment in new store systems and store related expenditures,
including store remodels and new store openings.
Operating
profit:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
(Dollars in millions)
|
|
FY10
|
|
|
FY09
|
|
|
FY08
|
|
|
FY10 vs. FY09
|
|
|
FY09 vs. FY08
|
|
|
|
|
Operating profit
|
|
$
|
114.1
|
|
|
$
|
40.7
|
|
|
$
|
37.4
|
|
|
|
180.3
|
%
|
|
|
8.8
|
%
|
Increase from prior year
|
|
$
|
73.4
|
|
|
$
|
3.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage of consolidated net sales
|
|
|
5.7
|
%
|
|
|
2.1
|
%
|
|
|
2.0
|
%
|
|
|
360 bps
|
|
|
|
10 bps
|
|
|
|
Operating profit for fiscal 2010 increased primarily due to the
increase in same-store sales, improvement in gross margin and
our continued efforts to control expenses.
Operating profit for fiscal 2009 increased primarily due to the
improvement in large-format store operating profit combined with
our continued efforts to control expenses.
31
Operating profit
(loss) by Segment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Percentage
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
|
|
|
Change
|
|
(dollars in millions)
|
|
FY10
|
|
|
FY09
|
|
|
FY08
|
|
|
FY10 vs. FY09
|
|
|
FY09 vs. FY08
|
|
|
|
|
Large-format stores
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
119.6
|
|
|
$
|
69.1
|
|
|
$
|
67.2
|
|
|
|
73.1
|
%
|
|
|
2.8
|
%
|
Increase from prior year
|
|
$
|
50.5
|
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Small-format stores
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
$
|
128.4
|
|
|
$
|
95.9
|
|
|
$
|
96.4
|
|
|
|
33.9
|
%
|
|
|
(0.5
|
)%
|
Increase (decrease) from prior year
|
|
$
|
32.5
|
|
|
$
|
(0.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
$
|
(133.9
|
)
|
|
$
|
(124.3
|
)
|
|
$
|
(126.2
|
)
|
|
|
(7.7
|
)%
|
|
|
1.5
|
%
|
(Increase) decrease from prior year
|
|
$
|
(9.6
|
)
|
|
$
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2010:
The improvement in large-format store operating profit was
driven primarily by the $75.2 million increase in store
sales volume, which was primarily due to the net increase in the
number of new stores, combined with improvement in gross margin
and our continued efforts to control expenses.
The improvement in small-format store operating profit was
driven primarily by a 5.1 percent increase in same-store
sales, which was due partially to the store remodels and
optimizations that occurred during fiscal 2010, combined with
improvement in gross margin and our continued efforts to control
expenses.
The increase in operating loss during fiscal 2010 of our other
segment is primarily due to an increase in incentive
compensation expense based on our current year performance. The
other segment includes unallocated corporate overhead in
addition to the operating results of our Internet business.
Fiscal
2009:
The improvement in large-format store operating profit was
primarily driven by the $8.3 million increase in store
sales volume. The decline in operating profit of the
small-format stores was driven by a $9.8 million decrease
in sales volume. The sales volume fluctuation between
large-format and small-format stores is due to the net overall
14 new large-format stores that were opened during fiscal 2009
as compared to a net 24 small-format store decrease during the
year. The improvement in operating loss during fiscal 2009 of
our other segment is primarily due to our continued efforts to
control expenses. The other segment includes unallocated
corporate overhead in addition to the operating results of our
Internet business.
Gain on purchase of senior subordinated
notes. During fiscal 2010, we recorded a pre-tax
gain of $1.3 million as a result of the purchase of
$18.5 million of our 7.5 percent senior subordinated
notes at an average of 92 percent of par, net of the
related write-off of applicable deferred financing costs. During
fiscal 2009 we recorded a pre-tax gain of $4.2 million, as
a result of the purchase of $34.0 million of our
7.5 percent senior subordinated notes at an average of
87 percent of par, net of the related write-off of
applicable deferred financing costs.
Interest expense. Interest expense for fiscal
2010 decreased $3.1 million to $6.3 million. The
decrease is attributable to lower average debt levels. Our
average debt levels were $50 million in fiscal 2010 versus
$101 million in the prior year. Interest expense for fiscal
2009 decreased $3.1 million to $9.4 million. The
decrease was attributable to lower average debt levels. Our
average debt levels were $101 million in fiscal 2009 versus
$145 million in the prior year.
Income taxes. Our effective income tax rate
for fiscal 2010 increased to 39.0 percent from
38.3 percent in fiscal 2009. The increase in the effective
tax rate is based primarily on the net effect of changes to our
state and local tax positions. Our effective rate is subject to
change based on the mix of income from different
32
state jurisdictions, which tax at different rates, as well as
the change in status or outcome of uncertain tax positions.
Our effective income tax rate for fiscal 2009 increased to
38.3 percent from 38.1 percent in fiscal 2008. The
increase in the effective tax rate was based primarily on the
net effect of changes to our deferred tax assets and to our
reserves for uncertain tax positions. Our effective rate is
subject to change based on the mix of income from different
state jurisdictions, which tax at different rates, as well as
the change in status or outcome of uncertain tax positions.
Store Closing
Charges
Expenses recorded relating to store closings were
$6.2 million, $4.5 million and $5.3 million in
fiscal 2010, 2009 and 2008, respectively. These charges are
included in the line item Store pre-opening and closing
costs in our statements of operations included in our
consolidated financial statements.
The store closing reserve was $0.7 million and
$0.6 million as of January 30, 2010 and
January 31, 2009, respectively. The reserve is comprised of
miscellaneous liquidation costs, which are incurred but not paid.
Stock-Based
Compensation
In fiscal 2010, we granted 165,634 performance shares, 489,340
time-based restricted shares and 278,702 non-qualified stock
options to team members at the Vice President level and above.
Beginning in fiscal 2010, employees below the Vice President
level who participate in the Long-Term Incentive
(LTI) program receive, instead of restricted shares
(and in some cases performance shares) that such employees
formerly received, a cash settled payment under the Stock Value
Bonus Plan.
The Stock Value Bonus Plan takes the participants LTI
value and converts it to units based on the closing stock price
at the grant date. At the end of the fiscal year, the closing
stock price on the third business day following the year-end
earnings release is multiplied times the number of units to
determine the actual LTI incentive, which is limited to
150 percent of the fair market value of the underlying
common shares on the grant date. The value will be locked in and
will be paid in equal installments over a two or three-year
vesting period if the grantee remains in the continuous service
of the company throughout the vesting period.
In fiscal 2009, we granted 105,580 performance shares and
584,853 non-qualified stock options to the Vice President level
and above, and 370,877 time-based restricted shares to team
members at the manager level and above.
In fiscal 2008, we granted 5,633 performance shares to the Vice
President level and above, and 172,435 time-based restricted
shares and 660,173 non-qualified stock options to team members
at the manager level and above. However, we did not grant any
time-based restricted shares to our executive officers with the
exception of 31,847 shares granted to a new executive
officer in connection with his commencement of employment and
which are included in the 172,435 shares mentioned above.
Liquidity and
Capital Resources
Our capital requirements are primarily for capital expenditures
in connection with infrastructure investments, new store
openings, store remodel activity and working capital
requirements for seasonal inventory builds and new store
inventory purchases. Working capital requirements needed to
finance our operations fluctuate during the year and reach their
highest levels during the third fiscal quarter as we increase
our inventory in preparation for our peak selling season during
the months of September through December. These requirements are
funded through a combination of internally generated cash flows
from operations, credit extended by suppliers and borrowings
under our credit facility.
33
The following table provides cash flow related information for
the three fiscal years ended January 30, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Net cash provided by operating activities
|
|
$
|
184.0
|
|
|
$
|
157.9
|
|
|
$
|
73.6
|
|
Net cash used for investing activities
|
|
|
(42.8
|
)
|
|
|
(77.8
|
)
|
|
|
(49.4
|
)
|
Net cash used for financing activities
|
|
|
(4.7
|
)
|
|
|
(24.9
|
)
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
$
|
136.5
|
|
|
$
|
55.2
|
|
|
$
|
7.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending cash and cash equivalents
|
|
$
|
217.1
|
|
|
$
|
80.6
|
|
|
$
|
25.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cash Provided
By Operating Activities
Net cash provided by operating activities increased by
$26.1 million in fiscal 2010. The
year-over-year
increase in cash provided by operations was attributable
primarily to a $44.7 million increase in net income for
fiscal 2010 as compared to fiscal 2009.
Inventories decreased in fiscal 2010 by $12.6 million,
primarily due to reductions occurring in our fashion and
seasonal inventories. Average store level inventory was down
0.8 percent with the balance of the inventory reduction
coming out of our distribution centers. During fiscal 2010, we
maintained consistent store in-stocks and had no holiday
merchandise carryover at year end. Inventory turns for fiscal
2010 were approximately 2.4 compared with 2.3 in fiscal 2009.
Total operating assets and liabilities in fiscal 2010 increased
by $48.5 million, which is net of landlord allowances of
$10.5 million and is primarily the result of a
$28.8 million increase in accrued expenses combined with a
$12.6 million decrease in inventories. The increase in
accrued expenses is primarily the result of a $14.5 million
increase in accrued compensation and $9.8 million increase
in accrued taxes, both of which are directly related to our
improved performance during fiscal 2010. We negotiate landlord
allowances as we build certain new store locations. See the
discussion under Capital Expenditures below.
Net cash provided by operating activities increased by
$84.3 million in fiscal 2009. The increase in net cash
provided by operating activities in fiscal 2009 primarily was
attributable to the decrease in inventories and increase in
accounts payable.
Inventories decreased by $42.8 million in fiscal 2009,
compared with an increase of $18.8 million in fiscal 2008.
The decrease in inventory primarily is due to our inventory
initiatives to reduce seasonal and fashion merchandise. Average
store level inventory was down 5.0 percent with the balance
of the inventory reduction coming out of our distribution
centers. During fiscal 2009, we maintained consistent store
in-stocks and had no holiday merchandise carryover at year end.
Inventory turns for fiscal 2009 were approximately 2.3 compared
with 2.2 in fiscal 2008.
Total operating assets and liabilities in fiscal 2009 increased
by $66.1 million, which is net of landlord allowances of
$11.1 million and is primarily the result of a
$42.8 million reduction in inventory combined with a
$15.7 million increase in accounts payable. We negotiate
landlord allowances as we build certain new store locations.
Net Cash Used For
Investing Activities
Net cash used for investing activities in fiscal 2010 and fiscal
2009 consisted of capital expenditures and a delayed payment
related to the fiscal 2008 acquisition of the remaining equity
of Joann.com. Net cash used for investing activities in fiscal
2008 was comprised of capital expenditures of $37.7 million
and the initial cash purchase price of the acquisition of the
remaining equity of Joann.com of $11.7 million (net of cash
acquired).
34
Capital
Expenditures
Capital expenditures estimated for fiscal 2011 and for the last
three fiscal years consist of cash expenditures and cash
expenditures reimbursed by our landlords. Capital expenditures
primarily relate to the operation of the stores, including new
store openings and information technology. We also incur capital
outlays for distribution center equipment and other non-store
capital investments. Landlord reimbursed capital expenditures
represent the cost of assets acquired with landlord lease
incentives. Capital expenditures are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
Outlook
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(In millions)
|
|
|
Cash
|
|
$
|
50.0
|
|
|
$
|
29.2
|
|
|
$
|
63.6
|
|
|
$
|
28.6
|
|
Cash landlord-reimbursed
|
|
|
14.0
|
|
|
|
10.5
|
|
|
|
11.1
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
64.0
|
|
|
$
|
39.7
|
|
|
$
|
74.7
|
|
|
$
|
37.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures for fiscal 2010 totaled $39.7 million.
Store-related expenditures, including those for our store
openings, accounted for approximately 76 percent, or
$30.3 million, of total capital spending in fiscal 2010.
Expenditures related to technology accounted for approximately
16 percent, or $6.4 million, of total capital spending
in fiscal 2010. During fiscal 2010, we opened 15 large-format
and five small-format stores and remodeled 30 stores.
Capital expenditures for fiscal 2009 totaled $74.7 million.
Store-related expenditures, including those for our store
openings, accounted for approximately 65 percent, or
$48.7 million, of total capital spending in fiscal 2009.
Expenditures related to technology accounted for approximately
31 percent, or $23.3 million, of total capital
spending in fiscal 2009. During fiscal 2009, we opened 11
large-format and ten small-format stores and remodeled 29 stores.
Capital expenditures for fiscal 2008 totaled $37.7 million.
Store-related expenditures, including those for store openings,
accounted for approximately 70 percent, or
$26.4 million, of total capital spending in fiscal 2008.
Expenditures related to technology accounted for approximately
23 percent, or $8.7 million, of total capital spending
in fiscal 2008. During fiscal 2008, we opened six large-format
stores and remodeled 26 stores.
We anticipate that capital expenditures in fiscal 2011 will be
approximately $64 million, or $50 million net of
landlord allowances received. We plan to open approximately 30
new stores. We also plan to remodel at least 40 stores.
Net Cash Used For
Financing Activities
Net cash used for financing activities was $4.7 million in
fiscal 2010 compared with $24.9 million in fiscal 2009.
Debt at the end of fiscal 2010 was $47.5 million and
consisted of our 7.5 percent senior subordinated notes.
Debt levels decreased $18.5 million during fiscal 2010,
compared with a net decrease of $34.0 million in the prior
year. During fiscal 2010, we purchased $18.5 million in
face value of the senior subordinated notes at an average of
92 percent of par. We recorded a pre-tax gain of
$1.3 million, representing the cash discount received net
of the related write-off of applicable deferred financing costs.
These charges are reflected in the gain on purchase of senior
subordinated notes line item in the statement of operations.
On March 1, 2010, the company redeemed all outstanding
principal amount of its 7.5 percent senior subordinated
notes of approximately $47.5 million at par early, which
was announced on January 5, 2010. As such, the company has
classified the senior subordinated notes as short-term as of
January 30, 2010.
Net cash used for financing activities was $24.9 million in
fiscal 2009 compared with $17.2 million in fiscal 2008.
Long-term debt at the end of fiscal 2009 was $66.0 million
and consisted of our 7.5 percent senior subordinated notes.
Debt levels decreased $34.0 million during fiscal 2009,
compared with a net decrease of $25.3 million in the prior
year. During fiscal 2009, we purchased $34.0 million in
face value of the notes at an average of 87 percent of par.
We recorded a pre-tax gain of $4.2 million, representing
the cash discount
35
received net of the related write-off of applicable deferred
financing costs. These charges are reflected in the gain on
purchase of notes line item in the statement of operations.
As of January 30, 2010, we had the ability to borrow up to
an additional $242.5 million under our Amended Credit
Facility.
Common Share
Repurchases
During fiscal 2010, we purchased 106,213 of our common shares at
an aggregate price of $1.8 million, which represented
shares repurchased from employees to satisfy minimum statutory
tax withholding requirements in connection with the vesting of
restricted shares. As of January 30, 2010, we were
authorized to purchase up to an additional 936,053 common shares
under the existing authorization from our Board of Directors.
Sources of
Liquidity
We have three principal sources of liquidity: cash from
operations, cash and cash equivalents on hand and our Amended
Credit Facility.
We believe that our cash and cash equivalents on hand, cash from
operations and availability under our Amended Credit Facility
will be sufficient to cover our working capital, capital
expenditure and debt service requirement needs for the
foreseeable future.
Our liquidity is based, in part, on our debt ratings. As of the
end of fiscal 2010, our long-term unsecured debt was rated
B2 by Moodys Investor Services and
B− by Standard & Poors. Both
Moodys and Standard & Poors rate our
outlook as stable. In September 2009, Moodys raised our
rating on our long-term unsecured debt from B3 to
B2 with a stable outlook. Moodys attributes
the change in ratings to the material improvement in our
financial profile, operating performance and our ability to
continue to generate positive free cash flow. In May 2009,
Standard & Poors raised our rating from
CCC+ to B− with a stable outlook.
The change in ratings by Standard & Poors
reflects its view that our operating results have improved and
the expectation that working capital, free cash flow and debt
protection measures will continue to improve. In assessing our
credit strength, both Moodys and Standard &
Poors consider our capital structure and financial
policies, as well as our consolidated balance sheet and other
financial information. Downgrades of our credit ratings could
adversely impact, among other things, our future borrowing
costs, access to capital markets and new store operating lease
costs, although we anticipate no short-term effect under our
current credit arrangements.
Our debt obligations as of the end of fiscal 2010 represent
$47.5 million outstanding under our 7.5 percent Notes.
Secured Bank Credit Facility. On
September 5, 2008, we entered into the Amended Credit
Facility by amending certain terms and extending the maturity of
our Credit Facility, originally entered into as of
April 24, 2001. The Amended Credit Facility, which expires
on September 5, 2013, is a $300 million revolver with
Bank of America, N.A. and seven other lenders and is secured by
a first priority security interest in our inventory, accounts
receivable, personal property and other assets and is guaranteed
by certain of our wholly-owned subsidiaries. We have the option
to request an increase in the size of the Amended Credit
Facility up to $100 million (for a total facility of
$400 million) in increments of $25 million, provided
that no default exists or would arise from the increase.
However, the lenders under the Amended Credit Facility are not
under any obligation to provide any such additional increments.
Interest on borrowings under the Amended Credit Facility is
calculated at the London Interbank Offered Rate
(LIBOR) plus 1.75 percent to 2.25 percent
or the banks base rate plus 0.75 percent to
1.25 percent, both of which are dependent on the level of
average excess availability during the previous fiscal month.
The Amended Credit Facility contains a
sub-limit
for letters of credit of $200 million. Deferred financing
costs of $2.3 million, of which $0.4 million relates
to the unamortized portion of the deferred financing costs of
the previous Credit Facility, are being amortized over the term
of the Amended Credit Facility. As of January 30, 2010, we
had $18.4 million in standby letters of credit outstanding
under the Amended Credit Facility.
36
We did not borrow on the Amended Credit Facility during fiscal
2010. Our weighted average interest rate and weighted average
borrowings under the Amended Credit Facility were
6.1 percent and $8.1 million during fiscal 2009.
The Amended Credit Facility contains customary covenants that,
among other things, restrict our ability to incur additional
indebtedness or guarantee obligations, engage in mergers or
consolidations, dispose of assets, make investments,
acquisitions, loans or advances, engage in certain transactions
with affiliates, create liens, or change the nature of our
business. We are restricted in our ability to prepay or modify
the terms of other indebtedness, pay dividends and make other
distributions when excess availability, which represents net
borrowing capacity, falls below certain levels. Further, we are
required to comply with a minimum fixed charge ratio covenant,
if excess availability is less than ten percent of the borrowing
base at any time. As of January 30, 2010, excess
availability was $242.5 million. The Amended Credit
Facility also defines various events of default, including
cross-default provisions, defaults for any material judgments or
a change in control. At January 30, 2010, we were in
compliance with all covenants under the Amended Credit Facility.
Failure to comply with these restrictions and covenants could
result in defaults under our Amended Credit Facility. Any
default, if not waived, could result in our debt becoming
immediately due and payable.
In November 2007, we amended our Credit Facility to allow for
the acquisition of the remaining equity of IdeaForest.com, Inc.,
which was renamed Joann.com, Inc. after acquisition and
subsequently converted to a limited liability company named
joann.com, LLC.
Senior Subordinated Notes. On
February 26, 2004, we issued $100 million
7.5 percent notes due 2012. Interest on the notes was
payable on March 1 and September 1 of each year. Deferred
financing costs recorded at issuance of $2.6 million are
reflected in other long-term assets and are being amortized as
interest expense over the term of the notes utilizing the
effective interest method. Beginning March 1, 2008, we had
the option of redeeming the notes at any time, in accordance
with certain call provisions of the related note indenture. The
notes represented unsecured obligations that were subordinated
to the Amended Credit Facility and were fully and
unconditionally guaranteed by certain of our wholly-owned
subsidiaries.
During fiscal 2010, we purchased $18.5 million in face
value of the 7.5 percent notes at an average of
92 percent of par. We recorded a pre-tax gain of
$1.3 million representing the cash discount received net of
the related write-off of applicable deferred financing costs.
This pre-tax gain is reflected on the gain on purchase of senior
subordinated notes line item in the statement of operations.
During fiscal 2009, we purchased $34.0 million in face
value of the 7.5 percent notes at an average of
87 percent of par. We recorded a pre-tax gain of
$4.2 million representing the cash discount received net of
the related write-off of applicable deferred financing costs.
This pre-tax gain is reflected on the gain on purchase of senior
subordinated notes line item in the statement of operations.
The market price of the 7.5 percent senior subordinated
notes at January 30, 2010 in the high yield debt market was
approximately at par value. Accordingly, the fair value of the
notes approximated the carrying value of approximately
$47.5 million.
Subsequent to fiscal 2010 and as of March 1, 2010, we
redeemed all of the outstanding principal amount of our
7.5 percent senior subordinated notes at 100 percent
of par and as a result, we have classified the balance of the
senior subordinated notes as a current liability at
January 30, 2010.
Off-Balance Sheet
Transactions
Our liquidity is not dependent on the use of off-balance sheet
transactions other than letters of credit and operating leases,
which are typical in a retail environment.
37
Contractual
Obligation and Commitments
The following table summarizes our future cash outflows
resulting from contractual obligations and commitments as of
January 30, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
(1)
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
After
|
|
|
|
Total
|
|
|
1 year
|
|
|
1-3 years
|
|
|
4-5 years
|
|
|
5 years
|
|
|
|
(In millions)
|
|
|
7.5 percent senior subordinated
notes(1)
|
|
$
|
47.5
|
|
|
$
|
47.5
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
7.5 percent senior subordinated notes accrued
interest(2)
|
|
|
1.8
|
|
|
|
1.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standby letters of credit
|
|
|
18.4
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase
commitments(3)
|
|
|
16.0
|
|
|
|
2.9
|
|
|
|
9.7
|
|
|
|
3.4
|
|
|
|
|
|
Royalty
commitments(4)
|
|
|
1.2
|
|
|
|
1.1
|
|
|
|
0.1
|
|
|
|
|
|
|
|
|
|
Agent fee
commitments(5)
|
|
|
6.8
|
|
|
|
6.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating leases
|
|
|
827.0
|
|
|
|
151.9
|
|
|
|
264.6
|
|
|
|
196.8
|
|
|
|
213.7
|
|
Uncertain tax
positions(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory
notes(7)
|
|
|
2.4
|
|
|
|
2.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amended Credit Facility
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contractual Cash Obligations
|
|
$
|
921.1
|
|
|
$
|
232.8
|
|
|
$
|
274.4
|
|
|
$
|
200.2
|
|
|
$
|
213.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
On March 1, 2010, we elected to redeem all outstanding
principal amount of our 7.5 percent senior subordinated
notes of approximately $47.5 million at 100 percent of
the principal amount early, which was announced on
January 5, 2010. As such, we classified the senior
subordinated notes as short-term as of January 30, 2010. |
|
(2) |
|
Interest is included as a contractual obligation on the
7.5 percent Notes only. The calculation of interest on the
Amended Credit Facility is dependent on the average borrowings
during the year and a variable interest rate. See
Liquidity and Capital Resources Sources of
Liquidity for further discussion of the Amended Credit
Facility. |
|
(3) |
|
Purchase commitments include legally binding contracts such as
firm commitments for significant inventory purchases. Purchase
orders that are not binding agreements are excluded from the
table. |
|
(4) |
|
Royalty commitments include guaranteed minimum royalty payments
to various designers for use of their name and product line and
is based off a guaranteed minimum sales figure per year. |
|
(5) |
|
Agent fee commissions include minimum commission fees for
sourcing import purchases. |
|
(6) |
|
We have approximately $7.0 million in uncertain tax
positions. However, we are unable to make a reasonably reliable
estimate of the period of cash settlement with the respective
taxing authorities and, therefore, have not included this amount
in the contractual obligations table. See Note 5 to the
consolidated financial statements. |
|
(7) |
|
Represents delayed payments in relation to the Joann.com
acquisition. |
Seasonality and
Inflation
Our business exhibits seasonality, which is typical for most
retail companies. Our sales are 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. Working
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 during the fourth
quarter.
38
Summarized below are key line items by quarter from our
statements of operations and balance sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
|
Fiscal 2009
|
|
|
|
Qtr 1
|
|
|
Qtr 2
|
|
|
Qtr 3
|
|
|
Qtr 4
|
|
|
|
Qtr 1
|
|
|
Qtr 2
|
|
|
Qtr 3
|
|
|
Qtr 4
|
|
|
|
(In millions)
|
|
Net sales
|
|
$
|
460.0
|
|
|
$
|
419.4
|
|
|
$
|
509.1
|
|
|
$
|
602.2
|
|
|
|
$
|
446.1
|
|
|
$
|
403.0
|
|
|
$
|
480.1
|
|
|
$
|
571.9
|
|
Same-store sales percentage change
|
|
|
1.0
|
%
|
|
|
1.8
|
%
|
|
|
4.3
|
%
|
|
|
4.4
|
%
|
|
|
|
4.5
|
%
|
|
|
3.3
|
%
|
|
|
(1.5
|
)%
|
|
|
(2.9
|
)%
|
Gross margin
|
|
$
|
222.9
|
|
|
$
|
206.6
|
|
|
$
|
259.8
|
|
|
$
|
286.4
|
|
|
|
$
|
206.8
|
|
|
$
|
191.8
|
|
|
$
|
235.3
|
|
|
$
|
248.6
|
|
Gross margin percent to sales
|
|
|
48.5
|
%
|
|
|
49.3
|
%
|
|
|
51.0
|
%
|
|
|
47.6
|
%
|
|
|
|
46.4
|
%
|
|
|
47.6
|
%
|
|
|
49.0
|
%
|
|
|
43.5
|
%
|
Operating profit (loss)
|
|
$
|
14.9
|
|
|
$
|
(3.4
|
)
|
|
$
|
41.5
|
|
|
$
|
61.1
|
|
|
|
$
|
7.4
|
|
|
$
|
(16.5
|
)
|
|
$
|
17.3
|
|
|
$
|
32.5
|
|
Operating profit (loss) percent to sales
|
|
|
3.2
|
%
|
|
|
(0.8
|
)%
|
|
|
8.2
|
%
|
|
|
10.1
|
%
|
|
|
|
1.7
|
%
|
|
|
(4.1
|
)%
|
|
|
3.6
|
%
|
|
|
5.7
|
%
|
Net income (loss)
|
|
$
|
8.6
|
|
|
$
|
(3.2
|
)
|
|
$
|
24.1
|
|
|
$
|
37.1
|
|
|
|
$
|
3.0
|
|
|
$
|
(11.7
|
)
|
|
$
|
10.2
|
|
|
$
|
20.4
|
|
Inventories
|
|
|
406.6
|
|
|
|
460.1
|
|
|
|
485.4
|
|
|
|
416.8
|
|
|
|
|
426.9
|
|
|
|
472.6
|
|
|
|
522.3
|
|
|
|
429.4
|
|
Debt
|
|
|
50.5
|
|
|
|
50.5
|
|
|
|
47.5
|
|
|
|
47.5
|
|
|
|
|
100.0
|
|
|
|
100.0
|
|
|
|
112.7
|
|
|
|
66.0
|
|
We believe that inflation has not had a significant effect on
the growth of net sales or on net income (loss) over the past
three years. There can be no assurance, however, that our
operating results will not be affected by inflation in the
future.
Critical
Accounting Policies and Estimates
We strive to report our financial results in a clear and
understandable manner. We follow generally accepted accounting
principles in preparing our consolidated financial statements.
These principles require us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosures of contingent assets and
liabilities. We base our estimates on historical experience and
on other assumptions that we believe to be relevant under the
circumstances, the results of which form the basis for making
judgments about carrying values of assets and liabilities that
are not readily apparent from other sources. Actual results
could differ from these estimates under different assumptions
and/or
conditions. We continually evaluate the information used to make
these estimates as our business and the economic environment
changes. The use of estimates is pervasive throughout our
financial statements. The accounting policies that involve
estimates or assumptions that are material due to levels of
subjectivity and judgment necessary to account for highly
uncertain matters or are susceptible to change and we consider
most critical are as follows:
Inventory
Valuation
Inventories are stated at the lower of cost or market with cost
determined on a weighted average basis. Inventory valuation
methods require certain management estimates and judgments, the
most significant of which involves estimates of net realizable
value on product designated for clearance, which affects the
ending inventory valuation at cost, as well as the gross margin
reported for the year.
We estimate our reserve for clearance product based on a number
of factors, including, but not limited to, quantities of slow
moving or carryover seasonal merchandise on hand, historical
recovery statistics and future merchandising plans. The accuracy
of our estimates can be affected by many factors, some of which
are beyond our control, including changes in economic conditions
and consumer buying trends. The corresponding reduction to gross
margin is recorded in the period the decision is made.
We do not believe that the assumptions used in our estimate will
change significantly based on prior experience. A one percent
increase or decrease in the clearance reserve would have
impacted operating profit by approximately $0.2 million for
the year ended January 30, 2010.
Our accrual for shrink is estimated as a percent of sales. The
percent used in the determination of the accrual is based on
actual historical shrink results of our stores. This estimated
percent is applied to sales of our stores for the periods
following the stores most recent physical inventory. In
addition, we analyze our
39
accrual using actual results as physical inventory counts are
taken and reconciled to the general ledger. Substantially all of
our store physical inventory counts are taken in the first three
quarters of each year. All store locations that have been open
one year or longer are physically inventoried once a year. A ten
basis point increase or decrease in the estimated shrink percent
would have impacted operating profit by approximately
$1.4 million for the year ended January 30, 2010.
Valuation of
Long-Lived Assets and Goodwill
We evaluate recoverability of long-lived assets whenever events
or changes in circumstances indicate that the carrying value may
not be recoverable (for example, when a stores performance
falls below minimum company standards). In the fourth quarter of
each fiscal year or earlier if indicators of impairment exist,
we review the performance of individual stores. Underperforming
stores are selected for further evaluation of the recoverability
of the stores net asset values. If the evaluation, done on
an undiscounted cash flow basis, indicates that a stores
net asset value may not be recoverable, the potential impairment
is measured as the excess of carrying value over the fair value
of the impaired asset. We estimate fair value based on a
projected discounted cash flow method using a discount rate that
is considered to be commensurate with the risk inherent in our
current business model. Additional factors are taken into
consideration, such as local market conditions and operating
environment.
Impairment losses totaling $2.4 million, $2.0 million
and $0.6 million in fiscal 2010, 2009 and 2008,
respectively, were recorded for underperforming stores,
underutilized assets
and/or other
facilities. If different assumptions were made or different
market conditions were present, any estimated potential
impairment amounts could have varied from recorded amounts.
During the fourth quarter of fiscal 2010, we conducted the
annual impairment testing on our goodwill acquired in the
Joann.com acquisition. We consider the Joann.com entity to be a
stand alone operating segment and reporting unit as discrete
financial information is available at this level. As such, we
tested our goodwill for impairment at this level. The impairment
evaluation process is an income-based approach that utilizes
discounted cash flows for the determination of the enterprise
fair value of Joann.com. This process requires significant
judgments, including estimation of future cash flows, which is
dependent on internal forecasts, estimation of the long-term
rate of growth for our business, estimation of the useful life
over which cash flows will occur, and determination of our
weighted average cost of capital (WACC). Changes in
these estimates and assumptions could materially affect the
determination of fair value and goodwill impairment for each
reporting unit. As a result of our impairment analysis, we
determined that our goodwill was not impaired for fiscal 2010.
We used 14.5 percent for WACC for fiscal 2010. A one
percent change in the WACC rate represents an approximate
$1.5 million change to the enterprise fair value of
Joann.com. A one percent change in the terminal growth rate and
long-term growth rate represents an approximate combined
$1.0 million change to the enterprise fair value. Neither
assumption change would have resulted in an impairment for
goodwill. Only significant changes in these assumptions would
result in an enterprise fair value that would be less than the
carrying value of this reporting unit.
Income
Taxes
Income taxes are estimated for each jurisdiction in which we
operate. This involves assessing the current tax exposure
together with temporary differences, which result from differing
treatment of items for tax and book purposes. Deferred tax
assets and liabilities are provided for based on these
assessments. Deferred tax assets are evaluated for
recoverability based on estimated future taxable income. To the
extent that recovery is deemed unlikely, a valuation allowance
is recorded. During fiscal 2010, we increased our valuation
allowance by $0.2 million. The increase was primarily the
result of recording state credits and an associated valuation
allowance against those credits offset by the reduction of the
state net operating loss valuation allowance. Many years of data
have been incorporated into the determination of tax reserves,
and our estimates have historically proven to be reasonable.
40
Stock-Based
Compensation
We have various stock-based compensation plans that we utilize
as compensation for our Board of Directors, executive officers,
senior management and other key employees. Our annual stock
option and restricted stock award grants have averaged about
3.8 percent, 4.5 percent and 3.4 percent of
outstanding shares for fiscal 2010, 2009 and 2008, respectively.
As of January 30, 2010, options to purchase
1.3 million common shares, representing 5.1 percent of
total shares, were outstanding, of which 0.4 million were
exercisable. All of the exercisable options had an exercise
price below the closing
end-of-year
stock price of $35.02.
Beginning in fiscal 2010, employees below the Vice President
level who participate in the LTI program receive, instead of
restricted shares (and in some cases performance shares) that
such employees formerly received, a cash-settled payment under
the Stock Value Bonus Plan. Under the Stock Value Bonus Plan,
the participant receives a payment of an amount equal to the
fair market value of a common share on the date of vesting of
the payout limited to 150% of the grant price of the
companys stock. The value will be locked in and will be
paid in equal installments over a two or three-year vesting
period if the grantee remains in the continuous service of the
company throughout the vesting period.
We estimate the fair value of stock option awards on the date of
grant using the Black-Scholes option-pricing model. This model
requires the input of assumptions, which we update regularly
based on historical trends and current market observations. We
do not pay dividends and no dividend rate assumption was used.
We estimate expected volatility based on the historical
volatility of the price of our common shares over the life of
the awards. We believe the historical volatility is a reasonable
expectation of future volatility. We also use historical
experience to estimate the expected life of stock-based
compensation awards and employee terminations. The risk-free
interest rate is based on the yields of U.S. Treasury
instruments with approximately the same term as the expected
life of stock-based awards granted.
As of January 30, 2010, there was $1.5 million,
$5.8 million and $1.3 million of compensation cost not
yet recognized or earned related to stock options, non-vested
restricted stock awards and cash-settled Stock Value Bonus Plan
payout, respectively, which is expected to be recognized as
earned over weighted-average periods of 1.6, 1.5 and
1.3 years, respectively.
See Notes 1 and 8 to our consolidated financial statements
for more details of our stock-based compensation.
Non-GAAP Financial
Measures
We define free cash flow as net income plus depreciation and
amortization, stock-based compensation expense and changes in
working capital, less capital expenditures, net of landlord
allowances. Free cash flow is considered a non-GAAP financial
measure under the rules of the SEC. We believe that free cash
flow is a relevant financial measure for use in evaluating our
financial performance because it measures our ability to
generate additional cash from our business operations.
Free cash flow should be considered in addition to, rather than
as a substitute for, income from continuing operations as a
measure of our performance or net cash provided by operating
activities as a measure of our liquidity.
41
The following table reconciles net cash provided by operating
activities, a GAAP measure, to free cash flow, a non-GAAP
measure.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
Dollars in millions
|
|
|
Net cash provided by operating activities (GAAP measure)
|
|
$
|
184.0
|
|
|
$
|
157.9
|
|
|
$
|
73.6
|
|
Less operating activities not included in our definition of free
cash flow:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
0.3
|
|
|
|
(6.8
|
)
|
|
|
(0.7
|
)
|
Amortization of deferred financing costs
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
(0.9
|
)
|
Loss on disposal and impairment of fixed assets
|
|
|
(4.4
|
)
|
|
|
(2.9
|
)
|
|
|
(1.6
|
)
|
Gain on purchase of senior subordinated notes
|
|
|
1.3
|
|
|
|
4.2
|
|
|
|
|
|
Increase/(decrease) in lease obligations, net
|
|
|
0.5
|
|
|
|
(9.1
|
)
|
|
|
3.6
|
|
Increase/(decrease) in other long-term liabilities
|
|
|
0.3
|
|
|
|
3.6
|
|
|
|
(12.8
|
)
|
Other, net
|
|
|
(0.1
|
)
|
|
|
(3.4
|
)
|
|
|
0.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net cash provided by operating activities
|
|
|
181.1
|
|
|
|
142.7
|
|
|
|
62.0
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital expenditures
|
|
|
(39.7
|
)
|
|
|
(74.7
|
)
|
|
|
(37.7
|
)
|
Landlord reimbursed capital expenditures
|
|
|
10.5
|
|
|
|
11.1
|
|
|
|
9.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, net of landlord allowances
|
|
|
(29.2
|
)
|
|
|
(63.6
|
)
|
|
|
(28.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Free cash flow (a non-GAAP measure)
|
|
$
|
151.9
|
|
|
$
|
79.1
|
|
|
$
|
33.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recent Accounting
Pronouncements
In April 2009, the FASB issued new guidance related to fair
value measurements. The guidance is intended to provide
additional direction regarding fair value measurements. Included
in this new guidance are:
|
|
|
|
|
a requirement that disclosures regarding fair value of financial
instruments be disclosed on an interim as well as on an annual
basis; and
|
|
|
|
additional guidance regarding (1) estimating the fair value
of an asset or liability when the volume and level of activity
for the asset or liability have significantly declined and
(2) identifying transactions that are not orderly, as well
as requiring disclosures in interim periods of the inputs and
valuation techniques used to measure fair value.
|
This new guidance was effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted.
The company adopted these pronouncements beginning in the third
quarter of fiscal 2010. The adoption of this guidance did not
have a material impact on the companys consolidated
financial statements.
Cautionary
Statement Concerning Forward-Looking Statements
Certain statements contained in this report that are not
historical facts are forward-looking statements within the
meaning of that term set forth in the Private Securities
Litigation Reform Act of 1995. Such forward-looking statements,
which reflect our current views of future events and financial
performance, involve certain risks and uncertainties. When used
herein, the terms anticipates, plans,
estimates, expects,
believes, intends, and similar
expressions as they relate to us or future events or conditional
verbs such as will, should,
would, may, and could are
intended to identify such forward-looking statements. All
statements that address operating performance, events or
developments that we expect or anticipate will occur in the
future are forward-looking statements. Our actual results,
performance or achievements may differ materially 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, the items
described in
42
Item 1A. Risk Factors as well as changes in
general economic conditions, risks in implementing new marketing
initiatives, natural disasters and geo-political events, changes
in customer demand, changes in trends in the fabric and craft
industry, changes in the competitive pricing for products, the
impact of competitors store openings and closings, our
dependence on suppliers, seasonality, disruptions to the
transportation system or increases in transportation costs,
energy costs, our ability to recruit and retain highly qualified
personnel, our ability to manage our inventory, our ability to
effectively manage our distribution network, disruptions to our
information systems, failure to maintain the security of our
electronic and other confidential information, failure to comply
with various laws and regulations, failure to successfully
implement the store growth strategy, changes in accounting
standards and effective tax rates, inadequacy of our insurance
coverage, cash and cash equivalents held at financial
institutions in excess of federally insured limits, volatility
of our stock price, damage to our reputation, and other factors.
We caution readers not to place undue reliance on these
forward-looking statements. We assume no obligation to update
any of the forward-looking statements.
Item 7A. Quantitative
and Qualitative Disclosures About Market Risk
We are indirectly exposed to foreign currency fluctuations on
merchandise that is sourced internationally and the impact of
interest rate changes on our outstanding borrowings under our
Amended Credit Facility.
We believe foreign currency exchange rate fluctuations do not
contain significant market risk due to the nature of our
relationships with our international vendors. All merchandise
contracts are denominated in U.S. dollars and are subject
to negotiation prior to our commitment for purchases. As a
result, there is not a direct correlation between merchandise
prices and fluctuations in the exchange rate. We sourced
approximately 23 percent of our purchases internationally
in fiscal 2010. Our international purchases are concentrated in
China and other Asian countries.
In the normal course of business we employ established policies
and procedures to manage our exposure to changes in interest
rates. Our objective in managing the exposure to interest rate
changes is to limit the volatility and impact of interest rate
changes on earnings and cash flows. This is accomplished through
the debt structure we originally set in place in fiscal 2005,
which consists of the fixed rate $100 million senior
subordinated notes of which $47.5 million were outstanding
at fiscal 2010 year-end but all of which were redeemed
subsequent to year-end, and our Amended Credit Facility, which
is designed to be a working capital facility. We estimate that a
one percent increase or decrease in interest rates, based on
fiscal 2010 average debt levels, would not cause an increase or
decrease to interest expense.
43
|
|
Item 8.
|
Financial
Statements and Supplementary Data
|
Jo-Ann Stores,
Inc.
Index to
Consolidated Financial Statements
44
Report of
Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Jo-Ann Stores,
Inc.:
We have audited the accompanying consolidated balance sheets of
Jo-Ann Stores, Inc. (the company) as of January 30, 2010
and January 31, 2009, and the related consolidated
statements of operations, cash flows, and shareholders
equity for each of the three years in the period ended
January 30, 2010. These financial statements are the
responsibility of the companys management. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Jo-Ann Stores, Inc. at January 30,
2010 and January 31, 2009, and the consolidated results of
its operations and its cash flows for each of the three years in
the period ended January 30, 2010, in conformity with
U.S. generally accepted accounting principles.
Effective February 4, 2007, the company adopted Financial
Accounting Standards Board Interpretation No. 48,
Accounting for Uncertainty in Income Taxes (codified
in FASB ASC Topic 740, Income Taxes).
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States),
Jo-Ann Stores, Inc.s internal control over financial
reporting as of January 30, 2010, based on criteria
established in Internal Control Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission and our report dated April 15, 2010
expressed an unqualified opinion thereon.
Cleveland, Ohio
April 15, 2010
45
Jo-Ann Stores,
Inc.
|
|
|
|
|
|
|
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions, except share and per share data)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
217.1
|
|
|
$
|
80.6
|
|
Inventories
|
|
|
416.8
|
|
|
|
429.4
|
|
Deferred income taxes
|
|
|
22.3
|
|
|
|
22.1
|
|
Prepaid expenses and other current assets
|
|
|
29.9
|
|
|
|
31.7
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
686.1
|
|
|
|
563.8
|
|
Property, equipment and leasehold improvements, net
|
|
|
293.7
|
|
|
|
314.8
|
|
Goodwill, net
|
|
|
11.6
|
|
|
|
11.6
|
|
Other assets
|
|
|
9.0
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,000.4
|
|
|
$
|
899.7
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
151.1
|
|
|
$
|
145.1
|
|
Accrued expenses
|
|
|
128.6
|
|
|
|
102.9
|
|
Senior subordinated notes short term (Note 6)
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
327.2
|
|
|
|
248.0
|
|
Long-term debt
|
|
|
|
|
|
|
66.0
|
|
Long-term deferred income taxes
|
|
|
2.2
|
|
|
|
1.8
|
|
Lease obligations and other long-term liabilities
|
|
|
105.4
|
|
|
|
106.2
|
|
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 29,989,966 and 28,872,085, respectively
|
|
|
1.5
|
|
|
|
1.4
|
|
Additional paid-in capital
|
|
|
234.7
|
|
|
|
211.7
|
|
Retained earnings
|
|
|
377.0
|
|
|
|
310.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613.2
|
|
|
|
523.5
|
|
Treasury stock, at cost, 3,773,890 shares and
3,667,677 shares, respectively
|
|
|
(47.6
|
)
|
|
|
(45.8
|
)
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
565.6
|
|
|
|
477.7
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,000.4
|
|
|
$
|
899.7
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
46
Jo-Ann Stores,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions,
|
|
|
|
except earnings per share data)
|
|
|
Net sales
|
|
$
|
1,990.7
|
|
|
$
|
1,901.1
|
|
|
$
|
1,878.8
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
1,015.0
|
|
|
|
1,018.6
|
|
|
|
1,006.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
975.7
|
|
|
|
882.5
|
|
|
|
872.4
|
|
Selling, general and administrative expenses
|
|
|
793.6
|
|
|
|
775.3
|
|
|
|
774.8
|
|
Store pre-opening and closing costs
|
|
|
11.7
|
|
|
|
12.3
|
|
|
|
8.4
|
|
Depreciation and amortization
|
|
|
56.3
|
|
|
|
54.2
|
|
|
|
51.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit
|
|
|
114.1
|
|
|
|
40.7
|
|
|
|
37.4
|
|
Gain on purchase of senior subordinated notes
|
|
|
(1.3
|
)
|
|
|
(4.2
|
)
|
|
|
|
|
Interest expense, net
|
|
|
6.3
|
|
|
|
9.4
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
109.1
|
|
|
|
35.5
|
|
|
|
24.9
|
|
Income tax provision
|
|
|
42.5
|
|
|
|
13.6
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66.6
|
|
|
$
|
21.9
|
|
|
$
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share basic
|
|
$
|
2.60
|
|
|
$
|
0.88
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
2.51
|
|
|
$
|
0.86
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
47
Jo-Ann Stores,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
January 30,
|
|
|
January 31,
|
|
|
February 2,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Net cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66.6
|
|
|
$
|
21.9
|
|
|
$
|
15.4
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
56.3
|
|
|
|
54.2
|
|
|
|
51.8
|
|
Deferred income taxes
|
|
|
(0.3
|
)
|
|
|
6.8
|
|
|
|
0.7
|
|
Stock-based compensation expense
|
|
|
9.0
|
|
|
|
9.4
|
|
|
|
8.3
|
|
Amortization of deferred financing costs
|
|
|
0.8
|
|
|
|
0.8
|
|
|
|
0.9
|
|
Loss on disposal and impairment of fixed assets
|
|
|
4.4
|
|
|
|
2.9
|
|
|
|
1.6
|
|
Gain on purchase of senior subordinated notes
|
|
|
(1.3
|
)
|
|
|
(4.2
|
)
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Decrease (increase) in inventories
|
|
|
12.6
|
|
|
|
42.8
|
|
|
|
(18.8
|
)
|
Decrease (increase) in prepaid expenses and other current assets
|
|
|
1.8
|
|
|
|
(7.9
|
)
|
|
|
6.6
|
|
Increase (decrease) in accounts payable
|
|
|
6.0
|
|
|
|
15.7
|
|
|
|
(4.2
|
)
|
Increase in accrued expenses
|
|
|
28.8
|
|
|
|
6.6
|
|
|
|
2.9
|
|
(Decrease) increase in lease obligations, net
|
|
|
(0.5
|
)
|
|
|
9.1
|
|
|
|
(3.6
|
)
|
(Decrease) increase in other long-term liabilities
|
|
|
(0.3
|
)
|
|
|
(3.6
|
)
|
|
|
12.8
|
|
Other, net
|
|
|
0.1
|
|
|
|
3.4
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
184.0
|
|
|
|
157.9
|
|
|
|
73.6
|
|
Net cash used for investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(39.7
|
)
|
|
|
(74.7
|
)
|
|
|
(37.7
|
)
|
Payment for acquisition, net of cash acquired
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(42.8
|
)
|
|
|
(77.8
|
)
|
|
|
(49.4
|
)
|
Net cash flows used for financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of senior subordinated notes
|
|
|
(17.0
|
)
|
|
|
(29.5
|
)
|
|
|
|
|
Net change in revolving credit facility
|
|
|
|
|
|
|
|
|
|
|
(25.3
|
)
|
Proceeds from stock-based compensation plans
|
|
|
13.5
|
|
|
|
6.0
|
|
|
|
7.8
|
|
Other, net
|
|
|
(1.2
|
)
|
|
|
(1.4
|
)
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(4.7
|
)
|
|
|
(24.9
|
)
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
136.5
|
|
|
|
55.2
|
|
|
|
7.0
|
|
Cash and cash equivalents at beginning of year
|
|
|
80.6
|
|
|
|
25.4
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
217.1
|
|
|
$
|
80.6
|
|
|
$
|
25.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
5.9
|
|
|
$
|
9.4
|
|
|
$
|
11.6
|
|
Income taxes, net of refunds
|
|
|
30.7
|
|
|
|
2.3
|
|
|
|
(7.2
|
)
|
See notes to consolidated financial statements
48
Jo-Ann Stores,
Inc.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
|
|
|
|
|
Stock
|
|
|
Additional
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Common
|
|
|
Treasury
|
|
|
|
Stated
|
|
|
Paid-In
|
|
|
Treasury
|
|
|
Retained
|
|
|
Shareholders
|
|
|
|
Shares
|
|
|
Shares
|
|
|
|
Value
|
|
|
Capital
|
|
|
Stock
|
|
|
Earnings
|
|
|
Equity
|
|
|
|
(Shares in thousands)
|
|
|
|
|
|
|
|
|
|
(Dollars in millions)
|
|
|
|
|
Balance, February 3, 2007
|
|
|
23,857
|
|
|
|
3,543
|
|
|
|
$
|
1.4
|
|
|
$
|
176.9
|
|
|
$
|
(43.2
|
)
|
|
$
|
274.7
|
|
|
$
|
409.8
|
|
Change in accounting principle for uncertainty in income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.6
|
)
|
|
|
(1.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance, February 3, 2007
|
|
|
23,857
|
|
|
|
3,543
|
|
|
|
|
1.4
|
|
|
|
176.9
|
|
|
|
(43.2
|
)
|
|
|
273.1
|
|
|
|
408.2
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.4
|
|
|
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.4
|
|
Exercise of stock options
|
|
|
350
|
|
|
|
(16
|
)
|
|
|
|
|
|
|
|
5.6
|
|
|
|
0.1
|
|
|
|
|
|
|
|
5.7
|
|
Tax benefit on equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
Stock-based compensation
|
|
|
203
|
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
8.3
|
|
Purchase of common stock
|
|
|
(60
|
)
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
(1.4
|
)
|
Issuance of common stock Associate Stock Ownership
Plan
|
|
|
135
|
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
2.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, February 2, 2008
|
|
|
24,485
|
|
|
|
3,587
|
|
|
|
|
1.4
|
|
|
|
194.6
|
|
|
|
(44.5
|
)
|
|
|
288.5
|
|
|
|
440.0
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
|
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21.9
|
|
Exercise of stock options
|
|
|
406
|
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
4.1
|
|
Tax benefit on equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
Stock-based compensation
|
|
|
248
|
|
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
9.4
|
|
Purchase of common stock
|
|
|
(81
|
)
|
|
|
81
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
(1.3
|
)
|
Issuance of common stock Associate Stock Ownership
Plan
|
|
|
146
|
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 31, 2009
|
|
|
25,204
|
|
|
|
3,668
|
|
|
|
|
1.4
|
|
|
|
211.7
|
|
|
|
(45.8
|
)
|
|
|
310.4
|
|
|
|
477.7
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.6
|
|
|
|
66.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.6
|
|
Exercise of stock options
|
|
|
635
|
|
|
|
|
|
|
|
|
|
|
|
|
11.8
|
|
|
|
|
|
|
|
|
|
|
|
11.8
|
|
Tax benefit on equity compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
0.6
|
|
Stock-based compensation
|
|
|
360
|
|
|
|
|
|
|
|
|
0.1
|
|
|
|
8.9
|
|
|
|
|
|
|
|
|
|
|
|
9.0
|
|
Purchase of common stock
|
|
|
(106
|
)
|
|
|
106
|
|
|
|
|
|
|
|
|
|
|
|
|
(1.8
|
)
|
|
|
|
|
|
|
(1.8
|
)
|
Issuance of common stock Associate Stock Ownership
Plan
|
|
|
123
|
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
1.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 30, 2010
|
|
|
26,216
|
|
|
|
3,774
|
|
|
|
$
|
1.5
|
|
|
$
|
234.7
|
|
|
$
|
(47.6
|
)
|
|
$
|
377.0
|
|
|
$
|
565.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements
49
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements
|
|
Note 1
|
Significant
Accounting Policies
|
Nature of
Operations
Jo-Ann Stores, Inc. (the company), an Ohio
corporation, is a fabric and craft retailer with 746 retail
stores in 48 states at January 30, 2010. The 518
small-format, 228 large-format stores and our website feature a
variety of competitively priced merchandise used in sewing,
crafting and home decorating projects, including fabrics,
notions, crafts, frames, paper crafting material, artificial
floral, home accents, finished seasonal and home décor
merchandise.
The company manages its business in operating segments that are
reportable segments: large-format stores, small-format stores
and other. See Note 12 Segment Reporting for
further detail.
The significant accounting policies applied in preparing the
accompanying consolidated financial statements of the company
are summarized below.
Basis of
Presentation
The consolidated financial statements include the accounts of
the company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Certain amounts
in the fiscal 2009 and 2008 financial statements have been
reclassified to conform to the current year presentation.
Use of
Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States
(GAAP) requires management to make estimates and
assumptions that affect reported amounts of assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Since actual results may differ from those estimates,
the company revises its estimates and assumptions, as new
information becomes available.
Fiscal
Year
The companys fiscal year ends on the Saturday closest to
January 31. Fiscal years consist of 52 weeks, unless
noted otherwise. The fiscal year refers to the year in which the
period ends (e.g., fiscal 2010 refers to the year-ended
January 30, 2010).
Cash and Cash
Equivalents
Cash and cash equivalents include amounts on deposit with
financial institutions and investments held in money market
accounts, with maturities of less than 90 days. The amount
of cash equivalents held in money market accounts at
January 30, 2010 was $89.5 million and the related
weighted-average interest rate was 0.25 percent. We did not
have any cash equivalents held in money market accounts at
January 31, 2009.
Inventories
Inventories are stated at the lower of cost or market with cost
determined on a weighted average basis. Inventory valuation
methods require certain management estimates and judgments,
which affect the ending inventory valuation at cost, as well as
the gross margin reported for the year. These valuation methods
include estimates of net realizable value on product designated
for clearance and estimates of shrink between periods when the
company conducts distribution center inventory cycle counts and
store physical inventories to substantiate inventory balances.
The companys accrual for shrink is based on the actual
historical shrink results of recent distribution center
inventory cycle counts and store physical inventories. These
estimates are compared to actual results as
50
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
physical inventory counts are taken and reconciled to the
general ledger. Substantially all of the companys entire
store physical inventory counts are taken in the first three
quarters of each year and the shrink accrual recorded at
January 30, 2010 is based on shrink results of these prior
physical inventories. All store locations that have been open
one year or longer are physically inventoried once a year. The
company continually monitors and adjusts the shrink rate
estimates based on the results of store physical inventories and
shrink trends.
Inventory reserves for clearance product are estimated based on
a number of factors, including, but not limited to, quantities
of slow moving or carryover seasonal merchandise on hand,
historical recovery statistics and future merchandising plans.
The accuracy of the companys estimates can be affected by
many factors, some of which are outside of the companys
control, including changes in economic conditions and consumer
buying trends.
Consignment inventory is not reflected in the companys
consolidated financial statements. Consignment inventory
consists of patterns, magazines, books, DVDs and greeting cards.
Consignment inventory can be returned to the vendor at any time.
At the time consigned inventory is sold, the company records the
purchase liability in accounts payable and the related cost of
merchandise in cost of sales. The company had approximately
$33.0 million of consignment inventory on hand at
January 30, 2010 and January 31, 2009, respectively.
Property,
Equipment and Leasehold Improvements
Property, equipment and leasehold improvements are stated at
cost less accumulated depreciation and amortization.
Depreciation and amortization are recorded over the estimated
useful life of the assets principally by the straight-line
method. The major classes of assets and ranges of estimated
useful lives are: buildings from ten to 40 years;
furniture, fixtures and equipment from two to ten years; and
leasehold improvements for the lesser of ten years or over the
remaining life of the lease. Maintenance and repair expenditures
are charged to expense as incurred and improvements and major
renewals are capitalized.
Property, equipment and leasehold improvements consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Land and buildings
|
|
$
|
71.1
|
|
|
$
|
70.3
|
|
Furniture, fixtures and equipment
|
|
|
523.7
|
|
|
|
503.6
|
|
Leasehold improvements
|
|
|
169.8
|
|
|
|
158.3
|
|
Construction in progress
|
|
|
11.3
|
|
|
|
22.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
775.9
|
|
|
|
754.7
|
|
Less accumulated depreciation and amortization
|
|
|
(482.2
|
)
|
|
|
(439.9
|
)
|
|
|
|
|
|
|
|
|
|
Property, equipment and leasehold improvements, net
|
|
$
|
293.7
|
|
|
$
|
314.8
|
|
|
|
|
|
|
|
|
|
|
Software
Development
The company capitalized $2.1 million and $9.9 million
in fiscal 2010 and fiscal 2009, respectively, for internal use
software acquired from third parties. The capitalized amounts
are included in property, equipment and leasehold improvements.
The company amortizes internal use software on a straight-line
basis over periods ranging from three to five years beginning at
the time the software becomes operational. Amortization expense
was $4.6 million, $3.6 million and $2.1 million
in fiscal 2010, 2009 and 2008, respectively.
51
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
Goodwill
Goodwill represents the excess of acquisition cost over the fair
value of the net assets of acquired entities. The company
assesses the carrying value of goodwill and other intangible
assets annually or whenever circumstances indicate that a
decline in value may have occurred, utilizing a fair value
approach at the reporting unit level. A reporting unit is the
operating segment, or a business unit one level below that
operating segment, for which discrete financial information is
prepared and regularly reviewed by segment management.
The goodwill impairment test is a two-step impairment test. In
the first step, the company compares the fair value of each
reporting unit to its carrying value. The company determines the
fair value of its reporting units using valuation techniques
including discounted cash flows. If the fair value of the
reporting unit exceeds the carrying value of the net assets
assigned to that reporting unit, goodwill is not considered
impaired. If the carrying value of the net assets assigned to
the reporting unit exceeds the fair value of the reporting unit,
then the company must perform the second step in order to
determine the implied fair value of the reporting units
goodwill and compare it to the carrying value of the reporting
units goodwill. The activities in the second step include
valuing the tangible and intangible assets and liabilities of
the impaired reporting unit based on their fair value and
determining the fair value of the impaired reporting units
goodwill based upon the residual of the summed identified
tangible and intangible assets and liabilities.
The goodwill carried on the companys balance sheet at
January 30, 2010 represented the excess of purchase price
and related costs over the fair value assigned to the net assets
of IdeaForest.com, Inc. (IdeaForest), which was
renamed Joann.com, Inc. upon acquisition and subsequently
converted to a limited liability company named joann.com, LLC.
The company tests goodwill for impairment annually during the
fourth quarter, and more frequently if circumstances indicate
impairment may exist. The company performed its annual
impairment testing as of November 3, 2009 and determined
that no impairment charge was necessary.
Impairment of
Long-Lived Assets
The company evaluates long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of those assets may not be recoverable. Factors
considered important that could trigger an impairment review
include, but are not limited to, significant underperformance
relative to historical or projected future operating results and
significant changes in the manner of use of the assets or the
companys overall business strategies. Potential impairment
exists if the estimated undiscounted cash flow expected to
result from the use of the assets is less than the carrying
value of the asset. The amount of the impairment loss represents
the excess of the carrying value of the asset over its fair
value. Management estimates fair value based on a projected
discounted cash flow method using a discount rate that is
considered to be commensurate with the risk inherent in the
companys current business model. Additional factors are
taken into consideration, such as local market conditions,
operating environment and other trends.
Based on managements ongoing review of the performance of
its stores and other facilities, the following impairment losses
were recorded and are reflected in selling, general and
administrative expenses (SG&A) on the
consolidated statement of operations.
52
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
Large-format stores
|
|
$
|
2.3
|
|
|
$
|
1.9
|
|
|
$
|
0.4
|
|
Small-format stores
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2.4
|
|
|
$
|
2.0
|
|
|
$
|
0.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Store Pre-Opening
and Closing Costs
Store pre-opening costs are expensed as incurred and relate to
the costs incurred prior to a new store opening, which includes
the hiring and training costs for new employees, processing
costs of initial merchandise and rental expense for the period
prior to the store opening for business. See
Note 4 Store Closings for further detail.
The company recognizes 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. In addition, any
liabilities that arise from exit or disposal activities are
initially measured and recorded at fair value. See
Note 4 Store Closings.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Store pre-opening costs
|
|
$
|
5.5
|
|
|
$
|
7.8
|
|
|
$
|
3.1
|
|
Store closing costs
|
|
|
6.2
|
|
|
|
4.5
|
|
|
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
11.7
|
|
|
$
|
12.3
|
|
|
$
|
8.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued
Expenses
The company estimates certain material expenses in an effort to
record those expenses in the period incurred. The companys
most material estimates relate to compensation, taxes and
insurance-related expenses, significant portions of which are
self-insured. The ultimate cost of the companys
workers compensation and general liability insurance
accruals are recorded based on actuarial valuations and
historical claims experience. The companys employee
medical insurance accruals are recorded based on its medical
claims processed as well as historical medical claims experience
for claims incurred but not yet reported. The company maintains
stop-loss coverage to limit the exposure to certain
insurance-related risks. Differences in estimates and
assumptions could result in an accrual requirement materially
different from the calculated accrual. Historically, such
differences have not been significant.
53
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
The current portion of accrued expenses consists of the
following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Accrued taxes
|
|
$
|
28.0
|
|
|
$
|
18.2
|
|
Accrued compensation
|
|
|
35.8
|
|
|
|
21.3
|
|
Workers compensation and general liability insurance
|
|
|
9.3
|
|
|
|
10.4
|
|
Capital expenditures payable
|
|
|
6.4
|
|
|
|
10.2
|
|
Occupancy and rent-related liabilities
|
|
|
16.7
|
|
|
|
16.6
|
|
Customer gift cards
|
|
|
13.2
|
|
|
|
12.2
|
|
Other
|
|
|
19.2
|
|
|
|
14.0
|
|
|
|
|
|
|
|
|
|
|
Total accrued expenses
|
|
$
|
128.6
|
|
|
$
|
102.9
|
|
|
|
|
|
|
|
|
|
|
Lease obligations
and other long-term liabilities
Lease obligations and other long-term liabilities consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Workers compensation and general liability insurance
|
|
$
|
15.2
|
|
|
$
|
14.7
|
|
Occupancy and rent-related liabilities
|
|
|
75.7
|
|
|
|
76.2
|
|
Other
|
|
|
14.5
|
|
|
|
15.3
|
|
|
|
|
|
|
|
|
|
|
Total lease obligations and other long-term liabilities
|
|
$
|
105.4
|
|
|
$
|
106.2
|
|
|
|
|
|
|
|
|
|
|
The long-term portion of certain workers compensation and
general liability accruals are discounted to their net present
value based on expected loss payment patterns determined by
independent actuaries using actual historical payments. Total
discounted insurance liabilities for fiscal years ended 2010 and
2009 were $24.5 million, reflecting a 1.4 percent
discount rate, and $25.1 million, reflecting a
1.5 percent discount rate, respectively. The following
table represents a five year schedule for estimated future
insurance liabilities:
|
|
|
|
|
Fiscal Year-Ended
|
|
Liability
|
|
|
|
(Dollars in millions)
|
|
|
2011
|
|
$
|
9.3
|
|
2012
|
|
|
4.9
|
|
2013
|
|
|
3.6
|
|
2014
|
|
|
2.3
|
|
2015
|
|
|
1.8
|
|
Thereafter
|
|
|
2.6
|
|
|
|
|
|
|
Total workers compensation and general liability insurance
|
|
$
|
24.5
|
|
|
|
|
|
|
Financial
Instruments
A financial instrument is cash or a contract that imposes an
obligation to deliver, or conveys a right to receive cash or
another financial instrument. The carrying values of cash and
cash equivalents and accounts payable are considered to be
representative of fair value due to the short maturity of these
instruments. The
54
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
price of the 7.5 percent senior subordinated notes (the
Notes) at January 30, 2010 in the high yield
debt market was approximately at par value. Accordingly, the
fair value of the Notes approximated their carrying value of
approximately $47.5 million.
In the normal course of business, the company employs
established policies and procedures to manage exposure to
changes in interest rates. The companys objective in
managing the exposure to interest rate changes is to limit the
volatility and impact of interest rate changes on earnings and
cash flows. This is accomplished through the debt structure set
in place in fiscal 2005, which consisted of the fixed rate Notes
and the variable rate senior bank credit facility (the
Credit Facility, and as amended in September 2008,
the Amended Credit Facility), which is designed to
be a working capital facility.
Fair Value
Measurements
In February 2008, the Financial Accounting Standards Board
(FASB) released new guidance which delayed the effective date to
value all non-financial assets and non-financial liabilities,
except those that are recognized or disclosed at fair value on a
recurring basis (at least annually) until the first quarter of
fiscal 2009. The adoption of the new guidance did not have a
significant impact on the consolidated financial statements.
Fair value is defined as an exit price, representing the amount
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants.
As such, fair value is a market-based measurement that should be
determined based on assumptions that market participants would
use in pricing an asset and liability. As a basis for
considering such assumptions, a fair value hierarchy has been
established that prioritizes the inputs used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or
liabilities (level 1 measurement) and the lowest priority
to unobservable inputs (level 3 measurements). The three
levels of the fair value hierarchy are as follows:
Level 1 Quoted prices in active markets for
identical assets or liabilities;
Level 2 Quoted prices for similar instruments
in active markets; quoted prices for identical or similar
instruments in markets that are not active; and
Level 3 Unobservable inputs in which there is
little or no market data which require the reporting entity to
develop its own assumptions.
The companys cash and cash equivalents represent the
financial assets and liabilities that were accounted for at fair
value on a recurring basis as of January 30, 2010. As
required, financial assets and liabilities are classified in
their entirety based on the lowest level of input that is
significant to the fair value measurement. The companys
assessment of the significance of a particular input to the fair
value measurement requires judgment, and may affect the
valuation of fair value assets and liabilities and their
placement within the fair value hierarchy levels. The fair value
of the companys cash and cash equivalents was
$217.1 million at January 30, 2010. These fair values
were determined using Level 1 measurements in the fair
value hierarchy.
The carrying value of the companys debt approximates its
fair value.
Certain assets and liabilities are measured at fair value on a
nonrecurring basis; that is, the assets and liabilities are not
measured at fair value on an ongoing basis but are subject to
fair value adjustments in certain circumstances (e.g., when
there is evidence of impairment). The company recorded an
impairment charge of $2.4 million in fiscal 2010 to reduce
certain store assets to their estimated fair value. The fair
values were determined based on the income approach, in which
the company utilized internal cash flow projections
55
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
over the life of the underlying lease agreements discounted
based on a risk-free rate of return. These measures of fair
value, and related inputs, are considered a level 3
approach under the fair value hierarchy.
Income
Taxes
The company does business in various jurisdictions that impose
income taxes. The aggregate amount of income tax expense to
accrue and the amount currently payable are based upon the tax
statutes of each jurisdiction, pursuant to the asset and
liability method. This process involves adjusting book income
for items that are treated differently by the applicable taxing
authorities. Deferred tax assets and liabilities are reflected
on the balance sheet for temporary differences that will reverse
in subsequent years. Deferred tax assets and liabilities are
measured using tax rates expected to apply to taxable income in
the years in which those temporary differences are estimated to
be recovered or settled. The effect on deferred tax assets and
liabilities of a change in the tax rate is recognized in income
or expense in the period that the change is effective. The
current tax provision can be affected by the mix of income and
identification or resolution of uncertain tax positions. Because
income from different jurisdictions may be taxed at different
rates, the shift in mix during a year or over years can cause
the effective tax rate to change. The rate is based on the best
estimate of an annual effective rate, and those estimates are
updated quarterly. The company also regularly evaluates the
status and likely outcome of uncertain tax positions.
As a matter of course, the company is regularly audited by
federal, state and local tax authorities. Reserves are provided
for potential exposures when it is considered
more-likely-than-not that a taxing authority may take a
sustainable position on a matter contrary to the companys
position. The company evaluates these reserves, including
interest thereon, on a quarterly basis to ensure that they have
been appropriately adjusted for events, including audit
settlements that may impact the ultimate payment for such
exposure.
Revenue
Recognition
Retail sales, net of estimated returns, and excluding sales
taxes, are recorded at the point of sale when payment is made
and customers take possession of the merchandise in stores, at
the point of shipment of merchandise ordered through the
Internet or, in the case of custom orders, when the product is
delivered to the customer and any remaining balance due from the
customer is collected. Deposits received for custom orders are
deferred as a liability until the related product is delivered
to the customer. Shipping and handling fees charged to customers
are also recorded as retail sales with related costs recorded as
cost of goods sold. Sales taxes are not included in retail sales
as the company acts as a conduit for collecting and remitting
sales taxes to the appropriate governmental authorities.
The company allows for merchandise to be returned under most
circumstances. The current policy allows for customers to
receive an even exchange or full refund based upon the original
method of payment when the returned purchase is accompanied with
a receipt and the return is within 90 days of purchase. The
reserve for returns was $1.1 million at January 30,
2010 and $0.5 million at January 31, 2009,
respectively. Returns historically have not had a material
impact on the consolidated financial statements.
Proceeds from the sale of gift cards are recorded as a liability
and recognized as net sales when redeemed by the holder. Gift
card breakage represents the remaining balance of our liability
for gift cards for which the likelihood of redemption by the
customer is remote. Gift card breakage is recognized under the
redemption method and is determined based on the historical
redemption patterns of gift cards sold since fiscal 2002. In
fiscal 2010, 2009 and 2008, we recognized $0.9 million,
$0.7 million and $1.1 million of pre-tax income due to
gift card breakage, respectively. The company is not required by
law to escheat the value of unredeemed gift cards to the states
in which it operates.
56
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
Cost of
Sales
Inbound freight and duties related to import purchases and
internal transfer costs are considered to be direct costs of the
companys merchandise and, accordingly, are recognized when
the related merchandise is sold as cost of sales. Purchasing and
receiving costs, warehousing costs and other costs of the
companys distribution network are considered to be period
costs not directly attributable to the value of merchandise and,
accordingly, are expensed as incurred as SG&A. Distribution
network costs of $49.0 million, $54.3 million and
$59.5 million were included in SG&A expenses for
fiscal 2010, 2009 and 2008, respectively.
The company receives vendor support including cash discounts,
volume discounts, allowances and co-operative advertising. The
company has agreements in place with each vendor setting forth
the specific conditions for each allowance or payment. Depending
on the arrangement, the company either recognizes the allowance
as a reduction of current costs or defers the payment over the
period the related merchandise is sold through cost of sales.
Historically, vendor consideration has not had a significant
impact on cost of sales or gross margin. Payments that are a
reimbursement of specific, incremental and identifiable costs
incurred to promote vendors products are recorded as an
offset against advertising expense.
Operating
Leases
Rent expense for operating leases, which may have escalating
rentals over the term of the lease, is recorded on a
straight-line basis over the initial lease term and those
renewal periods that are reasonably assured. The initial lease
term for the companys stores includes the
build-out period of leases, when no rent payments
are typically due under the terms of the lease. The difference
between rent expense and rent paid is recorded as a deferred
rent liability and is included in the consolidated balance
sheets.
Construction allowances and other incentives received from
landlords are recorded as a deferred rent liability and
amortized to rent expense over the initial term of the lease.
The companys statement of cash flows reflects the receipt
of incentives as an increase in cash flows from operating
activities.
Advertising
Costs
The company expenses production costs of advertising the first
time the advertising takes place. Advertising expense, net of
co-operative advertising agreements, was $67.5 million,
$66.9 million and $67.8 million for fiscal 2010, 2009
and 2008, respectively. Included in prepaid and other current
assets are $1.1 million and $1.0 million,
respectively, at the end of fiscal 2010 and 2009 relating to
prepayments of production costs for advertising.
Earnings Per
Share
Basic earnings per common share are computed by dividing net
income by the weighted average number of shares outstanding
during the year. Diluted earnings per share is computed on the
basis of the weighted average number of shares of common shares
plus the effect of dilutive potential common shares outstanding
during the period using the treasury stock method. Dilutive
potential common shares include the effect of the
57
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
assumed exercise of outstanding stock options and unvested
restricted stock awards. Basic and diluted earnings per common
share are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions, except per share data)
|
|
|
Net income
|
|
$
|
66.6
|
|
|
$
|
21.9
|
|
|
$
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding (shares in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
25,655
|
|
|
|
24,886
|
|
|
|
24,296
|
|
Incremental shares from assumed exercise of stock options
|
|
|
318
|
|
|
|
200
|
|
|
|
324
|
|
Incremental restricted shares
|
|
|
562
|
|
|
|
397
|
|
|
|
330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
26,535
|
|
|
|
25,483
|
|
|
|
24,950
|
|
Net income per common share basic
|
|
$
|
2.60
|
|
|
$
|
0.88
|
|
|
$
|
0.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share diluted
|
|
$
|
2.51
|
|
|
$
|
0.86
|
|
|
$
|
0.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For fiscal 2010, fiscal 2009 and fiscal 2008 the above
calculations of the diluted net income per common share reflects
the impact of stock options that had exercise prices below the
average market price of the companys common shares for the
year. An average of 576,423 stock options for fiscal 2010,
820,339 stock options for fiscal 2009 and 707,303 stock options
for fiscal 2008 were not included in the computation of diluted
net income per common share because the exercise price of the
stock options exceeded the average market price and would have
been anti-dilutive.
Stock-Based
Compensation
Costs associated with stock-based compensation are measured
using the fair value method of accounting. The company estimates
expected forfeitures as of the date the awards are granted and
records compensation expense only for those awards that are
ultimately expected to vest. Stock-based compensation expense is
recognized over the vesting period of the awards.
Cash flows resulting from the tax benefits of deductions in
excess of the compensation cost recognized for stock-based
awards are classified as financing cash flows.
The following table shows the expense recognized by the company
for stock-based compensation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Stock option compensation
expense(a)
|
|
$
|
2.5
|
|
|
$
|
4.3
|
|
|
$
|
2.9
|
|
Restricted stock award amortization
|
|
|
6.5
|
|
|
|
5.1
|
|
|
|
5.4
|
|
Cash-settled Stock Value Bonus Plan
|
|
|
1.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10.9
|
|
|
$
|
9.4
|
|
|
$
|
8.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Included within stock option compensation expense is expense
related to the employee stock purchase plan (the Associate Stock
Ownership Plan or ASOP). The associated expense is
not significant. |
The company estimates the fair value of options granted using
the Black-Scholes option-pricing model. This model requires
several assumptions, which management updates regularly based on
historical trends and current market observations. The fair
values of the options granted under the stock plans are
determined at
58
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
the date of grant. The company does not pay dividends, thus, no
dividend rate assumption is used. The company estimates expected
volatility based on the historical volatility of the price of
the common shares over the expected life of the awards. The
company believes its historical volatility is a reasonable
expectation of future volatility. The company also uses
historical experience to estimate the expected life of
stock-based compensation awards and employee terminations. The
risk-free interest rate is based on applicable
U.S. Treasury yields that approximate the expected life of
stock-based awards granted.
The significant assumptions used to calculate the fair value of
option grants were as follows:
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
2010
|
|
2009
|
|
2008
|
|
Weighted average fair value of options granted
|
|
$5.27
|
|
$4.87
|
|
$7.99
|
Expected volatility of underlying stock
|
|
.550 to .605
|
|
.437 to .459
|
|
.388 to .417
|
Risk-free interest rates
|
|
1.4% to 1.6%
|
|
2.1% to 3.2%
|
|
3.3% to 4.9%
|
Expected life
|
|
2.2 to 5.2 years
|
|
2.2 to 5.2 years
|
|
2.2 to 5.2 years
|
Expected life Associate Stock Ownership Plan
|
|
6 months
|
|
6 months
|
|
6 months
|
See Note 8 Stock-Based Compensation for further
detail.
Recent Accounting
Pronouncements
In February 2008, the FASB issued an accounting standard update
which delayed the effective date of fair value measurements
accounting for non-financial assets and non-financial
liabilities, except for items that are recognized or disclosed
at fair value on a recurring basis (at least annually). The
company adopted the standard for its non-financial assets
(goodwill, property and equipment) during the first quarter
ended May 2, 2009.
The companys non-financial assets are not required to be
measured at fair value on a recurring basis. However, if certain
triggering events occur, or if an annual impairment test is
required, it may be necessary for the company to evaluate the
fair value of its non-financial assets and record them at the
lower of cost or fair value. The company recorded an impairment
charge of $2.4 million in fiscal 2010 to reduce certain
store assets to their estimated fair value. The fair values were
determined based on the income approach, in which the company
utilized internal cash flow projections over the life of the
underlying lease agreements discounted based on a risk-free rate
of return. These measures of fair value, and related inputs, are
considered a level 3 approach under the fair value
hierarchy.
In April 2009, the FASB issued new guidance related to fair
value measurements. The guidance is intended to provide
additional direction regarding fair value measurements. Included
in this new guidance are:
|
|
|
|
|
a requirement that disclosures regarding fair value of financial
instruments be disclosed on an interim as well as on an annual
basis;
|
|
|
|
additional guidance regarding (1) estimating the fair value
of an asset or liability when the volume and level of activity
for the asset or liability have significantly declined and
(2) identifying transactions that are not orderly, as well
as requiring disclosures in interim periods of the
inputs and valuation techniques used to measure fair value.
|
This new guidance is effective for interim and annual periods
ending after June 15, 2009, with early adoption permitted.
The company adopted these pronouncements beginning in the third
quarter of fiscal 2010.
59
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 1
|
Significant
Accounting Policies (Continued)
|
The adoption of this guidance did not have a material impact on
the companys consolidated financial statements.
In May 2009, the FASB issued new guidance that defines
subsequent events as events or transactions that occur after the
balance sheet date, but before the financial statements are
issued. It defines two types of subsequent events: recognized
subsequent events, which provide additional evidence about
conditions that existed at the balance sheet date; and
non-recognized subsequent events, which provide evidence about
conditions that did not exist at the balance sheet date, but
arose before the financial statements were issued. Recognized
subsequent events are required to be recognized in the financial
statements, and non-recognized subsequent events are required to
be disclosed. The statement requires entities to disclose the
date through which subsequent events have been evaluated, and
the basis for that date. However, on February 24, 2010, the
FASB amended its guidance on subsequent events. As a result, SEC
registrants will not disclose the date through which management
evaluated subsequent events in the financial
statements either in originally issued financial
statements or reissued financial statements. This FASB guidance
is consistent with current practice and did not have any impact
on the companys consolidated financial statements.
In June 2009, the FASB issued new guidance that makes the FASB
Accounting Standards Codification (the Codification)
the single source of authoritative U.S. accounting and
reporting standards, but it does not change U.S. GAAP. The
statement is effective for interim and annual periods ending
after September 15, 2009. The Company adopted this
statement as of October 31, 2009. The statement had no
impact on the companys financial position or results of
operations.
Total goodwill carried on the companys balance sheet for
fiscal years 2010 and 2009 represented the excess of purchase
price and related costs over the fair value assigned to the net
assets of IdeaForest, which was renamed Joann.com, Inc. upon
acquisition and subsequently converted to a limited liability
company named joann.com, LLC. joann.com, LLC is included as part
of the companys Other segment.
During the fourth quarter of fiscal 2010, we conducted the
annual impairment testing on our goodwill acquired in the
Joann.com acquisition. We consider the Joann.com entity to be a
stand alone operating segment and reporting unit as discrete
financial information is available at this level. As such, we
tested our goodwill for impairment at this level. The impairment
evaluation process is an income-based approach that utilizes
discounted cash flows for the determination of the enterprise
fair value of Joann.com. Our material assumptions used in our
impairment analysis included the weighted average cost of
capital (WACC) percent, terminal growth rate and
forecasted long-term sales growth. As a result of our impairment
analysis, we determined that our goodwill was not impaired for
fiscal 2010. We used 14.5 percent for WACC for fiscal 2010.
A one percent change in the WACC rate represents an approximate
$1.5 million change to the enterprise fair value of
Joann.com. A one percent change in the terminal growth rate and
long-term growth rate represents an approximate combined
$1.0 million change to the enterprise fair value. Neither
assumption change would have resulted in an impairment for
goodwill. Only significant changes in these assumptions would
result in an enterprise fair value that would be less than the
carrying value of this reporting unit.
On November 5, 2007, the company completed the acquisition
of the 62 percent portion of IdeaForest that the company
previously did not own. IdeaForest was the operator of the
Joann.com website. IdeaForest, which was renamed Joann.com, Inc.
and subsequently converted to a limited liability company named
joann.com, LLC. joann.com, LLC is now a wholly- owned subsidiary
of the company and is included as part of the Other segment.
60
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 3
|
Acquisition
(Continued)
|
Per the merger agreement, the purchase price was
$23.6 million and was comprised of a gross cash payment of
$14.6 million ($11.7 million, net of cash acquired)
which was due upon closing, severance payments of
$0.3 million payable subsequent to closing and delayed
payments of $8.6 million, subject to adjustment, as
described in the agreement, over the three years following the
closing. The delayed payments, before adjustment, are
non-interest bearing and are payable in three installments as
follows: $3.1 million in November 2008, $3.1 million
in November 2009 and $2.4 million in November 2010.
Payments of approximately $3.1 million were made in
November 2009 and 2008, respectively.
Store closing charges included within the consolidated statement
of operations for fiscal years 2010, 2009 and 2008 are
summarized below, and represent charges incurred to close stores
related to the large-format store growth strategy and store
performance. These charges are included in the line item
Store pre-opening and closing costs in the
statements of operations included in the consolidated financial
statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Store Closing Charges:
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable lease obligations
|
|
$
|
1.5
|
|
|
$
|
0.2
|
|
|
$
|
1.3
|
|
Asset-related charges
|
|
|
1.5
|
|
|
|
0.7
|
|
|
|
0.9
|
|
Other store closing costs
|
|
|
3.2
|
|
|
|
3.6
|
|
|
|
3.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6.2
|
|
|
$
|
4.5
|
|
|
$
|
5.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The store closing reserve was $0.7 million and
$0.6 million as of January 30, 2010 and
January 31, 2009, respectively. The reserve is comprised of
miscellaneous liquidation costs, which are incurred but not paid.
Asset-related charges include write-downs of fixed assets to
their estimated fair value for stores closed, or scheduled to be
closed. The asset-related charges represent the difference
between the asset carrying value and the future net discounted
cash flows estimated by the company to be generated by those
assets.
Other costs represent miscellaneous store closing costs,
including, among other things, third-party inventory liquidator
costs and costs related to fixtures, signage and register
removal.
During fiscal 2010, the company made no material changes to tax
related reserves. At the end of fiscal 2010, the companys
unrecognized tax benefits are $7.0 million, of which
$4.5 million would affect the effective tax rate, if
recognized.
The company records interest and penalties on uncertain tax
positions as a component of the income tax provision. The total
amount of interest and penalties accrued as of the end of fiscal
2009 was $3.4 million and as of the end of fiscal 2010
decreased to $3.0 million.
The company files income tax returns in the United States and
various state and local jurisdictions. For U.S. federal,
state and local purposes, the company is no longer subject to
income tax examinations by taxing authorities for fiscal years
prior to fiscal year 2005, with some exceptions for state and
local purposes due to longer statutes of limitations or the
extensions of statutes of limitations. The company believes
that, due to various factors, including the settlement of
ongoing audits and the expiration or extension of underlying
statutes of limitation, it is impractical to determine whether
the total of uncertain tax positions will significantly increase
or decrease within the next twelve months.
61
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 5
|
Income Taxes
(Continued)
|
A reconciliation of the beginning and ending amount of
unrecognized tax benefits for the past three fiscal years is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Balance at beginning of fiscal year
|
|
$
|
8.0
|
|
|
$
|
7.8
|
|
|
$
|
7.6
|
|
Increases related to prior year tax positions
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
Decreases related to prior year tax positions
|
|
|
|
|
|
|
(0.2
|
)
|
|
|
|
|
Increases related to current year tax positions
|
|
|
0.4
|
|
|
|
1.0
|
|
|
|
1.0
|
|
Settlements
|
|
|
(0.9
|
)
|
|
|
|
|
|
|
|
|
Lapse of statute of limitations
|
|
|
(0.5
|
)
|
|
|
(0.8
|
)
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of fiscal year
|
|
$
|
7.0
|
|
|
$
|
8.0
|
|
|
$
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The significant components of the income tax provision are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
36.0
|
|
|
$
|
5.6
|
|
|
$
|
7.3
|
|
State and local
|
|
|
6.8
|
|
|
|
1.2
|
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42.8
|
|
|
|
6.8
|
|
|
|
8.8
|
|
Deferred
|
|
|
(0.3
|
)
|
|
|
6.8
|
|
|
|
0.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
42.5
|
|
|
$
|
13.6
|
|
|
$
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The reconciliation of income tax at the statutory rate to the
income tax provision is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in millions)
|
|
|
Federal income tax at the statutory rate
|
|
$
|
38.2
|
|
|
$
|
12.4
|
|
|
$
|
8.7
|
|
Effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
State and local taxes
|
|
|
5.1
|
|
|
|
1.3
|
|
|
|
1.4
|
|
Other, net
|
|
|
(0.8
|
)
|
|
|
(0.1
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
42.5
|
|
|
$
|
13.6
|
|
|
$
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
62
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 5
|
Income Taxes
(Continued)
|
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and
liabilities for financial reporting purposes and the amounts
used for income tax purposes. The significant components of the
companys deferred tax assets and liabilities are as
follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year
|
|
|
|
Asset/(Liability)
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in millions)
|
|
|
Current
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory items
|
|
$
|
8.6
|
|
|
$
|
10.1
|
|
Lease obligations
|
|
|
0.5
|
|
|
|
0.6
|
|
Employee benefits
|
|
|
7.9
|
|
|
|
7.8
|
|
Valuation allowances
|
|
|
(1.6
|
)
|
|
|
(1.4
|
)
|
Other
|
|
|
6.9
|
|
|
|
5.0
|
|
|
|
|
|
|
|
|
|
|
Net current deferred tax asset
|
|
$
|
22.3
|
|
|
$
|
22.1
|
|
|
|
|
|
|
|
|
|
|
Non-current
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Lease obligations
|
|
$
|
33.7
|
|
|
$
|
33.6
|
|
Employee benefits
|
|
|
8.0
|
|
|
|
8.3
|
|
Federal net operating loss carryforwards
|
|
|
9.5
|
|
|
|
10.5
|
|
State net operating loss carryforwards
|
|
|
1.9
|
|
|
|
2.9
|
|
State credits
|
|
|
4.4
|
|
|
|
3.9
|
|
Other
|
|
|
3.6
|
|
|
|
5.0
|
|
Valuation allowances
|
|
|
(2.5
|
)
|
|
|
(2.5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
58.6
|
|
|
|
61.7
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
(60.2
|
)
|
|
|
(62.9
|
)
|
Other
|
|
|
(0.6
|
)
|
|
|
(0.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(60.8
|
)
|
|
|
(63.5
|
)
|
|
|
|
|
|
|
|
|
|
Net non-current deferred tax liability
|
|
$
|
(2.2
|
)
|
|
$
|
(1.8
|
)
|
|
|
|
|
|
|
|
|
|
Total Deferred Taxes
|
|
$
|
20.1
|
|
|
$
|
20.3
|
|
|
|
|
|
|
|
|
|
|
The company has approximately $27.2 million of gross
federal net operating loss (NOL) carryforwards, with
a net valuation allowance of $0.9 million, and
$21.4 million of gross state NOL carryforwards, with a net
valuation allowance of $0.2 million, which expire in fiscal
year 2020 through fiscal year 2027 and fiscal year 2011 through
fiscal year 2029, respectively. The company has net state tax
credits of $4.4 million, with a valuation allowance of
$3.0 million. The company increased its valuation
allowances in fiscal 2010 to $4.1 million from
$3.9 million in fiscal 2009. The increase was primarily the
result of recording state credits and an associated valuation
allowance against those credits offset by the reduction of the
state NOL valuation allowance.
63
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
Short-term and long-term debt consists of the companys
7.5 percent senior subordinated notes, the balance of which
was $47.5 million and $66.0 million at the end of
fiscal 2010 and 2009, respectively. As of January 30, 2010
and January 31, 2009, the company had no borrowings under
the Amended Credit Facility.
Secured Credit
Facility
On September 5, 2008, the company and certain of its
subsidiaries entered into the Amended Credit Facility by
amending certain terms and extending the maturity of its Credit
Facility, originally entered into as of April 24, 2001. The
Amended Credit Facility, which expires on September 5,
2013, is a $300 million revolver with Bank of America, N.A.
and seven other lenders and is secured by a first priority
security interest in the companys inventory, accounts
receivable, personal property and other assets and is guaranteed
by certain wholly-owned subsidiary of the company. The company
has the option to request an increase in the size of the Amended
Credit Facility up to $100 million (for a total facility of
$400 million) in increments of $25 million, provided
that no default exists or would arise from the increase.
However, the lenders under the Amended Credit Facility are not
under any obligation to provide any such additional increments.
Interest on borrowings under the Amended Credit Facility is
calculated at either LIBOR plus 1.75 percent to
2.25 percent or the banks base rate plus
0.75 percent to 1.25 percent, both of which are
dependent on the level of average excess availability during the
previous fiscal month. The Amended Credit Facility contains a
sub-limit
for letters of credit of $200 million. Deferred financing
costs of $2.3 million, of which $0.4 million relates
to the unamortized portion of the deferred financing costs of
the previous Credit Facility, are being amortized over the term
of the Amended Credit Facility. As of January 30, 2010, the
company had no borrowings outstanding under the Amended Credit
Facility. As of January 30, 2010, the company had
$18.4 million in standby letters of credit outstanding
under the Amended Credit Facility.
The company did not borrow on the Amended Credit Facility during
fiscal 2010. The companys weighted average interest rate
and weighted average borrowings under the Amended Credit
Facility were 6.1 percent and $8.1 million during
fiscal 2009.
The Amended Credit Facility contains customary covenants that,
among other things, restrict the companys ability to incur
additional indebtedness or guarantee obligations, engage in
mergers or consolidations, dispose of assets, make investments,
acquisitions, loans or advances, engage in certain transactions
with affiliates, create liens, or change the nature of its
business. The company is restricted in its ability to prepay or
modify the terms of other indebtedness, pay dividends and make
other distributions when excess availability, which represents
net borrowing capacity, falls below certain levels. Further, the
company is required to comply with a minimum fixed charge ratio
covenant, if excess availability is less than ten percent of the
borrowing base at any time. As of January 30, 2010, excess
availability was $242.5 million. The Amended Credit
Facility also defines various events of default, including
cross-default provisions, defaults for any material judgments or
a change in control. At January 30, 2010, the company was
in compliance with all covenants under the Amended Credit
Facility.
In November 2007, the company amended the Credit Facility to
allow for the acquisition of the remaining equity of
IdeaForest.com, Inc., which was renamed Joann.com, Inc. upon
acquisition and subsequently converted to a limited liability
company named joann.com, LLC.
Senior
Subordinated Notes
On February 26, 2004, the company issued $100 million
7.5 percent senior subordinated notes due on March 1,
2012. Interest on the notes was payable on March 1 and September
1 of each year. Deferred debt costs recorded at issuance of
$2.6 million are reflected in other long-term assets and
are being amortized as interest expense over the term of the
notes utilizing the effective interest method. Beginning
March 1, 2008,
64
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 6
|
Financing
(Continued)
|
the company had the option of redeeming the notes at any time,
in accordance with certain call provisions of the related note
indenture. The notes represented unsecured obligations that were
subordinated to the Amended Credit Facility and were fully and
unconditionally guaranteed by certain of the companys
wholly-owned subsidiaries.
During fiscal 2010, the company purchased $18.5 million in
face value of the 7.5 percent senior subordinated notes at
an average of 92 percent of par. The company recorded a
pre-tax gain of $1.3 million, representing the cash
discount received, net of the related write-off of applicable
deferred financing costs.
During fiscal 2009, the company purchased $34.0 million in
face value of the 7.5 percent senior subordinated notes at
an average of 87 percent of par. The company recorded a
pre-tax gain of $4.2 million, representing the cash
discount received net of the related write-off of applicable
deferred financing costs. This pre-tax gain is reflected on the
purchase of notes line item in the statement of operations.
On March 1, 2010, the company redeemed all outstanding
principal amount of the 7.5 percent senior subordinated
notes of approximately $47.5 million at par early, which
was announced on January 5, 2010. As such, the company has
classified the senior subordinated notes as short-term at
January 30, 2010.
Shareholders
Rights Plan
On February 26, 2007, the company amended and restated its
Shareholders Rights Plan (the Rights Plan).
Under the Rights Plan, as amended and restated, one right is
issued for each common share outstanding. The rights are
exercisable only if a person or group buys or announces a tender
offer for 15 percent or more of the outstanding common
shares. When exercisable, each right initially entitles a holder
of common shares to purchase one common share for $52.17 or
under certain circumstances one common share for $0.43. The
rights, which do not have voting privileges, expire at the close
of business on October 31, 2010, but may be redeemed by the
Board of Directors prior to that time, under certain
circumstances, for $0.005 per right. Until the rights become
exercisable, they have no effect on earnings per share.
Right to Acquire
Shares
The company is a party to an agreement with certain members of
the two founding families of the company, whereby under certain
circumstances, the company has a right of first refusal to
acquire, at market prices, common shares disposed of by either
of the families. Approximately 1.0 million shares are
subject to this agreement as of January 30, 2010.
|
|
Note 8
|
Stock-Based
Compensation
|
The company has various stock-based compensation plans that it
utilizes as compensation for its Board of Directors, executive
officers, senior management and other key employees. The company
issues common shares and stock options under these various
stock-based compensation plans. Stock-based compensation expense
resulting from the issuance of restricted shares and stock
options is recognized over the vesting period of the awards.
Summarized below are the various plans used by the company to
administer its stock-based compensation award programs.
65
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 8
|
Stock-Based
Compensation (Continued)
|
|
|
|
Plan
|
|
Overview
|
|
|
2008 Incentive Compensation Plan (the 2008 Plan)
|
|
Approved by Shareholders on June 11, 2008. Allows for the grant
of stock appreciation rights, stock awards, stock options, stock
purchase rights and incentive compensation awards (payable in
shares or cash) to employees and non-employee directors. It also
allows the operation of a deferred stock program for
non-employee directors. At January 30, 2010, 272,725 stock
options, 714,781 restricted shares and 4,906 deferred stock
units were outstanding under the 2008 Plan.
|
|
|
2008 Associate Stock Ownership Plan
|
|
Approved by Shareholders on June 11, 2008. It allows the
operation of an employee stock purchase program.
|
|
|
1998 Incentive Compensation Plan (the 1998 Plan)
|
|
Previously used to grant stock appreciation rights, stock
awards, stock options, stock purchase rights and incentive
compensation awards (payable in shares or cash) to employees and
non-employee directors. It also allowed the operation of an
employee stock purchase program and a deferred stock program for
non-employee directors. At January 30, 2010, 1,063,559 stock
options, 406,120 restricted shares and 21,906 deferred stock
units were outstanding under the 1998 Plan. This plan terminated
on June 3, 2008. The termination of the plan does not affect
awards that are currently outstanding under the plan.
|
|
|
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.
During fiscal 2010, the remaining 3,225 options were exercised,
so there were no options outstanding under the Directors Stock
Option Plan at January 30, 2010. The Directors Stock Option Plan
was deregistered on September 21, 2009.
|
Stock appreciation rights, stock awards, stock options, stock
purchase rights and incentive compensation awards (payable in
shares or cash) are available for grant to non-employee
directors, executive officers and employees under the 2008 Plan.
The Compensation Committee oversees the 2008 Plan, specifically
approves all awards to non-employee directors, executive
officers and other senior management employees, and approves, on
a program basis, grants to other employees. Stock options,
time-based restricted shares and performance shares have been
issued under this plan.
Stock
Options
The company does not grant stock options with an exercise price
below fair market value on the date of issuance. The employee
options granted under the 2008 Plan generally become exercisable
ratably over a three or four-year span for each full year of
continuous employment or service following the date of grant.
Any non-employee director stock options granted under the 2008
Plan generally would become exercisable to the extent of
one-fourth of the optioned shares for each full year of
continuous service following the date of grant and are
exercisable at their vesting date or upon termination if the
non-employee director terminates service one year or more after
the grant date. No options have been granted to non-employee
directors under the 2008 Plan. Both the employee and
non-employee director stock options expire seven years after the
date of the
66
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 8
|
Stock-Based
Compensation (Continued)
|
grant. Stock options granted under the 2008 Plan may become
exercisable or expire under different terms as approved by the
Compensation Committee of the Board of Directors.
The employee and non-employee director stock options granted
under the 1998 Plan generally become exercisable to the extent
of one-fourth of the optioned shares for each full year of
continuous employment or service following the date of grant and
as of fiscal 2008, non-employee director stock options are
exercisable at their vesting date or upon termination if the
non-employee director terminates service one year or more after
the grant date. Both the employee and non-employee stock options
generally expire seven years after the date of the grant, though
some options granted in the past had ten-year expiration dates.
Stock options granted under the 1998 Plan may become exercisable
or expire under different terms as approved by the Compensation
Committee of the Board of Directors.
The following table summarizes activity, pricing and other
information for the companys stock options for fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
Weighted-Average
|
|
|
Aggregate
|
|
|
|
Number of
|
|
|
Exercise Price
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
Options
|
|
|
Per Option
|
|
|
Contractual Term
|
|
|
Value(a)
|
|
|
Outstanding at January 31, 2009
|
|
|
1,744,845
|
|
|
$
|
18.57
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
278,702
|
|
|
|
12.76
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(634,694
|
)
|
|
|
18.46
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(52,569
|
)
|
|
|
16.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 30, 2010
|
|
|
1,336,284
|
|
|
$
|
17.47
|
|
|
|
4.5 years
|
|
|
$
|
23,458,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest
|
|
|
1,284,238
|
|
|
$
|
17.59
|
|
|
|
4.5 years
|
|
|
$
|
22,386,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at January 30, 2010
|
|
|
396,975
|
|
|
$
|
21.77
|
|
|
|
3.2 years
|
|
|
$
|
5,258,528
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The intrinsic value of a stock option is the amount by which the
fair value of the underlying stock exceeds the exercise price of
the option. |
Restricted Share
Awards Time-Based Awards
The vesting periods for the restricted shares and restricted
stock units granted under the 2008 Plan are up to four years for
employee restricted shares, and one year for non-employee
director restricted shares and restricted stock units. The
vesting periods for the restricted shares and restricted stock
units granted under the 1998 Plan during fiscal 2007 and fiscal
2008 are up to four years for employee restricted shares, and
one year for non-employee director restricted shares and
restricted stock units. As of fiscal 2008, the restrictions
lapse on restricted shares and restricted stock unit awards when
a non-employee director terminates service one year or more
after the grant date and a pro rata acceleration of the lapse of
restrictions occurs when a director terminates service less than
one year after such grants. All restrictions on restricted
shares and restricted stock units terminate if the grantee
remains in the continuous service of the company throughout the
vesting period.
As of January 30, 2010, 1,120,901 restricted shares were
outstanding in which the restrictions lapse upon the achievement
of continued employment over a specified period of time
(time-based restricted share awards).
67
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 8
|
Stock-Based
Compensation (Continued)
|
The following table summarizes activity for the 2008 Plan and
1998 Plan for time-based restricted stock awards for fiscal 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
Number of
|
|
|
Average Grant
|
|
|
|
Shares
|
|
|
Date Fair Value
|
|
|
Outstanding at January 31, 2009
|
|
|
794,654
|
|
|
$
|
16.37
|
|
Granted time-based
|
|
|
553,291
|
|
|
|
14.06
|
|
Granted performance-based
(a)
|
|
|
165,634
|
|
|
|
12.68
|
|
Vested
|
|
|
(365,069
|
)
|
|
|
17.92
|
|
Cancelled
|
|
|
(27,609
|
)
|
|
|
14.70
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 30, 2010
|
|
|
1,120,901
|
|
|
$
|
14.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a |
|
represents performance-based awards that became time-restricted
share awards upon the achievement of the performance criteria as
of January 30, 2010. |
The fair value of restricted shares is determined based on the
closing trading price of the companys shares on the grant
date.
During fiscal 2010, 2009 and 2008, the company granted
time-based restricted share awards with weighted-average
grant-date fair values of $13.74, $14.84 and $24.00,
respectively. As of January 30, 2010, there was
$5.8 million of total unrecognized compensation cost
related to restricted awards expected to vest, which is expected
to be recognized over a weighted-average period of
1.5 years. During fiscal 2010, 2009 and 2008, the total
fair value of shares fully vested was $6.5 million,
$5.6 million and $4.8 million, respectively.
Restricted
Shares Performance-Based Awards
The performance-based awards approved by the Compensation
Committee of the Board of Directors during fiscal 2010, fiscal
2009 and fiscal 2008 are issued only upon the achievement of
specific measurable performance criteria. Performance shares are
awarded at plus or minus the target grant depending upon the
level of achievement of the specified performance metric at the
end of the fiscal year. In fiscal 2010, 2009 and 2008 the
company granted performance shares to its officers. The
performance measurement associated with the fiscal 2010, fiscal
2009 and fiscal 2008 performance shares was the companys
earnings per share during each fiscal year
In fiscal 2010, the threshold for earning any performance shares
was set at earnings per share of $0.69 per share. The Maximum
payout was 150 percent of Target which was reduced from
200 percent of Target in fiscal 2009 and fiscal 2008.
Target was set at $0.86 per share and maximum was set at $0.95
per share. The achievement of the Target performance level for
earnings per share would have resulted in the issuance of
110,422 shares. Fiscal 2010 earnings per share were $2.51,
which exceeded Maximum performance. As a result, the
executive officers and other employees receiving performance
shares earned 150 percent of their target performance
shares, which amounted to 165,634 shares. The expense for
performance-based awards is recognized over the vesting period
when the related criteria are probable of being achieved. The
fiscal 2010 performance shares issued will vest in equal
installments over either a three or four-year period beginning
one year after the original grant date. Expense of
$0.9 million was recognized during fiscal 2010 for these
performance shares.
In fiscal 2009, the threshold for earning any performance shares
was set at earnings per share of $0.72 per share. Target was set
at $0.90 per share and maximum was set at $1.08 per share. The
achievement of the Target performance level for earnings per
share would have resulted in the issuance of
135,675 shares. Fiscal
68
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 8
|
Stock-Based
Compensation (Continued)
|
2009 earnings per share were $0.86, which was between Threshold
and Target. As a result, the executive officers and other
employees receiving performance shares earned approximately
78 percent of their target performance shares, which
amounted to 105,580 shares. The expense for
performance-based awards is recognized over the vesting period
when the related criteria are probable of being achieved. The
fiscal 2009 performance shares issued will vest in equal
installments over either a three or four-year period following
the date of grant. Expense of $0.7 million was recognized
during fiscal 2009 for these performance shares.
In fiscal 2008, the threshold for earning any performance shares
was set at earnings per share of $0.61 per share. Target was set
at $0.75 per share and maximum was set at $0.91 per share. The
achievement of the Target performance level for earnings per
share would have resulted in the issuance of 97,100 shares.
The expense for performance-based awards is recognized over the
vesting period when the related criteria are probable of being
achieved. Based upon the companys fiscal 2008 results,
5,633 performance shares were issued, which will vest in equal
installments over a four-year period following the date of
grant. Expense of $0.1 million was recognized during fiscal
2008 for these performance shares.
Stock Value Bonus
Plan
Effective for fiscal 2010, the Stock Value Bonus Plan takes the
participants long-term incentive (LTI) value
and converts it to units based on the closing stock price at the
grant date. During fiscal 2010, the company granted cash-settled
payouts with a weighted-average grant-date fair value of $12.68.
At the end of fiscal 2010, the closing stock price on the third
business day following the year-end earnings release was
multiplied by the number of units to determine the actual LTI
incentive, which is limited to 150 percent of the fair
market value of the underlying common shares on the grant date.
The value was locked in and will be paid in equal installments
over a two or three-year vesting period if the grantee remains
in the continuous service of the company throughout the vesting
period.
As of January 30, 2010, the company recognized
$1.9 million in compensation expense related to the fiscal
year 2010 Stock Value Bonus Plan payout and there was
$1.3 million of total unrecognized compensation cost
related to the Plan expected to vest, which is expected to be
recognized over a weighted-average period of 1.3 years.
Shares Available
to Grant
The maximum aggregate number of shares that may be issued or
delivered under the 2008 Plan is 1,825,000 shares. Any
shares that are subject to awards of stock options or stock
appreciation rights are counted against this limit as one share
for every one share delivered under the award. Any shares that
are subject to awards other than stock options or stock
appreciation rights are counted against this limit as
1.57 shares for every one share delivered under those
awards. The number of shares available for future awards under
the 2008 Plan as of January 30, 2010 was 866,344. In
addition, shares subject to prior awards made under the 1998
Plan that are forfeited become available for grant under the
2008 Plan.
Employee Stock
Purchase Program
The employee stock purchase program (the 2008 Associate Stock
Ownership Plan or 2008 ASOP) enables all employees,
except temporary and seasonal employees, to purchase shares of
the companys common shares on offering dates at six-month
intervals, at a purchase price equal to 85 percent of the
lesser of the fair market value of the common shares on the
first or last day of the offering period. The 2008 ASOP meets
the requirements of Section 423 of the Internal Revenue
Code of 1986, as amended, and the company is, therefore, not
required to file income tax returns or pay income taxes with
respect to the plan. The company obtained shareholder approval
of the 2008 ASOP at its 2008 Annual Meeting of Shareholders. The
total number of shares
69
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 8
|
Stock-Based
Compensation (Continued)
|
authorized for sale over the term of the 2008 ASOP is limited to
600,000 shares. Prior to the 2008 ASOP, the company
operated an employee stock purchase plan (1998 ASOP)
under its 1998 Plan, which expired on June 3, 1998.
During fiscal 2010, stock purchase rights of 123,153 shares
were granted and exercised under the 2008 ASOP. Stock purchase
rights of 146,249 shares and 134,942 shares,
respectively, were granted and exercised under the 1998 ASOP
during fiscal 2009 and 2008, respectively. The 15 percent
discount from market value granted to 2008 and 1998 ASOP
participants on the purchase of shares at the end of each
accumulation period represents the companys non-cash
contribution to the 2008 and 1998 ASOP and is recognized as
compensation expense. The stock-based compensation expense was
not significant for any of the years presented.
Non-Employee
Directors Deferred Stock Program
The company maintains a deferred stock program for non-employee
directors under its 2008 Plan. This program allows non-employee
directors to elect to convert their cash compensation into
deferred stock units. Under this feature, non-employee directors
make an irrevocable election prior to each calendar year whereby
they can elect to convert a percentage (0 percent to
100 percent in 25 percent increments) of their cash
compensation for the following calendar year to deferred stock
units. The conversion of cash compensation to deferred stock
units is based on the closing market price of the companys
common shares on the date the cash compensation would have been
payable if it were paid in cash. These deferred stock units are
credited to an account of each non-employee director, although
no stock is issued until the earlier of an elected distribution
date, as selected by the non-employee director, or retirement.
Prior to the 2008 Plan, the company operated a deferred stock
program for non-employee directors under its 1998 Plan, which
expired on June 3, 1998.
During fiscal 2010, 3,052 deferred stock units were deferred
under the 2008 plan. During fiscal 2009, 1,854 deferred stock
units were deferred under the 2008 plan, while 1,905 deferred
stock units were deferred under the 1998 Plan. During fiscal
2008, 842 deferred stock units were deferred under the deferred
stock program under the 1998 Plan.
|
|
Note 9
|
Savings Plan
Retirement and Postretirement Benefits
|
The company sponsors the Jo-Ann Stores, Inc. 401(k) Savings Plan
(the Savings Plan), which is a tax deferred savings
plan whereby eligible employees may elect to contribute up to
the lesser of 15 percent of annual compensation or the
statutory maximum. The company makes a 50 percent matching
contribution up to a maximum employee contribution of six
percent of the employees annual compensation. The company
match is made in cash and is participant-directed. The amount of
the companys matching contributions during fiscal 2010,
2009 and 2008 were $1.8 million, $1.8 million and
$1.7 million, respectively. The company does not provide
postretirement health care benefits for its employees.
The company participates in a multi-employer pension plan for
its union employees located at the Hudson Distribution Center.
The Plan is administered by the United Steelworkers Union. The
Plan is the Steelworkers Pension Trust and the
company contributed $0.5 million, $0.6 million and
$0.6 million for fiscal years 2010, 2009 and 2008,
respectively.
|
|
Note 10
|
Commitments and
Contingencies
|
On July 21, 2008, a purported wage and hour class action
was filed against the company in Superior Court of the State of
California, County of Los Angeles. In the complaint, as amended,
six former company employees, individually and on behalf of the
purported class members, alleged, among other things, that
certain current and former California store team leaders
employed by the company since July 21, 2004 were
70
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 10
|
Commitments and
Contingencies (Continued)
|
classified improperly as exempt employees (and thus not paid for
overtime work), and that current and former hourly employees
employed by the companys California stores since
July 21, 2004 missed rest and meal breaks for which they
were not properly compensated and at times worked off the clock
without compensation. In November 2009, the court granted
preliminary approval of a negotiated settlement. The negotiated
settlement provides for the payment by the company of up to
$5.0 million, depending on the number of claims that are
filed by the purported class members. The company has fully
reserved for the total amount expected to be incurred by the
company in connection with this litigation and the negotiated
settlement.
The company is involved in various litigation matters in the
ordinary course of its business. The company is not currently
involved in any litigation that it expects, either individually
or in the aggregate, will have a material adverse effect on its
financial condition or results of operations.
With the exception of one large-format store, all of the
companys retail stores operate out of leased facilities.
Our store leases generally have initial terms of five to
15 years with renewal options for up to 20 years. The
company also leases certain computer and store equipment, with
lease terms that are generally five years or less. Included in
the future minimum rental payments is the operating lease for
our distribution center located in Visalia, California. The
lease has an initial term of 20 years.
The company recognizes lease expense for step rent provisions,
escalation clauses, rent holiday, capital improvement funding
and other lease concessions using the straight-line method over
the minimum lease term. The company does have lease arrangements
that have minimum lease payments dependent on an existing index
or rate, such as the consumer price index or the prime interest
rate. Certain leases contain escalation clauses and provide for
contingent rents based on a percent of sales in excess of
defined minimums. In certain instances, the company is required
to pay its pro rata share of real estate taxes and common area
maintenance expenses.
The following is a schedule of future minimum rental payments
under non-cancelable operating leases. Future minimum rental
payments are reduced by $17.0 million of sublease income.
|
|
|
|
|
|
|
Minimum
|
|
Fiscal Year-Ended
|
|
Rentals
|
|
(Dollars in millions)
|
|
|
|
|
2011
|
|
$
|
151.9
|
|
2012
|
|
|
139.5
|
|
2013
|
|
|
125.1
|
|
2014
|
|
|
106.9
|
|
2015
|
|
|
89.9
|
|
Thereafter
|
|
|
213.7
|
|
|
|
|
|
|
|
|
$
|
827.0
|
|
|
|
|
|
|
71
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 11
|
Leases
(Continued)
|
Rent expense excluding common area maintenance and real estate
taxes was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
(Dollars in millions)
|
|
|
|
|
|
|
|
|
|
|
Minimum rent expense
|
|
$
|
149.6
|
|
|
$
|
147.9
|
|
|
$
|
146.4
|
|
Contingent rent expense
|
|
|
1.7
|
|
|
|
1.5
|
|
|
|
1.6
|
|
Sublease rent expense
|
|
|
(8.7
|
)
|
|
|
(9.9
|
)
|
|
|
(9.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142.6
|
|
|
$
|
139.5
|
|
|
$
|
138.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 12
|
Segment
Reporting
|
At January 30, 2010, the company operated 228 large-format
stores and 518 small-format stores. The company considers stores
that generally average more than approximately
24,000 square feet of retail space as large-format stores.
The companys small-format stores generally average less
than approximately 24,000 square feet. The size of the
store is not the only factor in determining its classification
as large-format or small-format. The most important distinction
for determining the classification of a large-format store is
whether or not stores in the range have been recently built or
remodeled and contain a broad assortment of craft categories.
The company has reportable segments, which include large-format
stores, small-format stores and other. The financial results of
the companys Joann.com Internet business are included in
the other segment. The small-format stores offer a complete
selection of fabric and a convenience assortment of crafts,
artificial floral, finished seasonal and home décor
merchandise. The large-format stores offer an expanded and more
comprehensive product assortment than the small-format stores.
The large-format stores also generally offer custom framing and
educational programs that the small-format stores do not. The
other category includes unallocated corporate assets
and overhead in addition to the operating results of the
Joann.com Internet business. The segments are evaluated based on
revenues and operating profit contribution to the total
corporation. All income and expense items below operating profit
are not allocated to the segments and are not disclosed.
Certain information not routinely used in the management of
these segments or information that is impractical to report is
not shown. The company does not report assets other than
property, equipment and leasehold improvements by segment
because not all assets are allocated to segments for purposes of
measurement by the companys chief operating decision
maker. The accounting policies of the companys segments
are consistent with those described in Note 1.
72
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 12
|
Segment Reporting
(Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Large-format
|
|
|
Small-format
|
|
|
|
|
|
|
|
|
|
Stores
|
|
|
Stores
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,072.9
|
|
|
$
|
879.9
|
|
|
$
|
37.9
|
|
|
$
|
1,990.7
|
|
Store pre-opening and closing costs
|
|
|
3.7
|
|
|
|
8.0
|
|
|
|
|
|
|
|
11.7
|
|
Depreciation and amortization
|
|
|
31.5
|
|
|
|
10.6
|
|
|
|
14.2
|
|
|
|
56.3
|
|
Operating profit (loss)
|
|
|
119.6
|
|
|
|
128.4
|
|
|
|
(133.9
|
)
|
|
|
114.1
|
|
Capital expenditures
|
|
|
10.9
|
|
|
|
17.6
|
|
|
|
11.2
|
|
|
|
39.7
|
|
Property, equipment and leasehold improvements, net
|
|
|
148.1
|
|
|
|
53.5
|
|
|
|
92.1
|
|
|
|
293.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
997.7
|
|
|
$
|
867.7
|
|
|
$
|
35.7
|
|
|
$
|
1,901.1
|
|
Store pre-opening and closing costs
|
|
|
5.9
|
|
|
|
6.4
|
|
|
|
|
|
|
|
12.3
|
|
Depreciation and amortization
|
|
|
31.6
|
|
|
|
9.3
|
|
|
|
13.3
|
|
|
|
54.2
|
|
Operating profit (loss)
|
|
|
69.1
|
|
|
|
95.9
|
|
|
|
(124.3
|
)
|
|
|
40.7
|
|
Capital expenditures
|
|
|
35.5
|
|
|
|
13.2
|
|
|
|
26.0
|
|
|
|
74.7
|
|
Property, equipment and leasehold improvements, net
|
|
|
162.7
|
|
|
|
49.5
|
|
|
|
102.6
|
|
|
|
314.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
989.4
|
|
|
$
|
877.5
|
|
|
$
|
11.9
|
|
|
$
|
1,878.8
|
|
Store pre-opening and closing costs
|
|
|
2.7
|
|
|
|
5.7
|
|
|
|
|
|
|
|
8.4
|
|
Depreciation and amortization
|
|
|
31.6
|
|
|
|
8.4
|
|
|
|
11.8
|
|
|
|
51.8
|
|
Operating profit (loss)
|
|
|
67.2
|
|
|
|
96.4
|
|
|
|
(126.2
|
)
|
|
|
37.4
|
|
Capital expenditures
|
|
|
11.5
|
|
|
|
15.1
|
|
|
|
11.1
|
|
|
|
37.7
|
|
Property, equipment and leasehold improvements, net
|
|
|
168.6
|
|
|
|
35.1
|
|
|
|
93.8
|
|
|
|
297.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13
|
Quarterly
Financial Information (Unaudited)
|
Summarized below are the unaudited results of operations by
quarter for fiscal 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Fiscal 2010
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
(Dollars in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
460.0
|
|
|
$
|
419.4
|
|
|
$
|
509.1
|
|
|
$
|
602.2
|
|
Gross margin
|
|
|
222.9
|
|
|
|
206.6
|
|
|
|
259.8
|
|
|
|
286.4
|
|
Net income (loss)
|
|
|
8.6
|
|
|
|
(3.2
|
)
|
|
|
24.1
|
|
|
|
37.1
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.34
|
|
|
$
|
(0.13
|
)
|
|
$
|
0.94
|
|
|
$
|
1.42
|
|
Diluted
|
|
|
0.33
|
|
|
|
(0.13
|
)
|
|
|
0.90
|
|
|
|
1.36
|
|
73
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 13
|
Quarterly
Financial Information (Unaudited) (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First
|
|
|
Second
|
|
|
Third
|
|
|
Fourth
|
|
Fiscal 2009
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
|
Quarter
|
|
(Dollars in millions, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
446.1
|
|
|
$
|
403.0
|
|
|
$
|
480.1
|
|
|
$
|
571.9
|
|
Gross margin
|
|
|
206.8
|
|
|
|
191.8
|
|
|
|
235.5
|
|
|
|
248.6
|
|
Net income (loss)
|
|
|
3.0
|
|
|
|
(11.7
|
)
|
|
|
10.2
|
|
|
|
20.4
|
|
Net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.12
|
|
|
$
|
(0.47
|
)
|
|
$
|
0.41
|
|
|
$
|
0.81
|
|
Diluted
|
|
|
0.12
|
|
|
|
(0.47
|
)
|
|
|
0.40
|
|
|
|
0.79
|
|
|
|
Note 14
|
Consolidating
Financial Statements
|
The companys 7.5 percent senior subordinated notes
and Amended Credit Facility are fully and unconditionally
guaranteed, on a joint and several basis, by the companys
wholly-owned subsidiaries. The Notes are subordinated to the
companys Amended Credit Facility. Effective July 5,
2009, the company restructured its legal entities, resulting in
all but one of its wholly-owned subsidiaries becoming
consolidated into the parent entity and the transfer of certain
assets from the parent to a newly-formed subsidiary which became
a guarantor of the Notes and Amended Credit Facility. The
guarantor subsidiaries represent the new subsidiary and one
remaining subsidiary that were not consolidated into the parent
entity. On March 1, 2010, the company redeemed all
outstanding principal amount of its 7.5 percent senior
subordinated notes of approximately $47.5 million at par
early, which was announced on January 5, 2010.
74
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 14
|
Consolidating
Financial Statements (Continued)
|
Summarized consolidating financial information of the company
(excluding its subsidiaries) and the guarantor subsidiaries as
of and for fiscal years 2010, 2009 and 2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 30, 2010
|
|
|
January 31, 2009
|
|
Consolidating
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
Balance Sheets
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
217.1
|
|
|
$
|
|
|
|
|
|
|
|
$
|
217.1
|
|
|
$
|
55.0
|
|
|
$
|
25.6
|
|
|
|
|
|
|
$
|
80.6
|
|
Inventories
|
|
|
416.8
|
|
|
|
|
|
|
|
|
|
|
|
416.8
|
|
|
|
206.5
|
|
|
|
222.9
|
|
|
|
|
|
|
|
429.4
|
|
Deferred income taxes
|
|
|
20.1
|
|
|
|
2.2
|
|
|
|
|
|
|
|
22.3
|
|
|
|
14.8
|
|
|
|
7.3
|
|
|
|
|
|
|
|
22.1
|
|
Prepaid expenses and other current assets
|
|
|
27.0
|
|
|
|
2.9
|
|
|
|
|
|
|
|
29.9
|
|
|
|
25.5
|
|
|
|
6.2
|
|
|
|
|
|
|
|
31.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
681.0
|
|
|
|
5.1
|
|
|
|
|
|
|
|
686.1
|
|
|
|
301.8
|
|
|
|
262.0
|
|
|
|
|
|
|
|
563.8
|
|
Property, equipment and leasehold improvements, net
|
|
|
281.8
|
|
|
|
11.9
|
|
|
|
|
|
|
|
293.7
|
|
|
|
165.5
|
|
|
|
149.3
|
|
|
|
|
|
|
|
314.8
|
|
Goodwill, net
|
|
|
|
|
|
|
11.6
|
|
|
|
|
|
|
|
11.6
|
|
|
|
11.6
|
|
|
|
|
|
|
|
|
|
|
|
11.6
|
|
Other assets
|
|
|
3.1
|
|
|
|
5.9
|
|
|
|
|
|
|
|
9.0
|
|
|
|
(3.9
|
)
|
|
|
13.4
|
|
|
|
|
|
|
|
9.5
|
|
Investment in subsidiaries
|
|
|
41.5
|
|
|
|
|
|
|
|
(41.5
|
)
|
|
|
|
|
|
|
100.0
|
|
|
|
|
|
|
|
(100.0
|
)
|
|
|
|
|
Intercompany receivable
|
|
|
|
|
|
|
30.7
|
|
|
|
(30.7
|
)
|
|
|
|
|
|
|
307.7
|
|
|
|
|
|
|
|
(307.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,007.4
|
|
|
$
|
65.2
|
|
|
$
|
(72.2
|
)
|
|
$
|
1,000.4
|
|
|
$
|
882.7
|
|
|
$
|
424.7
|
|
|
$
|
(407.7
|
)
|
|
$
|
899.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Shareholders Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
147.4
|
|
|
$
|
3.7
|
|
|
|
|
|
|
$
|
151.1
|
|
|
$
|
158.6
|
|
|
$
|
(13.5
|
)
|
|
|
|
|
|
$
|
145.1
|
|
Accrued expenses
|
|
|
100.9
|
|
|
|
27.7
|
|
|
|
|
|
|
|
128.6
|
|
|
|
102.9
|
|
|
|
|
|
|
|
|
|
|
|
102.9
|
|
Senior subordinated notes short term
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
47.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
295.8
|
|
|
|
31.4
|
|
|
|
|
|
|
|
327.2
|
|
|
|
261.5
|
|
|
|
(13.5
|
)
|
|
|
|
|
|
|
248.0
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66.0
|
|
|
|
|
|
|
|
|
|
|
|
66.0
|
|
Long-term deferred income taxes
|
|
|
14.7
|
|
|
|
(12.5
|
)
|
|
|
|
|
|
|
2.2
|
|
|
|
(4.8
|
)
|
|
|
6.6
|
|
|
|
|
|
|
|
1.8
|
|
Lease obligations and other long-term liabilities
|
|
|
100.6
|
|
|
|
4.8
|
|
|
|
|
|
|
|
105.4
|
|
|
|
82.3
|
|
|
|
23.9
|
|
|
|
|
|
|
|
106.2
|
|
Intercompany payable
|
|
|
30.7
|
|
|
|
|
|
|
|
(30.7
|
)
|
|
|
|
|
|
|
|
|
|
|
307.7
|
|
|
|
(307.7
|
)
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock
|
|
|
1.5
|
|
|
|
|
|
|
|
|
|
|
|
1.5
|
|
|
|
1.4
|
|
|
|
|
|
|
|
|
|
|
|
1.4
|
|
Additional paid-in capital
|
|
|
234.7
|
|
|
|
|
|
|
|
|
|
|
|
234.7
|
|
|
|
211.7
|
|
|
|
|
|
|
|
|
|
|
|
211.7
|
|
Retained earnings
|
|
|
377.0
|
|
|
|
41.5
|
|
|
|
(41.5
|
)
|
|
|
377.0
|
|
|
|
310.4
|
|
|
|
100.0
|
|
|
|
(100.0
|
)
|
|
|
310.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
613.2
|
|
|
|
41.5
|
|
|
|
(41.5
|
)
|
|
|
613.2
|
|
|
|
523.5
|
|
|
|
100.0
|
|
|
|
(100.0
|
)
|
|
|
523.5
|
|
Treasury stock, at cost
|
|
|
(47.6
|
)
|
|
|
|
|
|
|
|
|
|
|
(47.6
|
)
|
|
|
(45.8
|
)
|
|
|
|
|
|
|
|
|
|
|
(45.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
565.6
|
|
|
|
41.5
|
|
|
|
(41.5
|
)
|
|
|
565.6
|
|
|
|
477.7
|
|
|
|
100.0
|
|
|
|
(100.0
|
)
|
|
|
477.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
$
|
1,007.4
|
|
|
$
|
65.2
|
|
|
$
|
(72.2
|
)
|
|
$
|
1,000.4
|
|
|
$
|
882.7
|
|
|
$
|
424.7
|
|
|
$
|
(407.7
|
)
|
|
$
|
899.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
75
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 14
|
Consolidating
Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
January 30, 2010
|
|
|
January 31, 2009
|
|
Consolidating Statements
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
of Operations
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,628.9
|
|
|
$
|
580.1
|
|
|
$
|
(218.3
|
)
|
|
$
|
1,990.7
|
|
|
$
|
1,029.0
|
|
|
$
|
1,447.8
|
|
|
$
|
(575.7
|
)
|
|
$
|
1,901.1
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
846.9
|
|
|
|
386.4
|
|
|
|
(218.3
|
)
|
|
|
1,015.0
|
|
|
|
613.7
|
|
|
|
980.6
|
|
|
|
(575.7
|
)
|
|
|
1,018.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
782.0
|
|
|
|
193.7
|
|
|
|
|
|
|
|
975.7
|
|
|
|
415.3
|
|
|
|
467.2
|
|
|
|
|
|
|
|
882.5
|
|
Selling, general and administrative expenses
|
|
|
649.7
|
|
|
|
143.9
|
|
|
|
|
|
|
|
793.6
|
|
|
|
388.9
|
|
|
|
386.4
|
|
|
|
|
|
|
|
775.3
|
|
Store pre-opening and closing costs
|
|
|
9.7
|
|
|
|
2.0
|
|
|
|
|
|
|
|
11.7
|
|
|
|
7.2
|
|
|
|
5.1
|
|
|
|
|
|
|
|
12.3
|
|
Depreciation and amortization
|
|
|
41.3
|
|
|
|
15.0
|
|
|
|
|
|
|
|
56.3
|
|
|
|
28.3
|
|
|
|
25.9
|
|
|
|
|
|
|
|
54.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating profit (loss)
|
|
|
81.3
|
|
|
|
32.8
|
|
|
|
|
|
|
|
114.1
|
|
|
|
(9.1
|
)
|
|
|
49.8
|
|
|
|
|
|
|
|
40.7
|
|
Gain on purchase of senior subordinated notes
|
|
|
(1.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.3
|
)
|
|
|
(4.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.2
|
)
|
Interest expense, net
|
|
|
5.0
|
|
|
|
1.3
|
|
|
|
|
|
|
|
6.3
|
|
|
|
4.2
|
|
|
|
5.2
|
|
|
|
|
|
|
|
9.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
77.6
|
|
|
|
31.5
|
|
|
|
|
|
|
|
109.1
|
|
|
|
(9.1
|
)
|
|
|
44.6
|
|
|
|
|
|
|
|
35.5
|
|
Income tax provision (benefit)
|
|
|
31.4
|
|
|
|
11.1
|
|
|
|
|
|
|
|
42.5
|
|
|
|
(1.9
|
)
|
|
|
15.5
|
|
|
|
|
|
|
|
13.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before equity income
|
|
|
46.2
|
|
|
|
20.4
|
|
|
|
|
|
|
|
66.6
|
|
|
|
(7.2
|
)
|
|
|
29.1
|
|
|
|
|
|
|
|
21.9
|
|
Equity income from subsidiaries
|
|
|
20.4
|
|
|
|
|
|
|
|
(20.4
|
)
|
|
|
|
|
|
|
29.1
|
|
|
|
|
|
|
|
(29.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
66.6
|
|
|
$
|
20.4
|
|
|
$
|
(20.4
|
)
|
|
$
|
66.6
|
|
|
$
|
21.9
|
|
|
$
|
29.1
|
|
|
$
|
(29.1
|
)
|
|
$
|
21.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended February 2, 2008
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
Consolidating Statements of Operations
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net sales
|
|
$
|
1,024.6
|
|
|
$
|
1,405.2
|
|
|
$
|
(551.0
|
)
|
|
$
|
1,878.8
|
|
Cost of sales (exclusive of depreciation and amortization shown
separately below)
|
|
|
612.4
|
|
|
|
945.0
|
|
|
|
(551.0
|
)
|
|
|
1,006.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
412.2
|
|
|
|
460.2
|
|
|
|
|
|
|
|
872.4
|
|
Selling, general and administrative expenses
|
|
|
383.9
|
|
|
|
390.9
|
|
|
|
|
|
|
|
774.8
|
|
Store pre-opening and closing costs
|
|
|
4.0
|
|
|
|
4.4
|
|
|
|
|
|
|
|
8.4
|
|
Depreciation and amortization
|
|
|
25.8
|
|
|
|
26.0
|
|
|
|
|
|
|
|
51.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) profit
|
|
|
(1.5
|
)
|
|
|
38.9
|
|
|
|
|
|
|
|
37.4
|
|
Interest expense, net
|
|
|
5.5
|
|
|
|
7.0
|
|
|
|
|
|
|
|
12.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before income taxes
|
|
|
(7.0
|
)
|
|
|
31.9
|
|
|
|
|
|
|
|
24.9
|
|
Income tax (benefit) provision
|
|
|
(1.8
|
)
|
|
|
11.3
|
|
|
|
|
|
|
|
9.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before equity income
|
|
|
(5.2
|
)
|
|
|
20.6
|
|
|
|
|
|
|
|
15.4
|
|
Equity income from subsidiaries
|
|
|
20.6
|
|
|
|
|
|
|
|
(20.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
15.4
|
|
|
$
|
20.6
|
|
|
$
|
(20.6
|
)
|
|
$
|
15.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
76
Jo-Ann Stores,
Inc.
Notes to
Consolidated Financial Statements (Continued)
|
|
Note 14
|
Consolidating
Financial Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended
|
|
|
|
January 30, 2010
|
|
|
January 31, 2009
|
|
Consolidating Statements of
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
Cash Flows
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by (used for) operating activities
|
|
$
|
203.1
|
|
|
$
|
(19.1
|
)
|
|
$
|
|
|
|
$
|
184.0
|
|
|
$
|
135.6
|
|
|
$
|
22.3
|
|
|
$
|
|
|
|
$
|
157.9
|
|
Net cash flows used for investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(33.2
|
)
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(39.7
|
)
|
|
|
(51.6
|
)
|
|
|
(23.1
|
)
|
|
|
|
|
|
|
(74.7
|
)
|
Payment for acquisition, net of cash acquired
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
(3.1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(36.3
|
)
|
|
|
(6.5
|
)
|
|
|
|
|
|
|
(42.8
|
)
|
|
|
(54.7
|
)
|
|
|
(23.1
|
)
|
|
|
|
|
|
|
(77.8
|
)
|
Net cash flows used for financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of senior subordinated notes
|
|
|
(17.0
|
)
|
|
|
|
|
|
|
|
|
|
|
(17.0
|
)
|
|
|
(29.5
|
)
|
|
|
|
|
|
|
|
|
|
|
(29.5
|
)
|
Proceeds from stock-based compensation plans
|
|
|
13.5
|
|
|
|
|
|
|
|
|
|
|
|
13.5
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
6.0
|
|
Other, net
|
|
|
(1.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.2
|
)
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
(1.4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(4.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(4.7
|
)
|
|
|
(24.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(24.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
162.1
|
|
|
|
(25.6
|
)
|
|
|
|
|
|
|
136.5
|
|
|
|
56.0
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
55.2
|
|
Cash and cash equivalents at beginning of year
|
|
|
55.0
|
|
|
|
25.6
|
|
|
|
|
|
|
|
80.6
|
|
|
|
(1.0
|
)
|
|
|
26.4
|
|
|
|
|
|
|
|
25.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
217.1
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
217.1
|
|
|
$
|
55.0
|
|
|
$
|
25.6
|
|
|
$
|
|
|
|
$
|
80.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year-Ended February 2, 2008
|
|
|
|
|
|
|
Guarantor
|
|
|
|
|
|
|
|
Consolidating Statements of Cash Flows
|
|
Parent
|
|
|
Subsidiaries
|
|
|
Eliminations
|
|
|
Consolidated
|
|
|
|
(Dollars in millions)
|
|
|
Net cash provided by operating activities
|
|
$
|
55.7
|
|
|
$
|
17.9
|
|
|
$
|
|
|
|
$
|
73.6
|
|
Net cash flows used for investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(19.0
|
)
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
(37.7
|
)
|
Payment for acquisition, net of cash acquired
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
(11.7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for investing activities
|
|
|
(30.7
|
)
|
|
|
(18.7
|
)
|
|
|
|
|
|
|
(49.4
|
)
|
Net cash flows used for financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in revolving credit facility
|
|
|
(25.3
|
)
|
|
|
|
|
|
|
|
|
|
|
(25.3
|
)
|
Proceeds from stock-based compensation plans
|
|
|
7.8
|
|
|
|
|
|
|
|
|
|
|
|
7.8
|
|
Other, net
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
0.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used for financing activities
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
|
|
|
|
(17.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
7.8
|
|
|
|
(0.8
|
)
|
|
|
|
|
|
|
7.0
|
|
Cash and cash equivalents at beginning of year
|
|
|
(8.8
|
)
|
|
|
27.2
|
|
|
|
|
|
|
|
18.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
(1.0
|
)
|
|
$
|
26.4
|
|
|
$
|
|
|
|
$
|
25.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
77
Item 9. Changes
in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls
and Procedures
Disclosure Controls and Procedures We
maintain disclosure controls and procedures that are designed to
provide reasonable assurance that information required to be
disclosed in our reports under the Exchange Act is recorded,
processed, summarized and reported within the time periods
specified in the SECs rules and forms, and that such
information is accumulated and communicated to the management of
Jo-Ann Stores, Inc. (the Management), including our
Principal Executive Officer and our Principal Financial Officer,
as appropriate, to allow timely decisions regarding required
disclosure. In designing and evaluating the disclosure controls
and procedures, Management recognized that any controls and
procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired
control objectives.
In connection with the preparation of this Annual Report on
Form 10-K,
as of January 30, 2010, an evaluation was performed under
the supervision and with the participation of our Management,
including the Principal Executive Officer and Principal
Financial Officer, of the effectiveness of the design and
operation of the companys disclosure controls and
procedures (as defined in
Rule 13a-15(e)
under the Exchange Act). Based upon that evaluation, our
Principal Executive Officer and our Principal Financial Officer
have concluded that our disclosure controls and procedures were
effective at the reasonable assurance level as of the end of the
period covered by this Annual Report on
Form 10-K.
Managements Annual Report on Internal Control over
Financial Reporting Our management is
responsible for establishing and maintaining adequate internal
control over financial reporting as defined in
Rule 13a-15(f)
under the Exchange Act. Our internal control system is designed
to provide reasonable assurance to our Management and Board of
Directors regarding the preparation and fair presentation of
published financial statements. All internal control systems, no
matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only
reasonable assurance with respect to financial statement
preparation and presentation.
Management has assessed the effectiveness of our internal
control over financial reporting as of January 30, 2010. In
making its assessment of internal control over financial
reporting, management used the criteria set forth by the
Committee of Sponsoring Organizations (COSO) of the
Treadway Commission in Internal Control
Integrated Framework.
Based on managements assessment of internal control over
financial reporting under the criteria established in
Internal Control Integrated Framework,
we concluded that, as of January 30, 2010, our internal
control over financial reporting was effective to provide
reasonable assurance regarding the reliability of financial
reporting and preparation of financial statements for external
purposes in accordance with accounting principles generally
accepted in the United States. Ernst & Young LLP, an
independent registered public accounting firm, has audited the
effectiveness of our internal control over financial reporting
as of January 30, 2010, and their report appears on the
next page.
Changes in Internal Control Over Financial
Reporting There were no changes in our internal
control over financial reporting that occurred during our last
fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal control over financial
reporting.
78
Report of
Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Jo-Ann Stores,
Inc.:
We have audited Jo-Ann Stores, Inc.s internal control over
financial reporting as of January 30, 2010, based on
criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (the COSO criteria). Jo-Ann Stores,
Inc.s management is responsible for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting included in the accompanying
Managements Annual Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion
on the companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, Jo-Ann Stores, Inc. maintained, in all material
respects, effective internal control over financial reporting as
of January 30, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of Jo-Ann Stores, Inc. as of
January 30, 2010 and January 31, 2009, and the related
consolidated statements of operations, cash flows, and
shareholders equity for each of the three years in the
period ended January 30, 2010 and our report dated
April 15, 2010 expressed an unqualified opinion thereon.
Cleveland, Ohio
April 15, 2010
79
|
|
Item 9B.
|
Other
Information
|
None.
PART III
|
|
Item 10.
|
Directors,
Executive Officers and Corporate Governance
|
Information required by this Item 10 as to our directors is
incorporated herein by reference to the information set forth
under the captions Election of Directors
Nominees and Director Qualifications in our
definitive proxy statement for our 2010 Annual Meeting of
Shareholders to be held on June 10, 2010 (the Proxy
Statement), which is expected to be filed with the SEC
pursuant to Regulation 14A of the Exchange Act within
120 days after the end of our fiscal year.
The information regarding the Audit Committee of our Board of
Directors and audit committee financial experts is
incorporated herein by reference to the information set forth
under the caption Corporate Governance and Board
Matters Committees of the Board The
Audit Committee in the Proxy Statement.
Information required by this Item 10 as to our executive
officers is included in Part I of this
Form 10-K
as permitted by Instruction 3 to Item 401(b) of
Regulation S-K.
Information required by Item 405 of
Regulation S-K
is incorporated herein by reference to the information set forth
under the caption Section 16(a) Beneficial Ownership
Reporting Compliance in the Proxy Statement.
Our Code of Business Conduct and Ethics (the Code)
is applicable to our directors, officers (including our
principal executive officer and principal financial officer) and
employees. The Code is posted on our website at www.Joann.com.
We intend to disclose on our website any amendment to, or waiver
of, any provision of the Code that would be required to be
disclosed under the rules of the SEC and NYSE.
|
|
Item 11.
|
Executive
Compensation
|
The information required by this Item 11 is incorporated
herein by reference to the information set forth under the
captions Director Compensation, Executive
Compensation, Compensation Discussion and
Analysis, Compensation Risk Monitoring,
Corporate Governance and Board Matters
Committees of the Board The Compensation
Committee and Compensation Committee Report in
the Proxy Statement.
|
|
Item 12.
|
Security
Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
|
The information required by this Item 12 is incorporated
herein by reference to the information set forth under the
captions Principal Shareholders and Equity
Compensation Plan Information in the Proxy Statement.
|
|
Item 13.
|
Certain
Relationships and Related Transactions, and Director
Independence
|
Betty Rosskamm (a member of one of our original founding
families and the mother of Alan Rosskamm, a current member of
the Board of Directors), Alma Zimmerman, (a member of one of our
original founding families and who is now deceased), and the
company are parties to an agreement, dated October 30,
2003, as amended on February 22, 2007, relating to their
Jo-Ann Stores common shares. Under this agreement, Betty
Rosskamm and her lineal descendants and permitted holders (the
Rosskamms) and Alma Zimmerman and her lineal
descendants and permitted holders (the Zimmermans)
may each sell up to 400,000 common shares in any calendar year
but may not sell more than 200,000 of those shares in any
180-day
period. If either the Rosskamms or Zimmermans plan to sell a
number of their respective common shares in excess of the number
permitted under the agreement, they must first offer to sell
those shares to the company. Each of the
80
Rosskamms and the Zimmermans are permitted to sell an unlimited
number of shares to each other free of our right of first
refusal.
Additional information required by this Item 13 is
incorporated herein by reference to the information set forth
under the captions Certain Relationships and Related
Transactions and Corporate Governance and Board
Matters Board Independence in the Proxy
Statement.
|
|
Item 14.
|
Principal
Accountant Fees and Services
|
The information required by this Item 14 is incorporated
herein by reference to the information set forth under the
captions Principal Accounting Firm Fees and
Audit Committee Pre-Approval of Audit and Permitted
Non-Audit Services in the Proxy Statement.
81
PART IV
|
|
Item 15.
|
Exhibits and
Financial Statement Schedules
|
(a) The following documents are filed as part of this
report:
(1) Financial Statements
The consolidated financial statements filed as part of this
Form 10-K
are located as set forth in the index on page 44 of this
report.
(2) Financial Statement Schedules
All schedules have been omitted because they are not applicable
or the required information is included in the consolidated
financial statements or notes thereto.
(3) Exhibits
The exhibits listed in the Index to Exhibits, which appears in
this
Form 10-K
below, are filed as part of this
Form 10-K.
82
Index to
Exhibits
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
3
|
.1
|
|
Amended and Restated Articles of Incorporation of Jo-Ann Stores,
Inc. (filed as Exhibit 3.1 to the companys
Form 10-K
filed with the Commission on April 17, 2008 and
incorporated herein by reference)
|
|
3
|
.2
|
|
Amended and Restated Code of Regulations (filed as
Exhibit 3.2 to the companys
Form 10-K
filed with the Commission on April 17, 2008 and
incorporated herein by reference)
|
|
4
|
.1
|
|
Indenture between the company 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 Exhibit 4.4
to the companys
Form 10-K
filed with the Commission on April 15, 2004 and
incorporated herein by reference)
|
|
4
|
.2
|
|
Third Amended and Restated Rights Agreement, dated as of
February 26, 2007, by and between
Jo-Ann
Stores, Inc. and National City Bank, as Rights Agent (filed as
Exhibit 4.1 to the companys
Form 8-A/A
filed with the Commission on March 2, 2007 and incorporated
herein by reference)
|
|
10
|
.1
|
|
Jo-Ann Stores, Inc. Supplemental Retirement Benefit Plan, as
amended (filed as Exhibit 10.3 to the companys
Form 10-Q
filed with the Commission on December 13, 2007 and
incorporated herein by reference)*
|
|
10
|
.2
|
|
Schedule to Jo-Ann Stores, Inc. Supplemental Retirement Benefit
Plan, effective as of November 13, 2007 (filed as
Exhibit 10.4 to the companys
Form 10-Q
filed with the Commission on December 13, 2007 and
incorporated herein by reference)*
|
|
10
|
.3
|
|
Schedule to Jo-Ann Stores, Inc. Supplemental Retirement Benefit
Plan, effective as of October 15, 2008 (filed as
Exhibit 10.2 to the companys
Form 8-K
filed with the Commission on October 15, 2008 and
incorporated herein by reference)*
|
|
10
|
.4
|
|
Jo-Ann Stores, Inc. Compensation Clawback Policy (filed as
Exhibit 10.1 to the companys
Form 8-K
filed with the Commission on January 6, 2010 and
incorporated herein by reference)*
|
|
10
|
.5
|
|
Form of Compensation Clawback Policy Acknowledgement and
Agreement, dated December 31, 2009 (filed as
Exhibit 10.2 to the companys
Form 8-K
filed with the Commission on January 6, 2010 and
incorporated herein by reference)*
|
|
10
|
.6
|
|
Jo-Ann Stores, Inc. (formerly Fabri-Centers of America, Inc.)
1998 Incentive Compensation Plan, as amended, dated
November 13, 2007 (filed as Exhibit 10.6 to the
companys
Form 10-Q
filed with the Commission on December 13, 2007 and
incorporated herein by reference)*
|
|
10
|
.7
|
|
Agreement dated October 30, 2003 among Jo-Ann Stores, Inc.,
Betty Rosskamm and Alma Zimmerman, a member of one of the
companys original founding families and who is now
deceased (Second Amended and Restated) (filed as
Exhibit 10.10 to the companys
Form 10-K
filed with the Commission on April 15, 2004 and
incorporated herein by reference)*
|
|
10
|
.8
|
|
Amendment to the Second Amended and Restated Agreement dated
February 22, 2007 among and between Jo-Ann Stores, Inc.,
Betty Rosskamm, and Joan Wittenberg, Sandra Zucker and Larry
Zimmerman (the successors to Alma Zimmerman, a member of one of
the companys original founding families and who is now
deceased) (filed as Exhibit 10.8 to the companys
Form 10-K
filed with the Commission on April 19, 2007 and
incorporated herein by reference)*
|
|
10
|
.9
|
|
Credit Agreement dated as of April 24, 2001 among the
company, 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 Exhibit 10.9 to the
companys
Form 10-K
filed with the Commission on April 19, 2007 and
incorporated herein by reference)
|
|
10
|
.10
|
|
First Amendment to Credit Agreement dated as of April 24,
2001 (filed as Exhibit 10.10 to the companys
Form 10-K
filed with the Commission on April 19, 2007 and
incorporated herein by reference)
|
83
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.11
|
|
Second Amendment to Credit Agreement dated as of March 17,
2003 (filed as Exhibit 10.13 to the companys
Form 10-K
filed with the Commission on April 15, 2004 and
incorporated herein by reference)
|
|
10
|
.12
|
|
Third Amendment to Credit Agreement dated as of
February 18, 2004 (filed as Exhibit 10.14 to the
companys
Form 10-K
filed with the Commission on April 15, 2004 and
incorporated herein by reference)
|
|
10
|
.13
|
|
Fourth Amendment to Credit Agreement dated April 16, 2004
(filed as Exhibit 10.15 to the companys
Form S-4
filed with the Commission on May 24, 2004 and incorporated
herein by reference)
|
|
10
|
.14
|
|
Fifth Amendment to Credit Agreement dated February 23, 2006
(filed as Exhibit 10.14 to the companys
Form 10-K
filed with the Commission on April 13, 2006 and
incorporated herein by reference)
|
|
10
|
.15
|
|
Sixth Amendment to Credit Agreement dated November 5, 2007
(filed as Exhibit 10.1 to the companys
Form 10-Q
filed with the Commission on December 13, 2007 and
incorporated herein by reference)
|
|
10
|
.16
|
|
Jo-Ann Stores, Inc. Deferred Compensation Plan, as amended on
January 30, 2008 (filed as Exhibit 10.16 to the
companys
Form 10-K
filed with the Commission on April 17, 2008 and
incorporated herein by reference)*
|
|
10
|
.17
|
|
Form of Restricted Stock Award Agreement of the company (filed
as Exhibit 10.1 to the companys
Form 8-K
filed with the Commission on November 23, 2005 and
incorporated herein by reference)*
|
|
10
|
.18
|
|
Form of Notice of Grant of Non-Qualified Stock Option (filed as
Exhibit 10.2 to the companys
Form 8-K
filed with the Commission on November 23, 2005 and
incorporated herein by reference)*
|
|
10
|
.19
|
|
Letter Agreement entered into on June 29, 2006 between the
company and Darrell Webb regarding Mr. Webbs
employment with the company (filed as Exhibit 10.1 to the
companys
Form 10-Q
filed with the Commission on September 7, 2006 and
incorporated herein by reference)*
|
|
10
|
.20
|
|
Amended Employment Agreement dated February 19, 2008
between the company and Darrell Webb (filed as
Exhibit 10.25 to the companys
Form 10-K
filed with the Commission on April 17, 2008 and
incorporated herein by reference)*
|
|
10
|
.21
|
|
Letter Agreement entered into on July 10, 2006 between the
company and Travis Smith regarding Mr. Smiths
employment with the company (filed as Exhibit 10.3 to the
companys
Form 10-Q
filed with the Commission on September 7, 2006 and
incorporated herein by reference)*
|
|
10
|
.22
|
|
Amended Employment Agreement dated February 19, 2008
between the company and Travis Smith (filed as
Exhibit 10.27 to the companys
Form 10-K
filed with the Commission on April 17, 2008 and
incorporated herein by reference)*
|
|
10
|
.23
|
|
Letter Agreement entered into on July 27, 2006 between the
company and James Kerr regarding Mr. Kerrs employment
with the company (filed as Exhibit 10.5 to the
companys
Form 10-Q
filed with the Commission on September 7, 2006 and
incorporated herein by reference)*
|
|
10
|
.24
|
|
Amended Employment Agreement dated February 19, 2008
between the company and James Kerr (filed as Exhibit 10.29
to the companys
Form 10-K
filed with the Commission on April 17, 2008 and
incorporated herein by reference)*
|
|
10
|
.25
|
|
Split Dollar Insurance Agreement dated July 27, 2006
between the company and James Kerr (filed as Exhibit 10.7
to the companys
Form 10-Q
filed with the Commission on September 7, 2006 and
incorporated herein by reference)*
|
|
10
|
.26
|
|
Lease Agreement dated October 19, 2006 between BPVisalia
LLC, as Landlord, and Jo-Ann Stores Supply Chain Management,
Inc., as Tenant (filed as Exhibit 10.1 to the
companys
Form 8-K
filed with the Commission on October 25, 2006 and
incorporated herein by reference)
|
|
10
|
.27
|
|
Split Dollar Insurance Agreement dated August 14, 2007
between the company and Darrell Webb (filed as Exhibit 10.1
to the companys
Form 8-K
filed with the Commission on August 20, 2007 and
incorporated herein by reference)*
|
|
10
|
.28
|
|
Split Dollar Insurance Agreement dated August 14, 2007
between the company and Travis Smith (filed as Exhibit 10.2
to the companys
Form 8-K
filed with the Commission on August 20, 2007 and
incorporated herein by reference)*
|
84
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Exhibit Description
|
|
|
10
|
.29
|
|
Employment Agreement dated November 19, 2007 between the
company and Kenneth Haverkost (filed as Exhibit 10.2 to the
companys
Form 10-Q
filed with the Commission on December 13, 2007 and
incorporated herein by reference)*
|
|
10
|
.30
|
|
Form of Director Indemnification Agreements (filed as
Exhibit 10.37 to the companys
Form 10-K
filed with the Commission on April 17, 2008 and
incorporated herein by reference)
|
|
10
|
.31
|
|
Amended and Restated Credit Agreement, dated as of
September 5, 2008, among the company as Lead Borrower, the
Lenders party thereto, Bank of America, N.A., as Issuing Bank,
Administrative Agent and Collateral Agent, Wells Fargo Retail
Finance, LLC, National City Business Credit, Inc. and U.S. Bank
National Association, as Co-Documentation Agents, and Banc of
America Securities LLC, as Sole Lead Arranger and Book Manager
(filed as Exhibit 10.1 to the companys
Form 10-Q
filed with the Commission on December 11, 2008 and
incorporated herein by reference)
|
|
10
|
.32
|
|
Split Dollar Insurance Agreement dated October 15, 2008
between the company and Kenneth Haverkost (filed as
Exhibit 10.1 to the companys
Form 8-K
filed with the Commission on October 15, 2008 and
incorporated herein by reference)*
|
|
10
|
.33
|
|
Jo-Ann Stores, Inc. 2008 Incentive Compensation Plan (filed as
Appendix A to the companys 2008 Proxy Statement filed
with the Commission on April 28, 2008 and incorporated
herein by reference)*
|
|
10
|
.34
|
|
Jo-Ann Stores, Inc. 2008 Associate Stock Ownership Plan (filed
as Appendix B to the companys 2008 Proxy Statement
filed with the Commission on April 28, 2008 and
incorporated herein by reference)*
|
|
10
|
.35
|
|
Employment Agreement dated March 16, 2009 between the
company and Darrell Webb (filed as Exhibit 10.1 to the
companys
Form 8-K
filed with the Commission on March 18, 2009 and
incorporated herein by reference)*
|
|
10
|
.36
|
|
Letter Agreement dated April 5, 2010 between the company
and Darrell Webb amending Mr. Webbs employment
agreement dated March 16, 2009 (filed as Exhibit 10.1
to the companys
Form 8-K
filed with the Commission on April 5, 2010 and incorporated
herein by reference)*
|
|
21
|
|
|
Subsidiaries of Jo-Ann Stores, Inc.
|
|
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 |
85
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
April 15,
2010
Darrell Webb
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
dates indicated:
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Signature
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Title
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/s/ Darrell
Webb
Darrell
Webb
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Chairman of the Board,
Chief Executive Officer and Director
(Principal Executive Officer)
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/s/ James
Kerr
James
Kerr
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Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
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/s/ Scott
Cowen*
Scott
Cowen
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Director
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/s/ Joseph
DePinto*
Joseph
DePinto
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Director
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/s/ Ira
Gumberg*
Ira
Gumberg
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Director
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/s/ Patricia
Morrison*
Patricia
Morrison
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Director
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/s/ Frank
Newman*
Frank
Newman
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Director
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/s/ David
Perdue*
David
Perdue
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Director
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/s/ Beryl
Raff*
Beryl
Raff
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Director
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/s/ Alan
Rosskamm*
Alan
Rosskamm
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Director
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/s/ Tracey
Travis*
Tracey
Travis
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Director
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*The undersigned, by signing his name hereto, does hereby sign
this
Form 10-K
Annual Report on behalf of the above-named directors of Jo-Ann
Stores, Inc., pursuant to powers of attorney executed on behalf
of each of such directors.
April 15,
2010
James Kerr,
Attorney-in-Fact
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