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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000
COMMISSION FILE NO. 1-6695
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JO-ANN STORES, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 34-0720629
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
5555 DARROW ROAD, HUDSON, OHIO 44236
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (330) 656-2600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF CLASS ON WHICH REGISTERED
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<S> <C>
Class A Common Stock, Without Par Value New York Stock Exchange
Class B Common Stock, Without Par Value New York Stock Exchange
</TABLE>
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate 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 registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. [X]
As of April 14, 2000, there were 9,155,656 shares of Class A Common Stock
and 8,843,748 shares of Class B Common Stock outstanding and the aggregate
market value of these Common Shares (based upon the closing price on April 14,
2000 of these shares on the New York Stock Exchange) of the Registrant held by
persons other than affiliates of the Registrant was approximately $117.2
million.
Documents incorporated by reference:
Portions of the following documents are or will be incorporated by
reference:
Proxy Statement for 2000 Annual Meeting of Shareholders -- Items 10, 11
and 12 of Part III.
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PART I
Except as otherwise stated, the information contained in this report is
given as of January 29, 2000, the end of our latest fiscal year. The words
"Jo-Ann Stores, Inc.," "Jo-Ann Stores," "Jo-Ann Fabrics and Crafts," "Jo-Ann
etc," "Jo-Ann," "Registrant," "Company," "we," "our," and "us" refer to Jo-Ann
Stores, Inc. and, unless the context requires otherwise, to our subsidiaries.
Our fiscal year ends on the Saturday closest to January 31 and refers to the
year in which the period ends (e.g., fiscal 2000 ended January 29, 2000).
ITEM 1. BUSINESS
We are the largest national category-dominant retailer serving the retail
fabric and craft industry, which is estimated to generate combined annual
revenues of $10 billion. We were founded as a single retail store in 1943 and
now operate 984 Jo-Ann Fabrics and Crafts traditional stores in 49 states and 42
Jo-Ann etc superstores in 15 states. We serve the approximately 70% of U.S.
households that engaged in crafts and hobbies during the past year by offering a
large variety of competitively priced, high quality apparel, quilting and craft
fabrics and sewing-related products, home decorating fabrics, floral, craft and
seasonal products, educational classes and custom services.
Our traditional stores primarily serve small and middle markets, and our
superstores serve selected markets where traditional store performance and area
demographics are favorable. Our traditional stores average 13,900 square feet,
and we believe many are located in markets that are currently underserved. Over
the past five years we have strategically relocated certain traditional stores,
increasing average square footage per store by 20% and sales per square foot by
13%. As a result, net sales per traditional store have increased 30% to $1.2
million over this period. In November 1995 we opened our first large format
"category killer" superstore which offers a more comprehensive product
assortment and higher-margin custom services including framing, home decoration,
and furniture and floral design. These superstores average 46,000 square feet
and in fiscal 2000 generated more than four times the revenue and 30% higher
sales per square foot than our traditional stores. We believe our superstores,
which accounted for approximately 12% of fiscal 2000 net sales, will be our
future growth vehicle.
Historically, we have grown and increased market share principally through
existing store growth, new store openings and strategic acquisitions. In April
1998, we acquired House of Fabrics, a chain of 261 fabric and craft stores
located primarily on the West Coast. By September 1998, we successfully
integrated, remerchandised and rebranded the former House of Fabrics stores.
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STORES
The following table shows our stores by type and state at January 29, 2000:
<TABLE>
<CAPTION>
TRADITIONAL SUPERSTORE TOTAL TRADITIONAL SUPERSTORE TOTAL
----------- ---------- ----- ----------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Alabama.............. 4 -- 4 Nebraska.......... 6 -- 6
Alaska............... 5 -- 5 Nevada............ 5 2 7
Arizona.............. 16 3 19 New Hampshire..... 10 -- 10
Arkansas............. 3 -- 3 New Jersey........ 16 -- 16
California........... 120 1 121 New Mexico........ 6 -- 6
Colorado............. 16 -- 16 New York.......... 44 6 50
Connecticut.......... 16 2 18 North Carolina.... 9 -- 9
Delaware............. 3 -- 3 North Dakota...... 4 -- 4
Florida.............. 54 4 58 Ohio.............. 72 7 79
Georgia.............. 16 -- 16 Oklahoma.......... 5 -- 5
Idaho................ 9 -- 9 Oregon............ 26 -- 26
Illinois............. 47 -- 47 Pennsylvania...... 60 -- 60
Indiana.............. 33 1 34 Rhode Island...... 3 -- 3
Iowa................. 12 -- 12 South Carolina.... 2 -- 2
Kansas............... 10 1 11 South Dakota...... 2 -- 2
Kentucky............. 5 -- 5 Tennessee......... 3 3 6
Louisiana............ 9 -- 9 Texas............. 70 -- 70
Maine................ 5 -- 5 Utah.............. 15 -- 15
Maryland............. 20 3 23 Vermont........... 4 -- 4
Massachusetts........ 26 -- 26 Virginia.......... 24 -- 24
Michigan............. 56 5 61 Washington........ 37 1 38
Minnesota............ 23 2 25 West Virginia..... 7 -- 7
Mississippi.......... 2 -- 2 Wisconsin......... 23 -- 23
Missouri............. 12 1 13 Wyoming........... 2 -- 2
--- -- -----
Montana.............. 7 -- 7 Total............. 984 42 1,026
=== == =====
</TABLE>
The following table reflects the number of stores opened, expanded or
relocated, closed and acquired during each of the past five fiscal years:
<TABLE>
<CAPTION>
STORES IN
FISCAL STORES EXPANDED OR STORES STORES OPERATION AT
YEAR OPENED RELOCATED CLOSED ACQUIRED YEAR-END
------ ------ ----------- ------ -------- ------------
<S> <C> <C> <C> <C> <C>
1996 14 48 42 -- 936
1997 13 37 35 -- 914
1998 24 42 35 -- 903
1999 31 26 47 171(1) 1,058
2000 29 22 61 -- 1,026
</TABLE>
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(1) In April 1998, we completed a merger with House of Fabrics, Inc., a chain of
261 fabric and craft stores located primarily on the West Coast. Of the 261
stores acquired, 90 stores were consolidated with existing traditional
stores. As a result, 171 net new units were added to the store base.
During fiscal 2001, we expect to open up to 20 new stores, including 15
superstores, and relocate 5 traditional stores. We have committed to 19
locations for these new stores.
Our new store opening costs depend on the building type, store size and
general cost levels in the area. During fiscal 2000, we opened 11 new
traditional stores, with an average square footage per store of 14,400 square
feet. Our average net opening cost of these traditional stores was approximately
$0.2 million per store, which included leasehold improvements, furniture,
fixtures and equipment, and pre-opening expenses. The initial inventory
investment, net of payables support, associated with each new traditional store
during fiscal 2000 was approximately $0.3 million. Also during fiscal 2000, we
opened 18 superstores, with an average square footage per store of approximately
46,000 square feet. Our average net opening cost of these superstores was
approximately $1.5 million per store, which included leasehold improvements,
furniture,
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fixtures and equipment, and pre-opening expenses. The initial inventory
investment, net of payables support, associated with each new superstore in
fiscal 2000 was approximately $0.9 million.
PRODUCT SELECTION
Each of our stores offers a broad selection of softlines (traditional
sewing and home decorating merchandise) and hardlines (craft, seasonal, framing
and floral merchandise).
The following table shows our sales by principal product line as a
percentage of total net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
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JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Principal product line:
Softlines........................... 64% 66% 70%
Hardlines........................... 36 34 30
--- --- ---
Total.......................... 100% 100% 100%
=== === ===
</TABLE>
Our traditional stores have historically carried a full selection of sewing
merchandise and a convenient assortment of craft, seasonal, home decorating and
floral products. Our superstores offer a competitive assortment of merchandise
in all of our product lines and have a more diversified sales mix. During fiscal
2000, 50% of superstore net sales were derived from softlines and 50% from
hardlines.
Softlines
We believe that we provide the most extensive offering of apparel, quilting
and craft and home decorating fabrics and sewing-related products available to
our customers. We offer the following softlines selection:
- apparel fabrics, used primarily in the construction of garments,
including a wide variety of solid and printed cottons, linens, wools,
fleece and outerwear;
- an upscale selection of fabrics, including satins, metallics, evening
wear, bridal and special occasion;
- craft fabrics, used primarily in the construction of quilts, craft and
holiday projects, including calico, quilting, solids, holiday fabric and
juvenile designs;
- printed fabrics, including juvenile prints, seasonal designs for spring,
summer, fall and winter, and logo-related prints such as team emblems of
the National Football League;
- proprietary print designs which are unique to our stores;
- fabrics used in home decorating projects such as window treatments and
furniture and bed coverings; and
- notions, which represent all items incidental to sewing-related projects
other than fabric, including cutting implements, threads, zippers, trims,
tapes, pins, elastics, buttons and ribbons.
We also sell patterns and a limited number of sewing machines. Our high
volume stores offer a wider selection of sewing machines through leased
departments with third parties from whom we receive sublease income.
Hardlines
Our superstores offer a full line of hardline products, while our
traditional stores offer a convenient assortment. We offer the following
hardlines selection:
- general craft materials, including items used for stenciling, doll
making, jewelry making, woodworking, wall decor, rubber stamps, memory
books and plaster;
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- brand name fine art materials, including items such as pastels, water
colors, oil paints, acrylics, easels, brushes, paper and canvas;
- hobby items, including wooden and plastic model kits and related
supplies, and paint-by-number kits;
- home accessories, including baskets, candles and potpourri;
- needlecraft items, including hand-knitting yarns, needles, canvas,
needlepoint, embroidery and cross-stitching, knitting, crochet and other
stitchery supplies;
- full service framing department with picture framing materials, including
ready-made and custom frames, mat boards, glass, backing materials and
related supplies, framed art and photo albums; and
- floral products line, including silk flowers, dried flowers, artificial
plants sold separately or in ready-made and custom floral arrangements
and a broad selection of accessories required for floral arranging and
wreath making.
In addition to the basic categories described above, our stores regularly
feature seasonal products, which complement our core merchandising strategy. Our
seasonal offering spans all product lines and includes decorations, gifts and
supplies that focus on holidays including Easter, Halloween and Christmas, as
well as seasonal categories such as patio/garden. We own several private label
seasonal brands including the "Cottontale Collection," "Spooky Hollow" and
"Santa's Workbench."
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 extends longer than that of other retailers and generally runs from
September through December. Accordingly, a fully developed seasonal
merchandising program, including inventory, merchandise layout and instructional
ideas, is implemented in every store during our third quarter of each fiscal
year. This program includes increasing inventory levels so that each store is
fully stocked during our peak selling season.
MARKETING
We rebranded all of our stores under the Jo-Ann name in September 1998 and
began a national advertising campaign. Our proprietary mailing list includes
more than three million preferred customers who have shopped with us in the past
year. This allows us to efficiently reach our target market. Through our
national advertising campaign and proprietary mailing list, we believe that we
are able to create high impact, low cost marketing campaigns. We focus our
advertising on direct mail circulars and to a lesser extent on newspaper
advertising. We have found that mailing full-color circulars to frequent
customers is our most effective advertising program. Each circular features
numerous products offered at competitive prices and emphasizes the wide
selection of merchandise available in the stores.
In addition, our website (www.joann.com) is accessed approximately 300,000
times per month. We believe that our customers visit our website to obtain
information on our products, classes and services and to communicate with other
sewing and craft enthusiasts.
PURCHASING
We have numerous competitive domestic and international sources of supply
available for each category of merchandise that we sell. During fiscal 2000,
approximately 84% of our purchases were sourced domestically and 16% were
sourced internationally. Although we have no long-term purchase commitments with
any of our suppliers, we strive to maintain continuity with them. All purchases
are centralized through our corporate office, allowing store managers and sales
associates to focus on customer sales and service and enabling us to negotiate
volume discounts, control product mix and ensure quality. Currently, none of our
suppliers represents more than three percent of our purchasing volume and the
top ten suppliers represent less than 20% of our total purchasing volume. We
currently utilize more than 1,200 suppliers, with the top 200 representing more
than 80% of our purchasing volume.
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LOGISTICS
We operate one owned distribution center in Hudson, Ohio, which ships
products to all of our stores on a weekly basis. Approximately 80% of the
merchandise sold in a traditional store and 70% of the merchandise sold in a
superstore is handled through this facility with the remainder shipped directly
from our vendors. We also utilize a contract warehouse in California to
distribute peak seasonal product.
As part of our strategic logistics network project, we expect to build a
new distribution center in Visalia, California. Construction on this
distribution center is expected to begin in May of fiscal 2001. The building
will be approximately 630,000 square feet and is expected to be operational in
the second quarter of fiscal 2002. The cost of construction and equipment for
this project is estimated at $40 to $45 million.
We transport merchandise from our distribution center to our stores
utilizing contract carriers. Some merchandise is transported to 46 regional
"hubs" and repacked for local delivery. We do not own either the regional hubs
or the local delivery vehicles.
STORE OPERATIONS
Site Selection. We believe that our store locations are integral to our
success. Sites are selected through a coordinated effort of our real estate and
operations management teams. In evaluating the desirability of a potential store
site, we consider both market demographics and site-specific criteria. Market
demographic criteria that we consider important include 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 rental terms, our
position within the shopping strip location, size of the location, age of the
shopping strip location, co-tenants, proximity to highway access, traffic
patterns and ease of entry from the major roadways framing the strip location.
Our expansion strategy is to give priority to adding stores in existing
markets in order to create economies of scale associated with advertising,
distribution, field supervision, and other regional expenses. We believe that
there are attractive opportunities in most of our existing markets and numerous
new markets. We also intend to continue to selectively review acquisition
opportunities in existing and new markets.
Costs of Opening Stores. We employ standard operating procedures that allow
us to efficiently open new stores and integrate them into our information and
distribution systems. We develop a standardized floor plan, inventory layout,
and marketing program for each new store we open. We typically open new stores
during the period from February through October to maximize sales during our
peak Christmas selling season.
Store Management. Traditional stores have approximately five full-time
employees and 10 to 15 part-time employees, while superstores typically have
approximately 15 full-time employees and 45 to 55 part-time employees. Store
managers are compensated with a base salary plus a bonus which is tied to
quarterly store sales and annual store profit. The average tenure of our store
managers is approximately eight years.
Store managers are typically promoted from a group of top performing sales
associates, some of whom started as our customers. This continuity serves to
solidify long-standing relationships between our stores and our customers. When
a traditional store is closed due to the opening of a superstore, we generally
retain its employees to staff the new superstore.
Each store is under the supervision of a district manager who reports to a
regional vice president. Our human resource department and field management
organization are responsible for recruiting and training new store managers. Our
prospective store managers are assigned to one of our existing stores as
manager-trainees for several weeks where they receive in-depth on-the-job
training. In addition, quarterly training seminars are conducted for existing
store managers and orientation and training programs are conducted for new sales
associates.
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INFORMATION TECHNOLOGY
We believe we have employed industry leading information technology in our
stores. The point of sale system is interfaced into our financial and
merchandising systems. We utilize point of sale registers and scanning devices
to record the sale of merchandise at a stock keeping unit (SKU) level at the
stores. We also utilize hand-held radio frequency terminals for a variety of
store tasks including price look-up, ordering and fabric sales processing. Point
of sale register transactions are polled nightly and interfaced with our sales
and merchandising systems.
Information obtained from item-level scanning through our point of sale
system enables us to identify important trends to assist in managing inventory
by facilitating the elimination of less profitable SKUs, increasing the in-stock
level of more popular SKUs, analyzing product margins and generating data for
advertising cost/benefit evaluations. We also believe that our point of sale
systems allow us to provide better customer service by increasing the speed and
accuracy of register check out, enabling us to more rapidly restock merchandise
and efficiently re-price sale items.
We are currently implementing a fully integrated management information
system designed by SAP AG. This system will merge all of our financial
merchandise retail systems and link our business processes on a single software
platform. The financial system was installed and operational during the fourth
quarter of fiscal 1999. The installation of the merchandise retail system was
completed and became operational during the first quarter of fiscal 2001. The
total cost of this system is estimated at $32.0 million, with $28.8 million
incurred through January 29, 2000. Of this total, $20.0 million was incurred
during fiscal 2000 and $8.8 million during fiscal 1999.
STATUS OF PRODUCT OR LINE OF BUSINESS
During fiscal 2000, there has been 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 the federally registered trademarks "Jo-Ann Fabrics
and Crafts" and "Jo-Ann etc." We believe that these names are significant to our
business.
SEASONAL BUSINESS
Our business exhibits seasonality which is typical for most retail
companies, with much stronger sales in the second half of the year than the
first half of the year. Net earnings are highest during the months of September
through December when sales volumes provide significant operating leverage.
Capital requirements needed to finance our operations fluctuate during the year
and reach their highest levels during the second and third fiscal quarters as we
increase our inventory in preparation for our peak selling season.
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 2000, no one store accounted for more than one
percent of total 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.
COMPETITIVE CONDITIONS
We are the largest national category-dominant retailer serving the retail
fabric and craft industry. Our stores compete with other specialty fabric and
craft retailers and selected mass merchants that dedicate a
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portion of their selling space to a limited selection of fabrics and craft
supply items. We compete on the basis of product assortment, price, convenience
and customer service. We believe the combination of our product assortment,
customer service emphasis, systems technology and frequent advertising provides
us with a competitive advantage.
The domestic retail fabric and craft industry generates estimated combined
annual revenues of approximately $10 billion. We have one national competitor in
each of the fabric segment and craft segment of the industry, with the balance
of the competitors being regional and local operators. We believe that there are
only a few competitors with fabric or crafts sales exceeding $200 million
annually, and that we are, based on store count, approximately one and one half
times the size of our nearest competitor. We believe that we have several
advantages over most of our competitors, including:
- purchasing power;
- ability to support an efficient nationwide distribution; and
- the financial resources to support ongoing capital investments in our
infrastructure and new store development annual advertising expenditures.
RESEARCH AND DEVELOPMENT
During the three fiscal years ended January 29, 2000, we have not incurred
any material expense on 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.
EMPLOYEES
As of January 29, 2000, we had approximately 22,600 full and part-time
employees, of which 21,400 worked in our stores, 500 were employed in our
distribution service center, and the balance held corporate and administrative
positions. The number of part-time employees is substantially higher during the
Christmas selling season. We believe our employee turnover is below average for
retailers primarily because our stores 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% of our
employees work part-time.
The United Steelworkers of America, Upholstery and Allied Industries
Division currently represent employees who work in our Hudson, Ohio distribution
service center. Our current contract expires in May 2001. We believe that our
relations with our employees and the union are good.
FOREIGN OPERATIONS AND EXPORT SALES
In fiscal 2000, we purchased approximately 16% of our products directly
from manufacturers located in foreign countries. We currently use suppliers
located in Hong Kong, China and Taiwan. 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
products were manufactured domestically. If we underestimate consumer demand, we
may not be able to fill orders on a timely basis. If we overestimate consumer
demand, we may be required to hold goods in inventory for a long period of time.
We do not have long-term contracts with any manufacturers, and none of our
suppliers manufacture products for us exclusively.
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Foreign manufacturing is also subject to a number of other risks, including
work stoppages, transportation delays and interruptions, political instability,
economic disruptions, the imposition of tariffs and import and export controls,
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 could ultimately increase the prices that we pay for
our products.
ITEM 2. PROPERTIES
Our store support center and distribution center are located in an
approximately 1.4 million square foot facility, that we own, on approximately
105 acres in Hudson, Ohio. The distribution center occupies approximately 1.1
million square feet and the remainder is used as our store support center and a
superstore. In addition, we own approximately 83 acres of land adjacent to our
Hudson, Ohio facility.
The remaining properties that we occupy are leased retail store facilities
that are located primarily in high-traffic shopping centers. All store leases
are operating leases, generally for periods of five to ten years with renewal
options for up to 20 years. Certain retail store leases contain escalation
clauses and in some cases provide for contingent rents based on a percent of
sales in excess of defined minimums. During the fiscal year ended January 29,
2000, we incurred $131.5 million of rental expense and common area maintenance
for store locations.
As of January 29, 2000, the current terms of our store leases, assuming we
exercise all lease renewal options, were as follows:
<TABLE>
<CAPTION>
NUMBER OF
YEAR LEASE TERMS EXPIRE STORE LEASES
- ----------------------- ----------------------
<S> <C>
Month-to-month.............................................. 37
2001........................................................ 43
2002........................................................ 22
2003........................................................ 27
2004........................................................ 17
2005........................................................ 16
Thereafter.................................................. 863
-----
Total............................................. 1,025
=====
</TABLE>
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.
In February 1997, we settled enforcement proceedings brought by the U.S.
Securities and Exchange Commission ("SEC") involving our financial statements
for the fiscal year ended February 1, 1992, the use of those statements in
connection with the sale in March 1992 of our 6 1/4% Convertible Subordinated
Debentures due 2002 (subsequently redeemed in June 1997), our financial
statements for the first three quarters of fiscal 1993, and the adequacy of
certain disclosures relating to such periods. The principal allegation was that
we materially overstated earnings for such periods because of the manner in
which we calculated one of our inventory-related reserves, thereby allegedly
violating certain federal securities laws, including provisions regarding
anti-fraud, reporting, internal controls and books and records. The accounting
and disclosure issues that were raised are not related to any current period,
and no current accounting policies or financial statements were in question. At
the same time as the settlement, the SEC filed a civil action against us and our
former chief financial officer and former controller in the United States
District Court for the District of Columbia. Without admitting or denying the
allegations, we consented to the entry of an order
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enjoining us from violations of the federal securities laws and agreed to pay
$3.3 million in settlement of the action against us.
In February 1997, our Chief Executive Officer consented to a separate SEC
administrative cease and desist order settling certain allegations, without
admitting or denying the allegations. The SEC contended that he violated certain
federal securities laws as a result of not making adequate inquiry of the
financial staff before signing management representation letters given to our
auditors in connection with the 1992 debenture offering, and as a result of
signing our Form 10-Q for the quarter ended May 2, 1992.
In February 2000, the former chief financial officer and controller,
without admitting or denying the allegations, consented to the entry of an order
enjoining them from violations of the federal securities laws and agreed to pay
$0.2 million in settlement.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during our fourth
quarter.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following information is set forth pursuant to instruction to Item
401(b) of regulation S-K.
Our executive officers are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Alan Rosskamm............................. 50 Chairman of the Board, President and Chief
Executive Officer
Jane Aggers............................... 51 Executive Vice President, Merchandising,
Marketing and Inventory Management
Dave Bolen................................ 48 Executive Vice President, Stores and
Business Development
Brian Carney.............................. 39 Executive Vice President, Chief Financial
Officer
Rosalind Thompson......................... 50 Executive Vice President, Human Resources
</TABLE>
Alan Rosskamm has been Chairman of the Board, President and Chief Executive
Officer of our company for more than five years. He is a member of one of the
two founding families of our company and has been employed by us since 1978. Mr.
Rosskamm is also a Director of Charming Shoppes Inc., a women's apparel
retailer.
Jane Aggers has been Executive Vice President, Merchandising, Marketing and
Inventory Management of our company for more than five years. Ms. Aggers has
been employed by us since 1977 in positions of increasing responsibility.
Dave Bolen has been Executive Vice President, Stores and Business
Development of our company since December 1998. He was Executive Vice President,
Business Development from August 1997 to December 1998 and Senior Vice
President, General Manager Jo-Ann etc from March 1997 to August 1997. Prior to
joining our company, he was Executive Vice President-Operations of Michaels
Stores from July 1994 to August 1996, and Executive Vice President, Chief
Operating Officer and a Director of Leewards Creative Crafts, from January 1986
to July 1994.
Brian Carney has been Executive Vice President, Chief Financial Officer of
our company since October 1997. Prior to joining our company, he was Senior Vice
President-Finance from May 1996 to August 1997, and Vice President and
Controller from June 1992 to May 1996, of Revco D.S., Inc. (a retail drugstore
chain acquired by CVS Corporation in 1997).
Rosalind Thompson has been Executive Vice President, Human Resources of our
Company since December 1999. She was previously Senior Vice President, Human
Resources from March 1992 to December 1999.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Class A and Class B shares of common stock are traded on the
New York Stock Exchange under the ticker symbols JAS.a and JAS.b, respectively.
The number of Class A and Class B common shareholders of record as of April 14,
2000 were 735 and 743, respectively.
The quarterly high and low closing stock prices for fiscal 2000 and 1999
are presented in the table below:
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON
STOCK STOCK
--------------- ---------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
Fiscal 2000:
January 29, 2000............................................ $14 1/4 $ 9 9/16 $13 $ 9 5/8
October 30, 1999............................................ 14 11/16 12 7/16 12 11/16 11 5/16
July 31, 1999............................................... 17 1/4 12 3/8 13 11 3/4
May 1, 1999................................................. 17 1/8 13 3/16 12 7/8 10 5/8
Fiscal 1999:
January 30, 1999............................................ $19 3/8 $13 1/4 $16 1/2 $12 5/8
October 31, 1998............................................ 24 1/2 15 5/16 21 9/16 13 15/16
August 1, 1998.............................................. 29 1/2 23 7/8 26 21 1/4
May 2, 1998................................................. 31 3/16 24 1/2 27 1/2 21 5/8
</TABLE>
10
<PAGE> 12
ITEM 6. SELECTED FINANCIAL DATA
The following table presents our selected financial data for each of the
ten years ending January 29, 2000. The selected financial data was derived from
the audited financial statements and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements and notes thereto and other
financial data that we have filed with the U.S. Securities and Exchange
Commission.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------------------------------------------------------------------------------------
JAN 29, JAN 30, JAN 31, FEB 1, JAN 27, JAN 28, JAN 29, JAN 30, FEB 1, FEB 2,
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
-------- -------- ------- ------ ------- ------- ------- ------- ------ ------
(MILLIONS OF DOLLARS, EXCEPT SHARE, PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
Net sales............... $1,381.5 $1,242.9 $975.0 $929.0 $834.6 $677.3 $582.1 $574.1 $442.0 $368.6
Total sales percentage
increase.............. 11.2% 27.5% 5.0% 11.3% 23.2% 16.4% 1.4% 29.9% 19.9% 14.0%
Comparable store sales
percentage increase... 4.5% 3.5% 3.8% 7.5% 3.0% 1.0% 4.4% 7.6% 11.9% 4.7%
Gross margin............ 633.4 564.4 441.8 412.1 378.0 298.7 252.1 245.1 208.4 165.8
Selling, general and
administrative
expenses.............. 533.8 476.7 363.1 340.9 319.9 257.2 223.4 221.2 171.8 138.5
Non-recurring charge.... -- 25.1 -- -- -- -- -- -- -- --
Depreciation and
amortization.......... 32.0 27.7 21.7 21.2 18.2 14.0 12.0 10.1 5.5 5.6
Operating profit........ 67.6 34.9 57.0 50.0 39.9 27.5 16.7 13.8 31.1 21.7
Interest expense........ 26.2 12.5 5.9 10.6 12.0 8.4 5.6 5.5 2.9 3.6
Income from continuing
operations before
income taxes.......... 41.4 22.4 51.1 39.4 27.9 19.1 11.1 8.3 28.2 18.1
Income tax provision.... 15.7 8.8 19.2 14.8 10.4 7.4 4.1 3.1 10.1 6.8
Income from continuing
operations............ 25.7 13.6 31.9 24.6 17.5 11.7 7.0 5.2 18.1 11.3
Losses from
extraordinary
items/discontinued
operations............ -- -- (1.1) -- -- -- (4.8) (1.0) (0.6) (0.1)
Net income.............. 25.7 13.6 30.8 24.6 17.5 11.7 2.2 4.2 17.5 11.2
EBITDA (a) (b).......... $ 99.6 $ 87.7 $ 78.7 $ 71.2 $ 58.1 $ 41.5 $ 28.7 $ 23.9 $ 36.6 $ 27.3
------------------------------------------------------------------------------------------------
PER SHARE DATA (C):
Net income from
continuing
operations --
diluted............... $ 1.38 $ 0.69 $ 1.60 $ 1.26 $ 0.90 $ 0.63 $ 0.37 $ 0.27 $ 0.98 $ 0.72
Average shares
outstanding - diluted
(000's)............... 18,583 19,904 20,592 21,216 19,293 18,749 18,877 19,263 18,398 15,782
Book value.............. $ 15.11 $ 13.62 $12.84 $11.13 $ 9.79 $ 8.79 $ 8.19 $ 8.00 $ 7.67 $ 5.16
Shares outstanding, net
of treasury shares
(000's)............... 17,845 19,012 18,767 17,921 18,486 18,398 18,194 18,555 18,584 14,915
------------------------------------------------------------------------------------------------
FINANCIAL POSITION:
Inventories............. $ 458.9 $ 420.2 $294.7 $296.1 $338.0 $290.6 $224.8 $223.6 $183.3 $135.2
Current assets.......... 508.0 490.1 322.1 318.3 361.4 325.7 247.7 242.3 209.6 166.1
Property, equipment and
leasehold
improvements, net..... 194.7 164.0 110.0 94.6 102.0 84.1 75.6 77.9 54.6 33.9
Current liabilities..... 208.1 209.2 164.8 141.2 129.2 127.5 80.2 93.6 97.8 72.2
Long-term debt.......... 245.2 182.5 24.7 72.1 155.5 127.0 102.5 104.1 40.1 52.1
Shareholders' equity.... 269.5 259.0 240.9 199.4 181.0 161.7 149.0 148.5 142.5 77.0
</TABLE>
11
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA -- CONTINUED
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------------------------------------------------------------
JAN 29, JAN 30, JAN 31, FEB 1, JAN 27, JAN 28, JAN 29, JAN 30, FEB 1, FEB 2,
2000 1999 1998 1997 1996 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- ------- ------- ------ ------
(MILLIONS OF DOLLARS, EXCEPT SHARE, PER SHARE AND STORE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATISTICS AND OTHER
FINANCIAL
INFORMATION:
Operating income
percent of sales
(b).................. 4.9% 4.8% 5.8% 5.4% 4.8% 4.1% 2.9% 2.4% 7.0% 5.9%
EBITDA percent of sales
(b).................. 7.2% 7.1% 8.1% 7.7% 7.0% 6.1% 4.9% 4.2% 8.3% 7.4%
Return on average
assets (d)........... 3.5% 5.0% 7.3% 5.4% 3.9% 3.0% 2.0% 1.6% 7.4% 6.2%
Return on average
equity (d)........... 9.7% 11.6% 14.5% 12.9% 10.2% 7.5% 4.7% 3.6% 16.5% 15.6%
Capital expenditures... $ 67.4 $ 75.1 $ 36.6 $ 13.2 $ 34.7 $ 11.7 $ 8.5 $32.3 $18.5 $14.7
Long-term debt to total
capitalization....... 47.6% 41.3% 9.3% 26.6% 46.2% 44.0% 40.8% 41.2% 22.0% 40.4%
Ratio of EBITDA to
interest expense
(times).............. 3.8 7.0 13.3 6.7 4.8 4.9 5.1 4.3 12.6 7.6
Ratio of debt to EBITDA
(times).............. 2.5 2.1 0.3 1.0 2.7 3.1 3.6 4.4 1.1 1.9
-----------------------------------------------------------------------------------------
STORE INFORMATION:
Number of traditional
stores............... 984 1,034 896 913 935 964 655 693 664 617
Number of etc
superstores.......... 42 24 7 1 1 -- -- -- -- --
-----------------------------------------------------------------------------------------
Total store count...... 1,026 1,058 903 914 936 964 655 693 664 617
Traditional stores
total square footage
(000's).............. 13,685 14,144 11,794 11,566 11,476 11,424 7,481 7,376 5,890 4,553
etc superstores total
square footage
(000's).............. 1,957 1,126 325 46 46 -- -- -- -- --
-----------------------------------------------------------------------------------------
Total stores square
footage (000's)...... 15,642 15,270 12,119 11,612 11,522 11,424 7,481 7,376 5,890 4,553
</TABLE>
- ---------------
(a) Earnings before interest, taxes, depreciation and amortization.
(b) Fiscal 1999 excludes a $25.1 million non-recurring charge recorded in
connection with the acquisition of House of Fabrics.
(c) The number of shares and per share data have been restated to give effect to
changes required by Statement of Financial Accounting Standards No. 128,
"Earnings Per Share," and the Recapitalization Amendment, effective August
2, 1995, which has been accounted for as if it were a two-for-one stock
split.
(d) Calculated based on income from continuing operations. Fiscal 1999 excludes
the non-recurring charge, net of tax.
12
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
We are the nation's largest fabric and craft retailer, serving customers in
their pursuit of crafting, sewing, decorating, and other creative endeavors. Our
retail stores (operating as Jo-Ann Fabrics and Crafts traditional stores and
Jo-Ann etc superstores) feature a variety of competitively priced merchandise -
from fabrics and notions used in crafting, quilting, apparel sewing, and home
decorating projects, to craft components, silk and dried flowers, and finished
seasonal merchandise. At January 29, 2000, we operated 1,026 stores in 49 states
(984 traditional stores and 42 superstores). That makes us a leader in an
approximately $10 billion creative leisure market - a market, according to
industry research, in which more than 70% of American households participate
each year.
Our traditional stores average approximately 13,900 square feet, and we
believe many are located in markets that are currently underserved. Over the
past five years, we have strategically relocated certain traditional stores,
increasing average square footage per store by approximately 20% and sales per
square foot by 13%. As a result, net sales per traditional store have increased
30% to approximately $1.2 million over this period. In November 1995, we opened
our first large format "category killer" superstore which offers a comprehensive
product assortment and higher margin custom services including framing, home
decoration, and furniture and floral design. Our superstores average 46,000
square feet and in fiscal 2000 generated more than four times the revenue and
30% higher sales per square foot than our traditional stores. We believe our
superstores, which accounted for approximately 12 percent of fiscal 2000 net
sales, will be our future growth vehicle.
In March 1998, we acquired 77.2% of the outstanding common stock of House
of Fabrics, Inc., a retail chain operating 261 fabric and craft stores
predominantly on the West Coast. In April 1998, the merger of House of Fabrics
with one of our wholly-owned subsidiaries was approved by the shareholders of
House of Fabrics. Operating results of the House of Fabrics stores have been
included in our results of operations since the date of the House of Fabrics
acquisition.
Our strategy for future growth focuses on two main objectives -- building
on the strong relations we have with our customers and improving the efficiency
of how we operate. To expand our presence in the marketplace, we must deepen our
relationships with customers even further and enhance our efficiency in the
delivery of our products and services. We plan to implement this strategy by:
- Continuing to roll out our superstore concept;
- Completing our infrastructure and technology investments that
support our growth plans; and
- Continuing to develop our Internet strategy.
We made significant progress during the past year in positioning ourselves
for future growth. For example, during fiscal 2000 we:
- Opened 18 superstores, raising the total number of superstores in
operation to 42;
- Made substantial progress in implementing a fully integrated
enterprise-wide system, utilizing software supplied by SAP AG ("SAP
Retail"). The SAP Retail technology was implemented in March 2000.
We are now working diligently to extract the benefits from this
industry leading integrated system;
- Completed a logistics network study that confirmed the need to build
a second distribution facility in California. We will break ground
for this facility in May 2000; and
- Issued 10 3/8 percent, $150 million senior subordinated notes in May
1999. The eight-year notes allowed us to convert a major portion of
our prior outstanding floating rate debt balance to fixed-rate,
long-term debt and put in place the long-term financing necessary to
fund future growth.
Looking back, we can characterize fiscal 2000 as a year of strategic
investment, a year in which we laid the groundwork for future growth.
13
<PAGE> 15
RESULTS OF OPERATIONS
The following table sets forth certain financial information from our
audited consolidated financial statements of income expressed as a percentage of
net sales and should be read in conjunction with our consolidated financial
statements and related notes thereto.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------------------------
FISCAL YEARS ENDED
--------------------------------------------
JAN 29, 2000 JAN 30, 1999 JAN 31, 1998
------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of sales............................... 54.2 54.6 54.7
----- ----- -----
Gross profit................................ 45.8 45.4 45.3
Selling, general and administrative
expenses.................................. 38.6 38.4 37.2
Depreciation and amortization............... 2.3 2.2 2.2
----- ----- -----
Operating profit before non-recurring
charge.................................... 4.9 4.8 5.9
Non-recurring charge........................ -- 2.0 --
----- ----- -----
Operating profit............................ 4.9 2.8 5.9
Interest expense............................ 1.9 1.0 0.6
----- ----- -----
Income before income taxes and extraordinary
item...................................... 3.0 1.8 5.3
Income taxes................................ 1.1 0.7 2.0
----- ----- -----
Net income before extraordinary item........ 1.9 1.1 3.3
Extraordinary item.......................... -- -- (0.1)
----- ----- -----
Net income.................................. 1.9% 1.1% 3.2%
===== ===== =====
</TABLE>
COMPARISON OF THE 52 WEEKS ENDED JANUARY 29, 2000 AND JANUARY 30, 1999
Operationally, we had a successful year. We improved revenues and operating
margin. But our infrastructure investments, coupled with a build in inventories
and common share repurchase activity, caused interest expense to rise
significantly. As a result, bottom-line performance was disappointing for the
second straight year.
Our focus during the past two years has been to build for the future.
Unfortunately, the financial leverage required to build for the future has been
detrimental to our short-term earnings performance. Net income for fiscal 2000
was $25.7 million or $1.38 per diluted share, compared to net income of $13.6
million or $0.69 per diluted share for the prior year. Excluding the
non-recurring charge recorded in the prior year related to the House of Fabrics
acquisition, net income for the prior year was $28.9 million or $1.46 per
diluted share.
Net sales. Net sales for fiscal 2000 were $1,381.5 million compared to
$1,242.9 million in fiscal 1999, an increase of $138.6 million, or 11.2%.
Comparable store sales accounted for $48.1 million or approximately 35% of this
increase. Comparable store sales increased 4.5% for fiscal 2000 over fiscal 1999
and comparable store sales increased 3.5% for fiscal 1999 over fiscal 1998. We
have achieved positive growth in comparable store sales for 22 consecutive
quarters. The balance of the increase was primarily due to the increase in the
number of superstores in operation. Forty-two superstores were in operation at
January 29, 2000 compared to 24 superstores at January 30, 1999.
Gross profit. Gross profit for fiscal 2000 was $633.4 million compared to
$564.4 million in fiscal 1999, an increase of $69.0 million, or 12.2%. As a
percentage of net sales, fiscal 2000 gross profit was 45.8%, an increase of 40
basis points from fiscal 1999. The margin rate improvement resulted from
improvements in our point of sale margin rate. This improvement was the result
of earlier sell-through on seasonal products, a less promotional stance in the
second half of fiscal 2000 and an improved margin in the House of Fabrics
stores, which were in the process of stock reduction during fiscal 1999.
Selling, general and administrative expenses. Selling, general and
administrative expenses, excluding the non-recurring charge recorded in the
prior year, were $533.8 million in fiscal 2000 compared to $476.7
14
<PAGE> 16
million in fiscal 1999, an increase of $57.1 million, or 12.0%. Selling, general
and administrative expenses as a percentage of net sales were 38.6% in fiscal
2000 compared to 38.4% in fiscal 1999, an increase of 20 basis points. The
increase, as a percentage of sales, was due to a higher store expense ratio,
resulting primarily from higher store payroll costs to handle increased product
flow.
Depreciation and amortization. Depreciation and amortization expense for
fiscal 2000 was $32.0 million compared to $27.7 million in fiscal 1999, an
increase of $4.3 million, or 15.5%. This increase was due to higher capital
expenditure levels in the current and prior year, as discussed below under the
caption "Capital Expenditures".
Non-recurring charge. During fiscal 1999, we recorded a non-recurring
charge of $25.1 million pretax ($15.3 million on an after-tax basis) related to
the House of Fabrics acquisition. This charge consisted of write-downs of
previously owned assets affected by the acquisition to estimated net realizable
value, the cost of operating duplicate corporate facilities during the six-month
transition period following the acquisition, and costs associated with the
remerchandising of the acquired stores. The total cash costs included in the
non-recurring charge were approximately $15.9 million. The planned integration
events associated with the acquisition were completed in the third quarter of
fiscal 1999.
Operating profit. Operating profit for fiscal 2000 was $67.6 million,
compared to $34.9 million in fiscal 1999, an increase of $32.7 million, or
93.7%. Excluding the non-recurring charge incurred in fiscal 1999, operating
profit increased $7.6 million or 12.6%.
Interest expense. Interest expense for fiscal 2000 was $26.2 million
compared to $12.5 million in fiscal 1999, an increase of $13.7 million. The
increase was due to higher debt levels resulting from, among other things, the
House of Fabrics acquisition, related working capital expenditures, capital
expenditures, and increased inventory levels.
Income taxes. Income taxes during fiscal 2000 were $15.7 million compared
to $8.8 million in fiscal 1999, an increase of $6.9 million. The effective
income tax rate was 38.0% for fiscal 2000 compared to 39.0% for fiscal 1999. The
effective tax rate decreased due to a lower effective state tax rate and federal
tax credits related to our participation in various government hiring programs.
Net income. Net income during fiscal 2000 was $25.7 million compared to
$13.6 million in fiscal 1999, an increase of $12.1 million, or 89.0%. Excluding
the after-tax effect of the non-recurring charge recorded in fiscal 1999, net
income in fiscal 1999 would have been $28.9 million.
COMPARISON OF THE 52 WEEKS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998
Net sales. Net sales for fiscal 1999 were $1,242.9 million compared to
$975.0 million in fiscal 1998, an increase of $267.9 million, or 27.5%. Of this
increase, $188.8 million was attributable to the acquired House of Fabrics
stores. Excluding the impact of the House of Fabrics stores, sales increased
8.1%, or $79.1 million, compared to fiscal 1998. Comparable store sales
accounted for $29.3 million or approximately 21% of this increase. Comparable
store sales increased 3.5% for fiscal 1999 over fiscal 1998 and comparable store
sales increased 3.8% for fiscal 1998 over fiscal 1997. The balance of the
increase was due to the increase in the number of superstores in operation.
Twenty-four superstores were in operation at January 30, 1999 compared to seven
superstores at January 31, 1998.
Gross profit. Gross profit for fiscal 1999 was $564.4 million compared to
$441.8 million in fiscal 1998, an increase of $122.6 million, or 27.8%. As a
percentage of net sales, fiscal 1999 gross profit was 45.4%, an increase of 10
basis points from fiscal 1998. The gross profit percentage improvement resulted
from a continued improvement in shrink as pricing to consumers and product costs
were relatively constant between years. In addition, higher freight costs, due
to the increased level of inventory handled during the year and a higher
proportion of stores operating on the West Coast, were partially offset by
increased vendor support in the form of quantity discounts.
Selling, general and administrative expenses. Selling, general and
administrative expenses, excluding the non-recurring charge, were $476.7 million
in fiscal 1999 compared to $363.1 million in fiscal 1998, an
15
<PAGE> 17
increase of $113.6 million, or 31.3%. Selling, general and administrative
expenses as a percentage of net sales were 38.4% in fiscal 1999 compared to
37.2% in fiscal 1998, an increase of 120 basis points from fiscal 1998. The
increase, as a percentage of sales, consisted primarily of increases in
distribution expenses due to the higher level of inventory handled, store
opening expenses and Year 2000 compliance expenses.
Depreciation and amortization. Depreciation and amortization expense for
fiscal 1999 was $27.7 million compared to $21.7 million in fiscal 1998, an
increase of $6.0 million, or 27.6%. Of this increase, $4.2 million was due to
the House of Fabrics acquisition and the balance was attributable to higher
capital expenditure levels in the past two years.
Non-recurring charge. During fiscal 1999, we incurred a non-recurring
charge of $25.1 million pretax ($15.3 million on an after-tax basis) related to
the House of Fabrics acquisition. This charge consisted of write-downs of
previously owned assets affected by the acquisition to estimated net realizable
value, the cost of operating duplicate corporate facilities during the six-month
transition period following the acquisition, and costs associated with the
remerchandising of the acquired stores. The total cash costs included in the
non-recurring charge were approximately $15.9 million. The planned integration
events associated with the acquisition were completed in the third quarter of
fiscal 1999.
Operating profit. Operating profit for fiscal 1999 was $34.9 million,
compared to $57.0 million in fiscal 1998, a decrease of $22.1 million, or 38.8%.
Excluding the non-recurring charge, operating profit would have been $60.0
million in fiscal 1999, an increase of $3.0 million or 5.3% over fiscal 1998.
Interest expense. Interest expense for fiscal 1999 was $12.5 million
compared to $5.9 million in fiscal 1998, an increase of $6.6 million. The
increase was due to higher debt levels resulting from the House of Fabrics
acquisition and increased inventory levels.
Income taxes. Income taxes during fiscal 1999 were $8.8 million compared to
$19.2 million in fiscal 1998, a decrease of $10.4 million. The effective income
tax rate was 39.0% for fiscal 1999 compared to 37.5% for fiscal 1998. The
effective tax rate increased due to higher state income tax expense as a result
of fully utilizing state tax net operating loss carry forwards during fiscal
1999 and the impact of nondeductible amortization of goodwill from the House of
Fabrics acquisition.
Net income. Net income during fiscal 1999 was $13.6 million compared to
$30.8 million in fiscal 1998, a decrease of $17.2 million, or 55.8%. Excluding
the non-recurring charge, net income would have been $28.9 million in fiscal
1999, a decrease of $1.9 million or 6.2% compared to fiscal 1998.
Extraordinary item. During the second quarter of fiscal 1998, we incurred
an extraordinary loss of $1.1 million, or $0.06 per share, related to the early
redemption of our 6 1/4% Convertible Subordinated Debentures due 2002. The
redemption was funded through the use of our senior credit facility.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal 2000 Cash Flows
Cash, including temporary cash investments, increased $1.0 million during
fiscal 2000 to $21.4 million as of January 29, 2000.
Net cash provided by operating activities was $41.4 million in fiscal 2000,
compared to net cash used for operating activities of $15.3 million in fiscal
1999. Cash generated by operations in fiscal 2000, before working capital items,
totaled $72.0 million, an improvement of $10.8 million from the $61.2 million
generated during fiscal 1999. Working capital consumed $30.6 million of cash.
Inventories, net of payables support, increased $39.5 million primarily due to
the opening of 18 additional superstores and an increase in the average store
inventory levels for our traditional store base from fiscal 1999.
Net cash used for investing activities for fiscal 2000 totaled $66.0
million compared to $94.3 million in fiscal 1999. Capital expenditures were
$67.4 million during fiscal 2000 and are discussed further under the caption
"Capital Expenditures."
16
<PAGE> 18
Net cash provided by financing activities during fiscal 2000 was $25.6
million. This increase consisted of a net increase of $56.1 million in long-term
debt, offset by a deposit payment on the House of Fabrics income tax contingency
(discussed below) and the repurchase of $20.0 million of common stock.
In December 1998, our board of directors authorized the repurchase of up to
an additional 2.0 million shares of our common stock. This authorization, when
coupled with prior authorizations by the board of directors, allowed for the
repurchase of up to approximately 3.1 million shares at January 30, 1999. During
fiscal 2000, we purchased a total of 1.5 million shares of common stock at an
aggregate price of $20.0 million, or $13.26 per share, which represented a
discount of 12% to our $15.11 book value per share at January 29, 2000. As of
January 29, 2000, we could purchase up to an additional 1.6 million shares under
the previous authorization from our board of directors. However, we plan to
forgo share repurchases in the near-term to focus on debt reduction.
In connection with the House of Fabrics acquisition, we assumed a $22.5
million income tax contingency (discussed in Note 3 to the consolidated
financial statements). In February 1999, we made a deposit payment to the
Internal Revenue Service ("IRS") of $16.1 million representing $12.3 million of
the potential $22.5 million income tax liability and $3.8 million of accrued
interest. We are currently in discussions with the IRS regarding a settlement of
this contingency.
Fiscal 1999 Cash Flows
Cash, including temporary cash investments, increased $5.6 million during
fiscal 1999 to $20.4 million as of January 30, 1999.
Net cash used for operating activities was $15.3 million in fiscal 1999,
compared to net cash provided by operating activities of $78.1 million in fiscal
1998. Cash generated by operations in fiscal 1999, before working capital items,
totaled $61.2 million, an improvement of $6.7 million compared to the $54.5
million generated during fiscal 1998. Working capital consumed $76.5 million of
cash. Inventories, net of payables support, increased $81.4 million due to the
opening of 17 additional superstores, the remerchandising of the acquired House
of Fabrics stores with a denser mix of inventory per square foot, and higher
levels of inventory in the distribution service center.
Net cash used for investing activities for fiscal 1999 totaled $94.3
million compared to $37.1 million in fiscal 1998. The primary investment
activities in fiscal 1999 were the acquisition of House of Fabrics and capital
expenditures. We completed our acquisition of the outstanding stock of House of
Fabrics during the first quarter of fiscal 1999 for a total purchase price of
$23.5 million. In addition to the cost of the outstanding stock, we assumed
approximately $73.6 million in debt and other long-term liabilities, including
the $22.5 million income tax contingency discussed above and in Note 3 to the
consolidated financial statements. Capital expenditures were $75.1 million
during fiscal 1999 and are discussed further under the caption "Capital
Expenditures."
Net cash provided by financing activities during fiscal 1999 was $115.2
million, of which $111.3 million represented an increase in borrowings under our
senior credit facility and $4.4 million represented the proceeds and tax benefit
from the exercise of stock options.
Capital Expenditures
During fiscal 2000, we reinvested $67.4 million into our business, of which
$39.9 million represented investment in new stores and upgrades through the
relocation or remodeling of our existing store base. During fiscal 2000, we
opened 18 superstores and 11 traditional stores, relocated 18 traditional stores
and closed 61 smaller or under-performing traditional stores. Twenty of these
closings directly related to superstore openings.
We spent $17.1 million in fiscal 2000 on capitalizable systems technology,
of which $15.8 million related to the installation of SAP Retail. This software
replaces substantially all of our existing financial and merchandising systems.
We became fully operational on SAP Retail in March 2000. We expect that the
total
17
<PAGE> 19
cost of this two-year project will be approximately $32.0 million, of which
$28.8 million had been spent at the end of fiscal 2000.
We also spent $4.2 million in fiscal 2000 on capital projects for our
distribution network to, among other improvements, install a second fabric
selection module in our Hudson distribution service center. This module will
further improve picking efficiency.
During fiscal 1999, we reinvested $75.1 million into our business, of which
$52.6 million represented investment in new stores and upgrades. We made
upgrades through relocation or remodeling of our existing store base, including
$16.0 million to remodel the acquired House of Fabric stores. During fiscal
1999, we opened 31 stores, including 17 superstores, and relocated or expanded
19 traditional stores. We spent $4.9 million on capital projects for our
distribution service center to, among other improvements, install a fabric
selection module and a split case selection module to improve picking
efficiency.
During fiscal 2001, we intend to open 20 new stores, including 15
superstores and to relocate 5 traditional stores. Excluding the planned West
Coast distribution facility, our total capital expenditures are expected to
approximate $40.0 million in fiscal 2001. We expect funds for these expenditures
to come from borrowings under our senior credit facility and cash generated
internally. We expect to construct our West Coast distribution center on an
80-acre site in Visalia, California. We expect the 630,000 square foot
distribution center to be operating in the second quarter of fiscal 2002. We
will finance the total project cost, including construction costs and equipment,
estimated at $40 to $45 million, using off-balance sheet financing.
Approximately $32 million of the project cost will be incurred during fiscal
2001. We have no material commitments in connection with these planned capital
expenditures.
We are moving fast to establish a selling presence on the web. The Internet
is particularly suited for companies such as ours that attract people not only
with merchandise for sale but with educational and project-oriented information
that encourages frequent visits to our website. We believe that in the long
term, only truly convergent companies will continue to create value in both the
traditional and virtual marketplaces. We are currently evaluating our
alternatives and expect to have some exciting news in the near future as we
finalize our strategic plans for the Internet.
Sources of Liquidity
We have three principal sources of liquidity:
- cash from operations;
- cash and temporary cash investments; and
- our senior credit facility.
On May 5, 1999, we issued $150.0 million of 10 3/8% senior subordinated
notes due May 1, 2007. We also entered into a $300.0 million five-year senior
credit facility that expires on April 30, 2004. The net proceeds from the senior
subordinated notes, coupled with borrowings under the senior credit facility,
were used to refinance our former credit facility.
We may borrow up to a maximum of $330.0 million by utilizing funds
available under the senior credit facility and other lines of credit. Interest
on borrowings under the senior credit facility is calculated at an applicable
margin over the London Interbank Offered Rate ("LIBOR"). The applicable margin,
as well as the facility fee on the commitment amount, is based on the
achievement of specified ranges of certain financial covenants. Currently, our
interest on borrowings is equal to LIBOR plus 175 basis points, and the annual
facility fee is equal to 50 basis points. As of January 29, 2000, we had $95.2
million of debt outstanding under the senior credit facility, and an additional
$38.2 million outstanding under letters of credit.
The senior credit facility contains financial covenants which require us,
among other things, to maintain a minimum consolidated net worth, fixed charge
coverage and current funded indebtedness ratios, limit our maximum leverage
ratios and capital expenditures, and restricts our ability to repurchase common
stock. We are currently in compliance with all financial covenants contained in
the senior credit facility.
18
<PAGE> 20
Interest on the senior subordinated notes is payable on May 1 and November
1 of each year. We have the option to redeem the notes at any time after May 1,
2003, in accordance with certain call provisions. The notes are unsecured
obligations and are subordinated to the senior credit facility. The notes are
fully and unconditionally guaranteed by each of our subsidiaries.
We believe that our senior credit facility, coupled with cash on hand and
cash from operations, will be sufficient to cover our working capital, capital
expenditure and debt service requirement needs for the foreseeable future.
Our total debt-to-capitalization ratio was 47.6% at January 29, 2000 and
41.3% at January 30, 1999. This increase in the debt-to-capitalization ratio
resulted primarily from an increase in long-term debt and an offsetting
reduction in shareholders' equity of $20.0 million due to the common share
repurchase program.
We have a goal to reduce debt levels during fiscal 2001 while continuing to
invest in and grow our business. Our new SAP system should help us achieve our
goal of reducing inventory levels closer to the fiscal 1999 year-end levels. In
addition, we plan to minimize our common share repurchase activity. Although we
continue to believe our current stock price does not reflect our past earnings
performance or future earnings capability, we are forgoing share buyback
opportunities to focus on debt reduction. With the focus on inventory reduction
and a capital expenditure plan this year of $40 million (excluding a West Coast
distribution center which is being financed as an operating lease), our goal is
to achieve a debt to total capitalization ratio of approximately 40 percent by
the end of fiscal 2001.
SEASONALITY AND INFLATION
Our business exhibits seasonality which is typical for most retail
companies. Our sales are much stronger in the second half of the year than the
first half of the year. Net earnings are highest during the months of September
through December when sales volumes provide significant operating leverage.
Capital requirements needed to finance our operations fluctuate during the year
and reach their highest levels during the second and third fiscal quarters as we
increase our inventory in preparation for our peak selling season.
We believe that inflation has not had a significant effect on the growth of
net sales or on net income over the past three years.
YEAR 2000
We implemented a company-wide Year 2000 compliance plan during 1998 to
determine Year 2000 issues and assure Year 2000 readiness. We did not experience
any material disruption due to Year 2000 at any of our locations and business
continued as planned after January 1, 2000. We have not experienced and do not
expect to experience any significant impact on our operations as a result of
Year 2000. Also, we are not aware of any Year 2000 problems with our suppliers.
However, the potential still exists for a non-compliant system, either within
the Company or at a supplier, to malfunction due to Year 2000 issues and cause a
disruption to our business. In the event that such Year 2000 issues should
arise, contingency plans developed for Year 2000 or business continuity plans as
appropriate, would be utilized. We believe that, with the successful transition
to the year 2000, the possibility of significant interruptions of normal
operations is minimal.
Expenditures for modifying existing software to address Year 2000 issues
totaled approximately $5.9 million, of which $3.8 million was spent in fiscal
2000, $1.6 million was spent in fiscal 1999 and $0.5 million in fiscal 1998. All
expenditures were expensed as incurred.
DERIVATIVE FINANCIAL INSTRUMENTS AND MARKET RISK
We are exposed to the impact of:
- interest rate changes on our outstanding borrowings under the senior
credit facility; and
- foreign currency fluctuations on merchandise that is sourced
internationally.
19
<PAGE> 21
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 impact of
interest rate changes on earnings and cash flows and to lower our overall
borrowing costs. To achieve our objective, we utilize interest rate swaps to
manage net exposure to interest rate changes related to our debt structure. On
March 15, 1998, we entered into a five-year interest rate swap agreement to
hedge our interest rate exposure. The notional amount of this interest rate swap
is $75.0 million, with a fixed LIBOR of 5.98%, and will be reduced to $50.0
million on March 15, 2001 for the remaining term of the agreement.
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 source approximately 16% of our purchases
internationally.
RECENT ACCOUNTING PRONOUNCEMENTS
Derivatives. In June 1998, Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities," was issued.
We must adopt the statement in fiscal 2002. Under the provisions of this
statement, we will be required to record all derivatives on the balance sheet at
fair value and establish special accounting rules for the different types of
hedges. We do not expect the implementation of this standard to have a material
impact on our financial position or results of operations.
FORWARD-LOOKING STATEMENTS
Certain statements contained in this report that are not historical facts
are forward-looking statements that are subject to certain risks and
uncertainties. When used herein, the terms "anticipates," "plans," "estimates,"
"expects," "believes," and similar expressions as they relate to us are intended
to identify such forward-looking statements. Our actual results, performance or
achievements may materially differ from those expressed or implied in the
forward-looking statements. Risks and uncertainties that could cause or
contribute to such material differences include, but are not limited to, general
economic conditions, changes in customer demand, changes in trends in the fabric
and craft industry, seasonality, our failure to manage our growth, loss of key
management, the availability of merchandise, changes in the competitive pricing
for products, the impact of competitor store openings and closings, and the
ability to address internal and external Year 2000 issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in the "Derivative
Financial Instruments and Market Risk" section of Management's Discussion and
Analysis of Financial Condition and Results of Operations.
20
<PAGE> 22
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
JO-ANN STORES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Management........................................ 22
Report of Independent Public Accountants.................... 23
Consolidated Balance Sheets as of January 29, 2000 and
January 30, 1999.......................................... 24
Consolidated Statements of Income for each of the three
fiscal years in the period ended
January 29, 2000....................................... 25
Consolidated Statements of Cash Flows for each of the three
fiscal years in the period ended
January 29, 2000....................................... 26
Consolidated Statements of Shareholders' Equity for each of
the three fiscal years in the period
ended January 29, 2000................................. 27
Notes to Consolidated Financial Statements.................. 28
</TABLE>
21
<PAGE> 23
REPORT OF MANAGEMENT
To the Shareholders of Jo-Ann Stores, Inc.
We have prepared the accompanying consolidated financial statements and
related information included herein for the years ended January 29, 2000,
January 30, 1999, and January 31, 1998. The opinion of Arthur Andersen LLP, the
Company's independent public accountants, on those financial statements is
included. The primary responsibility for the integrity of the financial
information included in this annual report rests with management. This
information is prepared in accordance with accounting principles generally
accepted in the United States, based on our best estimates and judgments and
giving due consideration to materiality.
The Company maintains accounting and control systems which are designed to
provide reasonable assurance that assets are safeguarded from loss or
unauthorized use, and which produce records adequate for preparation of
financial information. There are limits inherent in all systems of internal
control based on the recognition that the cost of such systems should not exceed
the benefits to be derived. We believe our systems provide this appropriate
balance.
The Board of Directors pursues its responsibility for these financial
statements through the Audit Committee, composed exclusively of outside
directors. The committee meets periodically with management, internal auditors
and our independent public accountants to discuss the adequacy of financial
controls, the quality of financial reporting, and the nature, extent and results
of the audit effort. Both the internal auditors and independent public
accountants have private and confidential access to the Audit Committee at all
times.
<TABLE>
<S> <C>
Alan Rosskamm Brian P. Carney
Chairman of the Board, Executive Vice President,
President and Chief Executive Officer Chief Financial Officer
</TABLE>
22
<PAGE> 24
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
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. (an Ohio corporation) and Subsidiaries as of January 29, 2000 and
January 30, 1999, and the related consolidated statements of income,
shareholders' equity and cash flows for each of the three fiscal years in the
period ended January 29, 2000. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the 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 financial position of Jo-Ann Stores, Inc. and
Subsidiaries as of January 29, 2000 and January 30, 1999 and the results of
their operations and their cash flows for each of the three fiscal years in the
period ended January 29, 2000 in conformity with accounting principles generally
accepted in the United States.
Arthur Andersen LLP
Cleveland, Ohio,
March 22, 2000
23
<PAGE> 25
CONSOLIDATED BALANCE SHEETS
JO-ANN STORES, INC.
<TABLE>
<CAPTION>
JANUARY 29, JANUARY 30,
2000 1999
----------- -----------
(MILLIONS OF DOLLARS,
EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments....................... $ 21.4 $ 20.4
Inventories............................................... 458.9 420.2
Deferred income taxes..................................... 8.9 24.8
Prepaid expenses and other current assets................. 18.8 24.7
------ ------
Total current assets........................................ 508.0 490.1
Property, equipment and leasehold improvements, net......... 194.7 164.0
Goodwill, net............................................... 36.3 37.2
Other assets................................................ 18.0 10.1
------ ------
Total assets................................................ $757.0 $701.4
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $149.6 $150.4
Accrued expenses.......................................... 54.9 58.4
Accrued income taxes...................................... 3.6 0.4
------ ------
Total current liabilities................................... 208.1 209.2
Long-term debt.............................................. 245.2 182.5
Deferred income taxes....................................... 22.4 25.2
Other long-term liabilities................................. 11.8 25.5
Shareholders' equity:
Common stock:
Class A, stated value $0.05 per share; issued and
outstanding 8,987,036 and 9,530,330, respectively.... 0.5 0.5
Class B, stated value $0.05 per share; issued and
outstanding 8,857,853 and 9,481,244, respectively.... 0.5 0.5
Additional paid-in capital................................ 97.9 94.4
Unamortized restricted stock awards....................... (2.1) (2.9)
Retained earnings......................................... 211.5 185.8
------ ------
308.3 278.3
Treasury stock, at cost................................... (38.8) (19.3)
------ ------
Total shareholders' equity.................................. 269.5 259.0
------ ------
Total liabilities and shareholders' equity.................. $757.0 $701.4
====== ======
</TABLE>
See notes to consolidated financial statements
24
<PAGE> 26
CONSOLIDATED STATEMENTS OF INCOME
JO-ANN STORES, INC.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
--------------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
------------ ------------ ------------
(MILLIONS OF DOLLARS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................ $1,381.5 $1,242.9 $975.0
Cost of sales............................................ 748.1 678.5 533.2
Selling, general and administrative expenses............. 533.8 476.7 363.1
Depreciation and amortization............................ 32.0 27.7 21.7
Non-recurring charge..................................... -- 25.1 --
-------- -------- ------
Operating profit......................................... 67.6 34.9 57.0
Interest expense......................................... 26.2 12.5 5.9
-------- -------- ------
Income before income taxes and extraordinary item........ 41.4 22.4 51.1
Income tax provision..................................... 15.7 8.8 19.2
-------- -------- ------
Net income before extraordinary item..................... 25.7 13.6 31.9
Extraordinary item, loss related to early retirement of
debt, net of tax benefit of $0.7 million............... -- -- (1.1)
-------- -------- ------
Net income............................................... $ 25.7 $ 13.6 $ 30.8
======== ======== ======
Net income per common share-basic:
Net income before extraordinary item................... $ 1.41 $ 0.72 $ 1.74
Extraordinary item..................................... -- -- (0.06)
-------- -------- ------
Net income per common share.............................. $ 1.41 $ 0.72 $ 1.68
======== ======== ======
Net income per common share-diluted:
Net income before extraordinary item................... $ 1.38 $ 0.69 $ 1.60
Extraordinary item..................................... -- -- (0.06)
-------- -------- ------
Net income per common share.............................. $ 1.38 $ 0.69 $ 1.54
======== ======== ======
</TABLE>
See notes to consolidated financial statements
25
<PAGE> 27
CONSOLIDATED STATEMENTS OF CASH FLOWS
JO-ANN STORES, INC.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
-----------------------------------------
JANUARY 29, JANUARY 30, JANUARY 31,
2000 1999 1998
----------- ----------- -----------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Net cash flows from operating activities:
Net income............................................. $ 25.7 $ 13.6 $ 30.8
Adjustments to reconcile net income to net cash
provided by (used for) operating activities:
Depreciation and amortization....................... 32.0 27.7 21.7
Deferred income taxes............................... 13.1 8.5 --
Loss on disposal of fixed assets.................... 1.2 2.2 0.9
Non-cash portion of non-recurring charge............ -- 9.2 --
Extraordinary loss on debt prepayment............... -- -- 1.1
Changes in operating assets and liabilities:
(Increase) decrease in inventories.................. (38.7) (96.0) 1.4
(Increase) decrease in prepaid expenses and other
current
assets............................................ 5.9 19.2 (3.0)
Increase (decrease) in accounts payable............. (0.8) 14.6 21.2
Increase (decrease) in accrued expenses............. (0.2) (4.3) 3.6
Increase (decrease) in accrued income taxes......... 3.2 (10.0) 0.4
------ ------- ------
Net cash provided by (used for) operating activities..... 41.4 (15.3) 78.1
Net cash flows used for investing activities:
Capital expenditures................................... (67.4) (75.1) (36.6)
House of Fabrics acquisition, net of cash acquired..... -- (23.5) --
Other, net............................................. 1.4 4.3 (0.5)
------ ------- ------
Net cash used for investing activities................... (66.0) (94.3) (37.1)
Net cash flows provided by (used for) financing
activities:
Proceeds from issuance of senior subordinate notes,
net................................................. 143.4 -- --
Proceeds from long-term debt........................... 158.4 159.8 87.3
Repayment of long-term debt............................ (245.7) (48.5) (77.7)
Increase (decrease) in other long-term liabilities..... (13.7) -- --
Purchase of common stock............................... (20.0) (1.5) --
Proceeds and tax benefit from exercise of stock
options............................................. 1.9 4.4 8.4
Issuance of treasury shares............................ 1.2 1.0 0.8
Redemption of debentures............................... -- -- (57.0)
Other, net............................................. 0.1 -- (0.6)
------ ------- ------
Net cash provided by (used for) financing activities..... 25.6 115.2 (38.8)
Net increase in cash..................................... 1.0 5.6 2.2
Cash and temporary cash investments at beginning of
year................................................... 20.4 14.8 12.6
------ ------- ------
Cash and temporary cash investments at end of year....... $ 21.4 $ 20.4 $ 14.8
====== ======= ======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest............................................ $ 23.6 $ 12.5 $ 7.5
Income taxes, net of refunds........................ $ 6.4 $ 14.6 $ 15.6
Acquisition of House of Fabrics, Inc.:
Fair value of assets acquired, net of cash.......... $(138.1)
Fair value of liabilities assumed................... 116.8
-------
Net cash payment to date............................ (21.3)
Amount payable for shares not yet tendered.......... (2.2)
-------
Total.................................................. $ (23.5)
=======
</TABLE>
See notes to consolidated financial statements
26
<PAGE> 28
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
JO-ANN STORES, INC.
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL UNAMORTIZED TOTAL
COMMON COMMON PAID-IN RESTRICTED RETAINED TREASURY SHAREHOLDERS'
STOCK STOCK CAPITAL STOCK AWARDS EARNINGS STOCK EQUITY
------- ------- ---------- ------------ -------- -------- -------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, February 1, 1997..... $0.5 $0.5 $76.6 $(1.2) $141.4 $(18.4) $199.4
Net income.................. -- -- -- -- 30.8 -- 30.8
Exercise of stock options... -- -- 5.2 -- -- -- 5.2
Tax benefit on options
exercised................. -- -- 3.2 -- -- -- 3.2
Issuance of restricted stock
awards.................... -- -- 2.8 (2.8) -- -- --
Cancellation of restricted
stock awards.............. -- -- (0.4) 0.3 -- -- (0.1)
Amortization of restricted
stock awards.............. -- -- -- 0.6 -- -- 0.6
Issuance of treasury
shares.................... -- -- 0.5 -- -- 0.3 0.8
Issuance of common stock
upon conversion of
debentures................ -- -- 1.0 -- -- -- 1.0
---- ---- ----- ----- ------ ------ ------
Balance, January 31, 1998..... 0.5 0.5 88.9 (3.1) 172.2 (18.1) 240.9
Net income.................. -- -- -- -- 13.6 -- 13.6
Exercise of stock options... -- -- 2.7 -- -- -- 2.7
Tax benefit on options
exercised................. -- -- 1.7 -- -- -- 1.7
Issuance of restricted stock
awards.................... -- -- 1.3 (1.3) -- -- --
Cancellation of restricted
stock awards.............. -- -- (0.9) 0.4 -- -- (0.5)
Amortization of restricted
stock awards.............. -- -- -- 1.1 -- -- 1.1
Purchase of common stock.... -- -- -- -- -- (1.5) (1.5)
Issuance of treasury
shares.................... -- -- 0.7 -- -- 0.3 1.0
---- ---- ----- ----- ------ ------ ------
Balance, January 30, 1999..... 0.5 0.5 94.4 (2.9) 185.8 (19.3) 259.0
Net income.................. -- -- -- -- 25.7 -- 25.7
Exercise of stock options... -- -- 1.3 -- -- -- 1.3
Tax benefit on options
exercised................. -- -- 0.6 -- -- -- 0.6
Issuance of restricted stock
awards.................... -- -- 0.6 (0.6) -- -- --
Cancellation of restricted
stock awards.............. -- -- (0.3) 0.1 -- -- (0.2)
Amortization of restricted
stock awards.............. -- -- -- 1.3 -- -- 1.3
Purchase of common stock.... -- -- -- -- -- (20.0) (20.0)
Issuance of treasury
shares.................... -- -- 0.7 -- -- 0.5 1.2
Issuance of common stock -
Associate Stock Ownership
Plan...................... -- -- 0.6 -- -- -- 0.6
---- ---- ----- ----- ------ ------ ------
Balance, January 29, 2000..... $0.5 $0.5 $97.9 $(2.1) $211.5 $(38.8) $269.5
==== ==== ===== ===== ====== ====== ======
</TABLE>
See notes to consolidated financial statements
27
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JO-ANN STORES, INC.
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Jo-Ann Stores, Inc. (the "Company"), an Ohio corporation, is a fabric and
craft retailer with 1,026 retail stores in 49 states at January 29, 2000. The
984 traditional and 42 superstores feature a broad line of apparel, quilting and
craft fabrics and sewing-related products, home decorating fabrics, floral,
craft and seasonal products.
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 1999 and fiscal 1998
financial statements have been reclassified in order to conform with the current
year presentation.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States 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 Company's fiscal year ends on the Saturday closest to January 31. The
fiscal year refers to the year in which the period ends (e.g., fiscal 2000 ended
January 29, 2000). Fiscal years generally consist of 52 weeks.
CASH AND TEMPORARY CASH INVESTMENTS
Temporary cash investments are all highly liquid investments with original
maturities of three months or less. The Company reclassifies outstanding checks
to accounts payable.
INVENTORIES
Inventories are stated at the lower of cost or market. Substantially all
inventories were valued using the last-in, first-out ("LIFO") method. The value
of inventories stated on the LIFO method at January 29, 2000 and January 30,
1999 are not materially different from their current cost.
PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization is
provided 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 10 to 40 years; furniture, fixtures and equipment from
2 to 10 years; and leasehold improvements for 10 years or the remainder of the
lease, whichever is shorter.
28
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Expense for depreciation of property and equipment and amortization of
leasehold improvements amounted to $30.0 million, $25.4 million and $19.9
million in fiscal 2000, 1999 and 1998, respectively. Maintenance and repair
expenditures are charged to expense as incurred and improvements and major
renewals are capitalized.
SOFTWARE DEVELOPMENT
The AICPA issued its Statement of Position No. 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use" ("SOP No.
98-1") which requires companies to capitalize payroll and other internal costs
as well as any external costs related to software development. The Company
adopted SOP No. 98-1 in fiscal 1998, and the impact of adoption was not
material. The Company capitalized $16.9 million and $12.3 million in fiscal 2000
and fiscal 1999, respectively, for internal use software. The capitalized
amounts are included in property, equipment and leasehold improvements and are
being amortized on a straight-line basis over periods ranging from two to five
years beginning at the time the software becomes operational.
GOODWILL
Goodwill represents the excess of purchase price and related costs over the
value assigned to the net tangible assets acquired from House of Fabrics, Inc.
("HOF"). Goodwill is amortized on a straight-line basis over 40 years and is a
non-deductible expense for tax purposes. The Company periodically reviews the
recoverability of goodwill. The measurement of possible impairment is based
primarily on the ability to recover the balance of the goodwill from expected
future operating cash flows on an undiscounted basis. In management's opinion,
no material impairment exists on January 29, 2000. Amortization expense was $1.0
million for fiscal 2000, and $0.9 million for fiscal 1999.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company records impairment losses on long-lived assets when indicators
of impairment are present and the estimated undiscounted cash flows to be
generated by those assets are less than the assets' net book value. There were
no long-lived assets that required recognition of an impairment loss at January
29, 2000 or January 30, 1999.
FINANCIAL INSTRUMENTS
All financial instruments are considered to have a fair value which
approximates carrying value at January 29, 2000 and January 30, 1999, unless
otherwise specified. The Company has entered into interest rate swap agreements
to hedge against interest rate risk. The interest differentials from these swaps
are recorded as interest expense or income as incurred.
INCOME TAXES
The Company accounts for income taxes pursuant to the asset and liability
method. Under that method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in the tax rate is recognized
in income in the period that includes the enactment date of such change.
29
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 1 -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION
The Company recognizes revenue at the time of sale of merchandise to its
customers.
STORE OPENING EXPENSES
Store opening expenses are charged to operations as incurred.
ADVERTISING COSTS
The Company expenses production costs of advertising the first time the
advertising takes place. Advertising expense was $32.6 million, $32.5 million
and $24.4 million for fiscal 2000, 1999 and 1998, respectively.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities," was issued. The
statement must be adopted by the Company in fiscal 2002. Under provisions of
this statement, the Company will be required to record all derivatives on the
balance sheet at fair value and follow special accounting rules for the
different types of hedges. Implementation of this standard is not expected to
have a material impact on the Company's financial position or results of
operations.
NOTE 2 -- PROPERTY, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property, equipment and leasehold improvements consists of the following
(millions of dollars):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999
- ------------------ ------ ------
<S> <C> <C>
Land....................................................... $ 1.4 $ 2.2
Buildings.................................................. 21.8 22.5
Furniture, fixtures and equipment.......................... 200.4 174.9
Leasehold improvements..................................... 64.5 57.3
Construction in progress................................... 28.4 13.2
------ ------
316.5 270.1
Less accumulated depreciation.............................. 121.8 106.1
------ ------
$194.7 $164.0
====== ======
</TABLE>
NOTE 3 -- ACQUISITION OF HOUSE OF FABRICS, INC.
On March 9, 1998, the Company acquired, through a cash tender offer, 77.2
percent of the outstanding common stock of House of Fabrics ("HOF") for $4.25
per share (the "Acquisition"). On April 21, 1998, the merger of HOF with a
wholly owned subsidiary of the Company was approved at a special meeting of the
shareholders of HOF. As a result, HOF became a wholly owned subsidiary of the
Company, and all shares of HOF common stock not already owned by the Company
were canceled and converted into the right to receive $4.25 in cash. The total
value of the transaction was approximately $97.1 million, including the
assumption of debt and other long-term liabilities aggregating $73.6 million.
HOF had annual revenues of approximately $240.0 million and operated 261
fabric and craft stores in 27 states at the time of the Acquisition. Of the 261
stores acquired, management identified 60 HOF stores and
30
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 3 -- ACQUISITION OF HOUSE OF FABRICS, INC. (CONTINUED)
30 Jo-Ann Fabrics and Crafts stores for closing, due to the geographic overlap
that existed between the two companies. HOF stores identified for closing were
liquidated with the assistance of an outside firm, and the Company actively
settled leases with landlords. The operations of the liquidated HOF stores have
been excluded from the Company's reported results of operations since the date
of the Acquisition. Operating results of the continuing HOF stores have been
included in the Company's results of operations since the date of the
Acquisition.
The Acquisition was recorded as a purchase business combination using
Accounting Principles Board Opinion No. 16, "Business Combinations."
Accordingly, the carrying values of HOF net assets, including the establishment
of reserves for severance and costs associated with the HOF store closings, have
been adjusted to their estimated fair values. The excess of the purchase price
paid over the net identifiable assets and liabilities totaled $38.1 million and
is reported as goodwill, which is being amortized on a straight-line basis over
a 40-year life.
In accordance with Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to Exit an
Activity (Including Certain Costs Incurred in a Restructuring)," the Company
recorded a non-recurring charge of $25.1 million during the first three quarters
of fiscal 1999 for direct and other merger-related costs pertaining to the
Acquisition.
Following is a summary of the significant components of the non-recurring
charge (millions of dollars):
<TABLE>
<CAPTION>
CASH NON-CASH TOTAL
----- -------- -----
<S> <C> <C> <C>
Write-downs of previously owned assets............ $ -- $ 9.2 $ 9.2
Costs of operating duplicate corporate
facilities...................................... 5.4 -- 5.4
Store remerchandising costs....................... 5.1 -- 5.1
Rental costs on closed stores and other costs..... 5.4 -- 5.4
----- ----- -----
$15.9 $ 9.2 $25.1
===== ===== =====
</TABLE>
The integration events were completed in the third quarter of fiscal 1999.
The Company had a remaining accrual of $0.3 million and $1.3 million for future
rental obligations on the closed stores at the end of fiscal 2000 and fiscal
1999, respectively.
Other long-term liabilities in fiscal 1999 includes a $22.5 million income
tax contingency assumed in the Acquisition. Prior to the Acquisition, HOF
received refunds totaling $22.5 million pursuant to carrybacks of certain net
operating losses on claims filed for refund with the Internal Revenue Service
("IRS") on Forms 1139. The claims for refund have been examined by the IRS, and
a deficiency notice has been issued. HOF had appealed the deficiency assessment.
To the extent that the Company prevails, in whole or in part, with respect to
the appeal, goodwill and cash payments to the IRS will be reduced.
In the first quarter of fiscal 2000, the Company made a deposit payment to
the IRS of $16.1 million representing $12.3 million of the potential income tax
liability and $3.8 million of accrued interest. The Company is currently in
discussions with the IRS regarding a settlement of this contingency.
31
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 4 -- INCOME TAXES
The significant components of the income tax provision are as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999 1998
------------------ ----- ----- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Current:
Federal............................................ $ 1.7 $(1.2) $16.9
State and local.................................... 1.2 1.4 2.3
----- ----- -----
2.9 0.2 19.2
Deferred............................................. 12.8 8.6 --
----- ----- -----
Income tax provision................................. $15.7 $ 8.8 $19.2
===== ===== =====
</TABLE>
The reconciliation of income tax at the statutory rate to the income tax
provision is as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999 1998
------------------ ----- ---- -----
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Federal income tax at the statutory rate............. $14.5 $7.8 $17.9
Effect of:
State and local taxes.............................. 1.7 0.9 1.5
Goodwill and other, net............................ (0.5) 0.1 (0.2)
----- ---- -----
Income tax provision................................. $15.7 $8.8 $19.2
===== ==== =====
</TABLE>
The significant components of the Company's deferred tax assets and
liabilities are as follows:
<TABLE>
<CAPTION>
ASSET/(LIABILITY)
----------------------
FISCAL YEAR 2000 1999
----------- --------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Current
Deferred tax assets:
Inventory items.......................................... $ 7.3 $ 8.7
Employee benefits........................................ 2.5 2.3
Lease obligations........................................ 1.6 2.7
NOL carryforward......................................... -- 11.5
Other.................................................... 5.6 2.7
------ ------
17.0 27.9
Deferred tax liabilities:
Basis difference in net assets acquired.................. (8.1) (3.1)
------ ------
Net current deferred tax asset............................. $ 8.9 $ 24.8
====== ======
</TABLE>
32
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 4 -- INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
ASSET/(LIABILITY)
----------------------
FISCAL YEAR 2000 1999
- ----------- --------- ---------
(MILLIONS OF DOLLARS)
<S> <C> <C>
Non-current
Deferred tax assets:
Unearned compensation.................................... $ -- $ 0.2
Other.................................................... 0.1 0.8
------ ------
0.1 1.0
Deferred tax liabilities:
Depreciation............................................. (21.6) (21.1)
Basis difference in net assets acquired.................. (0.7) (5.0)
Other.................................................... (0.2) (0.1)
------ ------
(22.5) (26.2)
------ ------
Net non-current deferred tax liability..................... $(22.4) $(25.2)
====== ======
</TABLE>
The Company did not record any valuation allowances against deferred tax
assets as of January 29, 2000 or January 30, 1999.
NOTE 5 -- FINANCING
On May 5, 1999, the Company issued $150.0 million of 10 3/8% senior
subordinated notes due May 1, 2007 and entered into a $300.0 million five-year
senior credit facility ("Senior Credit Facility") that expires on April 30,
2004. The net proceeds from the senior subordinated notes, coupled with
borrowings under the Senior Credit Facility, were used to refinance the
Company's former credit facility.
SENIOR SUBORDINATED NOTES
Interest on the senior subordinated notes is payable on May 1 and November
1 of each year. Deferred charges and the original issue discount (the notes were
issued at 98.5% of face value) recorded at issuance in the amounts of $4.3
million and $2.3 million, respectively, 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. The Company has the option of redeeming the notes
at any time after May 1, 2003, in accordance with certain call provisions. The
notes represent unsecured obligations that are subordinated to the Senior Credit
Facility and are fully and unconditionally guaranteed by each of the Company's
subsidiaries.
33
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 5 -- FINANCING (CONTINUED)
Summarized consolidating financial information of the Company (excluding
its subsidiaries) and the guarantor subsidiaries as of and for the year ended
January 29, 2000 is as follows:
<TABLE>
<CAPTION>
GUARANTOR
PARENT SUBSIDIARIES CONSOLIDATED
------ ------------ ------------
(MILLIONS OF DOLLARS)
<S> <C> <C> <C>
Net sales.................................. $759.1 $ 622.4 $1,381.5
Gross profit............................... 347.5 285.9 633.4
Operating profit........................... 42.0 25.6 67.6
Net income................................. 1.8 23.9 25.7
Current assets............................. 242.7 265.3 508.0
Non-current assets......................... 96.5 152.5 249.0
Intercompany receivable (payable).......... 390.4 (390.4) --
Current liabilities........................ 227.6 (19.5) 208.1
Non-current liabilities.................... 259.2 20.2 279.4
</TABLE>
SENIOR CREDIT FACILITY
The Company may borrow up to a maximum of $330.0 million by utilizing funds
available under the Senior Credit Facility and other lines of credit. The Senior
Credit Facility contains a letter of credit sub-limit of $100 million. Interest
on borrowings under the Senior Credit Facility is calculated at an applicable
margin over the London Interbank Offered Rate ("LIBOR"). The applicable margin,
as well as an annual facility fee on the commitment amount, is based on the
achievement of specified ranges of certain financial covenants. Currently, our
interest on borrowings is equal to LIBOR plus 175 basis points, and the annual
facility fee is equal to 50 basis points. As of January 29, 2000, we had $95.2
million of debt outstanding under the Senior Credit Facility, and an additional
$38.2 million outstanding under letters of credit.
The Senior Credit Facility contains financial covenants which require the
Company to, among other things, maintain a minimum consolidated net worth, fixed
charge coverage and current funded indebtedness ratios, limit our maximum
leverage ratios and capital expenditures, and restrict our ability to repurchase
stock. At January 30, 2000, the Company is in compliance with all financial
covenants contained in the Senior Credit Facility.
The total borrowings and weighted average interest rate at January 29, 2000
under the Senior Credit Facility and other lines of credit were $95.2 and 7.07
percent, respectively. The Company's weighted average interest rate and weighted
average borrowings under the former credit facility, Senior Credit Facility and
other lines of credit were 6.24 percent and $161.1 million during fiscal 2000,
6.23 percent and $157.1 million during fiscal 1999 and 6.00 percent and $49.0
million during fiscal 1998, respectively.
OTHER FINANCING INSTRUMENTS
On March 15, 1998, the Company entered into a five-year interest rate swap
agreement to hedge its interest rate exposure. The notional amount of this
interest rate swap agreement is $75.0 million, with a fixed LIBOR rate of 5.98%,
reducing to $50.0 million on March 15, 2001 until its expiration on March 15,
2003.
On June 30, 1997, the Company redeemed all of its outstanding 6 1/4%
Convertible Subordinated Debentures ("Debentures") due March 1, 2002 at a price
of 101.785 percent of principal. The holders of the Debentures had the option to
convert their Debentures into common shares at a conversion price of $24.375 per
share, or to accept redemption at the stated premium. Of the $57.0 million of
Debentures outstanding, $1.1 million were converted. The remaining $55.9 million
of Debentures were redeemed. The Company
34
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 5 -- FINANCING (CONTINUED)
recorded an extraordinary loss, net of taxes, of $1.1 million, or $0.06 per
share, consisting of the redemption premium, unamortized debenture issuance
costs and other related expenses.
NOTE 6 -- CAPITAL STOCK
The following table details the common stock ($0.05 stated value) activity
for fiscal 2000 and fiscal 1999:
<TABLE>
<CAPTION>
COMMON SHARES OUTSTANDING-
NET OF TREASURY
------------------------------------ SHARES
CLASS A CLASS B TOTAL IN TREASURY
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Balance at January 31, 1998................. 9,463,915 9,302,746 18,766,661 2,240,563
Exercise of stock options................. 131,541 149,864 281,405 --
Issuance of restricted stock awards....... 11,500 47,500 59,000 --
Cancellation of restricted stock awards... (60,000) (3,500) (63,500) --
Purchase of common stock.................. (40,233) (42,268) (82,501) 82,501
Issuance of treasury shares............... 23,607 26,902 50,509 (50,509)
--------- --------- ---------- ---------
Balance at January 30, 1999................. 9,530,330 9,481,244 19,011,574 2,272,555
Exercise of stock options................. 100,864 68,748 169,612 --
Issuance of restricted stock awards....... 39,000 3,250 42,250 --
Issuance of common stock -- Associate
Stock Ownership Plan................... 60,049 -- 60,049 --
Cancellation of restricted stock awards... (5,000) (9,750) (14,750) --
Purchase of common stock.................. (820,907) (689,064) (1,509,971) 1,509,971
Issuance of treasury shares............... 82,700 3,425 86,125 (86,125)
--------- --------- ---------- ---------
Balance at January 29, 2000................. 8,987,036 8,857,853 17,844,889 3,696,401
========= ========= ========== =========
</TABLE>
The Company's Class A Common Shares have voting rights while Class B Common
Shares have no voting rights. At January 29, 2000 and January 30, 1999, there
were 75,000,000 Class A Common Shares and 75,000,000 Class B Common Shares
authorized for issuance. At January 29, 2000 and January 30, 1999, there were
5,000,000 shares of serial preferred stock, without par value, authorized for
issuance, none of which are outstanding.
SHAREHOLDERS' RIGHTS PLAN
Under the Company's Shareholders' Rights Plan, as amended, one right is
issued for each Class A Common Share outstanding. The rights are exercisable
only if a person or group buys or announces a tender offer for 20 percent or
more of the outstanding Class A Common Shares or the Board of Directors declares
a person or group to be an "adverse person," as defined in the Plan. When
exercisable, each right initially entitles a holder to purchase one Class A
Common Share for $105.75. If at any time after the rights become exercisable,
the Company is acquired in a merger or certain other business transactions
occur, each right would then enable the holder thereof to purchase one common
share of the acquiring company, or under certain circumstances, one Class A
Common Share of the Company for $0.50. The rights, which do not have voting
privileges, expire in November 2000, 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.
35
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 6 -- CAPITAL STOCK (CONTINUED)
RIGHT TO ACQUIRE SHARES
The Company is a party to an agreement with certain members of the two
founding families of the Company, whereby the Company has a right of first
refusal to acquire, at market prices, common shares disposed of by either of the
families. The total number of both Class A and Class B Common Shares, subject to
this agreement, was approximately 4.6 million as of January 29, 2000.
NOTE 7 -- EARNINGS PER SHARE
Basic and diluted earnings per share are calculated in accordance with
Statement of Financial Accounting Standards No. 128, "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
include the effect of the assumed exercise of dilutive stock options under the
treasury stock method and the assumed conversion of all of the Company's
Debentures, on the first day of fiscal 1998.
The following table presents information necessary to calculate basic and
diluted earnings per common share for the fiscal years presented:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999 1998
- ------------------------------------------------------ ---------- ---------- ----------
(Millions of dollars, except share and per share data)
<S> <C> <C> <C>
BASIC EARNINGS PER COMMON SHARE:
Net income before extraordinary item.................. $ 25.7 $ 13.6 $ 31.9
Extraordinary item.................................... -- -- (1.1)
---------- ---------- ----------
Net income............................................ $ 25.7 $ 13.6 $ 30.8
========== ========== ==========
Weighted average shares outstanding................... 18,198,325 18,964,082 18,393,827
========== ========== ==========
DILUTED EARNINGS PER COMMON SHARE:
Net income before extraordinary item.................. $ 25.7 $ 13.6 $ 31.9
Debenture interest, net of tax........................ -- -- 0.9
---------- ---------- ----------
Net income before extraordinary item and debenture
interest............................................ 25.7 13.6 32.8
Extraordinary item.................................... -- -- (1.1)
---------- ---------- ----------
Net income before debenture interest.................. $ 25.7 $ 13.6 $ 31.7
========== ========== ==========
Weighted average shares outstanding................... 18,198,325 18,964,082 18,393,827
Incremental shares from assumed exercise of stock
options............................................. 384,612 939,517 1,223,985
Incremental shares from assumed conversion of
debentures.......................................... -- -- 974,068
---------- ---------- ----------
18,582,937 19,903,599 20,591,880
========== ========== ==========
</TABLE>
NOTE 8 -- STOCK-BASED COMPENSATION PLANS
1998 INCENTIVE COMPENSATION PLAN
During fiscal 1999, the shareholders approved the 1998 Incentive
Compensation Plan (the "1998 Plan"). The 1998 Plan includes a stock option
program, a restricted stock program and an employee stock purchase program for
employees, and a restricted stock and deferred stock program for non-employee
directors. Shares subject to awards under the 1998 Plan may be Class A or Class
B shares. The total number of shares subject to awards, other than those granted
under the employee stock purchase program, are limited in any fiscal year to (1)
four percent of the number of shares outstanding at the beginning of the fiscal
year, plus (2) for each
36
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 8 -- STOCK-BASED COMPENSATION PLANS (CONTINUED)
of the two prior fiscal years, the excess of four percent of the number of
shares outstanding at the beginning of each such fiscal year over the number of
shares subject to awards actually granted in each such fiscal year.
The following table summarizes the number of shares available for future
awards under the 1998 Plan and the activity for fiscal year 2000 and fiscal year
1999:
<TABLE>
<CAPTION>
STOCK RESTRICTED
OPTIONS STOCK TOTAL
-------- ---------- --------
<S> <C> <C> <C>
Available at January 31, 1998............... --
Fiscal year 1999 calculated available..... 750,666
Granted................................... (431,600) (59,000) (490,600)
Cancellations............................. -- 1,500 1,500
--------
Available at January 30, 1999............... 261,566
Fiscal year 2000 calculated available..... 760,463
Granted................................... (484,450) (42,250) (526,700)
Cancellations............................. 50,000 14,750 64,750
--------
Available at January 29, 2000............... 560,079
========
</TABLE>
Employee stock option program
The employee stock options granted under the 1998 Plan become exercisable
to the extent of one-fourth of the optioned shares for each full year of
continuous employment following the date of grant and generally expire ten years
after the date of the grant.
Restricted stock program
The vesting periods for the restricted shares granted under the 1998 Plan
are up to five years for employee restricted shares and up to six years for
non-employee director restricted shares. All rights to such restricted shares
terminate without any payment of consideration by the Company unless the grantee
remains in the continuous service of the Company throughout the vesting period.
Unearned compensation resulting from the issuance of restricted shares is being
amortized over the vesting periods, and the unamortized portion has been
reflected as a reduction of shareholders' equity. During fiscal 2000, 39,000
Class A and 3,250 Class B restricted shares were granted at weighted average
market values of $13.52 and $11.31, respectively. During fiscal 1999, 11,500
Class A and 47,500 Class B restricted shares were granted at weighted average
market values of $21.92 and $22.82, respectively.
Employee stock purchase program
The employee stock purchase program (the Associate Stock Ownership Plan or
"ASOP") was established in April 1999, and enables employees to subscribe to
purchase shares of common stock on offering dates at six-month intervals, at a
purchase price equal to the lesser of 85% of the fair market value of the common
stock on the first or last day of the offering period. The ASOP meets the
requirements of Section 423 of the Internal Revenue Code of 1986. The total
number of shares subject to stock purchase rights granted in any fiscal year for
the ASOP may not exceed 1,000,000 shares. During fiscal 2000, 60,049 stock
purchase rights were granted and exercised under the ASOP. No stock purchase
rights were granted during fiscal 1999.
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 8 -- STOCK-BASED COMPENSATION PLANS (CONTINUED)
Deferred stock program
On March 9, 2000, the Company established a deferred stock program for
non-employee directors. This program allows non-employee directors to elect to
convert the retainer and meeting fee portion of their cash compensation into
deferred stock units. Under this feature, non-employee directors make an
irrevocable election prior to the Company's annual shareholder's meeting whereby
they can elect to convert a percentage (0% to 100% in 25% increments) of their
cash compensation for the following year to deferred stock units. One-half of
the cash compensation deferred is converted into Class A stock units and
one-half into Class B stock units. The conversion of cash compensation to
deferred stock units is based on the closing market price of Class A and Class B
common shares on the date the cash compensation would have been payable if it
were paid in cash. These deferred stock units will be credited to an account of
each non-employee director, although no stock will be issued until the earlier
of an elected distribution date as selected by the non-employee director or
retirement. This program became effective for the March 2000 Board meeting.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
Under the 1996 Stock Option Plan for Non-Employee Directors (the "Directors
Stock Option Plan"), stock options are automatically granted to each
non-employee director upon their election to the board and annually thereafter
at prices not less than the fair market value of the common stock at the date of
the grant. The options 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 generally expire ten years after the date of the grant. There are
64,000 Class A Shares and 64,000 Class B Shares authorized for future option
grants under the Directors Stock Option Plan at January 29, 2000.
OTHER PLANS
In addition to the 1998 Plan, nonqualified stock options are also available
for, and have been granted to, certain officers and key employees under the 1990
Employee Stock Option and Stock Appreciation Rights Plan (the "1990 Plan") at
prices not less than fair market value of the common stock at the date of grant.
The 1990 Plan also permits the granting of stock appreciation rights (SAR's),
with respect to all or part of the common stock subject to any option granted
under this plan. Vesting and expiration periods are identical to options issued
under the 1998 Plan. There are 885,197 Class A Shares and 91,916 Class B Shares
authorized for future option and stock appreciation right grants under the 1990
Plan at January 29, 2000.
In addition to the 1998 Plan, restricted shares of the Company's common
stock are available for, and have been awarded to, executive officers, senior
management and other key employees under the 1994 Executive Incentive Plan (the
"Executive Plan"). At January 29, 2000, 118,500 Class A and 2,000 Class B
restricted shares were outstanding under the Executive Plan and 334,500 Class A
and 451,000 Class B Common Shares are available for future awards. During fiscal
1998, under the Executive Plan, 132,500 Class A restricted shares were granted
at a weighted average market value of $20.96.
The Company applies the provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and related interpretations
in accounting for stock options granted under the 1998 Plan, the 1990 Plan and
the Directors Stock Option Plan (collectively the "Plans"). Accordingly, no
compensation cost has been recognized for the Plans. Had compensation cost for
the Plans been determined based on the fair value at the grant dates for awards
under these Plans consistent with Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation," the Company's net income and
38
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 8 -- STOCK-BASED COMPENSATION PLANS (CONTINUED)
earnings per share would have been reduced to the pro forma amounts shown in the
table below (millions of dollars, except per share data):
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999 1998
- ------------------ ----------------- ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net income........................... $25.7 $23.9 $13.6 $12.0 $30.8 $29.8
Net income per common share:
Basic.............................. $1.41 $1.31 $0.72 $0.63 $1.68 $1.62
Diluted............................ 1.38 1.31 0.69 0.61 1.54 1.46
</TABLE>
The pro forma disclosures presented are not representative of the future
effects on net income and net income per share because only awards granted after
fiscal 1996 are permitted to be included.
For purposes of computing the pro forma disclosures above, the fair values
of the options granted under the Plans were determined at the date of grant
separately for Class A and Class B option grants using the Black-Scholes option
pricing model. The significant assumptions used to calculate the fair value of
Class A and Class B option grants were: risk-free interest rates ranging from
5.3 to 6.3 percent for Class A and 4.6 to 6.3 percent for Class B, expected
volatility ranging from 34.5 to 38.9 percent for Class A and 31.7 to 34.6
percent for Class B, expected lives ranging from 2.9 to 5.9 years for Class A
and 3.3 to 6.6 years for Class B and no expected dividends for either class of
shares.
The following is a summary of the Company's stock option activity for the
Plans:
<TABLE>
<CAPTION>
CLASS A OPTIONS CLASS B OPTIONS
---------------------- ----------------------
WEIGHTED WEIGHTED CLASS A
AVERAGE AVERAGE AND
NUMBER OF EXERCISE NUMBER OF EXERCISE CLASS B
OPTIONS PRICES OPTIONS PRICES OPTIONS
---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Outstanding at February 1, 1997... 1,206,479 $ 9.70 1,811,103 $10.66 3,017,582
Granted......................... 58,000 21.43 487,750 20.33 545,750
Exercised....................... (299,134) 7.36 (371,664) 7.92 (670,798)
Canceled........................ (86,325) 12.65 (181,677) 12.73 (268,002)
---------- ---------- ---------
Outstanding at January 31, 1998... 879,020 10.98 1,745,512 13.73 2,624,532
Granted......................... 13,650 25.82 459,500 15.94 473,150
Exercised....................... (131,541) 9.28 (149,864) 9.74 (281,405)
Canceled........................ (10,550) 9.52 (65,551) 15.18 (76,101)
---------- ---------- ---------
Outstanding at January 30, 1999... 750,579 11.57 1,989,597 14.49 2,740,176
Granted......................... 7,500 16.50 491,950 11.18 499,450
Exercised....................... (100,864) 8.76 (68,748) 6.67 (169,612)
Canceled........................ (32,426) 13.28 (196,030) 15.89 (228,456)
---------- ---------- ---------
Outstanding at January 29, 2000... 624,789 $11.99 2,216,769 $13.87 2,841,558
========== ====== ========== ====== =========
</TABLE>
39
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 8 -- STOCK-BASED COMPENSATION PLANS (CONTINUED)
<TABLE>
<CAPTION>
CLASS A OPTIONS CLASS B OPTIONS
---------------------- ----------------------
WEIGHTED WEIGHTED CLASS A
AVERAGE AVERAGE AND
NUMBER OF EXERCISE NUMBER OF EXERCISE CLASS B
OPTIONS PRICES OPTIONS PRICES OPTIONS
---------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C>
Exercisable at:
January 29, 2000................ 572,289 $11.18 1,176,669 $13.34 1,748,958
January 30, 1999................ 652,554 10.52 1,010,720 11.90 1,663,274
January 31, 1998................ 703,120 10.02 892,862 10.53 1,595,982
Weighted average fair value of
options granted during fiscal:
2000............................ $ 6.80 $ 4.59
1999............................ 10.38 6.20
1998............................ 8.22 8.05
</TABLE>
The following table summarizes the status of stock options outstanding and
exercisable at January 29, 2000:
<TABLE>
<CAPTION>
CLASS A CLASS A
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------- ----------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
NUMBER EXERCISE EXERCISE CONTRACTUAL NUMBER EXERCISE
OUTSTANDING PRICES PRICES LIFE EXERCISABLE PRICES
- ----------- ---------------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
122,802 $ 2.38 to $6.66 $ 6.16 2.5 years 122,802 $ 6.16
267,987 $ 6.67 to $14.63 $ 8.00 3.7 years 267,987 $ 8.00
234,000 $14.64 to $29.06 $19.61 4.5 years 181,500 $19.26
------- -------
624,789 $ 2.38 to $29.06 $11.99 3.8 years 572,289 $11.18
======= =======
</TABLE>
<TABLE>
<CAPTION>
CLASS B CLASS B
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------- ----------------------
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
RANGE OF AVERAGE REMAINING AVERAGE
NUMBER EXERCISE EXERCISE CONTRACTUAL NUMBER EXERCISE
OUTSTANDING PRICES PRICES LIFE EXERCISABLE PRICES
- ----------- ---------------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
125,693 $ 2.38 to $6.66 $ 6.16 2.5 years 125,693 $ 6.16
962,226 $ 6.67 to $12.88 $10.34 7.2 years 475,026 $ 9.50
1,128,850 $12.89 to $26.66 $17.74 7.3 years 575,950 $18.08
--------- ---------
2,216,769 $ 2.38 to $26.66 $13.87 7.0 years 1,176,669 $13.34
========= =========
</TABLE>
NOTE 9 -- EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN AND POSTRETIREMENT BENEFITS
The Company sponsors a tax-deferred savings plan (the "Savings Plan")
whereby eligible employees may elect quarterly to contribute up to the lesser of
10 percent of annual compensation or the statutory maximum. The Company makes a
50 percent matching contribution in the form of the Company's common stock, up
to a maximum employee contribution of 4 percent of the employee's annual
compensation. Employer contributions of the Company's common stock have been
made through the issuance of shares out of the treasury or by purchasing shares
on the open market. The amount of the Company's matching contributions during
fiscal 2000, fiscal 1999 and fiscal 1998 were $1.2 million, $1.0 million and
$0.8 million,
40
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
respectively. Plan assets included 507,061 shares of Class A Common Shares and
251,534 shares of Class B Common Shares at January 29, 2000.
The Company does not provide postretirement health care benefits for its
employees.
NOTE 10 -- LEASES
Principally all of the Company's retail stores operate out of leased
facilities. All store leases are operating leases, generally for periods up to
10 years with renewal options for up to 20 years. Certain leases contain
escalation clauses and, in some cases, 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 Company also leases certain store equipment,
generally under five-year lease terms.
The following is a schedule of future minimum rental payments under
non-cancelable operating leases:
<TABLE>
<CAPTION>
MINIMUM
FISCAL YEARS ENDED RENTALS
------------------ -------
(Millions of dollars)
<S> <C>
2001........................................................ $110.7
2002........................................................ 104.2
2003........................................................ 86.7
2004........................................................ 67.6
2005........................................................ 58.8
Thereafter.................................................. 226.2
------
$654.2
======
</TABLE>
Rent expense was as follows:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED 2000 1999 1998
------------------ ------ ------ -----
(Millions of dollars)
<S> <C> <C> <C>
Minimum rentals............................................. $112.4 $103.4 $78.6
Contingent rentals.......................................... 2.4 1.8 1.8
Sublease rentals............................................ (4.1) (2.8) (2.0)
------ ------ -----
$110.7 $102.4 $78.4
====== ====== =====
</TABLE>
41
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JO-ANN STORES, INC.
NOTE 11 -- QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized below are the unaudited results of operations by quarter for
fiscal 2000 and 1999:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 2000 QUARTER QUARTER QUARTER QUARTER
- ----------- ------- ------- ------- -------
(Millions of dollars, except per share data)
<S> <C> <C> <C> <C>
Net sales.............................................. $295.7 $282.4 $347.1 $456.3
Gross profit........................................... 138.0 130.5 169.5 195.4
Net income (loss)...................................... 2.3 (5.5) 8.3 20.6
Net income (loss) per common share:
Basic................................................ $ 0.12 $(0.30) $ 0.46 $ 1.15
Diluted.............................................. 0.12 (0.30) 0.45 1.13
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FISCAL 1999 QUARTER QUARTER QUARTER QUARTER
- ----------- ------- ------- ------- -------
(Millions of dollars, except per share data)
<S> <C> <C> <C> <C>
Net sales.............................................. $252.9 $251.6 $319.7 $418.7
Gross profit........................................... 116.1 114.3 152.2 181.8
Net income (loss)...................................... (4.4) (6.5) 3.4 21.1
Net income (loss) per common share:
Basic................................................ $(0.23) $(0.34) $ 0.18 $ 1.11
Diluted.............................................. (0.23) (0.34) 0.17 1.08
</TABLE>
42
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this Item 10 as to the Directors of the Registrant
is incorporated herein by reference to the information set forth under the
caption "Nominees to the Board of Directors" in the Registrant's definitive
proxy statement for its 2000 Annual Meeting of Shareholders to be held on June
8, 2000 (the "Proxy Statement"), which is expected to be filed with the
Securities and Exchange Commission pursuant to Regulation 14A of the Securities
Exchange Act of 1934 within 120 days after the end of the Company's fiscal year.
Information required by this Item 10 as to the Executive Officers of the
Registrant is included under Item 4 of 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 in the Proxy Statement under the caption "Section 16(a) Beneficial
Ownership Reporting Compliance" of the Securities Exchange Act of 1934.
Information required by this Item 10 as to Involvement in Certain Legal
Proceedings is included under Item 3 Legal Proceedings contained in this
document.
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's
Compensation" and "Executive Compensation" (except for the Compensation
Committee Report on Executive Compensation and the Performance Graph) in the
Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated herein by
reference to the information set forth under the captions, "Security Ownership
of Management" and "Security Ownership of Certain Beneficial Owners" in the
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Ira Gumberg, one of our Directors, is President and Chief Executive Officer
and a principal shareholder of J.J. Gumberg Co. which manages numerous shopping
centers. Twelve of these shopping centers contain stores of our company. Three
of the leases were entered into after Mr. Gumberg became a Director of our
company, and we believe such leases are on terms no less favorable to us than
could have been obtained from an unrelated party. The aggregate rent and related
occupancy charges paid during fiscal 2000, fiscal 1999 and fiscal 1998 on these
stores amounted to $1.3 million, $1.2 million and $1.2 million, respectively.
Betty Rosskamm, Alma and Justin Zimmerman and Jo-Ann Stores have entered
into an agreement, dated September 26, 1997, relating to their shares of Jo-Ann
Stores Class A and Class B common stock. Under this agreement, Betty Rosskamm
and her lineal descendants and permitted holders, and Alma and Justin Zimmerman
and their lineal descendants and permitted holders, may each sell up to 200,000
shares of their Class A common stock in any calendar year and may not sell more
than 100,000 of those shares in any 180-day period. Mrs. Rosskamm, and Mr. and
Mrs. Zimmerman collectively, may each sell up to 100,000 of their shares of
Jo-Ann's Class B common stock in any 60-day period. If either Mrs. Rosskamm or
Mr. and Mrs. Zimmerman sell a number of shares of their Class A common stock in
excess of the number permitted under the agreement, they must first offer to
sell those shares to the other family party to the agreement, and then with the
other family's permission, to the Company. If either Mrs. Rosskamm or Mr. and
Mrs. Zimmerman sell a number of shares of their Class B common stock in excess
of the number permitted under the agreement, each family must first offer to
sell those shares to the Company.
43
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
<TABLE>
<S> <C>
(1) Financial Statements
Audited financial statements and supplementary data required
by this item are presented and listed in Part II, Item 8.
(2) Financial Statement Schedules
Schedules for which provision is made in the applicable
accounting regulations of the Commission are not required
under the related instructions or are inapplicable, and
therefore have been omitted.
(3) Exhibits
</TABLE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
3.1 (a) Amended Articles of Incorporation of Fabri-Centers of
America, Inc. (filed as an Exhibit to the Registrant's
Form 10-Q filed with the Commission on September 11, 1995
and incorporated herein by reference)
3.1 (b) Certificate of Amendment to the Amended Articles of
Incorporation (filed as an Exhibit to the Registrant's
Form 10-K filed with the Commission on April 16, 1999 and
incorporated herein by reference)
3.2 Regulations of Jo-Ann Stores, Inc., as amended (filed as an
Exhibit to the Registrant's Form 8-K filed with the
Commission on December 1, 1993 and incorporated herein by
reference)
4.1 Form of Second Amendment of Rights Agreement, dated August
2, 1995, between the Registrant and Society National Bank,
as successor by merger to Ameritrust Company National
Association, as Rights Agent (filed as an Exhibit to the
Registrant's Form 10-Q filed with the Commission on
September 11, 1995 and incorporated herein by reference)
4.2 Indenture between the Registrant and FCA Financial, Inc.,
Fabri-Centers of South Dakota, Inc., Fabri-Centers of
California, Inc., FCA of Ohio, Inc., and House of Fabrics,
Inc., as guarantors, and Harris Trust and Savings Bank, as
trustee relating to the 10 3/8% Senior Subordinated Notes
Due 2007 (filed as an Exhibit to the Registrant's Form S-4
filed with the Commission on June 16, 1999 and
incorporated herein by reference)
4.3 Form of Certificate of the 10 3/8% Senior Subordinated Notes
due 2007 (filed as an Exhibit to the Registrant's Form S-4
filed with the Commission on June 16, 1999 and
incorporated herein by reference)
4.4 Registration Rights Agreement among the Registrant, FCA
Financial, Inc., Fabri-Centers of South Dakota, Inc.,
Fabri-Centers of California, Inc. FCA of Ohio, Inc., and
House of Fabrics, Inc., and Merrill Lynch, Pierce, Fenner
& Smith Incorporated, Goldman, Sachs & Co., and Banc One
Capital Markets, Inc. relating to the 10 3/8% Senior
Subordinated Notes due 2007 (filed as an exhibit to the
Registrant's Form S-4 filed with the Commission on June
16, 1999 and incorporated herein by reference)
10.1 Form of Split Dollar Life Insurance Agreement between the
Registrant and certain of its officers (filed as an
Exhibit to the Registrant's Form 8-K filed with the
Commission on December 1, 1993 and incorporated herein by
reference)*
10.2 Split Dollar Life Insurance Agreement and Assignment between
the Registrant and Alma Zimmerman dated September 22, 1984
(filed as an Exhibit to the Registrant's Form 8-K filed
with the Commission on December 1, 1993 and incorporated
herein by reference)*
</TABLE>
44
<PAGE> 46
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.3 Split Dollar Life Insurance Agreements and Assignments
between the Registrant and Betty Rosskamm dated October
19, 1984 (filed as an Exhibit to the Registrant's Form 8-K
filed with the Commission on December 1, 1993 and
incorporated herein by reference)*
10.4 Fabri-Centers of America, Inc. 1979 Supplemental Retirement
Benefit Plan, as amended (filed as an Exhibit to the
Registrant's Form 8-K filed with the Commission on
December 1, 1993 and Incorporated herein by reference)*
10.5 Fabri-Centers of America, Inc. Executive Incentive Plan
dated March 19, 1980, as amended (filed as an Exhibit to
the Registrant's Form 8-K filed with the Commission on
December 1, 1993 and incorporated herein by reference)*
10.6 Form of Employment Agreement between the Registrant and
certain executive officers (filed as an Exhibit to the
Registrant's Form 8-K filed with the Commission on
December 1, 1993 and incorporated herein by reference)*
10.7 Fabri-Centers of America, Inc. 1990 Employees Stock Option
and Stock Appreciation Rights Plan, as amended (filed as
an Exhibit to the Registrant's Form 8-K filed with the
Commission on December 1, 1993 and incorporated herein by
reference)*
10.8 Fabri-Centers of America, Inc. 1996 Stock Option Plan for
Non-Employee Directors (filed as an Exhibit to the
Registrant's Proxy Statement for its Annual Meeting held
on June 12, 1996 filed with the Commission on Schedule 14A
on May 11, 1996 and incorporated herein by reference)*
10.9 House of Fabrics, Inc. Non-Standardized 401(k) Plan (filed
as an Exhibit to House of Fabrics, Inc.'s (commission file
number 1-7927) Form 10-K filed with the Commission on May
1, 1997 and incorporated herein by reference)*
10.10 Fabric-Centers of America, Inc. 1998 Incentive Compensation
Plan (filed as an Exhibit to the Registrant's Proxy
Statement for its Annual Meeting held on June 4, 1998
filed with the Commission on Schedule 14A on May 8, 1998
and incorporated herein by reference)*
10.11 Amended and Restated Agreement dated September 26, 1997
among Fabri-Centers of America, Inc., Betty Rosskamm and
Justin Zimmerman and Alma Zimmerman (filed as an Exhibit
to the Registrant's Form 10-K filed with the Commission on
April 16, 1999 and incorporated herein by reference)
10.12 Credit Agreement dated as of May 5, 1999 among the
Registrant, as borrower, the Lending Institutions named
therein, as Lenders, The First National Bank of Chicago,
as Documentation Agent, Comerica Bank and National City
Bank, as Co-Agents, and KeyBank National Association, as a
Lender, the Swing Line Lender, the Issuing Bank and as
Administrative Agent (filed as an Exhibit to the
Registrant's Form S-4 filed with the Commission on June
16, 1999 and incorporated herein by reference)
10.13 Amendment No. 1 dated as of December 14, 1999 to Credit
Agreement dated as of May 5, 1999 among the Registrant, as
borrower, the Lending Institutions named therein, as
Lenders, The First National Bank of Chicago, as
Documentation Agent, Comerica Bank and National City Bank,
as Co-Agents, and KeyBank National Association, as a
Lender, the Swing Line Lender, the Issuing Bank and as
Administrative Agent (filed as an Exhibit to the
Registrant's Form 10-Q filed with the Commission on
December 14, 1999 and incorporated herein by reference)
10.14 Amendment No. 2 dated as of March 7, 2000 to Credit
Agreement dated as of May 5, 1999 among the Registrant, as
borrower, the Lending Institutions named therein, as
Lenders, Bank One, NA, as Documentation Agent, Comerica
Bank and National City Bank, as Co-Agents, and KeyBank
National Association, as a Lender, the Swing Line Lender,
the Issuing Bank and as Administrative Agent
</TABLE>
45
<PAGE> 47
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- ------- -------------------
<S> <C>
10.15 Amendment No. 3 dated as of March 22, 2000 to Credit
Agreement dated as of May 5, 1999 among the Registrant, as
borrower, the Lending Institutions named therein, as
Lenders, Bank One, NA, as Documentation Agent, Comerica
Bank and National City Bank, as Co-Agents, and KeyBank
National Association, as a Lender, the Swing Line Lender,
the Issuing Bank and as Administrative Agent
12 Ratio of Earnings to Fixed Charges
21 Subsidiaries of Jo-Ann Stores, Inc.
23 Consent of Independent Public Accountants
24 Power of Attorney
27 Financial Data Schedule
</TABLE>
- ---------------
*Indicates a management contract or compensatory plan or arrangement
(b) Reports on Form 8-K
Not applicable.
46
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 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.
<TABLE>
<S> <C>
By: /s/ ALAN ROSSKAMM April 28, 2000
- -----------------------------------------------
Alan Rosskamm
President and Chief Executive Officer
</TABLE>
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:
<TABLE>
SIGNATURE TITLE
- ------------------------------------------------ ---------------------------------------------------
<C> <S>
/s/ ALAN ROSSKAMM Chairman of the Board and Director (Chief Executive
- ------------------------------------------------ Officer)
Alan Rosskamm
/s/ BRIAN P. CARNEY* Executive Vice President and Chief Financial
- ------------------------------------------------ Officer (Chief Accounting Officer)
Brian P. Carney
/s/ BETTY ROSSKAMM* Director
- ------------------------------------------------
Betty Rosskamm
/s/ ALMA ZIMMERMAN* Director
- ------------------------------------------------
Alma Zimmerman
/s/ SCOTT COWEN* Director
- ------------------------------------------------
Scott Cowen
/s/ FRANK NEWMAN* Director
- ------------------------------------------------
Frank Newman
/s/ IRA GUMBERG* Director
- ------------------------------------------------
Ira Gumberg
/s/ GREGG SEARLE* Director
- ------------------------------------------------
Gregg Searle
/s/ DEBRA WALKER* Director
- ------------------------------------------------
Debra Walker
</TABLE>
The undersigned, by signing his name hereto, does hereby sign this Form 10-K
Annual Report on behalf of the above-named officers and directors of Jo-Ann
Stores, Inc., pursuant to powers of attorney executed on behalf of each of such
officers and directors.
<TABLE>
<S> <C>
*By: /s/ ALAN ROSSKAMM
------------------------------------------- April 28, 2000
Alan Rosskamm, Attorney-in-Fact
</TABLE>
47
<PAGE> 49
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
3.1 (a) Amended Articles of Incorporation of Fabri-Centers of America,
Inc. (filed as an Exhibit to the Registrant's Form 10-Q
filed with the Commission on September 11, 1995 and
incorporated herein by reference)
3.1 (b) Certificate of Amendment to the Amended Articles of
Incorporation (filed as an Exhibit to the Registrant's Form
10-K filed with the Commission on April 16, 1999 and
incorporated herein by reference)
3.2 Regulations of Jo-Ann Stores, Inc., as amended (filed as an
Exhibit to the Registrant's Form 8-K filed with the
Commission on December 1, 1993 and incorporated herein by
reference)
4.1 Form of Second Amendment of Rights Agreement, dated August 2,
1995, between the Registrant and Society National Bank, as
successor by merger to Ameritrust Company National
Association, as Rights Agent (filed as an Exhibit to the
Registrant's Form 10-Q filed with the Commission on
September 11, 1995 and incorporated herein by reference)
4.2 Indenture between the Registrant and FCA Financial, Inc.,
Fabri-Centers of South Dakota, Inc., Fabri-Centers of
California, Inc., FCA of Ohio, Inc., and House of Fabrics,
Inc., as guarantors, and Harris Trust and Savings Bank, as
trustee relating to the 10-3/8% Senior Subordinated Notes
Due 2007 (filed as an Exhibit to the Registrant's Form S-4
filed with the Commission on June 16, 1999 and incorporated
herein by reference)
4.3 Form of Certificate of the 10-3/8% Senior Subordinated Notes
due 2007 (filed as an Exhibit to the Registrant's Form S-4
filed with the Commission on June 16, 1999 and incorporated
herein by reference)
4.4 Registration Rights Agreement among the Registrant, FCA
Financial, Inc., Fabri-Centers of South Dakota, Inc.,
Fabri-Centers of California, Inc. FCA of Ohio, Inc., and
House of Fabrics, Inc., and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Goldman, Sachs & Co., and Banc One
Capital Markets, Inc. relating to the 10-3/8% Senior
Subordinated Notes due 2007 (filed as an exhibit to the
Registrant's Form S-4 filed with the Commission on June 16,
1999 and incorporated herein by reference)
10.1 Form of Split Dollar Life Insurance Agreement between the
Registrant and certain of its officers (filed as an Exhibit
to the Registrant's Form 8-K filed with the Commission on
December 1, 1993 and incorporated herein by reference)*
10.2 Split Dollar Life Insurance Agreement and Assignment between
the Registrant and Alma Zimmerman dated September 22, 1984
(filed as an Exhibit to the Registrant's Form 8-K filed with
the Commission on December 1, 1993 and incorporated herein
by reference)*
10.3 Split Dollar Life Insurance Agreements and Assignments between
the Registrant and Betty Rosskamm dated October 19, 1984
(filed as an Exhibit to the Registrant's Form 8-K filed with
the Commission on December 1, 1993 and incorporated herein
by reference)*
10.4 Fabri-Centers of America, Inc. 1979 Supplemental Retirement
Benefit Plan, as amended (filed as an Exhibit to the
Registrant's Form 8-K filed with the Commission on December
1, 1993 and Incorporated herein by reference)*
10.5 Fabri-Centers of America, Inc. Executive Incentive Plan dated
March 19, 1980, as amended (filed as an Exhibit to the
Registrant's Form 8-K filed with the Commission on
December 1, 1993 and incorporated herein by reference)*
48
<PAGE> 50
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
10.6 Form of Employment Agreement between the Registrant and
certain executive officers (filed as an Exhibit to the
Registrant's Form 8-K filed with the Commission on December
1, 1993 and incorporated herein by reference)*
10.7 Fabri-Centers of America, Inc. 1990 Employees Stock Option and
Stock Appreciation Rights Plan, as amended (filed as an
Exhibit to the Registrant's Form 8-K filed with the
Commission on December 1, 1993 and incorporated herein by
reference)*
10.8 Fabri-Centers of America, Inc. 1996 Stock Option Plan for
Non-Employee Directors (filed as an Exhibit to the
Registrant's Proxy Statement for its Annual Meeting held on
June 12, 1996 filed with the Commission on Schedule 14A on
May 11, 1996 and incorporated herein by reference)*
10.9 House of Fabrics, Inc. Non-Standardized 401(k) Plan (filed as
an Exhibit to House of Fabrics, Inc.'s (commission file
number 1-7927) Form 10-K filed with the Commission on May 1,
1997 and incorporated herein by reference)*
10.10 Fabric-Centers of America, Inc. 1998 Incentive Compensation
Plan (filed as an Exhibit to the Registrant's Proxy
Statement for its Annual Meeting held on June 4, 1998 filed
with the Commission on Schedule 14A on May 8, 1998 and
incorporated herein by reference)*
10.11 Amended and Restated Agreement dated September 26, 1997 among
Fabri-Centers of America, Inc., Betty Rosskamm and Justin
Zimmerman and Alma Zimmerman (filed as an Exhibit to the
Registrant's Form 10-K filed with the Commission on April
16, 1999 and incorporated herein by reference)
10.12 Credit Agreement dated as of May 5, 1999 (filed as an Exhibit
to the Registrant's Form S-4 filed with the Commission on
June 16, 1999 and incorporated herein by reference)
10.13 Amendment No. 1 dated as of December 14, 1999 to Credit
Agreement dated as of May 5, 1999 among the Registrant, as
borrower, the Lending Institutions named therein, as
Lenders, The First National Bank of Chicago, as
Documentation Agent, Comerica Bank and National City Bank,
as Co-Agents, and KeyBank National Association, as a Lender,
the Swing Line Lender, the Issuing Bank and as
Administrative Agent (filed as an Exhibit to the
Registrant's Form 10-Q filed with the Commission on December
14, 1999 and incorporated herein by reference)
10.14 Amendment No. 2 dated as of March 7, 2000 to Credit Agreement
dated as of May 5, 1999 among the Registrant, as borrower,
the Lending Institutions named therein, as Lenders, Bank
One, NA, as Documentation Agent, Comerica Bank and National
City Bank, as Co-Agents, and KeyBank National Association,
as a Lender, the Swing Line Lender, the Issuing Bank and as
Administrative Agent
10.15 Amendment No. 3 dated as of March 22, 2000 to Credit Agreement
dated as of May 5, 1999 among the Registrant, as borrower,
the Lending Institutions named therein, as Lenders, Bank
One, NA, as Documentation Agent, Comerica Bank and National
City Bank, as Co-Agents, and KeyBank National Association,
as a Lender, the Swing Line Lender, the Issuing Bank and as
Administrative Agent
12 Ratio of Earnings to Fixed Charges
21 Subsidiaries of Jo-Ann Stores, Inc.
23 Consent of Independent Public Accountants
49
<PAGE> 51
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------ -------------------
24 Power of Attorney
27 Financial Data Schedule
-----------
*Indicates a management contract or compensatory plan or arrangement
50
<PAGE> 1
EXHIBIT 10.14
================================================================================
JO-ANN STORES, INC.
AS THE BORROWER
THE LENDERS NAMED HEREIN
AS LENDERS
BANK ONE, NA
AS DOCUMENTATION AGENT
COMERICA BANK
NATIONAL CITY BANK
AS CO-AGENTS
[KEYBANK LOGO]
KEYBANK NATIONAL ASSOCIATION,
AS A LENDER, THE SWING LINE LENDER, THE ISSUING BANK AND
AS ADMINISTRATIVE AGENT
----------------------------------
AMENDMENT NO. 2
DATED AS OF
MARCH 7, 2000
TO
CREDIT AGREEMENT
DATED AS OF
MAY 5, 1999
----------------------------------
================================================================================
51
<PAGE> 2
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT, dated as of March 7, 2000 ("THIS
AMENDMENT"), among:
(i) JO-ANN STORES, INC., an Ohio corporation (herein, together with
its successors and assigns, the "BORROWER");
(ii) the Lenders party hereto (the "LENDERS");
(iii) BANK ONE, NA, as Documentation Agent; and COMERICA BANK and
NATIONAL CITY BANK, as Co-Agents; and
(iv) KEYBANK NATIONAL ASSOCIATION, a national banking association, as
a Lender, the Swing Line Lender, the Issuing Bank and as the Administrative
Agent under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, and the Administrative Agent
entered into the Credit Agreement, dated as of May 5, 1999, as amended by
Amendment No. 1 thereto, dated as of December 14, 1999 (as so amended, the
"CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have
the respective meanings ascribed thereto in the Credit Agreement.
(2) The Borrower, the Lenders party hereto and the Administrative Agent
desire to amend certain of the provisions of the Credit Agreement, all as more
fully set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS, ETC.
1.1. TOTAL LEVERAGE RATIO. Effective on the Effective Date of this
Amendment provided for in section 4 hereof, section 9.8 of the Credit Agreement
is amended to add the following at the end thereof:
Notwithstanding the foregoing, but only as of and for the fiscal quarter
ended on or nearest to January 31, 2000, the maximum ratio referred to in
the above table shall be increased from .45 to 1.00 to .485 to 1.00.
1.2. ANNUAL CLEAN DOWN. Effective on the Effective Date of this Amendment
provided for in section 4 hereof, section 9.11 of the Credit Agreement is
amended to add the following at the end thereof:
Notwithstanding the foregoing, but only as of and for the fiscal year ended
on or nearest to January 31, 2000, the maximum amount referred to above
shall be increased from $85,000,000 to $101,000,000.
1.3. PRICING CHANGES. Effective on the Effective Date of this Amendment
provided for in section 4 hereof, the Pricing Grid Table which appears in
section 2.6(h) of the Credit Agreement is amended to read in its entirety as
follows:
52
<PAGE> 3
PRICING GRID TABLE
(EXPRESSED IN BASIS POINTS)
<TABLE>
<CAPTION>
------------------------------------------ -------------------------- --------------------------
FIXED CHARGE COVERAGE RATIO APPLICABLE EURODOLLAR APPLICABLE FACILITY FEE
MARGIN RATE
------------------------------------------ -------------------------- --------------------------
<S> <C> <C>
Greater than 2.00 to 1.00 120.00 30.00
------------------------------------------ -------------------------- --------------------------
Equal to or greater than 1.85 to 1.00 140.00 35.00
and equal to or less than 2.00 to 1.00
------------------------------------------ -------------------------- --------------------------
Equal to or greater than 1.75 to 1.00 150.00 37.50
and less than 1.85 to 1.00
------------------------------------------ -------------------------- --------------------------
Equal to or greater than 1.625 to 1.00 170.00 42.50
and less than 1.75 to 1.00
------------------------------------------ -------------------------- --------------------------
Less than 1.625 to 1.00 175.00 50.00
------------------------------------------ -------------------------- --------------------------
</TABLE>
1.4. EFFECTIVENESS OF PRICING CHANGES. (A) FOR GENERAL REVOLVING LOANS.
Effective on and as of the Effective Date of this Amendment provided for in
section 4 hereof, for all General Revolving Loans then or thereafter outstanding
(including any portions of any Interest Periods), and until changed in
accordance with the applicable provisions of section 2.6(h) of the Credit
Agreement based on the consolidated financial statements of the Borrower for a
fiscal quarter ended on or nearest to April 30, 2000 or thereafter, the
Applicable Eurodollar Margin for General Revolving Loans will be 175 basis
points per annum.
(b) FOR FACILITY FEE. Effective on and as of the Effective Date of this
Amendment provided for in section 4 hereof, and until changed in accordance with
the applicable provisions of section 4.1(a) of the Credit Agreement based on the
consolidated financial statements of the Borrower for a fiscal quarter ended on
or nearest to April 30, 2000 or thereafter, the Applicable Facility Fee Rate
will be 50.00 basis points per annum.
(c) FOR LETTERS OF CREDIT. Effective on and as of the Effective Date of
this Amendment provided for in section 4 hereof, for all Letters of Credit then
or thereafter outstanding, and until changed in accordance with the applicable
provisions of section 2.6(h) of the Credit Agreement based on the consolidated
financial statements of the Borrower for a fiscal quarter ended on or nearest to
April 30, 2000 or thereafter, the Applicable Eurodollar Margin will be 175 basis
points per annum.
1.5. ADDITIONAL FINANCIAL INFORMATION, ETC. The Borrower will deliver to
the Lenders, not later than 5:00 P.M. (local time at the Notice Office) on March
1, 2000, its updated financial projections. If on or before April 4, 2000, an
additional amendment to the Credit Agreement, changing various provisions in
accordance with the descriptive materials distributed by the Administrative
Agent prior to the Effective Date of this Amendment, shall not have become
effective for any reason, the Borrower will immediately pay the Administrative
Agent, for immediate distribution to the Lenders pro rata based on their
respective General Revolving Commitments, a fee at the same rate as would have
been payable for such amendment as described in such materials.
53
<PAGE> 4
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Administrative Agent and
the Lenders as follows:
2.1. AUTHORIZATION, VALIDITY AND BINDING EFFECT. This Amendment has been
duly authorized by all necessary corporate action on the part of the Borrower,
has been duly executed and delivered by a duly authorized officer or officers of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms.
2.2. REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The representations
and warranties of the Borrower contained in the Credit Agreement, as amended
hereby, are true and correct on and as of the date hereof as though made on and
as of the date hereof, except to the extent that such representations and
warranties expressly relate to a specified date, in which case such
representations and warranties are hereby reaffirmed as true and correct when
made.
2.3. NO EVENT OF DEFAULT, ETC. No condition or event has occurred or exists
which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
2.4. COMPLIANCE. The Borrower is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby.
SECTION 3. RATIFICATIONS.
The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
SECTION 4. EFFECTIVENESS.
The amendments to the Credit Agreement provided for in this Amendment shall
become effective on March 7, 2000 (the "EFFECTIVE DATE") if on or prior to the
Effective Date the following conditions shall have been satisfied:
(a) this Amendment shall have been executed by the Borrower and the
Administrative Agent and counterparts hereof as so executed shall have been
delivered to the Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have been
executed by the Subsidiary Guarantors named therein, and counterparts
thereof as so executed shall have been delivered to the Administrative
Agent;
(c) the Administrative Agent shall have been notified by all of the
Lenders that such Lenders have executed this Amendment (which notification
may be by facsimile or other written confirmation of such execution); and
(d) the Borrower shall have paid to the Administrative Agent, for
immediate distribution to the Lenders pro rata based on their respective
General Revolving Commitments, an amendment fee at a rate previously agreed
to by the Borrower, the Administrative Agent and such Lenders.
54
<PAGE> 5
After this Amendment becomes effective as provided herein, the Administrative
Agent will promptly furnish a copy of this Amendment to each Lender and the
Borrower and confirm the specific Effective Date hereof.
SECTION 5. MISCELLANEOUS.
5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and no investigation by the Administrative Agent or any Lender
or any subsequent Loan or other Credit Event shall affect the representations
and warranties or the right of the Administrative Agent or any Lender to rely
upon them.
5.2. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all
other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
5.3. EXPENSES. As provided in the Credit Agreement, but without limiting
any terms or provisions thereof, the Borrower agrees to pay on demand all costs
and expenses incurred by the Administrative Agent in connection with the
preparation, negotiation, and execution of this Amendment, including without
limitation the costs and fees of the Administrative Agent's special legal
counsel, regardless of whether the amendments to the Credit Agreement
contemplated by this Amendment become effective in accordance with the terms
hereof, and all costs and expenses incurred by the Administrative Agent or any
Lender in connection with the enforcement or preservation of any rights under
the Credit Agreement, as amended hereby.
5.4. SEVERABILITY. Any term or provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.5. APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Ohio.
5.6. HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7. ENTIRE AGREEMENT. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
5.8. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
55
<PAGE> 6
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as
of the date first above written.
<TABLE>
<CAPTION>
- ----------------------------------------------------- ---------------------------------------------------
<S> <C>
JO-ANN STORES, INC. KEYBANK NATIONAL ASSOCIATION,
INDIVIDUALLY AS A LENDER, THE ISSUING
BANK AND THE ADMINISTRATIVE AGENT
BY: /s/ BRIAN P. CARNEY
-------------------
EXECUTIVE VICE PRESIDENT BY: /s/ THOMAS J. PURCELL
& CHIEF FINANCIAL OFFICER ---------------------
TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
BANK ONE, NA (FORMERLY KNOWN AS THE FIRST NATIONAL CITY BANK,
NATIONAL BANK OF CHICAGO), INDIVIDUALLY AS A LENDER AND
INDIVIDUALLY AS A LENDER AND AS A CO-AGENT
AS DOCUMENTATION AGENT
BY: /s/ JANICE E. FOCKE
BY: /s/ VINCE R. HENCHEK -------------------
-------------------- TITLE: VICE PRESIDENT AND
TITLE: VICE PRESIDENT SENIOR LENDING OFFICER
- ----------------------------------------------------- ---------------------------------------------------
COMERICA BANK, FIRSTAR BANK, N. A.
INDIVIDUALLY AS A LENDER AND
AS A CO-AGENT
BY: /s/ DAVID J. DANNEMILLER
BY: /s/ JEFFREY J. JUDGE ------------------------
-------------------- TITLE: VICE PRESIDENT
TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
FLEET NATIONAL BANK UNION BANK OF CALIFORNIA, N. A.
BY: /s/ KATHY DIMOCK BY: /s/ TIMOTHY P. STREB
---------------- --------------------
TITLE: VICE PRESIDENT TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
HARRIS TRUST AND SAVINGS BANK MERCANTILE BANK NATIONAL ASSOCIATION
BY: /s/ PETER KRAWCHUK BY: /s/ STEPHEN REESE
------------------ -----------------
TITLE: VICE PRESIDENT TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
MELLON BANK, N. A. THE HUNTINGTON NATIONAL BANK
BY: /s/ RICHARD J. SCHAICH BY: /s/ LAURA CONWAY
---------------------- ----------------
TITLE: VICE PRESIDENT TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
FIFTH THIRD BANK, NORTHEASTERN OHIO
BY: /s/ ROY C. LANCTOT
------------------
TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
</TABLE>
56
<PAGE> 1
EXHIBIT 10.15
================================================================================
JO-ANN STORES, INC.
AS THE BORROWER
THE LENDERS NAMED HEREIN
AS LENDERS
BANK ONE, NA
AS DOCUMENTATION AGENT
COMERICA BANK
NATIONAL CITY BANK
AS CO-AGENTS
[KEYBANK LOGO]
KEYBANK NATIONAL ASSOCIATION,
AS A LENDER, THE SWING LINE LENDER, THE ISSUING BANK AND
AS ADMINISTRATIVE AGENT
----------------------------------
AMENDMENT NO. 3
DATED AS OF
MARCH 22, 2000
TO
CREDIT AGREEMENT
DATED AS OF
MAY 5, 1999
----------------------------------
================================================================================
57
<PAGE> 2
AMENDMENT NO. 3 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT, dated as of March 22, 2000 ("THIS
AMENDMENT"), among:
(i) JO-ANN STORES, INC., an Ohio corporation (herein, together with
its successors and assigns, the "BORROWER");
(ii) the Lenders party hereto (the "LENDERS");
(iii) BANK ONE, NA, as Documentation Agent; and COMERICA BANK and
NATIONAL CITY BANK, as Co-Agents; and
(iv) KEYBANK NATIONAL ASSOCIATION, a national banking association, as
a Lender, the Swing Line Lender, the Issuing Bank and as the Administrative
Agent under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, and the Administrative Agent
entered into the Credit Agreement, dated as of May 5, 1999, as amended by
Amendment No. 1 thereto, dated as of December 14, 1999, and Amendment No. 2
thereto, dated as of March 7, 2000 (as so amended, the "CREDIT AGREEMENT").
Capitalized terms used herein without definition shall have the respective
meanings ascribed thereto in the Credit Agreement.
(2) The Borrower, the Lenders party hereto and the Administrative Agent
desire to amend certain of the provisions of the Credit Agreement, all as more
fully set forth below.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS, ETC.
1.1. PERMITTED DEBT FOR WEST COAST DISTRIBUTION FACILITY. Effective on the
Effective Date of this Amendment provided for in section 4 hereof, the dollar
amount which appears in section 9.4(d) of the Credit Agreement is changed from
"$30,000,000" to "$40,000,000".
1.2. CONSOLIDATED NET WORTH COVENANT. Effective on the Effective Date of
this Amendment provided for in section 4 hereof, section 9.6 of the Credit
Agreement is amended to read in its entirety as follows:
9.6. MINIMUM CONSOLIDATED NET WORTH; SHARE REPURCHASES. (A)
CONSOLIDATED NET WORTH COVENANT. The Borrower will not permit its
Consolidated Net Worth as of the end of any fiscal quarter to be less than
$240,000,000, EXCEPT that
(i) effective as of the end of the Borrower's fiscal quarter
ended on or nearest to April 30, 2000, and as of the end of each
fiscal quarter thereafter, the foregoing amount (as it may from time
to time be increased as herein provided), shall be increased by 50% of
the Consolidated Net Income of the Borrower and its Subsidiaries for
the fiscal quarter ended on such date, if any, as determined in
conformity with GAAP (there being no reduction in the case of any such
Consolidated Net Income which reflects a deficit),
58
<PAGE> 3
(ii) the foregoing amount (as it may from time to time be
increased as herein provided), shall be increased by an amount equal
to 100% of the cash proceeds (net of underwriting discounts and
commissions and other customary fees and costs associated therewith)
from any sale or issuance of equity (other than Redeemable Stock) by
the Borrower after the end of the Borrower's fiscal quarter ended on
or nearest to January 31, 2000 (other than any sale or issuance to
management or employees pursuant to employee benefit plans of general
application),
(iii) the foregoing amount (as it may from time to time be
increased as herein provided), shall be increased by an amount equal
to 100% of (x) the principal amount of Indebtedness or (y) the higher
of stated value or liquidation value of Redeemable Stock, as the case
may be, held by any person other than the Borrower or any of its
Subsidiaries, which is converted or exchanged after the end of the
Borrower's fiscal quarter ended on or nearest to January 31, 2000 into
common stock of the Borrower or any of its Subsidiaries, and
(iv) the foregoing amount (as it may from time to time be
increased as herein provided), shall be increased by an amount equal
to 100% of the increase in Consolidated Net Worth attributable to the
issuance of common stock or other equity interests subsequent to the
end of the Borrower's fiscal quarter ended on or nearest to January
31, 2000 as consideration in any Acquisitions permitted under section
9.2.
(b) SHARE REPURCHASES. The Borrower will not directly or indirectly
make, and will not permit any of its Subsidiaries to directly or indirectly
make, any purchase, redemption, retirement or other acquisition of (i) any
shares of capital stock of any class of the Borrower or (ii) any warrants,
rights or options to acquire, or any securities convertible into or
exchangeable for, any such shares, EXCEPT that if no Event of Default shall
have occurred and be continuing or would result therefrom, the Borrower
shall be permitted to expend up to $2,500,000 (the "ANNUAL SHARE REPURCHASE
BASKET") for such purpose during any fiscal year, subject to increase in
the Annual Share Repurchase Basket in accordance with the following
provisions. Beginning with the Borrower's fiscal year ended on or nearest
to January 31, 2001, and annually as of the end of each fiscal year
thereafter, if the Borrower's Fixed Charge Coverage Ratio was at least 1.60
to 1.00 for the Testing Period ended with such fiscal year, then the Annual
Share Repurchase Basket for the following fiscal year shall be increased to
$5,000,000, or if the Borrower's Fixed Charge Coverage Ratio was at least
1.675 to 1.00 for the Testing Period ended with such fiscal year, then the
Annual Share Repurchase Basket for the following fiscal year shall be
increased to $7,500,000. The Annual Share Repurchase Basket for any fiscal
year shall also be increased by the proceeds received by the Borrower
during such fiscal year from sales of common stock pursuant to employee
benefit plans.
1.3. LEVERAGE RATIO AND CONSOLIDATED CAPITAL EXPENDITURE COVENANTS.
Effective on the Effective Date of this Amendment provided for in section 4
hereof, sections 9.7 and 9.8 of the Credit Agreement, containing senior and
total leverage covenants, are replaced by new sections 9.7 and 9.8, containing
senior and total leverage ratios and a new consolidated capital expenditures
covenant, which new sections 9.7 and 9.8 read in their entirety as follows:
9.7. LEVERAGE RATIOS. (A) SENIOR LEVERAGE RATIO. The Borrower will not
permit the ratio of (i) the amount of its Consolidated Total Senior Balance
Sheet Debt as of the end of any fiscal quarter, TO (ii) its Consolidated
Total Capital as of the end of such fiscal quarter, to exceed (i) .27 to
1.00 as of the end of its first fiscal quarter ended on or nearest to April
30, 2000, or .25 to 1.00 as of the end of the first fiscal quarter of any
subsequent fiscal year, (ii) .30 to 1.00
59
<PAGE> 4
as of the end of the second fiscal quarter of any fiscal year, (iii) .40 to
1.00 as of the end of the third fiscal quarter of any fiscal year, or (iv)
.20 to 1.00 as of the end of the fourth fiscal quarter of any fiscal year.
(b) TOTAL LEVERAGE RATIO. The Borrower will not permit the ratio of
(iii) the amount of its Consolidated Total Balance Sheet Debt as of the end
of any fiscal quarter, TO (iv) its Consolidated Total Capital as of the end
of such fiscal quarter, to exceed the ratio specified below for such fiscal
quarter:
<TABLE>
<CAPTION>
--------------- ------------------ -------------------- ------------------- -----------------
FQ1 FQ2 FQ3 FQ4
OF SUCH FY OF SUCH FY OF SUCH FY OF SUCH FY
--------------- ------------------ -------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Fiscal Year .50 to 1.00 .55 to 1.00 .60 to 1.00 .485 to 1.00
2000
--------------- ------------------ -------------------- ------------------- -----------------
Fiscal Year .535 to 1.00 .55 to 1.00 .57 to 1.00 .45 to 1.00
2001
--------------- ------------------ -------------------- ------------------- -----------------
Any Fiscal .45 to 1.00 .55 to 1.00 .55 to 1.00 .40 to 1.00
Year thereafter
--------------- ------------------ -------------------- ------------------- -----------------
</TABLE>
9.8. CONSOLIDATED CAPITAL EXPENDITURES. (a) The Borrower will not use
any proceeds of Loans hereunder to purchase or otherwise acquire the West
Coast Distribution Facility referred to in section 9.4(d), exclusive of up
to $2,000,000 for land acquisition. Nothing in the preceding sentence shall
be considered to prohibit any use of proceeds of Loans hereunder to finance
the costs and expenses of Consolidated Capital Expenditures made after the
date the West Coast Distribution Facility opens for business for new,
replacement or additional equipment, or for leasehold alterations,
additions or improvements, in each case which are associated with the West
Coast Distribution Facility.
(b) If as of the end of any fiscal year, the Borrower's ratio of (x)
Consolidated Total Debt to (y) Consolidated Total Capital, expressed as a
percentage, is greater than 40.00%, THEN as of the end of each of the
succeeding four fiscal quarters the Borrower will not permit the ratio of
(i) Consolidated Net Income PLUS Consolidated Depreciation Expense PLUS
Consolidated Amortization Expense, for the four fiscal quarter Testing
Period then ended, to (ii) Consolidated Capital Expenditures for such
Testing Period, to be less than 1.00 to 1.00; PROVIDED, that if the
Borrower is otherwise in compliance with all other financial covenants
contained in sections 9.6, 9.7, 9.9, 9.10 and 9.11, THEN the Borrower shall
not be considered to have breached the covenant contained in this section
9.8(b) unless such ratio shall have been less than 1.00 to 1.00 for Testing
Periods ended on two consecutive fiscal quarters.
1.4. CURRENT LIABILITIES AND DEBT COVERAGE COVENANT. Effective on the
Effective Date of this Amendment provided for in section 4 hereof, section 9.10
of the Credit Agreement is amended to read in its entirety as follows:
60
<PAGE> 5
9.10. RATIO OF CONSOLIDATED CURRENT ASSETS/CONSOLIDATED CURRENT
LIABILITIES PLUS CONSOLIDATED TOTAL SENIOR BALANCE SHEET DEBT. The Borrower
will not permit the ratio, as of the end of any fiscal quarter, of (i) its
Consolidated Current Assets, TO (ii) the sum of (x) its Current
Consolidated Liabilities, PLUS (y) its Consolidated Total Senior Balance
Sheet Debt, to be less than the ratio indicated below:
<TABLE>
<CAPTION>
--------------- ------------------ -------------------- ------------------- -----------------
FQ1 FQ2 FQ3 FQ4
OF SUCH FY OF SUCH FY OF SUCH FY OF SUCH FY
--------------- ------------------ -------------------- ------------------- -----------------
<S> <C> <C> <C> <C>
Fiscal Year 1.40 to 1.00 1.32 to 1.00 1.36 to 1.00 1.50 to 1.00
2001
--------------- ------------------ -------------------- ------------------- -----------------
Fiscal Year 1.50 to 1.00 1.40 to 1.00 1.40 to 1.00 1.50 to 1.00
2002 and any
Fiscal Year
thereafter
--------------- ------------------ -------------------- ------------------- -----------------
</TABLE>
1.5. ANNUAL CLEAN DOWN COVENANT. Effective on the Effective Date of this
Amendment provided for in section 4 hereof, section 9.11 of the Credit Agreement
is amended to read in its entirety as follows:
9.11. ANNUAL CLEAN DOWN. The Borrower will not, on any day during
at least one period of 30 consecutive days occurring during a period
identified below, permit its Consolidated Total Senior Balance Sheet
Debt to exceed the amount shown below:
<TABLE>
<CAPTION>
--------------------------------------------------------------- -----------------------------
PERIOD AMOUNT
--------------------------------------------------------------- -----------------------------
<S> <C>
Three Consecutive Calendar Months Ended $85,000,000
February 28, 2001
--------------------------------------------------------------- -----------------------------
Three Consecutive Calendar Months Ended $100,000,000
February 28, 2002
--------------------------------------------------------------- -----------------------------
Three Consecutive Calendar Months Ended Add $15,000,000 to the
February 28 or 29 of any subsequent year amount for the end of the
preceding year
--------------------------------------------------------------- -----------------------------
</TABLE>
61
<PAGE> 6
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Administrative Agent and
the Lenders as follows:
2.1. AUTHORIZATION, VALIDITY AND BINDING EFFECT. This Amendment has been
duly authorized by all necessary corporate action on the part of the Borrower,
has been duly executed and delivered by a duly authorized officer or officers of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms.
2.2. REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The representations
and warranties of the Borrower contained in the Credit Agreement, as amended
hereby, are true and correct on and as of the date hereof as though made on and
as of the date hereof, except to the extent that such representations and
warranties expressly relate to a specified date, in which case such
representations and warranties are hereby reaffirmed as true and correct when
made.
2.3. NO EVENT OF DEFAULT, ETC. No condition or event has occurred or exists
which constitutes or which, after notice or lapse of time or both, would
constitute an Event of Default.
2.4. COMPLIANCE. The Borrower is in full compliance with all covenants and
agreements contained in the Credit Agreement, as amended hereby.
SECTION 3. RATIFICATIONS.
The terms and provisions set forth in this Amendment shall modify and
supersede all inconsistent terms and provisions set forth in the Credit
Agreement, and except as expressly modified and superseded by this Amendment,
the terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
SECTION 4. EFFECTIVENESS.
The amendments to the Credit Agreement provided for in this Amendment shall
become effective on March 31, 2000 (the "EFFECTIVE DATE") if on or prior to the
Effective Date the following conditions shall have been satisfied:
(a) this Amendment shall have been executed by the Borrower and the
Administrative Agent and counterparts hereof as so executed shall have been
delivered to the Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have been
executed by the Subsidiary Guarantors named therein, and counterparts
thereof as so executed shall have been delivered to the Administrative
Agent;
(c) the Administrative Agent shall have been notified by all of the
Lenders that such Lenders have executed this Amendment (which notification
may be by facsimile or other written confirmation of such execution); and
(d) the Borrower shall have paid to the Administrative Agent, for
immediate distribution to the Lenders pro rata based on their respective
General Revolving Commitments, an amendment fee at a rate previously agreed
to by the Borrower, the Administrative Agent and such Lenders.
62
<PAGE> 7
After this Amendment becomes effective as provided herein, the Administrative
Agent will promptly furnish a copy of this Amendment to each Lender and the
Borrower and confirm the specific Effective Date hereof.
SECTION 5. MISCELLANEOUS.
5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties made in this Amendment shall survive the execution and delivery of
this Amendment, and no investigation by the Administrative Agent or any Lender
or any subsequent Loan or other Credit Event shall affect the representations
and warranties or the right of the Administrative Agent or any Lender to rely
upon them.
5.2. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all
other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
5.3. EXPENSES. As provided in the Credit Agreement, but without limiting
any terms or provisions thereof, the Borrower agrees to pay on demand all costs
and expenses incurred by the Administrative Agent in connection with the
preparation, negotiation, and execution of this Amendment, including without
limitation the costs and fees of the Administrative Agent's special legal
counsel, regardless of whether the amendments to the Credit Agreement
contemplated by this Amendment become effective in accordance with the terms
hereof, and all costs and expenses incurred by the Administrative Agent or any
Lender in connection with the enforcement or preservation of any rights under
the Credit Agreement, as amended hereby.
5.4. SEVERABILITY. Any term or provision of this Amendment held by a court
of competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.5. APPLICABLE LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Ohio.
5.6. HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7. ENTIRE AGREEMENT. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
5.8. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
[The balance of this page is intentionally blank.]
63
<PAGE> 8
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as
of the date first above written.
<TABLE>
<CAPTION>
- ----------------------------------------------------- ---------------------------------------------------
<S> <C>
JO-ANN STORES, INC. KEYBANK NATIONAL ASSOCIATION,
INDIVIDUALLY AS A LENDER, THE ISSUING
BANK AND THE ADMINISTRATIVE AGENT
BY: /s/ BRIAN P. CARNEY
-------------------
EXECUTIVE VICE PRESIDENT BY: /s/ THOMAS J. PURCELL
& CHIEF FINANCIAL OFFICER ---------------------
TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
BANK ONE, NA (FORMERLY KNOWN AS THE FIRST NATIONAL CITY BANK,
NATIONAL BANK OF CHICAGO), INDIVIDUALLY AS A LENDER AND
INDIVIDUALLY AS A LENDER AND AS A CO-AGENT
AS DOCUMENTATION AGENT
BY: /s/ JANICE E. FOCKE
BY: /s/ DEBORA K. OBERLING -------------------
---------------------- TITLE: VICE PRESIDENT AND
TITLE: VICE PRESIDENT SENIOR LENDING OFFICER
- ----------------------------------------------------- ---------------------------------------------------
COMERICA BANK, FIRSTAR BANK, N. A.
INDIVIDUALLY AS A LENDER AND
AS A CO-AGENT
BY: /s/ DAVID J. DANNEMILLER
BY: /s/ JEFFREY J. JUDGE ------------------------
-------------------- TITLE: VICE PRESIDENT
TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
FLEET NATIONAL BANK UNION BANK OF CALIFORNIA, N. A.
BY: /s/ KATHY DIMOCK BY: /s/ TIMOTHY P. STREB
---------------- --------------------
TITLE: VICE PRESIDENT TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
HARRIS TRUST AND SAVINGS BANK MERCANTILE BANK NATIONAL ASSOCIATION
BY: /s/ KIRBY M. LAW BY: /s/ AMANDA SMITH
------------------ -----------------
TITLE: VICE PRESIDENT TITLE: BANKING OFFICER
- ----------------------------------------------------- ---------------------------------------------------
MELLON BANK, N. A. THE HUNTINGTON NATIONAL BANK
BY: /s/ RICHARD J. SCHAICH BY: /s/ LAURA CONWAY
---------------------- ----------------
TITLE: VICE PRESIDENT TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
FIFTH THIRD BANK, NORTHEASTERN OHIO
BY: /s/ ROY C. LANCTOT
------------------
TITLE: VICE PRESIDENT
- ----------------------------------------------------- ---------------------------------------------------
</TABLE>
64
<PAGE> 1
EXHIBIT 12
JO-ANN STORES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------
JANUARY 27, FEBRUARY 1, JANUARY 31, JANUARY 30, JANUARY 29,
1996 1997 1998 1999 2000
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings:
Income Before Income Taxes $ 27.9 $ 39.3 $ 51.1 $ 22.4 $ 41.4
Interest Expense 12.0 10.7 5.9 12.5 26.2
Portion of occupancy expense
deemed representative of interest(1) 21.5 22.3 23.5 30.9 34.4
---------------------------------------------------------------------------
Total Earnings $ 61.4 $ 72.3 $ 80.5 $ 65.8 $ 102.0
===========================================================================
Fixed Charges
Interest Expense $ 12.0 $ 10.7 $ 5.9 $ 12.5 $ 26.2
Portion of occupancy expense
deemed representative of interest(1) 21.5 22.3 23.5 30.9 34.4
---------------------------------------------------------------------------
Total Fixed Charges $ 33.5 $ 33.0 $ 29.4 $ 43.4 $ 60.6
===========================================================================
Ratio of Earnings to Fixed Charges 1.8x 2.2x 2.7x 1.5x 1.7x
===========================================================================
(1) Represents 33% of fixed rental charges
</TABLE>
65
<PAGE> 1
EXHIBIT 21
JO-ANN STORES, INC.
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
STATE OF PERCENT OWNED BY
NAME INCORPORATION REGISTRANT
- ---- ------------- ----------------
<S> <C> <C>
Jo-Ann Stores Supply Chain Management, Inc........................... Ohio 100%
FCA of Ohio, Inc..................................................... Ohio 100%
House of Fabrics, Inc................................................ Delaware 100%
Team Jo-Ann, Inc. ................................................... Ohio 100%
</TABLE>
66
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report included in this Form 10-K, into the Company's
previously filed Registration Statements.
<TABLE>
<CAPTION>
FORM REGISTRATION NO. PERTAINING TO JO-ANN STORES, INC.
- ---- ---------------- ---------------------------------
<S> <C> <C>
S-4 333-80763 10-3/8% Senior Subordinated notes Due 2007
S-8 333-10093 1994 Executive Incentive Plan
S-8 33-72445 1998 Incentive Compensation Plan
S-8 33-32809 Employee Savings and Profit Sharing Plan
S-8 33-37355 1990 Employees Stock Option and Stock Appreciation Rights Plan
S-8 33-49690 1990 Employees Stock Option and Stock Appreciation Rights Plan
S-8 333-10087 1990 Employees Stock Option and Stock Appreciation Rights Plan
S-8 333-10091 1996 Stock Option Plan for Non-Employee Directors
</TABLE>
Arthur Andersen LLP
Cleveland, Ohio
April 28, 2000.
67
<PAGE> 1
EXHIBIT 24
DIRECTORS AND OFFICERS
POWER OF ATTORNEY
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: Jo-Ann Stores, Inc.
Commission File No. 1-6695
1934 Act Filings on Form 10-K
For Fiscal Year Ended January 29, 2000
Gentlemen:
The above Company is the issuer of securities registered under Section 12 of the
Securities Exchange Act of 1934 (the "Act"). Each of the persons signing his or
her name below confirms, as of the date appearing opposite his or her signature,
that Alan Rosskamm, Brian P. Carney, and each of them, are authorized on his or
her behalf to sign and to submit to the Securities and Exchange Commission such
filings on Form 10-K as are required by the Act. Each person so signing also
confirms the authority of Alan Rosskamm, Brian P. Carney, and each of them, to
do and perform on his or her behalf, any and all acts and things requisite or
necessary to assure compliance by the signing person with the Form 10-K filing
requirements. The authority confirmed herein shall remain in effect as to each
person signing his or her name below until such time as the Commission shall
receive from such person a written communication terminating or modifying the
authority.
<TABLE>
<CAPTION>
DATE DATE
---- ----
<S> <C> <C> <C>
/s/ ALAN ROSSKAMM April 28, 2000 /s/ FRANK NEWMAN April 28, 2000
- ------------------------------------ ----------------------------------
Alan Rosskamm Frank Newman
/s/ BRIAN P. CARNEY April 28, 2000 /s/ IRA GUMBERG April 28, 2000
- ------------------------------------ ----------------------------------
Brian P. Carney Ira Gumberg
/s/ BETTY ROSSKAMM April 28, 2000 /s/ GREGG SEARLE April 28, 2000
- ------------------------------------ ----------------------------------
Betty Rosskamm Gregg Searle
/s/ ALMA ZIMMERMAN April 28, 2000 /s/ DEBRA WALKER April 28, 2000
- ------------------------------------ ----------------------------------
Alma Zimmerman Debra Walker
/s/ SCOTT COWEN April 28, 2000
- ------------------------------------
Scott Cowen
</TABLE>
68
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 21,400
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 458,900
<CURRENT-ASSETS> 508,000
<PP&E> 316,500
<DEPRECIATION> 121,800
<TOTAL-ASSETS> 757,000
<CURRENT-LIABILITIES> 208,100
<BONDS> 245,200
0
0
<COMMON> 1,000
<OTHER-SE> 268,500
<TOTAL-LIABILITY-AND-EQUITY> 757,000
<SALES> 1,381,500
<TOTAL-REVENUES> 1,381,500
<CGS> 748,100
<TOTAL-COSTS> 1,313,900
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,200
<INCOME-PRETAX> 41,400
<INCOME-TAX> 15,700
<INCOME-CONTINUING> 41,400
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,400
<EPS-BASIC> 1.41
<EPS-DILUTED> 1.38
</TABLE>
