Jo-Ann Stores, Inc. 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

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 o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes x No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: Common Shares, without par value, as of December 9, 2003: 21,804,576.

Jo-Ann Stores, Inc. (the “Company”), an Ohio corporation, is a fabric and craft retailer operating 902 retail stores in 47 states at November 1, 2003. The 815 traditional stores and 87 superstores feature a broad line of apparel, craft and home decorating fabrics, notions, crafts, seasonal and home accessories and floral and framing products.

The consolidated interim financial statements include the accounts of the Company and its subsidiaries and have been prepared without audit, pursuant to the rules of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures herein are adequate to make the information not misleading. Certain amounts in the fiscal 2003 year-end and interim financial statements have been reclassified in order to conform to the current year presentation. The statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 1, 2003.

Typical of most retail companies, the Company’s business is highly seasonal with the majority of revenues and operating profits generated in the second half of the fiscal year. Accordingly, earnings or losses for a particular interim period are not indicative of full year results. Due to the seasonal nature of the Company’s business, a comparable balance sheet as of November 2, 2002 has been provided. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of results for the interim periods presented.

The Company’s fiscal year ends on the Saturday closest to January 31. Fiscal years consist of 52 weeks, unless noted otherwise. The fiscal year refers to the year in which the period ends (e.g., fiscal 2004 refers to the year ended January 31, 2004).

On November 4, 2003, the Company announced that shareholders approved the reclassification of its Class A and Class B Common Shares into a single class of stock. Shareholders also approved certain other governance proposals. On November 5th, shares of the single class of stock began trading on the New York Stock Exchange, under the symbol “JAS.”

Under the reclassification, shares of the Company’s Class B Common Shares, which did not have voting rights other than as required by law, were amended to have one vote per share and were re-designated as the Company’s “Common Shares.” Each of the Company’s Class A Common Shares, which had one vote per share, were reclassified into 1.15 Common Shares. This resulted in approximately 1.6 million incremental Common Shares being issued at the time of the reclassification, increasing the number of Common Shares outstanding by approximately 8%.

Shares outstanding, as well as average basic and diluted shares outstanding used to calculate earnings per share, have been retroactively restated to reflect the impact of the increased shares outstanding as a result of the share reclassification as of the beginning of all periods presented.

Basic earnings per common share are computed by dividing net income by the weighted average number of shares outstanding during the period. Diluted earnings per share include the effect of the assumed exercise of dilutive stock options under the treasury stock method.

The following table presents information necessary to calculate basic and diluted earnings per common share for the periods presented (shares in millions).

Effective February 2, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.” Under the modified prospective method of adoption selected by the Company under the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation-Transition and Disclosure an Amendment of FASB Statement No. 123,” compensation cost recognized in fiscal year 2004 is the same as that which would have been recognized had the recognition provisions of SFAS No. 123 been applied from its original effective date. The Company believes that this change is to the preferred method of accounting for stock-based compensation. Prior to fiscal 2004, the Company accounted for these plans under the recognition and measurement provisions of Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations. Therefore, no stock-based employee compensation for stock options is reflected in fiscal 2003 net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.

The following table illustrates the effect on net income and earnings per share if the fair value based method had been applied to all outstanding and unvested awards in each period (dollars in millions, except per share data):

The Company is pursuing a growth strategy that is driven by the replacement of its traditional stores with superstores. In addition, the Company continually reviews the productivity of its store base, actively manages its real estate to preserve maximum flexibility in lease terms, and closes locations that do not meet certain financial performance thresholds. Through the first three quarters of the year, the Company opened 12 new superstores, three larger traditional stores, and closed 32 traditional stores. The Company also converted four larger traditional stores to superstores.

The charges to the statement of operations for the year-to-date period ending November 1, 2003 related to store closings and a roll-forward of the store closing reserve balances from February 1, 2003 is summarized in the following table.

The Company has segregated the costs of store openings and closings as a separate line item in the statement of operations. Over the next several years, as the Company pursues its strategy of growing sales and market share with the expansion of the superstore concept, management believes that segregating the costs of real estate activity provides better insight into the core performance of the Company.

The Company is subject to risk resulting from interest rate fluctuations, as interest on the Company’s Credit Facility is based on variable rates. The Company’s objective in managing its interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows. Interest rate swaps are primarily utilized to achieve this objective, effectively converting a portion of its variable-rate exposures to fixed interest rates. The Company does not enter into financial instruments for trading purposes.

At November 1, 2003, the Company had a $40.0 million interest rate swap with a fixed LIBOR rate of 6.72% that expires on April 30, 2005. The interest rate swap agreement requires the Company to pay a fixed interest rate while receiving a floating interest rate based on LIBOR. In accordance with SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the Company has reviewed and designated its interest rate swap agreement as a cash flow hedge and recognizes the fair value of its interest rate swap agreement on the balance sheet. Changes in the fair value of this agreement are recorded in other comprehensive income and reclassified into earnings as the underlying hedged item affects earnings.

Other comprehensive income includes the effects of derivative transactions accounted for under SFAS No. 133, net of related tax. Comprehensive income consists of the following:

The Company has various stock-based compensation plans that it utilizes as long-term compensation for its board of directors, executive officers, senior management and other key employees. The Company issues stock under these various stock-award compensation plans and uses treasury shares to fund the Company’s match under the 401(k) savings plan. Deferred compensation expense is recorded as “Unamortized restricted stock awards” at the time of the issuance of restricted stock and is amortized over the vesting period of the award (typically five years). Through the third quarter of fiscal 2004, shares outstanding increased by 695,628 as follows:

During May 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS No. 150 clarifies the accounting for certain financial instruments with characteristics of both liabilities and equity and requires that those instruments be classified as liabilities in the statement of financial position. Previously, many of those financial instruments were classified as equity. SFAS No. 150 is effective for financial instruments entered into or modified after May 31, 2003 and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of SFAS No. 150 had no impact on the Company’s overall financial position or results of operations.

During April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” SFAS No. 149 amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under Statement 133. SFAS No. 149, the provisions of which are to be applied prospectively, is effective for contracts entered into or modified after June 30, 2003 and for hedging relationships designated after June 30, 2003. The adoption of SFAS No. 149 had no impact on the Company’s consolidated financial statements.

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities.” FIN 46 clarifies the application of Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” for certain entities which do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties or in which equity investors do not have the characteristics of a controlling financial interest (“variable interest entities”). Variable interest entities will be required to be consolidated by their primary beneficiary. The primary beneficiary of a variable interest entity is determined to be the party that absorbs a majority of the entity’s expected losses, receives a majority of its expected returns, or both, as a result of holding variable interests, which are ownership, contractual, or other pecuniary interests in an entity. FIN 46 applies immediately to variable interest entities created after January 31, 2003 and to variable interest entities in which an enterprise obtains an interest after that date. At its October 2003 meeting, the FASB amended FIN 46 to defer the adoption requirements until the first interim or annual period ending after December 15, 2003. Accordingly, the Company will adopt FIN No. 46 on January 31, 2004, as required. The Company expects to complete its analysis and adopt FIN No. 46 during the fourth quarter of 2003. The Company is in the process of determining what impact, if any, the adoption of the provisions of FIN 46 will have upon its financial condition or results of operations.

In November 2002, the EITF reached a consensus on EITF 02-16, “Accounting by a Customer (including a Reseller) for Certain Consideration Received from a Vendor.” Among other conclusions reached, EITF 02-16 requires that consideration received from a vendor be presumed to be a reduction of the cost of the vendor’s products or services. This presumption can be overcome if the consideration can be shown to represent either a payment for assets or services delivered to the vendor or a reimbursement of costs incurred by the reseller to sell the vendor’s products. Under the transition rules set forth in EITF 02-16 this treatment is required for all agreements entered into or modified after December 31, 2002. This guidance was adopted by the Company and did not have a material impact on its results of operations or financial position.

The Company’s 10-3/8% senior subordinated notes and Credit Facility are fully and unconditionally guaranteed, on a joint and several basis, by the wholly-owned subsidiaries of the Company. The senior subordinated notes are subordinated to the Company’s Credit Facility. Summarized consolidating financial information of the Company (excluding its subsidiaries) and the guarantor subsidiaries as of November 1, 2003 and February 1, 2003 and for the thirteen and thirty-nine weeks ended November 1, 2003 and November 2, 2002 are as follows:

Consolidating Statements of Operations
Thirteen Weeks Ended November 1, 2003 and November 2, 2002

Consolidating Statements of Operations
Thirty-Nine Weeks Ended November 1, 2003 and November 2, 2002

Consolidating Statements of Cash Flows
Thirty-Nine Weeks Ended November 1, 2003 and November 2, 2002

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following table sets forth our results of operations through operating profit, expressed as a percentage of net sales. The following discussion should be read in conjunction with our consolidated financial statements and related notes thereto.

Comparison of the Thirteen Weeks Ended November 1, 2003 and November 2, 2002

Net sales for the third quarter of fiscal 2004 increased 4.0%, or $17.4 million, to $447.5 million from $430.1 million in the prior year. Sales from stores open one year or more (“same-store sales”) increased 4.2% compared with a same-store sales increase of 6.5% for the prior year third quarter. Same-store sales generated all of the overall net sales increase, as we operated fewer stores in the third quarter versus a year ago. The Company’s total store count at the end of the quarter was down 39 units, or 4.1% from last year’s third quarter; however, the number of superstores in operation increased to 87 from 71 in last year’s third quarter. Total store square footage decreased 1.8% from last year’s third quarter. The 87 superstores in operation accounted for approximately 29% of the total sales for the third quarter.

By store format, our same-store sales performance for traditional stores increased 4.1% versus a same-store sales increase of 6.2% for the prior year third quarter. All of the traditional store increase was due to an increased average ticket, with customer traffic down slightly. Same-store sales for superstores increased 4.5% for the quarter versus a same-store sales increase of 7.6% for the prior year third quarter. Approximately 80% of the superstore increase was driven by an increase in traffic, with average ticket comprising the rest of the increase.

Same-store sales for the quarter were aided by promotional activity during the month of August celebrating the Company’s 60th anniversary. This promotion, which included special pricing offers and a newspaper insert, covering approximately 60% of our store base, drove strong same-store sales increases during the month of August. During the quarter, we saw sales strength in all of our major product categories with the exception of finished seasonal goods, which was down approximately 11% on a same-store sales basis for the quarter (although at a significantly higher gross margin rate). We made the decision to be less aggressive in our promotional pricing during the third quarter this year versus the third quarter of last year. The finished seasonal business, specifically Fall and Halloween merchandise, was the category that felt the largest negative impact resulting from the less promotional stance.

As a percent of net sales, gross margin was 48.1% for the third quarter of fiscal 2004 compared with 45.9% for the same quarter a year earlier, an improvement of 220 basis points. The primary contributors to the improvement in gross margins were higher selling margin rates (approximately 150 basis points) in all product lines resulting from our less promotional pricing strategy as well as reduced levels of clearance activity, and continued improvements in store shrink rates (approximately 40 basis points). The selling margin rate for the finished seasonal category, which was the only major category that experienced a same-store sales decline for the quarter, increased 670 basis points over last year’s third quarter due to our reduced promotional strategy.

Selling, general and administrative (“SG&A”) expenses, excluding other expenses separately identified in the statement of operations, were $177.0 million in the third quarter, representing a 6.8% increase from the $165.7 million in SG&A expenses in the prior year third quarter. As a percentage of net sales, SG&A expenses increased to 39.6% versus 38.5% for the third quarter of fiscal 2003. This increase in expense leverage was principally from higher advertising costs (approximately 120 basis points), primarily due to the promotion for the Company’s 60th anniversary sale, and higher distribution costs (approximately 60 basis points), due to changes in the management of seasonal merchandise distribution that involved the temporary storage of seasonal goods in order to replenish in-season. These increases were partially offset by positive expense leverage in store and corporate expenses.

Store pre-opening and closing costs increased $1.7 million during the third quarter of fiscal 2004, to $2.4 million due to increased store opening activity. We opened three superstores and one traditional store in this year’s third quarter, compared with one superstore opening in the prior year third quarter. We also converted two traditional stores to the superstore format during the third quarter.

Depreciation and amortization expense increased $0.5 million to $9.6 million from $9.1 million, primarily due to the increased level of capital expenditures year-over-year.

Stock-based compensation expense of $1.5 million resulted from our adoption of the fair-value based method of accounting for stock options under SFAS No. 123 “Accounting for Stock-Based Compensation Expense.” We adopted SFAS No. 123 in the first quarter of fiscal 2004 under the modified-prospective method allowed under the transition provisions provided for under SFAS No. 148 “Accounting for Stock-Based Compensation–Transition and Disclosure an Amendment of FASB Statement No. 123.”

Debt repurchase and share reclassification expenses were flat for the third quarter year-over-year. Share reclassification (discussed further below) expenses of $0.5 million were incurred during the third quarter of fiscal 2004. During the third quarter of the prior year, debt repurchase expenses of $0.5 million were incurred to repurchase approximately $7.4 million of our 10-3/8% senior subordinated notes. The charge recorded includes the cash premium paid for early redemption and a write-off of the related deferred finance charges.

Operating profit for the third quarter of fiscal 2004 was $24.1 million, compared to $21.4 million for the third quarter of fiscal 2003.

Interest expense in the third quarter of fiscal 2004 decreased $2.4 million to $4.7 million from $7.1 million in the third quarter of fiscal 2003. The decrease is primarily due to a decrease of approximately $70 million in our average debt levels between periods. Our average debt levels during the third quarter of fiscal 2004 were approximately $230 million, compared with approximately $300 million in the prior year third quarter.

Our effective income tax rate of 38.0% for the third quarter of fiscal 2004 was consistent with the rate for the third quarter of fiscal 2003.

Comparison of the Thirty-Nine Weeks Ended November 1, 2003 and November 2, 2002

Net sales for the first three quarters of fiscal 2004 increased 2.2% to $1.181 billion from $1.156 billion in the prior year. Same-store sales increased 3.1% compared with a same-store sales increase of 9.0% for the fiscal 2003 third quarter year-to-date. Approximately 60% of this increase was driven by an increase in customer traffic. Same-store sales generated all of the overall net sales increase, as we operated fewer stores versus a year ago. The Company’s total store count at the end of the quarter was down 39 units, or 4.1% from last year’s third quarter; however, the number of superstores in operation increased to 87 from 71 in last year’s third quarter. Store square footage decreased 1.8% from last year’s third quarter. The 87 superstores in operation accounted for more than 27% of the total sales for the third quarter year-to-date.

By store format, our same-store sales performance for traditional stores increased 3.1% versus a same-store sales increase of 8.9% in the prior year-to-date period. Approximately 70% of this increase was driven by a higher average ticket. Same-store sales for superstores increased 3.3% year-to-date versus a same-store sales increase of 9.5% for the prior year-to-date period. The increase was driven entirely by customer traffic with average ticket down slightly.

As a percent of net sales, gross margin was 48.1% for the first three quarters of fiscal 2004 compared with 47.6% for the same period a year earlier, an increase of 50 basis points. This increase in margin rate was primarily due to the improvement in store shrink rates, partially offset by reduced selling margins caused by a more promotional stance taken by the Company in the first half of fiscal 2004. Store shrink expense rates improved approximately 100 basis points, while overall selling gross margins decreased 60 basis points.

SG&A expenses were $488.2 million in the first three quarters of fiscal 2004 versus $466.1 million in the prior year. As a percentage of net sales, SG&A expenses increased to 41.3% versus 40.3% for fiscal 2003. This increase in expense leverage primarily related to higher advertising costs (approximately 60 basis points) and higher distribution costs due, in part, to the acceleration of seasonal product flow into the stores, as well as temporary outside storage costs of seasonal goods, incurred in the third quarter.

Store pre-opening and closing costs increased $4.0 million during the third quarter year-to-date period of fiscal 2004, to $7.1 million due to increased store opening activity. We opened 12 superstores year-to-date, compared with one store opening through the third quarter of the prior year.

Depreciation and amortization expense increased $0.8 million to $27.8 million from $27.0 million, due to the increased level of capital expenditures year-over-year.

Stock-based compensation expense of $4.1 million resulted from our adoption of the fair-value based method of accounting for stock options under SFAS No. 123 “Accounting for Stock-Based Compensation Expense” (See Note 4 – Stock-Based Compensation).

Debt repurchase and share reclassification expenses for the third quarter year-to-date were $4.6 million versus $1.9 million last year, a $2.7 million increase. Share reclassification expenses of $1.2 million were incurred through the end of the third quarter of fiscal 2004. Debt repurchase expenses of $3.4 million were incurred to repurchase approximately $46.0 million of our 10-3/8% senior subordinated notes in fiscal 2004 versus $1.9 million of expenses incurred to repurchase $27.1 million of senior subordinated notes in the prior year. The charges include the cash premium paid for early redemption and the write-off of the related deferred finance charges.

Operating profit was $36.4 million in fiscal 2004, compared with $51.7 million for fiscal 2003.

Interest expense for fiscal 2004 decreased $6.2 million to $13.9 million from $20.1 million in fiscal 2003. The decrease is primarily due to a decrease of approximately $75 million in our average debt levels between years. Our average debt levels year-to-date in fiscal 2004 were approximately $180 million, compared with approximately $255 million in fiscal 2003 year-to-date.

Our effective income tax rate of 38.0% for fiscal 2004 is consistent with the rate for fiscal 2003.

We believe that our credit facility, coupled with cash on hand and cash from operations, will be sufficient to cover our working capital, capital expenditure and debt service requirement needs for the foreseeable future.

Cash and cash equivalents decreased $42.0 million during fiscal 2004 to $21.2 million as of November 1, 2003.

Net cash used for operating activities was $90.4 million in fiscal 2004 compared to $46.3 million in fiscal 2003. Inventories, net of payable support, increased $131.2 million, compared with an increase of $96.6 million in fiscal 2003. Inventory typically builds during the first three quarters of the fiscal year, as we prepare for the peak selling season in the fourth quarter. The higher use of cash related to the increase in inventory, coupled with an increased use of cash for accrued expenses, due primarily to payments of fiscal 2003 annual incentive compensation in fiscal 2004 and a lower accrued interest balance, comprised the majority of the increase in cash used for operating activities year over year.

Net cash used for investing activities, totaled $29.2 million in fiscal 2004 compared with $12.4 million in fiscal 2003. The increase was due to an increase in capital expenditures, primarily due to new store openings. Partially offsetting the increase in capital expenditures were proceeds of $1.9 million from the sale of our equity investment in BouClair, Inc., a Canadian fabric retailer. Total consideration for the sale of BouClair was $6.5 million, $1.9 of which was received in the third quarter. There was no material impact on the statement of operations from the sale of this investment.

We anticipate capital expenditures for the full fiscal year 2004 to be approximately $50 million. The majority of this spending will pertain to new store openings and continued improvements in the existing store base. During the third quarter year-to-date period of fiscal 2004, we opened 12 superstores and three larger traditional stores. We converted four larger traditional stores to our superstore format and we closed 32 traditional stores. During the fourth quarter of fiscal 2004, we will open four more superstores and one larger traditional store. We anticipate closing an additional ten traditional stores before year-end.

Net cash provided by financing activities was $77.6 million during fiscal 2004 compared with $59.2 million during fiscal 2003. Debt borrowings increased $72.0 million during fiscal 2004, compared with a net increase of $51.3 million in the prior year. During fiscal 2004, we redeemed or repurchased in the open market, approximately $46.0 million of senior subordinated notes at an aggregate premium of 105.4% to par value. These purchases were made utilizing excess cash on hand and borrowings under the credit facility as of the beginning of the period. The $3.4 million pre-tax charge for debt repurchase expenses recorded in the year-to-date statement of operations includes the cash premium to par value and the write-off of related deferred costs.

Our debt-to-capitalization ratio was 42.9% at November 1, 2003, 36.0% at February 1, 2003 and 51.5% at November 2, 2003. We have a goal to further reduce debt levels during fiscal 2004 utilizing cash provided by operating activities in the fourth quarter.

In a press release dated November 17, 2003, which was furnished to the Securities and Exchange Commission on Form 8-K, the Company provided guidance for the fourth quarter and lowered its guidance for the full fiscal year. Fourth quarter earnings are estimated to be $1.05 to $1.15 per share, versus last year’s fourth quarter performance of $1.15 per share, after adjusting for the increased shares outstanding resulting from the share reclassification approved by shareholders on November 4, 2003. We reduced our full year earnings estimate by $0.30 to $1.70 to $1.80 per diluted share, from our previously stated guidance of $2.00 to $2.10 per diluted share.

The change in guidance was predicated on our experience in the third quarter, particularly with our Fall and Halloween merchandise sales, as well as the moderation in same-store sales growth overall in our industry. Specifically, the revised guidance was based on the following assumptions:

•		Expectations for fourth-quarter same-store sales have been reduced to 2-3%. This compares to a 6.9% same-store sales performance in the prior year fourth quarter. Earlier guidance was predicated on same-store sales growth of 4% for the full fiscal year. Based on the revised fourth quarter same-store sales guidance provided, full year same-store sales are now expected to increase 2.5-3.0%.

•		The level of improvement in the gross margin rate in the fourth quarter has been reduced from earlier expectations.

Our actual results in the fourth quarter are highly dependent on the sales and operating margin performance we are able to achieve. As a result, our estimates are subject to further refinement, which we will provide, if necessary, prior to the end of the fiscal year. On December 4, 2003, we reported our November sales results on Form 8-K. Although, our same-store sales decreased 0.2% for the month, the gross margin dollars generated were in line with our planned expectations and we made no changes to our guidance for fourth quarter earnings.

On November 4, 2003, shareholders approved the reclassification of our former Class A and Class B Common Shares into a single class of stock. Shares of the single class of stock began trading on the New York Stock Exchange on November 5th, under the symbol “JAS.”

Under the reclassification, Class B Common Shares, which did not have voting rights other than as required by law, were amended to have one vote per share and were redesignated as “Common Shares.” Each of the Class A Common Shares, which had one vote per share, were reclassified into 1.15 Common Shares.

Shareholders also approved certain other governance proposals, as set forth in the proxy statement for the shareholders meeting. One of the governance proposals requires an 80% shareholder vote for any change in the number of directors that is not approved by the Board of Directors. Another requires an 80% shareholder vote to eliminate any of the shareholder protective measures or the staggered board. The Corporate Governance Committee of the Board of Directors is considering the advisability of changing the percentage vote required in each of these regulation amendments from 80% to 66-2/3%, which would require shareholder approval.

On November 24, 2003, our Board of Directors announced the appointment of Patty Morrison, Executive Vice-President, Chief Information Officer for Office Depot, Inc. to the Board of Directors.

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. Working capital requirements needed to finance our operations fluctuate during the year and reach their highest levels during the second and third fiscal quarters as we increase our inventory in preparation for our peak selling season.

We believe that inflation has not had a significant effect on net sales or on net income. There can be no assurance, however, that our operating results will not be affected by inflation in the future.

Our condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. Preparation of these statements requires management to make judgments and estimates. Some accounting policies have a significant impact on amounts reported in these financial statements. A summary of significant accounting policies and a description of accounting policies that are considered critical may be found in our 2003 Annual Report on Form 10-K, in the notes to the consolidated financial statements, Note 1 and the Critical Accounting Policies section.

Certain statements contained in this report that are not historical facts are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements, which reflect the Company’s current views of future events and financial performance, involve certain risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “estimates,” “expects,” “believes,” and similar expressions as they relate to us or future or conditional verbs such as “will,” “should,” “would,” “may,” and “could” are intended to identify such forward-looking statements. Our actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, changes in customer demand, changes in trends in the fabric and craft industry, seasonality, the availability of merchandise, changes in the competitive pricing for products, and the impact of our and our competitors store openings and closings, fuel and energy costs, changes in tariff and freight rates, consumer debt levels, and other capital market and geo-political conditions. We caution readers not to place undue reliance on these forward-looking statements. We assume no obligation to update any of the forward-looking statements.

We use derivative financial instruments at various times to manage the risk associated with interest rate fluctuations. The Company is subject to risk resulting from interest rate fluctuations, as interest on the Company’s credit facility is based on variable rates. The Company’s objective in managing its interest rate exposure is to limit the impact of interest rate changes on earnings and cash flows. Interest rate swaps are primarily utilized to achieve this objective, effectively converting a portion of our variable-rate exposures to fixed interest rates (See Note 6 – Fair Value of Derivative Financial Instruments).

As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in the Company’s internal control over financial reporting during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

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.

Shareholders voted to approve an amendment to the Company’s Articles of Incorporation providing for a reclassification of the Company’s shares pursuant to which:

	•		each of the Class A Common Shares, which had one vote per share, were reclassified into 1.15 Class B Common Shares; and

	•		each of the Class B Common Shares, which currently did not have voting rights other than as required by law, were amended to have one vote per share and were redesignated as the Company’s “Common Shares,” by the following vote:

Also at the special meeting, shareholders of Class A Common Shares voted to approve amendments to the Company’s Code of Regulations that would:

•

raise from 25% to 50% the percentage of shares required to call a special meeting of shareholders, by the following vote:

•

provide for 90 days’ advance notice of any proposals or director nominations to be made by shareholders at any shareholders’ meeting, by the following vote:

•

require an 80% shareholder vote for any change in the number of directors that is not approved by the Company’s Board of Directors, by the following vote:

•

require an 80% shareholder vote to eliminate any of these shareholder protective measures or our staggered board, by the following vote:

As a result of amendments to the Company’s Code of Regulations, approved by the Company’s shareholders at a special meeting held on November 4, 2003, the deadline for shareholders to submit proposals to be considered at the Company’s annual meeting has changed.

The deadline for shareholders to submit proposals to be considered for inclusion in the proxy statement for the 2004 annual meeting of shareholders is January 2, 2004. Additionally, a shareholder who wishes to present a proposal at the 2004 annual meeting of shareholders must notify the Company of such proposal by no earlier than February 11, 2004 and no later than March 12, 2004. For business to be properly requested by a shareholder to be brought before an annual meeting of shareholders, the shareholder must comply with all of the requirements of the Company’s Code of Regulations, not just the timeliness requirements described above.

	a)		Exhibits

			Exhibit 3.1 – Amended and Restated Articles of Incorporation of Jo-Ann Stores Inc. Exhibit 3.2 – Amended and Restated Code of Regulations Exhibit 31.1 – Section 302 Certification By Chief Executive Officer Exhibit 31.2 – Section 302 Certification By Chief Financial Officer Exhibit 32.1 – Section 906 Certification of Principal Executive Officer Exhibit 32.2 – Section 906 Certification of Principal Financial Officer

	b)		Reports on Form 8-K

			The Company furnished a Current Report on Form 8-K dated August 6, 2003 to report the issuance of a press release announcing its net sales for the four weeks, thirteen weeks and year-to-date periods ended August 2, 2003.

			The Company furnished a Current Report on Form 8-K dated August 18, 2003 to report the issuance of a press release announcing the election of a new Board member.

			The Company furnished a Current Report on Form 8-K dated August 18, 2003 to report the issuance of a press release announcing its earnings for the second quarter and year-to-date periods ended August 2, 2003 and to provide an earnings outlook for the second half and fiscal year ending January 31, 2004.

			The Company furnished a Current Report on Form 8-K dated September 4, 2003 to report the issuance of a press release announcing its net sales for the four weeks and year-to-date periods ended August 30, 2003.

			The Company furnished a Current Report on Form 8-K dated October 9, 2003 to report the issuance of a press release announcing its sales for the five weeks, nine weeks and year-to-date periods ended October 4, 2003.

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Page 26 EX-3.1 3 l04426aexv3w1.htm EXHIBIT 3.1 AMENDED AND RESTATED ARTICLES OF INC. Exhibit 3.1

SECOND: The place in the State of Ohio where its principle office is located is the Village of Hudson, County of Summit.


	a) To carry on the business of dealing in fabrics and in connection therewith to buy and sell, at wholesale or retail, import, export, manufacture, weave, produce, repair, adapt, prepare, use and otherwise deal in, rubber, cotton, wool, silk, flax, glass, synthetic and all other fibrous materials, goods and fabrics, and in goods and fabrics into which rubber, cotton, wool, silk, flax, glass, synthetic or any fibrous material enters as a component part.

	b) To develop, manufacture, repair, treat, finish, buy, sell, and generally deal in, in every manner, materials, articles and products of every kind and description, and to do all things necessary or incidental thereto, including owning, holding and dealing in, in every manner, all real and personal property necessary or incidental to the foregoing purposes.

	c) In general to carry on any other lawful business whatsoever in connection with the business of the Corporation or which is calculated, directly or indirectly, to promote the interests of the Corporation or to enhance the value of its properties, and to have and exercise all rights, powers and privileges which are now or may hereafter be conferred upon corporations by the laws of Ohio.

The Corporation reserves the right at any time and from time to time to change substantially its purposes in any manner now or hereafter permitted by statute.

FOURTH: The authorized number of shares of the Corporation is 155,000,000, consisting of 5,000,000 shares of Serial Preferred Stock without par value (“Serial Preferred Shares”) and 150,000,000 Common Shares without par value (the “Common Shares”). The shares of each class shall have the express terms set forth in this Article Fourth.

When the Certificate of Amendment setting forth these amendments becomes effective under the Ohio General Corporation Law (the “Effective Time”), and without any further action on the part of the Corporation or its shareholders, each issued Class A Common Share without par value of the Corporation (“Class A Share”) shall automatically be reclassified and converted into 1.15 fully paid and nonassessable Class B Common Shares without par value of the Corporation (“Class B Share”), and each issued Class B Share shall remain outstanding. At the Effective Time, the Class B Shares shall be redesignated as Common Shares. Each certificate formerly representing Class A Shares shall automatically represent, from and after the Effective Time and without any further action on the part of the Corporation or any holder thereof, the number of Common Shares into which such Class A Shares have been reclassified and converted. Each certificate formerly representing Class B Shares shall automatically represent, from and after the Effective Time and without any further action on the part of the Corporation or any holder thereof, one Common Share.

After the Effective Time, each holder of any certificate or certificates formerly representing Class A Shares or Class B Shares, upon surrender of such certificate or certificates to the Corporation or its designated agent, shall receive a certificate or certificates representing the number of Common Shares into which such Class A Shares or Class B Shares have been

1. The Serial Preferred Shares may be issued from time to time in one or more series. Each Serial Preferred Share of any one series shall be identical with each other share of the same series in all respects, except as to the date from which dividends thereon shall be cumulative by reason of different dates of issuance; and all Serial Preferred Shares of all series shall rank equally and shall be identical, except in respect of the terms that may be fixed by the Board of Directors as hereinafter provided. Subject to the provisions of Sections 2 through 7 of this Division A, which provisions shall apply to all Serial Preferred Shares of all series, the Board of Directors is hereby authorized to cause Serial Preferred Shares to be issued in one or more series and with respect to each such series, prior to the issuance thereof, to fix:


	(a) The designation of the series, which may be by distinguishing number, letter or title.

	(b) The number of shares of the series, which number the Board of Directors may increase or decrease, except where otherwise provided in the creation of the series.

	(c) The dividend rate of the series.

	(d) The dates on which dividends, if declared, shall be payable and the dates from which dividends shall be cumulative.

	(e) The redemption rights and price or prices, if any, for shares of the series.

	(f) The terms and amount of any sinking fund provided for the purchase or redemption of shares of the series.

	(g) Whether the shares of the series shall be convertible into Common Shares and, if so, the conversion rate or rates or price or prices and the adjustments thereof, if any, and all other terms and conditions upon which conversions may be made.

	(h) The amounts payable on shares of the series in the event of any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation.

	(i) Restrictions (in addition to those set forth in Sections 6(b) and 6(c) of this Division A) on the issuance of shares of the same series or of any other class or series.

The Board of Directors is authorized to adopt from time to time amendments to the Articles of Incorporation or Amended Articles of Incorporation of the Corporation fixing, with respect to each such series, the matters specified in clauses (a) through (i) of this Section 1.

2. The holders of Serial Preferred Shares of each series, in preference to the holders of Common Shares and any other class of shares ranking junior to the Serial Preferred Shares, shall be entitled to receive, out of any funds legally available and when and as declared by the Board of Directors, cash dividends at the rate (and no more) for such series fixed in accordance with the provisions of Section 1 of this Division A, payable quarterly on the dates fixed for such series. Such dividends shall be cumulative, in the case of shares of each particular series, from and after the date or dates fixed with respect to such series. No dividends may be paid upon or declared and set apart for any of the Serial Preferred Shares for any quarterly dividend period unless at the same time a like proportionate dividend for the same quarterly dividend period, ratably in proportion to the respective annual dividend rates fixed therefor, shall be declared and paid or a sum sufficient for payment thereof set apart for the Serial Preferred Shares of all series.

3. So long as any Serial Preferred Shares are outstanding, no dividend (except a dividend payable in Common Shares or in other shares of the Corporation ranking junior to the Serial Preferred Shares) shall be paid or declared or any distribution be made (except as aforesaid) in

respect of the Common Shares or in respect of other shares of the Corporation ranking junior to the Serial Preferred Shares, nor shall any Common Shares or any other shares of the Corporation ranking junior to the Serial Preferred Shares be purchased, retired or otherwise acquired by the Corporation (except out of the proceeds of the sale of shares of Common Stock or other shares of the Corporation ranking junior to the Serial Preferred Shares received by the Corporation subsequent to January 28, 1984):

(a) unless all accrued and unpaid dividends on the Serial Preferred Shares of all series, including the full dividends for the current quarterly dividend period, shall have been declared and paid or a sum sufficient for payment thereof set apart; and

(b) unless redemption of Serial Preferred Shares of any series shall have been effected from, and any required payment shall have been made into, any sinking fund provided for shares of such series in accordance with the provisions of Section 1 of this Division A.

4. (a) Subject to the express terms of each series and to the provisions of Section 6(b)(iii) of this Division A, the Corporation (i) may from time to time redeem all or any part of the Serial Preferred Shares of any series at the time outstanding at the option of the Board of Directors at the applicable redemption price for such series fixed in accordance with the provisions of Section 1 of this Division A, or (ii) shall from time to time make such redemptions of the Serial Preferred Shares as may be required to fulfill the requirements of any sinking fund provided for shares of such series at the applicable sinking fund redemption price fixed in accordance with the provisions of Section 1 of this Division A, together, in each case, with accrued and unpaid dividends to the redemption date.

(b) Notice of every redemption shall be mailed by first class mail, postage prepaid, to the holders of record of the Serial Preferred Shares to be redeemed, at their respective addresses then appearing on the books of the Corporation, not less than 30 or more than 60 days prior to the date fixed for redemption. At any time before or after notice has been given as above provided, the Corporation may deposit the aggregate redemption price of the Serial Preferred Shares to be redeemed, together with accrued and unpaid dividends thereon to the redemption date, with any bank or trust company in Cleveland, Ohio, or New York, New York, having capital and surplus of more than $50,000,000, named in such notice, directed to be paid to the respective holders of the Serial Preferred Shares to be redeemed, in amounts equal to the redemption price of all Serial Preferred Shares so to be redeemed, together with accrued and unpaid dividends thereon to the redemption date, upon surrender of the share certificate or certificates held by such holders, and upon the giving of such notice and the making of such deposit such holders shall cease to be shareholders with respect to such shares, and after such notice shall have been given and such deposit shall have been made such holders shall have no claim against the Corporation or privileges with respect to such shares except only to receive such money from such bank or trust company without interest or the right to exercise, before the redemption date, any unexpired rights of conversion. In case less than all of the outstanding Serial Preferred Shares of any series are to be redeemed, the Corporation shall select by lot the shares so to be redeemed in such manner as shall be prescribed by its Board of Directors. If the holders of Serial Preferred Shares that shall have been called for redemption shall not, within six years after such deposit, claim the amount deposited for the redemption of their shares, any such bank or trust company shall, upon demand, pay over to the Corporation such unclaimed amounts and thereupon such bank or trust company and the Corporation shall be relieved of all responsibility in respect thereof and to such holders.

(c) Any Serial Preferred Shares that are redeemed by the Corporation pursuant to the provisions of this Section 4 of this Division A and any Serial Preferred Shares that are purchased and delivered in satisfaction of any sinking fund requirements provided for shares of such series and any Serial Preferred Shares that are converted in accordance with their express terms shall be canceled and not reissued. Any Serial Preferred Shares otherwise acquired by the Corporation shall

5. (a) The holders of Serial Preferred Shares of any series shall, in case of liquidation, dissolution or winding up of the affairs of the Corporation, be entitled to receive in full, out of the assets of the Corporation, including its capital, before any amount shall be paid or distributed among the holders of Common Shares or any other shares ranking junior to the Serial Preferred Shares, the amounts fixed with respect to shares of any such series in accordance with Section 1 of this Division A, plus in any such event an amount equal to all dividends accrued and unpaid thereon to the date of payment of the amount due pursuant to such liquidation, dissolution or winding up of the affairs of the Corporation. In case the net assets of the Corporation legally available therefor are insufficient to permit the payment upon all outstanding Serial Preferred Shares of all series of the full preferential amount to which the holders thereof are respectively entitled, then such net assets shall be distributed ratably upon outstanding Serial Preferred Shares of all series in proportion to the full preferential amount to which the holder of each such share is entitled. After payment to holders of Serial Preferred Shares of the full preferential amounts as aforesaid, holders of Serial Preferred Shares as such shall have no right or claim to any of the remaining assets of the Corporation.

(b) The merger or consolidation of the Corporation into or with any other corporation, or the merger of any other corporation into it, or the sale, lease or conveyance of all or substantially all of the property or business of the Corporation shall not be deemed to be a dissolution, liquidation or winding up of the Corporation for the purposes of this Section 5 of this Division A.

6. (a) The holders of Serial Preferred Shares of all series shall be entitled to one vote for each such share upon all matters presented to shareholders; and, except as otherwise provided herein or required by law, the holders of Serial Preferred Shares of all series and the holders of Common Shares shall vote together as one class on all matters. If, and as often as, the Corporation shall be in default in the payment of the equivalent of six quarterly dividends (whether or not consecutive) on any series of Serial Preferred Shares at any time outstanding, whether or not earned or declared, the holders of Serial Preferred Shares of all series voting separately as a class and in addition to all other rights to vote for Directors shall thereafter be entitled to elect, as herein provided, two members of the Board of Directors of the Corporation; provided, however, that the special class voting rights provided for herein, when the same shall have become vested, shall remain so vested until all accrued and unpaid dividends on the Serial Preferred Shares of all series then outstanding shall have been paid, whereupon the holders of Serial Preferred Shares shall be divested of their special class voting rights in respect of subsequent elections of Directors, subject to the revesting of such special class voting rights in the event hereinabove specified in this Section 6(a). In the event of default entitling the holders of Serial Preferred Shares to elect two Directors as above specified, a special meeting of the shareholders for the purpose of electing such Directors shall be called by the Secretary of the Corporation upon written request of, or may be called by, the holders of record of at least 10% of the Serial Preferred Shares of all series at the time outstanding, and notice thereof shall be given in the same manner as that required for the annual meeting of shareholders; provided, however, that the Corporation shall not be required to call such special meeting if the annual meeting of shareholders shall be held within 90 days after the date of receipt of the foregoing written request from the holders of Serial Preferred Shares. At any meeting at which the holders of Serial Preferred Shares shall be entitled to elect Directors, the holders of not less than one-third of the outstanding Serial Preferred Shares of all series, present in person or by proxy, shall be sufficient to constitute a quorum and the vote of the holders of a majority of such shares so present at any such meeting at which there shall be a quorum shall be sufficient to elect the members of the Board of Directors that the holders of Serial Preferred Shares are entitled to elect as herein-before provided. The two Directors who may be elected by the holders of Serial Preferred Shares pursuant to the foregoing provisions shall be in addition to any other Directors then in office or proposed to be elected otherwise than pursuant to such

provisions, and nothing in such provisions shall prevent any change otherwise permitted in the total number of Directors of the Corporation or require the resignation of any Directors elected otherwise than pursuant to such provisions.

(b) The affirmative vote or consent of the holders of at least two-thirds of the then outstanding Serial Preferred Shares of all series, given in person or by proxy, either in writing or at a meeting called for the purpose at which the holders of Serial Preferred Shares of all series shall vote separately as a class, shall be necessary to effect any one or more of the following (but, insofar as the holders of Serial Preferred Shares are concerned, such action may be effected with such vote or consent):



	(i) Any amendment, alteration or repeal of any of the provisions of these Amended and Restated Articles of Incorporation or of the Code of Regulations of the Corporation that affects adversely the voting powers, rights or preferences of the holders of Serial Preferred Shares; provided, however, that for the purpose of this clause (i) only, neither the amendment of these Amended and Restated Articles of Incorporation of the Corporation to authorize, or to increase the authorized or outstanding number of, Serial Preferred Shares or of any shares of any class ranking on a parity with or junior to the Serial Preferred Shares nor the increase by the shareholders or Board of Directors pursuant to the Code of Regulations of the number of Directors of the corporation shall be deemed to affect adversely the voting powers, rights or preferences of the holders of Serial Preferred Shares; and provided further that, if such amendment, alteration or repeal affects adversely the rights or preferences of one or more but not all then outstanding series of Serial Preferred Shares, only the affirmative vote or consent of the holders of at least two-thirds of the number of the then outstanding shares of the series so affected shall be required;


	(ii) The authorization, or the increase in the authorized number, of shares of any class ranking prior to the Serial Preferred Shares; or

	(iii) The purchase or redemption (whether for sinking fund purposes or otherwise) of less than all the then outstanding Serial Preferred Shares except in accordance with a purchase offer made to all holders of record of Serial Preferred Shares, unless all dividends on all Serial Preferred Shares then outstanding for all previous quarterly dividend periods shall have been declared and paid or funds therefore set apart and all accrued sinking fund obligations applicable to all Serial Preferred Shares shall have been complied with.

(c) The affirmative vote or consent of the holders of at least a majority of the then outstanding Serial Preferred Shares of all series, given in person or by proxy, either in writing or at a meeting called for the purpose at which the holders of Serial Preferred Shares of all series shall vote separately as a class, shall be necessary (but insofar as the holders of Serial Preferred Shares are concerned, such action may be effected with such affirmative vote or consent) to authorize any shares ranking on a parity with the Serial Preferred Shares or an increase in the authorized number of Serial Preferred Shares.


	(a) Whenever reference is made to shares “ranking prior to the Serial Preferred Shares”, such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends or as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation are given preference over the rights of the holders of Serial Preferred Shares.

	(b) Whenever reference is made to shares “on a parity with the Serial Preferred Shares”, such reference shall mean and include all shares of the Corporation in respect of which the rights of the holders thereof as to the payment of dividends and as to distributions in the event of a voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Corporation rank on an equality with the rights of the holders of Serial Preferred Shares.


	(c) Whenever reference is made to shares “ranking junior to the Serial Preferred Shares”, such reference shall mean and include all shares of the Corporation other than those defined under clauses (a) and (b) of this Section 7 as shares “ranking prior to” or “on a parity with” the Serial Preferred Shares.

The Common Shares shall be subject to the express terms of the Serial Preferred Shares and any series thereof. Each Common Share shall be equal to every other Common Share. The holders of Common Shares shall be entitled to one vote for each share held by them upon all matters presented to the shareholders.

FIFTH: A Director or officer of the Corporation shall not be disqualified by his office from dealing or contracting with the Corporation as a vendor, purchaser, employee, agent or otherwise, nor shall any transaction, contract or other act of the Corporation be void or voidable or in any way affected or invalidated by reason of the fact that any Director or officer, or any firm in which such Director or officer is a member, or any corporation of which such Director or officer is a shareholder, Director or officer, is in any way interested in such transaction, contract or other act, provided the fact that such officer, Director, firm or corporation is so interested shall be disclosed or shall be known to the Board of Directors of such members thereof as shall be present at any meeting of the Board of Directors at which action upon any such transaction, contract or other act shall be taken; nor shall any such Director or officer be accountable or responsible to the Corporation for or in respect of any such transaction, contract or other act of the Corporation or for any gains or profits realized by him by reason of the fact that he or any firm of which he is a member or any corporation of which he is a shareholder, Director or officer is interested in such transaction, contract or other act; any such Director may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize or take action in respect of any such transaction, contract or other act, and may vote thereat to authorize, ratify or approve any such transaction, contract or other act with like force and effect as if he or any firm of which he is a member or any corporation of which he is a shareholder, Director or officer were not interested in such transaction, contract or other act.

SIXTH: No holder of any class of shares of the Corporation shall have any pre-emptive or preferential rights to subscribe to or purchase any shares of any class of stock of the Corporation, whether now or hereafter authorized and whether unissued or in the treasury, or any obligations convertible into shares of any class of stock of the Corporation, at any time issued or sold, or any rights to subscribe to or purchase any thereof.

SEVENTH: The Board of Directors is hereby authorized to fix and determine and to vary the amount of working capital of the Corporation, to determine whether any, and, if any, what part of its surplus, however created or arising, shall be used or disposed of or declared in dividends, or paid to shareholders, and, without action by the shareholders, to use and apply such surplus, or any part thereof, at any time, or from time to time, in the purchase or acquisition of shares of any one class or combination of classes of shares, voting trust certificates for shares, bonds, debentures, notes, scrip, warrants, obligations, evidences of indebtedness of the Corporation or any other securities of the Corporation, to such extent or amount and in such manner and upon such price and other terms as the Board of Directors shall deem expedient.

EIGHTH: Any and every statute of the State of Ohio hereafter enacted whereby the rights, powers or privileges of corporations or of the shareholders of corporations organized under the laws of the State of Ohio are increased or diminished or in any way affected, or whereby effect is given to the action taken by any number, less than all, of the shareholders of any such corporation, shall apply to the Corporation and shall be binding not only upon the Corporation but upon every shareholder of the Corporation to the same extent as if such statute had been in force at the date

NINTH: Notwithstanding any provisions of the Ohio Revised Code now or hereafter in force otherwise requiring for any purpose the vote, consent, waiver or release of the holders of shares entitling them to exercise two-thirds, or any other proportion of the voting power of the Corporation or of any class or classes of shares thereof, such action, unless otherwise expressly required by statute or by these Amended and Restated Articles of Incorporation or the Code of Regulations of the Corporation, may be taken by the vote, consent, waiver or release of the holders of shares entitling them to exercise a majority of the voting power of the Corporation or of such class or classes.

1. Voting Requirement. Unless both the fair price requirement set forth in Section 2 and the other conditions set forth in Section 3 have been satisfied, the affirmative vote of the holders of 80% of all outstanding shares of the Corporation entitled to vote in elections of Directors, voting together as a single class, shall be required for the authorization or approval of any of the following transactions:


	(a) Merger or Consolidation. The merger or consolidation of the Corporation or any of its subsidiaries with or into an Interested Party (as hereinafter defined).

	(b) Disposition of Assets. The sale, lease, pledge, or other disposition, in one transaction or in a series of transactions from the Corporation or any of its subsidiaries to an Interested Party, or from an Interested Party to the Corporation or any of its subsidiaries, of assets having an aggregate fair market value (as hereinafter defined) of $1,000,000 or more.

	(c) Issuance or Transfer of Securities. The issuance, sale, or other transfer, in one transaction or in a series of transactions, by the Corporation or any of its subsidiaries to an Interested Party, or by an Interested Party to the Corporation or any of its subsidiaries, of securities for cash or other consideration having an aggregate fair market value of $1,000,000 or more.

	(d) Liquidation of Dissolution. The liquidation of dissolution of the Corporation proposed by an Interested Party.

	(e) Reclassification or Recapitalization. The reclassification of securities, recapitalization of the Corporation or other transaction that has the effect of increasing the proportionate share of any class of outstanding securities of the Corporation or any of its subsidiaries beneficially owned (as hereinafter defined) by an Interested Party or of otherwise diluting the position of any shareholder of the Corporation in comparison with the position of an Interested Party.

	(f) Other Transactions. Any other transactions or series of transactions that is similar in purpose or effect to those referred to in clauses (a) through (e) of this Section 1.

This voting requirement shall apply even though no vote, or a lesser percentage vote, may be required by law, by any other provision of these Amended and Restated Articles of Incorporation or otherwise. The term “business combination”, as used in this Article, means any of the transactions referred to in clauses (a) though (f) of this Section 1.

2. Fair Price Requirement. The fair price requirement will be satisfied if the consideration to be received in the business combination by the holders of shares of the Corporation’s Common Stock and Serial Preferred Stock, and by the Corporation or any of its subsidiaries, as the case may be, meets the following tests:

(a) Amount of Consideration to be Received by Shareholders. If any holder of the shares of the Corporation’s Common Stock or Serial Preferred Stock, other than an Interested Party, is to receive consideration in the business combination for any of the shares, the aggregate amount of cash and


	(1) the greatest of (i) the highest per share price, including commissions, paid by the Interested Party for any shares of the same class or series during the two-year period ending on the date of the most recent purchase by the Interested Party of any such shares, (ii) the highest sales price reported for shares of the same class or series traded on a national securities exchange or in the over-the-counter market during the one-year period preceding the first public announcement of the proposed business transaction or (iii) in the case of Serial Preferred Stock, the amount of the per share liquidation preference; plus

	(2) interest on the per share price calculated at the rate of ten percent (10%) per annum, compounded annually from the date the Interested Party first became an Interested Party until the business combination is consummated, less the per share amount of cash dividends payable to holders of record on record dates in the interim, up to the amount of such interest.

For purposes of this clause (a) per share amounts will be adjusted for any stock dividend, stock split or similar transaction.

(b) Form of Consideration to be Received by Shareholders. The consideration to be received by holders of shares of the Corporation’s Common Stock or Serial Preferred Stock must be in cash or in the same form as was previously paid by the Interested Party for shares of the same class or series; if the Interested Party previously paid for such shares with different forms of consideration, the consideration to be received by the holders of the shares must be in cash or in the same form as was previously paid by the Interested Party for the largest number of shares previously acquired by it. The provisions of this clause (b) are not intended to diminish the aggregate amount of cash and fair market value of any other consideration that any holder of shares of the Corporation’s Common Stock or Serial Preferred Stock is otherwise entitled to receive upon the liquidation or dissolution of the Corporation, under the terms of any contract with the Corporation or an Interest Party, or otherwise.

(c) Consideration to be Received by the Corporation or any of its Subsidiaries. If the Corporation or any of its subsidiaries is to receive consideration in the business combination, the consideration to be received must be fair to the Corporation or its subsidiaries, as determined by the continuing directors (as hereinafter defined).

3. Other Conditions. The other conditions will be satisfied if, from the time the Interested Party became an Interested Party until the completion of the business combination, each of the following has at all times been and continues to be true:


	(a) Continuing Directors. The Corporation’s Board of Directors has included at least five continuing directors. The term “continuing director,” used in this Article, means an individual who (i) either was a director of the Corporation at the time the Interested Party became an Interested Party or was subsequently nominated or elected by the other continuing directors and (ii) is not an affiliate or associate (as hereinafter defined) of the Interested Party. All actions required or permitted to be taken by the continuing directors under this Article shall be taken by the unanimous written consent of all continuing directors or by the vote of a majority of the continuing directors at a meeting convened upon such notice as would be required for a meeting of the full Board of Directors.

	(b) No Acquisition of Additional Shares. The Interested Party has not become the beneficial owner (as hereinafter defined) of any additional shares of Common Stock or Serial Preferred Stock of the Corporation, except (i) as part of the transaction that resulted in the Interested Party becoming an Interested Party, (ii) upon conversion of securities previously acquired by it or (iii) pursuant to a stock dividend or stock split.


	(c) No Special Benefits to the Interested Shareholder. The Interested Party has not received, directly or indirectly, the benefit (except proportionately as a shareholder) of any loan, advance, guaranty, pledge, or other financial assistance, tax credit or deduction or other benefit from the Corporation or any of its subsidiaries.

	(d) Proxy Statement. A proxy or information statement describing the business combination and complying with the requirements of the Securities Exchange Act of 1934, as amended, and the rules and regulations under it (or any subsequent provisions replacing that Act and the rules and regulations under it) has been mailed at least 30 days prior to the completion of the business combination to the holders of all outstanding shares of the Corporation entitled to vote in election of Directors, whether or not shareholder approval of the business combination is required. If deemed advisable by the continuing directors, the proxy or information statement shall contain a recommendation by the continuing directors as to the advisability (or inadvisability) of the business combination and/or an opinion by an investment banking firm, selected by the continuing directors and retained at the expense of the Corporation, as to the fairness (or unfairness) of the business combination to holders of shares of the Corporation’s Common Stock or Serial Preferred Stock other than the Interested Party.

	(e) No Omission or Reduction of Dividends. Except to the extent approved by the continuing directors, there has been no (i) failure to pay in full, when and as due, any dividends on the Corporation’s Serial Preferred Stock or (ii) failure to pay or reduction in the annual rate of dividends on the shares of the Corporation’s Common Stock, whether directly or indirectly through a reclassification, recapitalization or otherwise.

	(f) No Change in Business or Capital Structure. Except to the extent approved by the continuing directors, there has been no material change in (i) the nature of the business conducted by the Corporation and its subsidiaries or (ii) the capital structure of the Corporation, including but not limited to any change in the number of outstanding shares of Common Stock, the number and series of any outstanding shares of Serial Preferred Stock and the types and aggregate principal amount of any outstanding debt securities, except for changes resulting from the exercise of previously issued options, warrants or other rights, the conversion of previously issued shares, the issuance of previously authorized debt securities and the mandatory redemption of retirement of debt securities in accordance with their terms.


	(a) “Affiliate”; “Associate”. The terms “affiliate” and “associate” have the meanings ascribed to them in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934, as in effect on May 4, 1984.

	(b) “Beneficial Ownership”. A person or entity is deemed to “beneficially own” shares if, directly or indirectly through any contract, understanding, arrangement, relationship or otherwise, that person or entity has or shares (i) the power to vote or to dispose, or to direct the voting or disposition, of the shares or (ii) the right to acquire the shares pursuant to any contract or arrangement, upon the exercise of any option, warrant or right, upon the conversion of any other shares, upon revocation of a trust or otherwise. The person or entity is also deemed to “beneficially own” shares that are beneficially owned by affiliates and associates of that person or entity.

	(c) “Business Combination”. The term “business combination” has the meaning ascribed to it in Section 1 of this Article.

	(d) “Continuing Directors”. The term “continuing directors” has the meaning ascribed to it in clause (a) of Section 3 of this Article.


	(e) “Fair Market Value”. The term “fair market value” means (i), in the case of securities listed on a national securities exchange or on the National Association of Securities Dealers, Inc.’s National Market, the highest closing sales price reported during the 30-day period immediately preceding the date in question for securities of the same class or series traded on such exchange or market, or, if such securities are not listed on any exchange or such National Market, the highest closing bid quotation with respect to such securities during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automatic Quotation System or any system then in use, or, if no quotations are available, the value determined by the continuing directors, and (ii) in the case of other securities and of consideration other than securities or cash, the value determined by the continuing directors.

	(f) “Interested Party”. The term “Interested Party” means any person or entity that, together with its affiliates and associates, is at the time of, or has been within the two-year period immediately prior to, the consummation of a business combination the beneficial owner of shares having at least 20% of the aggregate voting power of all outstanding shares of the Corporation entitled to vote in elections of Directors. The term “Interested Party,” for purposes of the requirements and conditions of this Article, also includes the affiliates and associates of the Interested Party. Notwithstanding the foregoing, the Corporation and its subsidiaries, and any profit-sharing, employee stock ownership, employee pension, or other employee benefit plan of the Corporation or any subsidiary, are not deemed to be “Interested Parties”.

5. No Effect on Fiduciary Obligations of Interested Party. Nothing contained in this Article shall be construed to relieve any Interested Party from any fiduciary obligations imposed by law.

6. Amendment, Repeal, etc. Notwithstanding any other provision of these Amended and Restated Articles of Incorporation or the Code of Regulations of the Corporation (and notwithstanding the fact that a lesser percentage may be required by law, these Amended and Restated Articles of Incorporation or the Code of Regulations of the Corporation), the affirmative vote of the holders of 80% of the outstanding shares of the Corporation entitled to vote in elections of Directors, voting together as a single class, shall be required to amend or repeal, or adopt any provisions inconsistent with, this Article Tenth.

ELEVENTH: These Amended and Restated Articles of Incorporation supersede the existing Articles of Incorporation of the Corporation and any and all subsequent amendments thereto.

A-10 EX-3.2 4 l04426aexv3w2.htm EXHIBIT 3.2 AMENDED AND RESTATED CODE OF REGS Exhibit 3.2

SECTION 1. Annual Meeting. The annual meeting of the shareholders of the Company for the election of Directors, the consideration of reports to be laid before the meeting, and the transaction of such other business as may properly be brought before the meeting shall be held in the place described in the Articles of Incorporation as the place where the principal office of the Company is or is to be located, or at such other place either within or without the State of Ohio as may be designated by the Board of Directors, the Chairman of the Board, or the President and specified in the notice of the meeting, at 3:30 o’clock p.m., on the first Monday of June in each year, or at such other time and on such other date (not, however, earlier than May 1 or later than June 30 in any year) as the Board of Directors may determine.

SECTION 2. Special Meetings. Special meetings of the shareholders of the Company may be held on any business day when called by the Chairman of the Board, the President, a Vice President, the Board of Directors acting at a meeting, a majority of the Directors acting without a meeting, or persons who hold fifty percent of all the shares outstanding and entitled to vote thereat. Upon request in writing delivered either in person or by registered mail to the President or the Secretary by any persons entitled to call a meeting of all shareholders, that officer shall forthwith cause to be given to the shareholders entitled thereto notice of a meeting to be held on a date not less than ten or more than sixty days after receipt of the request, as that officer may fix; if the notice is not given within thirty days after the delivery or mailing of the request, the persons calling the meeting may fix the time of the meeting and give notice thereof in the manner provided by law or as provided in these Regulations or cause the notice to be given by any designated representative. Each special meeting shall be called to convene between nine o’clock a.m. and four o’clock p.m., and shall be held at the principal office of the Company unless the meeting is called by the Directors, acting with our without a meeting, in which case the meeting may be held at any place either within or without the State of Ohio designated by the Board of Directors and specified in the notice of the meeting.

SECTION 3. Notice of Meetings. Not less than ten or more than sixty days before the date fixed for a meeting of the shareholders, written notice stating the time, place, and purposes of the meeting shall be given by or at the direction of the Secretary, or any other person or persons required or permitted by these Regulations to give the notice. The notice shall be given by personal delivery or by mail to each shareholder entitled to notice of the meeting who is of record as of the day next preceding the day on which notice is given or, if a record date therefore is duly fixed, of record as of that date; if mailed, the notice shall be addressed to the shareholders at their respective addresses as they appear on the records of the Company. Notice of the time, place, and purposes of any meeting of the shareholders may be waived in writing, either before or after the holding of the meeting, by any shareholder, which writing shall be filed with or entered upon the records of the Company. Attendance of any shareholder at any meeting without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by him of notice of the meeting.

SECTION 4. Quorum; Adjournment. Except as may be otherwise provided by law or by the Articles of Incorporation, at any meeting of the shareholders the holders of shares entitling them to exercise a majority of the voting power of the Company present in person or by proxy shall constitute a quorum for the meeting, except that no action required by law, the Articles, or these

Regulations to be authorized or taken by a designated proportion of the shares of any particular class or of each class of the Company may be authorized or taken by a lesser proportion and except that the holders of a majority of the voting shares represented thereat, whether or not a quorum is present, may adjourn the meeting from time to time; if any meeting is adjourned, notice of adjournment need not be given if the time and place to which the meeting is adjourned are fixed and announced at the meeting.

SECTION 5. Action Without a Meeting. Any action which may be authorized or taken at a meeting of the shareholders may be authorized or taken without a meeting with the affirmative vote or approval of, and in writing or writings signed by or on behalf of, all of the shareholders who would be entitled to notice of a meeting of the shareholders held for the purpose, which writing or writings shall be filed with or entered upon the records of the Company.

SECTION 6. Proxies. Persons entitled to vote shares or to act with respect to shares may vote or act in person or by proxy. The person appointed as proxy need not be a shareholder. Unless the writing appointing a proxy otherwise provides, the presence at a meeting of the person who appointed a proxy shall not operate to revoke the appointment. Notice to the Company, in writing or in open meeting, of the revocation of the appointment of a proxy shall not affect any vote or act previously taken or authorized.

SECTION 7. Approval and Ratification of Acts of Officers and Directors. Except as otherwise provided by the Articles of Incorporation or by law, any contract, act, or transaction, prospective or past, of the Company or of the Board of Directors or of any Director or officer may be approved or ratified by the affirmative vote in person or by proxy of the holders of record of a majority of the shares held by persons not interested in the contract, act, or transaction and entitled to vote in the election of Directors (without regard to voting powers which may thereafter exist upon a default, failure, or other contingency), which approval or ratification shall be as valid and binding as though affirmatively voted for or consented to by every shareholder of the Company.


	(a) The Chairman of the Board, or such other officer of the Company as may be designated by the Board of Directors, will call meetings of the shareholders to order and will preside at the meetings. The presiding officer will determine the order of business at the meeting and have the authority to regulate the conduct of the meeting, including (i) limiting the persons (other than shareholders and their duly appointed proxies) who may attend the meeting and (ii) establishing rules of conduct and such other procedures as the presiding officer may deem appropriate for the orderly conduct of the meeting.

	(b) At an annual meeting of the shareholders, only such business as is properly brought before the meeting will be considered. To be properly brought before an annual meeting, business must be (i) specified in the notice of the meeting (or any supplement to that notice) given in accordance with Section 3 of this ARTICLE I, (ii) brought before the meeting by the presiding officer or by or at the direction of the Board of Directors, or (iii) properly requested by a shareholder to be brought before the meeting in accordance with subsection (c) of this Section 8.

	(c) For business to be properly requested by a shareholder to be brought before an annual meeting of the shareholders, the shareholder must (i) be a shareholder of the Company of record at the time of the giving of the notice of the annual meeting and at the time of the annual meeting, (ii) be entitled to vote at the annual meeting, and (iii) have given timely written notice of the business to the Secretary. To be timely, a shareholder’s notice must be delivered to or mailed and received by the Secretary at the principal executive offices of the Company not later than the close of business on the ninetieth calendar day, and not earlier than the opening of business on the one hundred twentieth calendar day, prior to the annual meeting; except that, if the first public announcement of the date of the annual meeting is not


	made at least one hundred days prior to the date of the annual meeting, notice by the shareholder will be timely if it is delivered or received not later than the close of business on the tenth calendar day after the first public announcement of the date of the annual meeting and not earlier than the opening of business on the one hundred twentieth calendar day prior to the annual meeting. A shareholder’s notice must set forth, as to each matter the shareholder proposes to bring before the annual meeting, (A) a description in reasonable detail of the business proposed to be brought before the meeting, (B) the name and address, as they appear on the Company’s books, of the shareholder proposing such business and of the beneficial owner, if any, on whose behalf the proposal is made, (C) the class and number of shares that are owned of record and beneficially by the shareholder and by any such beneficial owner, and (D) any material interest that the shareholder or any such beneficial owner may have in the business. This Section 8(c) will not affect any rights that the shareholder may have under Rule 14a-8 under the Securities Exchange Act of 1934, as amended, to request the inclusion of proposals in the Company’s proxy statement.

	(d) At a special meeting of the shareholders, only such business as is properly brought before the meeting will be conducted. To be properly brought before a special meeting, business must be (i) specified in the notice of the meeting (or any supplement to that notice) given in accordance with Section 2 or Section 3 of this ARTICLE I, or (ii) brought before the meeting by the presiding officer or by or at the direction of the Board of Directors.

	(e) The determination of whether any business sought to be brought before any annual meeting or special meeting of the shareholders is properly brought in accordance with this Section 8 will be made by the presiding officer of the meeting. If the presiding officer determines that any business is not properly brought before the meeting, he or she will so declare to the meeting, and the business will not be considered or acted upon.

SECTION 1. Number and Classification; Election; Term of Office. The Board of Directors shall be divided into three classes. The number of Directors in each class may be fixed or changed (a) by the shareholders at any meeting of shareholders called to elect Directors at which a quorum is present, by the vote of a majority of the shares represented at the meeting and entitled to vote in the election of Directors, except that, if the Board of Directors has not, by the vote of a majority of the Directors then in office, approved the change in the number of Directors prior to the meeting, the vote of the holders of eighty percent of the shares outstanding and entitled to vote in the election of Directors will be required to approve the change, or (b) by the Board of Directors by the vote of a majority of the Directors then in office, except that, after the number of Directors in any class has been fixed by the shareholders, the Directors may not increase or decrease the number of Directors in any class by more than one. A separate election shall be held for each class of Directors at any meeting of shareholders at which a member or members of more than one class of Directors is being elected. At each annual election the Directors elected to the class whose terms shall expire in that year shall hold office for a term of three years and until their respective successors are elected. In case of any increase in the number of Directors of any class, any additional Directors elected to such class shall hold office for a term which shall coincide with the full term or the remainder of the term, as the case may be, of such class.

SECTION 2. Vacancies. In the event of the occurrence of any vacancy or vacancies in the Board of Directors, however caused, the remaining Directors, though less than a majority of the whole authorized number of Directors, may, by the vote of a majority of their number, fill any such vacancy for the balance of the unexpired term.


	(a) At a meeting of the shareholders at which Directors are to be elected, only persons properly nominated as candidates will be eligible for election as Directors. Candidates may be properly nominated either (i) by the Board of Directors or (ii) by any shareholder in accordance with subsection (b) of this Section 3.

	(b) For a shareholder properly to nominate a candidate for election as a Director at a meeting of the shareholders, the shareholder must (i) be a shareholder of the Company of record at the time of the giving of the notice of the meeting and at the time of the meeting, (ii) be entitled to vote at the meeting in the election of Directors, and (iii) have given timely written notice of the nomination to the Secretary. To be timely, a shareholder’s notice must be delivered to or mailed and received by the Secretary at the principal executive offices of the Company not later than the close of business on the ninetieth calendar day, and not earlier than the opening of business on the one hundred twentieth calendar day, prior to the meeting; except that, if the first public announcement of the date of the meeting is not made at least one hundred days prior to the date of the meeting, notice by the shareholder will be timely if it is delivered or received not later than the close of business on the tenth calendar day after the first public announcement of the date of the meeting and not earlier than the opening of business on the one hundred twentieth calendar day prior to the meeting. A shareholder’s notice must set forth, as to each candidate, all of the information about the candidate required to be disclosed in a proxy statement complying with the rules of the Securities and Exchange Commission used in connection with the solicitation of proxies for the election of the candidate as a Director. If the officer presiding at the meeting determines that one or more of the candidates has not been nominated in accordance with these procedures, he or she will so declare at the meeting, and the candidates will not be considered or voted upon at the meeting.

SECTION 4. Organization Meeting. Immediately after each annual meeting of the shareholders, the newly elected Directors shall hold an organization meeting for the purpose of electing officers and transacting any other business. Notice of the organization meeting need not be given.

SECTION 5. Regular Meetings. Regular meetings of the Board of Directors may be held at such times and places within or without the State of Ohio as may be provided for in bylaws or resolutions adopted by the Board of Directors and upon such notice, if any, as shall be so provided. Unless otherwise indicated in the notice of a regular meeting, any business may be transacted at that regular meeting.

SECTION 6. Special Meetings. Special meetings (including “telephone” meetings) of the Board of Directors may be held at any time within or without the State of Ohio (or through use of telephone or other communications equipment if all persons participating can hear each other) upon call by the Chairman of the Board, the President, a Vice President, or any two Directors. Written notice of the time and place of each special meeting shall be given to each Director either by personal delivery or by mail, telegram, or cablegram at least two days before the meeting, which notice need not specify the purposes of the meeting, except that attendance of any Director at any special meeting (or participation in a meeting employing telephone or other communications equipment) without protesting, prior to or at the commencement of the meeting, the lack of proper notice shall be deemed to be a waiver by him of notice of the meeting and except that notice of a special meeting may be waived in writing, either before or after the holding of the meeting, by any Director, which writing shall be filed with or entered upon the records of the Company. Unless otherwise indicated in the notice of a special meeting, any business may be transacted at that special meeting.

SECTION 7. Quorum; Adjournment. A quorum of the Board of Directors at an organization, regular, or special meeting shall consist of a majority of the Directors then in office, except that a majority of the Directors present at a meeting duly held, whether or not a quorum is present, may

adjourn the meeting from time to time; if any meeting is adjourned, notice of adjournment need not be given if the time and place to which the meeting is adjourned are fixed and announced at the meeting. At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by a majority vote of those present except as in the Articles of Incorporation or these Regulations otherwise expressly provided.

SECTION 8. Action Without a Meeting. Any action which may be authorized or taken at a meeting of the Board of Directors may be authorized or taken without a meeting with the affirmative vote or approval of, and in writings or writings signed by, all of the Directors, which writing or writings shall be filed with or entered upon the records of the Company.

SECTION 9. Committees. The Board of Directors may at any time appoint from its members an Executive, Finance, or other committee or committees, consisting of such number of members, not less than three of the Board of Directors may deem advisable, together with such alternates as the Board of Directors may deem advisable, to take the place of any absent member or members at any meeting of the committee. Each member and each alternate shall hold office during the pleasure of the Board of Directors. Any committee shall act only in the intervals between meetings of the Board of Directors and shall have such authority of the Board of Directors as may, from time to time, be delegated by the Board of Directors, except the authority to fill vacancies in the Board of Directors or in any committee of the Board of Directors. Subject to these exceptions, any person dealing with the Company shall be entitled to rely upon any act or authorization of an act by any committee to the same extent as an act or authorization of the Board of Directors. Each committee shall keep full and complete records of all meetings and actions, which shall be open to inspection by the Directors. Unless otherwise ordered by the Board of Directors, any committee may prescribe its own rules for calling and holding meetings, including telephone meetings, and for its own method of procedure, and may act at a meeting, including a telephone meeting, by a majority of its members or without a meeting by a writing or writings signed by all of its members.

SECTION 1. Election and Designation of Officers. The Board of Directors shall elect a President, a Secretary, and a Treasurer and, in its discretion, may elect a Chairman of the Board, one or more Vice Presidents, one or more Assistant Secretaries, one or more Assistant Treasurers, and such other officers as the Board of Directors may deem necessary. The Chairman of the Board and the President shall be Directors, and no one of the other officers need be a Director. Any two or more offices may be held by the same person, but no officer shall execute, acknowledge, or verify any instrument in more than one capacity if the instrument is required to be executed, acknowledged, or verified by two or more officers.

SECTION 2. Term of Office; Vacancies. Each officer of the Company shall hold office until the next organization meeting of the Board of Directors and until his successor is elected or until his earlier resignation, removal from office, or death. The Board of Directors may remove any officer at any time with or without cause by a majority vote of the Directors then in office. Any vacancy in any office may be filled by the Board of Directors.

SECTION 3. Chairman of the Board. The Chairman of the Board, if any, shall preside at all meetings of the Board of Directors, shall, unless that duty has been delegated by the Board of Directors to the President or another officer, preside at all meetings of shareholders, and shall have such authority and shall perform such other duties as may be determined by the Board of Directors.

SECTION 4. President. The President shall preside at all meetings of the shareholders and at all meetings of the Board of Directors, except for meetings at which the Chairman of the Board, if any, presides in accordance with the preceding Section. Subject to directions of the Board of

Directors and to the delegation by the Board of Directors to the Chairman of the Board of specific or general executive supervision, the President shall have general executive supervision over the property, business, and affairs of the Company. He may execute all authorized deeds, mortgages, bonds, contracts, and other obligations in the name of the Company and shall have such other authority and shall perform such other duties as may be determined by the Board of Directors.

SECTION 5. Vice Presidents. The Vice Presidents shall, respectively, have such authority and perform such duties as may be determined by the Board of Directors.

SECTION 6. Secretary. The Secretary shall keep the minutes of meetings of the shareholders and of the Board of Directors. He shall keep such books as may be required by the Board of Directors, shall give notices of meetings of the shareholders and of meetings of the Board of Directors required by law or by these Regulations or otherwise, and shall have such authority and shall perform such other duties as may be determined by the Board of Directors.

SECTION 7. Treasurer. The Treasurer shall receive and have in charge all money, bills, notes, bonds, securities of other corporations, and similar property belonging to the Company and shall do with this property as may be ordered by the Board of Directors. He shall keep accurate financial accounts and hold them open for the inspection and examination of the Directors and shall have such authority and shall perform such other duties as may be determined by the Board of Directors.

SECTION 8. Other Officers. The Assistant Secretaries and Assistant Treasurers, if any, and any other officers whom the Board of Directors may elect shall, respectively, have such authority and perform such duties as may be determined by the Board of Directors.

SECTION 9. Delegation of Authority and Duties. The Board of Directors is authorized to delegate the authority and duties of any officers to any other officer and generally to control the actions of the officers and to require the performance of duties in addition to those mentioned herein.

SECTION 1. Directors and Members of Committees. Members of the Board of Directors and members of any committee of the Board of Directors shall, as such, receive such compensation, which may be either a fixed sum for attendance at each meeting of the Board of Directors or at each meeting of the committee or stated compensation payable at intervals, or shall otherwise be compensated as may be determined by or pursuant to authority conferred by the Board of Directors or any committee of the Board of Directors, which compensation may be in different amounts for various members of the Board of Directors or any committee. No member of the Board of Directors and no members of any committee of the Board of Directors shall be disqualified from being counted in the determination of a quorum or from acting at any meeting of the Board of Directors or of a committee of the Board of Directors by reason of the fact that matters affecting his own compensation as a Director, member of a committee of the Board of Directors, officer, or employee are to be determined.

SECTION 2. Officers and Employees. The compensation of officers and employees of the Company, or the method of fixing their compensation, shall be determined by or pursuant to authority conferred by the Board of Directors or any committee of the Board of Directors. Compensation may include pension, disability, and death benefits, and may be by way of fixed salary, on the basis of earnings of the Company, any combination thereof, or otherwise, as may be determined or authorized from time to time by the Board of Directors or any committee of the Board of Directors.

SECTION 3. Transactions with Directors, Officers, and Employees. No contract, act, or transaction shall be void, or be voidable by the Company, for the reason that it is between the Company and one or more of the directors, officers, or employees of the Company or between the Company and another corporation, partnership, joint venture, trust, or other enterprise in which one or more of the directors, officers, or employees of the Company are directors, trustees, or officers or have a financial or personal interest or for the reason that one or more interested directors, officers, or employees of the Company participate in a vote at the meeting of the Board of Directors or a committee thereof which authorizes the contract, act, or transaction if, in any such case, the contract, act, or transaction is approved, ratified or authorized in the manner prescribed in these Regulations or by law.

SECTION 1. Third Party Actions. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action or suit by or in the right of the Company), by reason of the fact that he is or was a director, officer, employee, or agent of the Company, or is or was serving at the request of the Company as a director, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit, or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the Company and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any action, suit, or proceeding by judgment, order, settlement, or conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interest of the Company or that, with respect to any criminal action or proceeding, he had reasonable cause to believe that his conduct was unlawful.

SECTION 2. Derivative Actions. The Company shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending, or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee, or agent of the Company, or is or was serving at the request of the Company as a director, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to be the best interests of the Company, except that no indemnification shall be made in respect of any claim, issue, or matter as to which that person shall have been finally adjudged to be liable for negligence or misconduct in the performance of his duty to the Company unless and only to the extent that the Court of Common Pleas or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, that person is fairly and reasonably entitled to indemnity for such expenses as the Court of Common Pleas or the other court shall deem proper.

SECTION 3. Rights After Successful Defense. To the extent that a director, trustee, officer, employee, or agent has been successful on the merits or otherwise in defense of any action, suit, or proceeding referred to in Section 1 or Section 2, or in the defense of any claim, issue, or matter therein, he shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by him in connection therewith.

SECTION 4. Other Determinations of Rights. Except in a situation governed by Section 3, any indemnification under Section 1 or Section 2 (unless ordered by a court) shall be made by the Company only as authorized in the specific case upon a determination that indemnification of the director, trustee, officer, employee, or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 1 or Section 2. The determination shall be made (a) by a majority vote, at a meeting of directors, of those directors who constitute a quorum and who were not and are not parties to or threatened with any such action, suit, or proceeding or (b) if such a quorum is not obtainable (or even if obtainable) and a majority of disinterested directors so directs, in a written opinion by independent legal counsel (compensated by the Company) or (c) by the affirmative vote in person or by proxy of the holders of record of a majority of the shares held by persons who were not and are not parties to or threatened with any such action, suit, or proceeding and entitled to vote in the election of directors, without regard to voting power which may thereafter exist upon a default, failure, or other contingency or (d) by the Court of Common Pleas or the court in which such action, suit, or proceeding was brought.

SECTION 5. Advances of Expenses. Expenses (including attorneys’ fees) incurred in defending any action, suit, or proceeding referred to in Section 1 or Section 2 may be paid by the Company in advance of final disposition of the action, suit, or proceeding, as authorized by the Board of Directors in the specific case, upon receipt of an undertaking by or on behalf of the director, trustee, officer, employee, or agent to repay the amount unless it shall ultimately be determined that he is entitled to be indemnified by the Company.

SECTION 6. Purchase of Insurance. The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the Company, or is or was serving at the request of the Company as a director, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, against any liability asserted against him and incurred by him in any capacity, or arising out of his status as such, whether or not the Company would have the power to indemnify him against liability under the provisions of this Article or of the Ohio General Corporation Law.

SECTION 7. Mergers. In the case of a merger into this Company of a constituent corporation which, if its separate existence had continued, would have been required to indemnify directors, trustees, officers, employees, or agents in specified situation, any person who served as a director, officer, employee, or agent of the constituent corporation, or served at the request of the constituent corporation as a director, trustee, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, shall be entitled to indemnification by this Company (as the surviving corporation) to the same extent he would have been entitled to indemnification by the constituent corporation, if its separate existence had continued.

SECTION 8. Non-Exclusivity; Heirs. The indemnification provided by this Article shall not be deemed exclusive of any other rights to which a person seeking indemnification may be entitled as a matter of law or under the Articles of Incorporation, these Regulations, any agreement, vote of shareholders or disinterested directors, any insurance purchased by the Company, or otherwise, both as to action in his official capacity and as to action in another capacity while holding an office, and shall continue as to a person who has ceased to be a director, trustee, officer, employee, or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

For any lawful purpose, including, without limitation, the determination of the shareholders who are entitled to receive notice of or to vote at a meeting of the shareholders, the Board of Directors may fix a record date in accordance with the provisions of the Ohio General Corporation Law. The record date for the purpose of the determination of the shareholders who are entitled to

receive notice of or to vote at a meeting of the shareholders shall continue to be the record date for all adjournments of the meeting unless the Board of Directors or the persons who shall have fixed the original record date shall cause notice thereof and of the date to which the meeting shall have been adjourned to be given to shareholders of record as of the newly fixed date in accordance with the same requirements as those applying to a meeting newly called. The Board of Directors may close the share transfer books against transfers of shares during the whole or any part of the period provided for in this Article, including the date of the meeting of the shareholders and the period ending with the date, if any, to which adjourned. If no record date is fixed therefore, the record date for determining the shareholders who are entitled to receive notice of or to vote at a meeting of the shareholders shall be the date next preceding the day on which notice is given or the date next preceding the day on which the meeting is held, as the case may be.

SECTION 1. Form of Certificates and Signatures. Each holder of shares shall be entitled to one or more certificates, signed by the Chairman of the Board, the President, or a Vice President and by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant Treasurer of the Company, which shall certify the number and class of shares held by him in the Company, but no certificate for shares shall be executed or delivered until the shares are fully paid. When a certificate is countersigned by an incorporated transfer agent or registrar, the signature of any officer of the Company whose manual or facsimile signature is affixed to a certificate ceases to be that officer before the certificate is delivered, the certificate nevertheless shall be effective in all respects when delivered.

SECTION 2. Transfer of Shares. Shares of the Company shall be transferable upon the books of the Company by the holders thereof, in person, or by a duly authorized attorney, upon surrender and cancellation of certificates for a like number of shares of the same class or series, with duly executed assignment and power of transfer endorsed thereon or attached thereto, and with such proof of authenticity of the signatures to such assignment and power of transfer as the Company or its agents may reasonably require.

SECTION 3. Lost, Stolen, or Destroyed Certificates. The Company may issue a new certificate for shares in place of any certificate theretofore issued by it and alleged to have been lost, stolen, or destroyed; the Board of Directors may, however, in its discretion, require the owner, or his legal representatives, to give the Company a bond containing such terms as the Board of Directors may require to protect the Company or any person injured by the execution and delivery of a new certificate.

SECTION 4. Transfer Agent and Registrar. The Board of Directors may appoint, or revoke the appointment of, transfer agents and registrars and may require all certificates for shares to bear the signatures of the transfer agents and registrars, or any of them.

The Chairman of the Board, the President, any Vice President, the Secretary, the Treasurer of the Company, and each such officer are authorized to sign the name of the Company and to perform all acts necessary to effect a sale, transfer, assignment, or other disposition of any shares, bonds, other evidences of indebtedness or obligations, subscription rights, warrants, or other securities of another corporation owned by the Company and to issue the necessary powers of attorney; and each such officer is authorized, on behalf of the Company, to vote the securities, to

The Ohio General Corporation Law provides in effect that the absence of a corporate seal from any instrument executed on behalf of the Company does not affect the validity of the instrument; if in spite of that provision a seal is imprinted on or attached, applied, or affixed to an instrument by embossment, engraving, stamping, printing, typing, adhesion, or other means, the impression of the seal on the instrument shall be circular in form and shall contain the name of the Company and the words “corporate seal”.

These Regulations may be amended, or new Regulations may be adopted, by the shareholders at a meeting held for that purpose by the affirmative vote of the holders of shares entitling them to exercise a majority of the voting power on that proposal, or without a meeting by the written consent of the holders of shares entitling them to exercise two-thirds of the voting power on that proposal, except that, any amendment of the first sentence of Section 2, ARTICLE 1, any amendment of Section 8, ARTICLE I, any amendment of the first or second sentence of Section 1, ARTICLE II, any amendment of Section 3, ARTICLE II, and any amendment of this ARTICLE X will require the affirmative vote of the holders of shares entitling them to exercise eighty percent of the voting power on that proposal, or without a meeting by the written consent of the holders of shares entitling them to exercise eighty percent of the voting power on that proposal, unless the Board of Directors, by the vote of a majority of the Directors then in office, approves the amendment. If the Regulations are amended or new Regulations are adopted without a meeting of the shareholders, the Secretary of the Company shall mail a copy of the amendment or the new Regulations to each shareholder who would have been entitled to vote thereon but did not participate in the adoption thereof.

D-10 EX-31.1 5 l04426aexv31w1.htm EXHIBIT 31.1 SECTION 302 CERTIFICATION BY CEO Exhibit 31.1

1)		I have reviewed this quarterly report on Form 10-Q of Jo-Ann Stores, Inc. (the “registrant”);

2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)		disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

EX-31.2 6 l04426aexv31w2.htm EXHIBIT 31.2 SECTION 302 CERTIFICATION BY CFO Exhibit 31.2

1)		I have reviewed this quarterly report on Form 10-Q of Jo-Ann Stores, Inc. (the “registrant”);

2)		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3)		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4)		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:

	a)		designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	b)		evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	c)		disclosed in this report any change in the registrant’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;

	a)		all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	b)		any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Brian P. Carney

By: Brian P. Carney
Executive Vice President and Chief Financial Officer

EX-32.1 7 l04426aexv32w1.htm EXHIBIT 32.1 SECTION 906 CERTIFICATION OF CEO Exhibit 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Form 10-Q (the “Report”) of Jo-Ann Stores, Inc. (the “Company”) for the period ending November 1, 2003, I, Alan Rosskamm, President and Chief Executive Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2 8 l04426aexv32w2.htm EXHIBIT 32.2 SECTION 906 CERTIFICATION OF CFO Exhibit 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the accompanying Form 10-Q (the “Report”) of Jo-Ann Stores, Inc. (the “Company”) for the period ending November 1, 2003, I, Brian P. Carney, Executive Vice President and Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)		The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Brian P. Carney

Brian P. Carney,
Executive Vice President and Chief Financial Officer

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Ohio (State or other jurisdiction of incorporation or organization)		34-0720629 (I.R.S. Employer Identification No.)

5555 Darrow Road, Hudson, Ohio (Address of principal executive offices)		44236 (Zip Code)


PART I FINANCIAL INFORMATION
	Item 1. Financial Statements
		Consolidated Balance Sheets
		Consolidated Statements of Operations
		Consolidated Statements of Cash Flows
		Notes to Consolidated Financial Statements (Unaudited)
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II OTHER INFORMATION
	Item 1. Legal Proceedings
	Item 2. Changes in Securities and Use of Proceeds
	Item 4. Submission of Matters to a Vote of Security Holders
	Item 5. Other Information
	Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
Exhibit 3.1 Amended and Restated Articles of Inc.
Exhibit 3.2 Amended and Restated Code of Regs
Exhibit 31.1 Section 302 Certification by CEO
Exhibit 31.2 Section 302 Certification by CFO
Exhibit 32.1 Section 906 Certification of CEO
Exhibit 32.2 Section 906 Certification of CFO


			Page
			Numbers

Part I.	Financial Information

	Item 1.	Financial Statements

		Consolidated Balance Sheets – November 1, 2003 (Unaudited), February 1, 2003 and November 2, 2002 (Unaudited)		3

		Unaudited Consolidated Statements of Operations for the Thirteen and Thirty-Nine Weeks Ended November 1, 2003 and November 2, 2002		4

		Unaudited Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended November 1, 2003 and November 2, 2002		5

		Notes to Unaudited Consolidated Financial Statements		6

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		17

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk		22

	Item 4.	Controls and Procedures		23

Part II.	Other Information

	Item 1.	Legal Proceedings		23

	Item 2.	Changes in Securities and Use of Proceeds		23

	Item 4.	Submission of Matters to a Vote of Security Holders		23

	Item 5.	Other Information		24

	Item 6.	Exhibits and Reports on Form 8-K		24

	Signatures			26


		(Unaudited)						(Unaudited)
		November 1,			February 1,			November 2,
		2003			2003			2002

		(Dollars in millions, except share and per share data)
Assets
Current assets:
	Cash and cash equivalents	$	21.2		$	63.2		$	21.6
	Inventories		520.3			363.1			483.4
	Deferred income taxes		28.9			28.2			31.2
	Prepaid expenses and other current assets		23.0			17.2			15.2

Total current assets			593.4			471.7			551.4
Property, equipment and leasehold improvements, net			193.3			190.3			195.6
Goodwill, net			26.5			26.5			26.5
Other assets			9.5			16.0			17.0

Total assets		$	822.7		$	704.5		$	790.5

Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable	$	155.9		$	129.9		$	140.9
	Accrued expenses		65.5			75.9			80.4

Total current liabilities			221.4			205.8			221.3
Long-term debt			237.4			162.9			276.2
Deferred income taxes			37.5			37.2			23.7
Other long-term liabilities			9.9			9.2			8.9

Shareholders’ equity:
	Preferred stock, no par value, 5,000,000 shares authorized, none issued		—			—			—
	Common stock, stated value $0.05 per share; 150,000,000 authorized and outstanding 21,774,731; 21,079,103 and 21,037,637, respectively		1.1			1.1			1.1
	Additional paid-in capital		129.2			113.8			109.6
	Unamortized restricted stock awards		(2.6	)		(0.4	)		(0.3	)
	Retained earnings		231.7			217.8			192.5
	Accumulated other comprehensive loss		(1.8	)		(2.6	)		(3.1	)

			357.6			329.7			299.8
	Treasury stock, at cost		(41.1	)		(40.3	)		(39.4	)

Total shareholders’ equity			316.5			289.4			260.4

Total liabilities and shareholders’ equity		$	822.7		$	704.5		$	790.5


		Thirteen Weeks Ended				Thirty-Nine Weeks Ended

		November 1,		November 2,		November 1,		November 2,
		2003		2002		2003		2002

		(Dollars in millions, except share and per share data)

Net sales		$	447.5	$	430.1	$	1,181.5	$	1,156.2
Cost of sales			232.4		232.7		613.3		606.4

	Gross margin		215.1		197.4		568.2		549.8
Selling, general and administrative expenses			177.0		165.7		488.2		466.1
Store pre-opening and closing costs			2.4		0.7		7.1		3.1
Depreciation and amortization			9.6		9.1		27.8		27.0
Stock-based compensation expense			1.5		—		4.1		—
Debt repurchase and share reclassification expenses			0.5		0.5		4.6		1.9

	Operating profit		24.1		21.4		36.4		51.7
Interest expense			4.7		7.1		13.9		20.1

	Income before income taxes		19.4		14.3		22.5		31.6
Income tax provision			7.4		5.4		8.6		12.0

Net income		$	12.0	$	8.9	$	13.9	$	19.6

Net income per common share – basic:		$	0.55	$	0.43	$	0.65	$	0.95

Net income per common share – diluted:		$	0.54	$	0.40	$	0.63	$	0.91

Weighted average shares outstanding (in millions):
	Basic		21.7		20.9		21.5		20.6

	Diluted		22.4		22.0		22.1		21.5

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		Non-cancelable lease			Asset			Other
Dollars in millions		obligations			Impairments			Costs			Total

Balance at February 1, 2003		$	3.5		$	—		$	0.9		$	4.4
Amounts charged to income			—			0.5			—			0.5
Utilization:
	Cash		(1.4	)		—			(0.4	)		(1.8	)
	Non-Cash		—			(0.5	)		—			(0.5	)

Balance at November 1, 2003		$	2.1		$	—		$	0.5		$	2.6


Dollars in millions	Common Shares Outstanding, Net of Treasury Shares		Common Shares		Additional Paid-In Capital		Unamortized Restricted Stock Awards				Treasury Stock

Balance at February 1, 2003		21,079,103	$	1.1	$	113.8	$	(0.4	)	$	(40.3	)
Options exercised, net		362,280		—		5.7		—			(1.0	)
Restricted stock awards activity, net		147,085		—		2.8		(2.2	)		—
Issuance of common stock – Associate stock ownership plan and 401K plan		186,263		—		2.8		—			0.2
Stock-based compensation		—		—		4.1		—			—

Balance at November 1, 2003		21,774,731	$	1.1	$	129.2	$	(2.6	)	$	(41.1	)


					Guarantor
		Parent			Subsidiaries			Eliminations			Consolidated

		(Dollars in millions)
Assets
Current assets:
	Cash and cash equivalents	$	17.8		$	3.4		$	—		$	21.2
	Inventories		189.9			330.4			—			520.3
	Deferred income taxes		22.0			6.9			—			28.9
	Prepaid expenses and other current assets		17.3			5.7			—			23.0

Total current assets			247.0			346.4			—			593.4
Property, equipment and leasehold improvements, net			71.7			121.6			—			193.3
Goodwill, net			—			26.5			—			26.5
Other assets			8.2			1.3			—			9.5
Investment in subsidiaries			64.5			—			(64.5	)		—
Intercompany receivable			369.6			—			(369.6	)		—

Total assets		$	761.0		$	495.8		$	(434.1	)	$	822.7

Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable	$	101.2		$	54.7		$	—		$	155.9
	Accrued expenses		82.2			(16.7	)		—			65.5

Total current liabilities			183.4			38.0			—			221.4
Long-term debt			237.4			—			—			237.4
Deferred income taxes			17.6			19.9			—			37.5
Other long-term liabilities			6.1			3.8			—			9.9
Intercompany payable			—			369.6			(369.6	)		—
Shareholders’ equity:
	Common stock		1.1			—			—			1.1
	Additional paid-in capital		129.2			—			—			129.2
	Unamortized restricted stock awards		(2.6	)		—			—			(2.6	)
	Retained earnings		231.7			64.5			(64.5	)		231.7
	Accumulated other comprehensive loss		(1.8	)		—			—			(1.8	)

			357.6			64.5			(64.5	)		357.6
	Treasury stock, at cost		(41.1	)		—			—			(41.1	)

Total shareholders’ equity			316.5			64.5			(64.5	)		316.5

Total liabilities and shareholders’ equity		$	761.0		$	495.8		$	(434.1	)	$	822.7


					Guarantor
Consolidating Balance Sheets		Parent			Subsidiaries			Eliminations			Consolidated

		(Dollars in millions)
Assets
Current assets:
	Cash and cash equivalents	$	60.2		$	3.0		$	—		$	63.2
	Inventories		132.9			230.2			—			363.1
	Deferred income taxes		21.5			6.7			—			28.2
	Prepaid expenses and other current assets		11.2			6.0			—			17.2

Total current assets			225.8			245.9			—			471.7
Property, equipment and leasehold improvements, net			65.8			124.5			—			190.3
Goodwill, net			—			26.5			—			26.5
Other assets			14.6			1.4			—			16.0
Investment in subsidiaries			22.6			—			(22.6	)		—
Intercompany receivable			371.4			—			(371.4	)		—

Total assets		$	700.2		$	398.3		$	(394.0	)	$	704.5

Liabilities and Shareholders’ Equity
Current liabilities:
	Accounts payable	$	130.3		$	(0.4	)	$	—		$	129.9
	Accrued expenses		94.7			(18.8	)		—			75.9

Total current liabilities			225.0			(19.2	)		—			205.8
Long-term debt			162.9			—			—			162.9
Deferred income taxes			17.6			19.6			—			37.2
Other long-term liabilities			5.3			3.9			—			9.2
Intercompany payable			—			371.4			(371.4	)		—
Shareholders’ equity:
	Common stock		1.1			—			—			1.1
	Additional paid-in capital		113.8			—			—			113.8
	Unamortized restricted stock awards		(0.4	)		—			—			(0.4	)
	Retained earnings		217.8			22.6			(22.6	)		217.8
	Accumulated other comprehensive Loss		(2.6	)		—			—			(2.6	)

			329.7			22.6			(22.6	)		329.7
	Treasury stock, at cost		(40.3	)		—			—			(40.3	)

Total shareholders’ equity			289.4			22.6			(22.6	)		289.4

Total liabilities and shareholders’ equity		$	700.2		$	398.3		$	(394.0	)	$	704.5


		November 1, 2003

					Guarantor
		Parent			Subsidiaries		Eliminations			Consolidated

		(Dollars in millions)
Net sales		$	244.5		$	365.2	$	(162.2	)	$	447.5
Cost of sales			148.1			246.5		(162.2	)		232.4

	Gross margin		96.4			118.7		—			215.1
Selling, general and administrative expenses			86.5			90.5		—			177.0
Store pre-opening and closing costs			1.1			1.3		—			2.4
Depreciation and amortization			3.9			5.7		—			9.6
Stock-based compensation expense			1.5			—		—			1.5
Debt repurchase and share reclassification expenses			0.5			—		—			0.5

	Operating profit		2.9			21.2		—			24.1
Interest expense			1.9			2.8		—			4.7

	Income before income taxes		1.0			18.4		—			19.4
Income tax provision (benefit)			7.4			—		—			7.4

	Income (loss) before equity income		(6.4	)		18.4		—			12.0
Equity income from subsidiaries			18.4			—		(18.4	)		—

Net income		$	12.0		$	18.4	$	(18.4	)	$	12.0


		November 2, 2002

					Guarantor
		Parent			Subsidiaries			Eliminations			Consolidated

		(Dollars in millions)
Net sales		$	236.0		$	335.0		$	(140.9	)	$	430.1
Cost of sales			139.4			234.2			(140.9	)		232.7

	Gross margin		96.6			100.8			—			197.4
Selling, general and administrative expenses			85.3			80.4			—			165.7
Store pre-opening and closing costs			0.5			0.2			—			0.7
Depreciation and amortization			3.3			5.8			—			9.1
Stock-based compensation expense			—			—			—			—
Debt repurchase and share reclassification expenses			0.5			—						0.5

	Operating profit		7.0			14.4			—			21.4
Interest expense			2.8			4.3			—			7.1

	Income before income taxes		4.2			10.1			—			14.3
Income tax provision (benefit)			5.5			(0.1	)		—			5.4

	Income (loss) before equity income		(1.3	)		10.2			—			8.9
Equity income from subsidiaries			10.2			—			(10.2	)		—

Net income		$	8.9		$	10.2		$	(10.2	)	$	8.9


		Percentage of Net Sales

		Thirteen Weeks Ended						Thirty-Nine Weeks Ended

		Nov 1, 2003			Nov 2, 2002			Nov 1, 2003			Nov 2, 2002

Net sales			100.0	%		100.0	%		100.0	%		100.0	%
	Gross margin		48.1	%		45.9	%		48.1	%		47.6	%
Selling, general and administrative expenses			39.6	%		38.5	%		41.3	%		40.3	%
Store pre-opening and closing costs			0.5	%		0.2	%		0.6	%		0.3	%
Depreciation and amortization			2.1	%		2.1	%		2.4	%		2.3	%
Stock-based compensation expense			0.3	%		—			0.3	%		—
Debt repurchase and share reclassification expenses			0.1	%		0.1	%		0.4	%		0.2	%

	Operating profit		5.4	%		5.0	%		3.1	%		4.5	%



Class	Votes For		Votes Against		Abstentions

Class A Common Shares		8,059,261		815,119		15,505

Class B Common Shares		5,152,144		2,265,350		3,126


		JO-ANN STORES, INC.

DATE: December 15, 2003		/s/ Alan Rosskamm Alan Rosskamm, President and Chief Executive Officer

		/s/ Brian P. Carney Brian P. Carney, Executive Vice President and Chief Financial Officer