-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N6ybjFF/ucpsTdsCJHFZIYYwjWiUKZLUJ/Td3wNSDulItuTuiMDdv45gj2MpKr0t 0vbSXLU1ByzSni9W6/F3nw== 0000950152-99-007563.txt : 19990915 0000950152-99-007563.hdr.sgml : 19990915 ACCESSION NUMBER: 0000950152-99-007563 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990731 FILED AS OF DATE: 19990914 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JO-ANN STORES INC CENTRAL INDEX KEY: 0000034151 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 340720629 STATE OF INCORPORATION: OH FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-72445 FILM NUMBER: 99711442 BUSINESS ADDRESS: STREET 1: 5555 DARROW RD CITY: HUDSON STATE: OH ZIP: 44236 BUSINESS PHONE: 2166562600 MAIL ADDRESS: STREET 1: 5555 DARROW ROAD CITY: HUDSON STATE: OH ZIP: 44236 FORMER COMPANY: FORMER CONFORMED NAME: FABRI CENTERS OF AMERICA INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: CLEVELAND FABRIC SHOPS INC DATE OF NAME CHANGE: 19681216 FORMER COMPANY: FORMER CONFORMED NAME: CLEVELAND FABRIC SHOPS INC NUMBER THREE DATE OF NAME CHANGE: 19681216 10-Q 1 JO-ANN STORES, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------------------------------------------------------- FORM 10 - Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 - -------------------------------------------------------------------------------- For the Quarter Ended July 31, 1999 Commission File No. 1-6695 - ----------------------------------------- ------------------------------- JO-ANN STORES, INC. - -------------------------------------------------------------------------------- (Exact name of Registrant as specified in its charter) Ohio 34-0720629 - ---------------------------------------- ------------------------------------ (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 5555 Darrow Road Hudson, Ohio 44236 - ---------------------------------------- ----------------------------------- (Address of principal executive offices) (Zip Code) (330) 656 - 2600 - ---------------------------------------- (Registrant's telephone number) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------- -------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Shares of Class A Common Stock outstanding at September 8, 1999: 9,019,034 Shares of Class B Common Stock outstanding at September 8, 1999: 8,941,390 2
JO-ANN STORES, INC. Form 10-Q Index For the quarter ended July 31, 1999 - -------------------------------------------------------------------------------- PART I. FINANCIAL INFORMATION: Item 1. Financial Statements (Unaudited) Page Numbers Consolidated Balance Sheets as of July 31, 1999 and January 30, 1999 3 Consolidated Statements of Income for the Thirteen and Twenty-Six Weeks Ended July 31, 1999 and August 1, 1998 4 Consolidated Statements of Cash Flows for the Twenty-Six Weeks Ended July 31, 1999 and August 1, 1998 5 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 12 Item 2. Changes in Securities and Use of Proceeds 12 Item 3. Defaults Upon Senior Securities 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 5. Other Information 12 Item 6. Exhibits and Reports on Form 8-K 12 Signatures 13
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PART I FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS Jo-Ann Stores, Inc. (Millions of dollars) (UNAUDITED) JULY 31, JANUARY 30, 1999 1999 - --------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and temporary cash investments $ 19.2 $ 20.4 Inventories 537.6 420.2 Deferred income taxes 24.8 24.8 Prepaid expenses and other current assets 15.6 24.7 -------- -------- Total current assets 597.2 490.1 Property and equipment, net 176.7 164.0 Goodwill, net 36.8 37.2 Other assets 18.4 10.1 -------- -------- Total assets $ 829.1 $ 701.4 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 214.4 $ 150.4 Other current liabilities 52.7 58.8 -------- -------- Total current liabilities 267.1 209.2 Long-term debt 280.4 182.5 Deferred income taxes 25.2 25.2 Other long-term liabilities 13.5 25.5 Shareholders' equity: Common stock Class A, par value $0.05 per share; issued and outstanding 9,095,321 and 9,530,330, respectively 0.5 0.5 Class B, par value $0.05 per share; issued and outstanding 8,928,540 and 9,481,244, respectively 0.5 0.5 Additional paid-in capital 95.6 94.4 Unamortized restricted stock awards (2.4) (2.9) Retained earnings 182.6 185.8 -------- -------- 276.8 278.3 Treasury stock, at cost (33.9) (19.3) -------- -------- Total shareholders' equity 242.9 259.0 -------- -------- Total liabilities and shareholders' equity $ 829.1 $ 701.4 ======== ======== See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Jo-Ann Stores, Inc. (Millions of dollars, except per share data) THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED -------------------- ---------------------- JULY 31, AUGUST 1, JULY 31, AUGUST 1, 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------ Net sales $ 282.4 $ 251.6 $ 578.1 $ 504.5 Cost of sales 151.9 137.3 309.6 274.1 --------- --------- --------- --------- Gross margin 130.5 114.3 268.5 230.4 Selling, general and administrative expenses 124.9 110.6 247.2 213.8 Depreciation and amortization 7.6 7.1 15.3 13.5 Non-recurring charge -- 4.5 -- 16.7 --------- --------- --------- --------- Operating profit (loss) (2.0) (7.9) 6.0 (13.6) Interest expense, net 6.8 2.8 11.1 4.3 --------- --------- --------- --------- Loss before income taxes (8.8) (10.7) (5.1) (17.9) Income tax provision (benefit) (3.3) (4.2) (1.9) (7.0) --------- --------- --------- --------- Net loss $ (5.5) $ (6.5) $ (3.2) $ (10.9) ========== ========== ========== ========== Net loss per common share Basic and diluted $ (0.30) $ (0.34) $ (0.17) $ (0.58) ========== ========== ========== ========== See notes to consolidated financial statements
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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Jo-Ann Stores, Inc. (Millions of dollars, except per share data) TWENTY-SIX WEEKS ENDED ---------------------- JULY 31, AUGUST 1, 1999 1998 - ---------------------------------------------------------------------------------------------------------------- Net cash flows from operating activities: Net loss $ (3.2) $ (10.9) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 15.3 13.5 Non-cash portion of non-recurring charge -- 9.7 Deferred income taxes -- (10.1) Other 0.7 1.6 Changes in operating assets and liabilities: Increase in inventories (117.4) (77.7) Increase in accounts payable 64.0 36.3 Other, net 3.0 (5.2) -------- ------- Net cash used for operating activities (37.6) (42.8) Net cash flows from investing activities: Capital expenditures (28.7) (29.5) House of Fabrics acquisition, net of cash acquired -- (23.5) Other, net 0.6 3.1 -------- ------- Net cash used for investing activities (28.1) (49.9) Net cash flow from financing activities: (Repayment) proceeds from long-term debt (52.1) 93.2 Net proceeds from issuance of senior subordinated notes 142.9 -- Decrease in other long-term liabilities (12.0) -- Purchase of common stock for treasury (14.8) (0.4) Other, net 0.5 2.5 -------- ------- Net cash provided by financing activities 64.5 95.3 -------- ------- Net increase (decrease) in cash and temporary cash investments (1.2) 2.6 Cash and temporary cash investments at beginning of period 20.4 14.8 -------- ------- Cash and temporary cash investments at end of period $ 19.2 $ 17.4 ======== ======= Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest $ 6.0 $ 3.0 Income taxes (5.2) 10.9 See notes to consolidated financial statements
Page 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Jo-Ann Stores, Inc. July 31, 1999, January 30, 1999 and August 1, 1998 Note 1 - Basis of Presentation Jo-Ann Stores, Inc. (the "Company"), an Ohio corporation, is the largest national category-dominant retailer serving the retail fabric and craft industry, with 1,051 retail stores in 49 states at July 31, 1999. The 1,021 traditional and 30 superstores feature a broad line of apparel, quilting and craft fabrics and sewing-related products, home decorating fabrics, floral, craft and seasonal products. The consolidated financial statements include the accounts of the Company and its subsidiaries and have been prepared without audit, pursuant to the rules of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles 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. 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 January 30, 1999. The Company's business is highly seasonal with the majority of the Company's revenues and operating profits generated in the second half of its fiscal year; therefore, earnings or losses for a particular interim period are not indicative of full year results. In the opinion of management, the consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary for a fair statement of results for the interim periods presented. Note 2 - Earnings Per Share Basic earnings per common share are computed by dividing net income 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 impact of stock options is not included in the earnings per common share calculation for the thirteen and twenty-six weeks ended July 31, 1999 and August 1, 1998, as it is anti-dilutive. The following table presents information necessary to calculate basic and diluted earnings per common share for the periods presented (shares in millions).
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED -------------------- ---------------------- JULY 31, AUGUST 1, JULY 31, AUGUST 1, 1999 1998 1999 1998 --------------------------------------------------------------------------------------------------------------- BASIC AND DILUTED EARNINGS PER COMMON SHARE: Weighted average shares outstanding 18.2 19.0 18.5 18.9 ============ =========== =========== =============
Note 3 - Acquisition of House of Fabrics, Inc. On March 9, 1998, the Company acquired, through a cash tender offer, 77.2% of the outstanding common stock of House of Fabrics, Inc. ("HOF") for $4.25 per share (the "Acquisition"). On April 21, 1998, the merger of HOF with a wholly owned subsidiary of the Company was approved at a special meeting of the shareholders of HOF. As a result, HOF became a wholly owned subsidiary of the Company, and all shares of HOF common stock not already owned by the Company were canceled and converted into the right to receive $4.25 in cash. Page 6 7 Operating results of the continuing HOF stores have been included in the Company's results of operations since the date of the Acquisition (twenty-one of the twenty-six weeks in the first half of fiscal 1999). In accordance with Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (Including Certain Costs Incurred in a Restructuring)," the Company recorded a non-recurring charge of $25.1 million during fiscal 1999, $16.7 million during the first half of fiscal 1999, for merger-related costs pertaining to the Acquisition. Note 4 - Financing On May 5, 1999, the Company entered into a $300.0 million five-year unsecured senior revolving credit agreement (the "Senior Credit Facility") that expires on April 30, 2004, and issued $150.0 million of 10 3/8% senior subordinated notes due May 1, 2007. The net proceeds from the senior subordinated notes, coupled with borrowings under the Senior Credit Facility, were used to refinance the Company's former credit facility. The Company may borrow up to a maximum of $330.0 million under the Senior Credit Facility by utilizing funds available under the Senior Credit Facility and other lines of credit. Interest on borrowings under the Senior Credit Facility is calculated at an applicable margin over the London Interbank Offered Rate ("LIBOR"). The applicable margin, as well as the facility fee on the commitment amount, is based on the achievement of specified ranges of certain financial covenants. Currently, the Company's interest on borrowings is equal to LIBOR plus 110 basis points, and the facility fee is equal to 40 basis points. The Senior Credit Facility contains financial covenants which require the Company to, among other things, maintain a minimum consolidated net worth, fixed charge coverage and current funded indebtedness ratios, as well as limit the Company's maximum leverage ratios. The Company is in compliance with all financial covenants contained in the Senior Credit Facility. Interest on the senior subordinated notes is payable on May 1 and November 1 of each year, beginning November 1, 1999. The Company has the option of redeeming the notes at any time after May 1, 2003, in accordance with certain call provisions. The notes are unsecured obligations and are subordinated to the Senior Credit Facility. The notes are fully and unconditionally guaranteed by each of the Company's subsidiaries. Page 7 8 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THIRTEEN WEEKS ENDED JULY 31, 1999 VS. AUGUST 1, 1998 Net sales for the second quarter of fiscal 2000 increased 12.2%, or $30.8 million, compared to the second quarter of fiscal 1999. Comparable store sales increased $14.5 million or 7.7% for the second quarter compared to a comparable store sales increase of 1.2% for the prior year second quarter. The remaining sales increase was primarily attributable to a greater number of superstores in operation. During the second quarter of fiscal 2000, we operated 30 superstores versus 16 superstores in the year ago period. Gross margin increased $16.2 million compared to the year earlier period. As a percent of net sales, gross margin was 46.2%, an increase of 0.8 percentage points from the same quarter a year earlier. The margin rate improvement resulted primarily from improvements in point of sale margin and shrink, partially offset by an increase in freight costs. The improvement in point of sale margin is the result of earlier sell-through on seasonal products and improved margin in the House of Fabrics stores, which were in the process of stock reduction a year ago. The increase in freight expense was due to the inventory flow acceleration in the current year versus a year ago. Selling, general and administrative expenses were 44.2% of net sales, an increase of 0.2 percentage points from the same quarter of fiscal 1999, excluding non-recurring charges. The increase, as a percent of sales, consisted of an increase in distribution service center expenses, due to a higher level of inventory received and shipped to store locations between quarters. Depreciation and amortization expense for the second quarter of fiscal 2000 increased $0.5 million to $7.6 million from $7.1 million for the same period of fiscal 1999 due to higher capital expenditure levels in the current and prior year. Interest expense increased $4.0 million to $6.8 million from $2.8 million in the second quarter of fiscal 1999 due primarily to higher average debt levels associated with the House of Fabrics acquisition and related capital and working capital expenditures. Average borrowings were $262.9 million for the second quarter of fiscal 2000 versus $150.7 million in the second quarter of fiscal 1999. The balance of the increase in interest expense is attributable to a higher effective borrowing rate between years. Our effective income tax rate was 38.0% for the second quarter of fiscal 2000 compared to 39.0% for the second quarter of fiscal 1999 reflecting a lower effective state tax rate and federal tax credits related to our participation in various government hiring programs. The net loss for the second quarter of fiscal 2000 was $5.5 million, or $0.30 per share compared to the net loss, excluding the after-tax effect of the House of Fabrics non-recurring charge, of $3.7 million, or $0.20 per share for the same quarter a year earlier. TWENTY-SIX WEEKS ENDED JULY 31, 1999 VS. AUGUST 1, 1998 Net sales for the first half of fiscal 2000 increased 14.6%, or $73.6 million, compared to the first half of fiscal 1999. House of Fabrics stores, which were included in our results for only twenty-one of the twenty-six weeks in the first half of fiscal 1999, contributed $18.1 million of the sales increase. Comparable store sales increased $18.4 million or 4.6% for the first half of fiscal 2000 compared to a comparable store sales increase of 1.3% for the first half of fiscal 1999. The remaining sales increase was primarily attributable to a greater number of superstores in operation. Page 8 9 Gross margin increased $38.1 million compared to the year earlier period. As a percent of net sales, gross margin was 46.4%, an increase of 0.7 percentage points from the same prior year period. The margin rate improvement resulted primarily from improvements in point of sale margin and shrink, partially offset by an increase in freight costs. The improvement in point of sale margin is the result of earlier sell-through on seasonal products and improved margin in the House of Fabrics stores, which were in the process of stock reduction a year ago. The increase in freight expense was due to the inventory flow acceleration in the current year versus a year ago. Selling, general and administrative expenses were 42.8% of net sales, an increase of 0.4 percentage points from the same period of fiscal 1999, excluding non-recurring charges. The increase, as a percent of sales, consisted primarily of increases in store expenses, due to the inclusion of House of Fabrics stores for all of fiscal 2000 compared to twenty-one weeks in fiscal 1999, and distribution service center expenses, due to the higher level of inventory received and shipped to store locations between years. Depreciation and amortization expense for the first half of fiscal 2000 increased $1.8 million to $15.3 million from $13.5 million for the same period of fiscal 1999 due to higher capital expenditure levels in the current and prior year. Interest expense for the first half of fiscal 2000 increased $6.8 million to $11.1 million from $4.3 million in the first half of fiscal 1999 due primarily to higher average debt levels associated with the House of Fabrics acquisition and related capital and working capital expenditures. Average borrowings were $242.5 million for the first half of fiscal 2000 versus $112.4 million in the first half of fiscal 1999. The balance of the increase in interest expense is attributable to a higher effective borrowing rate between years. Our effective income tax rate was 38.0% for the first half of fiscal 2000 compared to 39.0% for the first half of fiscal 1999 reflecting a lower effective state tax rate and federal tax credits related to our participation in various government hiring programs. The net loss for the first half of fiscal 2000 was $3.2 million, or $0.17 per share compared to the net loss, excluding the after-tax effect of the House of Fabrics non-recurring charge, of $0.7 million, or $0.04 per share for the same period a year earlier. LIQUIDITY AND CAPITAL RESOURCES We used $37.6 million of cash for operating activities in the first half of fiscal 2000 compared to $42.8 million of cash used by operating activities in the first half of the prior year. Inventories, net of payables support, increased $53.4 million in the first half of fiscal 2000 due to an increase in the inventory flow to stores and six additional superstores since the beginning of the fiscal year. Capital expenditures were $28.7 million for the first half of fiscal 2000, of which $16.1 million represented investment in new stores and upgrades through relocation of our existing store base and $8.6 million represented capitalizable systems technology related to the installation of enterprise-wide systems. Fiscal 2000 capital expenditures are expected to be approximately $70.0 million as compared to $75.1 million in the prior year and include investments in stores, logistics and systems. We have no material commitments in connection with these planned capital expenditures. Funds for these expenditures are expected to be provided from cash generated internally and borrowings under our Senior Credit Facility. During the first half of fiscal 2000, we opened 14 stores including six superstores, relocated seven traditional stores, and closed 21 smaller or underperforming traditional stores. For the balance of fiscal 2000, we expect to open 13 superstores and five traditional stores, and to relocate nine traditional stores. We purchased approximately 1.1 million shares of our common stock during the first half of fiscal 2000 at an aggregate price of $14.8 million, under previous authorization from our board of directors. As of July 31, 1999, we were authorized to purchase up to an additional 2.0 million shares. Page 9 10 On May 5, 1999, we entered into the $300.0 million five-year Senior Credit Facility that expires on April 30, 2004 and issued $150.0 million of 10 3/8% senior subordinated notes due May 1, 2007. The net proceeds from the senior subordinated notes, coupled with borrowings under the Senior Credit Facility were used to refinance our former credit facility. We may borrow up to a maximum of $330.0 million under the Senior Credit Facility by utilizing funds available under the Senior Credit Facility and other lines of credit. Interest on borrowings under the Senior Credit Facility is calculated at an applicable margin over the London Interbank Offered Rate ("LIBOR"). The applicable margin, as well as the facility fee on the commitment amount, is based on the achievement of specified ranges of certain financial covenants. Currently, our interest on borrowings is equal to LIBOR plus 110 basis points, and the facility fee is equal to 40 basis points. As of July 31, 1999, we had $130.4 million of debt outstanding under the Senior Credit Facility, not including $70.5 million of letters of credit. The Senior Credit Facility contains financial covenants which require us to, among other things, maintain a minimum consolidated net worth, fixed charge coverage and current funded indebtedness ratios, as well as limit our maximum leverage ratios. We are in compliance with all financial covenants contained in the Senior Credit Facility. Interest on the senior subordinated notes is payable on May 1 and November 1 of each year, beginning November 1, 1999. We have the option of redeeming the notes at any time after May 1, 2003, in accordance with certain call provisions. The notes are unsecured obligations and are subordinated to the Senior Credit Facility. The notes are fully and unconditionally guaranteed by each of our subsidiaries. We believe that our Senior Credit Facility, coupled with cash on hand and from operations, will be sufficient to cover our working capital, capital expenditure and debt service requirement needs for the foreseeable future. SEASONALITY AND INFLATION Our business exhibits seasonality that is typical for most retail companies, with much stronger sales in the second half of the year than the first half of the year. Net earnings are highest during the months of September through December when sales volumes provide significant operating leverage. Capital requirements needed to finance our operations fluctuate during the year and reach their highest levels during the second and third fiscal quarters as we increase our inventory in preparation for our peak selling season. We believe that inflation has not had a significant effect on the growth of net sales or on net income for the past two years. YEAR 2000 The "Year 2000 issue" refers to the inability of computers and related software to correctly interpret and process Year 2000 dated transactions. The software problem results from a memory-saving practice of using two digits instead of four to denote years in a program. Computer systems that are not Year 2000 compliant may not be able to be relied upon to process data accurately for transactions dated after the year 1999. We have developed and are executing plans to address possible exposures related to the impact on our computer systems of the Year 2000 issue. Our planned modification of our existing systems was complete as of January 30, 1999, and testing and certification of these completed modifications is in process and was 48% complete at August 31, 1999 and is expected to be completed by December, 1999. Expenditures for modifying existing software to address Year 2000 issues are estimated to total $4.0 million to $4.2 million, of which $2.9 million has been spent to date, $0.8 million during the current year and $2.1 million in previous fiscal years. All expenditures are being expensed as incurred. We expect that we will be able to test and certify the affected systems that we have modified in time to avoid any material disruption to operations; however, unforeseen developments or delays could cause this expectation to change. Page 10 11 We are also engaged in a significantly larger project of implementing an enterprise-wide system that began in fiscal 1999 and will continue during the next fiscal year at a total cost of approximately $30.0 million. The project is expected to fully integrate financial and operations systems, creating increased reliability and usefulness of our data. Our financial systems became operational under this enterprise-wide system implementation in the fourth quarter of fiscal 1999 and we believe those systems are Year 2000 compliant. The merchandise and human resource operating systems are expected to become operational in fiscal 2001. Although we have not finalized our contingency plans for possible Year 2000 issues, initial analysis and planning is underway. Where needed, we will establish contingency plans based on the assessment of our areas of greatest risk. These plans will address the accessibility and functionality of our facilities, and focus on reducing any disruption that might be created by any product suppliers or companies with whom we do business being Year 2000 noncompliant. We have communicated with our key suppliers to identify the nature and potential impact of the Year 2000 issue on the business of such suppliers. None of our suppliers in fiscal 1999 provided more than 2% of our products. We are not presently aware of any product supplier-related issue presented by the year 2000 that is likely to have a material impact on us. We anticipate minimal business disruption will occur as a result of Year 2000 issues. However, possible consequences include, but are not limited to, temporary disruption of our normal business operations, loss of communications links with store locations, loss of electric power, inability to process transactions, problems with ordering and receiving merchandise and problems with banks and other financial institutions. We believe that our worst case scenario involves the inability of electric utility companies to service our various stores due to Year 2000 problems. If the electric utility companies cannot provide power to a significant number of our stores, our business and operations could be materially disrupted. RECENT ACCOUNTING PRONOUNCEMENTS In June 1997, Statement of Financial Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and Related Information," was issued. Our traditional stores and superstores are considered one business segment as they generally serve the same customer and have the same type of merchandise and services offered. FORWARD-LOOKING STATEMENTS Certain statements contained in this report that are not historical facts are forward-looking statements that are subject to certain risks and uncertainties. When used herein, the terms "anticipates," "plans," "estimates," "expects," "believes," and similar expressions as they relate to us are intended to identify such forward-looking statements. Our actual results, performance or achievements may materially differ from those expressed or implied in the forward-looking statements. Risks and uncertainties that could cause or contribute to such material differences include, but are not limited to, general economic conditions, changes in customer demand, changes in trends in the fabric and craft industry, seasonality, our failure to manage our growth, loss of key management, the availability of merchandise, changes in the competitive pricing for products, the impact of competitor store openings and closings, and the ability to address internal and external Year 2000 issues. Item 3. Quantitative and Qualitative Disclosures About Market Risk ---------------------------------------------------------- Not Applicable. Page 11 12 PART II OTHER INFORMATION Item 1. Legal Proceedings ----------------- Not Applicable. Item 2. Changes in Securities and Use of Proceeds ----------------------------------------- Not Applicable. Item 3. Defaults Upon Senior Securities ------------------------------- Not Applicable. Item 4. Submission of Matters to a Vote of Security Holders --------------------------------------------------- a) An Annual Meeting of Shareholders of the Company was held June 4, 1999. b) Frank Newman, Betty Rosskamm and Debra Walker were elected to the Board of Directors in the class whose term of office expires in 2002. Ira Gumberg and Alma Zimmerman continued as Directors in the class whose term of office expires in 2001. Alan Rosskamm, Scott Cowen and Gregg Searle continued as Directors in the class whose term of office expires in 2000. c) The nominees for Directors as listed in the proxy statement were elected with the following vote: Nominee Votes For Votes Withheld ------- --------- -------------- Frank Newman 8,547,598 53,009 Betty Rosskamm 8,547,449 53,158 Debra Walker 8,546,735 53,872 Item 5. Other Information ----------------- Not Applicable. Item 6. Exhibits and Reports on Form 8-K -------------------------------- a) Exhibits -------- No exhibits are filed with this report. b) Reports on Form 8-K ------------------- No reports on Form 8-K were filed during the 13-week period ended July 31, 1999. Page 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JO-ANN STORES, INC. DATE: September 14, 1999 /s/ Alan Rosskamm ----------------- By: Alan Rosskamm Chairman, President and Chief Executive Officer /s/ Brian P. Carney ---------------------- By: Brian P. Carney Executive Vice President and Chief Financial Officer Page 13 EX-27 2 EXHIBIT 27
5 1,000 6-MOS JAN-29-2000 JAN-31-1999 JUL-31-1999 19,200 0 0 0 537,600 597,200 287,200 110,500 829,100 267,100 280,400 0 0 1,000 241,900 829,100 578,100 578,100 309,600 572,100 0 0 11,100 (5,100) (1,900) (3,200) 0 0 0 (3,200) (0.17) (0.17)
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