-----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, VRZSUmrIp+RyIk8FXSK4Kq65OG2St8lZWSL7N1TcjA+20qdWw+BMrzuBp3bn019Y XO6ziyml7PxLUj06otm8gg== 0000950152-99-009652.txt : 19991215 0000950152-99-009652.hdr.sgml : 19991215 ACCESSION NUMBER: 0000950152-99-009652 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991030 FILED AS OF DATE: 19991214 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: 99774394 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. FORM 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 October 30, 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 (I.R.S. Employer Identification No.) of 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 December 10, 1999: 8,973,326 Shares of Class B Common Stock outstanding at December 10, 1999: 8,859,441 2 JO-ANN STORES, INC. Form 10-Q Index For the quarter ended October 30, 1999 - --------------------------------------------------------------------------------
PART I. FINANCIAL INFORMATION: Item 1. Financial Statements (Unaudited) Page Numbers Consolidated Balance Sheets as of October 30, 1999 and January 30, 1999 3 Consolidated Statements of Income for the Thirteen and Thirty-Nine Weeks Ended October 30, 1999 and October 31, 1998 4 Consolidated Statements of Cash Flows for the Thirty-Nine Weeks Ended October 30, 1999 and October 31, 1998 5 Notes to Consolidated Financial Statements 6-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-12 Item 3. Quantitative and Qualitative Disclosures About Market Risk 12 PART II. OTHER INFORMATION Item 1. Legal Proceedings 13 Item 2. Changes in Securities and Use of Proceeds 13 Item 3. Defaults Upon Senior Securities 13 Item 4. Submission of Matters to a Vote of Security Holders 13 Item 5. Other Information 13 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14
Page 2 3 PART I FINANCIAL INFORMATION Item 1. Financial Statements CONSOLIDATED BALANCE SHEETS Jo-Ann Stores, Inc. (Millions of dollars)
(UNAUDITED) OCTOBER 30, JANUARY 30, 1999 1999 - ----------------------------------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash and temporary cash investments $ 27.9 $ 20.4 Inventories 562.4 420.2 Deferred income taxes 24.1 24.8 Prepaid expenses and other current assets 19.7 24.7 --------------- --------------- Total current assets 634.1 490.1 Property and equipment, net 181.6 164.0 Goodwill, net 36.5 37.2 Other assets 17.3 10.1 --------------- --------------- Total assets $ 869.5 $ 701.4 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 191.2 $ 150.4 Other current liabilities 64.5 58.8 --------------- --------------- Total current liabilities 255.7 209.2 Long-term debt 329.4 182.5 Deferred income taxes 21.6 25.2 Other long-term liabilities 13.7 25.5 Shareholders' equity: Common stock Class A, par value $0.05 per share; issued and outstanding 9,043,347 and 9,530,330, respectively 0.5 0.5 Class B, par value $0.05 per share; issued and outstanding 8,861,391 and 9,481,244, respectively 0.5 0.5 Additional paid-in capital 97.2 94.4 Unamortized restricted stock awards (2.4) (2.9) Retained earnings 190.9 185.8 --------------- --------------- 286.7 278.3 Treasury stock, at cost (37.6) (19.3) --------------- --------------- Total shareholders' equity 249.1 259.0 --------------- --------------- Total liabilities and shareholders' equity $ 869.5 $ 701.4 =============== =============== See notes to consolidated financial statements
Page 3 4 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) Jo-Ann Stores, Inc. (Millions of dollars, except per share data)
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED -------------------- ----------------------- OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31, 1999 1998 1999 1998 - ------------------------------------------------------------------------------------------------------------------------- Net sales $ 347.1 $ 319.7 $ 925.2 $ 824.2 Cost of sales 177.6 167.5 487.2 441.6 ------------ ------------ ------------- ----------- Gross margin 169.5 152.2 438.0 382.6 Selling, general and administrative expenses 140.4 127.6 387.6 341.4 Depreciation and amortization 8.2 6.8 23.5 20.3 Non-recurring charge --- 8.4 --- 25.1 ------------ ------------ ------------- ----------- Operating profit (loss) 20.9 9.4 26.9 (4.2) Interest expense, net 7.6 3.8 18.7 8.1 ------------ ------------ ------------- ----------- Income (loss) before income taxes 13.3 5.6 8.2 (12.3) Income tax provision (benefit) 5.0 2.2 3.1 (4.8) ------------ ------------ ------------- ----------- Net income (loss) $ 8.3 $ 3.4 $ 5.1 $ (7.5) ============ ============ ============= =========== Net income (loss) per common share - basic $ 0.46 $ 0.18 $ 0.28 $ (0.40) ============ ============ ============= =========== Net income (loss) per common share - diluted $ 0.45 $ 0.17 $ 0.27 $ (0.40) ============ ============ ============= =========== See notes to consolidated financial statements
Page 4 5 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Jo-Ann Stores, Inc. (Millions of dollars, except per share data)
THIRTY-NINE WEEKS ENDED ----------------------- OCTOBER 30, OCTOBER 31, 1999 1998 - --------------------------------------------------------------------------------------------------------------------- Net cash flows from operating activities: Net income (loss) $ 5.1 $ (7.5) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 23.5 20.3 Non-cash portion of non-recurring charge --- 9.7 Deferred income taxes (2.9) (8.4) Other 1.0 1.8 Changes in operating assets and liabilities: Increase in inventories (142.2) (143.8) Increase in accounts payable 40.8 55.8 Other, net 14.3 (5.6) ------------- -------------- Net cash used for operating activities (60.4) (77.7) Net cash flows from investing activities: Capital expenditures (45.3) (55.3) House of Fabrics acquisition, net of cash acquired --- (23.5) Other, net 1.9 4.7 ------------- -------------- Net cash used for investing activities (43.4) (74.1) Net cash flow from financing activities: (Repayment) proceeds from long-term debt (3.1) 157.4 Net proceeds from issuance of senior subordinated notes 142.9 --- Decrease in other long-term liabilities (11.8) --- Purchase of common stock for treasury (18.7) (0.8) Other, net 2.0 3.2 ------------- -------------- Net cash provided by financing activities 111.3 159.8 ------------- -------------- Net increase in cash and temporary cash investments 7.5 8.0 Cash and temporary cash investments at beginning of period 20.4 14.8 ------------- -------------- Cash and temporary cash investments at end of period $ 27.9 $ 22.8 ============= ============== Supplemental disclosures of cash flow information: Cash paid (received) during the period for: Interest $ 8.8 $ 6.8 Income taxes (6.2) 11.3
See notes to consolidated financial statements Page 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Jo-Ann Stores, Inc. October 30, 1999, January 30, 1999 and October 31, 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. The 1,009 traditional and 42 superstores feature a broad line of apparel, quilting and craft fabrics and sewing-related products, home decorating fabrics, floral, craft and seasonal products. The 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 thirty-nine weeks ended October 31, 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 THIRTY-NINE WEEKS ENDED -------------------- ----------------------- OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31, 1999 1998 1999 1998 ------------------------------------------------------------------------------------------------------------------------ BASIC EARNINGS PER COMMON SHARE: Weighted average shares outstanding 18.0 19.0 18.3 18.9 ============== ============== ============== ============== DILUTED EARNINGS PER COMMON SHARE: Weighted average shares outstanding 18.0 19.0 18.3 18.9 Incremental shares from assumed exercise of stock options 0.3 0.8 0.4 --- -------------- -------------- -------------- -------------- 18.3 19.8 18.7 18.9 ============== ============== ============== ==============
Page 6 7 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. Operating results of the continuing HOF stores have been included in the Company's results of operations since the date of the Acquisition (thirty-four of the thirty-nine weeks in the first three quarters 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 totaling $25.1 million during 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 Senior Credit Facility was amended to eliminate the minimum allowed ratio of consolidated current assets to consolidated current liabilities plus consolidated total senior balance sheet debt for the third quarter of fiscal 2000. The Company is in compliance with all financial covenants contained in the Senior Credit Facility as amended. 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 OCTOBER 30, 1999 VS. OCTOBER 31, 1998 Net sales for the third quarter of fiscal 2000 increased 8.6%, or $27.4 million, to $347.1 million from $319.7 million in the prior year. Comparable store sales increased $13.2 million or 4.7% for the third quarter compared to a comparable store sales increase of 3.9% for the prior year third quarter. The remaining sales increase was primarily attributable to a greater number of superstores in operation. During the third quarter of fiscal 2000, we operated 35 superstores versus 22 superstores in the year ago period. Gross margin increased $17.3 million compared to the year earlier period. As a percent of net sales, gross margin was 48.8%, an increase of 1.2 percentage points from the 47.6% gross margin rate in the same quarter a year earlier. The margin rate improvement was driven primarily from improvements in point of sale margin due to a less promotionally focused marketing campaign for the quarter coupled with an improved margin in the House of Fabrics stores, which were in the process of stock reduction a year ago. Selling, general and administrative expenses were 40.4% of net sales, an increase of 0.5 percentage points from 39.9% for the same quarter of fiscal 1999, excluding non-recurring charges. This increase consisted primarily of an increase in store payroll expenses required to handle the increased inventory levels quarter over quarter. During the current year, we planned to build seasonal inventory levels earlier during the fiscal year than in prior years to smooth our freight flow. We have been successful at achieving a smoother flow of product in the current year. The earlier in-stock position has had a positive impact on sales and gross margin rate performance, but it has also necessitated the incurrence of higher freight and handling costs, both at our distribution center and our stores, earlier in the fiscal year than in prior years. This accelerated flow plan has also resulted in higher inventory levels earlier in the fiscal year and an increase in related interest carrying costs. Depreciation and amortization expense for the third quarter of fiscal 2000 increased $1.4 million to $8.2 million from $6.8 million for the same period of fiscal 1999 due to higher capital expenditure levels in the current and prior year. Interest expense increased $3.8 million to $7.6 million from $3.8 million in the third quarter of fiscal 1999 due primarily to higher average debt levels resulting from higher inventory levels due to the earlier flow of seasonal product in the current year. Average borrowings were $318.6 million for the third quarter of fiscal 2000 versus $207.9 million in the third quarter of fiscal 1999. In addition, approximately $1.0 million 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 third quarter of fiscal 2000 compared to 39.0% for the third quarter of fiscal 1999 reflecting a lower effective state tax rate and federal tax credits related to our participation in various government hiring programs. Net income for the third quarter of fiscal 2000 was $8.3 million, or $0.45 per diluted share compared to net income, excluding the after-tax effect of the House of Fabrics non-recurring charge, of $8.5 million, or $0.43 per diluted share for the same quarter a year earlier. THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999 VS. OCTOBER 31, 1998 Net sales for the three quarters of fiscal 2000 increased 12.3%, or $101.0 million, to $925.2 million from $824.2 million in the prior year. Comparable store sales increased $31.6 million or 4.6% for the first three quarters of fiscal 2000 compared to a comparable store sales increase of 2.2% for the first three quarters of fiscal 1999. The remaining sales increase was primarily attributable to a greater number of superstores in operation. Page 8 9 Gross margin increased $55.4 million compared to the year earlier period. As a percent of net sales, gross margin was 47.3%, an increase of 0.9 percentage points from the 46.4% gross margin rate in the same prior year period. The margin rate improvement resulted primarily from improvements in point of sale margin. The improvement in point of sale margin is the result of earlier sell-through on seasonal products, a less promotional stance in the third quarter, and improved margin in the House of Fabrics stores, which were in the process of stock reduction a year ago. Selling, general and administrative expenses were 41.9% of net sales, an increase of 0.5 percentage points from 41.4% for the same period of fiscal 1999, excluding non-recurring charges. This increase consisted primarily of increases in store expenses, due to the inclusion of House of Fabrics stores for all of fiscal 2000 compared to thirty-four weeks in fiscal 1999, coupled with higher store payroll costs to handle increased product flow. Depreciation and amortization expense for the first three quarters of fiscal 2000 increased $3.2 million to $23.5 million from $20.3 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 three quarters of fiscal 2000 increased $10.6 million to $18.7 million from $8.1 million in the first three quarters of fiscal 1999 due primarily to higher average debt levels associated with the House of Fabrics acquisition and the related capital and working capital expenditures, coupled with higher inventory levels due to the earlier flow of seasonal product in the current year. Average borrowings were $267.5 million for the first three quarters of fiscal 2000 versus $144.2 million in the first three quarters of fiscal 1999. In addition, approximately $1.4 million 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 three quarters of fiscal 2000 compared to 39.0% for the first three quarters of fiscal 1999 reflecting a lower effective state tax rate and federal tax credits related to our participation in various government hiring programs. Net income for the first three quarters of fiscal 2000 was $5.1 million, or $0.27 per diluted share compared to net income, excluding the after-tax effect of the House of Fabrics non-recurring charge, of $7.8 million, or $0.41 per diluted share for the same period a year earlier. LIQUIDITY AND CAPITAL RESOURCES We used $60.4 million of cash for operating activities in the first three quarters of fiscal 2000 compared to $77.7 million of cash used by operating activities in the first three quarters of the prior year. Inventories, net of payables support, increased $101.4 million in the first three quarters of fiscal 2000 due to the normal seasonal build for the fourth quarter holiday selling season, coupled with the addition of 11 more superstores since the beginning of the fiscal year. Capital expenditures were $45.3 million for the first three quarters of fiscal 2000, of which $27.2 million represented investment in new stores and upgrades through relocation of our existing store base and $12.6 million represented capitalizable systems technology related to the installation of an enterprise-wide system. Fiscal 2000 capital expenditures are expected to be between $60.0 and $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 three quarters of fiscal 2000, we opened 11 superstores (with 7 additional superstores opened since the end of the third quarter) and 10 traditional stores, relocated 15 traditional stores and closed 35 smaller or underperforming traditional stores. We have no plans to open any other stores for the balance of fiscal 2000. Page 9 10 We purchased approximately 1.4 million shares of our common stock during the first three quarters of fiscal 2000 at an aggregate price of $18.7 million, or $13.27 per share, which is less than our $13.92 book value per share at October 30, 1999. As of October 30, 1999, we could purchase up to an additional 1.7 million shares under previous authorization from our board of directors. 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 October 30, 1999, we had $179.4 million of debt outstanding under the Senior Credit Facility, not including $60.5 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. The Senior Credit Facility was amended to eliminate the minimum allowed ratio of consolidated current assets to consolidated current liabilities plus consolidated total senior balance sheet debt for the third quarter of fiscal 2000. We are in compliance with all financial covenants contained in the Senior Credit Facility as amended. 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. Page 10 11 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 approximately 65% complete at the end of the third quarter. We expect to be 100% completed with our testing and certification work prior to January 2000. Expenditures for modifying existing software to address Year 2000 issues are estimated to total $4.0 million to $4.2 million, of which $3.4 million has been spent through the third quarter, $1.3 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. 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 operating systems are expected to become operational in fiscal 2001 and the human resource operating system is expected to become operational in fiscal 2002. Where needed, we have established contingency plans based on the assessment of our areas of greatest risk. These plans 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. None of our suppliers in fiscal 1999 provided more than 2% of our products. We have communicated with our largest suppliers to identify the nature and potential impact of the Year 2000 issue on the business of such suppliers. We are not presently aware of any product supplier-related issue presented by the Year 2000 issue 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. Page 11 12 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 12 13 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 Not Applicable. Item 5. OTHER INFORMATION On December 2, 1999, the Company issued a press release on its anticipated earnings for the fourth quarter of fiscal year 2000. A copy of the Company's press release is attached as Exhibit 99.1 of this report. Item 6. EXHIBITS AND REPORTS ON FORM 8-K a) EXHIBITS See the Exhibit Index on Page 15 of this report. b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the 13-week period ended October 30, 1999. Page 13 14 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JO-ANN STORES, INC. DATE: December 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 14 15 JO-ANN STORES, INC. FORM 10-Q FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED OCTOBER 30, 1999 EXHIBIT INDEX SEQUENTIAL EXHIBIT NO. DESCRIPTION PAGE NO. - -------------- ----------------------------------------- -------------- 10.1 Amendment No. 1 to Senior credit Facility 16 27 Financial Data Schedule 99.1 December 2, 1999 press release 21 Page 15 EX-10.1 2 EXHIBIT 10.1 1 EXHIBIT 10.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- JO-ANN STORES, INC. AS THE BORROWER THE LENDERS NAMED HEREIN AS LENDERS THE FIRST NATIONAL BANK OF CHICAGO AS DOCUMENTATION AGENT COMERICA BANK NATIONAL CITY BANK AS CO-AGENTS [KEYCORP LOGO] KEYBANK NATIONAL ASSOCIATION, AS A LENDER, THE SWING LINE LENDER, THE ISSUING BANK AND AS ADMINISTRATIVE AGENT ---------------------------------- AMENDMENT NO. 1 DATED AS OF DECEMBER 14, 1999 TO CREDIT AGREEMENT DATED AS OF MAY 5, 1999 ---------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Page 16 2 AMENDMENT NO. 1 TO CREDIT AGREEMENT THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of December 14, 1999 ("THIS AMENDMENT"), among: (i) JO-ANN STORES, INC., an Ohio corporation (herein, together with its successors and assigns, the "Borrower"); (ii) the Lenders party hereto (the "LENDERS"); and (iii) KEYBANK NATIONAL ASSOCIATION, a national banking association, as a Lender, the Swing Line Lender, the Issuing Bank and as the Administrative Agent under the Credit Agreement: PRELIMINARY STATEMENTS: (1) The Borrower, the Lenders named therein, and the Administrative Agent entered into the Credit Agreement, dated as of May 5, 1999 (the "CREDIT AGREEMENT"). Capitalized terms used herein without definition shall have the respective meanings ascribed thereto in the Credit Agreement. (2) The Borrower, the Lenders party hereto and the Administrative Agent desire to amend certain of the provisions of the Credit Agreement, all as more fully set forth below. NOW, THEREFORE, the parties hereby agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. Section 9.10 of the Credit Agreement is amended by adding the following at the end thereof: Notwithstanding the foregoing, the Borrower shall not be required to comply with the covenant contained in this section 9.10 with respect to the Testing Period ended on or nearest to October 31, 1999; otherwise, this covenant shall be fully applicable to all other Testing Periods referred to above in this section 9.10. 2. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to the Administrative Agent and the Lenders as follows: (a) AUTHORIZATION, VALIDITY AND BINDING EFFECT. This Amendment has been duly authorized by all necessary corporate action on the part of the Borrower, has been duly executed and delivered by a duly authorized officer or officers of the Borrower, and constitutes the valid and binding agreement of the Borrower, enforceable against the Borrower in accordance with its terms. (b) REPRESENTATIONS AND WARRANTIES TRUE AND CORRECT. The representations and warranties of the Borrower contained in the Credit Agreement, as amended hereby, are true and correct on and as of the date hereof as though made on and as of the date hereof, except to the extent that such representations and warranties expressly relate to a specified date, in which case such representations and warranties are hereby reaffirmed as true and correct when made. (c) NO EVENT OF DEFAULT, ETC. No condition or event has occurred or exists which constitutes or which, after notice or lapse of time or both, would constitute an Event of Default. Page 17 3 (d) COMPLIANCE. The Borrower is in full compliance with all covenants and agreements contained in the Credit Agreement, as amended hereby. 3. RATIFICATIONS. The terms and provisions set forth in this Amendment shall modify and supersede all inconsistent terms and provisions set forth in the Credit Agreement, and except as expressly modified and superseded by this Amendment, the terms and provisions of the Credit Agreement are ratified and confirmed and shall continue in full force and effect. 4. EFFECTIVENESS. The amendments to the Credit Agreement provided for in this Amendment shall become effective on if and when, on a date (the "EFFECTIVE DATE") on or prior to December 14, 1999, the following conditions shall have been satisfied: (a) this Amendment shall have been executed by the Borrower and the Administrative Agent and counterparts hereof as so executed shall have been delivered to the Administrative Agent; (b) the Acknowledgment and Consent appended hereto shall have been executed by the Subsidiary Guarantors named therein, and counterparts thereof as so executed shall have been delivered to the Administrative Agent; and (c) the Administrative Agent shall have been notified by the Required Lenders that such Lenders have executed this Amendment (which notification may be by facsimile or other written confirmation of such execution). After this Amendment becomes effective as provided herein, the Administrative Agent will promptly furnish a copy of this Amendment to each Lender and the Borrower and confirm the specific Effective Date hereof. 5. MISCELLANEOUS. (a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and warranties made in this Amendment shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or any Lender or any subsequent Loan or other Credit Event shall affect the representations and warranties or the right of the Administrative Agent or any Lender to rely upon them. (b) REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and all other agreements, instruments or documentation now or hereafter executed and delivered pursuant to the terms of the Credit Agreement as amended hereby, are hereby amended so that any reference therein to the Credit Agreement shall mean a reference to the Credit Agreement as amended hereby. (c) EXPENSES. As provided in the Credit Agreement, but without limiting any terms or provisions thereof, the Borrower agrees to pay on demand all costs and expenses incurred by the Administrative Agent in connection with the preparation, negotiation, and execution of this Amendment, including without limitation the costs and fees of the Administrative Agent's special legal counsel, regardless of whether the amendments to the Credit Agreement contemplated by this Amendment become effective in accordance with the terms hereof, and all costs and expenses incurred by the Administrative Agent or any Lender in connection with the enforcement or preservation of any rights under the Credit Agreement, as amended hereby. Page 18 . 4 (d) SEVERABILITY. Any term or provision of this Amendment held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Amendment and the effect thereof shall be confined to the term or provision so held to be invalid or unenforceable. (e) APPLICABLE LAW. This Amendment shall be governed by and construed in accordance with the laws of the State of Ohio. (f) HEADINGS. The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment. (g) ENTIRE AGREEMENT. This Amendment is specifically limited to the matters expressly set forth herein. This Amendment and all other instruments, agreements and documentation executed and delivered in connection with this Amendment embody the final, entire agreement among the parties hereto with respect to the subject matter hereof and supersede any and all prior commitments, agreements, representations and understandings, whether written or oral, relating to the matters covered by this Amendment, and may not be contradicted or varied by evidence of prior, contemporaneous or subsequent oral agreements or discussions of the parties hereto. There are no oral agreements among the parties hereto relating to the subject matter hereof or any other subject matter relating to the Credit Agreement. (h) COUNTERPARTS. This Amendment may be executed by the parties hereto separately in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. [The balance of this page is intentionally blank.] Page 19 5 IN WITNESS WHEREOF, this Amendment has been duly executed and delivered as of the date first above written. JO-ANN STORES, INC. KEYBANK NATIONAL ASSOCIATION, INDIVIDUALLY AS A LENDER, THE ISSUING BANK AND THE ADMINISTRATIVE AGENT BY: /s/ BRIAN P. CARNEY -------------------- BY: /s/ TOM PURCELL EXECUTIVE VICE PRESIDENT --------------- & CHIEF FINANCIAL OFFICER VICE PRESIDENT THE FIRST NATIONAL BANK OF CHICAGO, NATIONAL CITY BANK, INDIVIDUALLY AS A LENDER AND INDIVIDUALLY AS A LENDER AND AS DOCUMENTATION AGENT AS A CO-AGENT BY: /s/ CATHERINE A. MUSZYNSKI BY: /s/ JAN FOCKE -------------------------- ------------- VICE PRESIDENT VICE PRESIDENT COMERICA BANK, FIRSTAR BANK, N. A. INDIVIDUALLY AS A LENDER AND AS A CO-AGENT BY: /s/ DAVID DANNEMILLER ---------------------- BY: /s/ JEFFREY JUDGE VICE PRESIDENT ----------------- VICE PRESIDENT FLEET NATIONAL BANK UNION BANK OF CALIFORNIA, N. A. BY: /s/ TIMOTHY STREB BY:_______________________________ ------------------ TITLE: VICE PRESIDENT HARRIS TRUST AND SAVINGS BANK MERCANTILE BANK NATIONAL ASSOCIATION BY: /s/ STEPHEN REESE BY:_______________________________ ------------------ TITLE: VICE PRESIDENT MELLON BANK, N. A. THE HUNTINGTON NATIONAL BANK BY: /s/ RICH SCHAICH BY: /s/ LAURA CONWAY ----------------- ---------------- VICE PRESIDENT VICE PRESIDENT FIFTH THIRD BANK, NORTHEASTERN OHIO BY: /s/ ROY C. LANCTOT ------------------- VICE PRESIDENT Page 20 EX-27 3 EXHIBIT 27
5 1,000 9-MOS JAN-29-2000 JAN-31-1999 OCT-30-1999 27,900 0 0 0 562,400 634,100 298,100 116,500 869,500 255,700 329,400 0 0 1,000 248,100 869,500 925,200 925,200 487,200 898,300 0 0 18,700 8,200 3,100 5,100 0 0 0 5,100 .28 .27
EX-99.1 4 EXHIBIT 99.1 1 EXHIBIT 99.1 CONTACT: Brian Carney Investor Relations: Executive Vice President, CFO Naomi Rosenfeld/Carolyn Capaccio Jo-Ann Stores, Inc. Michele Loguidice 330/656-2600 Press: Stacy Berns/Stacy Roth http://www.joann.com Morgen-Walke Associates 212/850-5600 FOR IMMEDIATE RELEASE - --------------------- JO-ANN STORES COMMENTS ON EXPECTED FOURTH QUARTER RESULTS HUDSON, OH, December 2, 1999--Jo-Ann Stores, Inc. (NYSE: JAS.A and JAS.B) today announced that quarter to date net comparable store sales, while increasing at a low single digit rate over the prior year, are well below the Company's expectations. In particular, comparable store sales rates during the Friday and Saturday of Thanksgiving weekend declined versus the prior year. The Company attributes the shortfall of this weekend to the adoption of a less promotional stance than last year, which management had believed would have been more than offset by a much improved in-stock position this year than in the prior year. Although business trends in subsequent days have improved to stronger levels, the Company currently anticipates that fourth quarter earnings, although still expected to exceed last year's earnings of $1.08 per share, are likely to fall short of analysts' current fourth quarter expectations. Fourth quarter results remain heavily dependent upon the level of seasonal sales yet to be realized during the month of December. Jo-Ann Stores, Inc. (http://www.joann.com), the leading national fabric and craft retailer with locations in 49 states, operates 1,009 Jo-Ann Fabrics and Crafts traditional stores and 42 Jo-Ann etc superstores. This press release contains certain forward-looking statements that are subject to risks and uncertainties. The potential risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements are discussed in the Company's Securities and Exchange Commission filings. ### Page 21 -----END PRIVACY-ENHANCED MESSAGE-----