Exhibit 99
Audit report
JO-ANN STORES, INC. SAVINGS PLAN 401(k)
December 31, 2002 and 2001
JO-ANN STORES, INC. SAVINGS PLAN 401(k)
INDEX
Report of Independent Public Accountants
Financial Statements:
Statements of Net Assets Available for Benefits
as of December 31, 2002 and 2001
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2002
Notes to Financial Statements
Supplemental Schedules as of December 31, 2002:
Schedule I
Form 5500, Schedule H, Line 4i - Schedule of Assets (Held at End
of Year)
Schedule II
Form 5500, Schedule H, Line 4j - Schedule of Reportable Transactions
Schedule III
Form 5500, Schedule G, Part III - Schedule of Nonexempt Transactions
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE ADVISORY COMMITTEE OF
JO-ANN STORES, INC. SAVINGS PLAN 401(k)
We have audited the accompanying statements of net assets available for benefits
of Jo-Ann Stores, Inc. Savings Plan 401(k) (the "Plan") as of December 31, 2002
and 2001, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2002, as listed in the accompanying
index. These financial statements and the supplemental schedules referred to
below are the responsibility of the Plan's management. Our responsibility is to
express an opinion on these financial statements and supplemental schedules
based on our audit.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2002 and 2001, and the changes in net assets available for benefits
for the years ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the financial
statements taken as a whole. The supplemental schedule of assets (held at end of
year) (Schedule I), schedule of reportable transactions (Schedule II), and
schedule of nonexempt transactions (Schedule III) for the year ended December
31, 2002, as listed in the accompanying index, are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements, but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. These supplemental schedules have been
subjected to the auditing procedures applied in the audit of the basic financial
statements for the year ended December 31, 2002 and, in our opinion, the
additional information is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.
Cleveland, Ohio /s/ Grant Thornton LLP
June 5, 2003
Jo-Ann Stores, Inc. Savings Plan 401(k)
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
As of December 31, 2002 and 2001
2002 2001
------------ ------------
ASSETS
Investments, at market:
Participant directed $ 34,788,789 $ 29,895,584
Nonparticipant directed:
Company Stock Fund A 10,742,299 3,587,350
Company Stock Fund B 2,093,388 844,007
------------ ------------
Total investments, at market 47,624,476 34,326,941
Receivables:
Employer contribution 36,810 --
Participant contribution 134,731 --
------------ ------------
Total receivables 171,541 --
------------ ------------
Total assets 47,796,017 34,326,941
LIABILITIES
Other (14,177) (12,872)
------------ ------------
Total liabilities (14,177) (12,872)
------------ ------------
NET ASSETS AVAILABLE FOR
BENEFITS $ 47,781,840 $ 34,314,069
============ ============
The accompanying notes to the financial statements are an
integral part of these statements.
Jo-Ann Stores, Inc. Savings Plan 401(k)
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
For the Year Ended December 31, 2002
NON-PARTICIPANT DIRECTED
------------------------
COMPANY COMPANY
PARTICIPANT STOCK STOCK
DIRECTED FUND A FUND B TOTAL
------------ ------------ -------- ------------
Increases:
Investment income $ 574,769 $ 4,216 $ -- $ 578,985
Employee contributions 3,754,227 -- -- 3,754,227
Employer contributions -- 877,233 -- 877,233
Rollover contributions 139,676 -- -- 139,676
Realized gain on sale of investments 1,200,827 858,276 91,197 2,150,300
Unrealized gain on investments 5,792,896 6,665,714 1,380,142 13,838,752
Other 24,187 1,528 876 26,591
------------ ------------ ------------ ------------
Total increases 11,486,582 8,406,967 1,472,215 21,365,764
DECREASES:
Distributions 3,653,510 1,051,569 219,317 4,924,396
Administrative expenses 152,400 29,140 3,358 184,898
Unrealized loss on sale of investments 2,762,637 -- -- 2,762,637
Other 23,658 1,528 876 26,062
------------ ------------ ------------ ------------
Total decreases 6,592,205 1,082,237 223,551 7,897,993
------------ ------------ ------------ ------------
NET INCREASE FOR
THE YEAR 4,894,377 7,324,730 1,248,664 13,467,771
Net assets - beginning of year 29,882,712 3,587,350 844,007 34,314,069
Net interfund transfers 132,254 (132,971) 717 --
------------ ------------ ------------ ------------
Net assets - end of year $ 34,909,343 $ 10,779,109 $ 2,093,388 $ 47,781,840
============ ============ ============ ============
The accompanying notes to the financial statements are an
integral part of this statement.
Jo-Ann Stores, Inc. Savings Plan 401(k)
NOTES TO FINANCIAL STATEMENTS
December 31, 2002 and 2001
1. SUMMARY OF PLAN
The original Jo-Ann Stores, Inc. Savings Plan 401(k) (the "Plan"), formally
known as the Jo-Ann Stores, Inc. Employees' Savings and Profit Sharing Plan, was
adopted as of September 1, 1974, and has been amended on occasion in order to,
among other things, maintain compliance with the requirements of the Employee
Retirement Income Security Act of 1974 (ERISA). Effective July 1, 1998,
employees of the former House of Fabrics, Inc., which was acquired by Jo-Ann
Stores, Inc., (the "Company") during 1998, were able to participate in the Plan.
Effective June 1, 2001, the House of Fabrics, Inc. 401(k) Plan ("HOF Plan") was
merged with the Plan. The investment options that were offered in the HOF Plan
are also available in the Plan. As a result, investments in the HOF Plan were
transferred into the same funds that they were invested in prior to the merger.
The principal provisions of the Plan are as follows:
ELIGIBILITY
The Plan was amended effective July 1, 2001. All active employees of the Company
and its wholly owned subsidiaries who have completed at least 90 days of
service, and are not members of a recognized collective bargaining organization,
are eligible to participate in the Plan.
DEFERRED INCOME CONTRIBUTIONS
Plan participants may elect to defer from 1% to 25% of their compensation,
subject to an annual limitation under the Internal Revenue Code (IRC), and such
amounts will be contributed to the Plan by the Company as deferred income
contributions.
EMPLOYER MATCHING CONTRIBUTIONS
The Company will contribute to the Plan, subject to the forfeiture provision
outlined below, an adjustable percentage of the deferred income contributions
made by participants (up to a 4% employee deferred income contribution), as well
as such additional amounts as the Board of Directors may determine. These
contributions are allocated among eligible participants after completing one
year of service, in proportion to the deferred income contributions made on
their behalf for such period and credited to their separate accounts.
The Company's matching contribution can range from 0% to 100% and can be
modified prior to the beginning of a month by the Company. For the 2002 and 2001
Plan years, the Company's matching contribution was 50% of the first 4%
contributed by participants. Subsequent to March 1, 1999, all Company matching
contributions are in the form of common stock of the Company and are invested in
the Company Stock Fund A. Prior to that date, the Company's matching
contributions were invested in the Company Stock Fund A and Company Stock Fund B
based on the employees' elective deferrals in such funds. Effective July 1,
2002, the Plan amended to allow Plan participants who have attained age 55 the
ability to invest the Company matching contributions in any of the investment
options.
Company contributions are funded only to the extent that they exceed cumulative
forfeitures of participants terminated from the Plan. Forfeitures in the amount
of $169,295 were utilized to fund Company contributions during 2002. The amount
of unutilized forfeitures as of December 31, 2002 was approximately $35,000.
Jo-Ann Stores, Inc. Savings Plan 401(k)
NOTES TO FINANCIAL STATEMENTS - PAGE TWO
December 31, 2002 and 2001
1. SUMMARY OF PLAN (CONTINUED)
INVESTMENT OF EMPLOYEE CONTRIBUTIONS
Under the Plan, each participant selects the manner in which deferred income
contributions to their account are to be invested. With each of the investment
accounts there is risk of loss, although the degree varies by the nature of the
investment. None of the accounts provide for any guarantee against loss.
Participants should refer to the Plan document for a more complete description
of the Plan's investment options. Contributions are invested in 1% increments,
up to 100%, in any one of the following investment options:
a. One Group Bond Fund - Investments are made in investment-grade debt
securities issued by corporations and obligations of the U.S.
Government and its agencies or instrumentalities, as well as foreign
debt, dependent upon the prevailing interest rates.
b. One Group Mid-Cap Value Fund - Investments are made in equity
securities valued at price/earnings and price/book ratios below market
averages.
c. AIM Blue Chip Fund - Investments are made in common stocks of domestic,
foreign and multi-national companies believed to have long-term growth
potential.
d. AIM Aggressive Growth Fund - Investments are made in small and
mid-sized companies that have earnings growth well in excess of the
general economy.
e. Invesco Dynamics Fund - Investments are made in stocks of domestic and
international companies with market capitalizations ranging between $2
billion and $15 billion.
f. Invesco Stable Value Trust - Investments are made in investment
contracts issued by insurance companies and banks providing for
stability of principal and attractive rates of interest.
g. Invesco 500 Index Trust - Investments are made in a portfolio of stocks
attempting to match the Standard & Poor's 500 index with a rate of
return that may fluctuate substantially.
h. Invesco Conservative Asset Allocation Trust - Investments are made in a
conservative combination of stable value, bond and equity funds,
seeking a high total return through current income and capital
appreciation.
i. Invesco Moderate Asset Allocation Trust - Investments are made in a
moderately aggressive combination of stable value, bond and equity
funds, seeking a high total return through current income and capital
appreciation.
j. Invesco Aggressive Asset Allocation Trust - Investments are made in an
aggressive combination of stable value, bond and equity funds, seeking
a high total return through current income and capital appreciation.
Jo-Ann Stores, Inc. Savings Plan 401(k)
NOTES TO FINANCIAL STATEMENTS - PAGE THREE
December 31, 2002 and 2001
1. SUMMARY OF PLAN (CONTINUED)
INVESTMENT OF EMPLOYEE CONTRIBUTIONS - CONTINUED
k. Invesco Structured Small Cap Value Equity Trust - Investments are made
in common stocks with market capitalization less than $2 billion.
l. Janus Worldwide Fund - Investments are made in common stocks of
foreign issuers, seeking long-term growth of capital in a manner
consistent with the preservation of capital.
m. American Fundamental Investors Fund - Investments are made in common
and preferred stocks, bond funds, and similar securities with fixed
income characteristics.
n. Company Stock Fund A - Investments are made in Jo-Ann Stores, Inc.
Class A common stock.
o. Company Stock Fund B - Investments are made in Jo-Ann Stores, Inc.
Class B common stock.
Participants may change their investment election with respect to future
contributions on a daily basis.
PAYSOP CONTRIBUTIONS
Prior to February 1, 1987, the Company made PAYSOP contributions to the Stock
Ownership Fund for each year in an amount equal to the tax credit available
under Section 44G of the IRC. This tax credit was eliminated by the Tax Reform
Act of 1986 and, therefore, the Company no longer makes PAYSOP contributions.
Distributions of the PAYSOP account balances to terminated participants are made
in shares of Company common stock unless otherwise specified by the participant.
VESTING REQUIREMENTS
Participants' deferred income contributions, together with earnings thereon,
vest immediately. All other Company contributions, plus earnings thereon, vest
over a four-year period based on years of service, as defined by the Plan
agreement. A participant's entire interest in the Plan becomes fully vested upon
his or her death while employed, attainment of age 65 or permanent and total
disability.
BENEFIT PAYMENTS
Upon termination of service, a participant may elect to receive either a
lump-sum amount or an installment payment equal to the vested portion of his or
her account, as defined by the Plan.
Prior to termination of employment or age 59 1/2, contributions may only be
withdrawn in the event of financial hardship as defined by the IRC.
Jo-Ann Stores, Inc. Savings Plan 401(k)
NOTES TO FINANCIAL STATEMENTS - PAGE FOUR
December 31, 2002 and 2001
1. SUMMARY OF PLAN (CONTINUED)
PARTICIPANT LOANS
Participants may borrow against their vested balances pursuant to the loan
provision of the Plan. The maximum loan amount available to a participant is 50%
of their vested account balance not to exceed $50,000. The maximum term of a
loan is five years. Participant loans are repaid through payroll deductions with
interest charged at the prime rate plus one percent.
TRUSTEE'S FEES AND OTHER EXPENSES
Generally, costs incidental to the purchase and sale of securities, such as
brokerage commissions and stock transfer taxes, are paid by the respective
funds. Other costs and expenses incurred in administering the Plan, including
fees of the trustee are generally paid by the Plan. Certain Plan expenses, such
as audit fees and database access fees, are paid by the Company.
TERMINATION
Although it has not expressed any intent to do so, the Company, with the
approval of the Board of Directors, has the right to discontinue its
contributions at any time and to terminate the Plan, subject to the provisions
of ERISA. In the event of Plan termination, participants will become 100% vested
in their accounts.
2. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis of
accounting.
VALUATION OF INVESTMENTS
The assets included in the statements of net assets available for benefits are
stated at their market values as of December 31, 2002 and 2001. Schedule I
summarizes the Plan's investments held at December 31, 2002. Assets of the Plan
are held in trust by AMVESCAP National Trust Company (the "Trustee") whereby the
Trustee acts as custodian of the Plan's investment portfolio.
ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of increases and decreases
during the reporting period. Actual results could differ from those estimates.
PRIOR YEAR RECLASSIFICATIONS
Certain prior year financial statement amounts have been reclassified to conform
with current year presentation.
Jo-Ann Stores, Inc. Savings Plan 401(k)
NOTES TO FINANCIAL STATEMENTS - PAGE FIVE
December 31, 2002 and 2001
3. INFORMATION FURNISHED BY TRUSTEE
Under the Plan agreement, the Trustee holds all investment assets, executes all
investment transactions, and distributes funds to the Plan participants in
accordance with the Plan document. The financial statements have been prepared
from investment information and related activity and certified as complete and
accurate and furnished by the Trustee.
4. TAX STATUS
The Internal Revenue Service (IRS) has determined and informed the Company, by
letter dated February 20, 1997, that the Plan and related trust are designed in
accordance with applicable sections of the IRC. The Plan has been amended since
receiving this determination letter. However, the Company currently believes
that the Plan is designed and is currently being operated in compliance with the
applicable requirements of the IRC.
5. INVESTMENTS
The following investments of the Plan exceed 5% of the Plan's net assets
available for benefits at December 31, 2002 and 2001.
2002 2001
---------- ----------
One Group Bond Fund $2,985,684 $2,609,932
AIM Blue Chip Fund 4,326,875 5,881,247
Invesco Stable Value Trust 7,939,143 6,091,704
Invesco 500 Index Trust 5,044,595 7,414,865
Jo-Ann Stores, Inc. Class A common stock 18,316,686 6,445,726
Jo-Ann Stores, Inc. Class B common stock 4,636,415 1,900,653
6. PARTY-IN-INTEREST TRANSACTIONS
During the years ended December 31, 2002 and 2001, there were no prohibited
transactions with a party-in-interest, as defined by ERISA, except as presented
in Schedule III.
SCHEDULE I
Jo-Ann Stores, Inc. Savings Plan 401(k)
FORM 5500, SCHEDULE H, LINE 4i -
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2002
Employer Identification Number: 34-0720629
Plan Number: 001
MARKET
Issuer Cost Value
- ------------------------------------------------------------------------------- ---------------- -----------------
NON-PARTICIPANT DIRECTED FUNDS:
* Jo-Ann Stores, Inc. Class A Common Stock $ 5,078,067 $ 10,742,299
* Jo-Ann Stores, Inc. Class B Common Stock 1,247,651 2,093,388
---------------- -----------------
TOTAL NON-PARTICIPANT DIRECTED FUNDS 6,325,718 12,835,687
PARTICIPANT DIRECTED FUNDS:
One Group Bond Fund n/a 2,985,684
One Group Mid-Cap Value Fund n/a 170,339
AIM Blue Chip Fund n/a 4,326,875
AIM Aggressive Growth Fund n/a 88,931
* Invesco Dynamics Fund n/a 767,817
* Invesco Stable Value Trust n/a 7,939,143
* Invesco 500 Index Trust n/a 5,044,595
* Invesco Conservative Asset Allocation Trust n/a 347,911
* Invesco Moderate Asset Allocation Trust n/a 464,718
* Invesco Aggressive Asset Allocation Trust n/a 280,873
* Invesco Structured Small Cap Value Equity Trust n/a 252,432
Janus Worldwide Fund n/a 989,676
American Fundamental Investors Fund n/a 137,816
-----------------
Total Mutual Funds n/a 23,796,810
* Participant Loan Fund (interest rates varying from 5.25% to 10.50%) n/a 874,565
* Jo-Ann Stores, Inc. Class A Common Stock n/a 7,574,387
* Jo-Ann Stores, Inc. Class B Common Stock n/a 2,543,027
-----------------
TOTAL PARTICIPANT DIRECTED FUNDS 34,788,789
-----------------
TOTAL INVESTMENTS $ 47,624,476
=================
* Represents party-in-interest
The accompanying notes to the financial statements are an
integral part of this schedule.
SCHEDULE II
Jo-Ann Stores, Inc. Savings Plan 401(k)
FORM 5500, SCHEDULE H, LINE 4j -
SCHEDULE OF REPORTABLE TRANSACTIONS
For the Year Ended December 31, 2002
Employer Identification Number: 34-0720629
Plan Number: 001
Aggregate of transactions involving the same security exceeding 5% of beginning
current value of plan assets:
Purchase Selling
Description of Asset Price Price Cost of Asset Net Gain
- ------------------------------------ ------------------ ----------------- -------------------- -------------------
* Jo-Ann Stores, Inc.
Class A Common Stock $ 3,280,652 $ 5,204,177 $ 2,693,240 $ 2,510,937
* Jo-Ann Stores, Inc.
Class B Common Stock $ 1,286,495 $ 1,977,188 $ 1,105,938 $ 871,250
* Represents a party-in-interest
The accompanying notes to the financial statements are an
integral part of this schedule.
SCHEDULE III
Jo-Ann Stores, Inc. Savings Plan 401(k)
FORM 5500, SCHEDULE G, PART III -
SCHEDULE OF NONEXEMPT TRANSACTIONS
For the Year Ended December 31, 2002
Employer Identification Number: 34-0720629
Plan Number: 001
Relationship
to Plan Interest
Employer or Employee Incurred on
Identity of Other Party Contribution Late
Party Involved in Interest Description of Transaction Amount Contribution
- ------------------------ ----------------- --------------------------------------------------- ---------------- ------------
* Jo-Ann Stores, Inc. Sponsor Employee contributions not timely remitted to
the Plan as follows:
Employee contribution withheld on May 24,
2002, employer deposited contribution on
June 25, 2002 $ 1,278 $ 1,738
Employee contribution withheld on August 23,
2002, employer deposited contribution on
March 19, 2003 $ 1,143 $ 76
* Represents a party-in-interest
The Company intends to deposit the above interest incurred on the late
contributions. The Company also intends to file a Form 5330 with the IRS.
The accompanying notes to the financial statements are an
integral part of this schedule.