Audit report Exhibit 99
JO-ANN STORES, INC. 401(k) SAVINGS PLAN
December 31, 2004 and 2003
JO-ANN STORES, INC. 401(k) SAVINGS PLAN
INDEX
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Report of Independent Registered Public Accounting Firm
Financial Statements:
Statements of Net Assets Available for Benefits
as of December 31, 2004 and 2003
Statement of Changes in Net Assets Available for Benefits
for the Year Ended December 31, 2004
Notes to Financial Statements
Supplemental Schedules as of December 31, 2004:
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
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE ADVISORY COMMITTEE OF JO-ANN STORES, INC. AND
PARTICIPANTS OF THE JO-ANN STORES, INC. 401(k) SAVINGS PLAN
We have audited the accompanying statements of net assets available for benefits
of Jo-Ann Stores, Inc. 401(k) Savings Plan (the "Plan") as of December 31, 2004
and 2003, and the related statement of changes in net assets available for
benefits for the year ended December 31, 2004. These financial statements are
the responsibility of the Plan's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Plan is not required to have,
nor were we engaged to perform an audit of its internal control over financial
reporting. Our audit included consideration of internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 2004 and 2003, and the changes in net assets available for benefits
for the year ended December 31, 2004 in conformity with accounting principles
generally accepted in the United States of America.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of assets (held
at end of year) and schedule of reportable transactions as of and for the year
ended December 31, 2004 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 are the responsibility of the Plan's
management. The supplemental schedules have been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
June 1, 2005
Jo-Ann Stores, Inc. Savings Plan 401(k)
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS
As of December 31, 2004 and 2003
2004 2003
------------ ------------
ASSETS
Investments, at market:
Participant directed $ 46,731,156 $ 40,275,547
Non-participant directed:
Company Stock Fund 15,505,531 12,558,863
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Total investments, at market 62,236,687 52,834,410
Receivables:
Employer contribution 42,164 38,323
Participant contribution 162,433 139,794
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Total receivables 204,597 178,117
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Total assets 62,441,284 53,012,527
LIABILITIES
Corrective distributions payable (33,248) (41,782)
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Total liabilities (33,248) (41,782)
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NET ASSETS AVAILABLE
FOR BENEFITS $ 62,408,036 $ 52,970,745
============ ============
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, 2004
PARTICIPANT NON-PARTICIPANT
DIRECTED DIRECTED TOTAL
------------ ------------ ------------
INCREASES:
Investment income $ 848,094 5,112 $ 853,205
Employee contributions 3,961,756 -- 3,961,756
Employer contributions -- 995,038 995,038
Rollover contributions 785,656 -- 785,656
Net appreciation in fair value of investments 5,622,150 3,864,542 9,486,692
Other 61,722 (90,828) (29,106)
------------ ------------ ------------
Total increases 11,279,378 4,773,863 16,053,241
DECREASES:
Distributions 4,957,034 1,444,786 6,401,820
Administrative expenses 142,501 33,763 176,265
Unrealized loss on investments -- -- --
Other 620 37,248 37,868
------------ ------------ ------------
Total decreases 5,100,155 1,515,797 6,615,953
------------ ------------ ------------
NET INCREASE (DECREASE)
FOR THE YEAR 6,179,223 3,258,067 9,437,288
Net assets - beginning of year 40,373,559 12,597,186 52,970,745
Net interfund transfers 307,557 (307,557) --
------------ ------------ ------------
Net assets - end of year $ 46,860,341 $ 15,547,695 $ 62,408,033
============ ============ ============
The accompanying notes to the financial statements are an integral
part of these statements.
Jo-Ann Stores, Inc. 401(k) Savings Plan
NOTES TO FINANCIAL STATEMENTS
December 31, 2004 and 2003
1. SUMMARY OF PLAN
The original Jo-Ann Stores, Inc. 401(k) Savings Plan (the "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 30, 2004 the Plan
was amended and restated with the adoption of a prototype plan of Vanguard
Fiduciary Trust Company having substantially the same terms and conditions as
the prior Plan document.
On July 31, 2004, The Vanguard Group replaced AMVESCAP National Trust Company as
asset custodian of the Plan.
In 2003, the Company's shareholders approved the reclassification of its Class A
and B Common Stock into a single class of stock. Effective November 5, 2003,
shares of the single class of Jo-Ann Stores, Inc. Common Stock (Company Stock)
began trading under the symbol "JAS."
The following brief description of the Plan is provided for general information
purposes only. Participants should refer to the Plan document for a more
complete description of the Plan's provisions:
ELIGIBILITY
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The Plan as amended covers 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.
DEFERRED INCOME CONTRIBUTIONS
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Plan participants may elect to defer up 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.
Effective August 1, 2004, Plan participants are no longer allowed to make
deferred income contributions to Company Stock.
EMPLOYER MATCHING CONTRIBUTIONS
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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 2004 and 2003
Plan years, the Company's matching contribution was 50% of the first 4%
contributed by participants. All Company matching contributions are in the form
of Company Stock. Effective July 1, 2002, the Plan was 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 $55,150 were utilized to reduce Company contributions during 2004. The amount
of unutilized forfeitures as of December 31, 2004 was approximately $10,661.
Jo-Ann Stores, Inc. 401(k) Savings Plan
NOTES TO FINANCIAL STATEMENTS - PAGE TWO
December 31, 2004 and 2003
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
options there is risk of loss, although the degree varies by the nature of the
investment. None of the investment options provide for any guarantee against
loss. Participants should refer to the Plan document for a more complete
description of the Plan's investment options. The following investment options
were those available as of December 31, 2004. Contributions are invested in 1%
increments, up to 100%, in any one of the following investment options:
a. Vanguard Target Retirement 2045 Fund - Investments are made in other
Vanguard mutual funds according to an asset allocation strategy
designed for investors planning to retire in or within a few years of
2045.
b. Vanguard Target Retirement 2035 Fund - Investments are made in other
Vanguard mutual funds according to an asset allocation strategy
designed for investors planning to retire in or within a few years of
2035.
c. Vanguard Target Retirement 2025 Fund - Investments are made in other
Vanguard mutual funds according to an asset allocation strategy
designed for investors planning to retire in or within a few years of
2025.
d. Vanguard Target Retirement 2015 Fund - Investments are made in other
Vanguard mutual funds according to an asset allocation strategy
designed for investors planning to retire in or within a few years of
2015.
e. Vanguard Target Retirement 2005 Fund - Investments are made in other
Vanguard mutual funds according to an asset allocation strategy
designed for investors planning to retire in or within a few years of
2005.
f. Vanguard Target Retirement Income Fund - Investments are made in other
Vanguard mutual funds according to an asset allocation strategy
designed for investors currently in retirement.
g. Vanguard Retirement Savings Trust - Investments made in high-quality,
fixed income securities with financial backing from insurance companies
and banks that will enable it to maintain a constant $1 per share net
asset value.
h. PIMCO Total Return Fund - Administrative Class - Investments made in
bonds maintaining an average duration ranging between 3 and 6 years.
i. Vanguard Windsor II Fund - Investments made in a diversified group of
out-of-favor stocks of large-capitalization companies.
j. Vanguard 500 Index Fund - Investments made in stocks of all or
substantially all of the companies that make up the Standard & Poor's
500 Index.
Jo-Ann Stores, Inc. 401(k) Savings Plan
NOTES TO FINANCIAL STATEMENTS - PAGE THREE
December 31, 2004 and 2003
1. SUMMARY OF PLAN (CONTINUED)
INVESTMENT OF EMPLOYEE CONTRIBUTIONS - CONTINUED
- ------------------------------------------------
k. TCW Galileo Select Equities Fund - Class N - Investments made
primarily in common stocks of larger companies.
l. ICM Small Company Portfolio - Investments made in common stocks of
smaller companies, primarily small, less-established companies.
m. Vanguard Explorer Fund - Investments made mainly in stocks of smaller
companies with above-average prospects for growth.
n. American Funds EuroPacific Growth Fund - Class R-4 - Investments made
primarily (80% of assets in the security) in securities of issuers
located in Europe and the Pacific Basin.
o. Jo-Ann Stores Company Stock Fund - Employer matching contributions are
made in Jo-Ann Stores, Inc. Company 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 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
ratably 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
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Upon termination of service, a participant may elect to receive a lump-sum
amount 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. 401(k) Savings Plan
NOTES TO FINANCIAL STATEMENTS - PAGE FOUR
December 31, 2004 and 2003
1. SUMMARY OF PLAN (CONTINUED)
PARTICIPANT LOANS
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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.
FEES AND EXPENSES
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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 asset custodian, are generally paid by the Plan. Certain Plan
expenses, such as audit fees and database access fees, are paid by the Company.
PLAN TERMINATION
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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
- ------------------------
Investments included in the statements of net assets available for benefits are
stated at their fair values based on quoted market prices. Participant loans are
valued at their outstanding balances, which are approximate fair values.
PAYMENT OF BENEFITS
- -------------------
Benefits are recorded when paid.
ESTIMATES
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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.
Jo-Ann Stores, Inc. 401(k) Savings Plan
NOTES TO FINANCIAL STATEMENTS - PAGE FIVE
December 31, 2004 and 2003
3. TAX STATUS
The Plan, which was amended and restated effective July 30,2004, is a prototype
plan of Vanguard Fiduciary Trust Company which received a favorable
determination letter dated August 22, 2001, in which the Internal Revenue
Service stated that the prototype plan, as then designed, was in compliance with
the applicable sections of the IRC. The Plan Administrator believes that the
Plan is designed and is currently being operated in compliance with the
applicable requirements of the IRC.
4. INVESTMENTS
The following investments of the Plan exceed 5% of the Plan's net assets
available for benefits at either December 31, 2004 or 2003.
2004 2003
------------ -------------
PIMCO Funds: Total Return Fund $3,325,473 -
TCW Galileo Select Equities Fund; Class N Shares 6,130,896 -
Vanguard 500 Index Fund Investor Shares 7,446,759 -
Vanguard Retirement Savings Trust 7,957,242 -
Jo-Ann Stores Company Stock 27,108,403 22,368,585
One Group Bond Fund - $3,253,208
AIM Blue Chip Fund - 5,569,026
Invesco Stable Value Trust - 7,896,577
Invesco 500 Index Trust - 6,475,038
Non-participant investments, consisted solely of Jo-Ann Stores Company Stock
aggregating $15,505,530 and $12,558,863 at December 31, 2004 and 2003,
respectively.
5. RELATED PARTY TRANSACTIONS
Certain Plan investments are shares of mutual funds managed by The Vanguard
Group. The Vanguard Group is the asset custodian and, therefore, these
transactions qualify as party-in-interest transactions.
6. RISKS AND UNCERTAINTIES
The Plan invests in various investment securities. Investment securities are
exposed to various risks such as interest rate, market, and credit risks. Due to
the level of risk associated with certain investment securities, it is at least
reasonably possible that changes in the values of investment securities will
occur in the near term and that such changes could materially affect
participants' account balances and the amounts reported in the statement of net
assets available for benefits.
7. SUBSEQUENT EVENTS
As of February 1, 2005, the Company's matching contribution of 50% of the first
4% contributed by participants was increased to 50% of the first 6% contributed
by participants.
SCHEDULE I
Jo-Ann Stores, Inc. 401(k) Savings Plan
FORM 5500, SCHEDULE H, LINE 4I -
SCHEDULE OF ASSETS (HELD AT END OF YEAR)
December 31, 2004
Employer Identification Number: 34-0720629
Plan Number: 001
(a) (b) (c) (d) (e)
DESCRIPTION OF INVESTMENT, INCLUDING
MATURITY DATE, RATE OF INTEREST, CURRENT
IDENTITY OF ISSUE, BORROWER, LESSOR OR SIMILAR PARTY COLLATERAL, PAR OR MATURITY VALUE COST VALUE
- -------------------------------------------------------------- ------------------------------------- ------------ ------------
NON-PARTICIPANT DIRECTED FUNDS:
* Jo-Ann Stores Company Stock Common Stock 13,381,526 15,505,531
------------ -------------
TOTAL NON-PARTICIPANT DIRECTED FUNDS 13,381,526 15,505,531
PARTICIPANT DIRECTED FUNDS:
* American Funds EuroPacific Growth Fund Class R-4 Mutual or Collective Fund n/a 1,698,997
* PIMCO Total Return Fund Mutual or Collective Fund n/a 3,325,473
* TCW Galileo Select Equities Fund - Class N Mutual or Collective Fund n/a 6,130,896
* ICM Small Company Portfolio Mutual or Collective Fund n/a 1,582,704
* Vanguard 500 Index Fund Mutual or Collective Fund n/a 7,446,759
* Vanguard Explorer Fund Mutual or Collective Fund n/a 1,972,261
* Vanguard Target Retirement 2005 Mutual or Collective Fund n/a 45,214
* Vanguard Target Retirement 2015 Mutual or Collective Fund n/a 903,634
* Vanguard Target Retirement 2025 Mutual or Collective Fund n/a 1,137,914
* Vanguard Target Retirement 2035 Mutual or Collective Fund n/a 568,770
* Vanguard Target Retirement 2045 Mutual or Collective Fund n/a 16,527
* Vanguard Target Retirement Income Fund Mutual or Collective Fund n/a 32,959
* Vanguard Windsor II Fund Mutual or Collective Fund n/a 1,148,768
* Vanguard Retirement Savings Trust Common Collective Trust n/a 7,957,242
* Participant Loans 5.0% - 10.5% n/a 1,160,165
* Jo-Ann Stores Company Stock Common Stock n/a 11,602,872
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TOTAL PARTICIPANT DIRECTED FUNDS n/a 46,731,155
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TOTAL INVESTMENTS 13,381,526 62,236,686
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* Represents party-in-interest
The accompanying notes to the financial statements are an
integral part of this schedule.
SCHEDULE II
Jo-Ann Stores, Inc. 401(k) Savings Plan
FORM 5500, SCHEDULE H, LINE 4J -
SCHEDULE OF REPORTABLE TRANSACTIONS
For the Year Ended December 31, 2004
Employer Identification Number: 34-0720629
Plan Number: 001
Aggregate of transactions involving the same security exceeding 5% of
beginning current value of plan assets:
(b) (c) (d) (g) (i)
PURCHASE SELLING
DESCRIPTION OF ASSET PRICE PRICE COST OF ASSET NET GAIN
- -------------------------------------- ----------------- ----------------- -------------------- ------------------
PIMCO Total Return 3,677,784 333,102 326,829 6,273
TCW Galileo:Sel Eq;N 5,656,921 376,760 357,831 18,929
Vanguard 500 Index Inv 7,209,834 365,699 354,891 10,808
Vanguard Retire Savings Trust 8,662,156 704,915 704,915 -
Jo-Ann Stores Company Stock 2,167,208 4,900,042 4,430,355 469,687
The accompanying notes to the financial statements are an
integral part of this schedule.