UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)
x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 25, 2006
OR
o				TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                         to                        .

Commission File No. 001-31390

CHRISTOPHER & BANKS CORPORATION

(Exact name of registrant as specified in its charter)

 

2400 Xenium Lane North, Plymouth, Minnesota

(Address of principal executive offices)

55441

(Zip Code)

(763) 551-5000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES   x       NO   o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer  x                        Accelerated filer  o                         Non-accelerated filer  o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES   o        NO   x

As of December 29, 2006, 37,230,551 shares of the registrant’s common stock were outstanding.

CHRISTOPHER & BANKS CORPORATION

QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I

FINANCIAL INFORMATION

				Page
Item 1.		Unaudited Condensed Consolidated Financial Statements:
		Condensed Consolidated Balance Sheets As of November 25, 2006, February 25, 2006 and November 26, 2005		3
		Condensed Consolidated Statements of Income For the Three Months Ended November 25, 2006 and November 26, 2005		4
		Condensed Consolidated Statements of Income For the Nine Months Ended November 25, 2006 and November 26, 2005		5
		Condensed Consolidated Statements of Cash Flows For the Nine Months Ended November 25, 2006 and November 26, 2005		6
		Notes to Condensed Consolidated Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		14
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		20
Item 4.		Controls and Procedures		20
		PART II		21
		OTHER INFORMATION
Item 1.		Legal Proceedings		21
Item 1A.		Risk Factors		21
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3.		Defaults Upon Senior Securities		22
Item 4.		Submission of Matters to a Vote of Security Holders		22
Item 5.		Other Information		22
Item 6.		Exhibits		23
		Signatures		24
		Index to Exhibits		25

 

2

CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

		November 25,			February 25,			November 26,
		2006			2006			2005
ASSETS
Current assets:
Cash and cash equivalents		$	59,379,627		$	62,384,999		$	32,740,073
Short-term investments		53,800,000			30,000,000			36,830,400
Accounts receivable		6,523,830			4,753,303			7,580,787
Merchandise inventory		55,421,481			37,871,375			42,917,607
Income taxes receivable		2,064,032			—			—
Other current assets		5,195,127			5,630,709			4,898,677
Total current assets		182,384,097			140,640,386			124,967,544
Property, equipment and improvements, net		128,176,122			118,341,542			117,481,716
Other assets:
Goodwill		3,587,052			3,587,052			3,587,052
Intangible assets		602,572			684,445			711,736
Other		646,494			209,869			211,840
Total other assets		4,836,118			4,481,366			4,510,628
Total assets		$	315,396,337		$	263,463,294		$	246,959,888
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	7,058,148		$	9,853,345		$	8,311,408
Accrued salaries, wages and related expenses		8,334,388			5,449,508			7,310,584
Other accrued liabilities		16,939,213			20,480,816			12,926,164
Total current liabilities		32,331,749			35,783,669			28,548,156
Other liabilities:
Deferred lease incentives		21,896,081			21,802,869			20,202,839
Deferred rent obligations		10,581,792			9,609,999			9,262,059
Other		—			3,473,858			3,375,856
Total other liabilities		32,477,873			34,886,726			32,840,754
Commitments		—			—			—
Stockholders’ equity:
Preferred stock – $0.01 par value, 1,000,000 shares authorized, none outstanding		—			—			—
Common stock – $0.01 par value, 74,000,000 shares authorized, 44,982,810, 43,006,151 and 42,792,492 shares issued and 37,832,074, 36,221,415 and 36,007,756 shares outstanding at November 25, 2006, February 25, 2006 and November 26, 2005, respectively		449,828			430,062			427,905
Additional paid-in capital		105,561,337			65,940,956			63,961,387
Retained earnings		213,551,634			186,997,975			181,757,780
Common stock held in treasury, 7,150,736, 6,784,736 and 6,784,736 shares at cost at November 25, 2006, February 25, 2006 and November 26, 2005, respectively		(68,976,084		)	(60,576,094		)	(60,576,094
										)
Total stockholders’ equity		250,586,715			192,792,899			185,570,978
Total liabilities and stockholders’ equity		$	315,396,337		$	263,463,294		$	246,959,888

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CHRISTOPHER & BANKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		Three Months Ended
		November 25,			November 26,
		2006			2005
Net sales		$	139,265,259		$	130,452,619
Costs and expenses:
Merchandise, buying and occupancy, exclusive of depreciation and amortization		84,611,297			78,065,827
Selling, general and administrative		35,793,571			33,782,503
Depreciation and amortization		5,137,780			4,712,359
Total costs and expenses		125,542,648			116,560,689
Operating income		13,722,611			13,891,930
Interest income		1,353,399			449,340
Income before income taxes		15,076,010			14,341,270
Income tax provision		5,849,493			5,613,244
Net income		$	9,226,517		$	8,728,026
Basic earnings per common share:
Net income		$	0.24		$	0.24
Basic shares outstanding		37,743,349			35,944,554
Diluted earnings per common share:
Net income		$	0.24		$	0.24
Diluted shares outstanding		38,233,169			36,180,980
Dividends per share		$	0.06		$	0.04

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

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CHRISTOPHER & BANKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

		Nine Months Ended
		November 25,			November 26,
		2006			2005
Net sales		$	413,348,890		$	363,937,108
Costs and expenses:
Merchandise, buying and occupancy, exclusive of depreciation and amortization		241,975,934			216,920,632
Selling, general and administrative		107,985,828			95,740,539
Depreciation and amortization		15,136,518			13,734,410
Total costs and expenses		365,098,280			326,395,581
Operating income		48,250,610			37,541,527
Interest income		3,640,355			1,236,333
Income before income taxes		51,890,965			38,777,860
Income tax provision		20,133,695			15,045,768
Net income		$	31,757,270		$	23,732,092
Basic earnings per common share:
Net income		$	0.86		$	0.66
Basic shares outstanding		37,051,099			35,843,776
Diluted earnings per common share:
Net income		$	0.84		$	0.66
Diluted shares outstanding		37,617,374			36,165,440
Dividends per share		$	0.14		$	0.12

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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CHRISTOPHER & BANKS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

		Nine Months Ended
		November 25,			November 26,
		2006			2005
Cash flows from operating activities:
Net income		$	31,757,270		$	23,732,092
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		15,136,518			13,643,254
Deferred income taxes		(3,878,237		)	(2,671,687		)
Income tax benefit on exercise of stock options		5,766,662			1,204,063
Stock-based compensation expense		3,855,639			128,432
Loss on disposal of furniture, fixtures and equipment		92,511			290,224
Changes in operating assets and liabilities, net of effects of acquisition:
Increase in merchandise inventory		(17,550,106		)	(2,392,599		)
Increase in accounts receivable		(1,770,527		)	(3,836,299		)
(Increase) decrease in income taxes receivable		(7,803,269		)	1,527,451
Decrease in other current assets		473,656			1,140,616
Increase in other assets		(70,320		)	(60,997		)
Decrease in accounts payable		(3,553,659		)	(4,068,021		)
Increase (decrease) in accrued liabilities		(656,723		)	1,504,210
Increase (decrease) in deferred lease incentives		93,212			(445,203		)
Increase in deferred rent obligations		971,793			1,090,385
Net cash provided by operating activities		22,864,420			30,785,921
Cash flows from investing activities:
Purchases of property, equipment and improvements		(24,223,274		)	(19,324,680		)
Purchases of short-term investments		(79,177,900		)	(38,842,729		)
Redemptions of short-term investments		55,377,900			48,760,658
Net cash used in investing activities		(48,023,274		)	(9,406,751		)
Cash flows from financing activities:
Exercise of stock options		30,017,846			1,596,005
Dividends paid		(5,203,611		)	(4,298,480		)
Excess income tax benefit on exercise of stock options		5,739,237			—
Acquisition of common stock held in treasury		(8,399,990		)	—
Net cash provided by (used in) financing activities		22,153,482			(2,702,475		)
Net increase (decrease) in cash and cash equivalents		(3,005,372		)	18,676,695
Cash and cash equivalents at beginning of period		62,384,999			14,063,378
Cash and cash equivalents at end of period		$	59,379,627		$	32,740,073
Supplemental cash flow information:
Income taxes paid		$	21,307,134		$	14,190,768
Purchases of equipment and improvements, included in accounts payable at end of period		$	758,462		$	56,131

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

CHRISTOPHER & BANKS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared by Christopher & Banks Corporation and subsidiaries (the “Company”) pursuant to the rules and regulations of the United States Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed, or omitted, pursuant to such rules and regulations.  These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 25, 2006.

The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the fiscal year.  In the opinion of management, the information contained herein reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations.  All such adjustments are of a normal recurring nature.

NOTE 2 – STOCK-BASED COMPENSATION

General

Effective February 26, 2006, the Company adopted the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”) using the modified prospective transition method. Under this transition method, stock-based compensation expense recognized for share-based awards during the three and nine month periods ended November 25, 2006 includes: (a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, February 25, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all stock-based compensation awards granted subsequent to February 25, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R. In accordance with the modified prospective transition method, results for the prior period have not been restated. Prior to the adoption of SFAS 123R, the Company recognized stock-based compensation expense in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”) and related Interpretations, as permitted by SFAS 123.

Under various plans, the Company may grant options to purchase common stock to employees and non-employee members of its Board of Directors at a price not less than 100% of the fair market value of the Company’s common stock on the option grant date.  In general, options granted to employees vest over two to five years and are exercisable up to ten years from the date of grant.  In prior fiscal years, options granted to Directors vested immediately upon grant and were exercisable up to five years from the date of grant.  Beginning in fiscal 2007, options granted to Directors vest immediately and are exercisable up to ten years from the grant date.

The Company may also grant shares of restricted stock to its employees and non-employee members of its Board of Directors.  Restricted stock awards are independent of option grants and are subject to forfeiture if employment or service terminates prior to the lapse of the restrictions.  In addition, certain of the Company’s restricted stock awards are performance based and are subject to forfeiture if the performance conditions are not met.  The Company holds the certificates for such shares in safekeeping during the vesting period and the grantee cannot transfer the shares before the respective shares vest.  Shares of nonvested restricted stock are considered to be currently issued and outstanding.  Restricted stock grants to employees vest over three to seven years, while restricted grants to Directors fully vest after six months.  The Company expenses the cost of the restricted stock awards, which is determined to be the fair market value of the shares at the date of grant, on a straight-line basis over the vesting period.  For these purposes, the fair market value of the restricted stock is determined based on the closing price of the Company’s common stock on the grant date.

The total compensation expense related to all stock-based awards for the three and nine month periods ended November 25, 2006, reflecting the impact of the implementation of the modified prospective transition method in accordance with SFAS 123R, was $1.6 million and $3.9 million, respectively.  Stock-based compensation expense in the third quarter and first nine months of fiscal 2007 was included in merchandise, buying and occupancy expenses for the Company’s buying and distribution employees and in selling, general and administrative expense for all other employees.

7

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Effective February 26, 2006 the Company began recognizing stock-based compensation costs net of a forfeiture rate for only those shares expected to vest on a straight-line basis over the requisite service period of the award.  The Company estimated the forfeiture rate for the third quarter and first nine months of fiscal 2007 based on its historical experience.

As a result of adopting SFAS 123R, the impact to the consolidated statement of income for the three and nine month periods ended November 25, 2006 was a reduction in income before income taxes of $674,000 and $2.5 million, respectively, and a reduction in net income of $412,000 and $1.5 million, respectively, from what would have been presented if the Company had continued to account for stock-based compensation awards under APB 25. The impact on both basic and diluted earnings per share was $0.01 for the three months ended November 25, 2006 and $0.04 for the nine months ended November 25, 2006, from what would have been reported under APB 25.

Prior to the adoption of SFAS 123R, the Company presented all tax benefits related to deductions resulting from the exercise of stock options as cash flows from operating activities in the consolidated statement of cash flows.  SFAS 123R requires that cash flows resulting from tax benefits attributable to tax deductions in excess of the compensation expense recognized for those options (excess tax benefits) be classified as financing cash flows.  As a result, the Company classified approximately $5.7 million of excess tax benefits as financing cash flows for the nine months ended November 25, 2006.

The pro forma table below illustrates the effect on net income and earnings per share as if the Company had applied the fair value recognition provisions of SFAS No. 123, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure,” to all stock-based employee compensation for the three and nine month periods ended November 26, 2005:

 

Methodology Assumptions

As part of its SFAS 123R adoption, the Company examined its historical pattern of option exercises in an effort to determine if there were any discernable activity patterns attributable to certain optionees.  From this analysis, the Company identified two distinct populations of optionees, employees and non-employee directors.  The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for grants to its employees and non-employee directors.  Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant.  The fair value of the Company’s stock option awards, which are generally subject to pro-rata vesting, is expensed on a straight-line basis over the vesting period of the stock options.  The expected volatility assumption is based on the historical volatility of the Company’s stock over a term equal to the expected term of the option granted.

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The expected term of stock option awards granted is derived from historical exercise experience for the Company’s employees and non-employee directors under the Company’s stock option plans and represents the period of time that stock option awards granted are expected to be outstanding for each of the two identified populations.  The expected term assumption incorporates the contractual term of an option grant, which for previously issued grants is ten years for employees and five or ten years for non-employee directors, as well as the vesting period of an award, which is most commonly pro-rata vesting over three years for employees and immediate vesting for non-employee directors.  The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.

The weighted average assumptions relating to the valuation of the Company’s stock options for the three and nine months ended November 25, 2006 and November 26, 2005 were as follows:

		Three Months Ended				Nine Months Ended
		November 25, 2006		November 26, 2005		November 25, 2006		November 26, 2005
Expected divdend yield		0.86	%	0.80	%	0.83	%	0.80	%
Expected volatility		48.40	%	41.50	%	46.77	%	39.42	%
Risk-free interest rate		4.71	%	4.08	%	4.95	%	3.84	%
Expected term in years		3.87		3.32		3.51		2.71

 

Stock-Based Compensation Activity

The following table presents a summary of the Company’s stock option activity for the nine months ended November 25, 2006:

 

				Weighted									Weighted Average
		Number of Shares		Average  Exercise Price			Aggregate Intrinsic Value			Weighted Average  Fair Value			Remaining Contractual Life
Outstanding, beginning of period		3,745,166		$	18.40		$	13,140,927		$	6.75
Vested		3,076,666		18.39			10,893,946			6.65
Unvested		668,500		18.43			2,246,981			7.18
Granted		137,700		27.08			—			10.15
Exercised		(1,685,574	)	17.81			16,142,711			6.83
Canceled - Vested		(5,000	)	18.33			17,100			7.57
Canceled - Unvested (Forfeited)		(71,900	)	18.28			249,764			7.28
Outstanding, end of period		2,120,392		19.44			6,227,361			6.89			5.75
Vested		1,462,092		19.03			4,574,234			6.49			4.63
Unvested		658,300		20.35			1,653,127			7.77			8.26
Exercisable, end of period		1,462,092		19.03			4,574,234			6.49			4.63

 

The aggregate intrinsic value in the table above represents the total pretax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the third quarter of fiscal 2007 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on November 25, 2006.

As of November 25, 2006, there was approximately $2.4 million of total unrecognized compensation expense related to unvested stock options granted under the Company’s share-based compensation plans.  That expense is expected to be recognized over a weighted average period of approximately one year.

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The following table presents a summary of the Company’s restricted stock activity for the nine months ended November 25, 2006:

 

		Number of Shares		Aggregate Intrinsic Value			Weighted Average  Fair Value
Unvested, beginning of period		54,867		$	1,193,357		$	18.35
Granted		293,383		6,381,080			28.68
Vested		(9,333	)	202,993			15.98
Canceled - Unvested (Forfeited)		(2,300	)	50,025			19.45
Unvested, end of period		336,617		7,321,420			27.41

 

The total fair value of shares of restricted stock that vested during the nine months ended November 25, 2006 was $149,181.  As of November 25, 2006, there was approximately $7.9 million of unrecognized stock-based compensation expense related to nonvested restricted stock awards, which is expected to be recognized over a weighted average period of approximately two years.

NOTE 3 – SHORT-TERM INVESTMENTS

 Short-term investments consisted of the following:

 

NOTE 4 – MERCHANDISE INVENTORY

Merchandise inventory consisted of the following: 

 

The Company purchased approximately 17% and 30% of its merchandise from its largest overseas supplier during the first nine months of fiscal 2007 and 2006, respectively.

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NOTE 5 – PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET

Property, equipment and improvements, net consisted of the following:

 

Description		Estimated Useful Life		November 25, 2006			February 25, 2006			November 26, 2005
Land				$	1,596,898		$	1,596,898		$	1,596,898
Corporate office, distribution center and related building improvements		25 years		11,594,204			11,412,094			10,981,186
Store leasehold improvements		Term of related lease, typically 10 years		81,947,965			75,854,008			71,408,305
Store furniture and fixtures		Three to 10 years		95,394,673			87,073,269			81,922,666
Point of sale hardware and software		Five years		8,421,081			7,615,806			7,587,798
Corporate office and distribution center furniture, fixtures and equipment		Seven years		2,664,462			2,506,908			2,477,238
Computer hardware and software		Three to five years		5,191,478			4,248,354			4,386,372
Construction in progress		—		11,725,924			4,733,032			9,256,914
				218,536,685			195,040,369			189,617,377
Less accumulated depreciation and amortization				90,360,563			76,698,827			72,135,661
Net property, equipment and improvements				$	128,176,122		$	118,341,542		$	117,481,716

 

NOTE 6 – GOODWILL

The Company recognizes the excess cost of an acquired entity over the net amount assigned to assets acquired and liabilities assumed as goodwill.  Goodwill is tested for impairment on an annual basis in the fourth quarter and between annual tests whenever impairment may be indicated.  Fair values are calculated based on an estimate of future cash flows, compared to the corresponding carrying value of the acquired entity, including goodwill.  Impairment losses will be recognized whenever the implied fair value is less than the carrying value of the related asset.  There were no impairments or other changes to the recorded amounts of goodwill for the periods presented.

NOTE 7 – INTANGIBLES

Intangible assets consisted of the following:

		November 25, 2006			February 25, 2006			November 26, 2005
Customer lists		$	830,000		$	830,000		$	830,000
Accumulated amortization		(227,428		)	(145,555		)	(118,264		)
		$	602,572		$	684,445		$	711,736

 

Aggregate amortization expense for the nine months ended November 25, 2006 was $81,873.  Estimated aggregate amortization expense for fiscal 2007 and the next five fiscal years is as follows:

Fiscal 2007		$	109,167
Fiscal 2008		100,278
Fiscal 2009		82,500
Fiscal 2010		82,500
Fiscal 2011		82,500
Fiscal 2012		82,500

 

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NOTE 8 – ACCRUED LIABILITIES

Other accrued liabilities consisted of the following:

 

 

NOTE 9 – LONG-TERM DEBT

The Company maintains an Amended and Restated Revolving Credit Facility with Wells Fargo Bank, National Association (the “Wells Fargo Revolver”) which expires on June 30, 2008.  The Wells Fargo Revolver provides the Company with revolving credit loans and letters of credit of up to $50.0 million, subject to a borrowing base formula based on inventory levels.

Loans under the Wells Fargo Revolver bear interest at Wells Fargo’s floating rate, 8.25% as of November 25, 2006, plus 0.25%.  Interest is payable monthly in arrears.  The Wells Fargo Revolver carries a facility fee of 0.25% based on the unused portion as defined in the agreement.  Facility fees totaled $3,685 for the nine months ended November 25, 2006.  The credit facility is collateralized by the Company’s equipment, general intangibles, inventory, inventory letters of credit and letter of credit rights.  The Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first nine months of fiscal 2007.  Historically, the Wells Fargo Revolver has been utilized by the Company only to open letters of credit to facilitate the import of merchandise.  The borrowing base at November 25, 2006 was $42.8 million.  As of November 25, 2006, the Company had outstanding letters of credit in the amount of $16.0 million.  Accordingly, the availability of revolving credit loans under the Wells Fargo Revolver was $26.8 million at November 25, 2006.

The Wells Fargo Revolver contains certain restrictive covenants including restrictions on incurring additional indebtedness and limitations on certain types of investments, as well as requiring the maintenance of certain financial covenants.  As of November 25, 2006, the most recent measurement date, the Company was in compliance with all covenants of the Wells Fargo Revolver.

NOTE 10 – STOCKHOLDERS’ EQUITY

In July 2006, the Company’s Board of Directors authorized a two-year stock repurchase program enabling the Company to purchase up to $20 million of its common stock, subject to market conditions.  In December 2006, the Company’s Board of Directors authorized a $20 million increase in the repurchase program bringing the total dollar amount of stock that can be purchased under the program to $40 million.  As of December 14, 2006, the Company had repurchased 968,523 shares of its common stock for a total cost, including commissions, of approximately $20.0 million.  Of the 968,523 shares which were repurchased, 366,000 were repurchased through November 25, 2006 at a total cost, including commissions, of approximately $8.4 million.

The common stock repurchased under the Company’s most recent authorization is being held in treasury.  All of the Company’s share repurchases were executed in the open market, and no shares were repurchased from related parties.  In addition, all of the Company’s share repurchases were executed in accordance with the safe harbor provision of Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

In July 2006, the Company’s Board of Directors also authorized an increase in the Company’s quarterly cash dividend.  Beginning in October 2006, the Company paid a quarterly dividend of $0.06 per share of common stock.  The dividend rate was previously $0.04 per share of common stock.

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NOTE 11 – NET INCOME PER SHARE

Basic earnings per share (“EPS”) is computed based on the weighted average number of shares of common stock outstanding during the applicable periods, while diluted EPS is computed based on the weighted average number of common and common equivalent shares (dilutive stock options) outstanding.

The following is a reconciliation of the number of shares and per share amounts used in the basic and diluted EPS computations:

		Three Months Ended
		November 25, 2006					November 26, 2005
		Shares		Net Income Per Share			Shares		Net Income Per Share
Basic		37,743,349		$	0.24		35,944,554		$	0.24
Effect of dilution from stock-based compensation plans		489,820		—			236,426		—
Diluted		38,233,169		$	0.24		36,180,980		$	0.24

 

		Nine Months Ended
		November 25, 2006					November 26, 2005
		Shares		Net Income Per Share			Shares		Net Income Per Share
Basic		37,051,099		$	0.86		35,843,776		$	0.66
Effect of dilution from stock-based compensation plans		566,275		0.02			321,664		—
Diluted		37,617,374		$	0.84		36,165,440		$	0.66

 

Stock options of 114,000 and 124,700 were excluded from the shares used in the computation of diluted EPS for the three and nine months ended November 25, 2006, as they were anti-dilutive.  Stock options of 2,854,649 and 1,622,249 were excluded from the shares used in the computation of diluted EPS for the three and nine months ended November 26, 2005, as they were anti-dilutive.

NOTE 12 – RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes - an Interpretation of FASB Statement No. 109” (“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes by prescribing the minimum recognition threshold a tax position is required to meet before being recognized in the financial statements.  Additionally, FIN 48 provides guidance on derecognition, classification, interest, penalties, accounting in interim periods and disclosure related to uncertain income tax positions.  FIN No. 48 is effective for fiscal years beginning after December 15, 2006.  The Company is currently evaluating the impact of adopting FIN No. 48, but does not anticipate the adoption will have a material effect on its financial position, results of operations or cash flows.

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