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 September 1, 2007
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):

 

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 October 5, 2007, 35,418,625 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 Consolidated Condensed Financial Statements:
		Consolidated Condensed Balance Sheet As of September 1, 2007, March 3, 2007 and August 26, 2006		3
		Consolidated Condensed Statement of Income For the Three Months Ended September 1, 2007 and August 26, 2006		4
		Consolidated Condensed Statement of Income For the Six Months Ended September 1, 2007 and August 26, 2006		5
		Consolidated Condensed Statement of Cash Flows For the Six Months Ended September 1, 2007 and August 26, 2006		6
		Notes to Consolidated Condensed Financial Statements		7
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		13
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		19
Item 4.		Controls and Procedures		20
PART II
OTHER INFORMATION
Item 1.		Legal Proceedings		20
Item 1A.		Risk Factors		20
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		21
Item 3.		Defaults Upon Senior Securities		21
Item 4.		Submission of Matters to a Vote of Security Holders		21
Item 5.		Other Information		22
Item 6.		Exhibits		23
		Signatures		24
		Index to Exhibits		25

 

2

 

CHRISTOPHER & BANKS CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEET

(Unaudited)

 

		September 1,			March 3,			August 26,
		2007			2007			2006
ASSETS
Current assets:
Cash and cash equivalents		$	47,421,468		$	53,991,398		$	82,423,025
Short-term investments		43,450,000			48,275,000			44,325,000
Accounts receivable		5,713,892			4,481,624			5,264,056
Merchandise inventories		50,164,552			52,354,944			44,427,051
Prepaid expenses		10,970,362			10,666,421			6,258,297
Other current assets		8,813,608			5,334,636			6,018,272
Total current assets		166,533,882			175,104,023			188,715,701
Property, equipment and improvements, net		132,583,350			127,776,442			124,592,473
Goodwill		3,587,052			3,587,052			3,587,052
Intangible assets		520,699			575,281			629,863
Other assets		2,544,876			280,299			280,488
Total assets		$	305,769,859		$	307,323,097		$	317,805,577
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	12,407,603		$	16,287,931		$	10,826,707
Accrued salaries, wages and related expenses		8,158,886			7,574,930			8,730,714
Other accrued liabilities		20,046,848			22,387,281			17,807,559
Total current liabilities		40,613,337			46,250,142			37,364,980
Non-current liabilities:
Deferred lease incentives		23,332,654			23,646,261			21,659,041
Deferred rent obligations		11,429,871			10,678,341			10,292,713
Other		3,607,544			983,137			1,710,605
Total non-current liabilities		38,370,069			35,307,739			33,662,359
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, 44,950,343, 45,038,310 and 44,866,525 shares issued and 35,772,325, 36,521,451 and 38,037,789 shares outstanding at September 1, 2007, March 3, 2007 and August 26, 2006, respectively		449,503			450,383			448,665
Additional paid-in capital		107,812,881			106,806,885			101,511,980
Retained earnings		224,233,794			213,264,385			206,593,855
Common stock held in treasury, 9,178,018, 8,516,859 and 6,828,736 shares at cost at September 1, 2007, March 3, 2007 and August 26, 2006, respectively		(105,709,725		)	(94,756,437		)	(61,776,262		)
Total stockholders’ equity		226,786,453			225,765,216			246,778,238
Total liabilities and stockholders’ equity		$	305,769,859		$	307,323,097		$	317,805,577

 

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

 

3

 

CHRISTOPHER & BANKS CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF INCOME

(Unaudited)

 

		Three Months Ended
		September 1,			August 26,
		2007			2006
Net sales		$	141,127,615		$	131,553,342
Costs and expenses:
Merchandise, buying and occupancy, exclusive of depreciation and amortization		90,594,806			78,802,797
Selling, general and administrative		40,626,872			36,111,556
Depreciation and amortization		5,510,041			5,017,119
Total costs and expenses		136,731,719			119,931,472
Operating income		4,395,896			11,621,870
Interest income		1,160,228			1,325,425
Income before income taxes		5,556,124			12,947,295
Income tax provision		2,166,888			5,023,550
Net income		$	3,389,236		$	7,923,745
Basic earnings per common share:
Net income		$	0.09		$	0.21
Basic shares outstanding		35,846,747			37,401,006
Diluted earnings per common share:
Net income		$	0.09		$	0.21
Diluted shares outstanding		35,948,514			38,049,065
Dividends per share		$	0.06		$	0.04

 

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

 

4

 

CHRISTOPHER & BANKS CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF INCOME

(Unaudited)

 

		Six Months Ended
		September 1,			August 26,
		2007			2006
Net sales		$	290,498,949		$	274,083,631
Costs and expenses:
Merchandise, buying and occupancy, exclusive of depreciation and amortization		177,510,927			157,364,637
Selling, general and administrative		79,705,995			72,192,257
Depreciation and amortization		10,805,168			9,998,738
Total costs and expenses		268,022,090			239,555,632
Operating income		22,476,859			34,527,999
Interest income		2,219,251			2,286,956
Income before income taxes		24,696,110			36,814,955
Income tax provision		9,631,483			14,284,202
Net income		$	15,064,627		$	22,530,753
Basic earnings per common share:
Net income		$	0.42		$	0.61
Basic shares outstanding		35,900,270			36,901,264
Diluted earnings per common share:
Net income		$	0.42		$	0.60
Diluted shares outstanding		36,010,301			37,573,303
Dividends per share		$	0.12		$	0.08

 

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

 

5

 

CHRISTOPHER & BANKS CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

(Unaudited)

 

		Six Months Ended
		September 1,			August 26,
		2007			2006
Cash flows from operating activities:
Net income		$	15,064,627		$	22,530,753
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		10,805,168			9,998,738
Deferred income taxes		(3,118,303		)	(1,762,585		)
Excess tax benefit related to stock-based compensation		(21,152		)	(5,283,450		)
Stock-based compensation expense		940,808			2,272,675
Loss on disposal of furniture, fixtures and equipment		114,707			89,386
Changes in operating assets and liabilities:
Decrease (increase) in merchandise inventories		2,190,392			(6,555,676		)
Increase in accounts receivable		(1,232,268		)	(510,753		)
(Increase) decrease in income taxes receivable		300,320			(6,258,297		)
Increase in other current assets		(303,941		)	(388,231		)
Increase in other assets		(60,353		)	(70,619		)
Increase (decrease) in accounts payable		(3,953,255		)	960,232
Increase (decrease) in accrued liabilities		(1,756,477		)	5,891,399
Decrease in deferred lease incentives		(313,607		)	(143,828		)
Increase in deferred rent obligations		751,530			682,714
Net cash provided by operating activities		19,408,196			21,452,458
Cash flows from investing activities:
Purchases of property, equipment and improvements		(15,599,274		)	(16,271,343		)
Purchases of short-term investments		(61,100,000		)	(31,325,000		)
Redemptions of short-term investments		65,925,000			17,000,000
Net cash used in investing activities		(10,774,274		)	(30,596,343		)
Cash flows from financing activities:
Proceeds from exercise of stock options		43,073			28,033,502
Dividends paid		(4,314,790		)	(2,934,873		)
Excess tax benefit related to stock-based compensation		21,152			5,283,450
Acquisition of common stock held in treasury		(10,953,287		)	(1,200,168		)
Net cash provided by (used in) financing activities		(15,203,852		)	29,181,911
Net increase (decrease) in cash and cash equivalents		(6,569,930		)	20,038,026
Cash and cash equivalents at beginning of period		53,991,398			62,384,999
Cash and cash equivalents at end of period		$	47,421,468		$	82,423,025
Supplemental cash flow information:
Income taxes paid		$	12,199,530		$	17,690,582
Purchases of equipment and improvements, accrued, not paid		$	72,927		$	13,130

 

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

 

6

 

CHRISTOPHER & BANKS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION

 

The unaudited consolidated condensed 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 consolidated condensed 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 March 3, 2007.

 

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 – CEO TRANSITION

 

On August 30, 2007, the Company announced that its Board of Directors had appointed Lorna Nagler as President and Chief Executive Officer effective August 31, 2007. Ms. Nagler was also elected as a member of the Company’s Board of Directors as of August 31, 2007. Ms. Nagler most recently served as President of Lane Bryant and has 29 years of experience in the women’s apparel retail industry.

 

Matthew P. Dillon resigned as President and Chief Executive Officer, and as a member of the Company’s Board of Directors, effective August 30, 2007. The Company incurred a pre-tax charge of approximately $2.1 million, or $0.04 per diluted share, related to the transition of the CEO position from Mr. Dillon to Ms. Nagler.

 

NOTE 3 – INCOME TAXES

 

The Company adopted the provisions of Financial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), on March 4, 2007. FIN No. 48 prescribes a minimum recognition threshold and measurement process for recording uncertain tax positions in the financial statements. Additionally, FIN No. 48 provides guidance on derecognition, classification, accounting and disclosure related to uncertain tax positions.

 

Implementation of FIN No. 48 resulted in an adjustment to the Company’s liability for unrecognized tax benefits of approximately $0.2 million with a corresponding increase to retained earnings. As of the date of adoption, the total amount of unrecognized tax benefits was $3.4 million. Of that amount, approximately $2.3 million represents the amount of unrecognized tax benefits that would, if recognized, favorably affect the Company’s effective income tax rate in future periods.

 

The Company recognizes interest and penalties related to unrecognized tax benefits as components of income tax expense. At March 4, 2007, the Company had accrued $0.7 million for the potential payment of interest and penalties.

 

The Company and its subsidiaries file income tax returns in the U.S. Federal jurisdiction and various state jurisdictions. The Internal Revenue Service has completed their audit for tax years through fiscal 2006. The Company is not subject to state income tax examination by tax authorities for taxable years prior to fiscal 2004.

 

7

 

NOTE 4 – SHORT-TERM INVESTMENTS

 

 Short-term investments consisted of the following:

 

		September 1,			March 3,			August 26,
Description		2007			2007			2006
Tax advantaged auction rate securities		$	43,450,000		$	48,275,000		$	37,325,000
U.S. Government debt securities		—			—			7,000,000
		$	43,450,000		$	48,275,000		$	44,325,000

 

NOTE 5 – MERCHANDISE INVENTORIES

 

Merchandise inventories consisted of the following:

 

		September 1,			March 3,			August 26,
Description		2007			2007			2006
Merchandise - in store		$	41,205,114		$	41,099,342		$	34,993,547
Merchandise - in transit		10,005,014			11,888,367			10,250,650
Allowance for permanent markdowns		(1,045,576		)	(632,765		)	(817,146		)
		$	50,164,552		$	52,354,944		$	44,427,051

 

The Company purchased approximately 14% and 13% of its merchandise from its largest overseas supplier during the first six months of fiscal 2008 and 2007, respectively.

 

NOTE 6 – PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET

 

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

 

		Estimated		September 1,			March 3,			August 26,
Description		Useful Life		2007			2007			2006
Land		—		$	1,596,898		$	1,596,898		$	1,596,898
Corporate office, distribution center and related building improvements		25 years		11,823,129			11,663,704			11,412,094
Store leasehold improvements		Term of related lease, typically 10 years		90,623,054			87,288,395			78,958,448
Store furniture and fixtures		Three to 10 years		105,637,453			101,486,350			91,231,896
Point of sale hardware and software		Five years		8,946,617			8,625,579			8,266,314
Corporate office and distribution center furniture, fixtures and equipment		Seven years		2,868,716			2,751,805			2,615,705
Computer hardware and software		Three to five years		7,038,697			5,771,237			4,699,105
Construction in progress		—		10,410,235			5,429,824			11,397,597
				238,944,799			224,613,792			210,178,057
Less accumulated depreciation and amortization				106,361,449			96,837,350			85,585,584
Net property, equipment and improvements				$	132,583,350		$	127,776,442		$	124,592,473

 

8

 

NOTE 7 – 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 will be tested for impairment on an annual basis in the fourth quarter and between annual tests whenever impairment is 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 8 – INTANGIBLE ASSETS

 

Intangible assets consisted of the following:

 

		September 1,			March 3,			August 26,
		2007			2007			2006
Customer lists		$	830,000		$	830,000		$	830,000
Accumulated amortization		(309,301		)	(254,719		)	(200,137		)
		$	520,699		$	575,281		$	629,863

 

Aggregate amortization expense for the six months ended September 1, 2007 was $54,582. Estimated aggregate amortization expense for fiscal 2008 and the next five fiscal years is as follows:

 

 

NOTE 9 – ACCRUED LIABILITIES

 

Other accrued liabilities consisted of the following:

 

		September 1,			March 3,			August 26,
Description		2007			2007			2006
Gift card, certificate and store credit liabilities		$	8,104,900		$	13,174,041		$	7,303,644
Accrued income, sales and other taxes payable		2,934,270			2,499,410			2,881,542
Accrued occupancy related expenses		1,219,971			640,985			887,466
Other accrued liabilities		7,787,707			6,072,845			6,734,907
		$	20,046,848		$	22,387,281		$	17,807,559

 

NOTE 10 – STOCK-BASED COMPENSATION

 

The Company accounts for stock-based compensation in accordance with the provisions of Statement of Financial Accounting Standard (“SFAS”) No. 123R, “Share-Based Payment” (“SFAS 123R”), which was adopted February 26, 2006 using the modified prospective transition method. Under this transition method, stock-based compensation expense recognized for share-based awards 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.

 

9

 

Total pre-tax compensation expense related to stock-based awards for the three months ended September 1, 2007 and August 26, 2006 was approximately $482,000 and $1.4 million, respectively. For the six months ended September 1, 2007 and August 26, 2006, pre-tax stock-based compensation expense totaled approximately $941,000 and $2.3 million, respectively. The decrease in stock-based compensation expense in the first six months of fiscal 2008 compared to the same period in fiscal 2007 was a result of lower expense associated with performance-based restricted stock, a reversal of expense related to forfeited stock options and restricted stock awards originally granted to the Company’s former CEO and the impact of awards granted in January 2004 which became fully vested by the end of fiscal 2007 and had no expense under SFAS 123R in fiscal 2008. Stock-based compensation expense was included in merchandise, buying and occupancy expenses for the Company’s buying and distribution employees and in selling, general and administrative expenses for all other employees.

 

Methodology Assumptions

 

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. The expected term of stock option awards granted is derived from historical exercise experience. The expected term assumption incorporates the contractual term of an option grant, as well as the vesting period of an award. 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 option grants for the three and six month periods ended September 1, 2007 and August 26, 2006 were as follows:

 

		Three Months Ended				Six Months Ended
		September 1,		August 26,		September 1,		August 26,
		2007		2006		2007		2006
Expected divdend yield		1.43	%	0.86	%	1.35	%	0.80	%
Expected volatility		44.38	%	41.51	%	44.77	%	42.26	%
Risk-free interest rate		4.43	%	5.21	%	4.51	%	5.13	%
Expected term in years		4.07		3.53		4.17		3.66

 

Stock-Based Compensation Activity

 

The following table presents a summary of the Company’s stock option activity for the six months ended September 1, 2007:

 

		Number of Shares		Weighted Average Exercise Price			Aggregate Intrinsic Value			Weighted Average Fair Value			Weighted Average Remaining Contractual Life
Outstanding, beginning of period		2,072,876		$	19.44		$	721,549		$	6.85
Vested		1,765,038		19.30			721,549			6.69
Unvested		307,838		20.24			—			7.78
Granted		398,950		15.88			—			5.92
Exercised		(5,283	)	8.18			53,690			3.45
Canceled - Vested		(237,869	)	21.79			—			6.05
Canceled - Unvested (Forfeited)		(52,966	)	18.74			—			7.02
Outstanding, end of period		2,175,708		18.57			699,681			6.78			5.86
Vested		1,583,722		19.00			699,681			6.85			4.57
Unvested		591,986		17.44			—			6.58			9.32
Exercisable, end of period		1,583,722		19.00			699,681			6.85			4.57

 

10

 

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 defined performance conditions are not achieved. The Company values the restricted shares based on the closing price of the Company’s common stock on the date of grant. The resulting expense is recorded on a straight line basis over the vesting period of the restricted award.

 

The following table presents a summary of the Company’s restricted stock activity for the six months ended September 1, 2007:

 

		Number		Aggregate			Weighted
		of		Intrinsic			Average
		Shares		Value			Fair Value
Unvested, beginning of period		53,717		$	648,901		$	20.04
Granted		119,800		1,447,184			15.38
Vested		(8,417	)	101,677			19.46
Canceled - Unvested (Forfeited)		(15,150	)	183,012			18.66
Unvested, end of period		149,950		1,811,396			16.49

 

NOTE 11 – 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 September 1, 2007, 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 $3,882 for the six months ended September 1, 2007. 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 six months of fiscal 2008. 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 September 1, 2007 was $44.7 million. As of September 1, 2007, the Company had outstanding letters of credit in the amount of $24.0 million. Accordingly, the availability of revolving credit loans under the Wells Fargo Revolver was $20.7 million at September 1, 2007.

 

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 September 1, 2007, the most recent measurement date, the Company was in compliance with all covenants of the Wells Fargo Revolver.

 

NOTE 12 – STOCKHOLDERS’ EQUITY

 

In fiscal 2007, the Company’s Board of Directors authorized a stock repurchase program enabling the Company to purchase up to $40.0 million of its common stock, subject to market conditions. During fiscal 2007, the Company repurchased 1,732,123 shares at a total cost, including commissions, of approximately $34.2 million. In March 2007, the Company completed the repurchase program by purchasing an additional 325,059 shares of its common stock for a total cost, including commissions, of $5.8 million, bringing the total number of shares repurchased under this program to 2,057,182 at a total cost, including commissions, of approximately $40.0 million.

 

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In May 2007, the Company’s Board of Directors authorized another stock repurchase program enabling the company to purchase up to $20 million of its common stock, subject to market conditions. As of October 5, 2007, the Company had repurchased 486,100 shares of its common stock for a total cost, including commissions, of approximately $7.0 million. Of the 486,100 shares that were repurchased, 336,100 shares were repurchased through September 1, 2007 at a total cost, including commissions, of approximately $5.1 million.

 

The common stock repurchased under these programs is being held in treasury and has reduced the number of shares of the Company’s common stock outstanding by approximately 6%. 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 fiscal 2007, the Company’s Board of Directors authorized an increase in the Company’s quarterly cash dividend to $0.06 per share of common stock, effective beginning with the October 2006 dividend payment. The dividend rate was previously $0.04 per share of common stock. The Company has declared and paid a dividend each quarter since its first declaration in fiscal 2004.

 

NOTE 13 – 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 Company’s reconciliation of earnings per share includes the individual share effects of all securities affecting earnings per share which consist solely of the effects of dilution from awards granted under the Company’s stock-based compensation plans.

 

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
		September 1, 2007					August 26, 2006
				Net					Net
				Income					Income
		Shares		Per Share			Shares		Per Share
Basic		35,846,747		$	0.09		37,401,006		$	0.21
Effect of dilution from stock-based compensation plans		101,767		—			648,059		—
Diluted		35,948,514		$	0.09		38,049,065		$	0.21

 

		Six Months Ended
		September 1, 2007					August 26, 2006
				Net					Net
				Income					Income
		Shares		Per Share			Shares		Per Share
Basic		35,900,270		$	0.42		36,901,264		$	0.61
Effect of dilution from stock-based compensation plans		110,031		—			672,039		0.01
Diluted		36,010,301		$	0.42		37,573,303		$	0.60

 

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