**Table ofContents**

** **

** **

** **

**UNITEDSTATES**

**SECURITIESAND 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 August 30, 2008**                                                |
|   |                                                                                                    |
|   | **or**                                                                                                  |
|   |                                                                                                    |
| **o**  | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

** **

**For thetransition period from                        to                    **     .

 

**CommissionFile Number 001-31390**

 

### **CHRISTOPHER &BANKS CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **06 -  1195422**                     |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |

 

| **2400  Xenium Lane North, Plymouth, Minnesota** | ** ** | **55441**      |
|--------------------------------------------------|------------|----------------|
| **(Address of principal executive  offices)**    | ** ** | **(Zip Code)** |

# ** **

**(763)551-5000**

(Registrant’stelephone number, including area code)

 

**NotApplicable**

(Former name,former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements forthe past 90 days.

 

**YES      ****x****             NO      ****o**

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer, or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.

 

| **Large accelerated filer      ****o**                                                       | ** ** | **Accelerated filer      ****x**         |
|----------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|
|                                                                                                                       |       |                                                                   |
| **Non-accelerated filer      ****o**** (Do not check if a smaller reporting  company)** | ** ** | **Smaller reporting company      ****o** |

 

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

 

**YES      ****o****              NO      ****x**

 

As of September 26,2008, 35,499,805 shares of the registrant’s common stock were outstanding.

 

 

 

----

Table of Contents

** **

###### **CHRISTOPHER &BANKS CORPORATION**

** **

**QUARTERLYREPORT ON FORM 10-Q**

** **

**TABLE OFCONTENTS**

** **
| **PART I**
**FINANCIAL INFORMATION** |
|-------------------------------------------|
| ** **                                | ** ** | ** ** |
| ** **                                | ** ** | **Page** |
| Item  1.                                  | Financial  Statements: |   |
|                                      |   |   |
|                                      | Condensed Consolidated Balance  Sheet (Unaudited) |   |
|                                      | As of August 30, 2008,  March 1, 2008 and September 1, 2007 | 3 |
|                                      |   |   |
|                                      | Condensed Consolidated Statement  of Income (Unaudited) |   |
|                                      | For the Three Months Ended  August 30, 2008 and September 1, 2007 | 4 |
|                                      |   |   |
|                                      | Condensed Consolidated Statement  of Income (Unaudited) |   |
|                                      | For the Six Months Ended  August 30, 2008 and September 1, 2007 | 5 |
|                                      |   |   |
|                                      | Condensed Consolidated Statement of  Cash Flows (Unaudited) |   |
|                                      | For the Six Months Ended  August 30, 2008 and September 1, 2007 | 6 |
|                                      |   |   |
|                                      | Notes to Condensed Consolidated Financial Statements  (Unaudited) | 7 |
|                                      |   |   |
| Item 2.                                   | Management’s  Discussion and Analysis of |   |
|                                      | Financial  Condition and Results of Operations | 17 |
|                                      |   |   |
| Item 3.                                   | Quantitative and  Qualitative Disclosures |   |
|                                      | About Market Risk | 27 |
|                                      |   |   |
| Item 4.                                   | Controls and  Procedures | 28 |
|                                      |   |   |
| **PART II**

**OTHER  INFORMATION**  |
|                                      |   |   |
| Item 1.                                   | Legal Proceedings | 28 |
|                                      |   |   |
| Item 1A.                                  | Risk Factors | 28 |
|                                      |   |   |
| Item 2.                                   | Unregistered Sales of Equity Securities  and Use of Proceeds | 28 |
|                                      |   |   |
| Item 3.                                   | Defaults Upon Senior Securities | 29 |
|                                      |   |   |
| Item 4.                                   | Submission of Matters to a Vote of  Security Holders | 29 |
|                                      |   |   |
| Item 5.                                   | Other Information | 30 |
|                                      |   |   |
| Item 6.                                   | Exhibits | 30 |
|                                      |   |   |
|                                      | Signatures | 31 |
|                                      |   |   |
|                                      | Index to  Exhibits | 32 |

 

2

----

Tableof Contents

 

# **PART I— FINANCIAL INFORMATION**

# ** **

**ITEM 1.**

**FINANCIALSTATEMENTS**

 

# **CHRISTOPHER &BANKS CORPORATION**

# **CONDENSEDCONSOLIDATED BALANCE SHEET**

(Unaudited)

 
| ** **                                                                                                                                                                                                                                                                   | ** ** | **August 30,** | ** **  | **March 1,** | ** ** | **September 1,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|-------------|-------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                                                                                                   | ** ** | **2008**            | ** **  | **2008**          | ** ** | **2007**              | ** ** |
| **ASSETS**                                                                                                                                                                                                                                                                   |       |                |        |              |       |                  |       |
| Current assets:                                                                                                                                                                                                                                                              |       |                |        |              |       |                  |       |
| Cash and cash  equivalents                                                                                                                                                                                                                                                   |       | $                   | 84,036,754  |              | $          | 78,492,297            |       | $ | 47,421,468 |   |
| Short-term  investments                                                                                                                                                                                                                                                      |       | —              |        | —            |       | 43,450,000            |       |
| Accounts  receivable                                                                                                                                                                                                                                                         |       | 4,311,102           |        | 5,222,976         |       | 5,713,892             |       |
| Merchandise  inventories                                                                                                                                                                                                                                                     |       | 51,531,569          |        | 43,840,338        |       | 50,164,552            |       |
| Prepaid expenses                                                                                                                                                                                                                                                             |       | 12,176,189          |        | 11,597,280        |       | 10,970,362            |       |
| Other current  assets                                                                                                                                                                                                                                                        |       | 6,221,750           |        | 9,482,393         |       | 8,813,608             |       |
| Total current  assets                                                                                                                                                                                                                                                        |       | 158,277,364         |        | 148,635,284       |       | 166,533,882           |       |
| Property,  equipment and improvements, net                                                                                                                                                                                                                                   |       | 131,771,577         |        | 133,598,580       |       | 132,583,350           |       |
| Long-term  investments                                                                                                                                                                                                                                                       |       | 18,535,577          |        | 23,350,000        |       | —                |       |
| Goodwill                                                                                                                                                                                                                                                                     |       | —              |        | —            |       | 3,587,052             |       |
| Other assets                                                                                                                                                                                                                                                                 |       | 6,680,785           |        | 6,207,858         |       | 3,065,575             |       |
| Total assets                                                                                                                                                                                                                                                                 |       | $                   | 315,265,303 |              | $          | 311,791,722           |       | $ | 305,769,859 |   |
|                                                                                                                                                                                                                                                                         |       |                |        |              |       |                  |       |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                                                                                                                                | ** ** | ** **          | ** **  | ** **        | ** ** | ** **            | ** ** |
|                                                                                                                                                                                                                                                                         |       |                |        |              |       |                  |       |
| Current  liabilities:                                                                                                                                                                                                                                                        |       |                |        |              |       |                  |       |
| Accounts payable                                                                                                                                                                                                                                                             |       | $                   | 11,289,914  |              | $          | 15,380,692            |       | $ | 12,407,603 |   |
| Accrued  salaries, wages and related expenses                                                                                                                                                                                                                                |       | 9,192,422           |        | 9,246,050         |       | 8,158,886             |       |
| Other accrued  liabilities                                                                                                                                                                                                                                                   |       | 27,356,950          |        | 28,040,623        |       | 20,046,848            |       |
| Total current  liabilities                                                                                                                                                                                                                                                   |       | 47,839,286          |        | 52,667,365        |       | 40,613,337            |       |
| Non-current  liabilities:                                                                                                                                                                                                                                                    |       |                |        |              |       |                  |       |
| Deferred lease  incentives                                                                                                                                                                                                                                                   |       | 24,190,711          |        | 24,854,278        |       | 23,332,654            |       |
| Deferred rent  obligations                                                                                                                                                                                                                                                   |       | 10,880,462          |        | 11,720,689        |       | 11,429,871            |       |
| Other                                                                                                                                                                                                                                                                        |       | 4,450,236           |        | 3,722,195         |       | 3,607,544             |       |
| Total non-current  liabilities                                                                                                                                                                                                                                               |       | 39,521,409          |        | 40,297,162        |       | 38,370,069            |       |
|                                                                                                                                                                                                                                                                         |       |                |        |              |       |                  |       |
| 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, 45,324,403, 45,050,290 and  44,950,343 shares issued and 35,520,605, 35,259,572 and 35,772,325 shares  outstanding at August 30, 2008, March 1, 2008 and September 1,  2007, respectively |       | 453,244             |        | 450,503           |       | 449,503               |       |
| Additional  paid-in capital                                                                                                                                                                                                                                                  |       | 111,510,432         |        | 110,359,847       |       | 107,812,881           |       |
| Retained  earnings                                                                                                                                                                                                                                                           |       | 229,814,314         |        | 221,928,654       |       | 224,233,794           |       |
| Common stock  held in treasury, 9,803,798, 9,790,718 and 9,178,018 shares at cost at  August 30, 2008, March 1, 2008 and September 1, 2007,  respectively                                                                                                     |       | (112,858,959        | )           | (112,711,809      | )          | (105,709,725          | )          |
| Accumulated  other comprehensive income (loss)                                                                                                                                                                                                                               |       | (1,014,423          | )           | (1,200,000        | )          | —                |       |
| Total  stockholders’ equity                                                                                                                                                                                                                                             |       | 227,904,608         |        | 218,827,195       |       | 226,786,453           |       |
| Total  liabilities and stockholders’ equity                                                                                                                                                                                                                             |       | $                   | 315,265,303 |              | $          | 311,791,722           |       | $ | 305,769,859 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed consolidated financialstatements.

 

 

3

----

Table of Contents

 

**CHRISTOPHER & BANKS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENT OF INCOME**

(Unaudited)

 
| ** **                                                                     | ** ** | **Three Months Ended** | ** **  |
|--------------------------------------------------------------------------------|------------|------------------------|-------------|
| ** **                                                                     | ** ** | **August 30,**    | ** **  | **September 1,** | ** ** |
| ** **                                                                     | ** ** | **2008**               | ** **  | **2007** | ** ** |
| Net sales                                                                      |       | $                      | 131,636,653 |   | $ | 141,127,615 |   |
|                                                                           |       |                   |        |   |   |
| Costs and  expenses:                                                           |       |                   |        |   |   |
| Merchandise,  buying and occupancy, exclusive of depreciation and amortization |       | 81,453,282             |        | 90,594,806 |   |
| Selling, general  and administrative                                           |       | 41,414,130             |        | 40,626,872 |   |
| Depreciation and  amortization                                                 |       | 7,967,103              |        | 5,510,041 |   |
| Total costs and  expenses                                                      |       | 130,834,515            |        | 136,731,719 |   |
|                                                                           |       |                   |        |   |   |
| Operating income                                                               |       | 802,138                |        | 4,395,896 |   |
|                                                                           |       |                   |        |   |   |
| Interest income                                                                |       | 586,025                |        | 1,160,228 |   |
|                                                                           |       |                   |        |   |   |
| Income before  income taxes                                                    |       | 1,388,163              |        | 5,556,124 |   |
|                                                                           |       |                   |        |   |   |
| Income tax  provision                                                          |       | 552,489                |        | 2,166,888 |   |
|                                                                           |       |                   |        |   |   |
| Net income                                                                     |       | $                      | 835,674     |   | $ | 3,389,236 |   |
|                                                                           |       |                   |        |   |   |
| Basic earnings  per common share:                                              |       |                   |        |   |   |
|                                                                           |       |                   |        |   |   |
| Net income                                                                     |       | $                      | 0.02        |   | $ | 0.09 |   |
|                                                                           |       |                   |        |   |   |
| Basic shares  outstanding                                                      |       | 35,098,661             |        | 35,846,747 |   |
|                                                                           |       |                   |        |   |   |
| Diluted earnings  per common share:                                            |       |                   |        |   |   |
|                                                                           |       |                   |        |   |   |
| Net income                                                                     |       | $                      | 0.02        |   | $ | 0.09 |   |
|                                                                           |       |                   |        |   |   |
| Diluted shares  outstanding                                                    |       | 35,122,385             |        | 35,948,514 |   |
|                                                                           |       |                   |        |   |   |
| Dividends per  share                                                           |       | $                      | 0.06        |   | $ | 0.06 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed consolidated financialstatements.

 

 

4

----

Table of Contents

 

**CHRISTOPHER & BANKS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENT OF INCOME**

(Unaudited)

 

 
| ** **                                                                     | ** ** | **Six Months Ended** | ** **  |
|--------------------------------------------------------------------------------|------------|----------------------|-------------|
| ** **                                                                     | ** ** | **August 30,**  | ** **  | **September 1,** | ** ** |
| ** **                                                                     | ** ** | **2008**             | ** **  | **2007** | ** ** |
| Net sales                                                                      |       | $                    | 291,279,457 |   | $ | 290,498,949 |   |
|                                                                           |       |                 |        |   |   |
| Costs and  expenses:                                                           |       |                 |        |   |   |
| Merchandise,  buying and occupancy, exclusive of depreciation and amortization |       | 171,926,286          |        | 177,510,927 |   |
| Selling, general  and administrative                                           |       | 86,226,867           |        | 79,705,995 |   |
| Depreciation and  amortization                                                 |       | 14,425,446           |        | 10,805,168 |   |
| Total costs and  expenses                                                      |       | 272,578,599          |        | 268,022,090 |   |
|                                                                           |       |                 |        |   |   |
| Operating income                                                               |       | 18,700,858           |        | 22,476,859 |   |
|                                                                           |       |                 |        |   |   |
| Interest income                                                                |       | 1,412,592            |        | 2,219,251 |   |
|                                                                           |       |                 |        |   |   |
| Income before  income taxes                                                    |       | 20,113,450           |        | 24,696,110 |   |
|                                                                           |       |                 |        |   |   |
| Income tax  provision                                                          |       | 8,005,153            |        | 9,631,483 |   |
|                                                                           |       |                 |        |   |   |
| Net income                                                                     |       | $                    | 12,108,297  |   | $ | 15,064,627 |   |
|                                                                           |       |                 |        |   |   |
| Basic earnings  per common share:                                              |       |                 |        |   |   |
|                                                                           |       |                 |        |   |   |
| Net income                                                                     |       | $                    | 0.35        |   | $ | 0.42 |   |
|                                                                           |       |                 |        |   |   |
| Basic shares  outstanding                                                      |       | 35,086,015           |        | 35,900,270 |   |
|                                                                           |       |                 |        |   |   |
| Diluted earnings  per common share:                                            |       |                 |        |   |   |
|                                                                           |       |                 |        |   |   |
| Net income                                                                     |       | $                    | 0.34        |   | $ | 0.42 |   |
|                                                                           |       |                 |        |   |   |
| Diluted shares  outstanding                                                    |       | 35,111,930           |        | 36,010,301 |   |
|                                                                           |       |                 |        |   |   |
| Dividends per  share                                                           |       | $                    | 0.12        |   | $ | 0.12 |   |

 

The accompanyingnotes are an integral part of these unaudited condensed consolidated financialstatements.

 

 

5

----

Table of Contents

 

**CHRISTOPHER & BANKS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENT OF CASH FLOWS**

(Unaudited)

 
| ** **                                                                         | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                         | ** ** | **August 30,**  | ** ** | **September 1,** | ** ** |
| ** **                                                                         | ** ** | **2008**             | ** ** | **2007** | ** ** |
| Cash flows from  operating activities:                                             |       |                 |       |   |   |
| Net income                                                                         |       | $                    | 12,108,297 |   | $ | 15,064,627 |   |
| Adjustments to  reconcile net income to net cash provided by operating activities: |       |                 |       |   |   |
| Depreciation and  amortization                                                     |       | 13,204,896           |       | 10,805,168 |   |
| Impairment of  store assets                                                        |       | 1,220,550            |       | — |   |
| Deferred income  taxes                                                             |       | (1,207,223           | )          | (6,725,847 | ) |
| Excess income  tax benefit on exercise of stock options                            |       | —               |       | (21,152 | ) |
| Stock-based  compensation expense                                                  |       | 1,153,326            |       | 940,808 |   |
| Loss on disposal  of furniture, fixtures and equipment                             |       | 348,350              |       | 114,707 |   |
| Changes in  operating assets and liabilities:                                      |       |                 |       |   |   |
| Decrease  (increase) in accounts receivable                                        |       | 911,874              |       | (1,232,268 | ) |
| Decrease  (increase) in merchandise inventories                                    |       | (7,691,231           | )          | 2,190,392 |   |
| Increase in  prepaid expenses                                                      |       | (578,909             | )          | (303,941 | ) |
| Decrease in  other current assets                                                  |       | 3,914,466            |       | 300,320 |   |
| (Increase)  decrease in other assets                                               |       | 6,338                |       | (60,353 | ) |
| Decrease in  accounts payable                                                      |       | (4,090,778           | )          | (3,953,255 | ) |
| Increase  (decrease) in accrued liabilities and income taxes payable               |       | (884,451             | )          | (1,756,477 | ) |
| Increase  (decrease) in deferred lease incentives                                  |       | (663,567             | )          | (313,607 | ) |
| Increase  (decrease) in deferred rent obligations                                  |       | (840,227             | )          | 751,530 |   |
| Increase in  other liabilities                                                     |       | 728,041              |       | 3,607,544 |   |
| Net cash  provided by operating activities                                         |       | 17,639,752           |       | 19,408,196 |   |
|                                                                               |       |                 |       |   |   |
| Cash flows from  investing activities:                                             |       |                 |       |   |   |
| Purchases of  property, equipment and improvements                                 |       | (12,872,658          | )          | (15,599,274 | ) |
| Purchases of  investments                                                          |       | —               |       | (61,100,000 | ) |
| Sales of  investments                                                              |       | 5,000,000            |       | 65,925,000 |   |
| Net cash used in  investing activities                                             |       | (7,872,658           | )          | (10,774,274 | ) |
|                                                                               |       |                 |       |   |   |
| Cash flows from  financing activities:                                             |       |                 |       |   |   |
| Proceeds from  exercise of stock options                                           |       | —               |       | 43,073 |   |
| Dividends paid                                                                     |       | (4,222,637           | )          | (4,314,790 | ) |
| Excess income  tax benefit on exercise of stock options                            |       | —               |       | 21,152 |   |
| Acquisition of  common stock held in treasury                                      |       | —               |       | (10,953,287 | ) |
| Net cash used in  financing activities                                             |       | (4,222,637           | )          | (15,203,852 | ) |
|                                                                               |       |                 |       |   |   |
| Net increase  (decrease) in cash and cash equivalents                              |       | 5,544,457            |       | (6,569,930 | ) |
|                                                                               |       |                 |       |   |   |
| Cash and cash  equivalents at beginning of period                                  |       | 78,492,297           |       | 53,991,398 |   |
|                                                                               |       |                 |       |   |   |
| Cash and cash  equivalents at end of period                                        |       | $                    | 84,036,754 |   | $ | 47,421,468 |   |
|                                                                               |       |                 |       |   |   |

The accompanyingnotes are an integral part of these unaudited condensed consolidated financialstatements.

 

 

6

----

Table of Contents

 

**CHRISTOPHER & BANKSCORPORATION**

# **NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

(Unaudited)

 

## **NOTE1 — BASIS OF PRESENTATION**

## ** **

The unaudited condensedconsolidated financial statements included in this Form 10-Q have beenprepared by Christopher & Banks Corporation and subsidiaries (the “Company”)pursuant to the rules and regulations of the United States Securities andExchange Commission.  Certain informationand footnote disclosures normally included in financial statements prepared inaccordance with accounting principles generally accepted in the United Statesof America have been condensed, or omitted, pursuant to such rules andregulations.  These unaudited condensedconsolidated financial statements should be read in conjunction with theaudited financial statements and related notes included in the Company’s AnnualReport on Form 10-K for the fiscal year ended March 1, 2008.

 

The results of operations for the interim periodsshown in this report are not necessarily indicative of results to be expectedfor the full fiscal year.  In the opinionof management, the information contained herein reflects all adjustments necessaryto present fairly the Company’s financial position as of August 30, 2008and September 1, 2007, and its results of operations and cash flows forthe six month periods ended August 30, 2008 and September 1,2007.  All such adjustments are of anormal, recurring nature.

 

*Recently Issued AccountingPronouncements*

* *

                In September 2006, the Financial AccountingStandards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”)No. 157, “Fair Value Measurements” (“SFAS No. 157”).  SFAS No. 157 establishes a singledefinition of fair value and a framework for measuring fair value, sets out afair value hierarchy to be used to classify the source of information used infair value measurements, and requires new disclosures of assets and liabilitiesmeasured at fair value based on their level in the hierarchy.  This statement applies under other accountingpronouncements that require or permit fair value measurements.  In February 2008, the FASB issued StaffPositions (“FSPs”) No. 157-1 and No. 157-2, which, respectively,remove leasing transactions from the scope of SFAS No. 157 and defer itseffective date for one year relative to certain nonfinancial assets andliabilities. As a result, the application of the definition of fair value andrelated disclosures of SFAS No. 157 (as impacted by these two FSPs) waseffective for the Company beginning March 2, 2008 on a prospective basiswith respect to fair value measurements of (a) nonfinancial assets andliabilities that are recognized or disclosed at fair value in the Company’sfinancial statements on a recurring basis (at least annually) and (b) allfinancial assets and liabilities. This adoption did not have a material impacton the Company’s consolidated results of operations or financial condition forthe six months ended August 30, 2008. The remaining aspects of SFAS No. 157for which the effective date was deferred under FSP No. 157-2 arecurrently being evaluated by the Company. Areas impacted by the deferral relate to nonfinancial assets andliabilities that are measured at fair value but are recognized or disclosed atfair value on a nonrecurring basis. This deferral applies to such items asnonfinancial assets and liabilities initially measured at fair value in abusiness combination (but not measured at fair value in subsequent periods) ornonfinancial long-lived asset groups measured at fair value for an impairmentassessment.  The effects of theseremaining aspects of SFAS No. 157 are to be applied by the Company to fairvalue measurements prospectively beginning March 1, 2009. The Company doesnot expect them to have a material impact on the Company’s consolidated resultsof operations or financial condition. Please refer to Note 12 for disclosures related to our initial adoptionof SFAS No. 157.

 

                In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”).  SFAS No. 159 permits an entity tochoose, at specified election dates, to measure eligible financial instrumentsand certain other items at fair value that are not currently required to bemeasured at fair value. An entity reports unrealized gains and losses on itemsfor which the fair value option has been elected in earnings at each subsequentreporting date.  Upfront costs and feesrelated to items for which the fair value option is elected are recognized inearnings as incurred and not deferred. SFAS No. 159 also established presentation and disclosurerequirements designed to facilitate comparisons between entities that choosedifferent measurement attributes for similar types of assets andliabilities.  SFAS No. 159 waseffective for financial statements issued for fiscal years beginning after November 15,2007 (March 2, 2008 for the Company). At the effective date, an entity could elect the fair value option foreligible items that existed at that date. If an entity elected the fair value option, the entity was required toreport the effect of the first remeasurement to fair value as acumulative-effect adjustment to the opening balance of retained earnings. TheCompany did not elect the fair value option for eligible items that existed asof March 2, 2008.

 

 

7

----

Table of Contents

 

## **NOTE2 — EXIT OF ACORN BUSINESS**

## ** **

                On July 31, 2008, the Company announced itsdecision to exit its Acorn division business when management concluded, after acomprehensive review and evaluation, that the concept had not demonstrated thepotential to deliver an acceptable long-term return on the Company’sinvestment.  On July 30, 2008, theCompany’s Board of Directors authorized a plan to close all of the Company’s 36Acorn stores by December 31, 2008. This decision will allow the Company to focus its resources on its twocore brands, Christopher & Banks and C.J. Banks.

 

                In accordance with SFAS No. 144, “Accounting forthe Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”) and SFASNo. 142, “Goodwill and Other Intangible Assets” (“SFAS No. 142”),during the three months ended August 30, 2008, the Company recorded apre-tax charge of $1.2 million related to the impairment of long-lived Acornassets, including approximately $1.1 million of property and equipment and $0.1million of other intangible assets.  Thenon-cash charge is reported as a component of depreciation and amortizationexpense in the Company’s Condensed Consolidated Statement of Income.

 

                In accordance with SFAS No. 146, “Accounting forCosts Associated with Exit or Disposal Activities,” (“SFAS No. 146”), inthe third and fourth quarters of fiscal 2009 the Company estimates it willrecognize between $5.4 million and $8.4 million of pre-tax cash chargesconsisting of real estate operating lease termination-related costs, retentionand severance expenses and miscellaneous store closing and other associatedcosts.  These estimated costs and chargesare preliminary and may vary materially based on various factors, includingtiming in execution of the exit plan, the outcome of lease terminationnegotiations with landlords, the degree of success in liquidating the Acorninventory, the amount of retention and severance payments ultimately made toAcorn employees and changes in management’s assumptions and projections.

 

## **                Inthe third quarter of fiscal 2009, upon the substantial completion of theCompany’s exit strategy, the Company anticipates it will report its Acornoperations as discontinued operations in the consolidated financial statementsfor all periods presented in accordance with SFAS No. 144.**

## ** **

## **NOTE3 — INVESTMENTS**

## ** **

The Company’s investments consisted of the following:

 
| ** **                                                    | ** ** | **August 30,** | ** ** | **March 1,** | ** ** | **September 1,** | ** ** |
|---------------------------------------------------------------|------------|---------------------|------------|-------------------|------------|-----------------------|------------|
| **Description**                                               | ** ** | **2008**            | ** ** | **2008**          | ** ** | **2007**              | ** ** |
|                                                          |       |                |       |              |       |                  |       |
| Tax-advantaged,  auction rate, available-for-sale securities: |       |                |       |              |       |                  |       |
| Short-term                                                    |       | $                   | —     |              | $          | —                |       | $ | 43,450,000 |   |
| Long-term                                                     |       | 18,535,577          |       | 23,350,000        |       | —                |       |
|                                                          |       |                |       |              |       |                  |       |
|                                                          |       | $                   | 18,535,577 |              | $          | 23,350,000            |       | $ | 43,450,000 |   |

 

                As of August 30, 2008, the Company hadapproximately $18.5 million of long-term investments, which consisted solely of$19.5 million of auction rate securities (“ARS”) at cost, less a temporaryvaluation allowance of $1.0 million. This valuation allowance was based on an analysis ofother-than-temporary impairment factors, resulting in management’s estimate offair value, given the current lack of liquidity of these investments, whiletaking into account the current credit quality of the underlying securities.

 

                ARS are long-term debt instruments with interestrates that may reset through scheduled and successful auctions which may occurevery seven, 28 or 35 days.  Holders ofARS can either sell into the auction, bid based on a desired interest rate orhold and accept the reset rate.  If thereare insufficient buyers, then the auction “fails” and holders are unable toliquidate their investment through the auction. A failed auction is not a default of the debt instrument. The result ofa failed auction is that the ARS continues to pay interest in accordance withits original terms. Liquidity, however, for holders is limited until there is asuccessful auction, until such time as another market for ARS develops or theARS are called by the issuer. Auctions continue to be held as scheduled untilthe ARS matures or until the issue is called. All of the Company’s ARS arecollateralized by student loans and currently have AAA (S&P) or Aaa (Moody’s)credit ratings.

 

 

8

----

Table of Contents

 

                As of August 30, 2008, the repayment ofapproximately 80% of the student loans, which serve as collateral for the ARSheld by the Company, is substantially backed by the United Statesgovernment.  Until February 2008,the ARS market was liquid and auctions for ARS held by the Company did notfail. However, in February 2008, a substantial number of auctions failed,meaning there was not enough demand to sell the entire issue at auction.  Auctions for the ARS held by the Companybegan to fail in February 2008 and have continued to fail up to and as ofthe date of this report.

 

                Based on current market conditions, managementbelieves that it is likely that auctions related to the Company’s ARS willcontinue to be unsuccessful for the near term. Unsuccessful auctions have limited the Company’s ability to access thesefunds.  Management anticipates theliquidity of the ARS will continue to be restricted until there is a successfulauction or until such time as another market for the ARS develops or until theARS are called by the issuer.

 

                All of the ARS owned by the Company were purchasedfrom UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”) and areheld, for the benefit of the Company, by UBS. On August 8, 2008, UBS announced a settlement in principle with theSecurities and Exchange Commission, the New York Attorney General and otherstate regulatory agencies to restore liquidity to remaining clients who holdARS.  Under the settlement, the Company will be able to redeem its ARS atpar during a two-year time period beginning June 30, 2010.  Duringthis time, the Company may choose to continue to hold some or all of its ARSand earn interest or sell some or all of them to UBS at par plus accruedinterest.

 

                The Company reclassified its ARS to long-terminvestments at March 1, 2008 to reflect the lack of liquidity of theseinvestments.  As of August 30, 2008,the Company had approximately $84.0 million of cash and cash equivalents.  Management believes the Company hassufficient balances of cash and cash equivalents to meet the Company’s workingcapital requirements and liquidity needs in fiscal 2009.

 

                The Company reviews impairments associated with itsARS in accordance with EITF 03-1 and FASB Staff Position SFAS Nos. 115-1 and124-1, “The Meaning of Other-Than-Temporary-Impairment and Its Application toCertain Investments,” to determine the classification of the impairment as “temporary”or “other-than-temporary.”  A temporaryimpairment charge results in an unrealized loss being recorded in the othercomprehensive income component of stockholders’ equity.  The unrealized loss does not reduce netincome for the applicable accounting period because the loss is not viewed asother-than-temporary.  The Company’smanagement currently believes that all of the impairment related to its ARS istemporary.  The factors evaluated todifferentiate between temporary and other-than-temporary include an assessmentof the credit quality of the underlying collateral, credit ratings actions andthe Company’s ability to hold the securities to maturity.  No tax benefit has been provided for thisallowance because a loss, if any, would be a capital loss.

 

## **NOTE4 — MERCHANDISE INVENTORIES AND SOURCES OF SUPPLY**

## ** **

Merchandise inventoriesconsisted of the following:

 
| ** **                | ** ** | **August 30,** | ** ** | **March 1,** | ** ** | **September 1,** | ** ** |
|---------------------------|------------|---------------------|------------|-------------------|------------|-----------------------|------------|
| **Description**           | ** ** | **2008**            | ** ** | **2008**          | ** ** | **2007**              | ** ** |
|                      |       |                |       |              |       |                  |       |
| Merchandise - in  store   |       | $                   | 39,959,578 |              | $          | 37,303,879            |       | $ | 40,159,538 |   |
| Merchandise - in  transit |       | 11,571,991          |       | 6,536,459         |       | 10,005,014            |       |
|                      |       |                |       |              |       |                  |       |
|                      |       | $                   | 51,531,569 |              | $          | 43,840,338            |       | $ | 50,164,552 |   |

 

**The Company does not havelong-term purchase commitments or arrangements with any of its suppliers oragents. **The Company purchased approximately13% and 14% of its merchandise from its largest overseas supplier during thefirst six months of fiscal 2009 and 2008, respectively.  Althoughthe Company has an established operating history with its largest vendor, therecan be no assurance that this relationship can be maintained in the future orthat the vendor will continue to supply merchandise to the Company.  Ifthere should be any significant disruption in the supply of merchandise fromthis vendor, management believes that it will be able to shift production toother suppliers so as to continue to secure the required volume ofproduct.  Nevertheless, it is possible that any significant disruption insupply could have a material adverse impact on the Company’s financial positionand results of operations.

** **

** **

**9**

----

**Table of Contents**

** **

In the three and sixmonth periods ended August 30, 2008, the Company purchased approximately 33% and 42% of its merchandise throughone buying agent (the “Agent”), respectively.  The Company has begun theprocess of establishing relationships with additional primary suppliers, whichare intended to reduce its reliance on the Agent.  The Agent also has informed the Company thatit desires to cease serving as an intermediary with manufacturers on behalf ofChristopher & Banks.  Therefore,the Company and the Agent have agreed that their current arrangement will bediscontinued at the end of December 2008. While management believes the actions it is taking to mitigate the risksof reliance on the Agent will be successful, any significant disruption in supplyfrom vendors working through the Agent could have a material adverse impact onthe Company’s financial position and results of operations.

 

## **NOTE5 — PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET**

## ** **

Property, equipment andimprovements, net consisted of the following:

 
| ** **                                                                  | ** ** | **Estimated**                              | ** ** | **August 30,** | ** **  | **March 1,** | ** ** | **September 1,** | ** ** |
|-----------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------|-------------|-------------------|------------|-----------------------|------------|
| **Description**                                                             | ** ** | **Useful Life**                            | ** ** | **2008**            | ** **  | **2008**          | ** ** | **2007**              | ** ** |
|                                                                        |       |                                       |       |                |        |              |       |                  |       |
| Land                                                                        |       | —                                     |       | $                   | 1,596,898   |              | $          | 1,596,898             |       | $ | 1,596,898 |   |
| Corporate  office, distribution center and related building improvements    |       | 25 years                                   |       | 12,014,667          |        | 12,014,667        |       | 11,823,129            |       |
| Store leasehold  improvements                                               |       | Term of related lease, typically  10 years |       | 100,131,040         |        | 97,525,439        |       | 90,623,054            |       |
| Store furniture  and fixtures                                               |       | Three to 10 years                          |       | 116,741,484         |        | 113,585,852       |       | 105,637,453           |       |
| Computer  hardware and software                                             |       | Three to five years                        |       | 27,696,814          |        | 21,595,000        |       | 15,985,314            |       |
| Corporate office  and distribution center furniture, fixtures and equipment |       | Seven years                                |       | 2,978,430           |        | 3,055,898         |       | 2,868,716             |       |
| Construction in  progress                                                   |       | —                                     |       | 8,955,510           |        | 9,474,738         |       | 10,410,235            |       |
|                                                                        |       |                                       |       | 270,114,843         |        | 258,848,492       |       | 238,944,799           |       |
| Less accumulated  depreciation and amortization                             |       |                                       |       | 138,343,266         |        | 125,249,912       |       | 106,361,449           |       |
|                                                                        |       |                                       |       |                |        |              |       |                  |       |
| Net property,  equipment and improvements                                   |       |                                       |       | $                   | 131,771,577 |              | $          | 133,598,580           |       | $ | 132,583,350 |   |

 

## **NOTE6 — ACCRUED LIABILITIES**

## ** **

Other accrued liabilitiesconsisted of the following:

 
| ** **                                             | ** ** | **August 30,** | ** ** | **March 1,** | ** ** | **September 1,** | ** ** |
|--------------------------------------------------------|------------|---------------------|------------|-------------------|------------|-----------------------|------------|
| **Description**                                        | ** ** | **2008**            | ** ** | **2008**          | ** ** | **2007**              | ** ** |
|                                                   |       |                |       |              |       |                  |       |
| Gift card,  certificate and store credit liabilities   |       | $                   | 8,432,457  |              | $          | 13,545,500            |       | $ | 8,104,900 |   |
| Accrued  un-invoiced merchandise inventory receipts    |       | 9,523,134           |       | 4,949,370         |       | 2,095,685             |       |
| Accrued workers  compensation self-insurance liability |       | 2,449,579           |       | 2,252,571         |       | 1,895,162             |       |
| Accrued income,  sales and other taxes payable         |       | 2,434,385           |       | 2,161,038         |       | 2,934,270             |       |
| Accrued  occupancy-related expenses                    |       | 1,632,248           |       | 992,584           |       | 1,219,971             |       |
| Other                                                  |       | 2,885,147           |       | 4,139,560         |       | 3,796,860             |       |
|                                                   |       |                |       |              |       |                  |       |
|                                                   |       | $                   | 27,356,950 |              | $          | 28,040,623            |       | $ | 20,046,848 |   |

 

## **NOTE7 — CREDIT FACILITY**

## ** **

                The Company maintains an Amended and RestatedRevolving Credit Facility (the “Credit Facility”) with Wells Fargo Bank,National Association (“Wells Fargo”). The Credit Facility provides the Company with revolving credit loans andletters of credit of up to $50.0 million, in the aggregate, subject to aborrowing base formula based on inventory levels.

 

 

10

----

Table of Contents

 

In the firstquarter of fiscal 2009, the Company and Wells Fargo entered into a SecondAmendment to the Credit Facility (the “Second Amendment”).  The Second Amendment extended the maturitydate of the Credit Facility by three years from June 30, 2008 to June 30,2011.  In addition, the Second Amendmentreduced the interest rate under the Credit Facility from the prime rate plus0.25% to the prime rate minus 0.25%.  Asof August 30, 2008, Wells Fargo’s prime rate was 5.0%.  The Second Amendment also provided theCompany with the ability to borrow under the Credit Facility at an interestrate tied to the London Interbank Market Offered Rate (LIBOR), which was 3.2%as of August 30, 2008.

 

                Interest under the CreditFacility is payable monthly in arrears. The Credit Facility carries a facility fee of 0.25%, based on the unusedportion as defined in the agreement, and a collateral monitoring fee.  For the six months ended August 30,2008, fees related to the Credit Facility totaled $17,900.  Borrowings under the Credit Facility arecollateralized by the Company’s equipment, intangible assets, inventory, inventoryletters of credit and letter of credit rights. The Company had no revolving credit loan borrowings under the CreditFacility during the first six months of fiscal 2009.  Historically, the Credit Facility has beenutilized by the Company only to open letters of credit to facilitate the importof merchandise.  The borrowing base at August 30,2008 was $38.1 million.  As of August 30,2008, the Company had outstanding letters of credit in the amount of $12.4million.  Accordingly, the availability ofrevolving credit loans under the Credit Facility was $25.7 million at August 30,2008.

 

The CreditFacility contains certain restrictive covenants, including restrictions onincurring additional indebtedness and limitations on certain types ofinvestments, as well as requiring the maintenance of certain financialcovenants.  As of August 30, 2008,the most recent measurement date, the Company was in compliance with all ofthese restrictive covenants under the Credit Facility.

 

## **NOTE8 — STOCKHOLDERS’ EQUITY**

 

In fiscal 2008,the Company’s Board of Directors authorized and subsequently announced aone-year stock repurchase program enabling the Company to purchase up to $20million of its common stock, subject to market conditions.  As of May 24, 2008, the expiration dateof the repurchase program, the Company had repurchased 948,800 shares of itscommon stock under the program for a total cost, including commissions, ofapproximately $12.1 million.  Norepurchases were made under the program in the first six months of fiscal 2009.

 

## **NOTE9 — STOCK-BASED COMPENSATION**

## ** **

*               *The Company accounts for stock-basedcompensation in accordance with the provisions of SFAS No. 123R, “Share-BasedPayment” (“SFAS 123R”).  Under thistransition method, stock-based compensation expense recognized for share-basedawards includes: (a) compensation expense for all stock-based compensationawards 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 provisionsof SFAS 123, and (b) compensation expense for all stock-based compensationawards granted subsequent to February 25, 2006, based on the grant datefair value estimated in accordance with the provisions of SFAS 123R.

 

Total pre-taxcompensation expense related to stock-based awards for the three months ended August 30,2008 and September 1, 2007 was approximately $524,000 and $482,000,respectively.  For the six months ended August 30,2008 and September 1, 2007, pre-tax stock-based compensation expensetotaled approximately $1.2 million and $941,000, respectively.  Stock-based compensation expense was includedin merchandise, buying and occupancy expenses for the Company’s buying anddistribution employees and in selling, general and administrative expenses forall other employees.

 

*Methodology Assumptions*

 

                The Company uses the Black-Scholes option-pricingmodel to value the Company’s stock options for grants to its employees andnon-employee directors.  Using thisoption-pricing model, the fair value of each stock option award is estimated onthe date of grant.  The fair value of theCompany’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 stockoptions.  The expected volatilityassumption is based on the historical volatility of the Company’s stock over aterm equal to the expected term of the option granted.  The expected term of stock option awardsgranted is derived from historical exercise experience.  The expected term assumption incorporates thecontractual term of an option grant, as well as the vesting period of anaward.  The risk-free interest rate isbased on the implied yield on a U.S. Treasury constant maturity with aremaining term equal to the expected term of the option granted.

 

 

11

----

Table of Contents

 

The weighted averageassumptions relating to the valuation of the Company’s stock option grants forthe three and six month periods ended August 30, 2008 and September 1,2007 were as follows:

 
| ** **               | ** ** | **Three Months Ended** | ** ** | **Six Months Ended**  | ** ** |
|--------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **               | ** ** | **August 30,**    | ** ** | **September 1,** | ** ** | **August 30,** | ** ** | **September 1,** | ** ** |
| ** **               | ** ** | **2008**               | ** ** | **2007**              | ** ** | **2008** | ** ** | **2007** | ** ** |
| Expected  divdend yield  |       | 2.56                   | %          | 1.43                  | %          | 2.34 | % | 1.35 | % |
| Expected  volatility     |       | 52.02                  | %          | 44.38                 | %          | 49.31 | % | 44.77 | % |
| Risk-free  interest rate |       | 3.02                   | %          | 4.43                  | %          | 2.72 | % | 4.51 | % |
| Expected  term in years  |       | 3.36                   |       | 4.07                  |       | 4.38 |   | 4.17 |   |

 

*Stock-Based Compensation Activity*

 

                The following table presents a summary of the Company’sstock option activity for the six months ended August 30, 2008:

 
| ** **                        | ** ** | ** ** | ** ** | ** **   | ** ** | ** **    | ** ** | ** **     | ** ** | **Weighted**    | ** ** |
|-----------------------------------|------------|------------|------------|--------------|------------|---------------|------------|----------------|------------|-----------------|------------|
| ** **                        | ** ** | ** ** | ** ** | **Weighted** | ** ** | ** **    | ** ** | ** **     | ** ** | **Average**     | ** ** |
| ** **                        | ** ** | **Number** | ** ** | **Average**  | ** ** | **Aggregate** | ** ** | **Weighted**   | ** ** | **Remaining**   | ** ** |
| ** **                        | ** ** | **of**     | ** ** | **Exercise** | ** ** | **Intrinsic** | ** ** | **Average**    | ** ** | **Contractual** | ** ** |
| ** **                        | ** ** | **Shares** | ** ** | **Price**    | ** ** | **Value**     | ** ** | **Fair Value** | ** ** | **Life**        | ** ** |
|                              |       |       |       |         |       |          |       |           |       |            |       |
| Outstanding,  beginning of period |       | 1,889,454  |       | $            | 18.83      |          | $          | 156,593        |       | $               | 6.79       |   |   |   |
| Vested                            |       | 1,485,011  |       | 19.34        |       | 156,593       |       | 6.83           |       |            |       |
| Unvested                          |       | 404,443    |       | 16.97        |       | —        |       | 6.63           |       |            |       |
| Granted                           |       | 394,250    |       | 10.02        |       | 114,941       |       | 3.59           |       |            |       |
| Exercised                         |       | —     |       | —       |       | —        |       | —         |       |            |       |
| Canceled -  Vested                |       | (215,198   | )          | 22.54        |       | 7,461         |       | 7.44           |       |            |       |
| Canceled - Unvested  (Forfeited)  |       | (32,231    | )          | 15.95        |       | —        |       | 6.00           |       |            |       |
| Outstanding, end  of period       |       | 2,036,275  |       | 16.83        |       | 264,073       |       | 6.12           |       | 6.13            |       |
| Vested                            |       | 1,339,705  |       | 18.87        |       | 149,132       |       | 6.78           |       | 4.52            |       |
| Unvested                          |       | 696,570    |       | 12.90        |       | 114,941       |       | 4.87           |       | 9.21            |       |
| Exercisable, end  of period       |       | 1,339,705  |       | 18.87        |       | 149,132       |       | 6.78           |       | 4.52            |       |
|                                   |            |            |            |              |            |               |            |                |            |                 |            |  |  |  |

 

                The Company may also grant shares of restricted stockto its employees and non-employee members of its Board of Directors.  Restricted stock awards are independent ofoption grants and are generally subject to forfeiture if employment or serviceterminates prior to the lapse of the restrictions.  In addition, certain of the Company’srestricted stock awards have performance-based vesting provisions and aresubject to forfeiture if these performance conditions are not achieved.  The Company assesses, on an ongoing basis,the probability of whether the performance criteria are projected to beachieved and, if it is deemed probable, recognizes compensation expense overthe relevant performance period.  Forthose awards not subject to performance criteria, the Company expenses the costof the restricted stock awards, which is determined to be the fair market valueof the shares at the date of grant, on a straight-line basis over the vestingperiod.  The fair market value of theCompany’s restricted stock is determined based on the closing price of theCompany’s common stock on the grant date.

 

                The following table presents a summary of the Company’srestricted stock activity for the six months ended August 30, 2008:

 
| ** **                       | ** ** | **Number** | ** ** | **Aggregate** | ** ** | **Weighted**   | ** ** |
|----------------------------------|------------|------------|------------|---------------|------------|----------------|------------|
| ** **                       | ** ** | **of**     | ** ** | **Intrinsic** | ** ** | **Average**    | ** ** |
| ** **                       | ** ** | **Shares** | ** ** | **Value**     | ** ** | **Fair Value** | ** ** |
|                             |       |       |       |          |       |           |       |
| Unvested,  beginning of period   |       | 118,484    |       | $             | 1,139,816  |           | $          | 16.26 |   |
| Granted                          |       | 307,733    |       | 2,960,391     |       | 9.79           |       |
| Vested                           |       | (41,666    | )          | 400,827       |       | 12.28          |       |
| Canceled -  Unvested (Forfeited) |       | (15,575    | )          | 149,832       |       | 14.70          |       |
| Unvested, end of  period         |       | 368,976    |       | 3,549,549     |       | 11.38          |       |
|                                  |            |            |            |               |            |                |            |  |  |

## ** **

 

12

----

Tableof Contents

 

## **NOTE10 — INCOME TAXES**

## ** **

                The Company adopted the provisions of FASBInterpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”),on March 4, 2007.  FIN No. 48prescribes a minimum recognition threshold and measurement process forrecording uncertain tax positions in the financial statements.  Additionally, FIN No. 48 providesguidance on derecognition, classification, accounting and disclosure related touncertain tax positions.

 

                As of August 30, 2008, the Company’s liabilityfor unrecognized tax benefits associated with uncertain tax positions wasapproximately $4.5 million and the total amount of unrecognized tax benefitsthat, if recognized, would affect the effective tax rate was $2.5 million.   The Company recognizes interest and penaltiesrelated to unrecognized tax benefits as components of income tax expense.  At August 30, 2008 the Company hadaccrued approximately $0.8 million for the potential payment of interest andpenalties.

 

                The Company and its subsidiaries are subject to U.S.federal income tax and the income tax of various state and localjurisdictions.  The Internal RevenueService has completed its audit for tax years through fiscal 2006.  The Company is not subject to state incometax examination by taxing authorities for taxable years prior to fiscal 2004.  At August 30, 2008, the Company did notexpect its liability for unrecognized tax benefits to significantly increase ordecrease over the next year.

 

## **NOTE11 — NET INCOME PER SHARE**

## ** **

Basic earnings pershare (“EPS”) is computed based on the weighted average number of shares ofcommon stock outstanding during the applicable periods, while diluted EPS iscomputed based on the weighted average number of shares of common stock andcommon equivalent shares outstanding. The Company’s reconciliation of EPS includes the individual shareeffects of all securities affecting EPS which consist solely of the effects ofdilution from awards granted under the Company’s stock-based compensationplans.

 

The following is areconciliation of the number of shares and per share amounts used in the basicand diluted EPS computations:

 
| ** **                                              | ** ** | **Three Months Ended**    | ** ** |
|---------------------------------------------------------|------------|---------------------------|------------|
| ** **                                              | ** ** | **August 30, 2008**  | ** ** | **September 1, 2007** | ** ** |
| ** **                                              | ** ** | ** **                | ** ** | **Net** | ** ** | ** ** | ** ** | **Net** | ** ** |
| ** **                                              | ** ** | ** **                | ** ** | **Income** | ** ** | ** ** | ** ** | **Income** | ** ** |
| ** **                                              | ** ** | **Shares**                | ** ** | **Per Share** | ** ** | **Shares** | ** ** | **Per Share** | ** ** |
|                                                    |       |                      |       |   |   |   |   |   |   |
| Basic                                                   |       | 35,098,661                |       | $ | 0.02 |   | 35,846,747 |   | $ | 0.09 |   |
| Effect of  dilution from stock-based compensation plans |       | 23,724                    |       | — |   | 101,767 |   | — |   |
|                                                    |       |                      |       |   |   |   |   |   |   |
| Diluted                                                 |       | 35,122,385                |       | $ | 0.02 |   | 35,948,514 |   | $ | 0.09 |   |
|                                                    |       |                      |       |   |   |   |   |   |   |
|                                                    | ** ** | **Six  Months Ended**     | ** ** |
|                                                    | ** ** | **August 30,  2008** | ** ** | **September 1,  2007** | ** ** |
|                                                    | ** ** | ** **                | ** ** | **Net** | ** ** | ** ** | ** ** | **Net** | ** ** |
|                                                    | ** ** | ** **                | ** ** | **Income** | ** ** | ** ** | ** ** | **Income** | ** ** |
|                                                    | ** ** | **Shares**                | ** ** | **Per  Share** | ** ** | **Shares** | ** ** | **Per  Share** | ** ** |
|                                                    |       |                      |       |   |   |   |   |   |   |
| Basic                                                   |       | 35,086,015                |       | $ | 0.35 |   | 35,900,270 |   | $ | 0.42 |   |
| Effect of  dilution from stock-based compensation plans |       | 25,915                    |       | (0.01 | ) | 110,031 |   | — |   |
|                                                    |       |                      |       |   |   |   |   |   |   |
| Diluted                                                 |       | 35,111,930                |       | $ | 0.34 |   | 36,010,301 |   | $ | 0.42 |   |
|                                                    |       |                      |       |   |   |   |   |   |   |

 

 

13

----

Table ofContents

 

Stock options of2,135,890 and 2,137,323 were excluded from the shares used in the computationof diluted EPS for the three and six month periods ended August 30, 2008,respectively, as they were anti-dilutive. Stock options of 1,711,179 and 1,639,179 were excluded from the sharesused in the computation of diluted EPS for the three and six month periods endedSeptember 1, 2007 as they were anti-dilutive.

 

**NOTE 12 — FAIR VALUE MEASUREMENTS**

** **

                As discussed in Note 1, the Company adopted SFAS No. 157,“Fair Value Measurements,” (as impacted by FSP Nos. 157-1 and 157-2) effective March 1,2008, with respect to fair value measurements of (a) nonfinancial assetsand liabilities that are recognized or disclosed at fair value in the Company’sfinancial statements on a recurring basis (at least annually) and (b) allfinancial assets and liabilities.

 

                Under SFAS No. 157, fair value is defined as theexit price, or the amount that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants asof the measurement date. SFAS No. 157 also establishes a hierarchy forinputs used in measuring fair value that maximizes the use of observable inputsand minimizes the use of unobservable inputs by requiring that the mostobservable inputs be used when available. Observable inputs are inputs market participants would use in valuingthe asset or liability developed based on market data obtained from sourcesindependent of the Company.  Unobservableinputs are inputs that reflect the Company’s assumptions about the factorsmarket participants would use in valuing the asset or liability developed basedupon the best information available in the circumstances.  The hierarchy is broken down into threelevels.  Level 1 inputs are quoted prices(unadjusted) in active markets for identical assets or liabilities. Level 2inputs include quoted prices for similar assets or liabilities in activemarkets, quoted prices for identical or similar assets or liabilities inmarkets that are not active and inputs (other than quoted prices) that areobservable for the asset or liability, either directly or indirectly.  Level 3 inputs are unobservable inputs forthe asset or liability.   Categorizationwithin the valuation hierarchy is based upon the lowest level of input that issignificant to the fair value measurement.

 

*Assetsand Liabilities that are Measured at Fair Value on a Recurring Basis:*

 

                For the Company, effective March 1, 2008, fairvalue under SFAS No. 157 (as impacted by FSP Nos. 157-1 and 157-2)principally applied to financial assets and liabilities such asavailable-for-sale investments (included in short and long-term investments inthe Consolidated Balance Sheet).  Theseitems were previously and will continue to be marked-to-market at eachreporting period; however, the definition of fair value used for thesemark-to-markets is now applied using SFAS No. 157.  The information in the following paragraphsand tables primarily addresses matters relative to these financial assets andliabilities.  Separately, there were nomaterial fair value measurements with respect to nonfinancial assets orliabilities that are recognized or disclosed at fair value in the Company’sfinancial statements on a recurring basis subsequent to the effective date ofSFAS No. 157 (as impacted by FSP Nos. 157-1 and 157-2).

 

                Following is a description of the valuationmethodologies used for financial assets and liabilities measured at fair value:

 

Available-for-saleinvestment securities — auction rate securities (“ARS”):

 

                As discussed in Note 3, auctions for ARS held by theCompany failed beginning in February 2008 and have continued to failthrough the date of this report.  As aresult, investments in ARS are valued to reflect the current lack of liquidityof these investments while taking into account the credit quality of theunderlying securities.

 

                The following table provides information by level forassets and liabilities that are measured at fair value, as defined by SFAS No. 157,on a recurring basis.

 
| ** **                      | ** ** | **Fair Value at**        | ** ** | **Fair Value Measurements  Using Inputs Considered as** | ** ** |
|---------------------------------|------------|--------------------------|------------|---------------------------------------------------------|------------|
| **Description**                 | ** ** | **August 30, 2008** | ** ** | **Level 1**                                             | ** ** | **Level 2** | ** ** | **Level 3** | ** ** |
| Assets:                         |       |                     |       |                                                    |       |   |   |   |   |
| Available-for-sale  investments |       |                     |       |                                                    |       |   |   |   |   |
| Auction Rate  Securities        |       | $                        | 18,535,577 |                                                    | $          | — |   | $ | — |   | $ | 18,535,577 |   |
| Liabilities:                    |       | —                   |       | —                                                  |       | — |   | — |   |
|                                 |            |                          |            |                                                         |            |  |  |  |  |  |  |  |  |

 

 

14

----

Table of Contents

 

                The following table provides a reconciliation of thebeginning and ending balances of items measured at fair value on a recurringbasis in the table above that used significant unobservable inputs (Level 3).

 
| ** **                              | ** ** | **Auction Rate Securities** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|
|                                    |       |                        |       |
| Beginning  balance, March 1, 2008  |       | $                           | 23,350,000 |   |
|                                    |       |                        |       |
| Total gains  (losses):                  |       |                        |       |
| Included in  earnings                   |       | —                      |       |
| Included in  other comprehensive income |       | 185,577                     |       |
|                                    |       |                        |       |
| Purchases,  issuances and settlements   |       | (5,000,000                  | )          |
| Transfers in  and/or out of Level 3     |       | —                      |       |
| Ending balance,  August 30, 2008   |       | $                           | 18,535,577 |   |

 

                The Company reports other comprehensive income (loss)in accordance with the provisions of SFAS No. 130, “ReportingComprehensive Income” (“SFAS No. 130”). SFAS No. 130 established standards for the reporting and disclosureof Comprehensive Income.  In the firstsix months of fiscal 2009, other comprehensive income (loss) includedunrealized gains or losses associated with investments classified as availablefor sale.  Total comprehensive income forthe three months ended August 30, 2008 included only the Company’s netincome of $836,000.  Total comprehensiveincome for the six month period ended August 30, 2008 was $12.3 million,which is the sum of the Company’s net income of $12.1 million plus the $186,000adjustment to the Company’s allowance for the temporary impairment of long-terminvestments.

 

*Assetsand Liabilities that are Measured at Fair Value on a Nonrecurring Basis:*

 

                During the six months ended August 30, 2008, theCompany had no measurements of assets or liabilities at fair value (as definedin SFAS No. 157) on a nonrecurring basis subsequent to their initialrecognition.  As indicated in Note 1, theaspects of SFAS No. 157 for which the effective date for the Company wasdeferred under FSP No. 157-2 until March 1, 2009 relate tononfinancial assets and liabilities that are measured at fair value but arerecognized or disclosed at fair value on a nonrecurring basis. This deferralapplies to such items as nonfinancial assets and liabilities initially measuredat fair value in a business combination (but not measured at fair value insubsequent periods) or nonfinancial long-lived asset groups measured at fairvalue for an impairment assessment.

 

**NOTE 13 — COMMITMENTS AND CONTINGENCIES**

** **

*Legal Proceedings*

 

The Company is subject tovarious legal proceedings and claims that arise in the ordinary course ofbusiness.  Although the amount of anyliability that could arise with respect to these actions cannot be accuratelypredicted, any such liability is not expected to have a material adverse impacton the Company’s financial position or results of operations.

 

## **NOTE14 — SEGMENT REPORTING**

## ** **

                The Company operates in the retail apparel industryin which it primarily designs, sources and sells women’s apparel catering tocustomers generally ranging in age from 40 to 60 who are typically part of asegment of the female baby boomer demographic. The Company has identified three operating segments (Christopher &Banks, C.J. Banks and Acorn) as defined by SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information” (“SFAS No. 131”).  The Company’s Christopher & Banksand C.J. Banks operating segments have been aggregated into one reportablesegment based on the similar nature of products sold, methods of sourcing,merchandising and distribution processes involved, target customers, andeconomic characteristics of the two brands. Based on operating performance, the Company’s Acorn division ispresented as a separate reportable segment.

 

 

15

----

Table of Contents

 

                In the table below the “Christopher &Banks/C.J. Banks” reportable segment includes activity generated by the Company’sChristopher & Banks and C.J. Banks operations. The “Acorn” reportablesegment includes activity generated from the Company’s Acorn operations.  The “Corporate/Administrative” column, whichprimarily represents operating activity at the Company’s corporate office anddistribution center facility, is presented to allow for reconciliation ofsegment-level net sales, operating income (loss) and total assets to theCompany’s consolidated net sales, operating income and total assets.  Segment operating income (loss) includes onlynet sales, merchandise gross margin and direct store expenses with noallocation of corporate overhead.  Netsales and operating income (loss) are the two components of segment operationsreviewed by the Company’s chief operating decision maker.

 

**SegmentReporting:**

 
| ** **                                      | ** ** | **Christopher & Banks/ C.J. Banks**  | ** **  | **Acorn**  | ** ** | **Corporate/ Administrative**  | ** ** | **Consolidated** | ** **  |
|-------------------------------------------------|------------|-----------------------------------------------|-------------|------------|------------|--------------------------------|------------|------------------|-------------|
|                                            |       |                                          |        |       |       |                           |       |             |        |
| **Three  Months Ended August 30, 2008:**   | ** ** | ** **                                    | ** **  | ** ** | ** ** | ** **                     | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                             | 128,451,122 |       | $          | 3,185,531                      |       | $                | —      |   | $ | 131,636,653 |   |
| Operating income  (loss)                        |       |                                          | 18,512,530  |       |       | (1,738,981                     | )          |             | (15,971,411 | ) |   | 802,138 |   |
| Total assets                                    |       |                                          | 161,093,719 |       |       | 1,506,399                      |       |             | 152,665,185 |   |   | 315,265,303 |   |
|                                            |       |                                          |        |       |       |                           |       |             |        |
| **Three  Months Ended September 1, 2007:** | ** ** | ** **                                    | ** **  | ** ** | ** ** | ** **                     | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                             | 137,859,806 |       | $          | 3,267,809                      |       | $                | —      |   | $ | 141,127,615 |   |
| Operating income  (loss)                        |       |                                          | 19,868,160  |       |       | (655,289                       | )          |             | (14,816,975 | ) |   | 4,395,896 |   |
| Total assets                                    |       |                                          | 175,139,394 |       |       | 9,976,114                      |       |             | 120,654,351 |   |   | 305,769,859 |   |
|                                            |       |                                          |        |       |       |                           |       |             |        |
|                                            | ** ** | **Christopher &  Banks/ C.J. Banks** | ** **  | **Acorn**  | ** ** | **Corporate/  Administrative** | ** ** | **Consolidated** | ** **  |
| **Six  Months Ended August 30, 2008:**     | ** ** | ** **                                    | ** **  | ** ** | ** ** | ** **                     | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                             | 283,846,470 |       | $          | 7,432,987                      |       | $                | —      |   | $ | 291,279,457 |   |
| Operating income  (loss)                        |       |                                          | 54,135,009  |       |       | (2,401,889                     | )          |             | (33,032,262 | ) |   | 18,700,858 |   |
| Total assets                                    |       |                                          | 161,093,719 |       |       | 1,506,399                      |       |             | 152,665,185 |   |   | 315,265,303 |   |
|                                            |       |                                          |        |       |       |                           |       |             |        |
| **Six  Months Ended September 1, 2007:**   | ** ** | ** **                                    | ** **  | ** ** | ** ** | ** **                     | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                             | 283,380,620 |       | $          | 7,118,329                      |       | $                | —      |   | $ | 290,498,949 |   |
| Operating income  (loss)                        |       |                                          | 51,906,055  |       |       | (1,344,063                     | )          |             | (28,085,133 | ) |   | 22,476,859 |   |
| Total assets                                    |       |                                          | 175,139,394 |       |       | 9,976,114                      |       |             | 120,654,351 |   |   | 305,769,859 |   |

 

For the three and sixmonth periods ended August 30, 2008, the Acorn operating loss includedapproximately $1.2 million of impairment charges related to store-level assets.

 

 

16

----

Table of Contents

 

**ITEM 2.**

**MANAGEMENT’S DISCUSSION ANDANALYSIS OF**

**FINANCIAL CONDITION AND RESULTSOF OPERATIONS**

** **

**                Thefollowing management’s discussion and analysis of financial condition andresults of operations (“MD&A”) should be read in conjunction with theconsolidated financial statements and notes included in Item 1 of this Form 10-Q.**

** **

**Executive Overview**

** **

**               **Christopher & BanksCorporation, a Delaware corporation, is a Minneapolis-based retailer of women’sapparel, which operates retail stores through its wholly-ownedsubsidiaries.  The Company wasincorporated in 1986 to acquire Braun’s Fashions, Inc., which had operatedas a family-owned business since 1956. In July 2000, the Company’s stockholders approved a change in theCompany’s name from Braun’s Fashions Corporation to Christopher &Banks Corporation.

** **

**                Asof August 30, 2008, the Company operated 854 stores in 46 states,including 552 Christopher & Banks stores, 266 C.J. Banks stores and 36Acorn stores.  The Company also operatestwo e-commerce enabled websites at www.christopherandbanks.com and www.cjbanks.com.  The Company’s Christopher & Banksbrand offers distinctive fashions featuring exclusively designed, coordinatedassortments of women’s apparel in sizes 4 to 16. The Company’s C.J. Banks brandoffers similar assortments of women’s apparel in sizes 14W to 24W.  Its Acorn stores offer upscale women’sfashions, along with accessories, including jewelry, handbags and other giftitems under private and branded labels. On July 31, 2008, the Company announced plans to close all 36 ofits Acorn stores by December 31, 2008.**

** **

*Fiscal 2009 Second QuarterSummary*

 

                The Company recorded net income of $836,000, or $0.02per diluted share, in the second quarter of fiscal 2009.  Second quarter earnings were reduced by anon-cash, pre-tax, long-lived asset impairment charge of $1.2 million, or $0.02per diluted share, related to the Company’s Acorn division.  Last year, the Company reported net income of$3.4 million, or $0.09 per diluted share, for the second quarter of fiscal2008.  Same-store sales for the secondquarter of fiscal 2009 declined 13 percent. The significant decline in store traffic encountered in the firstquarter of fiscal 2009 continued throughout the second quarter.  The Company utilizes traffic counters inapproximately 25% of its stores and calculates its customer traffic metricsbased on traffic counts from these stores. Despite the downturn in customer traffic, merchandise margins for thesecond quarter increased approximately 480 basis points over last year as tightinventory controls allowed for a reduced need to mark-down merchandise.  Inventory levels at the end of the quarterwere down approximately 6% on a per-store basis compared to the prioryear.  While the average number oftransactions per store declined significantly, both the Company’s averagetransaction value and average units per transaction increased in the secondquarter of fiscal 2009 compared to the second quarter of fiscal 2008, whichmanagement believes was reflective of acceptance of the Company’s merchandiseassortment by customers who shopped in its stores.  The Company’s product has continued to evolvefrom more traditional thematic styles to newer, more refined offerings whichblend an elevated taste level of novelty styles with updated fabrications andsilhouettes.

 

                In the second quarter, the Company opened three newChristopher & Banks stores and three new C.J. Banks stores.  The Company closed two Christopher &Banks stores during the quarter.

 

                On July 31, 2008, the Company announced itsdecision to exit its Acorn division business when management concluded, after acomprehensive review and evaluation, that the concept had not demonstrated thepotential to deliver an acceptable long-term return on the Company’sinvestment.  On July 30, 2008, theCompany’s Board of Directors authorized a plan to close all of the Company’s 36Acorn stores by December 31, 2008. This decision will enable the Company to focus its resources on its twocore brands, Christopher & Banks and C.J. Banks.  During the three months ended August 30,2008, the Company recorded a pre-tax charge of $1.2 million related to theimpairment of long-lived Acorn assets, including approximately $1.1 million ofproperty and equipment and $0.1 million of other intangible assets.  The Company estimates that, during the thirdand fourth quarters of fiscal 2009, it will recognize between $5.4 million and$8.4 million of pre-tax cash charges, consisting of real estate operating leasetermination-related costs, retention and severance expenses and miscellaneousstore closing and other associated costs. These estimated costs and charges are preliminary and may varymaterially based on various factors, including timing in execution of the exitplan, the outcome of lease termination negotiations with landlords, the degreeof success in liquidating the Acorn inventory, the amount of retention andseverance payments ultimately made to Acorn employees and changes in management’sassumptions and projections.

 

 

17

----

Table of Contents

 

*Fiscal 2009 Outlook*

 

                In the first six months of fiscal 2009, the Company’sresults were impacted by the extremely challenging domestic macro-economicenvironment.  Higher gasoline and foodcosts, combined with growing instability in the credit, stock and financialmarkets and increasing general economic uncertainty, have placed pressure onconsumers’ spending patterns.  Weakcustomer traffic encountered in the first six months of the fiscal year hascontinued into September and early October, and the Company anticipatesthat this weak traffic trend, and corresponding negative impact on sales andearnings, will likely persist throughout the third quarter and into the fourthquarter of fiscal 2009.

 

                Given the uncertain economic environment, the Companycontinues to approach its real estate growth strategy cautiously.  The Company opened 12 new Christopher &Banks stores and 11 new C.J. Banks locations in the first half of the year andplans to open three new Christopher & Banks stores and three new C.J.Banks stores in the third quarter.  The Companydoes not plan to open any new stores in the fourth quarter of fiscal 2009.  Going forward, the Company plans to proceedcautiously with new store growth.  Newstore opportunities will be analyzed closely and only those with extremelycompelling lease economics are expected to be approved.

 

                Inventory levels were down 6% on a per-store basis atthe end of the second quarter of fiscal 2009 compared to the same period infiscal 2008.  Receipts of inventory inthe second half of fiscal 2009 are expected to approximate levels similar tothe second half of fiscal 2008, when the Company began to implement tighterinventory controls.  As the yearprogresses, management intends to evaluate selling trends and make appropriateadjustments, if possible, to inventory levels in an attempt to maximizemerchandise margins.

 

*Key Business Initiatives*

 

                During the first six months fiscal 2009, the Companycontinued to make progress related to several key business initiatives asdescribed below.

 

**The Company launched two separatee-commerce websites in February 2008 for its Christopher & Banksand C.J. Banks brands.  These websitesgive customers the ability to view and purchase the Company’s merchandiseonline at www.christopherandbanks.com and www.cjbanks.com.  The Company currently sells essentially thesame selection of merchandise on its websites that it features in itsChristopher & Banks and C.J. Banks stores.  The Company’s customers have respondedfavorably to its two e-commerce sites in the first half of fiscal 2009 and inresponse the Company has adjusted inventory levels for its online businesses tomatch anticipated demand for the remainder of the year.  I**n thesecond quarter of fiscal 2009, the Company began offering a greater selectionof sizes through its e-commerce websites than are currently available in itsstores.  Management believes that itswebsites provide the Company with an opportunity to generate incremental salesand offer convenience and product research capabilities to its customers.

** **

                Management plans to continue to make upgrades tocritical components of its information systems. In the first quarter the Company completed the installation of newpoint-of-sale registers in 550 of its stores. The new registers provide the Company with updated point-of-saletechnology.  Management anticipates thesenew registers will help improve operating efficiencies and provide enhancedcommunication abilities with its stores. In the second quarter of fiscal 2009, the Company continued theinstallation of a new merchandise planning and allocation system.  The system allows enhanced product allocationmodels which give the Company increased flexibility regarding productdistribution by store sales volume, climate and customer size and fashionpreferences.  In addition, the financialplanning modules of this system have begun to provide the Company more in-depthproduct analysis capabilities. Management expects to realize financial benefits from this systembeginning in late fiscal 2009, with additional benefits expected to be realizedin fiscal 2010.  The Company also substantially completed theimplementation of a new suite of financial software in the second quarter offiscal 2009.

 

                The Company also continues to analyze, realign andstrengthen its merchandise sourcing structure. In the three and six month periods ended August 30, 2008, the Company purchased approximately 33% and 42%of its merchandise, respectively, through one buying agent (the “Agent”). The Company has continued the process of establishing relationships withadditional primary suppliers, which are intended to reduce its reliance on theAgent.  The Agent also has informed theCompany that it desires to cease serving as an intermediary with manufacturerson behalf of Christopher & Banks. Therefore, the Company and the Agent have agreed that their currentarrangement will be discontinued at the end of December 2008.  While management believes the actions it istaking to mitigate the risks of reliance on the Agent will be successful, anysignificant disruption in supply from vendors working through the Agent couldhave a material adverse impact on the Company’s financial position and resultsof operations.

 

 

18

----

Table of Contents

 

                In order to increase awareness of its brands, theCompany plans to continue expanding its marketing efforts in the second half offiscal 2009.  The Company plans to spendapproximately 1.5% of its net sales on marketing-related expenditures in fiscal2009, compared to approximately 1.0% of sales in fiscal 2008.  The Company plans to continue its efforts toexpand its customer relationship management database and, in particular, focuson increasing its number of customer e-mail contacts.  In the second half of fiscal 2009, theCompany also intends to use a variety of pre-planned promotions and grassrootsin-store events in an attempt to drive more customer traffic to its stores.

 

**While the Company believes theretail and macro-economic environments will remain challenging for theforeseeable future, it also believes that it is taking actions to position theCompany for stronger operating performance when economic conditions become morefavorable.**

** **

**Key PerformanceIndicators**

** **

The Company’s managementevaluates the following items, which are considered key performance indicators,in assessing the Company’s performance:

 

*Same-storesales*

 

The Company’s same-storesales data is calculated based on the change in net sales for stores that havebeen open for more than 13 full months and includes stores, if any, that havebeen relocated within the same mall, though the Company typically does notexpand or relocate stores within a mall. Stores where square footage has been changed by more than 25 percent areexcluded from the same-store sales calculation. Stores closed during the year are included in the same-store salescalculation only for the full months of the year the stores were open.

 

Management considers same-storesales to be an important indicator of the Company’s performance.  Same-store sales results are important inachieving leveraging of costs, including store payroll, store occupancy,depreciation and other general and administrative expenses.  Year-over-year increases in same-store salescontribute to greater leveraging of costs, while declining same-store salescontribute to deleveraging of costs. Same-store sales results also have a direct impact on the Company’stotal net sales, cash and cash equivalents and working capital.

 

*Merchandise,buying and occupancy costs, exclusive of depreciation and amortization*

 

Merchandise, buying andoccupancy costs, exclusive of depreciation and amortization, measure whetherthe Company is appropriately optimizing the price of its merchandise.  Merchandise, buying and occupancy costsinclude the cost of merchandise, markdowns, shrink, freight into and out of theCompany’s distribution center, buyer and distribution center salaries, buyertravel, rent and other occupancy-related costs, various merchandise design anddevelopment costs, miscellaneous merchandise expenses and other costs relatedto the Company’s distribution network.

 

*Operatingincome*

 

The Company’s managementviews operating income as a key indicator of the Company’s success.  The key drivers of operating income aresame-store sales; merchandise, buying and occupancy costs; and the Company’sability to control its other operating costs.

 

*Storeproductivity*

 

Store productivitymeasures, including sales per square foot, average unit retail selling price,number of transactions per store, number of units per transaction, averageretail dollars per transaction, customer traffic and conversion rates (thepercentage of customers who enter the Company’s stores and make a purchase) areevaluated by management in assessing the operational performance of individualstores and of the Company.

 

*Inventoryturnover*

 

The Company’s managementevaluates inventory turnover as a measure of how productively inventory is boughtand sold.  Inventory turnover isimportant as it can signal slow-moving inventory, which can be critical indetermining the need to take markdowns on merchandise.

 

*Cash flowand liquidity*

 

Managementevaluates cash flow from operations, investing activities and financingactivities in determining the sufficiency of the Company’s cash position.  Cash flow from operations has historicallybeen sufficient to cover the Company’s uses of cash.  The Company expects its cash and cashequivalents, combined with cash flows from operations, to be sufficient to fundanticipated capital expenditures, working capital and other requirements forliquidity during fiscal 2009.

 

 

19

----

Table ofContents

 

**Critical Accounting Policies andEstimates**

 

The Company’s criticalaccounting policies are more fully described in Note 1 of the notes toconsolidated financial statements contained within the Company’s Annual Reporton Form 10-K for the fiscal year ended March 1, 2008.  Management’s discussion and analysis of theCompany’s financial condition and results of operations are based upon theCompany’s consolidated condensed financial statements, which have been preparedin accordance with accounting principles generally accepted in the UnitedStates of America.

 

On an ongoing basis, theCompany evaluates its estimates, including those related to customer productreturns, inventories, income taxes, medical and workers’ compensation claimsand contingencies.  The Company bases itsestimates on historical experience and on various other assumptions that itbelieves to be reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying values of assets and liabilitiesthat are not readily apparent from other sources.  Actual results may differ from theseestimates under different assumptions or conditions.  There have been no material changes in theCompany’s critical accounting policies or estimates in the six months ended August 30,2008.

 

**Results of Operations**

 

**               **The following table sets forthconsolidated income statement data expressed as a percentage of net sales forthe periods indicated.

 
| ** **                                                                           | ** ** | **Three Months Ended** | ** ** | **Six Months Ended**  | ** ** |
|--------------------------------------------------------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                                                                           | ** ** | **August 30,**    | ** ** | **September 1,** | ** ** | **August 30,** | ** ** | **September 1,** | ** ** |
| ** **                                                                           | ** ** | **2008**               | ** ** | **2007**              | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                 |       |                   |       |                  |       |   |   |   |   |
| Net sales                                                                            |       | 100.0                  | %          | 100.0                 | %          | 100.0 | % | 100.0 | % |
| Merchandise,  buying and occupancy costs, exclusive of depreciation and amortization |       | 61.9                   |       | 64.2                  |       | 59.0 |   | 61.1 |   |
| Selling, general  and administrative expenses                                        |       | 31.5                   |       | 28.8                  |       | 29.6 |   | 27.5 |   |
| Depreciation and  amortization                                                       |       | 6.0                    |       | 3.9                   |       | 5.0 |   | 3.7 |   |
| Operating income                                                                     |       | 0.6                    |       | 3.1                   |       | 6.4 |   | 7.7 |   |
| Interest income                                                                      |       | 0.4                    |       | 0.8                   |       | 0.5 |   | 0.8 |   |
| Income before  income taxes                                                          |       | 1.0                    |       | 3.9                   |       | 6.9 |   | 8.5 |   |
| Income tax  provision                                                                |       | 0.4                    |       | 1.5                   |       | 2.7 |   | 3.3 |   |
| Net income                                                                           |       | 0.6                    | %          | 2.4                   | %          | 4.2 | % | 5.2 | % |

 

**Three Months Ended August 30, 2008 Comparedto Three Months Ended September 1, 2007**

 

***NetSales.**** *Net sales for the three months ended August 30,2008 were $131.6 million, a decrease of $9.5 million, or approximately 7%, from$141.1 million for the three months ended September 1, 2007.  The decrease in net sales was a result of adecline in same-store sales, partially offset by sales generated from anincrease in the number of stores operated by the Company.  The Company also operated two e-commercewebsites in the second quarter of fiscal 2009, which were not operating in thesecond quarter of fiscal 2008.  TheCompany’s same-store sales for the second quarter of fiscal 2009 declined 13%when compared to the corresponding period in fiscal 2008.  An approximate 19% decrease in the averagenumber of transactions per store was partially offset by an approximate 6%increase in the average value per transaction, which was attributable to ahigher average retail price per unit and slightly more units sold pertransaction.  In the second quarter offiscal 2009, management believes the Company’s sales were negatively impactedby the extremely challenging domestic macro-economic environment.  Higher gasoline and food costs, combined withgrowing instability in the credit, stock and financial markets and increasinggeneral economic uncertainty, have placed pressure on consumers’ spendingpatterns, which resulted in reduced customer traffic and a lower average numberof transactions per store.  The Companyoperated approximately 6% more stores during the second quarter of fiscal 2009compared to the same period in fiscal 2008, which partially offset the 13%decline in same-store sales.  At August 30,2008, the Company operated 854 stores, compared to 807 stores at September 1,2007.

 

 

20

----

Table of Contents

 

***Merchandise,Buying and Occupancy Costs, exclusive of depreciation and amortization. ***Merchandise, buying and occupancy costs, exclusive ofdepreciation and amortization, were $81.5 million, or 61.9% of net sales,during the second quarter of fiscal 2009, compared to $90.6 million, or 64.2%of net sales, during the same period in fiscal 2008, resulting in approximately230 basis points of positive leverage. The largest component of the decrease in merchandise, buying andoccupancy costs, as a percentage of net sales, was related to improvements inmerchandise margins.  Markdowns needed toclear inventory were less than required in last year’s second quarter as theCompany maintained strong controls over inventory levels in the second quarterof fiscal 2009.  On a per-store basis,inventory was down approximately 6% at August 30, 2008 compared to September 1,2007.  The reduction in inventory levelson a per-store basis, combined with lower markdowns, resulted in an increase ininventory turnover as compared to last year. The Company’s retail inventory turnover increased to 3.4 for the twelvemonths ended August 30, 2008 from 3.0 for the twelve months ended September 1,2007.

 

***Selling,General and Administrative Expenses. ***Selling, general and administrativeexpenses for the three months ended August 30, 2008 were $41.4 million, or31.5% of net sales, compared to $40.6 million, or 28.8% of net sales, for thethree months ended September 1, 2007. The increase in selling, general and administrative expenses in thesecond quarter of fiscal 2009 was primarily a result of increased marketingexpenditures related to the Company’s ongoing initiative to build brandawareness, higher self-insured medical costs, expenses associated with theCompany’s two e-commerce websites which were not operating in the comparableperiod last year, increased information technology support fees related to theCompany’s efforts to upgrade and enhance critical components of its informationsystems and higher administrative salaries resulting from increased staffing atthe Company’s corporate offices.  Inaddition, the Company incurred $2.1 million of CEO transition-related expensesin the second quarter of fiscal 2008, with no comparable costs incurred in thesecond quarter of fiscal 2009.

 

***Depreciationand Amortization.***  Depreciation and amortizationwas $8.0 million, or 6.0% of net sales, in the second quarter of fiscal 2009,compared to $5.5 million, or 3.9% of net sales, in the second quarter of fiscal2008.  The increase in depreciation andamortization expense was a result of capital expenditures made by the Companyover the past year.  The Company opened23 new stores in the first six months of fiscal 2009, installed newpoint-of-sale registers at 550 of its stores in the first quarter, and madeother information technology-related improvements at its corporate office anddistribution center facility in the first and second quarters.  The Company also opened 69 new stores andmade upgrades to certain of its information technology systems in fiscal 2008.  In addition, depreciation and amortizationexpense in the second quarter of fiscal 2009 included approximately $1.2million of long-lived asset impairment charges related to the Company’s Acorndivision.  No long-lived asset impairmentcharges were recorded in the second quarter of fiscal 2008.

 

***OperatingIncome.***  As a result of the foregoing factors,operating income for the three months ended August 30, 2008 was $802,000,or 0.6% of net sales, compared to operating income of $4.4 million, or 3.1% ofnet sales, for the three months ended September 1, 2007.

 

***InterestIncome. ***For the three months ended August 30,2008, interest income was $586,000 compared to $1.2 million for the threemonths ended September 1, 2007.  Thedecrease resulted from lower interest rates on cash, cash-equivalents andinvestments in the second quarter of fiscal 2009 compared to the second quarterof fiscal 2008.

 

***IncomeTaxes. ***Income tax expense in the second quarterof fiscal 2009 was $552,000, with an effective tax rate of 39.8%, compared to$2.2 million, with an effective tax rate of 39.0%, in the second quarter offiscal 2008.  The increase in effectivetax rate primarily resulted from a decrease in the amount of tax-exemptinterest earned in the second quarter of fiscal 2009 compared to the secondquarter of fiscal 2008.

 

***NetIncome. ***As a result of the foregoing factors, netincome for the three months ended August 30, 2008 was $836,000, or 0.6% ofnet sales, and $0.02 per diluted share, compared to net income of $3.4 million,or 2.4% of net sales, and $0.09 per diluted share, for the three months ended September 1,2007.

 

**Six Months Ended August 30, 2008 Compared toSix Months Ended September 1, 2007**

 

***NetSales.**** *Net sales for the six months ended August 30,2008 were $291.3 million, an increase of $0.8 million, or approximately 0.3%,from $290.5 million for the six months ended September 1, 2007.  The increase in net sales primarily resultedfrom an increase in the number of stores operated by the Company, substantiallyoffset by a decline in same-store sales. The Company also operated two e-commerce websites in the first sixmonths of fiscal 2009, which were not operating in the first half of fiscal2008.  The Company operated approximately6% more stores during the first half of fiscal 2009 compared to the same periodin fiscal 2008.  At August 30, 2008,the Company operated 854 stores, compared to 807 stores at September 1,2007.

 

 

21

----

Table of Contents

 

The Company’s same-storesales for the first six months of fiscal 2009 declined 6% when compared to thecorresponding period in fiscal 2008.  Anapproximate 15% decrease in the average number of transactions per store waspartially offset by an approximate 9% increase in the average value pertransaction, which was attributable to a higher average retail price per unitand slightly more units sold per transaction. In the first half of fiscal 2009, the decline in sales was primarilyattributable to reduced customer traffic and a lower average number oftransactions per store resulting from the challenging macro-economicenvironment.  This was partially offsetby strong customer response to the Company’s second “Friends and Family”promotional event held in April.

 

***Merchandise,Buying and Occupancy Costs, exclusive of depreciation and amortization. ***Merchandise, buying and occupancy costs, exclusive ofdepreciation and amortization, were $171.9 million, or 59.0% of net sales,during the first half of fiscal 2009, compared to $177.5 million, or 61.1% ofnet sales, during the same period in fiscal 2008, resulting in approximately210 basis points of positive leverage. The largest component of the decrease in merchandise, buying andoccupancy costs, as a percentage of net sales, was related to improvements inmerchandise margins, primarily resulting from a lower level of markdowns.  Markdowns needed to clear inventory were lessthan required last year as the Company maintained strong controls overinventory levels in the first and second quarters of fiscal 2009.  On a per-store basis, inventory was downapproximately 35% at the end of first quarter and down 6% at the end of thesecond quarter of fiscal 2009 compared to the corresponding periods in fiscal2008.  The reduction in inventory levelson a per-store basis, combined with lower markdowns, resulted in an increase ininventory turnover as compared to last year. The Company’s retail inventory turnover increased to 3.4 for the twelvemonths ended August 30, 2008 from 3.0 for the twelve months ended September 1,2007.

 

***Selling,General and Administrative Expenses. ***Selling, general and administrativeexpenses for the six months ended August 30, 2008 were $86.2 million, or29.6% of net sales, compared to $79.7 million, or 27.5% of net sales, for thesix months ended September 1, 2007. The increase in selling, general and administrative expenses in thefirst six months of fiscal 2009 was primarily a result of increased marketingexpenditures related to the Company’s ongoing initiative to build brandawareness, higher self-insured medical costs, expenses associated with theCompany’s two e-commerce websites which were not operating in the comparableperiod last year, increased information technology support fees related to theCompany’s efforts to upgrade and enhance critical components of its informationsystems and higher administrative salaries resulting from increased staffing atthe Company’s corporate offices.  Inaddition, the Company incurred $2.1 million of CEO transition-related expensesin the first half of fiscal 2008, with no comparable costs incurred in thefirst six months of fiscal 2009.

 

***Depreciationand Amortization.***  Depreciation and amortizationwas $14.4 million, or 5.0% of net sales, in the first half of fiscal 2009,compared to $10.8 million, or 3.7% of net sales, in the first six months offiscal 2008.  The increase indepreciation and amortization expense was a result of capital expenditures madeby the Company over the past year.  TheCompany opened 23 new stores in the first six months of fiscal 2009, installednew point-of-sale registers at 550 of its stores in the first quarter, and madeother information technology-related improvements at its corporate office anddistribution center facility in the first and second quarters.  The Company also opened 69 new stores andmade upgrades to certain of its information technology systems in fiscal 2008.  In addition, depreciation and amortizationexpense in the first half of fiscal 2009 included approximately $1.2 million oflong-lived asset impairment charges related to the Company’s Acorndivision.  No long-lived asset impairmentcharges were recorded in the first six months of fiscal 2008.

 

***OperatingIncome.***  As a result of the foregoing factors,operating income for the six months ended August 30, 2008 was $18.7million, or 6.4% of net sales, compared to operating income of $22.5 million,or 7.7% of net sales, for the six months ended September 1, 2007.

 

***InterestIncome. ***For the six months ended August 30,2008, interest income was $1.4 million compared to $2.2 million for the sixmonths ended September 1, 2007.  Thedecrease in interest income resulted from lower interest rates on cash,cash-equivalents and investments in the first six months of fiscal 2009compared to the first six months of fiscal 2008.

 

***IncomeTaxes. ***Income tax expense in the first half offiscal 2009 was $8.0 million, with an effective tax rate of 39.8%, compared to$9.6 million, with an effective tax rate of 39.0%, in the first six months offiscal 2008.  The increase in effectivetax rate primarily resulted from a decrease in the amount of tax-exemptinterest earned in the first half of fiscal 2009 compared to the first half offiscal 2008.

 

***NetIncome. ***As a result of the foregoing factors, netincome for the six months ended August 30, 2008 was $12.1 million, or 4.2%of net sales, and $0.34 per diluted share, compared to net income of $15.1million, or 5.2% of net sales, and $0.42 per diluted share, for the six monthsended September 1, 2007.

 

 

22

----

Table ofContents

 

**Segment Results**

 

                The Company operates in the retail apparel industryin which it primarily designs, sources and sells women’s apparel catering tocustomers generally ranging in age from 40 to 60 who are typically part of asegment of the female baby boomer demographic. The Company has identified three operating segments (Christopher &Banks, C.J. Banks and Acorn) as defined by SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information” (“SFAS No. 131”).  The Company’s Christopher & Banksand C.J. Banks operating segments have been aggregated into one reportablesegment based on the similar nature of products sold, methods of sourcing,merchandising and distribution processes involved, target customers, andeconomic characteristics of the two brands. Based on operating performance, the Company’s Acorn division ispresented as a separate reportable segment.

 

                In the table below the “Christopher &Banks/C.J. Banks” reportable segment includes activity generated by the Company’sChristopher & Banks and C.J. Banks operations. The “Acorn” reportablesegment includes activity generated from the Company’s Acorn operations.  The “Corporate/Administrative” column, whichprimarily represents operating activity at the Company’s corporate office anddistribution center facility, is presented to allow for reconciliation ofsegment-level net sales, operating income (loss) and total assets to theCompany’s consolidated net sales, operating income and total assets.  Segment operating income (loss) includes onlynet sales, merchandise gross margin and direct store expenses with noallocation of corporate overhead.  Netsales and operating income (loss) are the two components of segment operationsreviewed by the Company’s chief operating decision maker.

 

**SegmentReporting:**

 
| ** **                                      | ** ** | **Christopher & Banks/ C.J. Banks** | ** **  | **Acorn**  | ** ** | **Corporate/ Administrative** | ** ** | **Consolidated** | ** **  |
|-------------------------------------------------|------------|----------------------------------------------|-------------|------------|------------|-------------------------------|------------|------------------|-------------|
|                                            |       |                                         |        |       |       |                          |       |             |        |
| **Three  Months Ended August 30, 2008:**   | ** ** | ** **                                   | ** **  | ** ** | ** ** | ** **                    | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                            | 128,451,122 |       | $          | 3,185,531                     |       | $                | —      |   | $ | 131,636,653 |   |
| Operating income  (loss)                        |       |                                         | 18,512,530  |       |       | (1,738,981                    | )          |             | (15,971,411 | ) |   | 802,138 |   |
| Total assets                                    |       |                                         | 161,093,719 |       |       | 1,506,399                     |       |             | 152,665,185 |   |   | 315,265,303 |   |
|                                            |       |                                         |        |       |       |                          |       |             |        |
| **Three  Months Ended September 1, 2007:** | ** ** | ** **                                   | ** **  | ** ** | ** ** | ** **                    | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                            | 137,859,806 |       | $          | 3,267,809                     |       | $                | —      |   | $ | 141,127,615 |   |
| Operating income  (loss)                        |       |                                         | 19,868,160  |       |       | (655,289                      | )          |             | (14,816,975 | ) |   | 4,395,896 |   |
| Total assets                                    |       |                                         | 175,139,394 |       |       | 9,976,114                     |       |             | 120,654,351 |   |   | 305,769,859 |   |
|                                            |       |                                         |        |       |       |                          |       |             |        |
| ** **                                      | ** ** | **Christopher & Banks/ C.J. Banks** | ** **  | **Acorn**  | ** ** | **Corporate/ Administrative** | ** ** | **Consolidated** | ** **  |
|                                            | ** ** | ** **                                   | ** **  | ** ** | ** ** | ** **                    | ** ** | ** **       | ** **  |
| **Six  Months Ended August 30, 2008:**     | ** ** | ** **                                   | ** **  | ** ** | ** ** | ** **                    | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                            | 283,846,470 |       | $          | 7,432,987                     |       | $                | —      |   | $ | 291,279,457 |   |
| Operating income  (loss)                        |       |                                         | 54,135,009  |       |       | (2,401,889                    | )          |             | (33,032,262 | ) |   | 18,700,858 |   |
| Total assets                                    |       |                                         | 161,093,719 |       |       | 1,506,399                     |       |             | 152,665,185 |   |   | 315,265,303 |   |
|                                            |       |                                         |        |       |       |                          |       |             |        |
| **Six  Months Ended September 1, 2007:**   | ** ** | ** **                                   | ** **  | ** ** | ** ** | ** **                    | ** ** | ** **       | ** **  |
| Net sales                                       |       | $                                            | 283,380,620 |       | $          | 7,118,329                     |       | $                | —      |   | $ | 290,498,949 |   |
| Operating income  (loss)                        |       |                                         | 51,906,055  |       |       | (1,344,063                    | )          |             | (28,085,133 | ) |   | 22,476,859 |   |
| Total assets                                    |       |                                         | 175,139,394 |       |       | 9,976,114                     |       |             | 120,654,351 |   |   | 305,769,859 |   |

 

For the three and sixmonth periods ended August 30, 2008, the Acorn operating loss includedapproximately $1.2 million of impairment charges related to store-levelassets.  The Corporate/Administrativeoperating loss for the three and six month periods ended August 30, 2008included $69,000 of impairment charges related to intangible assets.

 

 

23

----

Table of Contents

 

Historically, the Company’sAcorn segment has had a relatively small negative impact on the Company’sconsolidated results of operations.  Inthe six months ended August 30, 2008 and September 1, 2007, net salesfrom the Christopher & Banks/C.J. Banks segment comprisedapproximately 98% of the Company’s total net sales.

 

**Liquidity and Capital Resources**

 

The Company’s principalon-going cash requirements are to finance the construction of new stores andthe remodeling of certain existing stores, to make technology-related and othercapital expenditures, to purchase merchandise inventory and to fund otherworking capital requirements. Merchandise purchases vary on a seasonal basis, peaking in thefall.  As a result, the Company’s cashrequirements historically reach their peak in October or November, duringthe Company’s third fiscal quarter. Conversely, cash balances peak in the fourth quarter in January, afterthe holiday season is completed.

 

*Net cash provided by operatingactivities*

 

Net cash provided byoperating activities totaled $17.6 million in the first six months of fiscal2009, a decrease of $1.8 million from $19.4 million for the first six months offiscal 2008.  Significant fluctuations inthe Company’s working capital accounts included a $7.7 million increase ininventory, a $4.1 million decrease in accounts payable and a $3.9 milliondecrease in other current assets.  TheCompany began fiscal 2009 with inventory levels down 22% on a per-store basiscompared to the beginning of fiscal 2008. By the end of the second quarter of fiscal 2009, inventory levels moreclosely approximated prior year levels, with inventory per-store downapproximately 6% over the same period in fiscal 2008.  In fiscal 2008, the Company beganimplementing tighter inventory controls in the second half of the year.  The decrease in accounts payable resultedfrom shifts in timing of merchandise receipts and payment of related vendorinvoices.  Other current assets declineddue to a decrease in income taxes receivable related to the amount and timingof estimated income tax payments.  Theremainder of the change in cash provided by operating activities wassubstantially the result of net income earned during the first six months ofthe year, after adjusting for non-cash charges including depreciation expense,asset impairment charges, deferred income taxes, stock-based compensationexpense, loss on the disposal of furniture, fixtures and equipment and variousother changes in the Company’s other operating assets and liabilities.

 

*Net cash used in investingactivities*

 

Net cash used ininvesting activities in the first six months of fiscal 2009 includedapproximately $12.9 million of capital expenditures, partially offset by $5.0million of redemptions of investments. The Company opened 23 new stores, completed remodeling of eight existingstores and installed new point-of-sale registers in 550 of its stores in thefirst half of fiscal 2009.  The Companyalso made other information technology-related investments at its stores,corporate office and distribution center facility during the six months ended August 30,2008.

 

The Company is planningto fund approximately $5 million to $7 million of additional capitalexpenditures in the second half of fiscal 2009. The Company anticipates it will open six additional new stores in thethird quarter of fiscal 2009.  Three ofthe new stores are planned to be Christopher & Banks locations andthree are planned to be C.J. Banks.  TheCompany is not planning to open any stores in the fourth quarter, although somecapital spending in the fourth quarter relating to stores planned to open inthe first quarter of fiscal 2010 is expected to occur.  In addition, the Company plans to continue tomake further information-technology related improvements at its stores in thesecond half of fiscal 2009.  The Companyexpects its cash and cash equivalents, combined with cash flows fromoperations, to be sufficient to meet its capital expenditure, working capitaland other requirements for liquidity in fiscal 2009.

 

*Net cash used in financingactivities*

 

Net cash of $4.2 millionwas used in financing activities in the first six months of fiscal 2009 as theCompany declared and paid two quarterly cash dividends together totalingapproximately $4.2 million.

 

                The Company maintains an Amended and RestatedRevolving Credit Facility (the “Credit Facility”) with Wells Fargo Bank,National Association (“Wells Fargo”). The Credit Facility provides the Company with revolving credit loans andletters of credit of up to $50.0 million, in the aggregate, subject to aborrowing base formula based on inventory levels.

 

 

24

----

Table of Contents

 

In the firstquarter of fiscal 2009, the Company and Wells Fargo entered into a SecondAmendment to the Credit Facility (the “Second Amendment”).  The Second Amendment extended the maturitydate of the Credit Facility by three years from June 30, 2008 to June 30,2011.  In addition, the Second Amendmentreduced the interest rate under the Credit Facility from the prime rate plus0.25% to the prime rate minus 0.25%.  Asof August 30, 2008, Wells Fargo’s prime rate was 5.0%.  The Second Amendment also provided theCompany with the ability to borrow under the Credit Facility at an interestrate tied to the London Interbank Market Offered Rate (LIBOR), which was 3.2%as of August 30, 2008.

 

                Interest under the CreditFacility is payable monthly in arrears. The Credit Facility carries a facility fee of 0.25%, based on the unusedportion as defined in the agreement, and a collateral monitoring fee.  For the six months ended August 30,2008, fees related to the Credit Facility totaled $17,900.  Borrowings under the Credit Facility arecollateralized by the Company’s equipment, intangible assets, inventory,inventory letters of credit and letter of credit rights.  The Company had no revolving credit loanborrowings under the Credit Facility during the first six months of fiscal2009.  Historically, the Credit Facilityhas been utilized by the Company only to open letters of credit to facilitatethe import of merchandise.  The borrowingbase at August 30, 2008 was $38.1 million. As of August 30, 2008, the Company had outstanding letters ofcredit in the amount of $12.4 million. Accordingly, the availability of revolving credit loans under the CreditFacility was $25.7 million at August 30, 2008.

 

The CreditFacility contains certain restrictive covenants, including restrictions onincurring additional indebtedness and limitations on certain types ofinvestments, as well as requiring the maintenance of certain financial covenants.  As of August 30, 2008, the most recentmeasurement date, the Company was in compliance with all of these restrictivecovenants under the Credit Facility.

 

*Auction Rate Securities*

 

                As of August 30, 2008, the Company hadapproximately $18.5 million of long-term investments, which consisted solely of$19.5 million of auction rate securities (“ARS”) at cost, less a temporaryvaluation allowance of $1.0 million. This valuation allowance was based on an analysis ofother-than-temporary impairment factors, resulting in management’s estimate offair value, given the current lack of liquidity of these investments, whiletaking into account the current credit quality of the underlying securities.

 

                ARS are long-term debt instruments with interestrates that may reset through scheduled and successful auctions which may occurevery seven, 28 or 35 days.  Holders ofARS can either sell into the auction, bid based on a desired interest rate orhold and accept the reset rate.  If thereare insufficient buyers, then the auction “fails” and holders are unable toliquidate their investment through the auction. A failed auction is not a default of the debt instrument. The result ofa failed auction is that the ARS continues to pay interest in accordance withits original terms. Liquidity, however, for holders is limited until there is asuccessful auction, until such time as another market for ARS develops or theARS are called by the issuer. Auctions continue to be held as scheduled untilthe ARS matures or until the issue is called. All of the Company’s ARS arecollateralized by student loans and currently have AAA (S&P) or Aaa (Moody’s)credit ratings.

 

                As of August 30, 2008, the repayment ofapproximately 80% of the student loans, which serve as collateral for the ARSheld by the Company, is substantially backed by the United Statesgovernment.  Until February 2008,the ARS market was liquid and auctions for ARS held by the Company did notfail. However, in February 2008, a substantial number of auctions failed,meaning there was not enough demand to sell the entire issue at auction.  Auctions for the ARS held by the Companybegan to fail in February 2008 and have continued to fail up to and as ofthe date of this report.

 

                Based on current market conditions, managementbelieves that it is likely that auctions related to the Company’s ARS willcontinue to be unsuccessful for the near term. Unsuccessful auctions have limited the Company’s ability to access thesefunds.  Management anticipates theliquidity of the ARS will continue to be restricted until there is a successfulauction or until such time as another market for the ARS develops or until theARS are called by the issuer.

 

                All of the ARS owned by the Company were purchasedfrom UBS Financial Service, Inc., a subsidiary of UBS AG (“UBS”) and areheld, for the benefit of the Company, by UBS. On August 8, 2008, UBS announced a settlement in principle with theSecurities and Exchange Commission, the New York Attorney General and otherstate regulatory agencies to restore liquidity to remaining clients who holdARS.  Under the settlement, the Company will be able to redeem its ARS atpar during a two-year time period beginning June 30, 2010.  Duringthis time, the Company may choose to continue to hold some or all of its ARSand earn interest or sell some or all of them to UBS at par plus accruedinterest.

 

 

25

----

Table of Contents

 

                The Company reclassified its ARS to long-terminvestments at March 1, 2008 to reflect the lack of liquidity of theseinvestments.  As of August 30, 2008,the Company had approximately $84.0 million of cash and cash equivalents.  Management believes the Company has sufficientbalances of cash and cash equivalents to meet the Company’s working capitalrequirements and liquidity needs in fiscal 2009.

 

                The Company reviews impairments associated with itsARS in accordance with EITF 03-1 and FASB Staff Position SFAS Nos. 115-1 and124-1, “The Meaning of Other-Than-Temporary-Impairment and Its Application toCertain Investments,” to determine the classification of the impairment as “temporary”or “other-than-temporary.”  A temporaryimpairment charge results in an unrealized loss being recorded in the othercomprehensive income component of stockholders’ equity.  The unrealized loss does not reduce netincome for the applicable accounting period because the loss is not viewed asother-than-temporary.  The Company’smanagement currently believes that all of the impairment related to its ARS istemporary.  The factors evaluated todifferentiate between temporary and other-than-temporary include an assessmentof the credit quality of the underlying collateral, credit ratings actions andthe Company’s ability to hold the securities to maturity.  No tax benefit has been provided for thisallowance as a loss, if any, would be capital in nature.

 

**MerchandiseSourcing**

 

The Companydirectly imported approximately 62% and 70% of its total merchandise purchasesin the three and six month periods ended August 30, 2008,respectively.  Substantially all of itsremaining merchandise purchases were made from U.S. based companies who importthe goods from overseas.  This relianceon sourcing from foreign countries may cause the Company to be exposed tocertain risks as indicated below and as discussed in Part I, “Item 1A.Risk Factors” in the Company’s Annual Report on Form 10-K for the yearended March 1, 2008.

 

Importrestrictions, including tariffs and quotas, and changes in such restrictions,could affect the import of apparel and might result in increased costs, delaysin merchandise receipts or reduced supplies of apparel available to theCompany, and could have an adverse effect on the Company’s business, financialcondition and results of operations.  TheCompany’s merchandise flow could also be adversely affected by politicalinstability in any of the countries where its merchandise is manufactured or bychanges in the United States’ governmental policies toward such foreigncountries.  In addition, merchandisereceipts could be delayed due to interruptions in air, ocean and groundshipments.

 

A substantialportion of the Company’s directly imported merchandise is manufactured inSoutheast Asia.  The majority of thesegoods are currently produced in China, Hong Kong, Indonesia and Singapore.  The Company is not presently importingmerchandise produced in the Middle East.

 

**The Company purchased approximately13% and 14% of its merchandise from its largest overseas supplier during thefirst six months of fiscal 2009 and 2008, respectively. **Although the Company has an establishedoperating history with its largest vendor, there can be no assurance that thisrelationship can be maintained in the future or that the vendor will continueto supply merchandise to the Company.  If there should be any significantdisruption in the supply of merchandise from this vendor, management believesthat it will be able to shift production to other suppliers so as to continueto secure the required volume of product.  Nevertheless, it is possiblethat any significant disruption in supply could have a material adverse impacton the Company’s financial position and results of operations.

** **

                In the three and six monthperiods ended August 30, 2008, the Companypurchased approximately 33% and 42% of its merchandise, respectively, throughone buying agent (the “Agent”).  The Company has continued the process ofestablishing relationships with additional primary suppliers, which areintended to reduce its reliance on the Agent. The Agent also has informed the Company that it desires to cease servingas an intermediary with manufacturers on behalf of Christopher &Banks.  Therefore, the Company and theAgent have agreed that their current arrangement will be discontinued at theend of December 2008.  Whilemanagement believes the actions it is taking to mitigate the risks of relianceon the Agent will be successful, any significant disruption in supply fromvendors working through the Agent could have a material adverse impact on theCompany’s financial position and results of operations.

 

 

26

----

Table of Contents

 

**QuarterlyResults and Seasonality**

 

The Company’squarterly results may fluctuate significantly depending on a number of factors,including general economic conditions, timing of promotional events and newstore openings, adverse weather conditions, shifts in the timing of certainholidays and customer response to the Company’s seasonal merchandise mix.

 

**Inflation**

 

As the operationsof the Company are influenced by general economic conditions, the Company’smanagement believes that rising prices, resulting particularly from highergasoline and food costs, had a negative effect on the Company’s results ofoperations during the three and six month periods ended August 30,2008.  Management does not believe thatinflation had a material effect on the Company’s results of operations duringthe three and six month periods ended September 1, 2007.

 

**Forward-Looking Statements**

 

The Company, through its management, may make forward-lookingstatements reflecting the Company’s current views with respect to future eventsand financial performance.  Theseforward-looking statements, which may be included in reports filed under theSecurities Exchange Act of 1934, as amended (the “Exchange Act”), in pressreleases and in other documents and materials as well as in written or oralstatements made by or on behalf of the Company, are subject to certain risksand uncertainties, including those discussed in Item 1A of the Company’s AnnualReport on Form 10-K for the fiscal year ended March 1, 2008, whichcould cause actual results to differ materially from historical results orthose anticipated.

 

The words or phrases “will likely result,” “are expected to,” “willcontinue,” “estimate,” “project,” “believe,” “expect, “ “anticipate,” “forecast”and similar expressions are intended to identify forward-looking statementwithin the meaning of Section 21e of the Exchange Act and Section 27Aof the Securities Act of 1933, as amended, as enacted by the Private SecuritiesLitigation Reform Act of 1995 (“PSLRA”). In particular, the Company desires to take advantage of the protectionsof the PSLRA in connection with the forward-looking statements made in thisQuarterly Report on Form 10-Q.

 

Readers are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of the date such statements aremade.  In addition, the Company wishes toadvise readers that the factors listed in Item 1A of the Company’s AnnualReport on Form 10-K for the fiscal year ended March 1, 2008, as wellas other factors, could affect the Company’s performance and could cause theCompany’s actual results for future periods to differ materially from anyopinions or statements expressed about such future performance or results.  The Company undertakes no obligation topublicly update or revise any forward-looking statements, whether as a resultof new information, future events or otherwise.

 

**ITEM 3.**

**QUANTITATIVE AND QUALITATIVEDISCLOSURE ABOUT MARKET RISK**

 

The market riskinherent in the Company’s financial instruments and in its financial positionrepresents the potential loss arising from adverse changes in interestrates.  The Company’s results ofoperations could be negatively impacted by decreases in interest rates on itsinvestments, including its investments in Auction Rate Securities.  Please see Note 3 to the ConsolidatedFinancial Statements and Management’s Discussion and Analysis of FinancialCondition and Results of Operation for further information regarding theCompany’s investments in Auction Rate Securities.

 

The Company ispotentially exposed to market risk from changes in interest rates relating toits Credit Facility with Wells Fargo Bank. Loans under the Credit Facility bear interest at Wells Fargo’s primerate, 5.00% as of August 30, 2008, less 0.25%.  However, the Company had no revolving creditloan borrowings under the Wells Fargo Revolver during the first six months offiscal 2009 or fiscal 2008.  Given itsexisting liquidity position, the Company does not expect to utilize the CreditFacility in the reasonably foreseeable future other than to use letters ofcredit to support the import of merchandise.

 

The Company entersinto certain purchase obligations outside the United States, which aredenominated and settled in U.S. dollars. Therefore, the Company has only minimal exposure to foreign currencyexchange risks.  The Company does nothedge against foreign currency risks and believes that its foreign currencyexchange risk is immaterial.  The Companydoes not have any derivative financial instruments and does not hold anyderivative financial instruments for trading purposes.

 

 

27

----

Table ofContents

 

**ITEM 4.**

**CONTROLS AND PROCEDURES**

 

*(a)*       Evaluation of DisclosureControls and Procedures.

* *

Underthe supervision and with the participation of its Chief Executive Officer andChief Financial Officer, the Company’s management has evaluated theeffectiveness and design of the Company’s disclosure controls and procedures(as such term is defined in Rules 13a-15(e) and 15d-15(e) underthe Exchange Act, as of the end of the period covered by this report (the “EvaluationDate”).  Based upon that evaluation, theCompany’s Chief Executive Officer and Chief Financial Officer concluded that,as of the Evaluation Date, the Company’s disclosure controls and procedureswere effective to ensure that information required to be disclosed by theCompany in the reports that it files or submits under the Exchange Act is (i) recorded,processed, summarized and reported within the time periods specified inapplicable rules and forms, and (ii) accumulated and communicated tothe Company’s management, including its Chief Executive Officer and ChiefFinancial Officer, to allow timely decisions regarding required disclosure.

 

*(b)*       Internal Control OverFinancial Reporting.

* *

Therehave not been any changes in the Company’s internal control over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act) during the three months ended August 30, 2008 that havematerially affected, or are reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

**PART II- OTHER INFORMATION**

 

**ITEM 1.**

**LEGAL PROCEEDINGS**

 

                The Company is subject tovarious legal proceedings and claims that arise in the ordinary course ofbusiness.  Although the amount of anyliability that could arise with respect to these actions cannot be accurately predicted,any such liability is not expected to have a material adverse impact on theCompany’s financial position or results of operations.

 

**ITEM1A.**

**RISK FACTORS**

 

The factorsdiscussed in Part I, “Item 1A. Risk Factors” in the Company’s AnnualReport on Form 10-K for the year ended March 1, 2008 should becarefully considered as they could materially affect the Company’s business,financial condition or future results.

 

**ITEM 2.**

**UNREGISTERED SALES OF EQUITY**

**SECURITIES AND USE OF PROCEEDS**

 

In fiscal 2008,the Company’s Board of Directors authorized and subsequently announced aone-year stock repurchase program enabling the Company to purchase up to $20million of its common stock, subject to market conditions.  No repurchases were executed under theprogram in the first six months of fiscal 2009. As of May 24, 2008, the expiration date of the repurchase program,the Company had repurchased 948,800 shares of its common stock under theprogram for a total cost, including commissions, of approximately $12.1million.

 

 

28

----

Table ofContents

 

**ITEM 3.**

**DEFAULTS UPON**

**SENIOR SECURITIES**

 

None.

 

**ITEM 4.**

**SUBMISSION OF MATTERS TO**

**A VOTE OF SECURITY HOLDERS**

 

                The Company held its annual meetingof stockholders on July 30, 2008, in Minneapolis, Minnesota.  The Company solicited proxies and filed adefinitive proxy statement with the United States Securities and ExchangeCommission pursuant to Regulation 14A. Holders of 33,358,393 shares of the Company’s common stock were presentin person, or by proxy, representing 94.55% of the Company’s 35,279,942 sharesof common stock entitled to vote on the record date.  The matters voted upon and the votes cast atthe meeting were as follows:

 

Item 1.    Election of three Class II Directors(for a term of three years expiring in 2011):

 

| **Vote**           |
|--------------------|
| **Director**       | ** ** | **For** | ** ** | **Witheld** |
| Larry C. Barenbaum |   | 27,396,498 |   | 5,961,895 |
| Martin L. Bassett  |   | 32,933,371 |   | 425,022 |
| Lorna E. Nagler    |   | 29,936,815 |   | 3,421,578 |

 

                Other individuals whose term ofoffice as Director continued after the Company’s annual meeting included MarkA. Cohn, Robert Ezrilov, James J. Fuld, Jr., and Anne L. Jones.

 

Item 2.             Approvalof an amendment to the Company’s 2006 Equity Incentive Plan for Non-EmployeeDirectors to increase the number of shares authorized from 300,000 to 625,000:

 

| **Vote**   |
|------------|
| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** |
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Non-Vote** |
| 25,172,076 |   | 6,463,038 |   | 14,185 |   | 1,709,094 |

 

Item 3.             Approvalof certain amendments to the 2005 Stock Incentive Plan, including an increasein the number of shares authorized from 1,800,000 to 2,975,000:

 

| **Vote**   |
|------------|
| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** |
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Non-Vote** |
| 25,427,333 |   | 6,208,019 |   | 13,947 |   | 1,709,094 |

 

Item 4.             Ratificationand approval of PricewaterhouseCoopers LLP as the Company’s independentregistered public accounting firm for the fiscal year ending February 28,2009:

 

| **Vote**   |
|------------|
| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** |
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Non-Vote** |
| 33,224,400 |   | 122,633 |   | 11,360 |   | — |

 

 

 

29

----

Table ofContents

 

Item 5.             Considerationof a stockholder proposal requesting that the Board of Directors take thenecessary steps to declassify the Board of Directors:

 

| **Vote**   |
|------------|
| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** |
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Non-Vote** |
| 26,662,367 |   | 4,923,727 |   | 63,205 |   | 1,709,094 |

 

Item 6.             In their discretion,the proxies are authorized to vote upon such other business as may properlycome before the meeting:

 

| **Vote**   |
|------------|
| ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Broker** |
| **For**    | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Non-Vote** |
| 6,882,777  |   | 25,040,194 |   | 1,435,422 |   | — |

 

**ITEM 5.**

**OTHER INFORMATION**

 

None.

 

**ITEM 6.**

**EXHIBITS**

 
| 10.1   |   | Amended and  Restated Christopher & Banks Corporation 2006 Equity Incentive Plan  for Non-Employee Directors (incorporated herein by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  August 5, 2008)                                      |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                 |
| 10.2   |   | Amended and  Restated Christopher & Banks Corporation 2005 Stock Incentive Plan  (incorporated herein by reference to Exhibit 10.2 to the Company’s  Current Report on Form 8-K filed August 5, 2008)                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                 |
| 10.3   |   | Amended and  Restated Executive Employment Agreement between Christopher & Banks  Corporation and Monica Dahl, effective as of July 31, 2008 (incorporated  herein by reference to Exhibit 10.3 to the Company’s Current Report on  Form 8-K filed August 5, 2008) |
|   |   |                                                                                                                                                                                                                                                                                                 |
| 31.1*  |   | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                 |
| 31.2*  |   | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                 |
| 32.1*  |   | Certification of  the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                 |
| 32.2*  |   | Certification of  the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                    |

----

*                             Filedwith this report.

 

 

30

----

Table ofContents

 

**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

|                         |   | **CHRISTOPHER & BANKS CORPORATION**          |
|------------------------------|--------|-------------------------------------------------------|
|                         |   |                                                  |
|                         |   |                                                  |
| Dated:  October 9, 2008 | By     | /S/ LORNA E.  NAGLER                                  |
|                         |   | Lorna E. Nagler                                       |
|                         |   | President and  Chief Executive Officer                |
|                         |   | (Principal  Executive Officer)                        |
|                         |   |                                                  |
|                         |   |                                                  |
| Dated:  October 9, 2008 | By     | /S/ ANDREW K.  MOLLER                                 |
|                         |   | Andrew K. Moller                                      |
|                         |   | Executive Vice  President and Chief Financial Officer |
|                         |   | (Principal  Financial Officer)                        |

 

 

31

----

Table ofContents

 

**CHRISTOPHER & BANKSCORPORATION**

**QUARTERLY REPORT ON FORM 10-Q**

 

**INDEXTO EXHIBITS**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                      |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                 |
| 10.1                 |       | Amended and  Restated Christopher & Banks Corporation 2006 Equity Incentive Plan  for Non-Employee Directors (incorporated herein by reference to  Exhibit 10.1 to the Company’s Current Report on Form 8-K filed  August 5, 2008)                                      |
|                 |       |                                                                                                                                                                                                                                                                                                 |
| 10.2                 |       | Amended and  Restated Christopher & Banks Corporation 2005 Stock Incentive Plan  (incorporated herein by reference to Exhibit 10.2 to the Company’s  Current Report on Form 8-K filed August 5, 2008)                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                 |
| 10.3                 |       | Amended and  Restated Executive Employment Agreement between Christopher & Banks  Corporation and Monica Dahl, effective as of July 31, 2008 (incorporated  herein by reference to Exhibit 10.3 to the Company’s Current Report on  Form 8-K filed August 5, 2008) |
|                 |       |                                                                                                                                                                                                                                                                                                 |
| 31.1*                |       | Certification of  Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                 |
| 31.2*                |       | Certification of  Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant  to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                     |
|                 |       |                                                                                                                                                                                                                                                                                                 |
| 32.1*                |       | Certification of  the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                    |
|                 |       |                                                                                                                                                                                                                                                                                                 |
| 32.2*                |       | Certification of  the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                                                    |

----

*                             Filedwith this report.

 

 

32

----