UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 


 

FORM 10-Q

 

(Mark One)

 

ý

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

 

 

For the quarterly period ended August 28, 2004

 

 

 

OR

 

 

o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                 to                .

 

Commission File No. 0-19972

 

CHRISTOPHER & BANKS CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware

 

06 - 1195422

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification Number)

 

 

 

2400 Xenium Lane North, Plymouth, Minnesota

(Address of principal executive offices)

 

 

 

55441

(Zip Code)

 

 

 

(763) 551-5000

(Registrant’s telephone number, including area code)

 


 

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

YES  ý     NO  o

 

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

YES  ý     NO  o

 

As of October 1, 2004, 35,732,946 shares of the registrant’s common stock were outstanding.

 

 



 

CHRISTOPHER & BANKS CORPORATION

 

FORM 10-Q QUARTERLY REPORT

 

INDEX

 

PART I
FINANCIAL INFORMATION

 

 

Page

Item 1.

Consolidated Condensed Financial Statements:

 

 

 

 

 

Consolidated Condensed Balance Sheet
As of August 28, 2004, February 28, 2004 and August 30, 2003

3

 

 

 

 

Consolidated Condensed Statement of Income
For the Three Months Ended August 28, 2004 and August 30, 2003

4

 

 

 

 

Consolidated Condensed Statement of Income
For the Six Months Ended August 28, 2004 and August 30, 2003

5

 

 

 

 

Consolidated Condensed Statement of Cash Flows
For the Six Months Ended August 28, 2004 and August 30, 2003

6

 

 

 

 

Notes to Consolidated Condensed Financial Statements

7

 

 

 

Item 2.

Management’s Discussion and Analysis of
Financial Condition and Results of Operations

12

 

 

 

Item 3.

Quantitative and Qualitative Disclosures
About Market Risk

18

 

 

 

Item 4.

Controls and Procedures

18

 

 

 

PART II
OTHER INFORMATION

 

 

 

Item 1.

Legal Proceedings

19

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

19

 

 

 

Item 3.

Defaults Upon Senior Securities

19

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

20

 

 

 

Item 5.

Other Information

20

 

 

 

Item 6.

Exhibits and Reports on Form 8-K

20

 

 

 

 

Signatures

21

 

2



 

CHRISTOPHER & BANKS CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET

(Unaudited)

 

 

 

August 28,
2004

 

February 28,
2004

 

August 30,
2003

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,112,932

 

$

34,955,015

 

$

9,187,235

 

Short-term investments

 

29,942,391

 

53,844,025

 

54,834,668

 

Accounts receivable

 

4,361,397

 

3,253,001

 

5,160,400

 

Merchandise inventory, net

 

41,595,721

 

31,300,016

 

31,842,198

 

Other current assets

 

9,210,105

 

2,990,053

 

7,501,955

 

Total current assets

 

106,222,546

 

126,342,110

 

108,526,456

 

 

 

 

 

 

 

 

 

Property, equipment and improvements, net

 

87,498,755

 

80,122,243

 

77,308,454

 

 

 

 

 

 

 

 

 

Other assets

 

148,604

 

82,275

 

79,566

 

 

 

 

 

 

 

 

 

Total assets

 

$

193,869,905

 

$

206,546,628

 

$

185,914,476

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

11,278,545

 

$

6,823,287

 

$

5,283,199

 

Accrued salaries, wages and related expenses

 

4,299,009

 

3,604,736

 

5,577,106

 

Other accrued liabilities

 

8,001,368

 

9,873,996

 

6,343,562

 

Total current liabilities

 

23,578,922

 

20,302,019

 

17,203,867

 

 

 

 

 

 

 

 

 

Other liabilities

 

9,683,507

 

8,442,627

 

4,817,335

 

 

 

 

 

 

 

 

 

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, 42,287,696, 42,217,943 and 42,086,129 shares issued and 35,791,196, 37,521,443 and 37,683,629 shares outstanding at August 28, 2004, February 28, 2004 and August 30, 2003, respectively

 

422,857

 

422,191

 

420,804

 

Additional paid-in capital

 

59,785,885

 

59,307,323

 

57,166,899

 

Retained earnings

 

156,056,797

 

143,265,406

 

126,579,796

 

Common stock held in treasury, 6,496,500, 4,696,500 and 4,402,500 shares at cost at August  28, 2004, February 28, 2004 and August 30, 2003, respectively

 

(55,658,063

)

(25,192,938

)

(20,274,225

)

Total stockholders’ equity

 

160,607,476

 

177,801,982

 

163,893,274

 

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

193,869,905

 

$

206,546,628

 

$

185,914,476

 

 

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

 

3



 

CHRISTOPHER & BANKS CORPORATION
CONSOLIDATED CONDENSED STATEMENT OF INCOME

(Unaudited)

 

 

 

Three Months Ended

 

 

 

August 28,
2004

 

August  30,
2003

 

 

 

 

 

 

 

Net sales

 

$

96,372,990

 

$

89,710,283

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Merchandise, buying and occupancy

 

59,833,959

 

51,473,656

 

 

 

 

 

 

 

Gross profit

 

36,539,031

 

38,236,627

 

 

 

 

 

 

 

Selling, general and administrative

 

24,430,733

 

21,792,870

 

 

 

 

 

 

 

Depreciation and amortization

 

3,259,156

 

2,797,032

 

 

 

 

 

 

 

Operating income

 

8,849,142

 

13,646,725

 

 

 

 

 

 

 

Interest income

 

242,276

 

183,009

 

 

 

 

 

 

 

Income before income taxes

 

9,091,418

 

13,829,734

 

 

 

 

 

 

 

Income tax provision

 

3,509,288

 

5,338,278

 

 

 

 

 

 

 

Net income

 

$

5,582,130

 

$

8,491,456

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.15

 

$

0.23

 

 

 

 

 

 

 

Basic shares outstanding

 

36,392,611

 

37,439,623

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.15

 

$

0.22

 

 

 

 

 

 

 

Diluted shares outstanding

 

36,900,195

 

38,449,547

 

 

 

 

 

 

 

Dividends declared and paid per share

 

$

0.04

 

$

 

 

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

 

4



 

CHRISTOPHER & BANKS CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF INCOME

(Unaudited)

 

 

 

Six Months Ended

 

 

 

August 28,
2004

 

August  30,
2003

 

 

 

 

 

 

 

Net sales

 

$

198,998,432

 

$

183,083,312

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Merchandise, buying and occupancy

 

118,349,402

 

101,564,338

 

 

 

 

 

 

 

Gross profit

 

80,649,030

 

81,518,974

 

 

 

 

 

 

 

Selling, general and administrative

 

49,083,703

 

44,491,206

 

 

 

 

 

 

 

Depreciation and amortization

 

6,406,252

 

5,447,297

 

 

 

 

 

 

 

Operating income

 

25,159,075

 

31,580,471

 

 

 

 

 

 

 

Interest income

 

499,956

 

398,610

 

 

 

 

 

 

 

Income before income taxes

 

25,659,031

 

31,979,081

 

 

 

 

 

 

 

Income tax provision

 

9,904,386

 

12,343,926

 

 

 

 

 

 

 

Net income

 

$

15,754,645

 

$

19,635,155

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.43

 

$

0.53

 

 

 

 

 

 

 

Basic shares outstanding

 

36,949,458

 

37,334,308

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Net income

 

$

0.42

 

$

0.51

 

 

 

 

 

 

 

Diluted shares outstanding

 

37,518,290

 

38,241,740

 

 

 

 

 

 

 

Dividends declared and paid per share

 

$

0.08

 

$

 

 

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

 

5



 

CHRISTOPHER & BANKS CORPORATION

CONSOLIDATED CONDENSED STATEMENT OF CASH FLOWS

(Unaudited)

 

 

 

Six Months Ended

 

 

 

August 28,
2004

 

August 30,
2003

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

15,754,645

 

$

19,635,155

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

6,406,252

 

5,447,297

 

Income tax benefit on exercise of stock options

 

92,255

 

2,718,666

 

Deferred income taxes

 

879,089

 

 

Increase in other liabilities

 

385,806

 

8,724

 

Loss on disposal of furniture, fixtures and equipment

 

3,545

 

17,560

 

Changes in operating assets and liabilities:

 

 

 

 

 

Increase in accounts receivable

 

(1,108,396

)

(2,496,381

)

Increase in merchandise inventory, net

 

(10,295,705

)

(7,708,483

)

Increase in other current assets

 

(6,244,067

)

(1,501,275

)

(Increase) decrease in other assets

 

(66,329

)

223,582

 

Increase (decrease) in accounts payable

 

3,335,643

 

(1,788,236

)

Decrease in accrued liabilities

 

(1,178,355

)

(1,611,256

)

Net cash provided by operating activities

 

7,964,383

 

12,945,353

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

Purchase of property, equipment and improvements

 

(12,667,994

)

(11,254,970

)

Proceeds from sale of furniture, fixtures and equipment

 

1,300

 

 

Purchases of short-term investments

 

(27,899,604

)

(74,765,697

)

Redemptions of short-term investments

 

51,801,238

 

75,743,522

 

Net cash provided by (used in) investing activities

 

11,234,940

 

(10,277,145

)

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

Net proceeds from issuance of common stock

 

386,973

 

2,220,205

 

Dividends paid

 

(2,963,254

)

 

Acquisition of common stock held in treasury

 

(30,465,125

)

(3,980,414

)

Net cash used in financing activities

 

(33,041,406

)

(1,760,209

)

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

(13,842,083

)

907,999

 

 

 

 

 

 

 

Cash and cash equivalents at beginning of period

 

34,955,015

 

8,279,236

 

 

 

 

 

 

 

Cash and cash equivalents at end of period

 

$

21,112,932

 

$

9,187,235

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

Income taxes paid

 

$

13,901,508

 

$

12,716,949

 

Purchases of equipment and improvements included in accounts payable at end of period

 

$

1,119,615

 

$

2,354,704

 

 

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

 

6



 

CHRISTOPHER & BANKS CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION

 

The unaudited consolidated condensed financial statements included in this Form 10-Q have been prepared by Christopher & Banks Corporation and subsidiaries (the “Company”) pursuant to the rules and regulations of the United States Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed, or omitted, pursuant to such rules and regulations.  These unaudited consolidated condensed financial statements should be read in conjunction with the financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2004.

 

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

 

NOTE 2 – SHORT-TERM INVESTMENTS

 

Short-term investments consisted of the following at August 28, 2004 and August 30, 2003:

 

Description

 

Maturity Dates

 

August 28,
2004

 

August 30,
2003

 

 

 

 

 

 

 

 

 

Corporate debt securities

 

Within one year

 

$

12,942,391

 

$

44,834,668

 

U.S. Government debt securities

 

Two to three years, callable within one year

 

17,000,000

 

10,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

$

29,942,391

 

$

54,834,668

 

 

NOTE 3 – MERCHANDISE INVENTORY, NET

 

Merchandise inventory, net consisted of the following at August 28, 2004 and August 30, 2003:

 

 

Description

 

August 28,
2004

 

August 30,
2003

 

 

 

 

 

 

 

Merchandise inventory - in store

 

$

27,599,968

 

$

24,147,702

 

Merchandise inventory - in transit

 

14,690,377

 

7,887,418

 

Allowance for permanent markdowns

 

(694,624

)

(192,922

)

 

 

 

 

 

 

 

 

$

41,595,721

 

$

31,842,198

 

 

7



 

NOTE 4 – PROPERTY, EQUIPMENT, AND IMPROVEMENTS, NET

 

Property, equipment and improvements, net consisted of the following at August 28, 2004 and August 30, 2003:

 

Description

 

Estimated Useful Life

 

August 28,
2004

 

August 30,
2003

 

 

 

 

 

 

 

 

 

Land

 

 

$

1,596,898

 

$

1,596,898

 

Corporate office, distribution center and related building improvements

 

25 years

 

8,742,060

 

8,703,608

 

Store leasehold improvements

 

Term of related lease,

 

 

 

 

 

 

 

typically 10 years

 

46,781,483

 

38,485,573

 

Store furniture and fixtures

 

Three to seven years

 

53,905,988

 

41,692,529

 

Point of sale hardware and software

 

Five years

 

6,617,299

 

5,723,387

 

Corporate office and distribution center furniture, fixtures and equipment

 

Seven years

 

2,267,949

 

2,135,915

 

Computer hardware and software

 

Three to five years

 

3,160,265

 

2,679,927

 

Construction in progress

 

 

10,041,338

 

11,433,503

 

 

 

 

 

 

 

 

 

 

 

 

 

133,113,280

 

112,451,340

 

Less accumulated depreciation and amortization

 

45,614,525

 

35,142,886

 

 

 

 

 

 

 

 

 

Net property, equipment and improvements

 

$

87,498,755

 

$

77,308,454

 

 

NOTE 5 – ACCRUED LIABILITIES

 

Other accrued liabilities consisted of the following at August 28, 2004 and August 30, 2003:

 

Description

 

August 28,
2004

 

August 30,
2003

 

 

 

 

 

 

 

Gift card, certificate and store credit liability

 

$

4,079,781

 

$

2,866,350

 

Accrued occupancy related expenses

 

988,037

 

794,619

 

Other accrued liabilities

 

2,933,550

 

2,682,593

 

 

 

 

 

 

 

 

 

$

8,001,368

 

$

6,343,562

 

 

NOTE 6 – LONG-TERM DEBT

 

The Company maintains an Amended and Restated Revolving Credit and Security Agreement with Wells Fargo Bank, National Association (the “Wells Fargo Revolver”) which expires on June 30, 2006.  The Wells Fargo Revolver provides the Company with revolving credit loans and letters of credit of up to $40.0 million, subject to a borrowing base formula based on inventory levels.

 

8



 

Loans under the Wells Fargo Revolver bear interest at Wells Fargo’s base rate, 4.5% as of August 28, 2004, plus 0.25%.  Interest is payable monthly in arrears.  The Wells Fargo Revolver carries a facility fee of 0.25% based on the unused portion as defined in the agreement.  Facility fees totaled $2,109 for the six months ended August 28, 2004.  The credit facility is collateralized by the Company’s equipment, general intangibles, inventory, inventory letters of credit and letter of credit rights.  The Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first six months of fiscal 2005.  Historically, the Wells Fargo Revolver has been utilized by the Company only to open letters of credit to facilitate the import of merchandise.  The borrowing base at August 28, 2004 was $28.2 million.  As of August 28, 2004, the Company had outstanding letters of credit in the amount of $17.5 million.  Accordingly, the availability of revolving credit loans under the Wells Fargo Revolver was $10.7 million at August 28, 2004.

 

The Wells Fargo Revolver contains certain restrictive covenants including restrictions on incurring additional indebtedness and limitations on certain types of investments, as well as requiring the maintenance of certain financial covenants.  As of August 28, 2004, the most recent measurement date, the Company was in compliance with all covenants of the Wells Fargo Revolver.

 

NOTE 7 – STOCKHOLDERS’ EQUITY

 

In September 2003, the Company’s Board of Directors declared an on-going cash dividend of $0.04 per share to be paid quarterly, subject to Board approval.  In the first half of fiscal 2005, quarterly dividends were paid on April 6, 2004 and July 6, 2004 to shareholders of record as of March 19, 2004 and June 18, 2004, respectively.  On September 2, 2004, the Company declared another quarterly dividend of $0.04 per share to be paid October 5, 2004 to shareholders of record as of September 20, 2004.

 

The Company’s Board of Directors authorized a stock repurchase program in February 2004 enabling the Company to purchase up to $25 million of its common stock, subject to market conditions.  On June 28, 2004, the Company announced its Board of Directors authorized an increase in the stock repurchase program to $40 million from $25 million.  As of August 28, 2004, the Company had repurchased 2,094,000 shares of its common stock for a total cost, including commissions, of $35.4 million.  From August 29, 2004 through October 1, 2004, the Company purchased an additional 69,500 shares of its common stock for approximately $1.2 million, resulting in total purchases under the program of 2,163,500 shares at a total cost, including commissions, of approximately $36.6 million.

 

The common stock repurchased under the Company’s most recent authorization is being held in treasury and reduced the number of shares of the Company’s common stock outstanding by approximately 6%.  All of the Company’s share repurchases were executed in the open market and no shares were repurchased from related parties.  In addition, all of the Company’s share repurchases were executed in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended.  Depending on market conditions and the Company’s cash position, the Company may participate in additional stock repurchase programs in the future.

 

NOTE 8 – NET INCOME PER SHARE

 

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

 

9



 

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

 

 

 

Three Months Ended

 

 

 

August 28, 2004

 

August 30, 2003

 

 

 

Shares

 

Net
Income

 

Shares

 

Net
Income

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

36,392,611

 

$

0.15

 

37,439,623

 

$

0.23

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive stock options

 

507,584

 

0.00

 

1,009,924

 

(0.01

)

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

36,900,195

 

$

0.15

 

38,449,547

 

$

0.22

 

 

 

 

Six Months Ended

 

 

 

August 28, 2004

 

August 30, 2003

 

 

 

Shares

 

Net
Income

 

Shares

 

Net
Income

 

 

 

 

 

 

 

 

 

 

 

Basic EPS

 

36,949,458

 

$

0.43

 

37,334,308

 

$

0.53

 

 

 

 

 

 

 

 

 

 

 

Effect of dilutive stock options

 

568,832

 

(0.01

)

907,432

 

(0.02

)

 

 

 

 

 

 

 

 

 

 

Diluted EPS

 

37,518,290

 

$

0.42

 

38,241,740

 

$

0.51

 

 

Stock options of 2,673,449 and 1,522,349 were excluded from the shares used in the computation of diluted EPS for the three and six months ended August 28, 2004 as they were anti-dilutive.  All stock options for the three and six months ended August 30, 2003 were included in the diluted EPS calculation.

 

NOTE 9 – STOCK-BASED COMPENSATION

 

The Company discloses stock-based compensation information in accordance with Statement of Financial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting for Stock Based Compensation,” and No. 148 (“SFAS No. 148”), “Accounting for Stock Based Compensation Transition and Disclosure.”  SFAS No. 148, an amendment of SFAS No. 123, does not amend the provisions of SFAS No. 123 that permit entities to account for stock-based compensation under the intrinsic value method set forth by Accounting Principles Board Opinion No. 25 (“APB No. 25”), “Accounting for Stock Issued to Employees.”  The Company has elected to continue to recognize compensation cost for its stock-based compensation plans in accordance with APB No. 25.  Generally, no compensation expense is recognized for stock options with exercise prices equal to the market value of the underlying shares of stock at the date of grant.

 

10



 

If stock-based compensation cost had been determined based on the fair value methodology prescribed by SFAS No. 123 and SFAS No. 148, the Company’s net earnings and earnings per share would have been reduced to the pro forma amounts indicated in the following table.

 

 

 

Three Months Ended

 

 

 

August 28,
2004

 

August 30,
2003

 

Net income—as reported

 

$

5,582,130

 

$

8,491,456

 

Add stock-based compensation expense included in net income, net of related tax effects

 

 

 

Less total stock-based compensation expense determined under fair value method, net of related tax effects

 

823,798

 

739,384

 

Net income—pro forma

 

$

4,758,332

 

$

7,752,072

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

As reported

 

$

0.15

 

$

0.23

 

Pro forma

 

$

0.13

 

$

0.21

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

As reported

 

$

0.15

 

$

0.22

 

Pro forma

 

$

0.13

 

$

0.20

 

 

 

 

Six Months Ended

 

 

 

August 28,
2004

 

August 30,
2003

 

Net income—as reported

 

$

15,754,645

 

$

19,635,155

 

Add stock-based compensation expense included in net income, net of related tax effects

 

 

 

Less total stock-based compensation expense determined under fair value method, net of related tax effects

 

1,640,521

 

1,408,136

 

Net income—pro forma

 

$

14,114,124

 

$

18,227,019

 

 

 

 

 

 

 

Basic earnings per common share:

 

 

 

 

 

As reported

 

$

0.43

 

$

0.53

 

Pro forma

 

$

0.38

 

$

0.49

 

 

 

 

 

 

 

Diluted earnings per common share:

 

 

 

 

 

As reported

 

$

0.42

 

$

0.51

 

Pro forma

 

$

0.38

 

$

0.48

 

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Option valuation models require the input of highly subjective assumptions, including the expected stock price volatility.  As the Company’s employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.

 

11



 

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

(Unaudited)

 

Overview

 

Christopher & Banks Corporation is a Minneapolis-based retailer of women’s specialty apparel, which operates stores through its wholly-owned subsidiaries, Christopher & Banks, Inc. and Christopher & Banks Company, collectively referred to as the “Company.”  As of October 1, 2004, the Company operated 599 stores in 44 states including 453 Christopher & Banks stores and 146 C.J. Banks stores.  The Company’s Christopher & Banks stores offer distinctive fashions featuring exclusively designed, coordinated assortments of sportswear and sweaters in sizes four to 16.  The Company’s C.J. Banks stores offer similar assortments of women’s specialty apparel in sizes 14W and up.

 

In the first six months of fiscal 2005, the Company opened 34 new Christopher & Banks stores and 18 new C.J. Banks stores.  The Company closed one store during the first half of fiscal 2005.  In the third quarter of fiscal 2005, the Company anticipates it will open approximately 26 additional Christopher & Banks stores and 16 more C.J. Banks stores.  The Company intends to continue growing its store base by opening approximately 115 to 120 new stores in fiscal 2006.

 

The Company’s Board of Directors authorized a stock repurchase program in February 2004 enabling the Company to purchase up to $25 million of its common stock, subject to market conditions.  On June 28, 2004, the Company announced its Board of Directors authorized an increase in the stock repurchase program to $40 million from $25 million.  As of August 28, 2004, the Company had repurchased 2,094,000 shares of its common stock for a total cost, including commissions, of $35.4 million.  From August 29, 2004 through October 1, 2004, the Company purchased an additional 69,500 shares of its common stock for approximately $1.2 million, resulting in total purchases under the program of 2,163,500 shares at a total cost, including commissions, of approximately $36.6 million.

 

The common stock repurchased under the Company’s most recent authorization is being held in treasury and reduced the number of shares of the Company’s common stock outstanding by approximately 6%.  All of the Company’s share repurchases were executed in the open market and no shares were repurchased from related parties.  In addition, all of the Company’s share repurchases were conducted in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended.  Depending on market conditions and the Company’s cash position, the Company may participate in additional stock repurchase programs in the future.

 

On September 28, 2004, the Company entered into an asset purchase agreement, the “purchase agreement,” with Gilmore Brothers, Inc., a privately held women’s specialty retailer operating 20 stores in nine states under the name “Acorn.”  Under the purchase agreement, the Company will purchase substantially all of the assets of Acorn for approximately $7 in cash.  The Company’s Board of Directors and the Board of Directors and sole shareholder of Gilmore Brothers, Inc. have approved the purchase agreement and the transaction is expected to close within 45 days.

 

Critical Accounting Policies and Estimates

 

The Company’s critical accounting policies are more fully described in Note 1 of the Notes to Consolidated Financial Statements contained within the Company’s Annual Report on Form 10-K.  Management’s discussion and analysis of the Company’s financial condition and results of operations are based upon the Company’s Consolidated Condensed Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America.

 

On an ongoing basis, the Company evaluates its estimates, including those related to customer product returns, inventories, income taxes, insurance claims and contingencies.  The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  There have been no material changes in the Company’s critical accounting policies during the quarter or six months ended August 28, 2004.

 

12



 

Results of Operations

 

The following table sets forth, for the periods indicated, certain items from the Company’s statement of income expressed as a percentage of net sales:

 

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

August 28,
2004

 

 

August 30,
2003

 

 

August 28,
2004

 

 

August 30,
2003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

Cost of sales

 

62.1

 

 

57.4

 

 

59.5

 

 

55.5

 

Gross profit

 

37.9

 

 

42.6

 

 

40.5

 

 

44.5

 

Selling, general and administrative expenses

 

25.4

 

 

24.3

 

 

24.7

 

 

24.3

 

Depreciation and amortization

 

3.3

 

 

3.1

 

 

3.2

 

 

3.0

 

Operating income

 

9.2

 

 

15.2

 

 

12.6

 

 

17.2

 

Interest income

 

0.2

 

 

0.2

 

 

0.2

 

 

0.2

 

Income before income taxes

 

9.4

 

 

15.4

 

 

12.8

 

 

17.4

 

Income tax provision

 

3.6

 

 

5.9

 

 

4.9

 

 

6.7

 

Net income

 

5.8

%

 

9.5

%

 

7.9

%

 

10.7

%

 

Three Months Ended August 28, 2004

Compared to Three Months Ended August 30, 2003

 

Net Sales.  Net sales for the three months ended August 28, 2004 were $96.4 million, an increase of $6.7 million or 7.5%, from $89.7 million for the three months ended August 30, 2003.  The increase in net sales resulted from an increase in the number of stores operated by the Company, partially offset by a 6% decline in same-store sales.  The Company operated 585 stores at August 28, 2004, compared to 494 stores at August 30, 2003.  The 6% decline in same-store sales was primarily attributable to weakness in the Company’s sweater business and a challenging retail environment.

 

The Company’s same-store sales data is calculated based on the change in net sales for stores that have been open for more than 13 full months and includes stores, if any, that have been relocated within the same mall.  The Company typically does not expand or relocate stores within a mall.  Stores where the square footage has changed by more than 25 percent (one store for the three months August 28, 2004) are excluded from the same-store sales calculation.  Stores closed during the year are included in the calculation of same-store sales only for the full months of the year that the stores were open.

 

Gross Profit.  Gross profit, which is net sales less the cost of merchandise, buying expenses and occupancy costs was $36.5 million, or 37.9% of net sales, during the second quarter of fiscal 2005, compared to $38.2 million, or 42.6% of net sales, during the same period in fiscal 2004.  The decline in gross margin as a percent of net sales was mainly the result of a decrease in merchandise margins primarily due to higher markdowns, combined with negative leveraging of store rent expense.  The negative leveraging of store rent expense resulted from a 6% decline in same-store sales combined with operating more stores in the second quarter of fiscal 2005 which were still in the buildup phase of their sales curve.

 

The Company’s gross profit may not be comparable to that of other entities as some entities, such as the Company, include all costs related to their distribution network in cost of sales, while other entities exclude a portion of these expenses from cost of sales and include them in selling, general and administrative expenses.

 

Selling, General and Administrative Expenses.  Selling, general and administrative expenses for the three months ended August 28, 2004 were $24.4 million, or 25.4% of net sales, compared to $21.8 million, or 24.3% of net sales, for the three months ended August 30, 2003.  The increase in selling, general and administrative expenses as a percent of net sales was primarily the result of an increase in store salaries expense which had negative leverage due to the Company’s 6% decline in same-store sales.  The increased costs were partially offset by a decrease in bonus expense.

 

13



 

Depreciation and Amortization.  Depreciation and amortization was $3.3 million, or 3.3% of net sales, in the second quarter of fiscal 2005, compared to $2.8 million, or 3.1% of net sales, in the second quarter of fiscal 2004. The increase in depreciation and amortization expense was a result of capital expenditures made during the past year.  The Company opened 93 new stores during the 12 months ended August 28, 2004.

 

Operating Income.  As a result of the foregoing factors, operating income for the quarter ended August 28, 2004 was $8.8 million, or 9.2% of net sales, compared to operating income of $13.6 million, or 15.2% of net sales, for the three months ended August 30, 2003.

 

Interest Income.   For the three months ended August 28, 2004, interest income increased to $242,276 from $183,009 in the three months ended August 30, 2003.  The increase was a result of a higher average cash and short-term investment balance, combined with slightly higher interest rates on short-term investments, in the second quarter of fiscal 2005 compared to the second quarter of fiscal 2004.

 

Income Taxes.  Income tax expense in the second quarter of fiscal 2005 was $3.5 million, with an effective tax rate of 38.6%, compared to $5.3 million, with an effective tax rate of 38.6%, in the second quarter of fiscal 2004.

 

Net Income.  As a result of the foregoing factors, net income for the three months ended August 28, 2004 was $5.6 million, or 5.8% of net sales and $0.15 per diluted share, compared to $8.5 million, or 9.5% of net sales and $0.22 per diluted share, for the three months ended August 30, 2003.

 

Six Months Ended August 28, 2004

Compared to Six Months Ended August 30, 2003

 

Net Sales.  Net sales for the six months ended August 28, 2004 were $199.0 million, an increase of $15.9 million or 8.7%, from $183.1 million for the six months ended August 30, 2003.  The increase in net sales resulted from an increase in the number of stores operated by the Company, partially offset by a 5% decline in same-store sales.  The Company operated 585 stores at August 28, 2004, compared to 494 stores at August 30, 2003.  The 5% decline in same-store sales was primarily attributable to weakness in the Company’s sweater business and a challenging retail environment.

 

The Company’s same-store sales data is calculated based on the change in net sales for stores that have been open for more than 13 full months and includes stores, if any, that have been relocated within the same mall.  The Company typically does not expand or relocate stores within a mall.  Stores where the square footage has changed by more than 25 percent (one store for the six months ended August 28, 2004) are excluded from the same-store sales calculation.  Stores closed during the year are included in the calculation of same-store sales only for the full months of the year that the stores were open.

 

Gross Profit.  Gross profit, which is net sales less the cost of merchandise, buying expenses and occupancy costs was $80.6 million, or 40.5% of net sales, during the first half of fiscal 2005, compared to $81.5 million, or 44.5% of net sales, during the same period in fiscal 2004.  The decline in gross margin as a percent of net sales was mainly the result of negative leveraging of store rent expense, combined with a decrease in merchandise margins primarily due to higher markdowns.  The negative leveraging of store rent expense resulted from a 5% decline in same-store sales combined with operating more stores in the second half of fiscal 2005 which were still in the buildup phase of their sales curve.

 

The Company’s gross profit may not be comparable to that of other entities as some entities, such as the Company, include all costs related to their distribution network in cost of sales, while other entities exclude a portion of these expenses from cost of sales and include them in selling, general and administrative expenses.

 

Selling, General and Administrative Expenses.  Selling, general and administrative expenses for the six months ended August 28, 2004 were $49.1 million, or 24.7% of net sales, compared to $44.5 million, or 24.3% of net sales, for the six months ended August 30, 2003.  The increase in selling, general and administrative expenses as a percent of net sales was primarily the result of an increase in store salaries expense which had negative leverage due to the Company’s 5% decline in same-store sales.  The increased costs were partially offset by a decrease in bonus expense.

 

14



 

Depreciation and Amortization.  Depreciation and amortization was $6.4 million, or 3.2% of net sales, in the first half of fiscal 2005, compared to $5.4 million, or 3.0% of net sales, in the first half of fiscal 2004. The increase in depreciation and amortization expense was a result of capital expenditures made during the past year.  The Company opened 93 new stores during the 12 months ended August 28, 2004.

 

Operating Income.  As a result of the foregoing factors, operating income for the six months ended August 28, 2004 was $25.2 million, or 12.6% of net sales, compared to operating income of $31.6 million, or 17.2% of net sales, for the six months ended August 30, 2003.

 

Interest Income.   For the six months ended August 28, 2004, interest income increased to $499,956 from $398,610 for the six months ended August 30, 2003.  The increase was a result of a higher average cash and short-term investment balance, combined with slightly higher interest rates on short-term investments, in the first half of fiscal 2005 compared to the first half of fiscal 2004.

 

Income Taxes.  Income tax expense in the first half of fiscal 2005 was $9.9 million, with an effective tax rate of 38.6%, compared to $12.3 million, with an effective tax rate of 38.6%, in the first half of fiscal 2004.

 

Net Income.  As a result of the foregoing factors, net income for the six months ended August 28, 2004 was $15.8 million, or 7.9% of net sales and $0.42 per diluted share, compared to $19.6 million, or 10.7% of net sales and $0.51 per diluted share, for the six months ended August 30, 2003.

 

In the first six months of fiscal 2005, diluted earnings of approximately $0.01 per share can be attributed to the Company’s repurchase of 2,094,000 shares of its common stock in February 2004 and the first half of fiscal 2005.

 

Liquidity and Capital Resources

 

The Company’s principal on-going cash requirements are to finance the construction of new stores and the remodeling of certain existing stores, to purchase merchandise inventory and to fund other working capital requirements.  Merchandise purchases vary on a seasonal basis, peaking in the fall.  As a result, the Company’s cash requirements historically reach their peak in October or November.  Conversely, cash balances reach their peak in January, after the holiday season is completed.

 

Net cash provided by operating activities totaled $8.0 million in the first six months of fiscal 2005.  Net cash provided by investing activities included net redemptions of short-term investments of $23.9 million, partially offset by $12.7 million of capital expenditures.  The Company opened 52 new stores and completed 14 store remodels during the six months ended August 28, 2004.

 

Net cash of $33.0 million was used by the Company for financing activities in the first six months of fiscal 2005.  The Company repurchased 1,800,000 shares of the Company’s common stock at a total cost, including commissions, of approximately $30.5 million during the six months ended August 28, 2004.  The common stock repurchased is being held in treasury.  In April and July 2004, the Company paid quarterly cash dividends which together totaled approximately $3.0 million.

 

The Company plans to fund approximately $12 to $14 million of capital expenditures during the last six months of fiscal 2005 to open approximately 42 additional new stores, to complete five store remodels and to make various capital improvements at its headquarters and distribution center facility.  Additionally, management anticipates a portion of these capital expenditures will pertain to stores which the Company plans to open in the first quarter of fiscal 2006.  The Company intends to open approximately 115 to 120 new stores in fiscal 2006.  The Company expects its cash and short-term investments, combined with cash flows from operations, to be sufficient to meet its capital expenditure, working capital and other requirements for liquidity during the remainder of fiscal 2005 and throughout fiscal 2006.

 

The Company maintains an Amended and Restated Revolving Credit and Security Agreement with Wells Fargo Bank, National Association (the “Wells Fargo Revolver”) which expires on June 30, 2006.  The Wells Fargo Revolver provides the Company with revolving credit loans and letters of credit of up to $40.0 million, subject to a borrowing base formula based on inventory levels.

 

15



 

Loans under the Wells Fargo Revolver bear interest at Wells Fargo’s base rate, 4.5% as of August 28, 2004, plus 0.25%.  Interest is payable monthly in arrears.  The Wells Fargo Revolver carries a facility fee of 0.25% based on the unused portion as defined in the agreement.  Facility fees totaled $2,109 for the six months ended August 28, 2004.  The credit facility is collateralized by the Company’s equipment, general intangibles, inventory, inventory letters of credit and letter of credit rights.  The Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first six months of fiscal 2005.  Historically, the Wells Fargo Revolver has been utilized by the Company only to open letters of credit to facilitate the import of merchandise.  The borrowing base at August 28, 2004 was $28.2 million.  As of August 28, 2004, the Company had outstanding letters of credit in the amount of $17.5 million.  Accordingly, the availability of revolving credit loans under the Wells Fargo Revolver was $10.7 million at August 28, 2004.

 

The Wells Fargo Revolver contains certain restrictive covenants including restrictions on incurring additional indebtedness and limitations on certain types of investments, as well as requiring the maintenance of certain financial covenants.  As of August 28, 2004, the most recent measurement date, the Company was in compliance with all covenants of the Wells Fargo Revolver.

 

Contractual Obligations

 

The following table summarizes the Company’s contractual obligations as of August 28, 2004:

 

 

 

 

 

Contractual obligations due in

 

 

 

Total

 

Less Than
1 Year

 

1-3 Years

 

4-5 Years

 

More Than
5 Years

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt

 

$

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital lease obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

283,354,265

 

35,343,790

 

70,962,818

 

69,271,644

 

107,776,013

 

 

 

 

 

 

 

 

 

 

 

 

 

Purchase obligations

 

17,484,776

 

17,484,776

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

$

300,839,041

 

$

52,828,566

 

$

70,962,818

 

$

69,271,644

 

$

107,776,013

 

 

The Company’s contractual obligations include operating leases for each of its retail store locations and leased vehicles, and purchase obligations consisting of $17.5 million of open purchase orders for goods currently in production with foreign suppliers.  These open purchase orders are generally secured by letters of credit.  As of August 28, 2004, the Company had no other contractual obligations relating to short or long-term debt, capital leases or non-cancelable purchase obligations.  In addition, the Company had no contractual obligations relating to the other liabilities recorded on or off the Company’s balance sheet under accounting principles generally accepted in the United States of America.  As of August 28, 2004, the Company’s other liabilities consisted of deferred rent, deferred revenue and deferred income taxes.

 

The Company has not created, and is not party to, any special-purpose or off-balance sheet entities for the purpose of raising capital, incurring debt or operating the Company’s business.  The Company does not have any arrangements or relationships with entities that are not consolidated into the financial statements that are reasonably likely to materially affect the Company’s liquidity or the availability of capital resources.

 

The Company’s related party transactions are limited to employment agreements with certain officers.  In addition, the Company does not maintain any long-term or exclusive commitments or arrangements to purchase merchandise from any of its suppliers.

 

16



 

Merchandise Sourcing

 

The Company directly imports approximately 96% of its total merchandise purchases.  This reliance on sourcing from foreign countries may cause the Company to be exposed to certain risks.  Import restrictions, including tariffs and quotas, and changes in such restrictions, could affect the import of apparel and might result in increased costs, delays in merchandise receipts or reduced supplies of apparel available to the Company and could possibly have an adverse effect on the Company’s business, financial condition and results of operations.

 

The Company’s merchandise flow could also be adversely affected by political instability in any of the countries where its merchandise is manufactured or by changes in the United States’ governmental policies toward such foreign countries.  In addition, merchandise receipts could be delayed due to interruptions in air, ocean and ground shipments.

 

 Substantially all of the Company’s directly imported merchandise is manufactured in Southeast Asia.  The majority of these goods are produced in China, Hong Kong, Indonesia and Singapore.  The Company is not currently importing merchandise produced in the Middle East.

 

The Company purchased approximately 33% and 31% of its merchandise from its largest overseas supplier in the first six months of fiscal 2005 and 2004, respectively.  Although the Company believes that its relationship with this particular vendor is good, there can be no assurance that this relationship can be maintained in the future or that the vendor will continue to supply merchandise to the Company.  If there should be any significant disruption in the supply of merchandise from this vendor, management believes that it can shift production to other suppliers so as to continue to secure the required volume of product.  Nevertheless, there is some potential that any such disruption in supply could have a material adverse impact on the Company’s financial position and results of operations.

 

Furthermore, on December 31, 2004, quota restrictions on the importing of apparel into the United States of America from foreign countries which are members of the World Trade Organization are expected to expire.  The effect this quota expiration will have on global sourcing patterns is uncertain but is likely to continue retail price deflation.  Management currently believes that the Company’s sourcing strategy will allow the Company to adjust to potential shifts in availability of apparel following the expiration of these quotas.

 

Quarterly Results and Seasonality

 

The Company’s sales reflect seasonal variation as sales in the third and fourth quarters, which include the fall and holiday seasons, generally have been higher than sales in the first and second quarters.  Sales generated during the fall and holiday seasons have a significant impact on the Company’s annual results of operations.  Quarterly results may fluctuate significantly depending on a number of factors including adverse weather conditions, shifts in the timing of certain holidays, timing of new store openings and customer response to the Company’s seasonal merchandise mix.

 

Inflation

 

Although the operations of the Company are influenced by general economic conditions, the Company does not believe that inflation had a material effect on its results of operations during the quarters and six month periods ended August 28, 2004 and August 30, 2003.

 

Forward Looking Information and Risk

 

Information contained in this Form 10-Q contains certain “forward-looking statements” which reflect the current view of the Company with respect to future events and financial performance.  Wherever used, terminology such as “may”, “will”, “expect”, “intend”, “plan”, “anticipate”, “estimate” or “continue”, or the negative thereof, or other variations thereon or comparable terminology reflect such forward-looking statements.

 

There are certain important factors that could cause results to differ materially from those anticipated by some of these forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those matters discussed below and beginning on page 20 of the Company’s most recent Annual Report on Form 10-K filed with the Securities and Exchange Commission on May 13, 2004.  Investors are cautioned that all forward-looking statements involve risks and uncertainty.  The factors, among others, that could cause actual results to differ materially include:  changes in general economic conditions, including recessionary effects which may affect consumers’ spending and debt levels; the Company’s ability to execute its business plan including the successful expansion of its Christopher & Banks and C.J. Banks concepts; the Company’s ability to open new stores

 

17



 

on favorable terms and the timing of such store openings; the acceptance of the Company’s merchandising strategies by its target customers; the ability of the Company to anticipate fashion trends and consumer preferences; the loss of one or more of the Company’s key executives; continuity of a relationship with or purchases from major vendors, particularly those from whom the Company imports merchandise; timeliness of vendor production and deliveries; competitive pressures on sales and pricing; increases in other costs which cannot be recovered through improved pricing of merchandise; and the adverse effect of weather conditions from time to time on consumers’ ability or desire to purchase new clothing.  Since the Company relies heavily on sourcing from foreign vendors, there are risks and uncertainties including transportation delays related to ocean, air and ground shipments, political instability, work stoppages,  and changes in import and export controls including quota restrictions and the expiration thereof.  The Company assumes no obligation to publicly update or revise its forward looking statements to reflect events or circumstances that may arise after the date of this Form 10-Q.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

The market risk inherent in the Company’s financial instruments and in its financial position represents the potential loss arising from adverse changes in interest rates.  The Company’s results of operations could be negatively impacted by decreases in interest rates on its short-term investments.

 

The Company is potentially exposed to market risk from changes in interest rates relating to its Revolving Credit and Security Agreement with Wells Fargo Bank.  Loans under the Wells Fargo Revolver bear interest at Wells Fargo’s fluctuating base rate, 4.5% as of August 28, 2004, plus 0.25%.  However, the Company had no revolving credit loan borrowings under the Wells Fargo Revolver during the first six months of fiscal 2005 and, given its existing liquidity position, does not expect to utilize the Wells Fargo Revolver in the near future except for its continuing use of the import letter of credit facility.

 

All of the Company’s purchase obligations with foreign suppliers are denominated in U.S. dollars.  Therefore, the Company has only minimal exposure to foreign currency exchange risks.  The Company does not hedge against foreign currency risks and believes that the foreign currency exchange risk is immaterial.

 

The Company does not have any derivative financial instruments and does not hold any such instruments for trading purposes.

 

ITEM 4.

CONTROLS AND PROCEDURES

 

(a)       Evaluation of Disclosure Controls and Procedures.

 

The Company’s management, with the participation of its chief executive officer and chief financial officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on such evaluation, the Company’s chief executive officer and chief financial officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by the Company in reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms.

 

(b)       Internal Control Over Financial Reporting.

 

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended August 28, 2004 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

18



 

PART II.

 

ITEM 1.
LEGAL PROCEEDINGS

 

There are no material legal proceedings pending against the Company.

 

ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS

 

On February 5, 2004, the Company announced its Board of Directors authorized a stock repurchase program enabling the Company to purchase up to $25 million of its common stock, subject to market conditions.  On June 28, 2004, the Company announced its Board of Directors authorized an increase in the stock repurchase program to $40 million from $25 million.  The following table contains information regarding the Company’s repurchases of its common stock pursuant to this repurchase program during each fiscal month of the quarterly period ended August 28, 2004:

 

Period

 

Total Number
of Shares
Purchased

 

Average
Price Paid
per Share

 

Total Number
of Shares
Purchased as
Part of a Publicly
Announced Program

 

Maximum
Dollar Value
of Shares that May
Yet be Purchased
Under the Program

 

 

 

 

 

 

 

 

 

 

 

May 30, 2004 -
June 26, 2004

 

548,000

 

 

$17.41

 

1,394,000

 

 

$15.6 million

 

 

 

 

 

 

 

 

 

 

 

June 27, 2004 -
July 31, 2004

 

450,000

 

 

$15.79

 

1,844,000

 

 

$8.5 million

 

 

 

 

 

 

 

 

 

 

 

August 1, 2004 -
August 28, 2004

 

250,000

 

 

$15.35

 

2,094,000

 

 

$4.6 million

 

 

From August 29, 2004 through October 1, 2004, the Company purchased an additional 69,500 shares of its common stock at a total cost of approximately $1.2 million, resulting in total purchases under the program of 2,163,500 shares at a total cost, including commissions, of approximately $36.6 million.

 

All of the Company’s share repurchases were executed in accordance with the safe harbor provisions of Rule 10b-18 of the Securities Exchange Act of 1934, as amended.

 

ITEM 3.
DEFAULTS UPON
SENIOR SECURITIES

 

There has been no default with respect to any indebtedness of the Company.

 

19



 

ITEM 4.
SUBMISSION OF MATTERS TO
A VOTE OF SECURITY HOLDERS

 

The Company held its annual meeting of shareholders on July 28, 2004, in Minneapolis, Minnesota.  The Company solicited proxies and filed definitive proxy statements with the United States Securities and Exchange Commission pursuant to Regulation 14A.  Holders of 35,555,171 shares of the Company’s common stock were present in person, or by proxy, representing 95.86% of the Company’s 37,091,196 shares outstanding on the record date.  The matters voted upon and the votes cast at the meeting were as follows:

 

Item 1:    Election of two Class 3 directors to serve on the Board of Directors for a term of three years

(expiring in 2007):

 

Vote

 

 

 

For

 

Witheld

 

Anne L. Jones

 

34,806,629

 

748,542

 

Robert Ezrilov

 

35,453,598

 

101,573

 

 

Other individuals whose term of office as Director continued after the meeting included William J. Prange, Joseph E. Pennington, James J. Fuld, Jr., Larry C. Barenbaum and Donald D. Beeler.

 

Item 2:  Ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent

auditors for the fiscal year ending February 26, 2005:

 

Vote

 

For

 

Against

 

Abstain

 

Broker
Non-Vote

 

35,370,610

 

164,022

 

20,539

 

0

 

 

ITEM 5.
OTHER INFORMATION

 

None.

 

ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K

 

(a)

Exhibits:

 

 

 

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

 

(b)          Reports on Form 8-K:

 

On June 22, 2004, the Company filed a current report on Form 8-K with respect to the press release issued by the Company on June 22, 2004 disclosing material nonpublic information regarding the Company’s results of operations for the quarter ended May 29, 2004.

 

20



 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

CHRISTOPHER & BANKS CORPORATION

 

 

 

 

 

 

Dated: October 5, 2004

By

/S/ WILLIAM J. PRANGE

 

 

 

 

 

William J. Prange

 

 

Chairman and
Chief Executive Officer

 

 

 

 

 

Signing on behalf of the
Registrant as principal
executive officer.

 

 

 

 

 

Dated: October 5, 2004

By

/S/ ANDREW K. MOLLER

 

 

 

 

 

Andrew K. Moller

 

 

Senior Vice President and
Chief Financial Officer

 

 

 

 

 

Signing on behalf of the
Registrant as principal
financial officer.

 

21