UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended May 30, 2009

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 Number 001-31390

CHRISTOPHER & BANKS CORPORATION

( Exact name of registrant as specified in its charter)

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

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

(763) 551-5000

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES o NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of 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 (as defined in Rule 12b-2 of the Exchange Act). YES o NO x

As of June 26, 2009, 35,942,156 shares of the registrant’s common stock were outstanding.

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PART I — FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEET

(In thousands)

(Unaudited)

	May 30,			February 28,			May 31,
	2009			2009			2008

ASSETS
Current assets:
Cash and cash equivalents	$	88,306		$	78,814		$	88,033
Short-term investments	—			—			5,000
Accounts receivable	4,371			3,921			6,699
Merchandise inventories	32,570			38,828			42,103
Prepaid expenses	2,608			1,938			11,901
Income taxes receivable	16,597			18,747			—
Current deferred tax asset	4,114			3,795			4,324
Total current assets	148,566			146,043			158,060

Property, equipment and improvements, net	114,759			120,347			135,225
Long-term investments	16,400			16,400			18,536
Deferred tax asset	5,206			4,328			5,784
Other assets	3,026			3,024			412

Total assets	$	287,957		$	290,142		$	318,017

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,570		$	19,806		$	10,347
Accrued salaries, wages and related expenses	7,485			9,588			7,662
Other accrued liabilities	20,362			22,103			30,186
Other current liabilities	487			487			—
Total current liabilities	50,904			51,984			48,195

Non-current liabilities:
Deferred lease incentives	22,471			23,506			25,258
Deferred rent obligations	10,153			10,318			11,646
Other	4,162			4,110			4,260
Total non-current liabilities	36,786			37,934			41,164

Commitments	—			—			—

Stockholders’ equity:
Preferred stock — $0.01 par value, 1,000 shares authorized, none outstanding	—			—			—
Common stock — $0.01 par value, 74,000 shares authorized, 45,658, 45,258 and 45,219 shares issued and 35,867, 35,467 and 35,415 shares outstanding at May 30, 2009, February 28, 2009 and May 31, 2008, respectively	457			453			452
Additional paid-in capital	112,233			111,763			110,987
Retained earnings	200,289			200,720			231,092
Common stock held in treasury, 9,791 shares at cost at May 30, 2009 and February 28, 2009, and 9,804 shares at cost at May 31, 2008	(112,712		)	(112,712		)	(112,859		)
Accumulated other comprehensive income (loss)	—			—			(1,014		)
Total stockholders’ equity	200,267			200,224			228,658

Total liabilities and stockholders’ equity	$	287,957		$	290,142		$	318,017

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

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CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

(In thousands, except per share data)

(Unaudited)

	Three Months Ended
	May 30,		May 31,
	2009		2008

Net sales	$	120,367	$	155,395

Costs and expenses:
Merchandise, buying and occupancy	75,458		86,734
Selling, general and administrative	36,144		43,565
Depreciation and amortization	6,311		6,408
Total costs and expenses	117,913		136,707

Operating income	2,454		18,688

Interest income	115		827

Income from continuing operations before income taxes	2,569		19,515

Income tax provision	884		7,767

Income from continuing operations	1,685		11,748

Loss from discontinued operations, net of income tax	—		(475		)

Net income	$	1,685	$	11,273

Basic earnings (loss) per share:
Continuing operations	$	0.05	$	0.33
Discontinued operations	—		(0.01		)

Earnings per basic share	$	0.05	$	0.32

Basic shares outstanding	35,132		35,071

Diluted earnings (loss) per share:
Continuing operations	$	0.05	$	0.33
Discontinued operations	—		(0.01		)

Earnings per diluted share	$	0.05	$	0.32

Diluted shares outstanding	35,137		35,138

Dividends per share	$	0.06	$	0.06

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

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CHRISTOPHER & BANKS CORPORATION

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS

(In thousands)

(Unaudited)

	Three Months Ended
	May 30,			May 31,
	2009			2008

Cash flows from operating activities:
Net income	$	1,685		$	11,273
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	6,311			6,458
Deferred income taxes	(1,197		)	128
Stock-based compensation expense	474			629
Loss on disposal of furniture, fixtures and equipment	77			170
Changes in operating assets and liabilities:
Increase in accounts receivable	(450		)	(1,475		)
Decrease in merchandise inventories	6,258			1,738
Increase in prepaid expenses	(670		)	(304		)
Decrease in prepaid income taxes	2,150			5,032
(Increase) decrease in other assets	(2		)	7
Increase (decrease) in accounts payable	3,813			(5,034		)
Increase (decrease) in accrued liabilities	(3,844		)	414
Increase (decrease) in deferred lease incentives	(1,035		)	403
Decrease in deferred rent obligations	(165		)	(75		)
Increase in other liabilities	52			538
Net cash provided by operating activities	13,457			19,902

Cash flows from investing activities:
Purchases of property, equipment and improvements	(1,849		)	(8,252		)
Net cash used in investing activities	(1,849		)	(8,252		)

Cash flows from financing activities:
Dividends paid	(2,116		)	(2,109		)
Net cash used in financing activities	(2,116		)	(2,109		)

Net increase in cash and cash equivalents	9,492			9,541

Cash and cash equivalents at beginning of period	78,814			78,492

Cash and cash equivalents at end of period	$	88,306		$	88,033

Supplemental cash flow information:
Income taxes paid, net of refunds received	$	87		$	353
Purchases of equipment and improvements, accrued, not paid	$	240		$	131

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

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CHRISTOPHER & BANKS CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

NOTE 1 — BASIS OF PRESENTATION

The unaudited condensed consolidated financial statements included in this Form 10-Q have been prepared by Christopher & Banks Corporation and its subsidiaries (the “Company”) pursuant to the rules and regulations of the United States Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed, or omitted, pursuant to such rules and regulations. These unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended February 28, 2009.

The results of operations for the interim periods shown in this report are not necessarily indicative of results to be expected for the full fiscal year. In the opinion of management, the information contained herein reflects all adjustments, consisting of only normal adjustments except as otherwise stated in these notes, necessary to present fairly the Company’s financial position as of May 30, 2009 and May 31, 2008, and its results of operations and cash flows for the three month periods ended May 30, 2009 and May 31, 2008.

Recently Adopted Accounting Pronouncements

In June 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Emerging Issues Task Force (“EITF”) No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities (“FSP-EITF No. 03-6-1”). Under FSP-EITF 03-6-1, unvested share-based payment awards that contain rights to receive nonforfeitable dividends (whether paid or unpaid) are considered participating securities and should be included in the two-class method of computing earnings per share. FSP-EITF 03-6-1 was adopted by the Company effective March 1, 2009 and impacted the Company’s calculation of earnings per share beginning in the first quarter of the fiscal year ending February 27, 2010 (“Fiscal 2010”). See Note 10 - Earnings per Share for further disclosure regarding the impact of the adoption of FSP-EITF 03-6-1.

In December 2007, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(R), “Business Combinations” (“SFAS No. 141(R)”), which is a revision of SFAS No. 141, “Business Combinations”. SFAS No. 141(R) retains the fundamental requirements in SFAS No. 141 that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. This statement includes changes in the measurement of fair value of the assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree as of the acquisition date, with limited exceptions. This statement requires in general that transaction costs and costs to restructure the acquired company be expensed and contractual contingencies be recorded at their acquisition-date fair values. The Company adopted SFAS No. 141(R) prospectively effective March 1, 2009. The adoption had no impact on the Company’s consolidated financial position, results of operations or cash flows as the Company did not execute any acquisitions or business combinations in the first quarter of fiscal 2010.

Recently Issued Accounting Pronouncements

In April 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”). FSP FAS 157-4 amends SFAS 157 and provides additional guidance for estimating fair value in accordance with SFAS No. 157 when the volume and level of activity for the asset or liability have significantly decreased and also includes guidance on identifying circumstances that indicate a transaction is not orderly for fair value measurements. This FSP shall be applied prospectively with retrospective application not permitted. This FSP shall be effective for interim and annual periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently in the process of evaluating this new FSP but does not believe it will have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

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In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “Interim Disclosures about Fair Value of Financial Instruments”. This FSP amends SFAS No. 107, “Disclosures about Fair Value of Financial Instruments”, to require disclosures about fair value of financial instruments not measured on the balance sheet at fair value in interim financial statements as well as in annual financial statements. Prior to this FSP, fair values for these assets and liabilities were only disclosed annually. This FSP applies to all financial instruments within the scope of SFAS No. 107 and requires all entities to disclose the method(s) and significant assumptions used to estimate the fair value of financial instruments. This FSP shall be effective for interim periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. This FSP does not require disclosures for earlier periods presented for comparative purposes at initial adoption. In periods after initial adoption, this FSP requires comparative disclosures only for periods ending after initial adoption. The Company is currently in the process of evaluating this new FSP but does not believe it will have a significant impact on the Company’s consolidated financial position, results of operations or cash flows.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events (“SFAS No. 165”). SFAS No. 165 establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before the date through which an entity has evaluated subsequent events. SFAS No. 165 is effective for interim and annual periods ending after June 15, 2009. The Company does not anticipate the adoption of the provisions of SFAS No. 165 will have a material impact on its financial position, results of operations or cash flows.

NOTE 2 — DISCONTINUED OPERATIONS

In July 2008, the Company announced its decision to exit its Acorn business when the Company concluded, after a comprehensive review and evaluation, that the concept had not demonstrated the potential to deliver an acceptable long-term return on the Company’s investment. The Company closed all of its Acorn stores by December 31, 2008, allowing the Company to focus its resources on its two core brands, Christopher & Banks and C.J. Banks.

The operating results of all Acorn stores have been presented as discontinued operations, in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS No. 144”), in the Condensed Consolidated Statement of Operations for the three month period ended May 31, 2008. There was no activity relating to the Company’s discontinued Acorn operations during the three months ended May 30, 2009.

The operating results of the discontinued operations for the three months ended May 31, 2008 are summarized below (in thousands).

Net sales	$	4,247

Loss before income tax benefit	$	(789	)
Income tax benefit	(314		)

Loss from discontinued operations	$	(475	)

Income taxes have been allocated to continuing and discontinued operations based on the methodology required by Financial Accounting Interpretation No. 18, “Accounting for Income Taxes in Interim Periods” (“FIN No. 18”). Income taxes allocated to the results of discontinued operations are determined on the basis of a computation of taxes with and without the impact of results from discontinued operations with the difference in taxes between these computations allocated to discontinued operations.

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NOTE 3 — MERCHANDISE INVENTORIES AND SOURCES OF SUPPLY

Merchandise inventories consisted of the following (in thousands):

	May 30,		February 28,		May 31,
Description	2009		2009		2008

Merchandise - in store	$	31,140	$	35,280	$	36,684
Merchandise - in transit	1,430		3,548		5,419

	$	32,570	$	38,828	$	42,103

The Company does not have long-term purchase commitments or arrangements with any of its suppliers or agents. During the quarter ended May 30, 2009, one of the Company’s vendors supplied approximately 25% of the Company’s merchandise purchases and a second vendor supplied approximately 14% of the Company’s merchandise purchases. The Company did not purchase significant amounts of goods from these two vendors during the three months ended May 31, 2008. In addition, the Company purchased approximately 5% and 11% of its merchandise from another supplier during the three months ended May 30, 2009 and May 31, 2008, respectively.

Although the Company has strong partnerships with these vendors, there can be no assurance that these relationships can be maintained in the future or that the vendors will continue to supply merchandise to the Company. If there should be any significant disruption in the supply of merchandise from these vendors, management believes that it will be able to shift production to other suppliers so as to continue to secure the required volume of product. Nevertheless, it is possible that any significant disruption in supply could have a material adverse impact on the Company’s financial position or results of operations.

In the first quarter of fiscal 2009, the Company purchased approximately 53% of its merchandise through one buying agent (the “Agent”). The Company and the Agent terminated their sourcing arrangement effective as of the end of December 2008. As a result, the Company did not purchase any merchandise through the Agent in the first quarter of fiscal 2010.

NOTE 4 — PROPERTY, EQUIPMENT AND IMPROVEMENTS, NET

Property, equipment and improvements, net consisted of the following (in thousands):

	Estimated	May 30,		February 28,		May 31,
Description	Useful Life	2009		2009		2008

Land	—	$	1,597	$	1,597	$	1,597
Corporate office, distribution center and related building improvements	25 years	12,005		12,020		12,015
Store leasehold improvements	Term of related lease,
	typically 10 years	94,994		95,251		98,952
Store furniture and fixtures	Three to 10 years	113,497		113,697		115,465
Point of sale hardware and software	Five years	15,162		15,173		10,924
Computer hardware and software	Three to five years	21,328		21,123		12,159
Corporate office and distribution center furniture, fixtures and equipment	Seven years	3,587		3,634		3,089
Construction in progress	—	1,940		1,432		12,301
		264,110		263,927		266,502
Less accumulated depreciation and amortization		149,351		143,580		131,277
Net property, equipment and improvements		$	114,759	$	120,347	$	135,225

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As of May 30, 2009 and February 28, 2009, construction in progress consisted primarily of store-related information technology system projects in progress. As of May 31, 2008, construction in progress consisted primarily of capital expenditures related to new stores which opened in the second and third quarters of fiscal 2009.

The Company reviews long-lived assets with definite lives at least annually or whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable in accordance with SFAS No. 144. The Company recorded no impairments of long-lived assets in the three month period ended May 30, 2009, however, the general economic uncertainty affecting the retail industry makes it reasonably possible that long-lived asset impairments may be identified and recorded in future periods.

NOTE 5 — LONG-TERM INVESTMENTS

As of May 30, 2009, the Company had approximately $16.4 million of long-term investments, which consisted solely of $19.5 million of auction rate securities (“ARS”) at cost, less a fair value adjustment of approximately $3.1 million. The fair value of the ARS was determined utilizing a discounted cash flow method based on market rates and an estimated period of time the ARS are expected to be held.

Substantially all of the Company’s ARS are collateralized by student loans and a majority have AAA (S&P), Aaa (Moody’s), or Fitch (AAA) credit ratings as of May 30, 2009. As of May 30, 2009, the repayment of approximately 80% of the student loans, which serve as collateral for the ARS held by the Company, was substantially backed by the United States Government. Until February 2008, the ARS market was liquid and auctions for ARS held by the Company did not fail. However, beginning in February 2008, auctions for the ARS held by the Company began to fail and have continued to fail up to and as of the date of this report.

Based on current market conditions, management believes that it is likely that auctions related to the Company’s ARS will continue to be unsuccessful for the near term. Unsuccessful auctions have limited the Company’s ability to access these funds. Management anticipates the liquidity of the ARS will continue to be restricted until there is a successful auction, until such time as another market for the ARS develops, until the ARS are called by the issuer or until they are redeemed as described below.

All of the ARS owned by the Company were purchased through UBS Financial Services, Inc., a subsidiary of UBS AG (“UBS”) and are held, for the benefit of the Company, by UBS. In November 2008, the Company accepted a settlement offer from UBS to restore liquidity to its clients who hold ARS. The settlement offer grants the Company certain ARS rights. These ARS rights provide the Company the ability to redeem its ARS at par during a two-year time period beginning June 30, 2010. During this time, the Company may choose to continue to hold some or all of its ARS and earn interest or sell some or all of them to UBS at par plus accrued interest. The ARS rights are not transferable, tradable, or marginable and will not be listed or quoted on any securities or exchange or any electronic communications network.

Upon acceptance of the settlement offer, the Company classified the ARS as trading securities and elected, pursuant to SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”), to record the ARS rights at fair value on a recurring basis utilizing significant unobservable inputs in accordance with SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).

The fair value of the ARS rights was estimated utilizing the Black-Scholes option pricing model and the forward contract method. As of May 30, 2009, the fair value of the ARS rights was determined to be approximately $2.7 million. The ARS rights are recorded as a non-current asset on the consolidated financial statements.

Prior to acceptance of the UBS settlement offer, the Company classified its ARS as available-for-sale securities. As of May 31, 2008, the Company had approximately $18.5 million of long-term investments consisting solely of $19.5 million of ARS, less a valuation allowance of $1.0 million, which reflected management’s estimate of fair value given the current lack of liquidity of these investments while taking into account the current credit quality of the underlying securities. Additionally, the Company had $5.0 million in ARS which were classified as short-term investments as of May 31, 2008 as they were called by the issuers and redeemed for par value in July 2008.

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NOTE 6 — ACCRUED LIABILITIES

Other accrued liabilities consisted of the following (in thousands):

	May 30,		February 28,		May 31,
Description	2009		2009		2008

Gift card, certificate and store credit liabilities	$	8,991	$	11,434	$	10,094
Accrued un-invoiced merchandise inventory receipts	3,781		3,008		7,541
Accrued income, sales and other taxes payable	2,357		1,877		4,440
Accrued workers compensation self-insurance liability	1,184		1,601		2,378
Accrued occupancy-related expenses	841		693		1,946
Other	3,208		3,490		3,787

	$	20,362	$	22,103	$	30,186

NOTE 7 — CREDIT FACILITY

The Company maintains an Amended and Restated Revolving Credit Facility (the “Credit Facility”) with Wells Fargo Bank, National Association (“Wells Fargo”) which expires on June 30, 2011. The Credit Facility provides the Company with revolving credit loans and letters of credit of up to $50 million, in the aggregate, subject to a borrowing base formula based on inventory levels.

Loans under the Credit Facility bear interest at the prime rate minus 0.25%. As of May 30, 2009 the prime rate was 3.25%. The Credit Facility also provides the Company with the ability to borrow under the Credit Facility at an interest rate tied to the London Interbank Market Offered Rate (“LIBOR”). Advances under the LIBOR option would be tied to the one, three, or six month LIBOR rate based on the length of time the corresponding advance is outstanding.

Interest under the Credit Facility is payable monthly in arrears. The Credit Facility carries a facility fee of 0.25%, based on the unused portion as defined in the agreement, and a collateral monitoring fee. For the three months ended May 30, 2009, fees related to the Credit Facility totaled $12,933. Borrowings under the Credit Facility are collateralized by the Company’s equipment, intangible assets, inventory, inventory letters of credit and letter of credit rights. The Company had no revolving credit loan borrowings under the Credit Facility during the first three months of fiscal 2010. Historically, the Credit Facility has been utilized by the Company only to open letters of credit to facilitate the import of merchandise. The borrowing base at May 30, 2009 was $20.6 million. As of May 30, 2009, the Company had outstanding letters of credit in the amount of $0.2 million. Accordingly, the availability of revolving credit loans under the Credit Facility was $20.4 million at May 30, 2009.

The Credit Facility 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 May 30, 2009, the most recent measurement date, the Company was in compliance with all of the restrictive covenants under the Credit Facility.

NOTE 8 — STOCK-BASED COMPENSATION

The Company accounts for stock-based compensation in accordance with the provisions of SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”). Under this method, stock-based compensation expense recognized for share-based awards includes: (a) compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of, February 25, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation expense for all stock-based compensation awards granted subsequent to February 25, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R.

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Total pre-tax compensation expense related to stock-based awards for the three months ended May 30, 2009 and May 31, 2008 was approximately $474,000 and $629,000, respectively. Stock-based compensation expense was included in merchandise, buying and occupancy expenses for the Company’s buying and distribution employees and in selling, general and administrative expenses for all other employees.

Methodology Assumptions

The Company uses the Black-Scholes option-pricing model to value the Company’s stock options for grants to its employees and non-employee directors. Using this option-pricing model, the fair value of each stock option award is estimated on the date of grant. The fair value of the Company’s stock option awards, which are generally subject to pro-rata vesting, is expensed on a straight-line basis over the vesting period of the stock options. The expected volatility assumption is based on the historical volatility of the Company’s stock over a term equal to the expected term of the option granted. The expected term of stock option awards granted is derived from historical exercise experience. The expected term assumption incorporates the contractual term of an option grant, as well as the vesting period of an award. The risk-free interest rate is based on the implied yield on a U.S. Treasury constant maturity with a remaining term equal to the expected term of the option granted.

The weighted average assumptions relating to the valuation of the Company’s stock option grants for the three month periods ended May 30, 2009 and May 31, 2008 were as follows:

	Three Months Ended
	May 30,		May 31,
	2009		2008
Expected dividend yield	5.5	%	2.3	%
Expected volatility	66.2	%	48.3	%
Risk-free interest rate	1.8	%	2.6	%
Expected term in years	5.0		4.7

Stock-Based Compensation Activity

The following table presents a summary of the Company’s stock option activity for the three months ended May 30, 2009:

									Weighted
			Weighted		Aggregate				Average
	Number		Average		Intrinsic		Weighted		Remaining
	of		Exercise		Value		Average		Contractual
	Shares		Price		(in thousands)		Fair Value		Life

Outstanding, beginning of period	1,587,345		$	16.31	$	3	$	5.90
Vested	1,145,968		17.84		—		6.36
Unvested	441,377		12.32		3		4.70
Granted	312,500		4.18		313		1.58
Exercised	—		—		—		—
Canceled - Vested	(31,985	)	21.30		—		8.50
Canceled - Unvested (Forfeited)	(27,267	)	15.85		—		6.50
Outstanding, end of period	1,840,593		14.21		321		5.13		6.32
Vested	1,205,750		17.42		—		6.21		4.78
Unvested	634,843		8.12		321		3.09		9.23
Exercisable, end of period	1,205,750		17.42		—		6.21		4.78

The Company may also grant shares of restricted stock to its employees and non-employee directors. Restricted stock awards are independent of option grants and are generally subject to forfeiture if employment or service terminates prior to the lapse of the restrictions. In addition, certain of the Company’s restricted stock awards have performance-based vesting provisions and are subject to forfeiture if these performance conditions are not achieved.

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PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements:

	Condensed Consolidated Balance Sheet (Unaudited) As of May 30, 2009, February 28, 2009 and May 31, 2008	3

	Condensed Consolidated Statement of Operations (Unaudited) For the Three Months Ended May 30, 2009 and May 31, 2008	4

	Condensed Consolidated Statement of Cash Flows (Unaudited) For the Three Months Ended May 30, 2009 and May 31, 2008	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	25

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	25
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3.	Defaults Upon Senior Securities	25
Item 4.	Submission of Matters to a Vote of Security Holders	26
Item 5.	Other Information	26
Item 6.	Exhibits	26
	Signatures	27
	Index to Exhibits	28