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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
ý | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
for the quarterly period ended August 2, 2014 | ||
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: 1-32315
NEW YORK & COMPANY, INC.
(Exact name of registrant as specified in its charter)
DELAWARE (State of incorporation) | 33-1031445 (I.R.S. Employer Identification No.) | |
450 West 33rd Street 5th Floor New York, New York 10001 (Address of Principal Executive Offices, including Zip Code) | (212) 884-2000 (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 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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý 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. (Check one):
Large accelerated filero | Accelerated filerý | Non-accelerated filero (Do not check if a smaller reporting company) | Smaller reporting companyo |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of August 29, 2014, the registrant had 63,989,524 shares of common stock outstanding.
| | Page | ||||
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PART I. FINANCIAL INFORMATION | ||||||
Item 1. | Financial Statements | 1 | ||||
Item 2. | Management's Discussion and Analysis of Financial Condition and Results of Operations | 10 | ||||
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 17 | ||||
Item 4. | Controls and Procedures | 17 | ||||
PART II. OTHER INFORMATION | ||||||
Item 1. | Legal Proceedings | 18 | ||||
Item 1A. | Risk Factors | 18 | ||||
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 18 | ||||
Item 3. | Defaults Upon Senior Securities | 18 | ||||
Item 4. | Mine Safety Disclosures | 18 | ||||
Item 5. | Other Information | 18 | ||||
Item 6. | Exhibits | 18 |
i
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share amounts) | Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | $ | 226,066 | $ | 223,050 | $ | 445,659 | $ | 450,533 | |||||
Cost of goods sold, buying and occupancy costs | 164,148 | 163,048 | 321,537 | 324,197 | |||||||||
| | | | | | | | | | | | | |
Gross profit | 61,918 | 60,002 | 124,122 | 126,336 | |||||||||
Selling, general and administrative expenses | 61,738 | 62,245 | 123,881 | 127,362 | |||||||||
| | | | | | | | | | | | | |
Operating income (loss) | 180 | (2,243 | ) | 241 | (1,026 | ) | |||||||
Interest expense, net of interest income of $2, $3, $2, and $5, respectively | 85 | 90 | 169 | 179 | |||||||||
| | | | | | | | | | | | | |
Income (loss) before income taxes | 95 | (2,333 | ) | 72 | (1,205 | ) | |||||||
Provision (benefit) for income taxes | 242 | 376 | 501 | (90 | ) | ||||||||
| | | | | | | | | | | | | |
Net loss | $ | (147 | ) | $ | (2,709 | ) | $ | (429 | ) | $ | (1,115 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Basic loss per share | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted loss per share | �� | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.02 | ) |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Weighted average shares outstanding: | |||||||||||||
Basic shares of common stock | 62,819 | 62,279 | 62,728 | 62,125 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted shares of common stock | 62,819 | 62,279 | 62,728 | 62,125 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes.
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Loss
(Unaudited)
(Amounts in thousands) | Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Comprehensive loss | $ | (126 | ) | $ | (2,664 | ) | $ | (362 | ) | $ | (1,022 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
See accompanying notes.
1
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(Amounts in thousands, except per share amounts) | August 2, 2014 | February 1, 2014 | August 3, 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | (Audited) | (Unaudited) | |||||||
Assets | ||||||||||
Current assets: | ||||||||||
Cash and cash equivalents | $ | 63,166 | $ | 69,723 | $ | 59,462 | ||||
Restricted cash | 1,509 | — | — | |||||||
Accounts receivable | 10,688 | 7,026 | 9,825 | |||||||
Income taxes receivable | 99 | 99 | 135 | |||||||
Inventories, net | 84,896 | 83,479 | 82,384 | |||||||
Prepaid expenses | 22,791 | 21,141 | 22,427 | |||||||
Other current assets | 1,223 | 1,280 | 1,363 | |||||||
| | | | | | | | | | |
Total current assets | 184,372 | 182,748 | 175,596 | |||||||
Property and equipment, net | 77,956 | 83,553 | 87,410 | |||||||
Intangible assets | 14,879 | 14,879 | 14,879 | |||||||
Deferred income taxes | 6,741 | 6,501 | 6,710 | |||||||
Other assets | 995 | 1,072 | 767 | |||||||
| | | | | | | | | | |
Total assets | $ | 284,943 | $ | 288,753 | $ | 285,362 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
Liabilities and stockholders' equity | ||||||||||
Current liabilities: | ||||||||||
Accounts payable | $ | 82,173 | $ | 75,874 | $ | 79,636 | ||||
Accrued expenses | 38,402 | 46,880 | 40,384 | |||||||
Income taxes payable | 747 | 1,075 | 848 | |||||||
Deferred income taxes | 6,741 | 6,501 | 6,710 | |||||||
| | | | | | | | | | |
Total current liabilities | 128,063 | 130,330 | 127,578 | |||||||
Deferred rent | 36,803 | 39,925 | 44,699 | |||||||
Other liabilities | 5,032 | 5,283 | 6,233 | |||||||
| | | | | | | | | | |
Total liabilities | 169,898 | 175,538 | 178,510 | |||||||
Stockholders' equity: | ||||||||||
Common stock, voting, par value $0.001; 300,000 shares authorized; 64,789, 64,467 and 64,441 shares issued and 63,789, 63,467, and 63,441 shares outstanding at August 2, 2014, February 1, 2014, and August 3, 2013, respectively | 65 | 64 | 64 | |||||||
Additional paid-in capital | 172,697 | 170,506 | 168,524 | |||||||
Retained deficit | (52,656 | ) | (52,227 | ) | (55,736 | ) | ||||
Accumulated other comprehensive loss | (1,664 | ) | (1,731 | ) | (2,603 | ) | ||||
Treasury stock at cost; 1,000 shares at August 2, 2014, February 1, 2014 and August 3, 2013 | (3,397 | ) | (3,397 | ) | (3,397 | ) | ||||
| | | | | | | | | | |
Total stockholders' equity | 115,045 | 113,215 | 106,852 | |||||||
| | | | | | | | | | |
Total liabilities and stockholders' equity | $ | 284,943 | $ | 288,753 | $ | 285,362 | ||||
| | | | | | | | | | |
| | | | | | | | | | |
See accompanying notes.
2
New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Amounts in thousands) | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||
---|---|---|---|---|---|---|---|
Operating activities | |||||||
Net loss | $ | (429 | ) | $ | (1,115 | ) | |
Adjustments to reconcile net loss to net cash provided by operating activities: | |||||||
Depreciation and amortization | 14,118 | 17,268 | |||||
Loss from impairment charges | 358 | 278 | |||||
Amortization of deferred financing costs | 60 | 60 | |||||
Share-based compensation expense | 2,011 | 1,675 | |||||
Changes in operating assets and liabilities: | |||||||
Restricted cash | (1,509 | ) | — | ||||
Accounts receivable | (3,662 | ) | (1,609 | ) | |||
Income taxes receivable | — | 353 | |||||
Inventories, net | (1,417 | ) | (2,186 | ) | |||
Prepaid expenses | (1,650 | ) | (960 | ) | |||
Accounts payable | 6,299 | 5,226 | |||||
Accrued expenses | (8,478 | ) | (8,663 | ) | |||
Income taxes payable | (328 | ) | (141 | ) | |||
Deferred rent | (3,122 | ) | (4,135 | ) | |||
Other assets and liabilities | (110 | ) | (998 | ) | |||
| | | | | | | |
Net cash provided by operating activities | 2,141 | 5,053 | |||||
| | | | | | | |
Investing activities | |||||||
Capital expenditures | (8,879 | ) | (6,996 | ) | |||
| | | | | | | |
Net cash used in investing activities | (8,879 | ) | (6,996 | ) | |||
| | | | | | | |
Financing activities | |||||||
Proceeds from exercise of stock options | 299 | 472 | |||||
Shares withheld for payment of employee payroll taxes | (118 | ) | — | ||||
| | | | | | | |
Net cash provided by financing activities | 181 | 472 | |||||
| | | | | | | |
Net decrease in cash and cash equivalents | (6,557 | ) | (1,471 | ) | |||
Cash and cash equivalents at beginning of period | 69,723 | 60,933 | |||||
| | | | | | | |
Cash and cash equivalents at end of period | $ | 63,166 | $ | 59,462 | |||
| | | | | | | |
| | | | | | | |
See accompanying notes.
3
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements
August 2, 2014
(Unaudited)
1. Organization and Basis of Presentation
New York & Company, Inc. (together with its subsidiaries, collectively the "Company") is a specialty retailer of women's fashion apparel and accessories, and the modern wear-to-work destination for women, providing perfectly fitting pants and NY Style that is feminine, polished, on-trend and versatile—all at compelling values. The Company's proprietary branded New York & Company® merchandise is sold exclusively through its national network of retail stores and online atwww.nyandcompany.com. The target customers for the Company's merchandise are women between the ages of 25 and 45. As of August 2, 2014, the Company operated 509 stores in 43 states.
The condensed consolidated financial statements as of August 2, 2014 and August 3, 2013 and for the 13 weeks ("three months") and 26 weeks ("six months") ended August 2, 2014 and August 3, 2013 are unaudited and are presented pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC"). Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto for the 52-week fiscal year ended February 1, 2014 ("fiscal year 2013"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 15, 2014. The 52-week fiscal year ending January 31, 2015 is referred to herein as "fiscal year 2014." The Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31.
In the opinion of management, the accompanying condensed consolidated financial statements reflect all adjustments, which are of a normal recurring nature, necessary to present fairly the financial condition, results of operations and cash flows for the interim periods. All significant intercompany balances and transactions have been eliminated in consolidation.
Certain reclassifications have been made to prior fiscal year amounts and balances to conform to the presentation in the current fiscal year. These reclassifications did not impact consolidated operating income or net income in the prior year period presented.
Due to seasonal variations in the retail industry, the results of operations for any interim period are not necessarily indicative of the results expected for the full fiscal year.
2. New Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which supersedes the revenue recognition requirements in FASB Accounting Standards Codification™ ("ASC") Topic 605, "Revenue Recognition" and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, with early application not permitted. ASU 2014-09 may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The Company is evaluating the new standard and its impact on the Company's financial position and results of operations.
4
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
August 2, 2014
(Unaudited)
3. Earnings Per Share
Basic loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period. Except when the effect would be anti-dilutive, diluted loss per share is calculated based on the weighted average number of outstanding shares of common stock plus the dilutive effect of share-based awards calculated under the treasury stock method. A reconciliation between basic and diluted loss per share is as follows:
| Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands, except per share amounts) | ||||||||||||
Net loss | $ | (147 | ) | $ | (2,709 | ) | $ | (429 | ) | $ | (1,115 | ) | |
Basic loss per share | |||||||||||||
Weighted average shares outstanding: | |||||||||||||
Basic shares of common stock | 62,819 | 62,279 | 62,728 | 62,125 | |||||||||
| | | | | | | | | | | | | |
Basic loss per share | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Diluted loss per share | |||||||||||||
Weighted average shares outstanding: | |||||||||||||
Basic shares of common stock | 62,819 | 62,279 | 62,728 | 62,125 | |||||||||
Plus impact of share-based awards | — | — | — | — | |||||||||
| | | | | | | | | | | | | |
Diluted shares of common stock | 62,819 | 62,279 | 62,728 | 62,125 | |||||||||
| | | | | | | | | | | | | |
Diluted loss per share | $ | (0.00 | ) | $ | (0.04 | ) | $ | (0.01 | ) | $ | (0.02 | ) | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The calculation of diluted loss per share for the three and six months ended August 2, 2014 and August 3, 2013 excludes the share-based awards listed in the following table due to their anti-dilutive effect as determined under the treasury stock method:
| Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | ||||||||||||
Stock options | 497 | 404 | 532 | 573 | |||||||||
Stock appreciation rights(1) | 2,953 | 1,196 | 2,986 | 1,972 | |||||||||
Restricted stock and units | 654 | 606 | 509 | 605 | |||||||||
| | | | | | | | | | | | | |
Total anti-dilutive shares | 4,104 | 2,206 | 4,027 | 3,150 | |||||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
- (1)
- Each stock appreciation right ("SAR") referred to above represents the right to receive a payment measured by the increase in the fair market value of one share of common stock from the date of grant of the SAR to the date of exercise of the SAR. Upon exercise the SARs will be settled in stock.
5
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
August 2, 2014
(Unaudited)
4. Share-Based Compensation
The Company accounts for all share-based payments in accordance with FASB ASC Topic 718, "Compensation—Stock Compensation" ("ASC 718"). ASC 718 requires that the cost resulting from all share-based payment transactions be treated as compensation and recognized in the consolidated financial statements.
The Company recorded share-based compensation expense in the amount of $0.7 million and $0.6 million for the three months ended August 2, 2014 and August 3, 2013, respectively, and $2.0 million and $1.7 million for the six months ended August 2, 2014 and August 3, 2013, respectively.
During the six months ended August 2, 2014, 111,692 shares of common stock were issued upon exercise of previously issued stock options and SARs.
5. Pension Plan
The Company sponsors a single employer defined benefit pension plan (the "plan") covering substantially all union employees. Employees covered by collective bargaining agreements are primarily non-management store associates, representing approximately 8% of the Company's workforce. The collective bargaining agreement with Local 1102 of the Retail, Wholesale and Department Store Union ("RWDSU") AFL-CIO ("Local 1102") is currently being renegotiated in accordance with the terms of the agreement. The Company believes its relationship with its employees is good.
The plan provides retirement benefits for union employees who have attained the age of 21 and completed 1,000 or more hours of service in any calendar year following their date of employment. The plan provides benefits based on length of service. The Company's funding policy for the pension plan is to contribute annually the amount necessary to provide for benefits based on accrued service and to contribute at least the minimum required by the Employee Retirement Income Security Act rules. Net periodic benefit cost includes the following components:
| Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | ||||||||||||
Service cost | $ | 88 | $ | 88 | $ | 175 | $ | 173 | |||||
Interest cost | 94 | 78 | 184 | 180 | |||||||||
Expected return on plan assets | (146 | ) | (136 | ) | (275 | ) | (258 | ) | |||||
Amortization of unrecognized losses | 25 | 49 | 75 | 101 | |||||||||
Amortization of prior service credit | (4 | ) | (4 | ) | (8 | ) | (8 | ) | |||||
| | | | | | | | | | | | | |
Net periodic benefit cost | $ | 57 | $ | 75 | $ | 151 | $ | 188 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
In accordance with FASB ASC Topic 220, "Comprehensive Income," comprehensive loss reported on the Company's condensed consolidated statements of comprehensive loss includes net loss and other comprehensive income (loss). For the Company, other comprehensive income (loss) consists of the reclassification of unrecognized losses and prior service credits related to the Company's minimum pension liability. The total amount of unrecognized losses and prior service credits reclassified out of accumulated other comprehensive loss on the condensed consolidated balance sheets and into selling,
6
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
August 2, 2014
(Unaudited)
5. Pension Plan (Continued)
general, and administrative expenses on the Company's condensed consolidated statements of operations for the three months ended August 2, 2014 and August 3, 2013 was $21,000 and $45,000, respectively, and for the six months ended August 2, 2014 and August 3, 2013 was $67,000 and $93,000, respectively. As of February 1, 2014, the Company reported a minimum pension liability of $2.0 million due to the underfunded status of the plan. The minimum pension liability is reported in other liabilities on the condensed consolidated balance sheets.
6. Income Taxes
The Company files U.S. federal income tax returns and state and local income tax returns in various jurisdictions. The Company is no longer subject to U.S. federal income tax examinations for tax years through 2009. With limited exception, the Company is no longer subject to state and local income tax examinations for tax years through 2009.
At February 1, 2014, the Company reported a total liability for unrecognized tax benefits of $3.9 million, including interest and penalties, all of which would impact the Company's effective tax rate if recognized. The Company does not anticipate any significant increases or decreases to the balance of unrecognized tax benefits during the next 12 months.
The Company continues to maintain a valuation allowance against its deferred tax assets until the Company believes it is more likely than not that these assets will be realized in the future. If sufficient positive evidence arises in the future indicating that all or a portion of the deferred tax assets meet the more-likely-than-not standard under ASC Topic 740, "Income Taxes," the valuation allowance would be reversed accordingly in the period that such determination is made. As of August 2, 2014, the Company's valuation allowance against its deferred tax assets was $57.0 million.
7. Long-Term Debt and Credit Facilities
On August 10, 2011, Lerner New York, Inc., Lernco, Inc. and Lerner New York Outlet, Inc., wholly-owned indirect subsidiaries of New York & Company, Inc., entered into a Third Amended and Restated Loan and Security Agreement (the "Loan Agreement," which was filed with the Company's Quarterly Report on Form 10-Q with the SEC on September 8, 2011) with Wells Fargo Bank, N.A., as Agent and sole lender. The Loan Agreement expires on August 10, 2016.
The Loan Agreement provides the Company with up to $100 million of credit, consisting of a $75 million revolving credit facility (which includes a subfacility for issuance of letters of credit up to $45 million) with a fully committed accordion option that allows the Company to increase the revolving credit facility to a maximum of $100 million or decrease it to a minimum of $60 million, subject to certain restrictions. Under the Loan Agreement, the Company is currently subject to a Minimum Excess Availability (as defined in the Loan Agreement) covenant of $7.5 million. The Company's credit facility contains other covenants, including restrictions on the Company's ability to pay dividends on its common stock; incur additional indebtedness; and prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more indebtedness for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes.
7
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
August 2, 2014
(Unaudited)
7. Long-Term Debt and Credit Facilities (Continued)
Under the Loan Agreement, the revolving loans under the credit facility bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.75% and 2.00% per year for Eurodollar rate loans or a floating rate equal to the Prime rate plus a margin of between 0.75% and 1.00% per year for Prime rate loans, depending upon the Company's Average Compliance Excess Availability (as defined in the Loan Agreement). The Company pays the lender under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of between 0.875% and 1.00% per year and on standby letters of credit at a rate of between 1.75% and 2.00% per year, depending upon the Company's Average Compliance Excess Availability, plus a monthly fee on the unused commitments under the revolving credit facility at a rate of 0.375% per year.
The maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation based on applying specified advance rates against inventory and certain other eligible assets. As of August 2, 2014, the Company had availability under its revolving credit facility of $30.4 million, net of letters of credit outstanding of $22.5 million, as compared to availability of $37.1 million, net of letters of credit outstanding of $11.5 million, as of February 1, 2014, and availability of $41.1 million, net of letters of credit outstanding of $12.5 million, as of August 3, 2013.
The lender has been granted a pledge of the common stock of Lerner New York Holding, Inc. and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facility. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facility, and such guarantees are joint and several.
8. Fair Value Measurements
FASB ASC Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820"), establishes a common definition for fair value to be applied to GAAP guidance requiring the use of fair value, establishes a framework for measuring fair value, and expands the disclosure about such fair value measurements. ASC 820 establishes a three-level fair value hierarchy that requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs used to measure fair value are as follows:
Level 1: | Observable inputs such as quoted prices in active markets; | |
Level 2: | Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and | |
Level 3: | Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions. |
The Company's financial instruments consist of cash and cash equivalents, restricted cash, short-term trade receivables and accounts payable. The carrying values on the balance sheet for cash
8
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
August 2, 2014
(Unaudited)
8. Fair Value Measurements (Continued)
and cash equivalents, restricted cash, short-term trade receivables and accounts payable approximate their fair values due to the short-term maturities of such items.
The Company classifies long-lived store assets within level 3 of the fair value hierarchy. The Company evaluates the impairment of long-lived assets in accordance with ASC Topic 360, "Property, Plant and Equipment" ("ASC 360"). Long-lived assets are evaluated for recoverability whenever events or changes in circumstances indicate that an asset may have been impaired. The evaluation is performed at the individual store level, which is the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. In evaluating long-lived assets for recoverability, the Company estimates the future cash flows at the individual store level that are expected to result from the use of each store's assets based on historical experience, knowledge and market data assumptions. If the sum of the expected future undiscounted cash flows is less than the carrying amount of the long-lived assets, an impairment loss, equal to the excess of the carrying amount over the fair value of the assets, is recognized. During the first quarter of fiscal year 2014, the Company's evaluations resulted in non-cash charges of $0.4 million related to the impairment of store assets. During the second quarter of fiscal year 2013, the Company's evaluations resulted in non-cash charges of $0.3 million related to the impairment of store assets. These impairment charges are included in "Selling, general and administrative expenses" on the Company's condensed consolidated statements of operations.
9. Other Events
On February 25, 2014, the Company entered into a lease for 182,709 square feet of office space at 330 West 34th Street, New York, New York, pursuant to which, the Company plans to move its corporate headquarters to by January 1, 2015 upon expiration of its existing lease at 450 West 33rd Street, New York, New York. The lease for the new corporate headquarters expires in 2030. In connection with the signing of the new lease agreement, the Company issued an $8.0 million standby letter of credit to the lessor, which the Company may reduce by $2.0 million annually from 2017 through 2019. As of August 2, 2014, the Company had $1.5 million in restricted cash related to the new office space, which it expects to release to the lessor over the next six months. During fiscal year 2014, the Company expects capital expenditures related to the new office space to be approximately $13.0 million. Total cash rental obligations to be paid over the 16-year life of the lease are approximately $160.0 million.
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS
(Cautionary Statements Under the Private Securities Litigation Reform Act of 1995)
This Quarterly Report on Form 10-Q includes forward-looking statements. Certain matters discussed in "Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations" and other sections of this Quarterly Report on Form 10-Q are forward-looking statements intended to qualify for safe harbors from liability established by the Private Securities Litigation Reform Act of 1995. Some of these statements can be identified by terms and phrases such as "anticipate," "believe," "intend," "estimate," "expect," "continue," "could," "may," "plan," "project," "predict" and similar expressions and include references to assumptions that the Company believes are reasonable and relate to its future prospects, developments and business strategies. Factors that could cause the Company's actual results to differ materially from those expressed or implied in such forward-looking statements, include, but are not limited to those discussed under the heading "Item 3. Quantitative and Qualitative Disclosures About Market Risk" in this Quarterly Report on Form 10-Q and the risks and uncertainties as described in the Company's documents filed with the SEC, including its Annual Report on Form 10-K, as filed on April 15, 2014.
The Company undertakes no obligation to revise the forward-looking statements included in this Quarterly Report on Form 10-Q to reflect any future events or circumstances. The Company's actual results, performance or achievements could differ materially from the results expressed or implied by these forward-looking statements.
Overview
The Company is a specialty retailer of women's fashion apparel and accessories, and the modern wear-to-work destination for women, providing perfectly fitting pants and NY Style that is feminine, polished, on-trend and versatile—all at compelling values. The Company's proprietary branded New York & Company® merchandise is sold exclusively through its national network of retail stores and online atwww.nyandcompany.com. The target customers for the Company's merchandise are women between the ages of 25 and 45. As of August 2, 2014, the Company operated 509 stores in 43 states.
The Company's strategic initiatives for fiscal year 2014 are to accomplish the following: driving top line and comparable store sales growth in each channel of its business; increasing brand awareness and driving traffic to stores by attracting new customers and engaging existing customers; and growing the Company brand through key merchandise initiatives. In support of these strategic initiatives, the Company is opening new Outlet stores and optimizing its existing real estate portfolio to maximize sales and profitability. Furthermore, the Company believes its omni-channel retail initiatives and the recent upgrade of its eCommerce website will continue to drive traffic and increase sales across both store and eCommerce channels. In addition, the Company remains focused on its key merchandise initiatives and core sub-brands—including the 7th Avenue Suiting, Love NY&C, Soho Jeans, and Eva Mendes Collection—and continues to grow the pant and denim categories.
In September 2013, the Company launched its Eva Mendes Collection in select New York & Company stores and online, which had a positive debut. The Company has since expanded the Eva Mendes Collection and features it across the majority of the New York & Company store base. The Company believes that the marketing and publicity around the Eva Mendes Collection continues to broaden awareness and interest in the New York & Company brand, building the strength of the brand.
Net sales for the three months ended August 2, 2014 ("second quarter of fiscal year 2014") were $226.1 million, as compared to $223.1 million for the three months ended August 3, 2013 ("second
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quarter of fiscal year 2013"). Net sales increased, while the Company's store base was reduced to 506 stores at the beginning of the second quarter of fiscal year 2014, versus 519 stores at the beginning of the second quarter of fiscal year 2013, reflecting the Company's on-going real estate optimization strategy. Comparable store sales increased 2.3% for the three months ended August 2, 2014, as compared to an increase of 2.1% for the three months ended August 3, 2013. Net loss for the three months ended August 2, 2014 was $0.1 million, or breakeven per diluted share. This compares to a net loss of $2.7 million, or $0.04 per diluted share, for the three months ended August 3, 2013.
Capital spending for the six months ended August 2, 2014 was $8.9 million, as compared to $7.0 million for the six months ended August 3, 2013. During the six months ended August 2, 2014, the Company opened six New York & Company Outlet stores and remodeled five existing New York & Company stores. This compares to the opening of one New York & Company Outlet store and the remodeling of four existing New York & Company stores during the six months ended August 3, 2013. In addition, the Company continues to invest in its information technology infrastructure, primarily relating to the implementation of its omni-channel strategy and the continuing upgrade of its eCommerce website and mobile capabilities.
At August 2, 2014, total inventory was up 3.0%, as compared to August 3, 2013, reflecting lower levels of in-store inventory offset by higher levels of in-transit inventory as the Company executed its contingency plans related to the uncertainty regarding a potential work stoppage by the International Longshore and Warehouse Union. The contract between the ports through which the Company sources a portion of its products on the West Coast and the International Longshore and Warehouse Union expired on July 1, 2014.
On February 25, 2014, the Company entered into a lease for 182,709 square feet of office space at 330 West 34th Street, New York, New York, pursuant to which, the Company plans to move its corporate headquarters to by January 1, 2015 upon expiration of its existing lease at 450 West 33rd Street, New York, New York. The lease for the new corporate headquarters expires in 2030. For further information related to the new corporate headquarters lease, please refer to Note 9, "Other Events" in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.
The Company views the retail apparel market as having two principal selling seasons: spring (first and second quarter) and fall (third and fourth quarter). The Company's business experiences seasonal fluctuations in net sales and operating income, with a significant portion of its operating income typically realized during its fourth quarter. Any decrease in sales or margins during either of the principal selling seasons in any given year could have a disproportionate effect on the Company's financial condition and results of operations. Seasonal fluctuations also affect inventory levels. The Company must carry a significant amount of inventory, especially before the holiday season selling period in the fourth quarter and prior to the Easter and Mother's Day holidays toward the end of the first quarter and beginning of the second quarter.
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Results of Operations
The following tables summarize the Company's results of operations as a percentage of net sales and selected store operating data for the three and six months ended August 2, 2014 and August 3, 2013:
As a % of net sales | Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Net sales | 100.0 | % | 100.0 | % | 100.0 | % | 100.0 | % | |||||
Cost of goods sold, buying and occupancy costs | 72.6 | % | 73.1 | % | 72.1 | % | 72.0 | % | |||||
| | | | | | | | | | | | | |
Gross profit | 27.4 | % | 26.9 | % | 27.9 | % | 28.0 | % | |||||
Selling, general and administrative expenses | 27.3 | % | 27.9 | % | 27.8 | % | 28.2 | % | |||||
| | | | | | | | | | | | | |
Operating income (loss) | 0.1 | % | (1.0 | )% | 0.1 | % | (0.2 | )% | |||||
Interest expense, net | — | % | — | % | — | % | — | % | |||||
| | | | | | | | | | | | | |
Income (loss) before income taxes | 0.1 | % | (1.0 | )% | 0.1 | % | (0.2 | )% | |||||
Provision (benefit) for income taxes | 0.2 | % | 0.2 | % | 0.2 | % | — | % | |||||
| | | | | | | | | | | | | |
Net loss | (0.1 | )% | (1.2 | )% | (0.1 | )% | (0.2 | )% | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Selected operating data: | Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in thousands, except square foot data) | ||||||||||||
Comparable store sales increase | 2.3 | % | 2.1 | % | 0.1 | % | — | % | |||||
Net sales per average selling square foot(1) | $ | 86 | $ | 83 | $ | 169 | $ | 167 | |||||
Net sales per average store(2) | $ | 445 | $ | 432 | $ | 877 | $ | 873 | |||||
Average selling square footage per store(3) | 5,169 | 5,219 | 5,169 | 5,219 |
- (1)
- Net sales per average selling square foot is defined as net sales divided by the average of beginning and end of period selling square feet.
- (2)
- Net sales per average store is defined as net sales divided by the average of beginning and end of period number of stores.
- (3)
- Average selling square footage per store is defined as end of period selling square feet divided by end of period number of stores.
| Three months ended August 2, 2014 | Three months ended August 3, 2013 | Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Store count and selling square feet: | Store Count | Selling Square Feet | Store Count | Selling Square Feet | Store Count | Selling Square Feet | Store Count | Selling Square Feet | |||||||||||||||||
Stores open, beginning of period | 506 | 2,627,462 | 519 | 2,717,288 | 507 | 2,637,074 | 519 | 2,725,273 | |||||||||||||||||
New stores | 4 | 14,963 | — | — | 6 | 22,523 | 1 | 3,236 | |||||||||||||||||
Closed stores | (1 | ) | (4,005 | ) | (7 | ) | (41,976 | ) | (4 | ) | (15,778 | ) | (8 | ) | (47,732 | ) | |||||||||
Net impact of remodeled stores on selling square feet | — | (7,418 | ) | — | (3,115 | ) | — | (12,817 | ) | — | (8,580 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
Stores open, end of period | 509 | 2,631,002 | 512 | 2,672,197 | 509 | 2,631,002 | 512 | 2,672,197 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
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Three months ended August 2, 2014 Compared to Three months ended August 3, 2013
Net Sales. Net sales for the three months ended August 2, 2014 increased 1.4% to $226.1 million, as compared to $223.1 million for the three months ended August 3, 2013. Net sales increased, while the Company's store base was reduced to 506 stores at the beginning of the second quarter of fiscal year 2014, versus 519 stores at the beginning of the second quarter of fiscal year 2013, reflecting the Company's on-going real estate optimization strategy. Comparable store sales for the three months ended August 2, 2014 increased by 2.3%, as compared to an increase of 2.1% in the prior year. In the comparable store base, average dollar sales per transaction increased by 3.8%, while the number of transactions per average store decreased by 1.5%, as compared to the same period last year. During the three months ended August 2, 2014, net sales from the Company's eCommerce and Outlets channels increased to approximately 9% and 12% of total net sales, respectively.
Gross Profit. Gross profit for the three months ended August 2, 2014 increased to $61.9 million, or 27.4% of net sales, as compared to $60.0 million, or 26.9% of net sales, for the three months ended August 3, 2013. The increase in gross profit as a percentage of net sales during the three months ended August 2, 2014, as compared to the three months ended August 3, 2013, was primarily driven by a 120 basis point improvement in buying and occupancy costs reflecting management's continued focus on reducing costs, partially offset by a 70 basis point decrease in merchandise margin, driven largely by increased promotional activity and shipping costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $61.7 million, or 27.3% of net sales, for the three months ended August 2, 2014, as compared to $62.2 million, or 27.9% of net sales, for the three months ended August 3, 2013. The decrease in selling, general and administrative expenses during the three months ended August 2, 2014, as compared to the three months ended August 3, 2013, was primarily attributable to a decrease in incentive-based compensation and store selling expenses combined with favorable insurance credits, which were partially offset by an increase in marketing expenses.
Operating Income (Loss). For the reasons discussed above, operating income for the three months ended August 2, 2014 was $0.2 million, as compared to an operating loss of $2.2 million for the three months ended August 3, 2013.
Interest Expense, Net. Net interest expense was $0.1 million for both the three months ended August 2, 2014 and the three months ended August 3, 2013.
Provision for Income Taxes. As previously disclosed, the Company continues to provide for adjustments to the deferred tax valuation allowance initially recorded during the three months ended July 31, 2010. The income tax provision for the three months ended August 2, 2014 was $0.2 million, as compared to a provision of $0.4 million for the three months ended August 3, 2013.
Net Loss. For the reasons discussed above, net loss for the three months ended August 2, 2014 was $0.1 million, or breakeven per diluted share, as compared to a net loss of $2.7 million, or $0.04 per diluted share, for the three months ended August 3, 2013.
Six Months Ended August 2, 2014 Compared to Six Months Ended August 3, 2013
Net Sales. Net sales for the six months ended August 2, 2014 decreased 1.1% to $445.7 million, as compared to $450.5 million for the six months ended August 3, 2013. The decline in net sales is largely due to a reduction in the Company's store base to 507 stores at the beginning of fiscal year 2014, versus 519 stores at the beginning of fiscal year 2013, reflecting the Company's on-going real estate optimization strategy. Comparable store sales for the six months ended August 2, 2014 increased 0.1%, as compared to remaining flat in the prior year. In the comparable store base, average dollar sales per transaction increased by 2.3%, while the number of transactions per average store decreased by 2.2%, as compared to the same period last year. During the six months ended August 2, 2014, net sales from the Company's eCommerce and Outlet channels increased to approximately 10% and 11% of total net sales, respectively.
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Gross Profit. Gross profit for the six months ended August 2, 2014 was $124.1 million, or 27.9% of net sales, as compared to $126.3 million, or 28.0% of net sales, for the six months ended August 3, 2013. The decrease in gross profit as a percentage of net sales during the six months ended August 2, 2014, as compared to the six months ended August 3, 2013, was due to a 70 basis point decrease in merchandise margin, primarily attributable to increased promotional activity and shipping costs, partially offset by a 60 basis point decrease in buying and occupancy costs reflecting management's continued focus on reducing costs.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to $123.9 million, or 27.8% of net sales, for the six months ended August 2, 2014, as compared to $127.4 million, or 28.2% of net sales, for the six months ended August 3, 2013. The decrease in selling, general and administrative expenses during the six months ended August 2, 2014, as compared to the six months ended August 3, 2013, was primarily attributable to a decrease in incentive-based compensation combined with favorable insurance credits, which were partially offset by an increase in marketing expenses.
Operating Income (Loss). For the reasons discussed above, operating income for the six months ended August 2, 2014 was $0.2 million, as compared to an operating loss of $1.0 million for the six months ended August 3, 2013.
Interest Expense, Net. Net interest expense was $0.2 million for both the six months ended August 2, 2014 and for the six months ended August 3, 2013.
Provision (Benefit) for Income Taxes. As previously disclosed, the Company continues to provide for adjustments to the deferred tax valuation allowance initially recorded during the three months ended July 31, 2010. The provision for income taxes for the six months ended August 2, 2014 was $0.5 million as compared to a benefit of $0.1 million for the six months ended August 3, 2013.
Net Loss. For the reasons discussed above, net loss for the six months ended August 2, 2014 was $0.4 million, or $0.01 per diluted share, as compared to a net loss of $1.1 million, or $0.02 per diluted share, for the six months ended August 3, 2013.
Liquidity and Capital Resources
The Company's primary uses of cash are to fund working capital, operating expenses, debt service and capital expenditures related primarily to the construction of new stores, remodeling of existing stores and development of the Company's information technology infrastructure. Historically, the Company has financed these requirements from internally generated cash flow. The Company intends to fund its ongoing capital and working capital requirements, as well as debt service obligations, primarily through cash flows from operations, supplemented by borrowings under its credit facility, if needed. The Company is in compliance with all debt covenants as of August 2, 2014.
The following tables contain information regarding the Company's liquidity and capital resources:
| August 2, 2014 | February 1, 2014 | August 3, 2013 | |||||||
---|---|---|---|---|---|---|---|---|---|---|
| (Amounts in thousands) | |||||||||
Cash and cash equivalents | $ | 63,166 | $ | 69,723 | $ | 59,462 | ||||
Working capital | $ | 56,309 | $ | 52,418 | $ | 48,018 |
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| Six months ended August 2, 2014 | Six months ended August 3, 2013 | |||||
---|---|---|---|---|---|---|---|
| (Amounts in thousands) | ||||||
Net cash provided by operating activities | $ | 2,141 | $ | 5,053 | |||
Net cash used in investing activities | $ | (8,879 | ) | $ | (6,996 | ) | |
Net cash provided by financing activities | $ | 181 | $ | 472 | |||
| | | | | | | |
Net decrease in cash and cash equivalents | $ | (6,557 | ) | $ | (1,471 | ) | |
| | | | | | | |
| | | | | | | |
Operating Activities
Net cash provided by operating activities was $2.1 million for the six months ended August 2, 2014, as compared to $5.1 million for the six months ended August 3, 2013. The decrease in net cash provided by operating activities during the six months ended August 2, 2014, as compared to the six months ended August 3, 2013, is primarily due to changes in restricted cash, accounts receivable, income taxes receivable, prepaid expenses, and income taxes payable, partially offset by changes in inventories, accounts payable, accrued expenses, deferred rent, and other assets and liabilities.
Investing Activities
Net cash used in investing activities was $8.9 million for the six months ended August 2, 2014, as compared to $7.0 million for the six months ended August 3, 2013. Net cash used in investing activities during the six months ended August 2, 2014 reflects $7.6 million related to the opening of new Outlet stores and the remodeling of existing New York & Company stores, and $1.3 million related to non-store capital projects, which principally represent information technology enhancements. During the six months ended August 2, 2014, the Company opened six new Outlet stores and remodeled five existing New York & Company stores. Net cash used in investing activities during the six months ended August 3, 2013 reflects capital expenditures of $4.8 million related to the opening of new Outlet stores and the remodeling of existing stores, and $2.2 million related to non-store capital projects, which principally represent information technology enhancements, including the upgrade of the Company's eCommerce platform and website.
On February 25, 2014, the Company entered into a lease for 182,709 square feet of office space at 330 West 34th Street, New York, New York, pursuant to which, the Company plans to move its corporate headquarters to by January 1, 2015 upon expiration of its existing lease at 450 West 33rd Street, New York, New York. The lease for the new corporate headquarters expires in 2030. In connection with the signing of the new corporate headquarters lease agreement, the Company issued an $8.0 million standby letter of credit to the lessor, which the Company may reduce by $2.0 million annually from 2017 through 2019. During fiscal year 2014, the Company expects capital expenditures related to the new office space to be approximately $13.0 million. Total cash rental obligations to be paid over the 16-year life of the lease are approximately $160.0 million.
For fiscal year 2014 capital expenditures are expected to range between $35.0 and $40.0 million, as compared to $18.8 million in fiscal year 2013. This increase reflects continued investments in the Company's information technology infrastructure, including its eCommerce website; real estate spending to support the opening of new stores and the remodeling of existing locations; and approximately $13.0 million related to the Company's relocation and build-out of its new corporate headquarters in New York City. For fiscal year 2014, the Company currently expects to open between 8 and 12 new Outlet stores and 1 New York & Company store, remodel 10 to 11 existing New York & Company stores, and close between 12 and 14 New York & Company stores, ending the year with between 502 and 508 stores, including between 59 and 63 Outlet stores.
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Financing Activities
Net cash provided by financing activities for the six months ended August 2, 2014 consisted of $0.3 million of proceeds from the exercise of stock options, partially offset by shares withheld for payment of employee payroll taxes. Net cash provided by financing activities for the six months ended August 3, 2013 represents proceeds from the exercise of stock options.
Long-Term Debt and Credit Facilities
On August 10, 2011, Lerner New York, Inc., Lernco, Inc. and Lerner New York Outlet, Inc., wholly-owned indirect subsidiaries of New York & Company, Inc., entered into a Third Amended and Restated Loan and Security Agreement (the "Loan Agreement," which was filed with the Company's Quarterly Report on Form 10-Q with the SEC on September 8, 2011) with Wells Fargo Bank, N.A., as Agent and sole lender. The Loan Agreement expires on August 10, 2016.
The Loan Agreement provides the Company with up to $100 million of credit, consisting of a $75 million revolving credit facility (which includes a subfacility for issuance of letters of credit up to $45 million) with a fully committed accordion option that allows the Company to increase the revolving credit facility to a maximum of $100 million or decrease it to a minimum of $60 million, subject to certain restrictions. Under the Loan Agreement, the Company is currently subject to a Minimum Excess Availability (as defined in the Loan Agreement) covenant of $7.5 million. The Company's credit facility contains other covenants, including restrictions on the Company's ability to pay dividends on its common stock; incur additional indebtedness; and prepay, redeem, defease or purchase other debt. Subject to such restrictions, the Company may incur more indebtedness for working capital, capital expenditures, stock repurchases, acquisitions, and for other purposes.
Under the Loan Agreement, the revolving loans under the credit facility bear interest, at the Company's option, either at a floating rate equal to the Eurodollar rate plus a margin of between 1.75% and 2.00% per year for Eurodollar rate loans or a floating rate equal to the Prime rate plus a margin of between 0.75% and 1.00% per year for Prime rate loans, depending upon the Company's Average Compliance Excess Availability (as defined in the Loan Agreement). The Company pays the lender under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of between 0.875% and 1.00% per year and on standby letters of credit at a rate of between 1.75% and 2.00% per year, depending upon the Company's Average Compliance Excess Availability, plus a monthly fee on the unused commitments under the revolving credit facility at a rate of 0.375% per year.
The maximum borrowing availability under the Company's revolving credit facility is determined by a monthly borrowing base calculation based on applying specified advance rates against inventory and certain other eligible assets. As of August 2, 2014, the Company had availability under its revolving credit facility of $30.4 million, net of letters of credit outstanding of $22.5 million, as compared to availability of $37.1 million, net of letters of credit outstanding of $11.5 million, as of February 1, 2014, and availability of $41.1 million, net of letters of credit outstanding of $12.5 million, as of August 3, 2013.
The lender has been granted a pledge of the common stock of Lerner New York Holding, Inc. and certain of its subsidiaries, and a first priority security interest in substantially all other tangible and intangible assets of New York & Company, Inc. and its subsidiaries, as collateral for the Company's obligations under the credit facility. In addition, New York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the credit facility, and such guarantees are joint and several.
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Critical Accounting Policies
Management has determined the Company's most critical accounting policies are those related to inventories, long-lived assets, intangible assets and income taxes. Management continues to monitor these accounting policies to ensure proper application of current rules and regulations. There have been no significant changes to these policies as discussed in the Company's Annual Report on Form 10-K filed with the SEC on April 15, 2014.
Adoption of New Accounting Standards
Please refer to Note 2, "New Accounting Pronouncements" in the Notes to Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rates. The Company's market risks relate primarily to changes in interest rates. The Company's credit facility carries floating interest rates tied to the Eurodollar rate and the Prime rate and therefore, if the Company borrows under the credit facility, the consolidated statements of operations and the consolidated statements of cash flows will be exposed to changes in interest rates. As of August 2, 2014, the Company had no borrowings outstanding under its credit facility. The Company historically has not engaged in interest rate hedging activities.
Currency Exchange Rates. The Company historically has not been exposed to currency exchange rate risks regarding inventory purchases as such expenditures have been, and continue to be, denominated in U.S. Dollars.
ITEM 4. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company carried out an evaluation, as of August 2, 2014, under the supervision and with the participation of the Company's management, including the Company's Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective in ensuring that all information required to be filed in this Quarterly Report on Form 10-Q was (i) recorded, processed, summarized and reported within the time period specified in the Securities and Exchange Commission's rules and forms (ii) and that the disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company's management, including its Principal Executive and Principal Financial Officers, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in internal control over financial reporting. There has been no change in the Company's internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rule 13a-15 or 15d-15 that occurred during the Company's last fiscal quarter (the Company's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.
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There have been no material changes in the Company's legal proceedings from what was reported in its Annual Report on Form 10-K filed with the SEC on April 15, 2014.
There have been no material changes in the Company's risk factors from what was reported in its Annual Report on Form 10-K filed with the SEC on April 15, 2014.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
None.
The following exhibits are filed with this report and made a part hereof.
31.1 | Certification by the Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated September 11, 2014. | ||
31.2 | Certification by the Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated September 11, 2014. | ||
32.1 | Written Statement of the Chief Executive Officer and the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated September 11, 2014. | ||
101.INS | XBRL Instance Document. | ||
101.SCH | XBRL Taxonomy Extension Schema Document. | ||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | ||
101.DEF | XBRL Taxonomy Definition Linkbase Document. | ||
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | ||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NEW YORK & COMPANY, INC. | ||||
/s/ SHEAMUS TOAL | ||||
By: | Sheamus Toal | |||
Its: | Executive Vice President and Chief Financial Officer (Principal Financial Officer) | |||
Date: | September 11, 2014 |
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