New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Three months
ended
April 30, 2016
|
|
Three months
ended
May 2, 2015
|
|
Operating activities
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,716
|
)
|
$
|
(4,671
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
5,863
|
|
|
6,373
|
|
Amortization of deferred financing costs
|
|
|
47
|
|
|
45
|
|
Share-based compensation expense
|
|
|
1,107
|
|
|
943
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(8,803
|
)
|
|
(8,645
|
)
|
Income taxes receivable
|
|
|
|
|
|
26
|
|
Inventories, net
|
|
|
(14,987
|
)
|
|
(6,857
|
)
|
Prepaid expenses
|
|
|
444
|
|
|
590
|
|
Accounts payable
|
|
|
8,933
|
|
|
(4,340
|
)
|
Accrued expenses
|
|
|
2,664
|
|
|
2,358
|
|
Income taxes payable
|
|
|
(176
|
)
|
|
27
|
|
Deferred rent
|
|
|
(1,220
|
)
|
|
707
|
|
Other assets and liabilities
|
|
|
270
|
|
|
(158
|
)
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(11,574
|
)
|
|
(13,602
|
)
|
|
|
|
|
|
|
|
|
Investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(1,869
|
)
|
|
(6,700
|
)
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(1,869
|
)
|
|
(6,700
|
)
|
|
|
|
|
|
|
|
|
Financing activities
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(250
|
)
|
|
(250
|
)
|
Proceeds from exercise of stock options
|
|
|
120
|
|
|
16
|
|
Shares withheld for payment of employee payroll taxes
|
|
|
(73
|
)
|
|
(247
|
)
|
Principal payments on capital lease obligations
|
|
|
(158
|
)
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(361
|
)
|
|
(584
|
)
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(13,804
|
)
|
|
(20,886
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
61,432
|
|
|
69,293
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
47,628
|
|
$
|
48,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash capital lease transactions
|
|
$
|
1,299
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements
April 30, 2016
(Unaudited)
1. Organization and Basis of Presentation
New York & Company, Inc. (together with its subsidiaries, the "Company") is a specialty retailer of women's fashion apparel and accessories, providing NY Style that is
feminine, polished, on-trend and versatile. New York & Company, Inc. helps its customers feel confident, put-together, attractive and stylish by providing affordable fashion. The
Company's proprietary branded New York & Company® merchandise is sold through its national network of retail stores and eCommerce store at
www.nyandcompany.com
. The target customers for the
Company's merchandise are fashion-conscious, value-sensitive women between the ages of 25 and 45. As
of April 30, 2016, the Company operated 488 stores in 41 states.
The
condensed consolidated financial statements as of April 30, 2016 and May 2, 2015 and for the 13 weeks ("three months") ended April 30, 2016 and
May 2, 2015 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 January 30, 2016 ("fiscal
year 2015"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 14, 2016. The 52-week fiscal years ending January 28, 2017 and January 27,
2018 are referred to herein as "fiscal year 2016" and "fiscal year 2017," respectively. The Company's fiscal year is a 52- or 53-week year that ends on the Saturday closest to January 31.
The
Company identifies its operating segments according to how its business activities are managed and evaluated. Its operating segments have been aggregated and are reported as one
reportable segment based on the similar nature of products sold, production process, distribution process, target customers and economic characteristics. All of the Company's revenues are generated in
the United States. 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 loss
or net loss 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.
Certain
totals that appear in this Quarterly Report on Form 10-Q may not equal the sum of the components due to rounding.
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 an entity expects to be entitled to in exchange for those goods or
services. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers: Deferral of the Effective Date," which defers the effective date of ASU 2014-09 to annual reporting
periods beginning
5
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
April 30, 2016
(Unaudited)
2. New Accounting Pronouncements (Continued)
after
December 15, 2017, including interim reporting periods within those reporting periods. As amended, early adoption is permitted for annual reporting periods beginning after
December 15, 2016, including interim reporting periods within those reporting periods. The standard 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.
In
February 2016, the FASB issued ASU 2016-02, "Leases" ("ASU 2016-02"), which is a comprehensive new lease standard that amends various aspects of existing accounting guidance
for leases. The core principle of ASU 2016-02 will require lessees to present the assets and liabilities that arise from leases on their balance sheets. ASU 2016-02 is effective for annual periods
beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the new standard and its impact on the
Company's financial position and results of operations.
In
March 2016, the FASB issued ASU 2016-09, "CompensationStock Compensation: Improvements to Employee Share-Based Payment Accounting" ("ASU 2016-09"), which simplifies
several aspects of accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, and statutory tax withholding requirements, as well as
classification within the statement of cash flows for certain components of share-based awards. ASU 2016-09 is effective for annual reporting periods beginning after December 15, 2016,
including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-09 to have a material
impact on the Company's financial position or results of operations.
3. Earnings (Loss) Per Share
Basic earnings (loss) per share are computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Except when the effect
would be anti-dilutive, diluted earnings (loss) per share are 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:
6
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
April 30, 2016
(Unaudited)
3. Earnings (Loss) Per Share (Continued)
|
|
|
|
|
|
|
|
|
|
Three months
ended
April 30, 2016
|
|
Three months
ended
May 2, 2015
|
|
|
|
(Amounts in thousands, except
per share amounts)
|
|
Net loss
|
|
$
|
(5,716
|
)
|
$
|
(4,671
|
)
|
Basic loss per share
:
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,277
|
|
|
62,983
|
|
|
|
|
|
|
|
|
|
Basic loss per share
|
|
$
|
(0.09
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted loss per share:
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,277
|
|
|
62,983
|
|
Plus impact of share-based awards
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
63,277
|
|
|
62,983
|
|
|
|
|
|
|
|
|
|
Diluted loss per share
|
|
$
|
(0.09
|
)
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
calculation of diluted loss per share for the three months ended April 30, 2016 and May 2, 2015 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
April 30, 2016
|
|
Three months
ended
May 2, 2015
|
|
|
|
(Amounts in thousands)
|
|
Stock options
|
|
|
405
|
|
|
507
|
|
Stock appreciation rights(1)
|
|
|
6,487
|
|
|
5,554
|
|
Restricted stock and units
|
|
|
771
|
|
|
1,183
|
|
|
|
|
|
|
|
|
|
Total anti-dilutive shares
|
|
|
7,663
|
|
|
7,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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.
4. Share-Based Compensation
The Company accounts for all share-based payments in accordance with FASB ASC Topic 718, "CompensationStock 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 $1.1 million and $0.9 million for the three months ended April 30, 2016 and May 2,
2015, respectively.
During
the three months ended April 30, 2016, 45,319 shares of common stock were issued upon exercise of previously issued stock options and SARs.
7
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
April 30, 2016
(Unaudited)
5. Pension Plan
The Company sponsors a single employer defined benefit pension plan ("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 at April 30, 2016. The collective bargaining agreement with the Local 1102 unit of the
Retail, Wholesale and Department Store Union AFL-CIO is in effect through August 31, 2018. 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 complete 1,000 or more hours of service in any calendar year following the 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 ERISA rules. Net periodic benefit cost includes the following components:
|
|
|
|
|
|
|
|
|
|
Three months
ended
April 30, 2016
|
|
Three months
ended
May 2, 2015
|
|
|
|
(Amounts in thousands)
|
|
Service cost
|
|
$
|
86
|
|
$
|
142
|
|
Interest cost
|
|
|
80
|
|
|
84
|
|
Expected return on plan assets
|
|
|
(146
|
)
|
|
(150
|
)
|
Amortization of unrecognized losses
|
|
|
112
|
|
|
66
|
|
Amortization of prior service credit
|
|
|
(4
|
)
|
|
(4
|
)
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
128
|
|
$
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 consolidated balance sheets and into selling,
general, and administrative expenses on the Company's consolidated statements of operations for the three months ended April 30, 2016 and May 2, 2015 was approximately $108,000 and
$62,000, respectively. As of January 30, 2016, the Company reported a minimum pension liability of $2.1 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 income tax returns in various state and local jurisdictions. The Company is no longer subject to U.S. federal income tax
examinations for tax years through 2011. With limited exception, the Company is no longer subject to state and local income tax examinations for tax years through 2011.
At
January 30, 2016, the Company reported a total liability for unrecognized tax benefits of $4.7 million, including interest and penalties. There have been no material
changes during the three months ended April 30, 2016. Of the total $4.7 million of unrecognized tax benefits at January 30, 2016, approximately $1.1 million, if recognized,
would impact the Company's effective tax rate. The
8
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
April 30, 2016
(Unaudited)
6. Income Taxes (Continued)
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 April 30, 2016, the Company's valuation allowance against its deferred tax assets was
$68.9 million.
7. Long-Term Debt and Credit Facilities
On October 24, 2014, Lerner New York, Inc., Lernco, Inc. and Lerner New York Outlet, LLC (f.k.a. Lerner New York Outlet, Inc.), wholly-owned indirect
subsidiaries of New York & Company, Inc., entered into a Fourth Amended and Restated Loan and Security Agreement (the "Loan Agreement") with Wells Fargo Bank, National Association, as
Agent and Term Loan Agent and the lender party thereto. The obligations under the Loan Agreement are guaranteed by New York & Company, Inc. and its other subsidiaries.
The
Loan Agreement consists of: (i) a revolving credit facility that provides the Company with up to $100 million of credit, consisting of a $75 million revolving
credit facility (which includes a sub-facility 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 up to $100 million or decrease it to a minimum of $60 million, subject to certain restrictions, and (ii) a $15 million, 5-year term loan, bearing interest
at the
Adjusted Eurodollar Rate plus 4.50% (the "Term Loan"). The Company used a portion of the proceeds from the Term Loan to pay for costs associated with the relocation and build-out of its new corporate
headquarters at 330 West 34
th
Street, New York, New York and for general corporate purposes.
Under
the terms of the Loan Agreement, the interest rates applicable to Revolving Loans are, at the Company's option, either at a floating rate equal to the Adjusted Eurodollar Rate plus
a margin of between 1.50% and 1.75% per year for Eurodollar Rate Loans or a floating rate equal to the Prime Rate plus a margin of between 0.50% and 0.75% per year for Prime Rate Loans, depending upon
the Company's Average Compliance Excess Availability. The Company pays to the lender under the revolving credit facility a monthly fee on outstanding commercial letters of credit at a rate of between
0.75% and 0.875% per year and on standby letters of credit at a rate of between 1.50% and 1.75% per year, depending upon the Company's Average Compliance Excess Availability, plus a monthly fee on a
proportion of the unused commitments under the revolving credit facility at a rate of 0.25% 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
eligible inventory and certain other eligible assets. As of April 30, 2016, the Company had availability under its revolving credit facility of $59.3 million, net of letters of credit
outstanding of $14.2 million, as compared to availability of $36.6 million, net of letters of credit outstanding of $15.6 million, as of January 30, 2016, and availability
of $54.5 million, net of letters of credit outstanding of $19.9 million, as of May 2, 2015. Included in letters of credit outstanding at April 30, 2016 are
$14.2 million of standby letters of credit primarily related to the Company's new corporate headquarters and certain insurance contracts.
Under
the terms of the Loan Agreement, the Company is subject to a Minimum Excess Availability covenant of $7.5 million. The Loan Agreement contains other covenants and
conditions,
9
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
April 30, 2016
(Unaudited)
7. Long-Term Debt and Credit Facilities (Continued)
including
restrictions on the Company's ability to pay dividends on its common stock, prepay the Term Loan, incur additional indebtedness and to prepay, redeem, defease or purchase other indebtedness.
Subject to such restrictions, the Company may incur more indebtedness for working capital, capital expenditures, stock repurchases, acquisitions and for other purposes.
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 Loan Agreement. In addition, New
York & Company, Inc. and certain of its subsidiaries have fully and unconditionally guaranteed the obligations under the Loan Agreement, and such guarantees are joint and several.
As
of April 30, 2016, January 30, 2016, and May 2, 2015, the Company had $5.1 million, $3.9 million, and $2.1 million of capital lease
obligations outstanding, respectively. The Company's capital lease obligations are generally required to be repaid ratably over a five-year term beginning on the respective lease commencement date.
8. Fair Value Measurements
The Company measures fair value in accordance with FASB ASC Topic 820, "Fair Value Measurements" ("ASC 820"). 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, accounts payable, and long-term debt. The carrying values on the
balance sheets for cash 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
carrying amount of long-term debt on the balance sheets approximates its fair value due to the variable interest rate it carries.
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, omni-channel strategy, 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. There were no impairment charges recorded during the three months ended
April 30, 2016 and May 2, 2015.
10
Table of Contents