New York & Company, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
|
|
|
|
|
|
(Amounts in thousands)
|
|
Nine months
ended
October 28, 2017
|
|
Nine months
ended
October 29, 2016
|
|
Operating activities
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
928
|
|
$
|
(7,303
|
)
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
16,354
|
|
|
17,291
|
|
Loss from impairment charges
|
|
|
611
|
|
|
271
|
|
Amortization of deferred financing costs
|
|
|
142
|
|
|
142
|
|
Share-based compensation expense
|
|
|
1,756
|
|
|
2,720
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,455
|
)
|
|
(28,868
|
)
|
Income taxes receivable
|
|
|
29
|
|
|
|
|
Inventories, net
|
|
|
(47,560
|
)
|
|
(36,042
|
)
|
Prepaid expenses
|
|
|
1,098
|
|
|
652
|
|
Accounts payable
|
|
|
37,351
|
|
|
27,361
|
|
Accrued expenses
|
|
|
(7,872
|
)
|
|
1,330
|
|
Income taxes payable
|
|
|
(174
|
)
|
|
(90
|
)
|
Deferred rent
|
|
|
(1,847
|
)
|
|
(3,140
|
)
|
Other assets and liabilities
|
|
|
(4,978
|
)
|
|
34,199
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operating activities
|
|
|
(8,617
|
)
|
|
8,523
|
|
Investing activities
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(7,794
|
)
|
|
(13,332
|
)
|
Insurance recoveries
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,744
|
)
|
|
(13,332
|
)
|
Financing activities
|
|
|
|
|
|
|
|
Repayment of long-term debt
|
|
|
(750
|
)
|
|
(750
|
)
|
Principal payment on capital lease obligations
|
|
|
(1,199
|
)
|
|
(760
|
)
|
Purchase of treasury stock
|
|
|
(622
|
)
|
|
(909
|
)
|
Shares withheld for payment of employee payroll taxes
|
|
|
(202
|
)
|
|
(312
|
)
|
Proceeds from exercise of stock options
|
|
|
|
|
|
120
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(2,773
|
)
|
|
(2,611
|
)
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(19,134
|
)
|
|
(7,420
|
)
|
Cash and cash equivalents at beginning of period
|
|
|
88,369
|
|
|
61,432
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
69,235
|
|
$
|
54,012
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary non-cash investing activities
|
|
|
|
|
|
|
|
Non-cash capital lease transactions
|
|
$
|
818
|
|
$
|
4,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes.
4
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements
October 28, 2017
(Unaudited)
1. Organization and Basis of Presentation
New York & Company, Inc. (together with its subsidiaries, the "Company") is an omni-channel women's fashion retailer designing on-trend and versatile collections at a great
value. The specialty retailer, first incorporated in 1918, has grown to now operate 459 retail and outlet locations in 39 states while also growing a substantial eCommerce business. The Company's
branded merchandise, including collaborations with Eva Mendes and Gabrielle Union, is sold exclusively at these locations and online 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.
The
condensed consolidated financial statements as of October 28, 2017 and October 29, 2016 and for the 13 weeks ("three months") and 39 weeks ("nine months")
ended October 28, 2017 and October 29, 2016 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 28, 2017 ("fiscal year 2016"), which were filed with the Company's Annual Report on Form 10-K with the SEC on April 12, 2017. The 53-week fiscal year ending
February 3, 2018 is referred to herein as "fiscal year 2017." 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.
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 (Topic 606)," 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
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
5
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
2. New Accounting Pronouncements (Continued)
periods
within those reporting periods. The standard may be applied retrospectively to each prior period presented or on a modified retrospective basis with the cumulative effect recognized as of the
date of adoption. The Company is nearly complete with its evaluation of the impact of the adoption of this standard on its consolidated financial statements and related disclosures. The Company plans
to adopt Topic 606 on February 4, 2018 (the first day of fiscal year 2018) using the modified retrospective method, and expects the adoption of the new standard to impact the timing of
when revenue is recognized from its loyalty rewards program and certain other sales incentives offered to the Company's customers.
Currently
under the Company's loyalty rewards program, the Company recognizes revenue for the full sale amount at the time of sale and accrues the estimated cost of rewards earned and
outstanding until the rewards are redeemed or expire, which is referred to as the incremental cost method. Under Topic 606, the Company will no longer accrue the estimated cost of rewards
earned and outstanding and will defer a portion of the revenue at the time of sale using the standalone selling price method, as described in Topic 606, until the rewards are redeemed or
expire. On the date of adoption of Topic 606, the Company will establish a current liability for deferred revenue equal to the estimated value of rewards earned and outstanding that are
expected to be redeemed under its loyalty rewards program, with an offsetting adjustment to the opening balance of retained earnings. In accordance with Topic 606, the Company plans to account
for certain other sales incentives offered to its customers in a manner similar to the accounting for its loyalty rewards program under Topic 606. Topic 606 will require expanded
disclosures related to revenue streams, performance obligations and cash flows and the related judgments used in developing the necessary estimates.
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 and requires modified retrospective adoption. Early adoption is permitted. The Company is currently evaluating
the impact of the adoption of this new standard on the Company's financial position and results of operations. However, the Company expects that the adoption of ASU 2016-02 will result in a
significant increase to its long-term assets and liabilities on the consolidated balance sheet.
In
August 2016, the FASB issued ASU 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), which addresses how certain cash receipts and cash payments are
classified in the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. ASU 2016-15 is effective for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years, and requires retrospective adoption. Early adoption is permitted. The Company does not expect the adoption of
ASU 2016-15 to have a material impact on the Company's financial position or results of operations.
In
March 2017, the FASB issued ASU 2017-07, "Compensation-Retirement Benefits: Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost" ("ASU
2017-07"), which requires: (i) the disaggregation of the service cost component from the other
6
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
2. New Accounting Pronouncements (Continued)
components
of net benefit costs in the income statement; (ii) provides explicit guidance on the presentation of the service cost component and the other components of net benefit cost in the
income
statement; and (iii) allows only the service cost component of net benefit cost to be eligible for capitalization. ASU 2017-07 is effective for annual reporting periods beginning after
December 15, 2017, and interim periods within those fiscal years, and requires retrospective adoption. Early adoption is permitted. The Company does not expect the adoption of ASU 2017-07 to
have a material impact on the Company's financial position or results of operations.
3. Proprietary Credit Card
On July 14, 2016, the Company entered into a Second Amended and Restated Private Label Credit Card Program Agreement, effectively dated May 1, 2016, with Alliance Data
Systems Corporation (the "ADS Agreement"), which replaced the existing agreement with Alliance Data Systems Corporation ("ADS") and has a term through April 30, 2026.
Pursuant
to the terms of the ADS Agreement, ADS has the exclusive right to provide private label credit cards to customers of the Company. In connection with the execution of the ADS
Agreement, the Company received $40.0 million in signing bonuses. The signing bonuses were payable in two installments, of which $17.5 million was received on July 28, 2016 and
$22.5 million was received on January 10, 2017. Upon execution of the ADS Agreement, the Company recorded $40.0 million of deferred revenue, which is being amortized on a
straight-line basis over the 10-year term of the ADS Agreement. As of October 28, 2017, $30.0 million of deferred revenue is included in "Other liabilities" and $4.0 million of
deferred revenue is included in "Accrued expenses" on the condensed consolidated balance sheet. In addition, over the term of the ADS Agreement, the Company will receive an increased level of royalty
payments based on a percentage of private label credit card sales. During the three and nine months ended October 28, 2017, the Company recognized revenue of $6.1 million and
$17.7 million, respectively, from royalties and the amortization of signing bonuses in connection with the ADS Agreement. This compares to $3.1 million and $5.6 million of revenue
from royalties and the amortization of signing bonuses in connection with the ADS Agreement recognized during the three and nine months ended October 29, 2016, respectively. Under the previous
agreement with ADS, during the three and nine months ended October 29, 2016, the Company recognized $0.6 million and $3.0 million of marketing credits, respectively, which were
recorded as a reduction to marketing expense within "Selling, general and administrative expenses" on the condensed consolidated statements of operations, in accordance with generally accepted
accounting principles. Under the previous agreement with ADS, marketing credits received by the Company were to be used for marketing of the Company's
proprietary credit card program and other marketing-related activities, and as such the Company recorded these marketing credits as a reduction to marketing expense. These marketing credits were
replaced by royalty fees under the new ADS Agreement.
4. 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
7
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
4. Earnings (Loss) Per Share (Continued)
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 earnings (loss) per share is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
October 28,
2017
|
|
Three months
ended
October 29,
2016
|
|
Nine months
ended
October 28,
2017
|
|
Nine months
ended
October 29,
2016
|
|
|
|
(Amounts in thousands, except per share amounts)
|
|
Net income (loss)
|
|
$
|
352
|
|
$
|
(2,532
|
)
|
$
|
928
|
|
$
|
(7,303
|
)
|
Basic earnings (loss) per share
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,242
|
|
|
63,459
|
|
|
63,213
|
|
|
63,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
0.01
|
|
$
|
(0.04
|
)
|
$
|
0.01
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic shares of common stock
|
|
|
63,242
|
|
|
63,459
|
|
|
63,213
|
|
|
63,399
|
|
Plus impact of share-based awards
|
|
|
857
|
|
|
|
|
|
629
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted shares of common stock
|
|
|
64,099
|
|
|
63,459
|
|
|
63,842
|
|
|
63,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings (loss) per share
|
|
$
|
0.01
|
|
$
|
(0.04
|
)
|
$
|
0.01
|
|
$
|
(0.12
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
calculation of diluted earnings (loss) per share for the three and nine months ended October 28, 2017 and October 29, 2016 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
October 28,
2017
|
|
Three months
ended
October 29,
2016
|
|
Nine months
ended
October 28,
2017
|
|
Nine months
ended
October 29,
2016
|
|
|
|
(Amounts in thousands)
|
|
Stock options
|
|
|
13
|
|
|
310
|
|
|
190
|
|
|
346
|
|
Stock appreciation rights(1)
|
|
|
2,880
|
|
|
7,380
|
|
|
6,208
|
|
|
6,729
|
|
Restricted stock and units
|
|
|
92
|
|
|
605
|
|
|
208
|
|
|
656
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total anti-dilutive shares
|
|
|
2,985
|
|
|
8,295
|
|
|
6,606
|
|
|
7,731
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(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.
8
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
5. Share-Based Compensation
At the Company's 2017 Annual Meeting of Stockholders on June 20, 2017, the Company's stockholders approved, among other matters, an equal value-for-value SAR and option exchange
program (the "Exchange Program"), which the Company completed on June 29, 2017. The Exchange Program was open to all associates of the Company who held SARs or stock options with an exercise
price greater than or equal to $2.60 per share (the "Eligible Awards"). The Exchange Program was not available to any former associates or any non-executive members of the Company's board of
directors. Pursuant to the Exchange Program, 4,888,379 eligible SARs and 237,750 eligible stock options were canceled and replaced with 2,466,694 replacement SARs at an exercise price equal to the
Company's closing stock
price ($1.36) on the replacement SARs grant date (June 29, 2017) ("Replacement SARs"). Of the Eligible Awards cancelled, 2,589,435 shares were returned to the Company's Amended and Restated
2006 Long-Term Incentive Plan (the "2006 Plan") to be available for future issuances. The exchange ratio was calculated such that the value of the Replacement SARs would equal the value of the
canceled SARs and options, determined in accordance with the Black-Scholes option valuation model, with no incremental cost incurred by the Company. Replacement SARs granted in exchange for vested
Eligible Awards have a new minimum time vesting requirement of one year from the date of the replacement grant, such that all Replacement SARs issued in the Exchange Program were unvested on the
replacement grant date thereby increasing the retention value of previously vested awards. Replacement SARs granted in exchange for unvested Eligible Awards will continue to vest to the same extent
and proportion as the tendered Eligible Awards. If an employee is involuntarily terminated without cause, or upon a change in control, the employee's Replacement SARs that were granted in exchange for
vested Eligible Awards will vest under the original vesting schedule and the remaining unvested Replacement SARs will be forfeited on the termination effective date. The other terms and conditions of
each Replacement SAR grant are substantially similar to those of the surrendered awards it replaced. Each Replacement SAR was granted under the 2006 Plan.
6. 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 6% of the Company's workforce at October 28, 2017. The collective bargaining agreement with the Local 1102 unit of the
Retail, Wholesale and Department Store Union AFL-CIO is in effect through December 6, 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
9
Table of Contents
New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
6. Pension Plan (Continued)
contribute
at least the minimum required by ERISA rules. Net periodic benefit cost includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months
ended
October 28,
2017
|
|
Three months
ended
October 29,
2016
|
|
Nine months
ended
October 28,
2017
|
|
Nine months
ended
October 29,
2016
|
|
|
|
(Amounts in thousands)
|
|
Service cost
|
|
$
|
84
|
|
$
|
84
|
|
$
|
252
|
|
$
|
252
|
|
Interest cost
|
|
|
72
|
|
|
86
|
|
|
244
|
|
|
258
|
|
Expected return on plan assets
|
|
|
(134
|
)
|
|
(122
|
)
|
|
(379
|
)
|
|
(369
|
)
|
Amortization of unrecognized losses
|
|
|
13
|
|
|
96
|
|
|
206
|
|
|
289
|
|
Amortization of prior service credit
|
|
|
(3
|
)
|
|
(4
|
)
|
|
(11
|
)
|
|
(11
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
32
|
|
$
|
140
|
|
$
|
312
|
|
$
|
419
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
accordance with FASB ASC Topic 220, "Comprehensive Income," comprehensive income (loss) reported on the Company's condensed consolidated statements of comprehensive income (loss)
includes net income (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, general, and administrative expenses" on the Company's condensed consolidated statements of operations for the three months ended October 28, 2017
and October 29, 2016 was approximately $10,000 and $92,000, respectively, and for the nine months ended October 28, 2017 and October 29, 2016 was approximately $195,000 and
$278,000, respectively. As of January 28, 2017, the Company reported a minimum pension liability of $1.9 million due to the underfunded status of the plan. The minimum pension liability
is reported in "Other liabilities" on the condensed consolidated balance sheets.
7. 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 2013. With limited exception, the Company is no longer subject to state and local income tax examinations for tax years through 2012.
At
January 28, 2017, the Company reported a total liability for unrecognized tax benefits of $1.8 million, including interest and penalties. There have been no material
changes during the nine months ended October 28, 2017. Of the total $1.8 million of unrecognized tax benefits at January 28, 2017, approximately $1.4 million, if
recognized, would impact the Company's effective tax rate. 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
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New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
7. Income Taxes (Continued)
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 October 28, 2017, the Company's valuation allowance against its deferred tax assets was $74.7 million.
8. 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 in fiscal year 2014 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 October 28, 2017, the Company had availability under its revolving credit facility of $59.4 million, net of letters of credit
outstanding of $14.7 million, as compared to availability of $36.7 million, net of letters of credit outstanding of $14.5 million, as of January 28, 2017, and availability
of $54.3 million, net of letters of credit outstanding of $15.7 million, as of October 29, 2016. The $14.7 million in letters of credit outstanding at October 28,
2017 represents $2.5 million of trade letters of credit and $12.2 million of standby letters of credit primarily related to the Company's new corporate headquarters and certain insurance
contracts. Standby letters of credit
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New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
8. Long-Term Debt and Credit Facilities (Continued)
related
to the Company's corporate headquarters are scheduled to be reduced by $2.0 million annually, which began in October 2017, for a total reduction of $6.0 million by October 2019.
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, 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 October 28, 2017, January 28, 2017, and October 29, 2016, the Company had $6.2 million, $6.6 million, and $7.3 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.
9. 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:
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Level 1:
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Observable inputs such as quoted prices in active markets;
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Level 2:
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Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
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Level 3:
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Unobservable inputs in which there is little or no market data and require the reporting entity to develop its own assumptions.
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The
Company's financial instruments consist of cash and cash equivalents, short-term trade receivables, accounts payable, and long-term debt. The carrying values on the balance sheets
for cash and cash equivalents, 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." Long-lived assets are evaluated for recoverability whenever events or changes in
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New York & Company, Inc.
Notes to Condensed Consolidated Financial Statements (Continued)
October 28, 2017
(Unaudited)
9. Fair Value Measurements (Continued)
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.
During the three and nine months ended October 28, 2017, the Company recorded $0.1 million and $0.6 million, respectively, of non-cash impairment charges related to
underperforming store assets in "Selling, general and administrative expenses" on the Company's condensed consolidated statement of operations. During the three and nine months ended
October 29, 2016, the Company recorded $0.3 million of non-cash impairment charges related to underperforming store assets in "Selling, general and administrative expenses" on the
Company's condensed consolidated statement of operations.
10. Share Repurchases
On July 13, 2017, the Company's board of directors authorized a 12-month extension of a previously approved share repurchase plan of up to $5.0 million of the Company's
common stock, as described in the Company's press release issued on July 14, 2016. As of October 28, 2017, the Company had $3.3 million available under this plan to repurchase
shares of its common stock.
Purchases
will be made in compliance with SEC rules and regulations, subject to market conditions, applicable legal requirements, and other relevant factors. The Company is not obligated
to acquire any particular amount of common stock.
During
the nine months ended October 28, 2017, the Company repurchased 354,554 shares of its common stock for a total cost of approximately $0.6 million, including
commissions.
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