**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**Washington,DC  20549

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**FORM 10-Q**

| **x**                                                   |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR  15(d)**  |
|---------------------------------------------------------|--------|-------------------------------------------------------------|
| ** **                                              |   | **OF THE SECURITIES EXCHANGE ACT OF 1934**                  |
| **for the quarterly period ended April 29,  2006** |
| **OR**                                                  |
| **o**                                                   |   | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d)** |
| ** **                                              |   | **OF THE SECURITIES EXCHANGE ACT OF 1934**                  |

 

**for the transition periodfrom                to                .**

**COMMISSION FILENUMBER:  1-32315**

**NEW YORK & COMPANY, INC.**(Exact name of registrant as specified in its charter)

| **DELAWARE**                              |   | **33-1031445**                        |
|-------------------------------------------|--------|---------------------------------------|
| (State of  incorporation)                 |   | (I.R.S. Employer  Identification No.) |
| **450 West 33****rd Street**         |   | ** **                            |
| **5****th Floor**                    |   | ** **                            |
| **New  York, New York 10001**             |   | **(212) 884-2000**               |
| (Address of  Principal Executive Offices, |   | (Registrant’s  Telephone Number, |
| including Zip  Code)                      |   | Including Area  Code)                 |

 

Indicate by check mark whether the Registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x  No o

Indicate by check mark if the registrant is a largeaccelerated filer, an accelerated filer, or a non-accelerated filer. Seedefinition of “accelerated filer” and “large accelerated filer” in Rule 12b-2of the Exchange Act. (Check one):

| Large accelerated filer o |   | Accelerated filer  x |   | Non-accelerated  filer o |
|---------------------------|--------|----------------------|--------|--------------------------|

 

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act). Yes o   No x

As of May 26, 2006, the registrant had55,444,090 shares of common stock outstanding.

 

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**TABLEOF CONTENTS**

| PART I. FINANCIAL INFORMATION |                                                                                        |   |
|------------------------------------|---------------------------------------------------------------------------------------------|--------|
| Item 1.                            | Financial Statements                                                                        |   | 2 |
| Item 2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   | 11 |
| Item 3.                            | Quantitative  and Qualitative Disclosures About Market Risk                                 |   | 19 |
| Item 4.                            | Controls and  Procedures                                                                    |   | 19 |
| PART II. OTHER INFORMATION    |                                                                                        |   |
| Item 1.                            | Legal Proceedings                                                                           |   | 20 |
| Item  1A.                          | Risk Factors                                                                                |   | 20 |
| Item 2.                            | Unregistered  Sales of Equity Securities and Use of Proceeds                                |   | 20 |
| Item 3.                            | Defaults Upon  Senior Securities                                                            |   | 20 |
| Item 4.                            | Submission of  Matters to a Vote of Security Holders                                        |   | 20 |
| Item 5.                            | Other Information                                                                           |   | 20 |
| Item 6.                            | Exhibits                                                                                    |   | 20 |
|                                    |                                                                                             |        |  |  |

 

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**PART I.FINANCIAL INFORMATION**

**ITEM 1.**   FINANCIALSTATEMENTS

**New York &Company, Inc. and SubsidiariesConsolidated Statements of Operations (Unaudited)**

| ** **                                                                    | ** ** | **Three months  ended  April 29, 2006**                         | ** ** | **Three months  ended  April 30, 2005** | ** ** |
|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                    | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| Net sales                                                                     |       |                                                                           | $          | 267,137                                                |       |   |   | $ | 269,975 |   |   |
| Cost of goods  sold, buying and occupancy costs                               |       |                                                                           | 188,034    |                                                   |       |   | 171,665 |   |   |
| Gross profit                                                                  |       |                                                                           | 79,103     |                                                   |       |   | 98,310 |   |   |
| Selling, general  and administrative expenses                                 |       |                                                                           | 68,484     |                                                   |       |   | 60,926 |   |   |
| Operating income                                                              |       |                                                                           | 10,619     |                                                   |       |   | 37,384 |   |   |
| Interest expense,  net of interest income of $213 and $365, respectively |       |                                                                           | 490        |                                                   |       |   | 1,409 |   |   |
| Income before income taxes                                                    |       |                                                                           | 10,129     |                                                   |       |   | 35,975 |   |   |
| Provision for  income taxes                                                   |       |                                                                           | 4,072      |                                                   |       |   | 14,495 |   |   |
| Net income                                                                    |       |                                                                           | $          | 6,057                                                  |       |   |   | $ | 21,480 |   |   |
| Basic earnings per share                                                      |       |                                                                           | $          | 0.11                                                   |       |   |   | $ | 0.40 |   |   |
| Diluted earnings per share                                                    |       |                                                                           | $          | 0.10                                                   |       |   |   | $ | 0.38 |   |   |
| Weighted average  shares outstanding:                                         |       |                                                                           |       |                                                   |       |   |   |   |   |
| Basic shares of common stock                                                  |       |                                                                           | 55,226     |                                                   |       |   | 53,340 |   |   |
| Diluted shares of  common stock                                               |       |                                                                           | 59,744     |                                                   |       |   | 56,673 |   |   |

 

See accompanying notes.

2

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**New York &Company, Inc. and SubsidiariesConsolidated Balance Sheets**

| ** **                                                                                                                                                                                                         | ** ** | **April 29,  2006**                                                       | ** ** | **January 28,  2006** | ** ** | **April 30,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                                                                                                                                                                                                         | ** ** | **(Unaudited)**                                                                | ** ** | **(Audited)**              | ** ** | **(Unaudited)**          | ** ** |
| ** **                                                                                                                                                                                                         | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| **Assets**                                                                                                                                                                                                         | ** ** |                                                                           | ** ** | ** **                 |       |                     | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current assets:                                                                                                                                                                                                    |       |                                                                           |       |                       |       |                     |       |   |   |   |   |   |   |
| Cash and cash equivalents                                                                                                                                                                                          |       |                                                                           | $          | 26,897                     |       |                     |       | $ | 57,436 |   |   |   | $ | 85,134 |   |   |
| Accounts receivable                                                                                                                                                                                                |       |                                                                           | 22,544     |                       |       |                     | 15,581     |   |   |   | 23,312 |   |   |
| Inventories, net                                                                                                                                                                                                   |       |                                                                           | 130,158    |                       |       |                     | 109,656    |   |   |   | 99,508 |   |   |
| Prepaid expenses                                                                                                                                                                                                   |       |                                                                           | 16,874     |                       |       |                     | 18,770     |   |   |   | 15,778 |   |   |
| Other current assets                                                                                                                                                                                               |       |                                                                           | 2,454      |                       |       |                     | 1,515      |   |   |   | 1,997 |   |   |
| Total current  assets                                                                                                                                                                                              |       |                                                                           | 198,927    |                       |       |                     | 202,958    |   |   |   | 225,729 |   |   |
| Property and  equipment, net                                                                                                                                                                                       |       |                                                                           | 169,161    |                       |       |                     | 159,388    |   |   |   | 110,746 |   |   |
| Goodwill and  intangible assets                                                                                                                                                                                    |       |                                                                           | 41,809     |                       |       |                     | 41,702     |   |   |   | 14,843 |   |   |
| Other assets                                                                                                                                                                                                       |       |                                                                           | 2,106      |                       |       |                     | 2,227      |   |   |   | 3,545 |   |   |
| Total assets                                                                                                                                                                                                       |       |                                                                           | $          | 412,003                    |       |                     |       | $ | 406,275 |   |   |   | $ | 354,863 |   |   |
| **Liabilities  and stockholders’ equity**                                                                                                                                                                     | ** ** |                                                                           | ** ** | ** **                 |       |                     | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Current liabilities:                                                                                                                                                                                               |       |                                                                           |       |                       |       |                     |       |   |   |   |   |   |   |
| Current portion, long-term debt                                                                                                                                                                                    |       |                                                                           | $          | 6,000                      |       |                     |       | $ | 6,000 |   |   |   | $ | — |   |   |
| Accounts payable                                                                                                                                                                                                   |       |                                                                           | 85,930     |                       |       |                     | 90,980     |   |   |   | 64,982 |   |   |
| Accrued expenses                                                                                                                                                                                                   |       |                                                                           | 50,680     |                       |       |                     | 55,261     |   |   |   | 45,741 |   |   |
| Income taxes payable                                                                                                                                                                                               |       |                                                                           | —     |                       |       |                     | —     |   |   |   | 9,908 |   |   |
| Deferred income taxes                                                                                                                                                                                              |       |                                                                           | 1,740      |                       |       |                     | 3,016      |   |   |   | 1,684 |   |   |
| Total current  liabilities                                                                                                                                                                                         |       |                                                                           | 144,350    |                       |       |                     | 155,257    |   |   |   | 122,315 |   |   |
| Long-term  debt, net of current                                                                                                                                                                                    |       |                                                                           | 30,000     |                       |       |                     | 31,500     |   |   |   | 75,000 |   |   |
| Deferred income  taxes                                                                                                                                                                                             |       |                                                                           | 4,133      |                       |       |                     | 4,723      |   |   |   | 6,966 |   |   |
| Deferred rent and  other liabilities                                                                                                                                                                               |       |                                                                           | 42,228     |                       |       |                     | 35,745     |   |   |   | 24,658 |   |   |
| Total liabilities                                                                                                                                                                                                  |       |                                                                           | 220,711    |                       |       |                     | 227,225    |   |   |   | 228,939 |   |   |
| Commitments and  contingencies                                                                                                                                                                                     |       |                                                                           | —     |                       |       |                     | —     |   |   |   | — |   |   |
| Stockholders’  equity:                                                                                                                                                                                        |       |                                                                           |       |                       |       |                     |       |   |   |   |   |   |   |
| Common stock, voting, par value $0.001; 300,000  shares authorized; 55,394, 54,629 and 53,476 shares issued and outstanding at  April 29, 2006, January 28, 2006, and April 30, 2005,  respectively |       |                                                                           | 55         |                       |       |                     | 55         |   |   |   | 53 |   |   |
| Additional paid-in capital                                                                                                                                                                                         |       |                                                                           | 132,675    |                       |       |                     | 126,490    |   |   |   | 110,611 |   |   |
| Retained earnings                                                                                                                                                                                                  |       |                                                                           | 59,031     |                       |       |                     | 52,974     |   |   |   | 15,964 |   |   |
| Accumulated other comprehensive loss                                                                                                                                                                               |       |                                                                           | (469       | )                          |       |                     | (469       | ) |   |   | (704 | ) |   |
| Total  stockholders’ equity                                                                                                                                                                                   |       |                                                                           | 191,292    |                       |       |                     | 179,050    |   |   |   | 125,924 |   |   |
| Total liabilities and  stockholders’ equity                                                                                                                                                                   |       |                                                                           | $          | 412,003                    |       |                     |       | $ | 406,275 |   |   |   | $ | 354,863 |   |   |

 

See accompanying notes.

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**New York &Company, Inc. and SubsidiariesConsolidated Statements of Cash Flows (Unaudited)**

| ** **                                                                                   | ** ** | **Three months  ended  April 29, 2006** | ** ** | **Three months  ended  April 30, 2005** | ** ** |
|----------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                                                   | ** ** | **(Amounts in thousands)**                   | ** ** |
| **Operating activities**                                                                     |       |                                                   |       |                                                   |       |   |   |   |   |
| Net income                                                                                   |       |                                                   | $          | 6,057                                                  |       |   |   | $ | 21,480 |   |   |
| Adjustments to reconcile  net income to net cash (used in) provided by operating activities: |       |                                                   |       |                                                   |       |   |   |   |   |
| Depreciation and amortization                                                                |       |                                                   | 7,676      |                                                   |       |   | 5,446 |   |   |
| Amortization of deferred financing costs                                                     |       |                                                   | 73         |                                                   |       |   | 289 |   |   |
| Share-based compensation                                                                     |       |                                                   | 622        |                                                   |       |   | 212 |   |   |
| Deferred income taxes                                                                        |       |                                                   | (1,866     | )                                                      |       |   | 164 |   |   |
| Changes in  operating assets and liabilities:                                                |       |                                                   |       |                                                   |       |   |   |   |   |
| Accounts receivable                                                                          |       |                                                   | (9,257     | )                                                      |       |   | (10,243 | ) |   |
| Inventories, net                                                                             |       |                                                   | (20,502    | )                                                      |       |   | (6,129 | ) |   |
| Prepaid expenses                                                                             |       |                                                   | 1,896      |                                                   |       |   | 2,097 |   |   |
| Accounts payable                                                                             |       |                                                   | (5,050     | )                                                      |       |   | (9,063 | ) |   |
| Accrued expenses                                                                             |       |                                                   | (4,231     | )                                                      |       |   | (6,061 | ) |   |
| Income taxes payable                                                                         |       |                                                   | —     |                                                   |       |   | 9,908 |   |   |
| Other assets and liabilities                                                                 |       |                                                   | 5,406      |                                                   |       |   | 6,332 |   |   |
| Net cash (used  in) provided by operating activities                                         |       |                                                   | (19,176    | )                                                      |       |   | 14,432 |   |   |
| **Investing  activities**                                                                    |       |                                                   |       |                                                   |       |   |   |   |   |
| Capital  expenditures                                                                        |       |                                                   | (17,370    | )                                                      |       |   | (15,411 | ) |   |
| Net cash used in  investing activities                                                       |       |                                                   | (17,370    | )                                                      |       |   | (15,411 | ) |   |
| **Financing  activities**                                                                    |       |                                                   |       |                                                   |       |   |   |   |   |
| Proceeds from  public offering                                                               |       |                                                   | 2,294      |                                                   |       |   | — |   |   |
| Payment of public  offering costs                                                            |       |                                                   | (453       | )                                                      |       |   | — |   |   |
| Repayment of debt                                                                            |       |                                                   | (1,500     | )                                                      |       |   | — |   |   |
| Tax benefit from  exercise of stock options                                                  |       |                                                   | 5,003      |                                                   |       |   | 901 |   |   |
| Proceeds from  exercise of stock options                                                     |       |                                                   | 663        |                                                   |       |   | 51 |   |   |
| Net cash provided  by financing activities                                                   |       |                                                   | 6,007      |                                                   |       |   | 952 |   |   |
| Net decrease in  cash and cash equivalents                                                   |       |                                                   | (30,539    | )                                                      |       |   | (27 | ) |   |
| Cash and cash  equivalents at beginning of period                                            |       |                                                   | 57,436     |                                                   |       |   | 85,161 |   |   |
| Cash and cash  equivalents at end of period                                                  |       |                                                   | $          | 26,897                                                 |       |   |   | $ | 85,134 |   |   |

 

See accompanying notes.

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**New York & Company, Inc.  Notes to Consolidated Financial Statements April 29, 2006 (Unaudited)**

**1.**   Organizationand Basis of Presentation

New York & Company, Inc. (together withits subsidiaries, collectively the “Company”) is a leading specialty retailerof fashion-oriented, moderately-priced women’s apparel. The Company designs andsources its proprietary branded *New York &CompanyTM* merchandise sold exclusively through its national networkof retail stores. The target customers for the Company’s *New York & CompanyTM* merchandiseare fashion-conscious, value-sensitive women between the ages of 25 and 45.On July 19, 2005, the Company acquired Jasmine Company, Inc. (“JasmineSola”),a Boston-based, privately held women’s retailer of upscale and contemporaryapparel, footwear and accessories sold through its chain of *JasmineSolaTM*branded retail stores. As of April 29, 2006, the Companyoperated 530 retail stores in 45 states, including 17JasmineSola stores. Trademarks referenced in this Quarterly Report on Form 10-Qappear in italic type and are the property of the Company.

The accompanying consolidated financial statementsinclude the accounts for New York & Company, Inc. and all of itssubsidiaries, including Lerner New York Holding, Inc. (“Lerner Holding”); LernerNew York, Inc.; Lernco, Inc.; Nevada Receivable Factoring, Inc. andJasmineSola. On a stand alone basis, without the consolidation of itssubsidiaries, New York & Company, Inc. has no significantindependent assets or operations. All significant intercompany balances andtransactions have been eliminated in consolidation.

The consolidated financial statements as of April 29,2006 and April 30, 2005 and for the thirteen weeks (“threemonths”) ended April 29, 2006 and April 30, 2005 are unauditedand are presented pursuant to the rules and regulations of the United StatesSecurities and Exchange Commission (“SEC”). Accordingly, these unauditedconsolidated financial statements should be read in conjunction with theaudited consolidated financial statements and notes thereto for the fiscal yearended January 28, 2006 (“fiscal year 2005”), which were filed with theCompany’s Annual Report on Form 10-K with the SEC on April 7,2006. The fiscal year ending February 3, 2007 is referred to herein as “fiscalyear 2006.” In the opinion of management, the accompanying consolidatedfinancial statements reflect all adjustments, which are of a normal recurringnature, necessary to present fairly the financial condition, results ofoperations and cash flows for the interim periods.

Due to seasonal variationsin the retail industry, the results of operations for any interim period arenot necessarily indicative of the results expected for the full fiscal year.

**2.**   PublicOffering of Common Stock

On January 25, 2006, the Company completed apublic offering of 8,050,000 shares of common stock, including the underwriters’over-allotment option, of which 130,000 shares were offered by the Company and7,920,000 shares were offered by certain selling stockholders at a price to thepublic of $18.50 per share. Upon consummation of the public offering on January 31,2006, net proceeds of $2.3 million and $139.8 million weredistributed to the Company and selling stockholders, respectively.

The net proceeds receivedby the Company will be used to pay the fees and expenses of the offering, aswell as for general corporate purposes.

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**New York & Company, Inc.  Notes to Consolidated Financial Statements (Continued) April 29, 2006 (Unaudited)**

**3.**   Acquisition

On July 19, 2005, the Company entered into aStock Purchase Agreement to acquire all of the outstanding common stock ofJasmineSola for $22.5 million in cash and 350,000 shares of New York &Company, Inc. common stock, $0.001 par value, valued at$8.1 million based upon the closing stock price of New York &Company, Inc. on July 19, 2005. The purchase price is subject to apost-closing adjustment based on JasmineSola’s working capital, long-termindebtedness and certain other liabilities as of the acquisition date, andacquisition fees and expenses. This post-closing adjustment, if any, has notyet been determined. In addition, the Company will issue up to200,000 shares of its common stock as additional consideration for theacquisition of JasmineSola contingent upon the achievement of certain growthtargets over the three full fiscal years following the acquisition. Thesecontingent shares, if issued, will be recorded as an adjustment to the purchaseprice and goodwill.

The acquisition was accountedfor under the purchase method of accounting with a full basis adjustment. Thepurchase price allocation has been prepared on a preliminary basis and changesto this preliminary allocation are expected as additional informationconcerning asset and liability valuations are finalized. The preliminaryallocation resulted in goodwill of $9.8 million and indefinite livedintangible assets related to trademarks of $17.2 million.

**4.**   EarningsPer Share

Basicearnings per share are computed by dividing net income by the weighted averagenumber of shares of common stock outstanding for the period. Diluted earningsper share are calculated based on the weighted average number of shares ofcommon stock outstanding plus the dilutive effect of stock options as if theywere exercised. A reconciliation between basic and diluted earnings per shareis as follows:

| ** **                            | ** ** | **Three months  ended  April 29, 2006**                         | ** ** | **Three months  ended  April 30, 2005** | ** ** |
|---------------------------------------|------------|--------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                            | ** ** | **(Amounts in thousands,  except per share amounts)** | ** ** |
| Net income                            |       |                                                                           | $          | 6,057                                                  |       |   |   | $ | 21,480 |   |   |
| *Basic  EPS*                          | * *   |                                                                           |       |                                                   |       |   |   |   |   |
| Weighted average shares  outstanding: |       |                                                                           |       |                                                   |       |   |   |   |   |
| Basic shares of common stock          |       |                                                                           | 55,226     |                                                   |       |   | 53,340 |   |   |
| Basic EPS                             |       |                                                                           | $          | 0.11                                                   |       |   |   | $ | 0.40 |   |   |
| *Diluted  EPS*                        | * *   |                                                                           |       |                                                   |       |   |   |   |   |
| Weighted average shares  outstanding: |       |                                                                           |       |                                                   |       |   |   |   |   |
| Basic shares of common stock          |       |                                                                           | 55,226     |                                                   |       |   | 53,340 |   |   |
| Plus impact of stock options          |       |                                                                           | 4,518      |                                                   |       |   | 3,333 |   |   |
| Diluted shares of common stock        |       |                                                                           | 59,744     |                                                   |       |   | 56,673 |   |   |
| Diluted EPS                           |       |                                                                           | $          | 0.10                                                   |       |   |   | $ | 0.38 |   |   |

 

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**New York & Company, Inc.  Notes to Consolidated Financial Statements (Continued) April 29, 2006 (Unaudited)**

**4.**   Earnings Per Share (Continued)

The calculation of dilutedearnings per share for the three months ended April 29, 2006 and April 30,2005 exclude options to purchase 495,836 and 30,000 shares,respectively, due to their antidilutive effect as the options’ exercise priceexceeded the average market price of the common stock.

**5.**   Share-BasedCompensation

In December 2004, the Financial AccountingStandards Board (“FASB”) published SFAS No. 123 (Revised 2004), “Share-BasedPayment” (“SFAS 123-R”). SFAS 123-R retains certainrequirements of the original SFAS No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”) and requires all forms of share-basedpayment to employees, including employee stock options, to be treated ascompensation and recognized in the consolidated statement of operations. TheCompany adopted SFAS 123-R in December 2004, utilizing the modifiedprospective method. Prior to the Company’s adoption of SFAS 123-R,the Company followed SFAS 123 and treated all forms of share-basedpayments as compensation recognized in the consolidated statement ofoperations. Therefore, the adoption of SFAS 123-R did not have amaterial impact on the Company’s consolidated financial statements.

In connection with the consummation of the publicoffering on January 31, 2006, BSMB/NYCG, LLC, an affiliate of Bear StearnsMerchant Banking and the controlling stockholder of the Company, realized acash return in excess of 3.0 times its investment in the Company; as such,2,777,311 options to purchase common stock issued pursuant to grants underthe Company’s stock option plan vested and became immediately exercisable.

The Company recorded share-based compensation expensein the amount of $0.6 million for the three months ended April 29,2006 and $0.2 million for the three months ended April 30, 2005.Included in the $0.6 million of share-based compensation expense for thethree months ended April 29, 2006 is $0.2 million of expenserelated to the 2,777,311 stock options that vested on January 31,2006.

The Company issued 764,455shares of common stock upon exercise of stock options during the three monthsended April 29, 2006.

**6.**   PensionPlan

The Company sponsors a single-employer definedbenefit pension plan covering substantially all union employees. Employeescovered by collective bargaining agreements are primarily non-management storeassociates, representing approximately 10% of the Company’s total employees.The Company’s collective bargaining agreement with the Local 1102 unit of theRetail, Wholesale and Department Store Union (RWDSU) AFL-CIO that was set toexpire in August 2005 is under renegotiation. A signed extension agreementis in effect until June 30, 2006.

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**New York & Company, Inc.  Notes to Consolidated Financial Statements (Continued) April 29, 2006 (Unaudited)**

**6.**   Pension Plan (Continued)

The plan providesretirement benefits for union employees who have attained the age of18 and completed 425 hours of service in the twelve-monthperiod following the date of employment. The plan provides benefits based onlength of service. The Company’s funding policy for the plan is to contributeannually the amount necessary to provide for benefits based on accrued service.The Company does not anticipate the need for a material contribution to theplan for the remainder of the current fiscal year. Net periodic benefit costincludes the following components:

| ** **                      | ** ** | **Three months  ended  April 29, 2006** | ** ** | **Three months  ended  April 30, 2005** | ** ** |
|---------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                      | ** ** | **(Amounts in thousands)**                   | ** ** |
| Service cost                    |       |                                                   | $          | 67                                                     |       |   |   | $ | 73 |   |   |
| Interest cost                   |       |                                                   | 135        |                                                   |       |   | 143 |   |   |
| Expected return  on plan assets |       |                                                   | (180       | )                                                      |       |   | (188 | ) |   |
| Net periodic benefit  cost      |       |                                                   | $          | 22                                                     |       |   |   | $ | 28 |   |   |

 

**7.**   IncomeTax Provision

The income tax provisionsfor interim periods are based upon management’s estimate of the Company’sannualized effective tax rate. Effective tax rates differ from statutoryfederal income tax rates primarily due to provisions for state and local taxes.

**8.**   Long-TermDebt and Credit Facilities

On January 4, 2006, the Company’s creditfacilities were amended to include: (i) an additional $37.5 millionterm loan facility maturing on March 17, 2009 bearing interest at theEurodollar rate plus 2.50% (“January 4, 2006 term loan”), (ii) anextension of the term of the Company’s existing $90.0 million revolvingcredit facility to March 17, 2009 (contains a sub-facility available forissuance of letters of credit of up to $75.0 million), and (iii) areduction of certain interest rates under the revolver by as much as50 basis points, depending upon the Company’s financial performance. Usingthe $37.5 million of proceeds from the January 4, 2006 term loanplus $38.0 million of cash on-hand, the Company prepaid in full the$75.0 million term loan entered into on March 16, 2004 (“March 16,2004 term loan”), which was bearing interest at the Eurodollar rateplus 5.00%, and $0.5 million in fees related to the refinancing. Inconnection with the prepayment of the March 16, 2004 term loan, $0.9million of unamortized deferred financing costs were written-off in thefourth quarter of fiscal year 2005.

As of April 29, 2006, the Company hadavailability under its revolving credit facility of $62.0 million, net ofletters of credit outstanding of $9.4 million, as compared to availabilityof $43.6 million, net of letters of credit outstanding of $12.1 million,as of April 30, 2005.

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**New York & Company, Inc.  Notes to Consolidated Financial Statements (Continued) April 29, 2006 (Unaudited)**

**8.**   Long-Term Debt and Credit Facilities (Continued)

The revolving loansunder the credit facilities bear interest, at the Company’s option, either at afloating rate equal to the Eurodollar rate plus a margin of between 1.00% and2.00% per year, depending upon the Company’s financial performance, or thePrime rate. The Company pays the lenders under the revolving credit facility amonthly fee on outstanding letters of credit at a rate of between 1.00% and1.50% per year, depending upon the Company’s financial performance. The Companypays the lenders under the revolving credit facility a monthly fee on aproportion of the unused commitments under that facility at a rate of between0.25% and 0.50% per year, depending upon the Company’s financial performance.The term loan bears interest at a floating rate equal to the Eurodollar rateplus 2.50% per year. For so long as any default under the revolving creditfacility continues, at the option of the agent or lenders, interest on therevolving loans may increase to 4.00% per year above the Eurodollar rate forall Eurodollar rate loans and 2.00% per year above the Prime rate for all Primerate loans, and interest on the term loan may increase to the Eurodollar rateplus 4.50% per year.

The Company’s credit facilities contain certaincovenants, including restrictions on its ability to pay dividends on its commonstock, incur additional indebtedness and to prepay, redeem or repurchase otherdebt. Subject to such restrictions, the Company may incur more debt for workingcapital, capital expenditures, acquisitions and for other purposes. The termsof the Company’s credit facilities also subject it to certain maintenancecovenants in the event its borrowing availability under its revolving creditfacility, plus cash on-hand, falls below $40.0 million. These covenantsinclude maintaining a minimum trailing twelve-month EBITDA (as defined in theCompany’s amended and restated credit agreement) and a maximum leverage ratio.This ratio and the calculation of EBITDA under the amended and restated creditagreement are not necessarily comparable to other similarly titled ratios andmeasurements of other companies due to inconsistencies in the method ofcalculation. In addition, in the event that the Company’s borrowingavailability under its revolving credit facility, plus cash on-hand,falls below $50.0 million and it fails to maintain a minimum trailingtwelve-month EBITDA, then the outstanding principal amount of the $37.5 millionterm loan must be prepaid down to $25.0 million, subject to certainrestrictions. The Company is currently in compliance with the financialcovenants referred to above.

The lenders have beengranted a pledge of the common stock of Lerner Holding and certain of itssubsidiaries, and a first priority security interest in substantially all othertangible and intangible assets of New York & Company, Inc. andcertain of its subsidiaries, as collateral for the Company’s obligations underthe credit facilities. In addition, New York & Company, Inc. andcertain of its subsidiaries have fully and unconditionally guaranteed thecredit facilities, and such guarantees are joint and several.

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**New York & Company, Inc.  Notes to Consolidated Financial Statements (Continued) April 29, 2006 (Unaudited)**

**9.**   NewAccounting Pronouncements

In October 2005,the FASB issued FSP No. FAS 13-1, ‘‘Accounting for Rental CostsIncurred during a Construction Period.’’ The FSP concluded that rental costsassociated with ground or building operating leases that are incurred during aconstruction period should be recognized as rental expense. The rental costsshould be included in income from continuing operations. The guidance does notchange application of the maximum guarantee test in EITF Issue No. 97-10,‘‘The Effect of Lessee Involvement in Asset Construction.’’ The guidance inthis FSP shall be applied in the first reporting period beginning after December 15,2005. Retrospective application in accordance with FASB Statement No. 154,‘‘Accounting Changes and Error Corrections,’’ is permitted but not required; assuch, the Company adopted the provisions of the FSP beginning in February 2006and will apply them prospectively. The Company currently anticipates that theadoption of this pronouncement will result in approximately $2.4 millionof additional rent expense in the current fiscal year, which prior to theadoption of this pronouncement would have been capitalized and amortized intodepreciation expense on a straight-line basis over the lease term, commencingon the store’s opening date. For the three months ended April 29, 2006,$0.9 million of rent expense was recognized during the constructionperiods for stores, resulting in an after-tax charge to earnings of$0.5 million, or $0.01 per diluted share.

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**ITEM 2.**                MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

**SPECIAL NOTEREGARDING FORWARD-LOOKING STATEMENTS AND RISK FACTORS**

**(CautionaryStatements Under the Private Securities Litigation Reform Act of 1995)**

This QuarterlyReport on Form 10-Q includes forward-looking statements.Certain matters discussed in “Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” and other sections of thisQuarterly Report on Form 10-Q are forward-looking statementsintended to qualify for safe harbors from liability established by the PrivateSecurities Litigation Reform Act of 1995. Some of these statements can beidentified 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 thatthe Company believes are reasonable and relate to its future prospects,developments and business strategies. Factors that could cause the Company’sactual results to differ materially from those expressed or implied in suchforward-looking statements, include, but are not limited to those discussedunder the heading “Item 3. Quantitative and Qualitative Disclosures AboutMarket Risk” in this Quarterly Report on Form 10-Q and:

·       theCompany’s ability to open and operate stores successfully;

·       seasonalfluctuations in the Company’s business;

·       theCompany’s ability to anticipate and respond to fashion trends and launch newproduct lines successfully;

·       generaleconomic conditions, consumer confidence and spending patterns;

·       theCompany’s dependence on mall traffic for its sales;

·       thesusceptibility of the Company’s business to extreme and/or unseasonable weatherconditions;

·       theCompany’s ability to retain and recruit key personnel;

·       theCompany’s reliance on third parties to manage some aspects of its business;

·       changesin the cost of raw materials, distribution services or labor;

·       theCompany’s reliance on foreign sources of production;

·       thepotential impact of natural disasters and health concerns relating to outbreaksof widespread diseases, particularly on manufacturing operations of the Company’svendors;

·       theability of the Company’s manufacturers to manufacture and deliver products in atimely manner while meeting its quality standards;

·       theCompany’s ability to successfully integrate acquired businesses into itsexisting business;

·       theCompany’s reliance on manufacturers to maintain ethical business practices;

·       theCompany’s ability to protect its trademarks and other intellectual propertyrights;

·       theCompany’s ability to maintain, and its reliance on, its information systemsinfrastructure;

·       theCompany’s dependence on the success of its brand;

·       competitionin the Company’s market, including promotional and pricing competition;

·       theCompany’s reliance on the effective use of customer information;

·       theeffects of government regulation;

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·       thecontrol of the Company by its sponsors; and

·       risksand uncertainties as described in the Company’s documents filed with the SEC,including its Annual Report on Form 10-K, as filed on April 7,2006.

The Company undertakes noobligation to revise the forward-looking statements included in thisQuarterly Report on Form 10-Q to reflect any future events orcircumstances. The Company’s actual results, performance or achievements coulddiffer materially from the results expressed or implied by these forward-lookingstatements.

**Overview**

The Company is a leading specialty retailer offashion-oriented, moderately-priced women’s apparel. The Company designs andsources its proprietary branded *New York &Company*merchandise sold exclusively through its national network ofNew York & Company retail stores. The target customers for the Company’s*New York & Company* merchandise are fashion-conscious,value-sensitive women between the ages of 25 and 45. On July 19,2005, the Company acquired JasmineSola, a Boston-based, privately held women’sretailer of upscale and contemporary apparel, footwear and accessories soldthrough its chain of *JasmineSola*branded retail stores. As of April 29, 2006, the Company operated 530retail stores in 45 states, including 17 JasmineSola stores.

The Company views the retail apparel market as havingtwo principal selling seasons: spring (first and second quarter) and fall(third and fourth quarter). The Company’s business experiences seasonalfluctuations in net sales and operating income, with a significant portion ofits operating income typically realized during its first and fourth quarters.Seasonal fluctuations also affect inventory levels. The Company must carry asignificant amount of inventory, especially before the holiday season sellingperiod.

Net sales for the three months ended April 29,2006 decreased 1.1% to $267.1 million, as compared to$270.0 million for the three months ended April 30, 2005. Comparablestore sales decreased 9.2% in the three months ended April 29, 2006, ascompared to a comparable store sales increase of 3.9% for the three monthsended April 30, 2005. Net sales per average selling square foot for thethree months ended April 29, 2006 decreased 3.5% to $82, as comparedto $85 for the three months ended April 30, 2005. Net income for thethree months ended April 29, 2006 decreased to $6.1 million, or$0.10 per diluted share, as compared to $21.5 million, or$0.38 per diluted share, for the three months ended April 30, 2005.For a discussion of the more significant factors impacting these results, see “Resultsof Operations” below.

Capital spending for the three months ended April 29,2006  was $17.4 million, as compared to $15.4 million for thethree months ended April 30, 2005. The $17.4 million of capitalspending represents $16.6 million related to the construction of newstores and the remodeling of existing stores and $0.8 million related tonon-store capital projects, which principally represent information technologyenhancements. During the three months ended April 29, 2006, the Companyopened 14 new stores, including one JasmineSola store, closedthree stores and completed five remodels, ending the period operating530 stores in 45 states, as compared to 482 stores as of April 30,2005. Total selling square footage as of April 29, 2006 was3.282 million, as compared to 3.196 million as of April 30,2005.

The Company’s balance sheet at April 29,2006 included $26.9 million in cash and $54.6 million of workingcapital, as compared to $85.1 million in cash and $103.4 million ofworking capital at April 30, 2005. The decrease in working capitalcompared to last year was primarily the result of the January 2006prepayment of a $75.0 million term loan using $37.5 million of cashon-hand plus proceeds from the January 4, 2006 term loan. At April 29,2006, the Company’s inventory was $130.2 million, including$6.6 million of inventory attributable to the JasmineSola business, ascompared to $99.5 million of inventory at April 30, 2005. Theincrease in inventory compared to last year is primarily to support new 

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stores, planned increasesto support the Mother’s Day selling period and lower sales during the firstquarter.

The Company’s business isimpacted by economic conditions which affect the level of consumer spending onthe merchandise the Company offers. These economic factors include interestrates, economic growth, unemployment levels, energy prices, consumer confidenceand consumer spending, among others. Consumer preferences and economicconditions may change from time to time in the markets in which the Companyoperates and may negatively impact the Company’s net sales and profitability.As these economic conditions change, there can be no assurance that futuretrends and fluctuations in economic factors will not have a material adverseeffect on the Company’s financial condition and results of operations. TheCompany’s strategy is to focus on its customers, current fashion trends,merchandise testing, value pricing and responsive inventory management toenable it to react quickly to changes as they occur.

***General***

*NetSales.**  *Net salesconsist of sales from comparable and non-comparable stores. A store is includedin the comparable store sales calculation after it has completed 13 full fiscalmonths of operation from the store’s original opening date or once it has beenreopened after remodeling. Non-comparable store sales include stores which havenot completed 13 full fiscal months of operations, sales from closed stores andstores closed during periods of remodeling. Net sales are recorded when thecustomer takes possession of the merchandise and the purchases are paid for,primarily with either cash or credit card. A reserve is provided for projectedmerchandise returns based on prior experience.

The Company issues gift cards which do not containprovisions for expiration or inactivity fees. The portion of the dollar valueof gift cards that ultimately is not used by customers to make purchases isknown as breakage. The Company estimates gift card breakage and records suchamounts as revenues as gift cards are redeemed. The Company’s estimate of giftcard breakage is based on analysis of historical redemption patterns as well asthe remaining balance of gift cards for which the Company believes thelikelihood of redemption to be remote.

*Costof Goods Sold, Buying and Occupancy Costs.**  *Cost of goods sold, buying and occupancycosts are comprised of direct inventory costs for merchandise sold,distribution, payroll and related costs for design, sourcing, production,merchandising, planning and allocation personnel, and store occupancy andrelated costs.

*GrossProfit.**  *Grossprofit represents net sales less cost of goods sold, buying and occupancycosts.

*Selling, General andAdministrative Expenses.**  *Selling,general and administrative expenses include selling, store management andcorporate expenses, including payroll and employee benefits, employment taxes,management information systems, marketing, insurance, legal, store pre-openingand other corporate level expenses. Store pre-opening expenses include storelevel payroll, grand opening event marketing, travel, supplies and other storeopening expenses.

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**Results ofOperations**

Thefollowing tables summarize the Company’s results of operations as a percentageof net sales and selected store operating data for the three months ended April 29,2006 and April 30, 2005:

| ** **                                      | ** ** | **Three months  ended  April 29, 2006** | ** ** | **Three months  ended  April 30, 2005** | ** ** |
|-------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| Net sales                                       |       |                                                   | 100.0      | %                                                      |       |   | 100.0 | % |   |
| Cost of goods  sold, buying and occupancy costs |       |                                                   | 70.4       | %                                                      |       |   | 63.6 | % |   |
| Gross profit                                    |       |                                                   | 29.6       | %                                                      |       |   | 36.4 | % |   |
| Selling, general  and administrative expenses   |       |                                                   | 25.6       | %                                                      |       |   | 22.5 | % |   |
| Operating income                                |       |                                                   | 4.0        | %                                                      |       |   | 13.9 | % |   |
| Interest expense,  net                          |       |                                                   | 0.2        | %                                                      |       |   | 0.5 | % |   |
| Income before income taxes                      |       |                                                   | 3.8        | %                                                      |       |   | 13.4 | % |   |
| Provision for  income taxes                     |       |                                                   | 1.5        | %                                                      |       |   | 5.4 | % |   |
| Net income                                      |       |                                                   | 2.3        | %                                                      |       |   | 8.0 | % |   |

 

| ** **                                    | ** ** | **Three months   ended   April 29, 2006**            | ** ** | **Three months   ended   April 30, 2005** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|
| ** **                                    | ** ** | **(Dollars in thousands,  except square foot data)** | ** ** |
| **Selected  operating data:**                 | ** ** |                                                                          | ** ** | ** **                                                         |       |   | ** ** | ** ** |   |
| Total net sales  (decline) growth             |       |                                                                          | (1.1       | )%                                                                 |       |   | 7.1 | % |   |
| Comparable store  sales (decrease) increase   |       |                                                                          | (9.2       | )%                                                                 |       |   | 3.9 | % |   |
| Net sales per  average selling square foot(1) |       |                                                                          | $          | 82                                                                 |       |   |   | $ | 85 |   |   |
| Net sales per  average store(2)               |       |                                                                          | $          | 509                                                                |       |   |   | $ | 564 |   |   |
| Average selling square  footage per store(3)  |       |                                                                          | 6,193      |                                                               |       |   | 6,631 |   |   |

 

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(1)          Net sales per averageselling square foot is defined as net sales divided by the average of beginningand end of period selling square feet.

(2)          Net sales per averagestore is defined as net sales divided by the average of beginning and end ofperiod number of stores.

(3)          Averageselling square footage per store is defined as end of period selling squarefeet divided by end of period number of stores.

| ** **                                                        | ** ** | **Three months  ended  April 29, 2006** | ** ** | **Three months  ended  April 30, 2005** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                                        | ** ** | **Store  Count**                                       | ** ** | **Selling  Square Feet**                          | ** ** | **Store  Count** | ** ** | **Selling  Square Feet** | ** ** |
| **Store count and selling square feet:** | ** ** |                                                   | ** ** | ** **                                             |       |   | ** ** | ** ** |   |   | ** ** | ** ** |   |   | ** ** | ** ** |   |
| Stores open, beginning  of period                                 |       |                                                   | 519        |                                                   |       |   | 3,254,465 | ** ** |   |   | 476 |   |   |   | 3,189,770 |   |   |
| New stores                                                        |       |                                                   | 14         |                                                   |       |   | 64,312 | ** ** |   |   | 8 |   |   |   | 32,908 |   |   |
| Closed stores                                                     |       |                                                   | (3         | )                                                      |       |   | (18,147 | ) |   |   | (2 | ) |   |   | (10,644 | ) |   |
| Net impact of  remodeled stores on selling square feet            |       |                                                   | —     |                                                   |       |   | (18,297 | ) |   |   | — |   |   |   | (15,823 | ) |   |
| Stores open, end  of period                                       |       |                                                   | 530        |                                                   |       |   | 3,282,333 | ** ** |   |   | 482 |   |   |   | 3,196,211 |   |   |

 

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***Three Months EndedApril 29, 2006 Compared to Three Months Ended April 30, 2005***

*Net Sales.**  *Netsales for the three months ended April 29, 2006 decreased 1.1% to$267.1 million, as compared to $270.0 million for the three monthsended April 30, 2005. The decrease is attributable to a$24.1 million, or 9.2%, decrease in comparable store sales. The decreasein comparable store sales was offset by a $21.2 million, or 281.4%,increase in non-comparable store sales, primarily driven by new stores. In thecomparable store base, average dollar sales per transaction decreased 2.0% andthe number of transactions per average store declined 7.4%, as compared to thesame period last year.

*Gross Profit.**  *Grossprofit decreased $19.2 million to $79.1 million, or 29.6% of netsales, for the three months ended April 29, 2006, as compared to$98.3 million, or 36.4% of net sales, for the three months endedApril 30, 2005. The decrease in gross profit is primarily attributable tothe decrease in comparable store sales and an increase in merchandise markdownsfor the three months ended April 29, 2006, as compared to the same periodlast year. In addition, buying and occupancy costs increased as a percentage ofnet sales due to increases in real estate costs related to the cumulativeimpact of new stores since April 30, 2005 combined with the impact oflower comparable store sales.

*Selling, General andAdministrative Expenses.**  *Selling, general andadministrative expenses increased $7.6 million to $68.5 million, or25.6% of net sales, for the three months ended April 29, 2006 from$60.9 million, or 22.5% of net sales, for the three months ended April 30,2005. As a percentage of net sales, selling, general and administrativeexpenses increased for the three months ended April 29, 2006, as comparedto the three months ended April 30, 2005, due to the decrease incomparable store sales. The increase in selling, general and administrativeexpenses for the three months ended April 29, 2006 is primarily dueto higher store selling expenses as a result of the cumulative impact of newstores since April 30, 2005.

*Operating Income.*   Thedecrease in gross profit and higher selling, general and administrativeexpenses, as explained above, resulted in a $26.8 million decrease inoperating income to $10.6 million, or 4.0% of net sales, for the threemonths ended April 29, 2006, as compared to $37.4 million, or 13.9%of net sales, for the three months ended April 30, 2005.

*Interest Expense, Net.*   Netinterest expense decreased $0.9 million to $0.5 million, or 0.2% ofnet sales, for the three months ended April 29, 2006 from$1.4 million, or 0.5% of net sales, for the three months ended April 30,2005. The decrease in net interest expense is due to reductions in borrowingsand a reduction in interest rates obtained through the Company’s prepayment ofa $75 million term loan on January 4, 2006 using proceeds from a new$37.5 million term loan facility plus cash on-hand.

*Provision for IncomeTaxes.*   The effective tax rate for the threemonths ended April 29, 2006 was 40.2%, as compared to 40.3% for thethree months ended April 30, 2005.

*Net Income.*   Forthe reasons discussed above, net income decreased $15.4 million to$6.1 million, or 2.3% of net sales, for the three months ended April 29,2006 from $21.5 million, or 8.0% of net sales, for the three monthsended April 30, 2005.

**Non-GAAP Financial Measure**

The Company has provided anon-GAAP financial measure to adjust net income for the three months ended April 29,2006 and April 30, 2005. This information reflects, on a non-GAAP adjustedbasis, the Company’s net income before interest expense, net; provision forincome taxes; and depreciation and amortization (“EBITDA”). The calculation forEBITDA is provided to enhance the user’s understanding of the Company’soperating results. EBITDA is provided because management believes it is animportant measure of financial performance commonly used to determine the valueof companies and to define standards for borrowing from institutional lenders.The non-GAAP financial information should be considered in addition to, not asan alternative to, net income, as an indicator of the Company’s operatingperformance, and cash flows from operating activities, as a measure of theCompany’s liquidity, as 

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determinedin accordance with accounting principles generally accepted in the UnitedStates. The Company may calculate EBITDA differently than other companies.

**Reconciliationof Net Income to EBITDA**

| ** **                     | ** ** | **Three months ended  April 29, 2006** | ** ** | **Three months ended  April 30, 2005** | ** ** |
|--------------------------------|------------|------------------------------------------------------------|------------|------------------------------------------------------------|------------|
| ** **                     | ** ** | **Amounts in  thousands**                             | ** ** | **As a % of  net sales**               | ** ** | **Amounts in  thousands** | ** ** | **As a % of  net sales** | ** ** |
| Net income                     |       |                                                       | $          | 6,057                                                      |       |   |   | 2.3 | % |   |   | $ | 21,480 |   |   |   | 8.0 | % |   |
| Add back:                      |       |                                                       |       |                                                       |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest expense, net          |       |                                                       | 490        |                                                       |       |   | 0.2 | % |   |   | 1,409 |   |   |   | 0.5 | % |   |
| Provision for income  taxes    |       |                                                       | 4,072      |                                                       |       |   | 1.5 | % |   |   | 14,495 |   |   |   | 5.4 | % |   |
| Depreciation and  amortization |       |                                                       | 7,676      |                                                       |       |   | 2.9 | % |   |   | 5,446 |   |   |   | 2.0 | % |   |
| EBITDA                         |       |                                                       | $          | 18,295                                                     |       |   |   | 6.9 | % |   |   | $ | 42,830 |   |   |   | 15.9 | % |   |

 

**Liquidity andCapital Resources**

The Company’s primary uses of cash are to fund workingcapital, operating expenses, debt service and capital expenditures relatedprimarily to the construction of new stores, remodeling of existing stores anddevelopment of the Company’s information systems infrastructure. Historically,the Company has financed these requirements from internally generated cashflow. The Company intends to fund its ongoing capital and working capitalrequirements, as well as debt service obligations, primarily through cash flowsfrom operations, supplemented by borrowings under its credit facilities, ifneeded. The Company is in compliance with all debt covenants as of April 29,2006.

Thefollowing tables contain information regarding the Company’s liquidity andcapital resources:

| ** **                 | ** ** | **April 29,  2006**             | ** ** | **January 28,  2006** | ** ** | **April 30,  2005** | ** ** |
|----------------------------|------------|--------------------------------------|------------|----------------------------|------------|--------------------------|------------|
| ** **                 | ** ** | **(Amounts in thousands)** | ** ** |
| Cash and cash  equivalents |       | $                                    | 26,897     |                       |       | $                        | 57,436     |   |   | $ | 85,134 |   |
| Working capital            |       | $                                    | 54,577     |                       |       | $                        | 47,701     |   |   | $ | 103,414 |   |

 

| ** **                                           | ** ** | **Three months  ended  April 29, 2006** | ** ** | **Three months  ended  April 30, 2005** | ** ** |
|------------------------------------------------------|------------|--------------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **                                           | ** ** | **(Amounts in thousands)**                   | ** ** |
| Net cash (used  in) provided by operating activities |       |                                                   | $          | (19,176                                                | )          |   |   | $ | 14,432 |   |   |
| Net cash used in  investing activities               |       |                                                   | $          | (17,370                                                | )          |   |   | $ | (15,411 | ) |   |
| Net cash provided by  financing activities           |       |                                                   | $          | 6,007                                                  |       |   |   | $ | 952 |   |   |

 

**Operating Activities**

Net cash used in operatingactivities was $19.2 million for the three months ended April 29,2006, as compared to net cash provided by operating activities of$14.4 million for the three months ended April 30, 2005. The decreasein cash flow provided by operating activities for the three months ended April 29,2006, as compared to the three months ended April 30, 2005, isprimarily related to the decrease in net income, and changes in inventories andincome taxes payable, partially offset by changes in accounts receivable,accounts payable and accrued expenses. Cash provided by other assets andliabilities for the three months ended April 29, 2006 and April 30, 2005includes $5.7 million and $6.2 million of construction allowances,respectively.

**Investing Activities**

Cash used in investingactivities was $17.4 million for the three months ended April 29,2006, as compared to $15.4 million of cash used in investingactivities for the three months ended April 30, 2005. 

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Theincrease reflects capital expenditures primarily related to the construction ofnew stores and the remodeling of existing stores.

The Company opened14 new stores and completed five remodels in the three months ended April 29,2006, as compared to eight new stores and eight remodels in the three monthsended April 30, 2005. The Company plans to open approximately 50 to 60stores, including eight to ten JasmineSola stores, in fiscal year 2006, endingthe year operating approximately 572 stores. The Company’s future capitalrequirements will depend primarily on the number of new stores it opens, thenumber of existing stores it remodels and the timing of these expenditures.

**Financing Activities**

Net cash provided byfinancing activities was $6.0 million for the three months ended April 29,2006, as compared to net cash provided by financing activities of$1.0 million for the three months ended April 30, 2005. Net cashprovided by financing activities for the three months ended April 29,2006 represents proceeds of $2.3 million from the public offering ofcommon stock, consummated on January 31, 2006; the payment of$0.5 million in fees and expenses related to the offering; the$1.5 million quarterly repayment of the $37.5 million January 4,2006 term loan; and $5.7 million of proceeds from the exercise of stockoptions and the related tax benefit to the Company. Net cash provided byfinancing activities for the three months ended April 30, 2005 resultedfrom the exercise of stock options and the related tax benefit to theCompany.

**Long-Term Debt and Credit Facilities**

On January 4, 2006,the Company’s credit facilities were amended to include: (i) an additional$37.5 million term loan facility maturing on March 17, 2009 bearinginterest at the Eurodollar rate plus 2.50%, (ii) an extension of the termof the Company’s existing $90.0 million revolving credit facility to March 17,2009 (contains a sub-facility available for the issuance of letters of creditof up to $75.0 million), and (iii) a reduction of certain interest ratesunder the revolver by as much as 50 basis points, depending upon the Company’sfinancial performance. Using the $37.5 million of proceeds from the January 4, 2006 termloan plus $38.0 million of cash on-hand, the Company prepaid in full the$75.0 million March 16, 2004 term loan, which was bearing interest at theEurodollar rate plus 5.00%, and $0.5 million in fees related to therefinancing. In connection with the prepayment of the March 16, 2004 termloan, $0.9 million of unamortized deferred financing costs were written-offin the fourth quarter of fiscal year 2005.

As of April 29, 2006,the Company had availability under its revolving credit facility of$62.0 million, net of letters of credit outstanding of $9.4 million,as compared to availability of $43.6 million, net of letters of creditoutstanding of $12.1 million, as of April 30, 2005.

The revolving loans underthe credit facilities bear interest, at the Company’s option, either at afloating rate equal to the Eurodollar rate plus a margin of between 1.00% and2.00% per year, depending upon the Company’s financial performance, or thePrime rate. The Company pays the lenders under the revolving credit facility amonthly fee on outstanding letters of credit at a rate of between 1.00% and 1.50%per year, depending upon its financial performance. The Company pays thelenders under the revolving credit facility a monthly fee on a proportion ofthe unused commitments under that facility at a rate of between 0.25% and 0.50%per year, depending upon its financial performance. The term loan bearsinterest at a floating rate equal to the Eurodollar rate plus 2.50% per year.For so long as any default under the revolving credit facility continues, atthe option of the agent or lenders, interest on the revolving loans mayincrease to 4.00% per year above the Eurodollar rate for Eurodollar rate loansand 2.00% per year above the Prime rate for all Prime rate loans, and intereston the term loan may increase to the Eurodollar rate plus 4.50% per year.

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**Critical Accounting Policies**

The preparation offinancial statements in conformity with generally accepted accountingprinciples in the United States requires management to make estimates andassumptions that impact the amounts reported on the Company’s consolidatedfinancial statements and related notes. On an ongoing basis, managementevaluates its estimates and judgments, including those related to inventories,long-lived assets, goodwill and other intangible assets. Management bases itsestimate and judgments on historical experience and various other factors thatare believed to be reasonable under the circumstances. Actual results maydiffer materially from these judgments. Management believes the followingestimates and assumptions are most significant to reporting the Company’sresults of operations and financial position.

*Inventory Valuation.*   Inventoriesare principally valued at the lower of average cost or market, on a weightedaverage cost basis, using the retail method. The Company records a charge tocost of goods sold, buying and occupancy costs for all inventory on-handwhen a permanent retail price reduction is reflected in its stores. Inaddition, management makes estimates and judgments regarding, among otherthings, initial markup, markdowns, future demand and market conditions, all ofwhich significantly impact the ending inventory valuation. If actual futuredemand or market conditions are different than those projected by management,future period merchandise margin rates may be unfavorably or favorablyaffected. Other significant estimates related to inventory include shrink and obsoleteand excess inventory which are also based on historical results and management’soperating projections.

*Impairment of Long-LivedAssets.*   The Company evaluates long-lived assetsin accordance with SFAS No. 144, ‘‘Accounting for the Impairment or Disposalof Long-Lived Assets’’ (‘‘SFAS 144’’). Long-lived assets are evaluated forrecoverability in accordance with SFAS 144 whenever events or changes incircumstances indicate that an asset may have been impaired. In evaluating anasset for recoverability, the Company estimates the future cash flow expectedto result from the use of the asset and eventual disposition. If the sum of theexpected future undiscounted cash flow is less than the carrying amount of theasset, an impairment loss, equal to the excess of the carrying amount over thefair value of the asset, is recognized. An impairment loss could have amaterial adverse impact on the Company’s financial condition and results ofoperations. The Company’s evaluation for the three months ended April 29,2006 resulted in no material asset impairment charge.

*Goodwill and OtherIntangible Assets.*   SFAS No. 142, ‘‘Goodwilland Other Intangible Assets,’’ prohibits the amortization of goodwill andintangible assets with indefinite lives. The Company’s intangible assets relateprimarily to the New York & Company and JasmineSola trademarks and goodwill associated with the acquisitionof JasmineSola on July 19, 2005. The trademarks were initially valuedusing the ‘‘relief from royalty method’’ and were determined to have indefinitelives by an independent appraiser. The Company tests for impairment of intangibleassets annually as required by this Statement. Management’s estimate of futurecash flow is based on historical experience, knowledge, and market data. Theseestimates can be affected by factors such as those outlined in ‘‘CautionaryNote Regarding Forward-Looking Statements and Risk Factors.” An impairment losscould have a material adverse impact on the Company’s financial condition andresults of operations. The fair value assigned to the JasmineSola trademarks is$17.2 million. The $9.8 million of goodwill associated with theacquisition of JasmineSola is preliminary and is expected to be adjusted asadditional information concerning asset and liability valuations are finalized.

*Income Taxes.*   Incometaxes are calculated in accordance with SFAS No. 109, ‘‘Accounting forIncome Taxes,’’ which requires the use of the liability method. Deferred taxassets and liabilities are recognized based on the difference between thefinancial statement carrying amounts of assets and liabilities and theirrespective tax bases. Inherent in the measurement of deferred balances arecertain judgments and interpretations of enacted tax laws and publishedguidance with respect to applicability to the Company’s operations. Deferredtax assets are believed to be fully realizable as management expects 

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future taxableincome will be sufficient to recover the asset values and, as such, no relatedvaluation allowance has been provided for.

**Adoption of New Accounting Standards**

In October 2005, theFASB issued FSP No. FAS 13-1, ‘‘Accounting for Rental Costs Incurredduring a Construction Period.’’ The FSP concluded that rental costs associatedwith ground or building operating leases that are incurred during aconstruction period should be recognized as rental expense. The rental costsshould be included in income from continuing operations. The guidance does notchange application of the maximum guarantee test in EITF Issue No. 97-10,‘‘The Effect of Lessee Involvement in Asset Construction.’’ The guidance inthis FSP shall be applied in the first reporting period beginning after December 15,2005. Retrospective application in accordance with FASB Statement No. 154,‘‘Accounting Changes and Error Corrections,’’ is permitted but not required; assuch, the Company adopted the provisions of the FSP beginning in February 2006and will apply them prospectively. The Company currently anticipates that theadoption of this pronouncement will result in approximately $2.4 millionof additional rent expense in the current fiscal year, which prior to theadoption of this pronouncement would have been capitalized and amortized intodepreciation expense on a straight-line basis over the lease term, commencingon the store’s opening date. For the three months ended April 29, 2006,$0.9 million of rent expense was recognized during the constructionperiods for stores, resulting in an after-tax charge to earnings of$0.5 million, or $0.01 per diluted share.

**ITEM3.**                QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK

*Interest Rates.*   TheCompany’s market risks relate primarily to changes in interest rates. TheCompany’s credit facilities carry floating interest rates that are tied to theEurodollar rate and the Prime rate and therefore, the consolidated statementsof operations and the consolidated statements of cash flows will be exposed tochanges in interest rates. A 1.0% interest rate increase would increaseinterest expenses by $0.4 million annually. The Company historically has notengaged in interest rate hedging activities.

*Currency Exchange Rates.*   TheCompany historically has not been exposed to currency exchange rate risks withrespect to inventory purchases as such expenditures have been, and continue tobe, denominated in U.S. Dollars. The Company purchases some of its inventoryfrom suppliers in China, for which the Company pays U.S. Dollars. In July 2005,China announced that it would increase the value of the Chinese Yuan andabandon its fixed exchange rate against the U.S. Dollar to now link to a basketof world-currencies. If the exchange rate of the Chinese Yuan to the U.S.Dollar continues to increase, the Company may experience fluctuations in thecost of inventory purchased from China and the Company would adjust its supplychain accordingly.

**ITEM4.**                CONTROLS ANDPROCEDURES

(a)   *Disclosure Controls and Procedures*.   The Company’smanagement, with the participation of the Company’s Principal Executive Officerand Principal Financial Officer, has evaluated the effectiveness of the Company’sdisclosure controls and procedures (as such term is defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended) asof the end of the period covered by this Quarterly Report. Based on suchevaluation, the Company’s Principal Executive Officer and Principal FinancialOfficer have concluded that, as of the end of such period, the Company’sdisclosure controls and procedures are effective.

(b)   *Internal Controls Over Financial Reporting*.   There havenot been any changes in the Company’s internal controls over financialreporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) underthe Securities Exchange Act of 1934, as amended) during the fiscal quarter towhich this report relates that have materially affected, or are reasonablylikely to materially affect, the Company’s internal controls over financialreporting.

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**PART II.**

**OTHER INFORMATION**

**ITEM 1.**   LEGALPROCEEDINGS

There have been nomaterial changes in the Company’s legal proceedings from what was reported inits Annual Report on Form 10-K filed with the SEC on April 7,2006.

**ITEM 1A.**   RISKFACTORS

There have been nomaterial changes in the Company’s risk factors from what was reported in itsAnnual Report on Form 10-K filed with the SEC on April 7, 2006.

**ITEM 2.**   UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

**ITEM 3.**   DEFAULTSUPON SENIOR SECURITIES

None.

**ITEM 4.**   SUBMISSIONOF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

**ITEM 5.**   OTHERINFORMATION

None.

**ITEM 6.**   EXHIBITS

Thefollowing exhibits are filed with this report and made a part hereof.
| 10.1 |   | Amendment to Transition Services Agreement, dated as  of November 27, 2002, between Lerner New York Holding, Inc.; New  York & Company, Inc. as successor-in-interest to NY & Co. Group, Inc.  and Limited Brands, Inc., as amended on April 19, 2006. |
|------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1 |   | Certification of Chief Executive Officer Pursuant to  Rules 13a-14(a) and 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                                                                                                                  |
| 31.2 |   | Certification of Chief Financial Officer Pursuant to  Rules 13a-14(a) and 15d-14(a) promulgated under the  Securities Exchange Act of 1934, as amended.                                                                                                                  |
| 32.1 |   | Certification of Chief Executive Officer and Chief  Financial Officer Pursuant to 18 U.S.C. Section 1350, as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                               |

 

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**SIGNATURES**

Pursuantto the requirements of the Securities Exchange Act of 1934, as amended, theRegistrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

|        |     | NEW YORK &  COMPANY, INC. |
|--------|----------|-----------------------------------------|
|   |     | /s/ RONALD W. RISTAU                    |
|   |     | By:                                     | Ronald W. Ristau |
|   |     | Its:                                    | *Chief Operating Officer and* |
|   | * * | * *                                | *Chief Financial Officer* |
|   | * * | * *                                | *(Principal Financial Officer)* |
|   |     | Dated:                                  | June 8, 2006 |

 

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