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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-K/A

(Amendment No. 1)

 

 

(Mark One)

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

For the fiscal year ended January 28, 2017

OR

 

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

For the transition period from             to            

Commission File Number 001-38026

 

 

J.Jill, Inc.

(Exact name of Registrant as specified in its Charter)

 

 

Delaware   45-1459825

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer
Identification No.)
4 Batterymarch Park Quincy, MA   02169
(Address of principal executive offices)   (Zip Code)

Registrant’s telephone number, including area code: (617) 376-4300

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Name of each exchange on which registered

Common Stock, $0.01 par value   New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ☐    No  ☒

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

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☒  (Do not check if a small reporting company)    Small reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐     No  ☒

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, based on the closing price of the shares of common stock on NYSE Stock Market on April 21, 2017, was $194,290,605.20.

The number of shares of Registrant’s Common Stock outstanding as of April 21, 2017 was 43,747,944.

 

 

 


Table of Contents

EXPLANATORY NOTE

J.Jill, Inc. (the “Company,” “we,” “us” or “our”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment”) to amend our Annual Report on Form 10-K for the year ended January 28, 2017, originally filed with the Securities and Exchange Commission on April 28, 2017 (the “Original Filing”). The “Report of Independent Registered Public Accounting Firm” on page F-2 under Item 8 of the Original Filing incorrectly referenced “January 30, 2017” instead of “January 28, 2017” with respect to the year ended date of the consolidated statements of operations and cash flows. The Amendment is being filed solely to correct the applicable date in the Report of Independent Registered Public Accounting Firm. In accordance with Rule 12b-15 under the Securities Exchange Act of 1934, as amended, Item 8 of the Original Filing is hereby amended and restated in its entirety. This Amendment No. 1 does not amend or otherwise update any other information in the Original Filing.

TABLE OF CONTENTS

 

         

Page

PART II

  

Item 8. Financial Statements and Supplementary Data

   2

PART IV

  

Item 15. Exhibits, Financial Statement Schedules

   2

 

1


Table of Contents

PART II

Item 8. Financial Statements and Supplementary Data

The financial statements required to be filed pursuant to this Item 8 are appended to this report. An index of those financial statements is found in Item 15.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)(1) Financial Statements.

See the “Index to Consolidated Financial Statements” on page F-1 below for the list of financial statements filed as part of this report.

(a)(2) Financial Statement Schedules.

All schedules have been omitted because they are not required or because the required information is given in the Consolidated Financial Statements or Notes thereto set forth below beginning on page F-1.

(a)(3) Exhibits.

See the Exhibit Index immediately following the signature page of this Annual Report on Form 10-K/A. The exhibits listed in the Exhibit Index below are filed or incorporated by reference as part of this Annual Report on Form 10-K/A.

 

2


Table of Contents

J.Jill, Inc.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

     F-2  

Audited Consolidated Financial Statements

  

Consolidated Balance Sheets as of January  28, 2017 (Successor) and January 30, 2016 (Successor)

     F-4  

Consolidated Statements of Operations and Comprehensive Income (Loss) for the Fiscal Year Ended January 28, 2017 (Successor), the Period from May 8, 2015 through January 30, 2016 (Successor), the Period from February 1, 2015 through May 7, 2015 (Predecessor) and the Fiscal Year Ended January 31, 2015 (Predecessor)

     F-5  

Consolidated Statements of Members’ Equity for the Fiscal Year Ended January 28, 2017 (Successor), the Period from May 8, 2015 through January 30, 2016 (Successor), the Period From February 1, 2015 through May 7, 2015 (Predecessor) and the Fiscal Year Ended January 31, 2015 (Predecessor)

     F-6  

Consolidated Statements of Cash Flows for the Fiscal Year Ended January 28, 2017 (Successor), the Period from May 8, 2015 through January 30, 2016 (Successor), the Period from February 1, 2015 through May 7, 2015 (Predecessor) and the Fiscal Year Ended January 31, 2015 (Predecessor)

     F-7  

Notes to Consolidated Financial Statements

     F-8  

 

F-1


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of J.Jill, Inc.

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations and comprehensive income (loss), of members’ equity and of cash flows present fairly, in all material respects, the financial position of J.Jill, Inc. and its subsidiaries as of January 28, 2017 and January 30, 2016, and the results of their operations and their cash flows for the year ended January 28, 2017 and for the period from May 8, 2015 to January 30, 2016 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

April 28, 2017

 

F-2


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of J.Jill, Inc.

In our opinion, the consolidated statements of operations and comprehensive income (loss), of members’ equity and of cash flows for the period from February 1, 2015 to May 7, 2015 and for the year ended January 31, 2015 present fairly, in all material respects, the results of operations and cash flows of J.Jill, Inc. and its subsidiaries (Predecessor) for the period from February 1, 2015 to May 7, 2015 and for the year ended January 31, 2015 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

As discussed in Note 3 to the consolidated financial statements, the Company changed the manner in which it classifies deferred taxes and the manner in which it classifies debt issuance costs in fiscal year 2015.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

October 21, 2016, except for the effects of the corporate conversion as discussed in Note 1, Note 15 and Note 18, and the parent merger discussed in Note 18 as to which the date is February 25, 2017

 

F-3


Table of Contents

J.Jill, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except unit data)

 

     January 28,
2017
(Successor)
     January 30,
2016
(Successor)
 

Assets

     

Current assets:

     

Cash

   $ 13,468      $ 27,505  

Accounts receivable

     3,851        3,164  

Inventories, net

     66,641        64,406  

Prepaid expenses and other current assets

     18,559        20,539  

Receivable from related party

     1,262        —    
  

 

 

    

 

 

 

Total current assets

     103,781        115,614  

Property and equipment, net

     102,322        86,810  

Intangible assets, net

     163,483        179,965  

Goodwill

     197,026        196,572  

Receivable from related party

     —          1,850  

Other assets

     1,033        1,221  
  

 

 

    

 

 

 

Total assets

   $ 567,645      $ 582,032  
  

 

 

    

 

 

 

Liabilities and Members’ Equity

     

Current liabilities:

     

Accounts payable

   $ 38,438      $ 41,041  

Accrued expenses and other current liabilities

     46,121        43,591  

Current portion of long-term debt

     2,799        2,500  
  

 

 

    

 

 

 

Total current liabilities

     87,358        87,132  

Long-term debt, net of discount and current portion

     264,440        237,478  

Deferred income taxes

     74,750        78,837  

Other liabilities

     20,132        12,014  
  

 

 

    

 

 

 

Total liabilities

     446,680        415,461  
  

 

 

    

 

 

 

Commitments and contingencies (see Note 11)

     

Members’ Equity

     

Common units, zero par value, 1,000,000 units authorized, issued and outstanding at January 28, 2017 (Successor) and January 30, 2016 (Successor)

     —          —    

Contributed capital

     107,878        162,265  

Accumulated earnings

     13,087        4,306  
  

 

 

    

 

 

 

Total members’ equity

     120,965        166,571  
  

 

 

    

 

 

 

Total liabilities and members’ equity

   $ 567,645      $ 582,032  
  

 

 

    

 

 

 

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

 

F-4


Table of Contents

J.Jill, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(in thousands, except share and per share data)

 

     Successor     Predecessor  
     For the Fiscal
Year Ended
January 28,
2017
     For the Period
from May 8,
2015 to
January 30,
2016
    For the Period
from February 1,
2015 to May 7,
2015
    For the Fiscal
Year Ended
January 31,
2015
 

Net sales

   $ 639,056      $ 420,094     $ 141,921     $ 483,400  

Costs of goods sold

     211,117        155,091       44,232       164,792  
  

 

 

    

 

 

   

 

 

   

 

 

 

Gross profit

     427,939        265,003       97,689       318,608  

Selling, general and administrative expenses

     368,525        246,482       80,151       279,557  

Acquisition-related expenses

     —          —         13,341       —    
  

 

 

    

 

 

   

 

 

   

 

 

 

Operating income

     59,414        18,521       4,197       39,051  

Interest expense

     18,670        11,893       4,599       17,895  
  

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) before provision for income taxes

     40,744        6,628       (402     21,156  

Provision for income taxes

     16,669        2,322       1,499       10,860  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) and total comprehensive income (loss)

   $ 24,075      $ 4,306     $ (1,901   $ 10,296  
  

 

 

    

 

 

   

 

 

   

 

 

 

Net income (loss) per common share attributable to common shareholders:

           

Basic and diluted

   $ 0.55      $ 0.10     $ (0.04   $ 0.24  

Weighted average number of common shares outstanding:

           

Basic and diluted

     43,747,944        43,747,944       43,747,944       43,747,944  

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

 

F-5


Table of Contents

J.Jill, Inc.

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

(PREDECESSOR)

(in thousands, except unit data)

 

    Preferred
Capital
    Class A Units     Class B Units     Common Units     Contributed
Capital
    Accumulated
(Deficit)
    Total
Members’
Equity
(Deficit)
 
      Units     Amount     Units     Amount     Units     Amount        

Balance, February 1, 2014

  $ 72,824       100     $ 1       3,927,601     $ 39,276       1,000,000     $ —       $ 2,140     $ (58,182   $ (16,765

Equity-based compensation

    —         —         —         —         —         —         —         5,152       —         5,152  

Net income

    —         —         —         —         —         —         —         —         10,296       10,296  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, January 31, 2015

  $ 72,824       100     $ 1       3,927,601     $ 39,276       1,000,000     $ —       $ 7,292     $ (47,886   $ (1,317

Equity-based compensation

    —         —         —         —         —         —         —         441       —         441  

Net loss

    —         —         —         —         —         —         —         —         (1,901     (1,901
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 7, 2015

    72,824       100       1       3,927,601       39,276       1,000,000       —         7,733       (49,787     (2,777

Elimination of equity in connection with Acquisition (see Note 4)

    (72,824     (100     (1     (3,927,601     (39,276     (1,000,000     —         (7,733     49,787       2,777  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance, May 8, 2015

  $ —         —       $ —         —       $ —         —       $ —       $ —       $ —       $ —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

J.Jill, Inc.

CONSOLIDATED STATEMENTS OF MEMBERS’ EQUITY

(SUCCESSOR)

(in thousands, except unit data)

 

     Common Units      Contributed
Capital
    Accumulated
Earnings
    Total
Members’
Equity
 
     Units      Amount         

Balance, May 8, 2015

     1,000,000      $ —        $ 170,657     $ —       $ 170,657  

Distribution to member

     —          —          (8,560     —         (8,560

Equity-based compensation

     —          —          168       —         168  

Net income

     —          —          —         4,306       4,306  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, January 30, 2016

     1,000,000        —          162,265       4,306       166,571  

Distribution to member

     —          —          (54,706     (15,294     (70,000

Repurchase of Common Units

     —          —          (305     —         (305

Equity-based compensation

     —          —          624       —         624  

Net income

     —          —          —         24,075       24,075  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance, January 28, 2017

     1,000,000      $ —        $ 107,878     $ 13,087     $ 120,965  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

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

 

F-6


Table of Contents

J.Jill, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

 

     Successor      Predecessor  
     For the
Fiscal Year
Ended
January 28,
2017
    For the
Period from
May 8, 2015
to
January 30,
2016
     For the
Period from

February 1,
2015 to
May 7, 2015
    For the
Fiscal Year
Ended

January 31,
2015
 

Net income (loss)

   $ 24,075     $ 4,306      $ (1,901   $ 10,296  

Operating activities:

           

Adjustments to reconcile net income (loss) to net cash provided by operating activities

           

Depreciation and amortization

     36,219       28,702        5,147       19,051  

Amortization of inventory fair value adjustment

     —         10,471        —         —    

Loss on disposal of fixed assets

     385       237        112       58  

Noncash amortization of deferred financing and debt discount costs

     1,861       983        657       1,680  

Payment-in-kind interest on debt

     —         —          1,192       4,476  

Equity-based compensation

     624       168        441       5,152  

Deferred rent liability

     1,785       3,071        84       309  

Deferred income taxes

     (4,541     (7,261      (961     (1,903

Changes in operating assets and liabilities, net of Acquisition

           

Accounts receivable

     (687     4,017        (3,504     (2,058

Inventories

     (2,235     (1,577      (6,955     (10,273

Prepaid expenses and other current assets

     1,980       (7,112      (1,716     349  

Accounts payable

     (2,630     3,931        (7,608     3,066  

Accrued taxes payable

     999       (1,966      1,542       —    

Accrued expenses

     2,319       8,356        17,285       6,531  

Other noncurrent assets

     (13     (1,113      12       (12

Other noncurrent liabilities

     7,059       5,349        1,906       4,652  
  

 

 

   

 

 

    

 

 

   

 

 

 

Net cash provided by operating activities

     67,200       50,562        5,733       41,374  
  

 

 

   

 

 

    

 

 

   

 

 

 

Investing activities:

           

Acquisition, net of cash acquired

     —         (385,744      —         —    

Purchases of property and equipment

     (37,077     (26,559      (7,406     (24,143
  

 

 

   

 

 

    

 

 

   

 

 

 

Net cash used in investing activities

     (37,077     (412,303      (7,406     (24,143
  

 

 

   

 

 

    

 

 

   

 

 

 

Financing activities:

           

Repurchase of Common Units

     (305     —          —         —    

Repayments on long-term debt

     (12,775     (1,250      (5,646     (17,145

Proceeds from long-term debt

     40,000       250,000        —         —    

Payment of debt issuance costs

     (1,668     (9,640      —         —    

Proceeds from equity investment

     —         160,546        —         —    

Receivable from related party

     588       (1,850      —         —    

Distribution to member

     (70,000     (8,560      —         —    

Proceeds from revolving credit facility

     —         —          58,750       87,750  

Repayments of revolving credit facility

     —         —          (51,500     (87,750
  

 

 

   

 

 

    

 

 

   

 

 

 

Net cash (used in) provided by financing activities

     (44,160     389,246        1,604       (17,145
  

 

 

   

 

 

    

 

 

   

 

 

 

Net change in cash

     (14,037     27,505        (69     86  

Cash:

           

Beginning of Period

     27,505       —          604       518  
  

 

 

   

 

 

    

 

 

   

 

 

 

End of Period

   $ 13,468     $ 27,505      $ 535     $ 604  
  

 

 

   

 

 

    

 

 

   

 

 

 

Supplemental cash flow information:

           

Cash paid for interest

     16,406     $ 11,192      $ 2,952     $ 12,531  

Cash paid for taxes

     15,497       16,033        882       12,599  

Noncash investing and financing activities:

           

Noncash purchase consideration

     —         10,111        —         —    

Capital expenditures financed with the ending balance in accounts payable and accrued expenses

     740       1,274        2,547       3,605  

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

 

F-7


Table of Contents

J.Jill, Inc.

Notes to Consolidated Financial Statements

1. General

J.Jill, Inc., “J.Jill” or the “Company”, is a nationally recognized women’s apparel brand, headquartered in Quincy, Massachusetts, focused on affluent customers in the 40-65 age segment in 43 states. J.Jill operates an integrated omni-channel platform that is well diversified across its retail stores, website and catalogs.

J.Jill, Inc. was formed on February 24, 2017, when the Company converted from a Delaware limited liability company named Jill Intermediate LLC (“Intermediate”) into a Delaware corporation named J.Jill, Inc. In conjunction with the conversion, all of Intermediate’s outstanding equity interests converted into 43,747,944 shares of common stock. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where applicable, to reflect this conversion.

Intermediate had one class of equity interests, all of which were held by JJill Holdings, Inc. (“Holdings”), its former direct parent company, and JJill Topco Holdings, LP (“Topco”), the direct parent company of Holdings. In conjunction with the Company’s conversion into a Delaware corporation, JJill Holdings and JJill Topco Holdings each received shares of common stock in proportion to the percentage of Intermediate’s equity interests held by them prior to the conversion. Following the Company’s conversion into a Delaware corporation and subsequent to the financial statement date, Holdings, the Company’s former direct parent, merged with and into J.Jill, Inc., and J.Jill, Inc. was the surviving entity to such merger.

In connection with the conversion, J.Jill, Inc. will continue to hold all assets of Intermediate and will assume all of its liabilities and obligations. J.Jill, Inc. is a holding company, and Jill Acquisition LLC, its wholly-owned subsidiary, will remain the operating company for the business assets.

Intermediate was a Delaware Limited Liability Company that was formed on February 17, 2011 and held the ownership interests of Jill Acquisition LLC and its subsidiaries. On May 8, 2015, a 94% controlling interest in the Company was acquired (the “Acquisition”) by Holdings and the remaining 6% was acquired by Topco, a Delaware limited partnership formed by TowerBrook Capital Partners L.P. (“TowerBrook”). The purchase price was $396.4 million, which consisted of $386.3 million of cash consideration and $10.1 million of noncash consideration in the form of an equity rollover by management. Holdings, a Delaware corporation, was formed for the purpose of effecting the Acquisition and had no operations of its own, except for costs incurred related to the Acquisition. Holdings was a wholly-owned subsidiary of Topco. Holdings accounted for the Acquisition as a business combination under the acquisition method of accounting. Accordingly, the assets acquired and liabilities assumed were recorded at fair value with the remaining purchase price recorded as goodwill (see Note 4). The Company elected to pushdown the effects of the Acquisition to its consolidated financial statements.

2. Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements for the periods beginning and subsequent to May 8, 2015 represent the financial information of the Company and its subsidiaries subsequent to the Acquisition and are labeled as Successor (“Successor”). The consolidated financial statements prior to and including May 7, 2015 represent the financial information of the Company and its subsidiaries prior to the Acquisition, as well as consolidated variable interest entities (“VIEs”) (see Note 10), and are labeled as Predecessor (“Predecessor”). Due to the change in the basis of accounting resulting from the Acquisition, the Company’s consolidated financial statements for these reporting periods are not comparable.

The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

The Company uses a 52 to 53 week fiscal year ending on the Saturday closest to January 31. Each fiscal year generally is comprised of four 13 week fiscal quarters, although in the years with 53 weeks the fourth quarter represents a 14 week period. The Successor fiscal year of 2016 had 52 weeks of operations. The period from May 8, 2015 to January 30, 2016 (Successor period) included approximately 38 weeks of operations. The period from February 1, 2015 to May 7, 2015 (Predecessor period) included approximately 14 weeks of operations. The Predecessor fiscal year of 2014 had 52 weeks of operations.

Use of Estimates

The preparation of the consolidated financial statements in accordance with GAAP requires management to make estimates and judgments that affect reported amounts of assets, liabilities, members’ equity, net sales and expenses, and the disclosure of contingent assets and liabilities. Significant estimates relied upon in preparing these consolidated financial statements include, but are not limited to, revenue recognition, including merchandise returns and accounting for gift card breakage; accounting for business combinations; estimating the fair value of inventory and inventory reserves; impairment assessments of goodwill, intangible assets, and other long-lived assets; and equity-based compensation. Actual results could differ from those estimates.

Principles of Consolidation

The accompanying consolidated financial statements include the assets, liabilities and results of operations of the Company and its subsidiaries. For periods prior to the Acquisition, the consolidated financial statements include the assets, liabilities and results of operations of the Predecessor and its subsidiaries, as well as consolidated VIEs, for which the Predecessor had determined that it was the primary beneficiary (see Note 10). All intercompany balances and transactions have been eliminated in the consolidated financial statements.

Segment Reporting

The Company determined its operating segments on the same basis that it assesses performance and makes operating decisions. The Company’s operating segments consist of its retail and direct channels, which have been aggregated into one reportable segment.

All of the Company’s identifiable assets are located in the United States, which is where the Company is domiciled. The Company does not have sales outside the United States, nor does any customer represent more than 10% of total revenues for any period presented.

Variable Interest Entities

The Company regularly evaluates its relationships with other entities to identify whether they are variable interest entities and to assess whether it is the primary beneficiary of such entities. Under GAAP, a reporting entity shall consolidate a VIE when that reporting entity has a variable interest that provides the reporting entity with a controlling financial interest. The entity that ultimately consolidates the VIE shall be the reporting entity that a) has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and b) has the obligation to absorb losses or the right to receive benefits from the VIE that could be significant to the VIE. If the determination is made that a company is the primary beneficiary of a variable interest entity, then that entity is included in its consolidated financial statements.

As of January 31, 2015 (Predecessor), the Company determined that it had a variable interest in three unrelated entities for which it determined it was the primary beneficiary (see Note 10). These VIEs were consolidated during the 2015 Predecessor period and fiscal year 2014 and all intercompany transactions were eliminated in consolidation.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Concurrent with the May 8, 2015 Acquisition (see Note 4), the obligations held by each of the three VIEs were repaid in full and no further obligations remained. Accordingly, these entities were not consolidated in the 2015 Successor period and they were dissolved.

Business Combinations

The Company accounts for business combinations under the acquisition method of accounting. Under this method, acquired assets, including separately identifiable intangible assets, and any assumed liabilities are recorded at their acquisition date estimated fair value. The excess of purchase price over the fair value amounts assigned to the assets acquired and liabilities assumed represents the goodwill amount resulting from the acquisition. Determining the fair value of assets acquired and liabilities assumed involves the use of significant estimates and assumptions.

Concurrent with the Acquisition, the Company elected to apply pushdown accounting. Pushdown accounting refers to the use of the acquirer’s basis in the preparation of the acquiree’s separate financial statements as the new basis of accounting for the acquiree. See Note 4 for a discussion of the Acquisition and the related impact of pushdown accounting on the Company’s consolidated financial statements.

Accounts Receivable

The Company’s accounts receivable relate primarily to payments due from banks for credit and debit transactions for approximately 2 to 5 days of sales. These receivables do not bear interest.

Inventories

Inventory consists of finished goods held for sale. Inventory is stated at the lower of cost or market, net of reserves. Cost is calculated using the weighted average method of accounting, and includes the cost to purchase merchandise from the Company’s manufacturers plus duties and inbound freight. The net realizable value of the Company’s inventory is estimated based on historical experience, current and forecasted demand, and market conditions. The allowance for excess and obsolete inventory requires management to make assumptions and to apply judgment regarding a number of factors, including past and projected sales performance and current inventory levels. As of January 28, 2017 (Successor) and January 30, 2016 (Successor), an inventory reserve of $2.0 million and $1.5 million has been recorded, respectively. The Company sells excess inventory in its stores and on-line at www.jjill.com. In limited cases, discount marketers and inventory liquidators are utilized.

Inventory from domestic suppliers is recorded when it is received at the distribution center. Inventory from foreign suppliers is recorded when goods are cleared for export on board the ship at the port of shipment.

Property and Equipment

Property and equipment purchases are recorded at cost. Property and equipment is presented net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful lives of the improvements. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements that significantly enhance the value and increase the estimated useful life of the asset are capitalized and depreciated over the new estimated useful life. The carrying amounts of assets sold or retired and the related accumulated depreciation are eliminated in the year of disposal, and any resulting gains or losses are included in the accompanying consolidated statements of operations and comprehensive income (loss).

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Estimated useful lives of property and equipment asset categories are as follows:

 

Furniture, fixtures and equipment

   5-7 years

Computer software and hardware

   3-5 years

Leasehold improvements

   Shorter of estimated useful life or lease term

Capitalized Interest

The cost of interest that is incurred in connection with ongoing construction projects is capitalized using a weighted average interest rate. These costs are included in property and equipment and amortized over the useful life of the related property or equipment.

Long-lived Assets

The carrying value of long-lived assets, including amortizable identifiable intangible assets, and asset groups are evaluated whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Conditions that may indicate impairment include, but are not limited to, a significant decrease in the market price of an asset, a significant adverse change in the extent or manner in which an asset is being used or a significant decrease in its physical condition, and operating or cash flow performance that demonstrates continuing losses associated with an asset or asset group. A potential impairment has occurred if the projected future undiscounted cash flows expected to result from the use and eventual disposition of the asset or asset group are less than the carrying value of the asset or asset group. The estimate of cash flows includes management’s assumptions of cash inflows and outflows directly resulting from the use of the asset in operation. If the carrying value exceeds the sum of the undiscounted cash flows, an impairment charge is recorded equal to the excess of the asset or asset group’s carrying value over its fair value. Fair value is measured based on a projected discounted cash flow model using a discount rate the Company believes is commensurate with the risk inherent in its business. Any impairment charge would be recognized within operating expenses as a selling, general and administrative expense.

Goodwill and Indefinite-lived Intangible Assets

Goodwill and indefinite-lived intangible assets are not amortized, but are reviewed for impairment at least annually, or more frequently when events or changes in circumstances indicate that the carrying value may not be recoverable. Judgments regarding indicators of potential impairment are based on market conditions and operational performance of the business.

At each fiscal year-end, the Company performs an impairment analysis of goodwill. The Company may assess its goodwill for impairment initially using a qualitative approach (“step zero”) to determine whether conditions exist to indicate that it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on its assessment of relevant events, facts and circumstances that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, then a quantitative analysis will be performed to determine if there is any impairment. The Company may also elect to initially perform a quantitative analysis instead of starting with step zero. The quantitative assessment for goodwill is a two-step assessment. “Step one” requires comparing the carrying value of a reporting unit, including goodwill, to its fair value using the income approach. The income approach uses a discounted cash flow model, which involves significant estimates and assumptions, including preparation of revenue and profitability growth forecasts, selection of a discount rate, and selection of a terminal year multiple. If the fair value of the respective reporting unit exceeds its carrying amount, goodwill is not considered to be impaired and no further testing is required. If the carrying amount of a reporting unit exceeds its fair value, the second step of

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

the goodwill impairment test is to measure the amount of impairment loss, if any. “Step two” compares the implied fair value of goodwill to the carrying amount of goodwill. The implied fair value of goodwill is determined by a hypothetical purchase price allocation using the reporting unit’s fair value as the purchase price. If the carrying amount of goodwill exceeds the implied fair value, an impairment charge is recorded to write down goodwill to its implied fair value and is recorded as a selling, general and administrative expense within the Company’s consolidated statement of operations and comprehensive income (loss).

At each year end, the Company also performs an impairment analysis of its indefinite-lived intangible assets. Impairment losses are recorded to the extent that the carrying value of the indefinite-lived intangible asset exceeds its fair value. The Company measures the fair value of its trade name using the income approach, which uses a discounted cash flow model. The most significant estimates and assumptions inherent in this approach are the preparation of revenue and profitability growth forecasts, selection of a discount rate and a terminal year multiple.

Revenue Recognition

Revenue is primarily derived from the sale of apparel and accessory merchandise through our retail channel and direct channel, which includes website and catalog phone orders and is recognized when all of the following criteria are satisfied: (i) persuasive evidence of an arrangement exists; (ii) the price is fixed or determinable; (iii) collectability is reasonably assured; and (iv) delivery of products has occurred. Revenue also includes shipping and handling fees collected from customers. Revenue from our retail channel is recognized at the time of sale and revenue from our direct channel is recognized upon receipt of merchandise by the customer.

The Company has a return policy where merchandise returns will be accepted within 90 days of the original purchase date. At the sole discretion of the Company, returns may also be accepted after 90 days as a customer accommodation. At the time of sale, the Company records an estimated sales reserve for merchandise returns based on historical prior returns experience and expected future returns. The Company collects and remits sales and use taxes in all states in which retail and direct sales occur and taxes are applicable. These taxes are reported on a net basis and are thereby excluded from revenue.

Shipping and handling costs of $12.6 million, $7.9 million, $2.3 million and $9.0 million were recorded in selling, general and administrative expenses, for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively. Customer payments made in advance of the customer receiving merchandise are recorded as deferred revenue within accrued expenses and other liabilities in the Company’s consolidated balance sheets.

The Company sells gift cards without expiration dates to customers. The Company does not charge administrative fees on unused gift cards. Proceeds from the sale of gift cards are recorded as deferred revenue until the customer redeems the gift card or when the likelihood of redemption is remote. Based upon historical experience, the Company estimates the value of outstanding gift cards that will ultimately not be redeemed (“gift card breakage”) and will not be escheated under statutory unclaimed property laws. This gift card breakage amount is recognized as revenue over the time period established by the Company’s historical gift card redemption pattern.

The Company recognized gift card breakage revenue of $0.7 million, $0.4 million, $0.3 million and $0.5 million during the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively.

The Company also receives royalty payments through its private label credit card agreement. The royalty payments are recognized as revenue as they are received over the term of the agreement. Royalty payments recognized were $2.9 million, $1.3 million, $0.5 million and $1.5 million for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Costs of Goods Sold

The Company’s costs of goods sold includes the direct costs of sold merchandise, which include customs, taxes, duties, and inbound shipping costs, inventory shrinkage, and adjustments and reserves for excess, aged and obsolete inventory. Costs of goods sold does not include distribution center costs and allocations of indirect costs, such as occupancy, depreciation, amortization, or labor and benefits.

Advertising Costs

The Company incurs costs to produce, print, and distribute its catalogs. Catalog costs are considered direct response advertising, are capitalized as incurred, and are amortized over the expected sales life of each catalog for a period generally not exceeding six months. The expected sales life of each catalog is determined based on a detailed marketing forecast, which considers historical experience for similar catalogs, coupled with current sales trends. Amortized catalog advertising expenses were approximately $34.2 million, $21.6 million, $7.8 million and $25.5 million the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

Other advertising costs are recorded as incurred. Other advertising expenses recorded were $18.4 million, $10.9 million, $3.2 million and $10.9 million for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively, and are included in selling, general and administrative expenses in the accompanying consolidated statements of operations and comprehensive income (loss).

Operating Leases and Deferred Rent

Certain operating leases contain predetermined escalations of the minimum rental payments to be made over the lease term. The Company recognizes the related rent expense on a straight-line basis over the life of the lease, taking into account fixed escalations as well as reasonably assured renewal periods.

Certain retail store leases include allowances from landlords in the form of cash. These allowances are part of the negotiated terms of the lease. The Company records the full amount of the allowance when specific performance criteria are met as a deferred liability. The deferred liability is amortized into income as a reduction of rent expense over the term of the applicable lease, including reasonably assured renewal periods. The Company recognizes those liabilities to be amortized within a year as a current liability and those greater than a year as a long-term liability. For purposes of recognizing these allowances and minimum rental expenses on a straight-line basis, the Company uses the date it obtains the legal right to use and control the leased space to begin amortization, which is generally when the Company takes possession of the space and begins to make improvements in preparation for its intended use.

Certain retail store leases also provide for contingent rent in addition to fixed rent. The contingent rent is determined as a percentage of gross sales in excess of predefined levels. The Company records a rent liability in accrued liabilities and the corresponding rent expense when it becomes probable that the Company will achieve a specified gross sales amount.

Certain store operating leases contain cancellation clauses allowing the leases to be terminated at the Company’s discretion, provided certain minimum sales levels are not achieved within a defined period of time after opening. The Company has not historically exercised these cancellation clauses and has therefore disclosed commitments for the full terms of such leases in the accompanying disclosures.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Debt Issuance Costs

The Company defers costs directly associated with acquiring third-party financing. Debt issuance costs are deferred and amortized using the effective interest rate method over the term of the related long-term debt agreement and the straight-line method for the revolving credit agreement. Debt issuance costs related to long-term debt are reflected as a direct deduction from the carrying amount of the debt in accordance with the Company’s adoption of ASU 2015-03 (see Note 3).

Income Taxes

The Company accounts for income taxes using the asset and liability method and elected to be taxed as a C corporation. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial statement carrying values and their respective tax bases, using enacted tax rates expected to be applicable in the years in which the temporary differences are expected to reverse. Changes in deferred tax assets and liabilities are recorded in the provision for income taxes. The Company evaluates the realizability of its deferred tax assets and establishes a valuation allowance when it is more likely than not that all or a portion of the deferred tax assets will not be realized. Potential for recovery of deferred tax assets is evaluated by estimating the future taxable profits expected, scheduling of anticipated reversals of taxable temporary differences, and considering prudent and feasible tax planning strategies.

The Company records liabilities for uncertain income tax positions based on a two-step process. The first step is recognition, where an individual tax position is evaluated as to whether it has a likelihood of greater than 50% of being sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation processes. For tax positions that are currently estimated to have less than a 50% likelihood of being sustained, no tax benefit is recorded. For tax positions that have met the recognition threshold in the first step, the Company performs the second step of measuring the benefit to be recorded. The amount of the benefit that may be recognized is the largest amount that has a greater than 50% likelihood of being realized on ultimate settlement. The actual benefits ultimately realized may differ from the estimates. In future periods, changes in facts, circumstances and new information may require the Company to change the recognition and measurement estimates with regard to individual tax positions. Changes in recognition and measurement estimates are recorded in income tax expense and liability in the period in which such changes occur.

Any interest or penalties incurred related to unrecognized tax benefits are recorded as tax expense in the provision for income tax expense line item of the accompanying consolidated statements of operations and comprehensive income (loss). The Company has not incurred interest expense or penalties related to income taxes during any period presented in the consolidated financial statements.

Fair Value of Financial Instruments

Certain assets and liabilities are carried at fair value in accordance with GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

Valuation techniques used to measure fair value requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

  Level 1: Quoted prices in active markets for identical assets or liabilities.

 

  Level 2: Observable inputs, other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for similar assets or liabilities in markets that are not active; or other inputs other than quoted prices that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities, including interest rates and yield curves, and market corroborated inputs.

 

  Level 3: Unobservable inputs for the asset or liability that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. These are valued based on management’s estimates and assumptions that market participants would use in pricing the asset or liability.

As of January 28, 2017 (Successor) the Company had no assets or liabilities that were measured at fair value for reporting purposes on a recurring basis. The fair value of the Company’s debt was approximately $279.7 million and $250.4 million at January 28, 2017 (Successor) and January 30, 2016 (Successor), respectively.

The Company believes that the carrying amounts of its other financial instruments, including cash, accounts receivable, accounts payable and any amounts drawn on its revolving credit facilities, consisting primarily of instruments without extended maturities, the fair value of which, based on management’s estimates, approximates their carrying value due to the short-term maturities of these instruments.

Comprehensive Income (Loss)

Comprehensive income (loss) is a measure of net income (loss) and all other changes in equity that result from transactions other than with equity holders, and would normally be recorded in the consolidated statements of members’ equity and the consolidated statements of comprehensive income (loss). The Company’s management has determined that net income (loss) is the only component of the Company’s comprehensive income (loss). Accordingly, there is no difference between net income (loss) and comprehensive income (loss).

Equity-based Compensation

Successor

The Company accounts for equity-based compensation for employees and directors by recognizing the fair value of equity-based compensation as an expense in the calculation of net income (loss), based on the grant-date fair value. The Company recognizes equity-based compensation expense in the periods in which the employee or director is required to provide service, which is generally over the vesting period of the individual equity instruments. The fair value of the equity-based awards is determined using the Black-Scholes option pricing model.

All of the equity-based awards granted by the Company during fiscal year 2016 and the 2015 Successor period were considered equity-classified awards and compensation expense for these awards was recognized based on the portion of awards that are expected to vest. In developing a forfeiture rate estimate, the Company has considered its historical experience to estimate pre-vesting forfeitures for service-based awards. The impact of a forfeiture rate adjustment is recognized in full in the period of adjustment, and if the actual forfeiture rate is materially different from the Company’s estimate, the Company may be required to record adjustments to equity-based compensation expense in future periods.

The Company recognizes equity-based compensation generated at Topco and records the related expense in its consolidated financial statements as the costs are deemed to be for the benefit of the Company (see Note 16). The expenses were allocated from the parent level to the Company and recognized as an equity contribution.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Predecessor

The Predecessor accounted for liability-classified equity-based compensation for employees and a director of the Company by recognizing the value of equity-based compensation as an expense in the calculation of net income (loss), based on the intrinsic value of the award, in accordance with ASC 718. The awards were revalued at each reporting period and the Predecessor recognized the related equity-based compensation expense.

The Predecessor recognized equity-based compensation generated at JJIP LLC (“JJIP”) (see Note 16) and recognized the related expense in the Predecessor’s consolidated financial statements. These equity-based compensation costs were incurred by JJIP and deemed to be for the benefit of J.Jill, and were therefore recognized as an equity contribution by the Company.

Earnings Per Share

Basic net income (loss) per common share attributable to common shareholders is calculated by dividing net income (loss) attributable to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net income (loss) per common share attributable to common shareholders is calculated by dividing net income (loss) attributable to common shareholders by the diluted weighted average number of common shares outstanding for the period. There were no potentially dilutive securities outstanding during fiscal year 2016, the 2015 Successor, or 2015 Predecessor periods, or fiscal year 2014.

Credit Card Agreement

The Company has an arrangement with a third party to provide a private label credit card to its customers through February 2018 with two, two-year extension periods. The Company does not bear the credit risk associated with the private label credit card at any point prior to the termination of the agreement, at which point the Company is obligated to purchase the receivables. If the arrangement is terminated prior to September 7, 2021 and other criteria are met, the Company is obligated to pay a purchase price premium. The potential impact of the purchase obligation cannot be reasonably estimated as of the issuance date.

The Company also receives reimbursements for costs of marketing programs related to the credit card, which are recorded as a reduction in operating expenses in the accompanying consolidated statements of operations and comprehensive income (loss). Reimbursements amounted to $1.6 million, $0.6 million, $0.2 million, and $0.5 million for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively.

The Company also receives royalty payments from the credit card agreement, as discussed in Revenue Recognition, above.

Employee Benefit Plan

The Company has a 401(k) retirement plan under third-party administration covering all eligible employees who meet certain age and employment requirements pursuant to Section 401(k) of the Internal Revenue Code. Subject to certain dollar limits, eligible employees may contribute a portion of their pretax annual compensation to the plan, on a tax-deferred basis. The plan operates on a calendar year basis. The Company may, at its discretion, make elective contributions of up to 50% of the first 3% of the gross salary of the employee, which vests over a five year period. Discretionary contributions made by the Company for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, were $0.6 million, $0.4 million, $0.2 million and $0.6 million, respectively.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Concentration of Credit Risks

Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of cash held in financial institutions and accounts receivable. The Company considers the credit risk associated with these financial instruments to be minimal. Cash is held by financial institutions with high credit ratings and the Company has not historically sustained any credit losses associated with its cash balances. The Company evaluates the credit risk associated with accounts receivable to determine if an allowance for doubtful accounts is necessary. As of January 28, 2017 (Successor) and January 30, 2016 (Successor), the Company determined that no allowance for doubtful accounts was necessary.

3. Accounting Standards

Recently Adopted Accounting Standards

In September 2015, the FASB issued ASU 2015-16, Simplifying the Accounting for Measurement—Period Adjustments. The amendments in this update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. To simplify the accounting for adjustments made to provisional amounts recognized in a business combination, the amendments in this update eliminate the requirement to retrospectively account for those adjustments. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. The adoption of ASU 2015-16 did not have a material impact on the consolidated financial statements.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis. Update 2015-02 amended the process that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. The amendments in this update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. The adoption of ASU 2015-02 did not have a material impact on the consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement—Extraordinary and Unusual Items. The amendments in this update eliminate the concept of extraordinary items in Subtopic 225-20, which required entities to consider whether an underlying event or transaction is extraordinary. However, the amendments retain the presentation and disclosure guidance for items that are unusual in nature or occur infrequently. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of ASU 2015-01 did not have a material impact on the consolidated financial statements.

In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This amendment states that in connection with preparing financial statements for each annual and interim reporting period, an entity’s management should evaluate whether there are conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the financial statements are issued (or within one year after the date that the financial statements are available to be issued, when applicable). The amendments in this update are effective for the annual reporting period ending after December 15, 2016, and for annual periods and interim periods thereafter. The standard did not have a material impact on the Company’s consolidated financial statements or footnote disclosures as of the January 28, 2017 adoption date, but may require additional disclosures in future periods.

Recently Issued Accounting Pronouncements

In January 2017, the FASB issued ASU 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment. ASU 2017-04 removes Step 2 of the goodwill impairment test, which

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. This standard, which will be effective for the Company beginning in the first quarter of fiscal year 2021, is required to be applied prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company is currently evaluating the impact that adopting ASU 2017-04 will have on its consolidated financial statements but does not expect it to have a material impact.

In October 2016 the FASB issued ASU 2016-16, Income Taxes (Topic 740): Intra—Entity Transfers of Assets Other Than Inventory. This update is intended to improve the accounting for the income tax consequences of intra-entity transfers of assets other than inventory. Under the new guidance, an entity would recognize the current and deferred income tax consequences of an intra-entity asset transfer when the transfer occurs. Intra-entity inventory transfers would still be an exception. The provisions of ASU 2016-16 are effective for reporting periods beginning after December 15, 2017. Early adoption is permitted. The amendments in this update should be applied on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The Company is evaluating the impact that adopting ASU 2016-16 will have on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows—Classification of Certain Cash Receipts and Cash Payments, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is evaluating the impact that adopting ASU 2016-15 will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share—Based Payment Accounting. The amendments in this update involve several aspects of accounting for equity-based payment transactions, including income tax consequences, classification of awards, and classification on the statement of cash flows. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any entity in any interim or annual period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company is evaluating the impact that adopting ASU 2016-09 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases. The amendments in this update include a new FASB ASC Topic 842, which supersedes Topic 840. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. For public business entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted for all entities as of the beginning of interim or annual reporting periods. The Company is currently evaluating the impact that adopting ASU 2016-02 will have on its consolidated financial statements and expects to raise significant “Right of Use” assets and significant, offsetting lease liabilities. These amounts have not yet been quantified.

In July 2015, the FASB issued ASU 2015-11, Simplifying the Measurement of Inventory. The amendments in this update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards, under which an entity should measure inventory at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years and must apply the amendments of this update prospectively. The Company is evaluating the impact that adopting ASU 2015-11 will have on its consolidated financial statements, but does not expect that impact to be material.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers—Topic 606, which supersedes the revenue recognition requirements in FASB ASC 605. The new guidance established principles for reporting revenue and cash flows arising from an entity’s contracts with customers. This new revenue recognition standard will replace most of the recognition guidance within GAAP. This guidance was deferred by ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, issued by the FASB in August 2015, which deferred the effective date of ASU 2014-09 from annual and interim periods beginning after December 15, 2016 to annual and interim periods beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers: Principal versus Agent Considerations, which further clarifies the implementation guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to expand the guidance on identifying performance obligations and licensing within ASU 2014-09. In May 2016, the FASB issued ASU 2016-12, Revenues from Contracts with Customers: Narrow—Scope Improvements and Practical Expedients, which amends the guidance in the new revenue standard on collectability, noncash consideration, presentation of sales tax, and transition. The amendments are intended to address implementation issues that were raised by stakeholders and provide additional practical expedients to reduce the cost and complexity of applying the new revenue standard. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers, which addresses various technical corrections for the ASUs listed above. These standards are effective for fiscal years beginning after December 15, 2017, including interim periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company is evaluating the impact adopting these standards will have on its consolidated financial statements and expects to reach a conclusion during the upcoming fiscal year.

4. Acquisition

On May 8, 2015, Holdings, a wholly owned subsidiary of Topco, acquired approximately 94% of the outstanding interests of the Company, with Topco acquiring the remaining 6% of the outstanding membership interests of the Company (the “Acquisition”). The purchase price was $396.4 million, which consisted of $386.3 million of cash consideration and $10.1 million of noncash consideration in the form of an equity rollover by management owners of the Predecessor entity. The Acquisition was funded through an equity contribution by Holdings and Topco and borrowings under the Company’s term loan agreement (see Note 9).

The Acquisition resulted in a new basis of accounting for Holdings, and in accordance with the Company’s election to apply pushdown accounting, the impact of the Acquisition has been recognized in the Successor

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

periods of the Company’s consolidated financial statements. The following table summarizes the final allocation of the $396.4 million purchase price to the assets acquired and liabilities assumed (in thousands):

 

     As of May 8,
2015
 

Assets acquired:

  

Cash

   $ 535  

Accounts receivable

     7,181  

Inventories

     73,300  

Prepaid expenses and other

     13,427  

Property and equipment

     78,684  

Intangible assets

     192,300  

Goodwill

     196,572  

Other assets

     256  
  

 

 

 

Total assets acquired

     562,255  
  

 

 

 

Liabilities assumed:

  

Current liabilities

     75,583  

Deferred income taxes

     86,098  

Other liabilities

     4,184  
  

 

 

 

Total liabilities assumed

     165,865  
  

 

 

 

Net assets acquired

   $ 396,390  
  

 

 

 

As a result of the Company pushing down the effects of the Acquisition recorded by Holdings, certain accounting adjustments are reflected in Intermediate’s consolidated financial statements, as discussed below.

The Company recorded goodwill of $196.6 million in the Successor consolidated balance sheet. Goodwill recognized is primarily attributable to the acquisition of an assembled workforce and other intangible assets that do not qualify for separate recognition.

The fair value of the acquired intangible assets was estimated using the relief from royalty method for our trade name and the excess earnings method for customer relationships. Under the relief-from-royalty method, the fair value estimate of the acquired trade name was determined based on the present value of the economic royalty savings associated with the ownership or possession of the trade name based on an estimated royalty rate applied to the cash flows to be generated by the business. The fair value of the trade name acquired as a result of the Acquisition was $58.1 million.

The fair value of customer relationships acquired in the Acquisition was estimated using the excess earnings method. Under the excess earnings method, the value of the intangible asset is equal to the present value of the after-tax cash flows attributable solely to the subject intangible asset. The fair value of customer relationships acquired as a result of the Acquisition was $134.2 million.

The Company also recorded certain favorable and unfavorable leasehold interests as a result of the Acquisition. Favorable leasehold interests are included in other assets and unfavorable leasehold interests are included in other liabilities. The fair value of favorable leasehold interests is determined using the income approach, whereby the difference between contractual rent and market rent is calculated for each remaining term for each lease, and then discounted to present value. All leasehold interests are amortized based upon patterns in which the economic benefits or obligations are expected to be realized. Accordingly, the favorable and unfavorable leasehold interests are being amortized over the respective lease terms of the properties.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

The following are the favorable and unfavorable leasehold interests and their respective weighted average useful lives (in thousands):

 

     Fair Value at
Acquisition
     Weighted
Averaged
Useful Life
 

Leasehold Interests

     

Favorable

   $ 161        8.8 years  

Unfavorable

     (3,727      6.4 years  
  

 

 

    

Net non-market leasehold interests

   $ (3,566   
  

 

 

    

The Company recorded $13.3 million of costs related to the Acquisition in the 2015 Predecessor period. These costs are included as acquisition-related expenses on the consolidated statement of operations and comprehensive income (loss) of the 2015 Predecessor period and were paid at the close of the Acquisition by Holdings and included as part of consideration for the acquired business. Additionally, there were management incentive bonuses awarded as part of the Acquisition that were deemed to be for the benefit of the acquired entity, and therefore, were recognized separately within sales, general and administrative expenses on the consolidated statement of operations and comprehensive income (loss) in the 2015 Successor period over the service period of 18 months.

The following unaudited pro forma financial information summarizes the combined results of operations for the Company as though the Acquisition occurred on February 2, 2014 (in thousands):

 

     For the Year
Ended January 30,
2016
     For the Year
Ended January 31,
2015
 

Net sales

   $ 562,015      $ 483,400  

Net income (loss)

   $ 20,751      $ (18,138

Net income for the pro forma year ended January 31, 2015 includes $13.3 million of acquisition-related expenses incurred during the 2015 Predecessor period. Pro forma net income for the year ended January 31, 2015 also includes $10.5 million costs of goods sold incurred during the 2015 Successor period resulting from the increase in fair value of merchandise inventory reflected in the purchase price allocation at the date of acquisition, as though the Acquisition occurred on February 2, 2014. These amounts are excluded from pro forma net income for the year ended January 30, 2016. The unaudited pro forma financial information is presented for informational purposes only and may not be indicative of results that would have been achieved if the Acquisition had taken place on February 2, 2014.

5. Prepaid Expenses and Other Current Assets

Prepaid expenses and other current assets include the following (in thousands):

 

     January 28, 2017      January 30, 2016  

Income tax receivable

   $ —        $ 4,407  

Prepaid rent

     5,575        5,207  

Prepaid catalog costs

     3,608        3,326  

Prepaid store supplies

     2,032        2,607  

Other prepaid expenses

     3,811        4,281  

Other current assets

     3,533        711  
  

 

 

    

 

 

 

Total prepaid expenses and other current assets

   $ 18,559      $ 20,539  
  

 

 

    

 

 

 

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

6. Goodwill and Other Intangible Assets

Goodwill

The following table shows changes in the carrying amount of goodwill for the 2016, 2015 Successor and 2015 Predecessor periods (in thousands):

 

Balance at January 31, 2015 (Predecessor)

   $ 67,413  

Elimination of Predecessor goodwill

     (67,413

Goodwill recognized as part of the Acquisition

     196,572  
  

 

 

 

Balance at January 30, 2016 (Successor)

     196,572  

Post measurement period tax adjustments

     454  
  

 

 

 

Balance at January 28, 2017 (Successor)

   $ 197,026  
  

 

 

 

As a result of the Acquisition (see Note 4), the carrying value of the Company’s goodwill in the Predecessor period was eliminated and goodwill related to the Acquisition was recorded in the Successor period.

During 2016, the Company performed a step zero impairment analysis and determined goodwill and indefinite-lived intangibles were not impaired based on a qualitative analysis. Also during 2016, the Company identified deferred tax liabilities that should have been recorded on the acquisition date; as these were considered immaterial, the Company recognized these liabilities in the current period. At the end of the 2015 Successor period, the Company elected to perform a step one analysis to assess goodwill for any potential impairment. The Company did not recognize impairment charges related to goodwill during the 2016 and 2015 Successor periods or the 2015 and 2014 Predecessor periods.

Intangible Assets

A summary of intangible assets as of January 28, 2017 (Successor) and January 30, 2016 (Successor) is as follows (in thousands):

 

     Weighted
Average
Useful
Life
(Years)
     January 28, 2017 (Successor)      January 30, 2016 (Successor)  
        Gross      Accumulated
Amortization
    Net Book
Value
     Gross      Accumulated
Amortization
    Net Book
Value
 

Indefinite-lived:

                  

Trade name

     N/A      $ 58,100      $ —       $ 58,100      $ 58,100      $ —       $ 58,100  

Definite-lived:

                  

Customer Relationships

     13.2        134,200        (28,817     105,383        134,200        (12,335     121,865  
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total Intangible Assets

      $ 192,300      $ (28,817   $ 163,483      $ 192,300      $ (12,335   $ 179,965  
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

The definite-lived intangible assets are amortized over the period the Company expects to receive the related economic benefit, which for customer lists is based upon estimated future net cash inflows. The estimated useful lives of intangible assets are as follows:

 

For intangible assets prior to the Acquisition

(Predecessor)

  

Asset

  

Amortization Method

  

Estimated Useful Life

Customer lists

   Pattern of economic benefit    9 – 14 years

Non-compete agreements

   Straight-line basis    1.5 years

For intangible assets subsequent to the Acquisition

(Successor)

  

Asset

  

Amortization Method

  

Estimated Useful Life

Customer lists

   Pattern of economic benefit    9 – 16 years

Total amortization expense for these amortizable intangible assets was $16.5 million, $12.3 million, $1.8 million and $7.2 million, for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively. The Company did not recognize any impairment charges related to definite and indefinite-lived intangible assets during the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively.

The estimated amortization expense for each of the next five years and thereafter is as follows (in thousands).

 

Fiscal Year

   Estimated
Amortization
Expense
 

2017

   $ 14,522  

2018

     12,784  

2019

     11,263  

2020

     10,015  

2021

     9,005  

Thereafter

     47,794  
  

 

 

 

Total

   $ 105,383  
  

 

 

 

7. Property and Equipment

Property and equipment at January 28, 2017 and January 30, 2016 consist of the following (in thousands):

 

     January 28, 2017
(Successor)
     January 30, 2016
(Successor)
 

Leasehold improvements

   $ 67,966      $ 51,896  

Furniture, fixtures and equipment

     35,765        27,973  

Computer hardware and software

     25,679        10,665  
  

 

 

    

 

 

 

Total property and equipment, gross

     129,410        90,534  

Accumulated depreciation

     (36,619      (16,924
  

 

 

    

 

 

 
     92,791        73,610  

Construction in progress

     9,531        13,200  
  

 

 

    

 

 

 

Property and equipment, net

   $ 102,322      $ 86,810  
  

 

 

    

 

 

 

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Construction in progress is primarily comprised of leasehold improvements, furniture, fixtures and equipment related to unopened retail stores and costs incurred related to the implementation of certain computer software. Capitalized software, subject to amortization, included in property and equipment at January 28, 2017 and January 30, 2016 had a cost basis of approximately $18.7 million and $6.7 million, respectively, and accumulated amortization of $5.7 million and $2.4 million, respectively.

Total depreciation expense was $20.4 million, $17.0 million, $3.5 million and $12.1 million, for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively.

During the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, the Company did not recognize any impairment charges associated with property and equipment.

The Company capitalized interest in connection with construction in progress of $0.5 million, $0.4 million, $0.1 million and $0.4 million for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively.

8. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities include the following (in thousands):

 

     January 28, 2017
(Successor)
     January 30, 2016
(Successor)
 

Accrued payroll and benefits

   $ 10,387      $ 14,066  

Accrued returns reserve

     6,883        6,432  

Gift certificates redeemable

     6,109        5,431  

Accrued professional fees

     4,681        1,701  

Taxes, other than income taxes

     2,950        3,437  

Accrued occupancy

     2,546        1,862  

Other

     12,565        10,662  
  

 

 

    

 

 

 

Total accrued expenses and other current liabilities

   $ 46,121      $ 43,591  
  

 

 

    

 

 

 

The following table reflects the changes in the accrued returns reserve for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods (in thousands):

 

Accrued returns reserve

   Beginning
of Period
     Charged
to
Expenses
     Deductions      End of
Period
 

Fiscal Year Ended January 31, 2015 (Predecessor)

   $ 4,221      $ 708      $ —        $ 4,929  

Period from February 1, 2015 to May 7, 2015 (Predecessor)

     4,929        1,231        —          6,160  

Period from May 8, 2015 to January 30, 2016 (Successor)

     6,160        272        —          6,432  

Fiscal Year Ended January 28, 2017 (Successor)

     6,432        451        —          6,883  

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

9. Debt

The components of the Company’s outstanding debt were as follows (in thousands):

 

     January 28, 2017
(Successor)
     January 30, 2016
(Successor)
 

Term loan

   $ 275,975      $ 248,750  

Subordinated debt

     —          —    
  

 

 

    

 

 

 

Total debt

     275,975        248,750  

Discount on debt and debt issuance costs

     (8,736      (8,772

Less: Current portion

     (2,799      (2,500
  

 

 

    

 

 

 

Net long-term debt

   $ 264,440      $ 237,478  
  

 

 

    

 

 

 

The Company recorded interest expense of $18.7 million, $11.9 million, $4.6 million and $17.9 million, in the 2016, 2015 Successor, 2015 Predecessor and 2014 periods, respectively.

Successor Debt

Term Loan Credit Agreement

On May 8, 2015, the Company entered into a term loan credit agreement (the “Term Loan Agreement”) in conjunction with the Acquisition (see Note 4). The seven-year Term Loan Agreement provides for borrowings of $250.0 million. The Company can elect, at its option, the applicable interest rate for borrowings under the Term Loan Agreement using a LIBOR or Base Rate variable interest rate plus an applicable margin. LIBOR loans under the Term Loan Agreement accrue interest at a rate equal to LIBOR plus 5.00%, with a minimum LIBOR per annum of 1.00%. Base Rate loans under the Term Loan Agreement accrue interest at a rate equal to (i) the greatest of (a) the financial institution’s prime rate, (b) the Federal Funds Effective Rate plus 0.50%, or (c) LIBOR, with a minimum LIBOR of 1.00% plus 1.00%, and (d) 2.00%.

On May 27, 2016, the Company entered into an agreement to amend (the “Term Loan Amendment”) our Term Loan Agreement to borrow an additional $40.0 million in additional loans, for a total of $288.1 million outstanding, to permit certain dividends and to make certain adjustments to the financial covenant. The other terms and conditions of the Term Loan remained substantially unchanged.

On January 18, 2017, the Company made a voluntary prepayment of $10.1 million, including accrued interest, on our Term Loan.

Current borrowings under the Term Loan Agreement accrue interest at a rate equal to LIBOR plus 5.00%, with a minimum LIBOR per annum of 1.00%, and are payable on a quarterly basis. The rate per annum was 6.00% throughout fiscal year 2016 and the 2015 Successor period. Repayments of $0.7 million are payable quarterly, beginning on October 31, 2015 and continuing until maturity on May 8, 2022, when the remaining outstanding principal balance of $261.3 million is due.

The Company incurred $11.3 million of debt issuance costs in connection with the Term Loan Agreement and Term Loan Amendment. These fees are presented as a direct deduction from the carrying amount of the long-term debt on the consolidated balance sheet.

As of January 28, 2017 (Successor), the Company had $276.0 million of outstanding borrowings under the Term Loan Agreement. During 2016, the Company recorded interest expense of $18.7 million on the Term Loan Agreement. During 2016, $1.7 million of the debt issuance cost was amortized to interest expense.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Borrowings under the Term Loan Agreement are collateralized by all of the assets of the Company. In connection with the Term Loan Agreement, the Company is subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements. In addition, there are negative covenants, including certain restrictions on the Company’s ability to: incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends, consolidate or merge with other entities, undergo a change in control, make advances, investments and loans, or modify its organizational documents. As of January 28, 2017 (Successor), the Company was in compliance with all financial covenants.

Asset-Based Revolving Credit Agreement

On May 8, 2015, the Company entered into a five-year secured $40.0 million asset-based revolving credit facility agreement (the “ABL Facility”). The ABL Facility matures on May 8, 2020.

Under the terms of this agreement, the ABL Facility provides for borrowings up to (i) 90% of eligible credit card receivables, plus (ii) 85% of eligible accounts receivable, plus (iii) the lesser of (a) 100% of the value of eligible inventory at such time and (b) 90% of the net orderly liquidation value of eligible inventory at such time, plus (iv) the lesser of (a) 100% of the value of eligible in-transit inventory at such time, (b) 90% of the net orderly liquidation value of eligible in-transit inventory at such time and (c) the in-transit maximum amount (the in-transit maximum amount is not to exceed $12.5 million during the 1st and 3rd calendar quarters and $10.0 million during the 2nd and 4th calendar quarters), less (v) certain reserves established by the lender, as defined in the ABL Facility.

The ABL Facility consists of revolving loans and swingline loans. Borrowings classified as revolving loans under the ABL Facility may be maintained as either LIBOR or Base Rate loans, each of which has a variable interest rate plus an applicable margin. Borrowings classified as swingline loans under the ABL Facility are Base Rate loans. LIBOR loans under the ABL Facility accrue interest at a rate equal to LIBOR plus a spread of 2.00% from May 8, 2015 to August 31, 2015, and thereafter ranging from 1.50% to 1.75%, depending on borrowing amounts. Base Rate loans under the ABL Facility accrue interest at a rate equal to (i) the greatest of (a) the financial institution’s prime rate, (b) the overnight Federal Funds Effective Rate plus 0.50%, (c) LIBOR plus 1.00%, and (d) 2.00%, plus (ii) a spread of 1.00% from May 8, 2015 to August 31, 2015, and thereafter ranging from 0.50% to 0.75%, depending on borrowing amounts.

Interest on each LIBOR loan is payable on the last day of each interest period and no more than quarterly, and interest on each Base Rate loan is payable in arrears on the last business day of April, July, October and January. For both LIBOR and Base Rate loans, interest is payable periodically upon repayment, conversion or maturity, with interest periods ranging between 30 to 180 days at the election of the Company, or 12 months with the consent of all lenders.

The ABL Facility also requires the quarterly payment, in arrears, of a commitment fee. The commitment fee is payable in an amount equal to 0.375% from May 8, 2015 to July 1, 2016, and thereafter at an amount equal to (i) 0.375% for each calendar quarter during which historical excess availability is greater than 50% of availability, and (ii) 0.25% for each calendar quarter during which historical excess availability is less than or equal to 50% of availability.

During the fiscal year ended January 28, 2017 (Successor), there were no amounts drawn or outstanding under the ABL Facility. Based on the terms of the agreement and the reduction for the letters of credit, the Company’s available borrowing capacity under the ABL Facility as of January 28, 2017 (Successor) was $37.9 million.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

The Company incurred $1.1 million of debt issuance costs in connection with the related ABL Facility, which were capitalized and are included in other assets on the consolidated balance sheet. During 2016, $0.2 million of the debt issuance cost was amortized to interest expense.

Borrowings under the ABL Facility are collateralized by a first lien on accounts receivable and inventory. In connection with the ABL Facility, the Company is subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measurements. In addition, there are negative covenants, including certain restrictions on the Company’s ability to: incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends, consolidate or merge with other entities, undergo a change in control, make advances, investments and loans or modify its organizational documents. As of January 28, 2017 (Successor), the Company was in compliance with all financial covenants.

The Term Loan Agreement and the ABL Facility contain provisions on the occurrence of a default event. In the event of a payment default that is not cured within five business days or is not waived, or a covenant default that is not cured within 30 business days or is not waived, the Company’s obligations under these credit facilities may be accelerated. In addition, a 2% interest surcharge will be imposed during events of default.

Letters of Credit

As of January 28, 2017 (Successor) and January 30, 2016 (Successor), there were outstanding letters of credit of $2.1 million and $1.5 million, respectively, which reduced the availability under the ABL Facility. As of January 28, 2017 (Successor), the maximum commitment for letters of credit was $10.0 million. Letters of credit accrue interest at a rate equal to revolving loans maintained as Base Rate loans under the ABL facility. In addition, a 2% interest surcharge will be imposed during events of default. The Company primarily used letters of credit to secure payment of workers’ compensation claims. Letters of credit are generally obtained for a one year term and automatically renew annually, and would only be drawn upon if the Company fails to comply with its contractual obligations.

Payments of Debt Obligations Due by Period

As of January 28, 2017 (Successor), minimum future principal amounts payable under the Company’s Term Loan Agreement are as follows (in thousands):

 

Fiscal Year

      

2017

   $ 2,799  

2018

     2,799  

2019

     2,799  

2020

     2,799  

2021

     2,799  

Thereafter

     261,980  
  

 

 

 

Total

   $ 275,975  
  

 

 

 

Predecessor Debt

Prior to the Acquisition on May 8, 2015, the Company had a term loan facility, a revolving credit facility and a subordinated debt facility. In conjunction with the Acquisition (see Note 4), these facilities were settled and the agreements were terminated. Certain prepayment penalties and fees of $2.9 million related to the settlement of these facilities are not reflected in either the Predecessor or Successor consolidated statements of operation

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

and comprehensive income (loss) periods, but instead are presented “on the black line.” These terminated facility agreements are discussed below.

Term Loan Facility

On April 29, 2011, the Company entered into a term loan facility agreement and an asset-based revolving credit facility agreement. Both the term loan facility and the asset-based revolving credit facility were subsequently amended on September 27, 2012. These facilities were provided through JJ Lease Funding Corp. and JJ AB Funding Corp., respectively, both of which were variable interest entities established to facilitate such financings (see Note 10).

The amended six-year term loan facility agreement provided for borrowings of $120.0 million. Borrowings under the amended term loan facility were maintained as either Eurodollar or Base Rate loans, each of which had a variable interest rate plus an applicable margin. Eurodollar loans under the amended term loan facility accrued interest at a rate equal to adjusted LIBOR plus 8.50%, with a minimum adjusted LIBOR per annum of 1.50%. Base Rate loans under the amended term loan facility accrued interest at a rate equal to (i) the greatest of (a) the financial institution’s prime rate, (b) the Federal Funds Effective Rate plus 0.50% and (c) adjusted LIBOR, with a minimum adjusted LIBOR of 1.50%, plus 1.00%, plus (ii) 7.50%. The rate per annum was 10.00% as of January 31, 2015 (Predecessor). Borrowings under the amended term loan facility were collateralized by all of the assets of the Company and the agreement contained a provision requiring scheduled quarterly interest and principal payments.

Revolving Credit Facility

The five-year amended secured asset-based revolving credit facility agreement provided for borrowings up to $40.0 million. Under the terms of the agreement, the asset-based revolving credit facility agreement provided for borrowings up to (i) 90% of eligible credit card receivables, plus (ii) 85% of the net orderly liquidation value of eligible inventory, plus (iii) the lesser of (a) the in-transit maximum amount or (b) 85% of the net orderly liquidation value of eligible in-transit inventory, less (iv) certain reserves established by the lender, as defined in the agreement. Borrowings under the asset-based revolving credit facility agreements were collateralized by a first lien on accounts receivable and inventory.

The asset-based revolving credit facility consisted of revolving loans and swingline loans. Borrowings classified as revolving loans under the asset-based revolving credit facility were able to be maintained as either Eurodollar or Base Rate loans, each of which had a variable interest rate plus an applicable margin. Borrowings classified as swingline loans under the asset-based revolving credit facility were Base Rate loans. Eurodollar loans accrued interest at a rate equal to LIBOR plus a spread ranging from 2.25% to 2.75%, depending on borrowing amounts. Base Rate loans accrued interest at a rate equal to (i) the greatest of (a) the financial institution’s prime rate, (b) the Federal Funds Effective Rate plus 0.50% and (c) LIBOR plus 1.00%, plus (ii) a spread ranging from 1.25% to 1.75%, depending on borrowing amounts.

Interest on each Eurodollar loan was payable on the last day of each interest period, and interest on each Base Rate loan was payable on the last business day of April, July, October and January. For both Eurodollar and Base Rate loans, interest was payable upon repayment maturity, with durations ranging between 30 to 90 days.

The asset-based revolving credit facility agreement also required the quarterly payment, in arrears, of a commitment fee of 0.5% per annum of the average daily unused portion of the facility as well as a fee on the balance of the outstanding letters of credit. As of January 31, 2015 (Predecessor), there were no amounts outstanding under the asset-based revolving credit facility agreement. Based on the terms of the agreement, the

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Predecessor’s available borrowing capacity under the asset-based revolving credit facility agreement as of January 31, 2015 (Predecessor) was $36.7 million.

Subordinated Debt Facility

On September 27, 2012, the Company entered into a six-year subordinated debt facility agreement with an affiliate of the Company in conjunction with the amendment to the term loan facility agreement and asset-based revolving credit facility agreement. The subordinated debt facility was an unsecured mezzanine term loan and provided for borrowings of $30.0 million. This facility was provided through JJ Mezz Funding Corp., which was a variable interest entity established to facilitate such financing (see Note 10).

Borrowings under the mezzanine term loan accrued interest at a rate of 24.0%. The 24.0% interest rate on the mezzanine term loan included a Payment in Kind (“PIK”) interest factor whereby one half of the 24.0% interest due was payable in cash and one half was added to the outstanding principal amount of the mezzanine term loan. The outstanding principal balance was to be payable upon maturity of the mezzanine term loans on September 27, 2018. As a result of the PIK interest factor, additional long-term debt of $4.5 million was incurred as of January 31, 2015 (Predecessor). As of January 31, 2015 (Predecessor), the Company had $39.7 million of outstanding borrowings under the mezzanine term loan.

In connection with the amended term loan facility agreement, amended asset-based revolving loan agreement and the subordinated debt facility agreement, the Company was subject to various financial reporting, financial and other covenants, including maintaining specific liquidity measures. In addition, there were negative covenants including certain restrictions on the ability to: incur additional indebtedness, create liens, enter into transactions with affiliates, transfer assets, pay dividends, consolidate or merge with other entities, or undergo a change in control. Each loan also contained provisions in the event of default.

10. Variable Interest Entities

During the Predecessor periods the Company maintained several financing facilities with third-party financing companies, including JJ Lease Funding Corp., JJ AB Funding Corp. and JJ Mezz Funding Corp. The financing facilities were independent special purpose entities established for the sole purpose of obtaining financing for the benefit and at the direction of the Company. Each of these facilities was deemed a VIE, for which the Company was determined to be the primary beneficiary. Each of these VIEs was consolidated within the Company’s financial statements for the 2015 Predecessor and 2014 periods.

Contemporaneously with the Acquisition, on May 8, 2015 (see Note 4), these financing facilities were repaid and terminated by the Company. These three financing facilities ceased being VIEs to the Company and were no longer consolidated in the 2015 Successor period.

JJ Lease Funding Corp.

The Company entered into a sale leaseback arrangement with JJ Lease Funding Corp., whereby the Company sold and immediately leased back from JJ Lease Funding Corp. certain tangible and intangible assets of the Company in exchange for cash consideration to the Company of $120.0 million. The Company did not recognize any gain or loss on the sale of its assets.

The Company’s lease financing arrangement with JJ Lease Funding Corp. was funded through a term loan agreement between JJ Lease Funding Corp. and a commercial lender. The terms of the term loan agreement were structured such that the aggregated payments due under the lease financing arrangement would equal the

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

principal and interest due under the term loan. When the term loan is repaid in full, the ownership of the assets would be reverted back to the Company. JJ Lease Funding Corp. does not have any other assets or liabilities or income and expense other than those associated with the term loan and the sale leaseback arrangement. Under the terms of the lease financing arrangement, the Company’s obligations are limited to amounts due to JJ Lease Funding Corp. and the Company has no obligations under the term loan facility. The Company determined that it was the primary beneficiary of JJ Lease Funding Corp. due to i) the establishment of JJ Lease Funding Corp. being for the sole purpose of effecting the lease financing arrangement at the direction of the Company and ii) the Company absorbing any potential variability related to the term loan based on its payment terms equaling the payment terms of the lease financing arrangement.

During the 2015 Predecessor and 2014 periods, the Company consolidated $1.6 million and $8.0 million, respectively, in interest expense related to the term loan as interest expense within its consolidated statements of operations and comprehensive income (loss).

JJ AB Funding Corp.

The Company entered into a commodities purchase financing agreement with JJ AB Funding Corp., whereby JJ AB Funding Corp. entered into a five-year secured $40.0 million asset-based revolving credit facility with a commercial lender. Under the terms of the commodities purchase financing agreement, the Company’s obligations were limited to amounts due to JJ AB Funding Corp. and the Company had no obligations under the revolving credit facility. Amounts due by the Company were equal to the purchase price of the commodities purchased plus a nominal agreed upon profit rate, which were equal in total to JJ AB Funding Corp.’s interest and principal obligations under the revolving credit facility.

JJ AB Funding Corp. does not have any other assets or liabilities or income and expense other than those associated with the revolving credit facility and commodities purchase financing agreement. The Company determined that it was the primary beneficiary of JJ AB Funding Corp. due to i) the establishment of JJ AB Funding Corp. being for the sole purpose of effecting the commodities purchase financing agreement at the direction of the Company and ii) the Company absorbing any potential variability related to the revolving credit facility based on its payment terms equaling the payment terms of the commodities purchase financing agreement.

During the 2015 Predecessor and 2014 periods, the Company consolidated $0.3 million and $0.7 million, respectively, in interest expense related to the revolving credit facility as interest expense within its consolidated statements of operations and comprehensive income (loss).

JJ Mezz Funding Corp.

The Company entered into a commodities purchase financing arrangement with JJ Mezz Funding Corp., whereby JJ Mezz Funding Corp. entered into a six-year unsecured $30.0 million subordinated debt facility with a commercial lender. Amounts due under the subordinated debt facility were to be paid through the proceeds received under JJ Mezz Funding Corp.’s commodities purchase financing arrangement, whose payments were guaranteed by the Company. Payments due by the Company to JJ Mezz Funding Corp. for the commodities purchase financing arrangement were equal to the purchase price of the commodities purchased plus a nominal agreed upon profit rate, which were equal in total to JJ Mezz Funding Corp.’s interest and principal obligations under the subordinated debt facility.

JJ Mezz Funding Corp. does not have any other assets or liabilities or income and expense other than those associated with the subordinated debt facility and commodities purchase financing arrangement. Under the terms

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

of the commodities purchase financing arrangement, the Company’s obligations were limited to amounts due to JJ Mezz Funding Corp. and the Company had no obligations under the subordinated debt facility. The Company determined that it was the primary beneficiary of JJ Mezz Funding Corp. due to i) the establishment of JJ Mezz Funding Corp. being for the sole purpose of effecting the commodities purchase financing arrangement at the direction of the Company and ii) the Company absorbing any potential variability related to the subordinated debt facility based on its payment terms equaling the payment terms of the commodities purchase financing arrangement.

During the 2015 Predecessor and 2014 periods, the Company consolidated $2.7 million and $9.5 million, respectively, in interest expense related to the subordinated debt facility as interest expense within its consolidated statements of operations and comprehensive income (loss).

11. Commitments and Contingencies

Operating Lease Agreements

The Company leases retail, distribution and corporate office facilities under various operating leases having initial or remaining terms of more than one year. Many of these leases require that the Company pay taxes, maintenance, insurance, and certain other operating expenses applicable to leased properties. Rental payments under the terms of some store facility leases include contingent rent based on sales levels, whereas other payment terms are based on the greater of a minimum rental payment or a percentage of the store’s gross receipts.

The original lease terms under existing arrangements range from 1-20 years and may or may not include renewal options, rent escalation clauses, and/or landlord leasehold improvement incentives. In the case of operating leases with rent escalation clauses, the payment escalations are accrued and the rent expense is recognized on a straight-line basis over the lease term. The Company recorded a deferred lease liability of $6.5 million and $3.3 million as of January 28, 2017 (Successor) and January 30, 2016 (Successor), respectively. In certain instances, the Company also receives allowances for its store leases, which it accrues and amortizes ratably over the life of the lease. The Company maintained a tenant improvement incentive liability of $9.9 million and $5.1 million as of and January 28, 2017 (Successor) and January 30, 2016 (Successor), respectively.

The following table summarizes future minimum rental payments required under all non-cancelable operating lease obligations as of January 28, 2017 (Successor) (in thousands):

 

Fiscal Year

      

2017

   $ 44,449  

2018

     39,344  

2019

     35,425  

2020

     33,873  

2021

     32,033  

Thereafter

     118,320  
  

 

 

 

Total

   $ 303,444  
  

 

 

 

Total rental expense was $55.6 million, $36.2 million, $12.7 million and $44.3 million for the 2016, 2015 Successor period, 2015 Predecessor period and 2014, respectively, exclusive of contingent rental expense recorded of $2.2 million, $1.8 million, $0.5 million and $1.9 million for the same respective periods.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Legal Proceedings

The Company is subject to various legal proceedings that arise in the ordinary course of business. The Company accrues for liabilities associated with these proceedings which are determined to be probable and can be reasonably estimated. Although the outcome of such proceedings cannot be predicted with certainty, management does not believe that it is reasonably possible that these outstanding proceedings will result in unaccrued losses that would be material. The Company maintains insurance policies to mitigate the financial impact of certain litigation.

Concentration Risk

An adverse change in the Company’s relationships with its key suppliers, or loss of the supply of one of the Company’s key products for any reason, could have a material effect on the business and results of operations of the Company. One supplier accounted for approximately 16.4% of the Company’s purchases during 2016.

Other Commitments

In addition to the lease commitments disclosed above, the Company enters into other cancelable and noncancelable commitments. Typically, these commitments are for less than one year in duration and are principally for the procurement of inventory. Preliminary commitments with the Company’s merchandise vendors typically are made six to nine months in advance of the planned receipt date. The Company had outstanding purchase commitments of $125.1 million as of January 28, 2017 (Successor).

12. Other Liabilities

Other liabilities include the following (in thousands):

 

     January 28, 2017
(Successor)
     January 30, 2016
(Successor)
 

Deferred rent

   $ 6,493      $ 3,326  

Deferred lease credits

     9,878        5,078  

Unfavorable leasehold interests

     2,411        3,137  

Other

     1,350        473  
  

 

 

    

 

 

 

Total other liabilities

   $ 20,132      $ 12,014  
  

 

 

    

 

 

 

13. Preferred Capital and Members’ Equity

Successor

On May 8, 2015, Holdings, a wholly owned subsidiary of Topco, acquired approximately 94% of the 1,000,000 issued and outstanding interests of the Company, with Topco acquiring the remaining 6% of the issued and outstanding membership interests of the Company (see Note 4). In connection with the Acquisition, the Predecessor LLC Agreement of the Company was amended. The terms of the amended agreement were substantially the same as the previously amended and restated agreement, including the rights of Common Unit holders.

On February 24, 2017, Jill Intermediate LLC converted from a Delaware limited liability company into a Delaware corporation named to J.Jill, Inc. In conjunction with the conversion, all 1,000,000 of the outstanding equity interests were converted into 43,747,944 shares of common stock.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Predecessor

In conjunction with the Acquisition (see Note 4), the securities that were in existence in the Predecessor periods, as further discussed below, were settled and no longer outstanding subsequent to May 8, 2015.

Common Units

The Predecessor LLC Agreement, as amended and restated (the “Predecessor LLC Agreement”), authorized the Predecessor to issue up to 1,000,000 Common Units. In April 2011, the Predecessor issued 1,000,000 Common Units, 100 Class A Units and 3,927,601.3 Class B Units, and simultaneously entered into a commodities purchase agreement (the “Commodities Purchase Agreement”) for purposes of providing a preferred capital investment of $72.8 million (the “Preferred Capital”) to an investor of the Predecessor. The voting and liquidation rights of the holders of the Predecessor’s Common Units were subject to and qualified by rights, powers and preferences of holders of the Preferred Capital, and Class A and Class B Units as set forth below. As of January 31, 2015 (Predecessor), 1,000,000 Common Units were outstanding and no Common Units were available for future issuance.

Preferred Capital

The Preferred Capital is classified outside of members’ equity because it contains certain redemption features that are not solely within the control of the Company. The voting and liquidation rights of the Preferred Capital were subject to and qualified by rights, powers and preferences of the Predecessor’s investors as set forth below.

Class A and B Units

The Predecessor’s LLC Agreement authorized the Predecessor to issue up to 100 Class A Units and 3,927,601.3 Class B Units. In April 2011, the Predecessor issued 100 Class A Units and 3,927,601.3 Class B Units and received $1,000 and $39.3 million, respectively, as a capital contribution upon issuance. The voting and liquidation rights of the holders of the Predecessor’s Class A and Class B Units were subject to and qualified by rights, powers and preferences of the holder of the Preferred Capital as set forth below. As of January 31, 2015 (Predecessor), 100 Class A Units and 3,927,601.3 Class B Units were outstanding and no Class A or Class B Units were available for future issuance.

Non-Liquidating Distributions

In the event of a non-liquidating distribution, at the discretion of the Predecessor, the holder of the Preferred Capital and the holders of Class A and Class B Units as a group, were limited to an amount up to each holder’s aggregate unreturned capital on a pro rata basis. Any remaining amounts were to be distributed to holders of Common Units.

Liquidation Preferences

As defined within the Predecessor LLC Agreements, if the Predecessor is liquidated, dissolved or wound-up, the holder of the Preferred Capital would have been entitled to their return of capital in preference of holders of Class A and Class B Units, while Common Unit holders would have been entitled to any remaining liquidating distributions. The holder of the Preferred Capital was entitled to all liquidating distributions paid by the Predecessor until such payments equal the aggregate original issuance price paid of $72.8 million.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Subject to the payment in full of amounts due to the holder of the Preferred Capital, each holder of Class A and B Units would have been entitled to any liquidating distributions paid by the Predecessor up to an amount equal to each holder’s aggregate original issuance price paid of $1,000 and $39.3 million, respectively, on a pro rata basis.

Any remaining liquidating distributions paid by the Predecessor, subsequent to payment in full of amounts due first to the holder of the Preferred Capital and second to holders of Class A and Class B Units, would have been paid out to holders of Common Units.

Redemption Rights

The Predecessor was established with a finite life of 49 years, commencing on the date of filing of its certificate of formation. At the end of its 49-year term, the Predecessor would be liquidated and all outstanding unreturned capital would be distributed to the then current owners, in accordance with the liquidation preferences described above. Owners were also entitled to a distribution of their unreturned capital prior to the completion of the Predecessor’s 49-year term upon the occurrence of an earlier liquidation event as defined by the Commodities Purchase Agreement.

Voting Rights

The Preferred Capital, Class A Units, Class B Units and Common Units held no voting rights. The Predecessor was governed by the board of managers, for which the holders of the Preferred Capital, Class A and Class B Units each had the right to appoint members to the board of managers, as determined by the Predecessor LLC Agreements.

14. Income Taxes

The provision for income taxes for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods consists of the following (in thousands):

 

     Successor     Predecessor  
     For the Fiscal
Year Ended
January 28, 2017
     For the Period
May 8, 2015 to

January 30,
2016
    For the Period
February 1,
2015 to May 7,

2015
     For the Fiscal
Year Ended
January 31, 2015
 

Current

            

U.S. Federal

   $ 17,442      $ 8,052     $ 1,957      $ 9,843  

State and local

     3,686        1,533       503        2,920  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total current

     21,128        9,585       2,460        12,763  
  

 

 

    

 

 

   

 

 

    

 

 

 

Deferred tax benefit

            

U.S. Federal

     (3,663      (6,212     (793      (1,615

State and local

     (796      (1,051     (168      (288
  

 

 

    

 

 

   

 

 

    

 

 

 

Total deferred tax benefit

     (4,459      (7,263     (961      (1,903
  

 

 

    

 

 

   

 

 

    

 

 

 

Provision for income taxes

   $ 16,669      $ 2,322     $ 1,499      $ 10,860  
  

 

 

    

 

 

   

 

 

    

 

 

 

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

A reconciliation of the federal statutory income tax rate to the Company’s effective tax rate is as follows for the periods presented:

 

     Successor     Predecessor  
     For the Fiscal
Year Ended
January 28, 2017
    For the Period
May 8, 2015 to

January 30,
2016
    For the Period
February 1,
2015 to May 7,

2015
    For the Fiscal
Year Ended
January 31, 2015
 

Federal statutory income tax rate

     35.0     35.0     35.0     35.0

State income taxes, net of federal tax effect

     4.6     0.9     (39.9 )%      7.6

Acquisition-related costs

     3.5     —         (344.5 )%      —    

Nondeductible equity-based compensation expense

     0.5     0.9     (38.3 )%      8.5

Other

     (2.7 )%      (1.8 )%      14.8     0.2
  

 

 

   

 

 

   

 

 

   

 

 

 

Effective tax rate

     40.9     35.0     (372.9 )%      51.3
  

 

 

   

 

 

   

 

 

   

 

 

 

The effective tax rate in the 2015 Predecessor period reflects transaction costs related to the Acquisition, which were not deductible for tax purposes.

The components of deferred tax assets (liabilities) were as follows (in thousands):

 

     January 28, 2017
(Successor)
     January 30, 2016
(Successor)
 

Deferred tax assets

     

Net credit carry forwards

   $ —        $ 12  

Gift card asset

     —          40  

Deferred revenue

     311        130  

Accrued expenses

     6,612        3,370  
  

 

 

    

 

 

 

Total deferred tax assets

     6,923        3,552  
  

 

 

    

 

 

 

Deferred tax liabilities

     

Inventory

     (3,878      (2,480

Fixed assets

     (18,270      (13,571

Intangible assets

     (58,372      (65,573

Prepaid expenses

     (1,153      (765
  

 

 

    

 

 

 

Total deferred tax liabilities

     (81,673      (82,389
  

 

 

    

 

 

 

Net deferred tax liabilities

   $ (74,750    $ (78,837
  

 

 

    

 

 

 

The Company had no federal or state tax credit carryforwards as of January 28, 2017 and January 30, 2016 (Successor). As of January 28, 2017 and January 30, 2016 (Successor), the Company had no federal or state net operating loss carryforwards.

The Company has considered the need for a valuation allowance based on the more likely than not criterion. In determining the need for a valuation allowance, management makes assumptions and applies judgment, including forecasting future earnings and considering the reversals of existing deferred tax liabilities. Based on this analysis, management determined that no valuation allowance was required. The Company performed an analysis of its current and historical tax positions and determined that no material uncertain tax positions exist. Therefore, there is no liability for uncertain tax positions as of January 28, 2017 or January 30, 2016 (Successor).

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

J Jill Holdings, Inc. files a consolidated income tax return for Federal purposes as well as in several state jurisdictions, which include subsidiary entities Jill Acquisition, LLC and J Jill Gift Card Solutions, Inc. The Company is allocated its share of the US Parent Company’s Federal and combined state income tax accrual, or benefit, in accordance with an intercompany tax allocation policy which is based on the separate return method. Due to the Parent Merger defined in Note 18, beginning with the fiscal year ending February 3, 2018, J Jill, Inc. will be the parent entity required to file the consolidated income tax returns for Federal and several state jurisdictions.

The Company’s income tax returns are periodically examined by the Internal Revenue Service (the “IRS”). The IRS recently completed an examination of the fiscal year 2013 tax return without adjustment. For federal and state income tax purposes, the Company’s tax years remain open under statue from 2013 to the present.

15. Earnings Per Share

Successor

In conjunction with the Acquisition (see Note 4), the holder of the Preferred Capital received a return of their original investment of $72.8 million and the Commodities Purchase Agreement was terminated. In addition, the capital relating to the 100 Class A Units and the 3,927,601.3 Class B Units was returned to the holders and these units were no longer outstanding subsequent to the May 8, 2015 Acquisition.

On February 24, 2017, the Company converted from a Delaware limited liability company named Jill Intermediate LLC into a Delaware corporation named J.Jill, Inc. In conjunction with the conversion, all of the outstanding equity interests converted into 43,747,944 shares of common stock. Accordingly, all share and per share amounts for all periods presented in the accompanying financial statements and notes thereto have been adjusted retroactively, where required, to reflect this conversion.

The following table summarizes the computation of basic and diluted net income (loss) per common unit for the 2016, 2015 Successor, 2015 Predecessor and 2014 periods (in thousands, except share and per share data):

 

    Successor     Predecessor  
    For the Fiscal
Year Ended
January 28, 2017
    For the Period
May 8, 2015 to

January 30,
2016
    For the Period
February 1,
2015 to May 7,
2015
    For the Fiscal
Year Ended
January 31, 2015
 

Numerator

         

Net income (loss) per common share attributable to common shareholders:

  $ 24,075     $ 4,306     $ (1,901   $ 10,296  

Denominator

         

Net income (loss) per common share attributable to common shareholders, basic and diluted:

    43,747,944       43,747,944       43,747,944       43,747,944  

Weighted average number of common share outstanding, basic and diluted:

  $ 0.55     $ 0.10     $ (0.04   $ 0.24  
 

 

 

   

 

 

   

 

 

   

 

 

 

Predecessor

Given the liquidation preferences and distribution terms as described in Note 13, the Preferred Capital, Class A Units and Class B Units have been excluded from the calculation of earnings per unit as any non-

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

liquidating distributions to each of these equity holders were limited to each equity holder’s return of capital. During the 2015 Predecessor and 2014 there were no non-liquidating distributions approved by the Predecessor’s board of managers.

16. Equity-Based Compensation

Successor Plan

On May 8, 2015, Topco established an Incentive Equity Plan (the “Plan”), which allows Topco to grant Topco Class A Common Interests (“Common Interests”) to certain directors, senior executives and key employees of the Company. The Plan is administered by Topco’s board of directors, along with input from the Company’s Chief Executive Officer. Grant date fair value, vesting and any other restrictions are determined at the discretion of Topco’s board of directors.

The Plan allows Topco to grant up to 32,683,677 of its Class A Common Interests. As of January 28, 2017 (Successor), there were an aggregate of 10,378,950 Common Interests authorized and available for future issuance. Topco did not grant any Common Interests to nonemployees.

Common Interests participate in distributions from Topco proportionate to their ownership, pursuant first to the full satisfaction and repayment of the unreturned capital of the preferred interests of Topco and then to the achievement of a predefined Profits Interest Threshold (“PIT”), as stated in each grant agreement. The preferred interests and the PITs are considered when determining the fair value of each grant.

Common Interests granted to employees of the Company are classified as equity awards and are generally subject to a five year vesting period, with either a monthly or annual cliff vest. The Plan also contains a fair value repurchase feature, allowing Topco to repurchase vested Common Interests upon termination of employment. The Common Interests contain provisions for accelerated vesting upon an approved sale of the Partnership or the termination of employment. If termination of employment is without cause, as defined in the Grant Agreement, all then-unvested units are forfeited and vested interests are subject to repurchase. If termination of employment is for cause, as defined in the Grant Agreement, all vested and unvested units will be forfeited. Topco repurchased 234,652 units during 2016 and 1,122,978 units were forfeited during the same period. Vested Common Interests that are repurchased or forfeited due to termination will be available for future issuance. As of January 28, 2017 (Successor), Topco does not expect to repurchase Common Interests.

The Company historically has been a private company and lacks certain company-specific historical and implied volatility information. Therefore, it estimates its expected share volatility based on the historical volatility of a publicly traded group of peer companies. The expected term of the Company’s Common Interests is estimated based on management’s estimate of time until a potential liquidity event. The risk-free rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is based on the fact that the Company has never paid cash dividends, and as of January 28, 2017 (Successor) did not anticipate paying any cash dividends to Common Interest holders in the foreseeable future.

 

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J.Jill, Inc.

Notes to Consolidated Financial Statements

 

The following assumptions were used by management in its option pricing model to determine the fair value of the Common Interests granted to directors, senior executives and key employees, and is presented on a weighted average basis:

 

     January 28,
2017
 

Risk-free rate

     0.68

Expected term (in years)

     0.6  

Expected volatility

     35

Expected dividend yield

     0.0

The following table summarizes Common Interests activity during 2016 and the 2015 Successor period:

 

     Number of
Units
     Weighted
Average
Grant
Date Fair
Value
 

Units outstanding at May 8, 2015 (Successor)

     —        $ —    

Granted

     20,535,403        0.07  

Vested

     (2,402,837      0.07  

Forfeited

     —          —    
  

 

 

    

 

 

 

Unvested units outstanding at January 30, 2016 (Successor)

     18,132,566        0.07  

Granted

     3,126,954        0.24  

Vested

     (4,056,798      0.07  

Forfeited

     (1,122,978      0.07  
  

 

 

    

 

 

 

Unvested units outstanding at January 28, 2017 (Successor)

     16,079,744      $ 0.10  
  

 

 

    

 

 

 

The aggregate intrinsic value of Common Interests is calculated as the difference between the price paid, if any, of the Common Interests and its fair value. The aggregate intrinsic value of Common Interests that vested during 2016 was $8.2 million. Equity-based compensation expense of $0.6 million and $0.2 million was recorded as a selling, general and administrative expense in the consolidated statement of operations and comprehensive income (loss) during 2016 and the 2015 Successor period, respectively. As of January 28, 2017 (Successor), there was $1.5 million of total unrecognized compensation expense related to unvested Common Interests, which is expected to be recognized over a weighted average service period of 3.5 years.

Predecessor Plan

In conjunction with the Acquisition (see Note 4), the equity-based compensation plans that were in existence in the Predecessor periods, as further discussed below, were settled and no longer outstanding subsequent to May 8, 2015.

On March 30, 2012, JJIP, a Limited Partnership (the “Partnership”), was formed by the then current owners of the Company and held a portion of the outstanding common units of the Company. A Management Incentive Unit equity program (the “Predecessor Plan”) was established by JJIP to provide the opportunity for key employees of the Company to participate in the appreciation of the business.

 

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Table of Contents

J.Jill, Inc.

Notes to Consolidated Financial Statements

 

The Predecessor Plan allowed Management Incentive Units (“MIUs”) to be granted to employees of the Company at the discretion of JJIP’s board of managers, not to exceed a maximum of 105,000 outstanding at any given time. The MIUs entitled the employees to an interest in JJIP upon the vesting of the MIU. When distributions are made by the Company to JJIP, a holder of common units in the Predecessor periods, JJIP’s board of managers would determine the allocation of that distribution to the JJIP interest holders. As of January 31, 2015 (Predecessor), there were an aggregate 14,006 MIUs authorized and available for future issuance.

The vesting terms of MIUs granted by JJIP to employees of the Company were determined on a grant-by-grant basis, according to the terms set forth by JJIP’s board of managers. Half of the MIUs were granted as time-based vesting awards with the remaining half granted as performance-based vesting awards. MIUs granted with time-based vesting features generally vested over a four year vesting period, with 25% of the MIUs cliff vesting at the later of one year from the date of employment with the Company (“First Vesting Date”), but not to exceed one year from the date of grant. The remaining 75% of the Units vested quarterly over a three year period, beginning on the First Vesting Date. The MIUs contain provisions for accelerated vesting upon an approved sale of the Partnership or forfeiture of unvested MIUs or both vested and unvested MIUs in the event of termination of employment from the Company without cause or with cause, respectively.

MIUs with a performance-based vesting feature were determined to vest upon the achievement of a specified Threshold Return, as defined by the Plan. The Company reviewed the likelihood of achieving the Threshold Return at the end of each reporting period. During the 2014 and 2015 Predecessor periods, the Company determined that the likelihood of achieving the Threshold Return was not probable, and therefore no compensation expense was recognized related to the MIUs with performance-based vesting features. As of January 31, 2015 (Predecessor), there were 45,450 performance-based vesting units outstanding and unvested.

The MIUs also contained a repurchase feature, whereby upon termination, JJIP had the right to purchase from former employees any or all of the vested MIUs for cash. The amount of consideration provided by JJIP was based on a stated formula, per the terms of the Plan, which prevented employees from being exposed to all of the risks and rewards of owning the MIUs. Based on the repurchase feature of the MIUs, the Company determined that the MIUs were liability classified awards.

Although the MIUs were granted by JJIP, which had an economic interest in the Predecessor entity, the services provided were for the benefit of J.Jill. As a result, the corresponding compensation expense was recognized in the consolidated statement of operations and comprehensive income (loss) of the Company with a corresponding capital contribution from JJIP.

The Company accounted for compensation expense related to liability classified awards using the intrinsic value method, as permitted by ASC 718 for nonpublic entities, and recorded changes in the value of these awards as compensation expense at each reporting period. To determine the intrinsic value, the Predecessor calculated the difference between the exercise price, if any, of the MIU compared to its estimated repurchase price at each reporting period. The repurchase price of the MIUs was determined using an estimate of the excess of the Predecessor’s EBITDA, multiplied by a fixed multiple, over a predetermined dollar value threshold. The difference between these two amounts, if positive, was then divided by the total number of MIUs outstanding. As a result of the pending Acquisition, at January 31, 2015, the repurchase calculation was amended to reflect the anticipated transaction value.

 

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Table of Contents

J.Jill, Inc.

Notes to Consolidated Financial Statements

 

As of January 31, 2015 (Predecessor), 36,113 time vesting units were vested and 9,431 time vesting units were unvested. The following table summarizes the MIU activity of the time vesting units during the 2014 and 2015 Predecessor periods:

 

     Number
of Units
 

Unvested units outstanding, February 1, 2014

     17,197  

Granted

     3,750  

Vested

     (11,516

Forfeited

     —    
  

 

 

 

Unvested units outstanding, January 31, 2015

     9,431  

Granted

     —    

Vested

     (3,403

Forfeited

     —    
  

 

 

 

Unvested units outstanding, May 7, 2015

     6,028  
  

 

 

 

The aggregate intrinsic value of MIUs as of January 31, 2015 that vested during the period was $2.2 million, respectively. The aggregate intrinsic value of the unvested time and performance units was $9.9 million as of January 31, 2015. Compensation expense of $1.9 million, $5.2 million and $0.4 million was recorded in selling, general and administrative expenses in the consolidated statements of operations and comprehensive income (loss) for the 2013, 2014 and 2015 Predecessor periods, respectively. The intrinsic value of MIUs was $7.3 million as of January 31, 2015 (Predecessor).

In conjunction with the Acquisition (see Note 4), the unvested time-based MIUs were automatically vested as a result of the change in control and all of the issued and outstanding vested time-based MIUs were settled. All of the performance-based awards issued and outstanding achieved their specified Threshold Return upon the Acquisition and were also settled. The acceleration of the vesting conditions due to a change in control resulted in compensation expense of approximately $7.4 million, which was not reflected in either the Predecessor or Successor consolidated statements of operations and comprehensive income (loss) periods, but instead are presented “on the black line.”

17. Related Party Transactions

As part of the Acquisition (see Note 4), TowerBrook, an affiliate of Topco, has performed and will continue to perform management support advisory services, planning and finance services for the Company. Under the terms of the services agreement with TowerBrook, effective May 8, 2015, Holdings paid an upfront lump sum fee of $4.0 million. TowerBrook was also eligible to earn a fee of up to 1% of the Transaction Value at completion of: (i) a sale of all or substantially all of the assets of the Company; or (ii) the sale of a majority of the outstanding voting equity interests of the Company or entity of which the Company is a direct and wholly-owned subsidiary; or (iii) an underwritten public offering and sale of equity securities of the Company or any beneficiary affiliate (“Exit”). The Company also agreed to pay and reimburse reasonable out of pocket expenses. The agreement term is continuous and terminates only upon a complete equity Exit by TowerBrook and its affiliates, mutual written consent, unilateral consent by TowerBrook, or by the Company upon a willful material breach of the agreement that is not cured within 30 days of written notice.

For the 2016 period, the Company incurred out-of-pocket expenses of $0.2 million in relation to the advisory services agreement described above. These expenses are included in operating expenses in the accompanying 2016 Successor consolidated statements of operations and comprehensive income (loss). The Company also distributed $70.0 million to Topco in the 2016 Successor period to as a dividend.

 

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Table of Contents

J.Jill, Inc.

Notes to Consolidated Financial Statements

 

The Company had a net receivable from related parties of $1.3 million recorded at January 28, 2017. This was made up of $1.6 million receivable from Topco which consisted of $1.9 million in cash paid directly by investors’ to Topco for an ownership stake in J.Jill, Inc. which was partially offset by $0.3 million related to repurchased MIUs. The Topco receivable was further offset by a $0.3 million payable to Holdings in relation to tax benefits claimed by the Company for transaction costs paid by Holdings in relation to the Acquisition.

For the 2015 Successor period, the Company incurred out-of-pocket expenses of $0.3 million in relation to these services, which are included in operating expenses in the accompanying Successor consolidated statements of operations and comprehensive income (loss). Amounts payable to Topco equity holders were $0.1 million and were included in accrued expenses in the accompanying January 30, 2016 (Successor) consolidated balance sheet. The Company also distributed $8.6 million to Topco in the Successor period to reimburse them for expenses associated with the Acquisition.

Prior to the May 8, 2015 Acquisition, the Company’s equity holders (the “Advisors”) performed certain management support, advisory services, planning and finance services for the Company. Under the terms of the services agreement entered into in 2011, the Company paid an annual advisory fee of $1.0 million, payable in four quarterly installments, and subject to an adjustment increase in the event of an acquisition. The agreement term was continuous and could be terminated only upon a public offering, a change of control to a new equity investor, gross negligence or willful breach by the Advisors, mutual agreement, or dissolution, liquidation, sale or disposal of the Company’s assets.

For the 2015 Predecessor and 2014 periods, the Company incurred management fees and out of pocket expenses of $1.0 million and $0.3 million, respectively, which are included in operating expenses in the accompanying Predecessor consolidated statements of operations and comprehensive income (loss). Amounts payable to the Company’s equity holders were $0.3 million and are included in accrued expenses in the accompanying January 31, 2015 (Predecessor) consolidated balance sheet.

In connection with a refinancing, the Company entered into a subordinated, unsecured $30.0 million debt facility with an affiliate of a minority equity holder of the Company. A total amount of $40.9 million was paid in connection with the Acquisition, including principal and accrued interest, to settle all remaining obligations under this credit facility.

18. Subsequent Events

On February 24, 2017, the Company completed a conversion from a Delaware limited liability company named Jill Intermediate LLC into a Delaware corporation and changed its name to J.Jill, Inc. In conjunction with the conversion, all of the outstanding equity of Jill Intermediate LLC converted into shares of common stock of J.Jill, Inc. Accordingly, all historical earnings per share amounts presented in the accompanying consolidated statements of operations and comprehensive income (loss) and the related notes to the consolidated financial statements have been adjusted retroactively to reflect the Company’s conversion from a limited liability company to a corporation.

Following the Company’s conversion from a limited liability company to a corporation, JJill Holdings merged with and into J.Jill, Inc. on February 24, 2017, with J.Jill, Inc. continuing as the surviving entity (the “Parent Merger”). The Parent Merger is a reorganization of entities under common control and, in accordance with ASC 805, the Company’s financial statements will be retroactively restated to reflect the Parent Merger as of the earliest date that common control existed in the period in which the Parent Merger occurred. JJill Holdings did not have operations of its own, except for buyer transaction costs of $8,560 incurred to execute the Acquisition. The restated combined results of operations of the Company and JJill Holdings, will be adjusted

 

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Table of Contents

J.Jill, Inc.

Notes to Consolidated Financial Statements

 

retroactively by $8,560, and will result in the Company’s net income (loss) for the period from May 8, 2015 to January 30, 2016 (Successor) to be ($4,254) and net income (loss) per share attributable to common stockholders to be ($0.10).

On March 9, 2017, J.Jill, Inc. completed an initial public offering (“IPO”). An existing stockholder of the Company sold 11,666,667 shares of the Company’s common stock at a share price of $13.00 per share. The underwriters in the IPO also exercised an option to purchase 865,000 shares of common stock at the IPO price. All proceeds of the IPO, net of the underwriter’s discount, were distributed to the selling stockholder.

On March 14, 2017, J. Jill, Inc. registered 2,237,303 shares of common stock by filing a registration statement on Form S-8. These shares will be issuable to certain employees and directors under the J.Jill, Inc. 2017 Omnibus Equity Incentive Plan (the “2017 Plan”). The 2017 Plan was effective as of March 9, 2017.

The Company has evaluated subsequent events from the balance sheet date through April 28, 2017, the date at which the consolidated financial statements were available to be issued and determined that there are no other material items to disclose.

19. Quarterly Financial Data (unaudited)

The following table sets forth our historical consolidated statements of income for each of the eight fiscal quarters through the year ended January 28, 2017. This unaudited quarterly information has been prepared on the same basis as our annual audited consolidated financial statements, consisting of only normal recurring adjustments that we consider necessary to fairly present the financial information for the fiscal quarters presented below.

 

    Predecessor     Successor  
    Fiscal Year 2015     Fiscal Year 2016  
                      Thirteen weeks ended  
    Thirteen
weeks ended
May 2, 2015
    Period from
May 3, 2015
to May 7,
2015
    Period from
May 8, 2015
to August 1,
2015
    October 31,
2015
    January 30,
2016
    April 30,
2016
    July 30,
2016
    October 29,
2016
    January 28,
2017
 
(in thousands, unaudited)                                                      

Net sales

  $ 132,552     $ 9,369     $ 132,112     $ 142,629     $ 145,353     $ 147,665     $ 165,035     $ 159,439     $ 166,917  

Costs of goods sold

    42,156       2,076       54,468       46,717       53,906       46,159       52,179       51,335       61,444  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit

    90,396       7,293       77,644       95,912       91,447       101,506       112,856       108,104       105,473  

Selling, general and administrative expenses

    74,946       5,205       75,276       85,960       85,246       87,072       94,173       92,637       94,643  

Acquisition-related expenses

    —         13,341         —         —         —         —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

    15,450       (11,253     2,368       9,952       6,201       14,434       18,683       15,467       10,830  

Interest expense

    4,335       264       3,902       4,020       3,971       4,112       4,674       4,844       5,040  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income (loss) before provision (benefit) for income taxes

    11,115       (11,517     (1,534     5,932       2,230       10,322       14,009       10,623       5,790  

Provision (benefit) for income taxes

    790       709       (538     2,079       781       4,249       5,860       2,815       3,745  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

  $ 10,325     $ (12,226   $ (996   $ 3,853     $ 1,449     $ 6,073     $ 8,149     $ 7,808     $ 2,045  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) per common share attributable to common shareholders:

                 

Basic and diluted

  $ 0.24     $ (0.28   $ (0.02   $ 0.09     $ 0.03     $ 0.14     $ 0.19     $ 0.18     $ 0.05  

Weighted average number of common shares outstanding:

                 

Basic and diluted

    43,747,944       43,747,944       43,747,944       43,747,944       43,747,944       43,747,944       43,747,944       43,747,944       43,747,944  

 

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Table of Contents

J.Jill, Inc.

Notes to Consolidated Financial Statements

 

20. Condensed Financial Information of Registrant

J.Jill, Inc.

(PARENT COMPANY ONLY)

CONDENSED BALANCE SHEETS

(in thousands, except unit data)

 

     January 28, 2017
(Successor)
     January 30, 2016
(Successor)
 

Assets

     

Investment in subsidiaries

   $ 120,965      $ 166,571  
  

 

 

    

 

 

 

Members’ Equity

     

Common units, zero par value, 1,000,000 units authorized, issued and outstanding at January 28, 2017 (Successor) and January 30, 2016 (Successor)

     —          —    

Contributed capital

     107,878        162,265  

Accumulated earnings

     13,087        4,306  
  

 

 

    

 

 

 

Total members’ equity

   $ 120,965      $ 166,571  
  

 

 

    

 

 

 

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

J.Jill, Inc.

(PARENT COMPANY ONLY)

CONDENSED STATEMENTS OF OPERATIONS AND

COMPREHENSIVE INCOME (LOSS)

(in thousands, except per share data)

 

     Successor             Predecessor  
     For the Fiscal
Year Ended
January 28,
2017
     For the Period
from May 8,
2015 to
January 30,
2016
            For the Period
from February 1,
2015 to May 7,
2015
    For the Fiscal
Year Ended
January 31,
2015
 

Equity in net income (loss) of subsidiaries

   $ 24,075      $ 4,306           $ (1,901   $ 10,296  
  

 

 

    

 

 

         

 

 

   

 

 

 

Net income (loss) and total comprehensive income (loss)

   $ 24,075      $ 4,306           $ (1,901   $ 10,296  
  

 

 

    

 

 

         

 

 

   

 

 

 

Net income (loss) per common share attributable to common shareholders:

               

Basic and diluted

   $ 0.55      $ 0.10           $ (0.04   $ 0.24  

Weighted average number of common shares outstanding:

               

Basic and diluted

     43,747,944        43,747,944             43,747,944       43,747,944  

The accompanying note is an integral part of these condensed financial statements

A statement of cash flows has not been presented as J.Jill, Inc. parent company did not have any cash as of, or for the year ended January 28, 2017, the period from May 8, 2015 to January 30, 2016, the period from February 1, 2015 to May 7, 2015 or the year ended January 31, 2015.

 

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Table of Contents

J.Jill, Inc.

Notes to Consolidated Financial Statements

 

Note to Condensed Financial Statements of Registrant (Parent Company Only)

Basis of Presentation

These condensed parent company-only financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X, as the restricted net assets of the subsidiaries of J.Jill, Inc. (as defined in Rule 4-08(e)(3) of Regulation S-X) exceed 25% of the consolidated net assets of the company. The ability of J.Jill, Inc.’s operating subsidiaries to pay dividends may be restricted due to the terms of the subsidiaries’ term loan and asset-based revolving credit agreements, as defined in Note 9 to the audited consolidated financial statements.

On February 24, 2017, Jill Intermediate LLC completed a conversion from a Delaware limited liability company into a Delaware corporation and changed its name to J.Jill, Inc. In conjunction with the conversion, all of the outstanding equity of Jill Intermediate LLC converted into shares of common stock of J.Jill, Inc. Accordingly, all historical earnings per share amounts presented in the condensed parent company statements of operations and comprehensive income (loss) have been adjusted retroactively to reflect the Corporate Conversion.

These condensed parent company financial statements have been prepared using the same accounting principles and policies described in the notes to the consolidated financial statements, with the only exception being that the parent company accounts for its subsidiaries using the equity method. These condensed financial statements should be read in conjunction with the consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K.

 

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Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  J.Jill, Inc.
Date: May 5, 2017   By:  

/s/ Paula Bennett

    Paula Bennett
    President, Chief Executive Officer and Director


Table of Contents

Exhibit Index

 

Exhibit
Number

 

Exhibit Description

  3.1**   Certificate of Incorporation of J.Jill, Inc.
  3.2**   Bylaws of J.Jill, Inc.
10.1   Form of Indemnification Agreement (incorporated by reference from Exhibit 10.1 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
10.2**   Registration Rights Agreement, dated as of March 14, 2017.
10.3**†   J.Jill, Inc. 2017 Omnibus Equity Incentive Plan.
10.4   Term Loan Credit Agreement, dated as of May 8, 2015, among Jill Holdings LLC, Jill Acquisition LLC, the various lenders party thereto from time to time and Jefferies Finance LLC, as the administrative agent (incorporated by reference from Exhibit 10.4 to the Company’s Registration Statement on Form S-1, dated February 10, 2017 (File No. 333-215993)).
10.5   Amendment No. 1 to Term Loan Credit Agreement, dated as of May 27, 2016, among Jill Acquisition LLC, Jill Intermediate LLC, the lenders party thereto and Jefferies LCC as the administrative agent (incorporated by reference from Exhibit 10.5 to the Company’s Registration Statement on Form S-1, dated February 10, 2017 (File No. 333-215993)).
10.6   ABL Credit Agreement, dated as of May 8, 2015, among Jill Holdings LLC, Jill Acquisition LLC, certain subsidiaries of Jill Acquisition LLC from time to time party thereto, the lenders party thereto and CIT Finance LLC, as the administrative agent and collateral agent (incorporated by reference from Exhibit 10.6 to the Company’s Registration Statement on Form S-1, dated February 10, 2017 (File No. 333-215993)).
10.7   Amendment No. 1 to ABL Credit Agreement, dated as of May 27, 2016, among Jill Acquisition LLC, Jill Intermediate LLC, certain subsidiaries of Jill Acquisition LLC from time to time party thereto, the lenders party thereto and CIT Finance LLC, as the administrative agent and collateral agent (incorporated by reference from Exhibit 10.7 to the Company’s Registration Statement on Form S-1, dated February 10, 2017 (File No. 333-215993)).
10.8   Services Agreement, dated as of May 8, 2015, by and between Jill Acquisition LLC and TowerBrook Capital Partners L.P (incorporated by reference from Exhibit 10.8 to the Company’s Registration Statement on Form S-1, dated February 10, 2017 (File No. 333-215993)).
10.9**†   Second Amended and Restated Employment Agreement, dated as of March 14, 2017, by and between Paula Bennett, J.Jill, Inc., JJill Topco Holdings, LP, Jill Acquisition LLC, and certain other parties thereto.
10.10†   Amended and Restated Employment Agreement, dated as of as May 22, 2015, by and between David Biese and Jill Acquisition LLC (incorporated by reference from Exhibit 10.10 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
10.11†   Amended and Restated Employment Agreement, dated as of May 22, 2015, by and between Joann Fielder and Jill Acquisition LLC and Amendment No. 1 thereto, dated as of July 27, 2015 (incorporated by reference from Exhibit 10.11 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
10.12   Lease Agreement, dated as of September 30, 2010, by and between Cole JJ Tilton NH, LLC and Jill Acquisition LLC (incorporated by reference from Exhibit 10.12 to the Company’s Registration Statement on Form S-1, dated February 10, 2017 (File No. 333-215993)).


Table of Contents

Exhibit
Number

  

Exhibit Description

10.13**    Stockholders Agreement, dated as of March 14, 2017.
10.14†    Form of Stock Option Award Agreement under the J.Jill, Inc. 2017 Omnibus Equity Incentive Plan (incorporated by reference from Exhibit 10.14 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
10.15†    Form of Restricted Stock Unit Award Agreement under the J.Jill, Inc. 2017 Omnibus Equity Incentive Plan (incorporated by reference from Exhibit 10.15 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
10.16    Amended and Restated Agreement of Limited Partnership of JJill Topco Holdings, LP, dated as of May 8, 2015 (incorporated by reference from Exhibit 10.16 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
10.17†    JJill Topco Holdings, LP Incentive Equity Plan (incorporated by reference from Exhibit 10.17 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
10.18†    Form of Grant Agreement under the JJill Topco Holdings, LP Incentive Equity Plan (incorporated by reference from Exhibit 10.18 to Amendment No. 1 to the Company’s Registration Statement on Form S-1, dated February 27, 2017 (File No. 333-215993)).
21.1**    Subsidiaries of J.Jill, Inc.
23.1*    Consent of PricewaterhouseCoopers LLP, independent registered public accounting firm.
31.1*    Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*    Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*    Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*    Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

* Filed herewith.
** Previously filed.
Management contract or compensatory plan or arrangement.