Pro Forma Financial Information for dELiA*s and iTurf Merger

Contract Categories: Mergers & Acquisitions › Merger Agreements
Summary

This document provides unaudited pro forma financial information related to the planned merger between dELiA*s and iTurf. Under the agreement, dELiA*s will become a wholly-owned subsidiary of iTurf, with dELiA*s shareholders receiving 1.715 Class A shares of iTurf for each dELiA*s share. The merger is structured as a reverse acquisition for accounting purposes, with dELiA*s treated as the acquirer. The document outlines the combined financial position and results as if the merger had occurred earlier, but notes that actual future results may differ.

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EX-1.2 3 a2032997zex-1_2.txt EXHIBIT 1.2 EXHIBIT 1.2 PRO FORMA FINANCIAL INFORMATION UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION On August 16, 2000, iTurf and dELiA*s announced the signing of a definitive agreement to merge dELiA*s and a wholly-owned subsidiary of iTurf. Under the terms of the merger, each outstanding share of dELiA*s common stock will be converted into the right to receive 1.715 Class A shares of iTurf. For purposes of the discussions below, the combined entity is referred to as the "merged company." Prior to the transaction, dELiA*s owns approximately 54% of iTurf and consolidates iTurf's operating results and financial position in its consolidated financial statements, with the outside ownership reflected as minority interest. As a result of the merger, dELiA*s will become a wholly- owned subsidiary of iTurf. However, because dELiA*s stockholders will own the majority of the merged company stock, dELiA*s is deemed to be the acquirer for accounting purposes and, accordingly, the merger will be accounted for as a "reverse acquisition" of the approximately 46% minority interest of iTurf under the purchase method of accounting. Under this method of accounting, the merged company's historical results will be the same as dELiA*s historical results. The following Unaudited Pro Forma Condensed Consolidated Financial Information gives pro forma effect to the merger by application of the pro forma adjustments described in the accompanying notes. The Unaudited Pro Forma Condensed Consolidated Balance Sheet as of July 29, 2000 gives effect to the merger as if it occurred on that date. The Unaudited Pro Forma Condensed Consolidated Financial Information is based, in part, on the following historical financial statements, which have been previously filed with the Securities and Exchange Commission by iTurf or dELiA*s and are included herein: - the audited Consolidated Financial Statements of iTurf as of and for the fiscal year ended January 29, 2000 - the unaudited Consolidated Financial Statements of iTurf as of and for the twenty-six weeks ended July 29, 2000 - the audited Consolidated Financial Statements of dELiA*s as of and for the fiscal year ended January 29, 2000 - the unaudited Consolidated Financial Statements of dELiA*s as of and for the twenty-six weeks ended July 29, 2000 The Unaudited Pro Forma Condensed Consolidated Statements of Operations for the twenty-six weeks ended July 29, 2000 and for the fiscal year ended January 29, 2000 give effect to the merger as if it occurred on February 1, 1999 and include adjustments directly attributable to the merger and expected to have a continuing impact on the merged company. The pro forma adjustments are based on preliminary estimates and certain assumptions that iTurf and dELiA*s believe are reasonable under the circumstances. The preliminary allocation of the purchase price to assets and liabilities of iTurf reflects the assumption that assets and liabilities are carried at historical amounts which approximate fair market value. The actual allocation of the purchase price may differ from that reflected in the unaudited pro forma financial statements after a more extensive review of the fair market value of the assets and liabilities has been completed. Management has not included in the pro forma adjustments certain expected cost savings estimated at approximately $650,000 relating to duplicative costs of two separate public companies and related corporate expenses. In addition, expected synergies and other savings in operating costs that are estimated to total between $2 million and $3 million are not reflected. Such cost savings and synergies 113 associated with the merged company are difficult to quantify and any such savings may be partially offset by the cost of additional corporate infrastructure to support the combined operation. The Unaudited Pro Forma Condensed Consolidated Financial Information and related notes are provided for informational purposes only and are not necessarily indicative of the consolidated financial position or results of operations of the merged company as they may be in the future or as they might have been had the merger been affected on the assumed dates. The Unaudited Pro Forma Condensed Consolidated Financial Information should be read in conjunction with the historical financial statements of dELiA*s and iTurf, and the related notes thereto, which are included elsewhere in this Joint Proxy Statement/Prospectus. 114 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET JULY 29, 2000 (in thousands)
DELIA*S PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- ASSETS CURRENT ASSETS Cash and cash equivalents............................. $ 13,867 $ 13,867 Short-term investments................................ 25,274 25,274 Merchandise inventories............................... 30,696 30,696 Deferred tax assets................................... 14,488 (14,488)(f) -- Prepaid expenses and other current assets............. 15,796 15,796 -------- -------- -------- Total current assets................................ 100,121 (14,488) 85,633 PROPERTY & EQUIPMENT, NET............................... 37,539 (1,740)(a) 35,799 LONG-TERM INVESTMENTS................................... 2,002 (460)(a) 1,542 INTANGIBLE AND OTHER ASSETS............................. 34,578 (13,264)(a) 21,314 -------- -------- -------- TOTAL ASSETS............................................ $174,240 $(29,952) $144,288 ======== ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses................. $ 20,808 $ 4,000 (a) $ 24,808 Bank loan payable..................................... 9,628 9,628 Current portion of long-term debt..................... 5,946 5,946 Accrued restructuring................................. 1,363 1,363 Other current liabilities............................. 2,915 2,915 -------- -------- -------- Total current liabilities........................... 40,660 4,000 44,660 DEFERRED TAX LIABILITIES................................ 21,586 (24,125)(a) -- 2,539(f) EXCESS OF NET ASSETS ACQUIRED OVER COST................. -- 35,110 (a) 35,110 LONG-TERM DEBT AND CAPITAL LEASES....................... 1,254 1,254 OTHER LONG-TERM LIABILITIES............................. 426 426 MINORITY INTEREST....................................... 43,710 (43,710)(a) -- STOCKHOLDERS' EQUITY.................................... 66,604 13,261 (a) 62,838 (17,027)(f) -------- -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $174,240 $(29,952) $144,288 ======== ======== ========
115 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FISCAL YEAR ENDED JANUARY 29, 2000 (in thousands, except per share data)
DELIA*S PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- NET REVENUES.............................................. $190,772 $190,772 COST OF REVENUES.......................................... 108,148 108,148 -------- -------- GROSS PROFIT.............................................. 82,624 82,624 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.............. 124,339 (10,023)(b) 114,316 RESTRUCTURING CHARGE...................................... 23,668 23,668 GAIN ON SUBSIDIARY IPO AND SALE OF SUBSIDIARY STOCK....... (78,117) (78,117) INTEREST INCOME, NET...................................... (2,429) 320 (c) (2,109) MINORITY INTEREST......................................... (4,865) 4,865 (d) -- -------- -------- -------- INCOME BEFORE TAXES....................................... 20,028 4,838 24,866 TAX PROVISION............................................. 9,070 (5,878)(e) 3,192 -------- -------- -------- NET INCOME................................................ $ 10,958 $ 10,716 $ 21,674 ======== ======== ======== BASIC NET INCOME PER SHARE................................ $ 0.77 $ 0.74 ======== ======== DILUTED NET INCOME PER SHARE.............................. $ 0.71 $ 0.69 ======== ======== SHARES USED IN THE CALCULATION OF BASIC NET INCOME PER SHARE................................................... 14,315 14,915 (g) 29,230 ======== ======== ======== SHARES USED IN THE CALCULATION OF DILUTED NET INCOME PER SHARE................................................... 15,380 16,103 (g) 31,483 ======== ======== ========
116 UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS TWENTY-SIX WEEKS ENDED JULY 29, 2000 (in thousands, except per share data)
DELIA*S PRO FORMA HISTORICAL ADJUSTMENTS PRO FORMA ---------- ----------- --------- NET REVENUES............................................... $ 86,352 $ 86,352 COST OF REVENUES........................................... 46,914 46,914 -------- -------- GROSS PROFIT............................................... 39,438 39,438 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES............... 74,146 (5,011)(b) 69,135 INTEREST INCOME, NET....................................... (1,081) 160 (c) (921) MINORITY INTEREST.......................................... (8,588) 8,588 (d) -- -------- ------- -------- LOSS BEFORE INCOME TAXES................................... (25,039) (3,737) (28,776) BENEFIT FOR INCOME TAXES................................... (5,800) (7,204)(e) (13,004) -------- ------- -------- NET LOSS................................................... $(19,239) $ 3,467 $(15,772) ======== ======= ======== BASIC AND DILUTED NET LOSS PER SHARE....................... $ (1.33) $ (0.47) ======== ======== SHARES USED IN THE CALCULATION OF BASIC AND DILUTED NET LOSS PER SHARE........................................... 14,519 18,876 (g) 33,395 ======== ======= ========
117 NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (a) To record the effect of the reverse acquisition of the iTurf minority interest by dELiA*s:
COMMON STOCK OPTIONS ------------ ------------ iTurf shares/options outstanding at July 29, 2000........... 21,122,000 2,519,000 Less: unvested restricted stock............................. 1,098,000 ----------- ------------ iTurf shares/options outstanding at July 29, 2000........... 20,024,000 2,519,000 Less: iTurf shares owned by dELiA*s at July 29, 2000........ 11,426,000 -- ----------- ------------ iTurf shares/options acquired in merger..................... 8,598,000 2,519,000 Reciprocal of the exchange ratio utilized to convert dELiA*s shares to iTurf shares.................................... 0.5831 0.5831 ----------- ------------ dELiA*s equivalent shares/options........................... 5,013,000 1,469,000 Less: shares representing the minority interest in iTurf's investment in dELiA*s..................................... 253,000 -- ----------- ------------ dELiA*s equivalent shares/options issued in merger.......... 4,760,000 1,469,000 dELiA*s three day average closing share price with the date of the merger announcement as the midpoint/ Black-Scholes option valuation.......................................... $ 2.5312 $ 0.8252 ----------- ------------ Fair value of shares/options issued......................... $12,049,000 $ 1,212,000 Total value of shares and options issued.................... $13,261,000 Estimated merger costs...................................... 4,000,000 ----------- Total purchase consideration................................ $17,261,000 =========== The preliminary allocation of the purchase consideration is as follows: Book value of iTurf's minority interest................... $43,710,000 Deferred tax liability.................................... 24,125,000 Property and equipment.................................... (1,740,000) Non-marketable investments................................ (460,000) Intangible and other assets............................... (13,264,000) Negative goodwill......................................... (35,110,000) ----------- Total purchase consideration allocated.................... $17,261,000 ===========
The preliminary allocation of the purchase price to iTurf's acquired assets and liabilities reflects the assumption that assets and liabilities are carried at historical amounts which approximate fair market value. The actual allocation of the purchase price may differ from that reflected in the unaudited pro forma financial statements after a more extensive review of the fair market value of the assets and liabilities has been completed. (b) To adjust depreciation and amortization to reflect the balance sheet adjustments described in note (a) above. The adjustment assumes an estimated average five-year life for the depreciation, amortization and accretion of the property and equipment, intangible and other assets and goodwill. (c) To record the interest effects of financing the merger transaction costs. (d) To eliminate the benefit associated with the minority interest of iTurf. (e) To adjust the pro forma tax provision (benefit) to reflect the estimated effect rate of the merged company. (f) To record a reserve for dELiA*s net deferred tax asset. 118 (g) The calculation of the combined weighted average shares outstanding and basic and diluted earnings per share is as follows:
TWENTY-SIX WEEKS ENDED FISCAL YEAR 1999 JULY 29, 2000 ---------------- ---------------------- Basic: Weighted average shares outstanding--iTurf............ 17,005,000 19,921,000 Weighted average shares outstanding--dELiA*s.......... 14,315,000 14,519,000 ----------- ----------- Weighted average shares outstanding--combined......... 31,320,000 34,440,000 Incremental shares from conversion of dELiA*s shares at the exchange ratio............................... 10,234,000 10,381,000 Elimination of previously outstanding iTurf shares that become treasury shares in the merger........... (12,324,000) (11,426,000) ----------- ----------- Weighted average shares outstanding--basic............ 29,230,000 33,395,000 =========== =========== Diluted: Weighted average shares outstanding--iTurf............ 17,005,000 19,921,000 Weighted average shares outstanding--dELiA*s.......... 15,380,000 14,519,000 ----------- ----------- Weighted average shares outstanding--combined......... 32,385,000 34,440,000 Incremental shares from conversion of dELiA*s shares at the exchange ratio............................... 10,997,000 10,381,000 Dilutive effect of iTurf options outstanding.......... 425,000 -- Elimination of previously outstanding iTurf shares that are in treasury after the merger............... (12,324,000) (11,426,000) ----------- ----------- Weighted average shares outstanding--diluted.......... 31,483,000 33,395,000 =========== ===========
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