EXHIBIT 99.2
DSW INC. PRO FORMA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 2011
(dollars in thousands)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 30, 2011
(dollars in thousands)
Retail Ventures | Pro Forma | DSW | ||||||||||||||
Pre-merger | Note | Adjustment | Pro Forma | |||||||||||||
ASSETS | ||||||||||||||||
Cash and equivalents | $ | 57,297 | $ | 57,297 | ||||||||||||
Short-term investments | 287,947 | 287,947 | ||||||||||||||
Accounts receivable, net | 13,003 | 13,003 | ||||||||||||||
Accounts receivable from related parties | 32 | 32 | ||||||||||||||
Inventories | 334,495 | 334,495 | ||||||||||||||
Prepaid expenses and other current assets | 25,974 | 25,974 | ||||||||||||||
Deferred income taxes | 51,369 | (3) | $ | (15,983 | ) | 35,386 | ||||||||||
Total current assets | 770,117 | (15,983 | ) | 754,134 | ||||||||||||
Property and equipment, net | 219,058 | 219,058 | ||||||||||||||
Goodwill | 25,899 | 25,899 | ||||||||||||||
Long-term investments | 54,913 | 54,913 | ||||||||||||||
Deferred income taxes | (2), (4) | 140,041 | 140,041 | |||||||||||||
Other assets | 11,464 | 11,464 | ||||||||||||||
Total assets | $ | 1,081,451 | $ | 124,058 | $ | 1,205,509 | ||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||||||||||
Accounts payable | $ | 141,426 | $ | 141,426 | ||||||||||||
Accounts payable to related parties | 1,164 | 1,164 | ||||||||||||||
Accrued expenses: | ||||||||||||||||
Compensation | 10,961 | 10,961 | ||||||||||||||
Taxes | 17,109 | 17,109 | ||||||||||||||
Gift cards and merchandise credits | 20,766 | 20,766 | ||||||||||||||
Guarantees from discontinued operations | 452 | 452 | ||||||||||||||
Other | 52,067 | (6) | $ | 2,750 | 54,817 | |||||||||||
Conversion feature of short-term debt | 50,511 | 50,511 | ||||||||||||||
Warrant liability | 27,781 | 27,781 | ||||||||||||||
Current maturities of long-term debt | 132,758 | 132,758 | ||||||||||||||
Current maturities of long-term debt — related party | (7) | 11,000 | 11,000 | |||||||||||||
Total current liabilities | 454,995 | 13,750 | 468,745 | |||||||||||||
Long-term debt from related party, net of current maturities | 11,000 | (7) | (11,000 | ) | ||||||||||||
Other non-current liabilities | 102,986 | 102,986 | ||||||||||||||
Deferred income taxes | 33,886 | (2) | (33,886 | ) | ||||||||||||
Commitments and contingencies | ||||||||||||||||
Shareholders’ equity: | ||||||||||||||||
Common Shares, without par value | 335,434 | (1), (5) | 263,882 | 599,316 | ||||||||||||
(Accumulated deficit) retained earnings | (114,890 | ) | (3),(4),(6) | 155,194 | 40,304 | |||||||||||
Treasury shares | (59 | ) | (5) | 59 | ||||||||||||
Accumulated other comprehensive loss | (5,842 | ) | (5,842 | ) | ||||||||||||
Total shareholders’ equity | 214,643 | 419,135 | 633,778 | |||||||||||||
Non-controlling interest | 263,941 | (1) | (263,941 | ) | ||||||||||||
Total shareholders’ equity less noncontrolling interests | 478,584 | 155,194 | 633,778 | |||||||||||||
Total liabilities and shareholders’ equity | $ | 1,081,451 | $ | 124,058 | $ | 1,205,509 | ||||||||||
See accompanying notes to the unaudited pro forma condensed consolidated financial information.
DSW INC. PRO FORMA
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2011
(in thousands, except per share amounts)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 30, 2011
(in thousands, except per share amounts)
Retail Ventures | Pro Forma | DSW | ||||||||||||||
Pre-merger(8) | Note | Adjustment | Pro Forma | |||||||||||||
Net sales | $ | 503,588 | $ | 503,588 | ||||||||||||
Cost of sales (exclusive of depreciation included below in selling, general and administrative expenses) | (266,804 | ) | (266,804 | ) | ||||||||||||
Selling, general and administrative expenses | (177,253 | ) | (9),(10) | $ | 2,442 | (174,811 | ) | |||||||||
Change in fair value of derivative instruments | (54,876 | ) | (54,876 | ) | ||||||||||||
Operating profit | 4,655 | 2,442 | 7,097 | |||||||||||||
Interest expense | (3,792 | ) | (3,792 | ) | ||||||||||||
Interest income | 647 | 647 | ||||||||||||||
Interest expense, net | (3,145 | ) | (3,145 | ) | ||||||||||||
Earnings before income taxes | 1,510 | 2,442 | 3,952 | |||||||||||||
Income tax provision | (24,939 | ) | (11) | (954 | ) | (25,893 | ) | |||||||||
Net loss | (23,429 | ) | 1,488 | (21,941 | ) | |||||||||||
Less: net income attributable to the noncontrolling interests | (14,694 | ) | (12) | 14,694 | ||||||||||||
Net income attributable to Retail Ventures / Pro Forma DSW | $ | (38,123 | ) | $ | 16,182 | $ | (21,941 | ) | ||||||||
Basic and diluted earnings per share | $ | (0.76 | ) | (13) | $ | (0.57 | ) | |||||||||
Shares used in per share calculations | 50,345 | (13) | 38,806 |
See accompanying notes to the unaudited pro forma condensed consolidated financial information.
Notes to Unaudited Pro Forma Condensed Consolidated Financial Information
General:
a) | Legally, Retail Ventures, Inc. (“Retail Ventures”) merged into a subsidiary of DSW Inc. (“DSW”). For financial reporting purposes, the transaction is accounted for as if Retail Ventures acquired the outstanding noncontrolling interest in DSW. These pro forma statements do not reflect DSW’s planned adoption of its historical reporting for cost of sales and operating expenses as that is not a pro forma adjustment. | ||
b) | The pro forma balance sheet has been prepared as if the transaction took place on April 30, 2011. The pro forma statements of operations have been prepared as if the transaction occurred at the beginning of fiscal 2008 and is carried through to April 30, 2011. | ||
c) | All share amounts (other than per share amounts) are in thousands. | ||
d) | Share count was determined by adjusting all historical Retail Ventures shares by the exchange ratio. All historical DSW class A common shares are unchanged. As of April 30, 2011, the outstanding pro forma shares would be: |
As of April 30, 2011 | ||||
Retail Ventures shares outstanding before merger | 50,729 | |||
Exchange ratio | 0.435 | |||
Number of outstanding shares — Retail Ventures converted shares | 22,067 | |||
DSW class A common shares outstanding as reported | 17,088 | |||
Total DSW shares outstanding | 39,155 |
The following pro forma adjustments have been applied to give effect to the merger as follows:
Balance Sheet:
(1) | Noncontrolling interest. This adjustment reflects the elimination of the noncontrolling ownership in DSW. | ||
(2) | Deferred taxes.Due to the merger of the entities, the consolidated statement reflects the netting of DSW’s long-term deferred tax liability and Retail Ventures’ long-term deferred tax asset. | ||
(3) | Deferred taxes.With the consummation of the transaction, there are multiple income tax consequences that impact current deferred tax assets and liabilities. | ||
Valuation allowance. This adjustment releases the current portion of the valuation allowance of $2.4 million on Retail Ventures’ federal deferred tax assets. DSW expects to fully utilize Retail Ventures’ federal deferred tax assets. | |||
Deferred income tax assets related to Premium Income Exchangeable Securities (“PIES”). The historical Retail Ventures financial statements include a deferred tax asset of $18.4 million related to the PIES. A temporary basis difference existed based upon whether this forward contract would settle in a net asset or net liability position. As DSW will be able to settle the PIES with its own shares or cash, there will be no gain or loss for income tax purposes and this adjustment eliminates the asset. | |||
(4) | Deferred taxes. With the consummation of the transaction, there are multiple income tax consequences that impact long-term deferred tax assets and liabilities. | ||
Valuation allowance.This adjustment releases the valuation allowance of $85.6 million on Retail Ventures’ long-term deferred tax assets. DSW expects to fully utilize Retail Ventures’ federal deferred tax assets. |
Basis in subsidiary. This adjustment eliminates the deferred tax liability of $88.4 million for Retail Ventures’ historical basis in its subsidiary, DSW. This deferred tax liability will be eliminated as there will no longer be any subsidiary stock. | |||
(5) | Treasury shares. Retail Ventures’ shares held in treasury were cancelled at the merger date. | ||
(6) | Transaction costs. Retained earnings is reduced by future transaction costs that DSW and Retail Ventures are contractually obligated to pay after the merger close date. | ||
(7) | Long-term debt from related party, net of current maturities.Two days after the merger date, DSW is required to repay any borrowings under the long-term debt from related party. The debt would be current if the merger occurred on April 30, 2011. |
Statement of Operations:
(8) | Pro forma statement of operations excludes the impact of Retail Ventures’ discontinued operations. | ||
(9) | Selling, general & administrative expenses. This adjustment eliminates direct transaction costs of $2.0 million incurred by both DSW and Retail Ventures the first quarter of fiscal 2011. | ||
(10) | Selling, general & administrative expenses.This adjustment eliminates the costs of being two public companies since there will only be a single SEC registrant entity as opposed to two registrants. The costs eliminated are attributable to the board of directors, a chief executive officer and a chief financial officer. These amounts are approximately $0.4 million for the first quarter of fiscal 2011 based on the amounts recorded in Retail Ventures’ financial statements. | ||
(11) | Income tax provision. All adjustments are tax effected at the applicable statutory rate of approximately 39%. | ||
(12) | Income attributable to noncontrolling interest holders. This adjustment reflects the elimination of the noncontrolling ownership in DSW. | ||
(13) | Earnings per share. Share count was determined by adjusting all historical Retail Ventures shares by the exchange ratio. All historical DSW class A common shares are unchanged. DSW class A common shares were determined by reducing the reported shares by the weighted average DSW class B common shares. |