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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
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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.
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
JULY 29, 2000
(in thousands)
<TABLE>
<CAPTION>
DELIA*S PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
ASSETS
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FISCAL YEAR ENDED JANUARY 29, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
DELIA*S PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
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
======== ======== ========
</TABLE>
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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
TWENTY-SIX WEEKS ENDED JULY 29, 2000
(in thousands, except per share data)
<TABLE>
<CAPTION>
DELIA*S PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
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
======== ======= ========
</TABLE>
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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:
<TABLE>
<CAPTION>
COMMON STOCK OPTIONS
------------ ------------
<S> <C> <C>
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
===========
</TABLE>
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.
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(g) The calculation of the combined weighted average shares outstanding and
basic and diluted earnings per share is as follows:
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED
FISCAL YEAR 1999 JULY 29, 2000
---------------- ----------------------
<S> <C> <C>
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
=========== ===========
</TABLE>
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