3. Purchase Accounting
The Acquisition was accounted for as a purchase business combination in accordance with ASC 805, Business Combinations, whereby the purchase price paid to effect the Acquisition was allocated to recognize the acquired assets and liabilities at fair value. The sources and uses of funds in connection with the Transactions are summarized below:
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Sources: |
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Proceeds from Term Loan |
$ | 1,200,000 | ||
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Proceeds from Notes |
400,000 | |||
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Proceeds from equity contributions |
1,225,911 | |||
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Cash on hand |
307,150 | |||
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Total sources |
$ | 3,133,061 | ||
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Uses: |
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Equity purchase price |
$ | 2,981,415 | ||
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Transaction costs |
151,646 | |||
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Total uses |
$ | 3,133,061 | ||
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In connection with the purchase price allocation, fair values of long-lived and intangible assets were determined based upon assumptions related to the future cash flows, discount rates and asset lives utilizing currently available information, and in some cases, valuation results from independent valuation specialists. The allocation of purchase price is as follows:
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Purchase price |
$ | 2,981,415 | ||
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Less: net assets acquired |
(571,644 | ) | ||
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Less: after tax cost of post-combination share-based awards. |
(21,425 | ) | ||
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Excess of purchase price over book value of net assets acquired |
$ | 2,388,346 | ||
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Write up of tangible assets: |
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Property and equipment |
$ | 35,334 | ||
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Merchandise inventories |
32,500 | |||
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Fair market value of favorable leases |
61,010 | |||
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Acquisition-related intangible assets: |
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J.Crew brand name (indefinite lived) |
885,300 | |||
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Madewell brand name (20 year life) |
82,000 | |||
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Loyalty program and customer lists (5 year life) |
27,010 | |||
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Less: historical intangible assets |
(4,351 | ) | ||
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Acquisition-related intangibles |
989,959 | |||
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Write down/(up) of liabilities: |
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Gift card liability revaluation |
7,737 | |||
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Deferred rent and lease incentive revaluation |
66,880 | |||
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Fair market value of unfavorable leases |
(40,920 | ) | ||
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Deferred income taxes: |
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Long-term deferred tax asset |
(20,171 | ) | ||
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Short-term deferred tax liability |
(5,678 | ) | ||
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Long-term deferred tax liability |
(425,220 | ) | ||
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Residual goodwill(1) |
1,686,915 | |||
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Total allocated excess purchase price |
$ | 2,388,346 | ||
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| (1) | Residual goodwill consists primarily of intangible assets related to the knowhow, design and merchandising of the Company’s brands that do not qualify for separate recognition in accordance with ASC 805. |
Pro forma financial information
The following unaudited pro forma results of operations gives effect to the Transactions as if they had occurred on the first day of fiscal 2011 (January 30, 2011). The pro forma results of operations reflects adjustments (i) to record amortization and depreciation resulting from purchase accounting, (ii) to record Sponsor monitoring fees, and (iii) to eliminate non-recurring charges that were incurred in connection with the Transactions, including acquisition-related share-based compensation, transaction costs, transaction-related litigation costs and recoveries, and amortization of the step-up in the carrying value of inventories. This unaudited pro forma financial information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the Transactions had actually occurred on that date, nor the results of operations in the future.
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(Dollars in millions) |
For the Period January 30, 2011 to January 28, 2012 |
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| As reported | Pro forma | |||||||
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Total revenues |
$ | 1,854,988 | $ | 1,854,988 | ||||
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Net income (loss) |
$ | (3,741 | ) | $ | 51,514 | |||
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