<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: September 14, 1998
THE DIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 51-0374887
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15501 NORTH DIAL BOULEVARD
SCOTTSDALE, ARIZONA 85260-1619
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (602) 754-3425
<PAGE> 2
GENERAL EXPLANATION
The undersigned registrant hereby amends its Current Report on Form 8-K dated
September 14, 1998, which was filed on September 21, 1998, solely to add the
financial statements and pro forma financial information required under Item 7
(a) and 7(b) of Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) FINANCIAL STATEMENTS OF ACQUIRED BUSINESS
The required financial statements of Sarah Michaels, Inc. are set
forth below.
2
<PAGE> 3
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Sarah Michaels, Inc.:
We have audited the accompanying consolidated balance sheet of Sarah Michaels,
Inc. (a Delaware C corporation) and subsidiary as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the period from March 27, 1997 (date of incorporation) through
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sarah Michaels, Inc.
and subsidiary as of December 31, 1997, and the results of their operations and
their cash flows for the period from March 27, 1997 (date of incorporation)
through December 31, 1997, in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
Boston, Massachusetts
May 28, 1998
3
<PAGE> 4
SARAH MICHAELS, INC.
CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1997
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Assets
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 41
Accounts receivable, net of allowance for doubtful accounts of $1,124 15,724
Inventories 32,949
Prepaid expenses and other assets 57
Refundable income taxes 703
--------
Total current assets 49,474
--------
PROPERTY AND EQUIPMENT, NET OF ACCUMULATED DEPRECIATION AND
AMORTIZATION 679
--------
DEFERRED INCOME TAXES 27,311
--------
GOODWILL AND OTHER INTANGIBLE ASSETS, NET OF ACCUMULATED AMORTIZATION 52,993
--------
OTHER NONCURRENT ASSETS 46
--------
Total assets $130,503
========
Liabilities and Stockholders' Equity
CURRENT LIABILITIES:
Current portion of term notes $ 4,100
Current portion of capital lease obligations 28
Revolving line of credit 12,704
Accounts payable 6,965
Accrued expenses and other current liabilities 2,444
--------
Total current liabilities 26,241
--------
TERM NOTES, NET OF CURRENT PORTION 54,350
--------
SENIOR SUBORDINATED NOTE PAYABLE 21,216
--------
CAPITAL LEASE OBLIGATIONS, NET OF CURRENT PORTION 123
--------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST 200
--------
STOCKHOLDERS' EQUITY:
Preferred stock, par value per share, $0.01
Authorized -- 2,400,000 shares
Issued -- 2,400,000 shares 25,808
Common stock, par value per share, $0.01
Authorized -- 1,055,200 shares
Issued -- 800,000 shares 8
Additional paid-in capital 792
Retained earnings 1,765
--------
Total stockholders' equity 28,373
--------
Total liabilities and stockholders' equity $130,503
========
</TABLE>
The accompanying notes are an integral part
of these consolidated financial statements.
4
<PAGE> 5
SARAH MICHAELS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM MARCH 27, 1997 (DATE OF INCORPORATION)
THROUGH DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
NET SALES $64,743
COST OF SALES 39,066
-------
Gross profit 25,677
-------
OPERATING EXPENSES:
Selling, general and administrative 8,810
Depreciation and amortization 2,354
-------
Total operating expenses 11,164
-------
Income from operations 14,513
INTEREST EXPENSE 7,486
-------
Income before income taxes 7,027
PROVISION FOR INCOME TAXES 3,454
-------
Net income $ 3,573
=======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
5
<PAGE> 6
SARAH MICHAELS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM MARCH 27, 1997 (DATE OF INCORPORATION) THROUGH DECEMBER
31, 1997
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Preferred Stock Common Stock ADDITIONAL
NUMBER OF LIQUIDATION NUMBER OF PAID-IN RETAINED STOCKHOLDERS'
SHARES VALUE SHARES PAR VALUE CAPITAL EARNINGS EQUITY
------ ----- ------ --------- ------- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, MARCH 27, 1997 -- $ -- -- $ -- $ -- $ -- $ --
Issuance of
common stock -- -- 800,000 8 792 -- 800
Issuance of
preferred stock 2,400,000 24,000 -- -- -- -- 24,000
Net income -- -- -- -- -- 3,573 3,573
Preferred stock
dividend -- 1,808 -- -- -- (1,808) --
--------- ------- --------- ------ ------ ------- -------
BALANCE, DECEMBER
31, 1997 2,400,000 $25,808 800,000 $ 8 $ 792 $ 1,765 $28,373
========= ======= ========= ====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
6
<PAGE> 7
SARAH MICHAELS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM MARCH 27, 1997 (DATE OF INCORPORATION)
THROUGH DECEMBER 31, 1997
(in thousands)
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,573
Adjustments to reconcile net income to net cash used in operating
activities -
Depreciation 124
Amortization 2,230
Deferred income taxes 3,289
Issuance of paid-in-kind notes on senior subordinated debt 1,216
Changes in operating assets -
Accounts receivable, net (10,380)
Inventories (15,470)
Prepaid expenses and other current assets 419
Refundable income taxes (703)
Accounts payable (875)
Accrued expenses and other current liabilities 589
---------
Net cash used in operating activities (15,988)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for Sarah Michaels LLC., net of cash acquired (94,874)
Cash paid for acquisition related costs (3,005)
Capital expenditures (251)
---------
Net cash used in investing activities (98,130)
---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of common stock 800
Issuance of preferred stock 24,000
Borrowings under term notes 60,000
Borrowings under senior subordinated notes 20,000
Borrowings under revolving line of credit 12,704
Repayments of term notes (1,550)
Cash paid to secure financing (1,795)
---------
Net cash provided by financing activities 114,159
---------
NET INCREASE IN CASH 41
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD --
---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 41
=========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for -
Income taxes $ 868
=========
Interest $ 4,997
=========
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES:
Assets acquired through capital leases $ 151
=========
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
7
<PAGE> 8
SARAH MICHAELS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(1) NATURE OF BUSINESS
Sarah Michaels, Inc. (SMI) and subsidiary, Sarah Michaels, LLC (SMLLC)
(collectively, the Company), market and distribute high quality personal
care and home fragrance products to the chain drug and mass merchandise
retail markets.
(2) ACQUISITION
Effective April 7, 1997, SMI, a newly formed Delaware C Corporation,
purchased an 80% ownership interest in SMLLC from La Loren, Inc. (the
Seller) in a transaction accounted for as a purchase. The transaction
provided SMI with the right to receive a preferred cash distribution equal
to the purchase price of $95,000,000 plus all acquisition expenses
incurred.
A summary of the acquisition financing is as follows (dollar amounts in
thousands):
<TABLE>
<CAPTION>
SHARES AMOUNT
<S> <C> <C>
Issuance of common stock 800,000 $ 800
Issuance of preferred stock 2,400,000 24,000
Senior subordinated bridge loan 35,000
Senior subordinated note 20,000
-----------
79,800
Debt obligations assumed 20,000
-----------
Total acquisition financing 99,800
Less -- Acquisition and debt
issuance costs (4,800)
-----------
Purchase price $ 95,000
===========
</TABLE>
The purchase price of $95 million has been allocated to the assets and
liabilities based on their estimated fair market values at April 7, 1997.
The allocation of the purchase price is based on preliminary estimates of
fair values and may be revised at a later date.
8
<PAGE> 9
The accompanying consolidated financial statements include the results of
operations for SMI and SMLLC from March 27, 1997 through December 31, 1997.
Sales and net operating income for SMLLC for the period from March 27, 1997
to April 7, 1997 (date of acquisition) were insignificant (less than 1% of
respective amounts).
For income tax purposes, the transaction required SMI to allocate the
purchase price to existing assets on SMLLC's books. As a result, the tax
basis of existing assets was increased without recording goodwill.
The preliminary excess of purchase price over the estimated fair value of
assets acquired and liabilities assumed (goodwill) was computed as follows
(in thousands):
<TABLE>
<CAPTION>
<S> <C>
Purchase price $ 95,000
Less -- Estimated fair market values assigned to assets
and liabilities -
Cash 126
Receivables and other assets 5,344
Inventories 17,483
Deferred tax assets 30,599
Property and equipment 401
Other assets 533
Accounts payable (7,840)
Accrued expenses and other liabilities (1,993)
--------
44,653
--------
Excess of purchase price over fair value of net
assets acquired $ 50,347
========
</TABLE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Sarah Michaels, Inc. and its 80%-owned subsidiary, Sarah Michaels, LLC. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Cash and Cash Equivalents
The Company considers all cash and cash equivalents with an original
maturity of three months or less to be cash equivalents.
Inventories
Inventories include material, labor and factory overhead and are valued at
the lower of cost (first-in, first-out) or market.
9
<PAGE> 10
Property and Equipment
Property and equipment acquired in the purchase are stated at fair market
value. Items purchased after the acquisition are stated at cost. All assets
are depreciated using the straight-line method over the estimated useful
lives of the respective assets ranging from 3 to 7 years. Capital leases
are depreciated over the term of the capital lease. Leasehold improvements
are amortized over the shorter of the related lease term or the estimated
useful life of the asset. Maintenance and repair costs are charged to
expense as incurred. Property and equipment consist of the following (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $ 261
Molds and equipment 522
Leasehold improvements 20
-----------
803
Less -- Accumulated depreciation 124
-----------
$ 679
===========
</TABLE>
Goodwill and Other Intangibles Assets
Goodwill and other intangibles consist of the following (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Goodwill $ 50,347
Acquisition costs, deferred financing
costs, other 4,861
Trademarks 15
----------
55,223
Less -- Accumulated amortization 2,230
----------
$ 52,993
==========
</TABLE>
Goodwill represents the excess of the purchase price over the estimated
fair market value of identified net assets acquired. Goodwill is being
amortized using the straight-line method over a period of 25 years.
Acquisition costs are being amortized over a 5 year life and deferred
financing costs associated with the acquisition of debt are being amortized
over the life of the respective debt instruments. The Company continually
evaluates whether events and circumstances have occurred that indicate that
the remaining value of goodwill and other intangibles may not be
recoverable.
Income Taxes
The Company accounts for income taxes pursuant to Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. This
statement requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of temporary differences between
the financial statement basis and the tax basis of assets and liabilities
using the tax rates in effect for the year in which the differences are
expected to be included in the tax return. Valuation allowances are
established when necessary to reduce a deferred tax asset to the amount
that is realizable, based on the realization criteria defined in SFAS No.
109.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
10
<PAGE> 11
New Accounting Pronouncements
The Financial Accounting Standards Board (FASB) issued SFAS No. 130,
Reporting Comprehensive Income, which is required to be adopted by the
Company no later than fiscal year 1998. This statement establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general purpose financial statements.
Comprehensive income is the total of net income and all other nonowner
changes in equity. The Company plans to adopt this statement in fiscal year
1998.
(4) SIGNIFICANT CUSTOMERS AND CONCENTRATIONS OF CREDIT RISK
A majority of the Company's revenues are attributable to customers
operating in the chain drug and mass merchandise retail market. Revenues
from significant customers, defined as revenues in excess of 10% of total
revenues, for the period from March 27, 1997 through December 31, 1997 are
as follows (dollar amounts in thousands):
<TABLE>
<CAPTION>
<S> <C> <C>
Customer A $28,508 44%
Customer B $11,058 17%
Customer C $ 7,775 12%
</TABLE>
The loss of one or more significant customers could have a material adverse
effect on the Company's business, operating results or financial condition.
Financial instruments which potentially subject the Company to
concentrations of credit risk are limited to trade accounts receivable.
(5) INCOME TAXES
The components of the Company's tax provision for the period from March 27,
1997 to December 31, 1997 are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current -
Federal $ 165
State -
---------
165
---------
Deferred -
Federal 2,479
State 810
---------
3,289
---------
$ 3,454
=========
</TABLE>
Significant items giving rise to deferred tax assets at December 31, 1997
are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets -
Property and equipment $ 25,991
Nondeductible accruals and
other 1,320
----------
Deferred tax assets $ 27,311
==========
</TABLE>
11
<PAGE> 12
(6) SUMMARY OF DEBT
Long-term debt at December 31, 1997 is as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Term Note A payable $ 33,500
Term Note B payable 24,950
Senior Subordinated Note
payable 21,216
-----------
79,666
Less -- Current portion of
term notes 4,100
-----------
$ 75,566
===========
</TABLE>
Annual principal repayment requirements for long-term debt as of December
31, 1997 are presented below (in thousands):
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1998 $ 4,100
1999 6,100
2000 8,100
2001 10,100
2002 22,266
Thereafter 29,000
----------
$ 79,666
==========
</TABLE>
The Company entered into a long-term credit agreement with a bank, which
provides for two term notes: Term Note A for $35 million and Term Note B
for $25 million; and a $25 million revolving line of credit. Term Note A
and the revolving line of credit expire in June 2002 and Term Note B
expires in June 2004. The credit agreement is secured by the Class A
membership units of the Company's subsidiary SMLLC and by a security
interest in and lien upon all of the Company's personal property.
Term Notes
Term Note A is due in periodic installments ranging from $750,000 to
$2,750,000 beginning in September 1997 through June 2002. Term Note B is
due in periodic installments ranging from $25,000 to $3,375,000 beginning
in September 1997 through June 2004. Term Note A bears interest at a rate
equal to a base rate (either LIBOR or the bank's base rate) plus .75% to
2.75% depending on the leverage ratio as defined in the agreement. Term
Note B bears interest at a rate equal to a base rate (either LIBOR or the
bank's base rate) plus 1.25% to 3.25% depending on the leverage ratio as
defined in the agreement. At December 31, 1997, the interest rate on Term
Note A and Term Note B were 8.70% and 9.20%, respectively.
Revolving Line of Credit
The revolving line of credit provides for borrowings up to the lesser of
$25 million or the borrowing base. Under the agreement, the borrowing base
is defined as (1) 85% of eligible accounts receivable, plus (2) 50% of
eligible inventory less (3) outstanding letters of credit. The revolving
line of credit bears interest at a rate equal to a base rate (either LIBOR
or the bank's base rate) plus .75% to 2.75% depending on the leverage ratio
as defined in the agreement. The borrowings base at December 31, 1997 was
$23,587,000. At December 31, 1997, the interest rate was 8.45%. The Company
is required to pay a monthly commitment fee of 0.5% per year on the unused
portion of the line-of-credit facility.
12
<PAGE> 13
The credit agreement contains certain affirmative and negative covenants,
that, among other things, restrict payment of dividends, limit capital
expenditures and annual operating lease payments, set minimum operating and
cash flow coverage ratios, and minimum working capital and tangible net
worth requirements. As of December 31, 1997, the Company is in compliance
with or has received waivers for the covenants.
Senior Subordinated Note Payable
In connection with the acquisition, the Company issued a subordinated note
payable to Dilmun Financial Services in the amount of $20 million that
bears interest at 20% per annum. The note requires cash payments of 12% to
be paid semiannually. The remaining 8% is added to the balance of the note.
The principal is due in two equal installments on April 2004 and April
2005. The note agreement contains certain covenants that, among other
things, require the Company to comply with certain reporting requirements
and limit certain activities. As of December 31, 1997, the Company is in
compliance with or has received waivers for the covenants.
(7) STOCKHOLDERS' EQUITY
Common Stock
The Company has authorized common stock and Class A nonvoting common stock.
The holders of common stock are entitled to one vote for each share held.
The holders of Class A common stock have no voting rights. All other rights
and privileges of the two types of common stock are the same. No Class A
common stock was issued at December 31, 1997.
Preferred Stock
The Company has authorized and issued 2,400,000 shares of mandatory
redeemable Preferred Stock. In the event of liquidation or dissolution of
the Company, the Preferred Stockholders are entitled to receive a
liquidation preference amount per share equal to the sum of $10 per share
plus any unpaid cumulative preferred dividends. Dividends accrue at the
rate of 10% per annum of the liquidation preference amount. Additionally,
the holder or holders of not less than a majority of the outstanding shares
of preferred stock may redeem all of the shares of preferred stock on or
after April 2003 or upon an initial public offering or liquidation of the
Company.
(8) MINORITY INTEREST
In connection with the acquisition, the seller entered into an agreement
(the LLC agreement) with the buyer. As defined by the LLC agreement, the
seller retained a 20% interest in SMLLC for a $200,000 capital contribution
and received a cash distribution equal to the purchase price of
$95,000,000.
The LLC agreement further states that SMI has the right to receive a
preferred cash distribution equal to the purchase price plus all
acquisition costs incurred. As of December 31, 1997, the initial $200,000
capital contribution is reflected as a minority interest on the balance
sheet, with no minority interest expense required in the income statement
until the preferred cash distribution amount is realized.
(9) EMPLOYEE BENEFIT PLANS
In August 1997, the Company established a defined contribution 401(k) plan
covering substantially all full-time employees who meet certain eligibility
requirements. Participants may make contributions to the 401(k) plan from
1% to 10% of their compensation, as defined. The Company contributes an
amount equal to 100% of the employees' contributions to the 401(k) plan,
not to exceed 10% of the employee's annual compensation. Company
contributions are fully vested after 3 years of participation.
Contributions and costs attributable to the 401(k) plan amounted to $65,275
for the period ended December 31, 1997.
13
<PAGE> 14
(10) RELATED PARTY TRANSACTIONS
Senior Subordinated Note Payable
In connection with the acquisition, the Company issued a subordinated note
payable to Dilmun Financial Services (an affiliate of the majority
shareholder) in the amount of $20 million bearing interest at 20%. See Note
6 for additional senior subordinated note information.
Facility leased from shareholder
In connection with the acquisition, the Seller retained a 20% ownership
interest in SMLLC. The Company leases a facility from this shareholder in
an arm's length transaction. The lease term expires on July 31, 2001 with
annual lease payments of $337,500.
(11) COMMITMENTS AND CONTINGENCIES
Minimum future lease obligations at December 31, 1997 are as follows (in
thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
<S> <C> <C>
Year ended -
1998 $ 1,577 $ 39
1999 1,577 39
2000 1,595 39
2001 1,462 39
2002 1,166 27
Thereafter 8,065 -
------- -------
Total minimum payments $15,442 183
=======
Less -- Amount representing interest 32
-------
Present value of minimum lease
payments $ 151
=======
</TABLE>
14
<PAGE> 15
SARAH MICHAELS, INC.
UNAUDITED CONSOLIDATED BALANCE SHEET
SEPTEMBER 13, 1998
(000 OMITTED, EXCEPT NUMBER OF SHARES)
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Current assets:
Cash and cash equivalents $ 6
Accounts receivable, net of allowance for doubtful
accounts of $354 6,779
Inventories 40,780
Deferred income taxes 3,352
Prepaid expenses and other assets 70
Refundable income taxes 770
---------
Total current assets 51,757
Property and equipment, net 2,282
Deferred income taxes 27,244
Goodwill and other intangible assets, net 51,077
Other assets 58
---------
Total assets $ 132,418
=========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of term notes $ 5,100
Current portion of capital lease obligations 9
Revolving line of credit 18,067
Accounts payable 8,366
Accrued expenses and other current liabilities 3,506
---------
Total current liabilities 35,048
---------
Long-term debt:
Term notes, net 51,800
Senior subordinated note payable 22,421
Capital lease obligation, net of current portion 21
---------
Total long-term debt 74,242
---------
Minority interest 200
---------
Stockholders' equity:
Preferred stock, $.01 par value per share, 2,400,000
shares authorized and issued 27,498
Common stock, $.01 par value per share, 1,055,200 shares
authorized; 800,000 shares issued 8
Additional paid-in capital 792
Retained deficit (5,370)
---------
Total stockholders' equity 22,928
---------
Total liabilities and stockholders' equity $ 132,418
=========
</TABLE>
See notes to unaudited consolidated financial statements
15
<PAGE> 16
SARAH MICHAELS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD JANUARY 1, 1998 THROUGH SEPTEMBER 13, 1998
(000 OMITTED)
<TABLE>
<CAPTION>
<S> <C>
Net Sales $ 23,148
Cost of Sales 13,173
--------
Gross Profit 9,975
--------
Operating Expenses:
Selling, general and administrative 8,808
Depreciation and amortization 2,604
--------
Total operating expenses 11,412
--------
Loss from operations (1,437)
Interest expense 7,375
--------
Loss before income taxes (8,812)
Income tax benefit (3,352)
--------
NET LOSS $ (5,460)
========
</TABLE>
See notes to unaudited consolidated financial statements.
16
<PAGE> 17
SARAH MICHAELS, INC.
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1998 THROUGH SEPTEMBER 13, 1998
(000 OMITTED)
<TABLE>
<CAPTION>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
<S> <C>
Net loss $(5,445)
Adjustment to reconcile net loss to net cash used in
operating activities:
Depreciation 473
Amortization 2,131
Deferred income taxes (3,285)
Changes in operating assets:
Accounts receivable, net 8,945
Inventories (7,831)
Prepaid expenses and other current assets (13)
Refundable income taxes (67)
Accounts payable 1,401
Accrued expenses and other current liabilities 1,062
Other assets and liabilities, net (277)
-------
Net cash used by operating activities (2,906)
-------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Capital Expenditures (2,026)
-------
Net cash used by investing activities (2,026)
-------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Borrowings under senior subordinated notes 1,205
Borrowings under revolving line of credit 5,363
Repayment of term notes (1,550)
Net change in capital lease obligations (121)
-------
Net cash provided by financing activities 4,897
-------
Net decrease in cash and cash equivalents (35)
Cash and cash equivalent, beginning of year 41
-------
CASH AND CASH EQUIVALENTS, END OF PERIOD 6
=======
</TABLE>
See notes to unaudited consolidated financial statements
17
<PAGE> 18
SARAH MICHAELS, INC.
NOTES TO UNAUDITED INTERIM FINANCIAL STATEMENTS
NOTE A. BASIS OF PRESENTATION
In the opinion of Sarah Michaels, the accompanying unaudited interim financial
statements contain all adjustments consisting of normal recurring accruals
necessary to present fairly the financial position of Sarah Michaels and the
results of its operations and changes in its financial position for the period
presented.
NOTE B. PRO FORMA FINANCIAL INFORMATION
The required pro forma financial information is set forth below.
The following unaudited pro forma consolidated statements of operations for the
year ended January 3, 1998 and the nine months ended October 3, 1998 combines
historical statements of operations for The Dial Corporation (the "Company") and
the acquired company, Sarah Michaels, Inc. ("Sarah Michaels"), as if the
acquisition had occurred on December 29, 1996. A pro forma consolidated balance
sheet at October 3, 1998 is not presented since the transaction is already
reflected in the Company's October 3, 1998 consolidated balance sheet which was
included in the Company's Quarterly Report on Form 10-Q for the quarterly period
ended October 3, 1998.
The detailed assumptions used to prepare the unaudited pro forma consolidated
financial information are contained herein. The unaudited pro forma consolidated
financial information reflects the use of the purchase method of accounting for
the acquisition. The purchase price allocation used in the preparation of the
pro forma financial information is preliminary and may be adjusted based upon
the Company's ongoing analysis.
The unaudited pro forma consolidated financial information assumes the
acquisition was funded with short-term bank borrowings.
The unaudited pro forma data is not necessarily indicative of the financial
position or results of operations which would have actually been reported had
the transaction been consummated at the date mention above or which may be
reported in the future.
The unaudited pro forma data should be read in conjunction with the notes to the
unaudited pro forma consolidated financial information included herein and the
separate historical financial statements, and notes thereto, of the Company and
Sarah Michaels.
18
<PAGE> 19
THE DIAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
NINE MONTHS ENDED OCTOBER 3, 1998
(000 omitted, except per share data)
<TABLE>
<CAPTION>
Sarah Pro Pro Forma
The Dial Michaels, Forma Consolidated
Corporation Inc. Adj. Balance
-------------------------------------- -------------
<S> <C> <C> <C> <C>
Net sales $1,085,730 26,641 $1,112,371
------------------------------------- -------------
Costs and expenses:
Cost of products sold 557,818 16,339 574,157
Selling, general and administrative
expenses 395,463 12,206 119(a) 407,788
------------------------------------ ----------
953,281 28,545 119 981,945
------------------------------------ ----------
Operating income 132,449 (1,904) (119) 130,426
Interest and other expenses 14,897 7,375 339(b) 22,611
------------------------------------ ----------
Income (loss) before income taxes 117,552 (9,279) (458) 107,815
Income taxes (benefit) 42,306 (2,758) (129)(c) 39,419
------------------------------------ ----------
NET INCOME (LOSS) $ 75,246 (6,521) (329) $ 68,396
==================================== ==========
NET INCOME PER SHARE - BASIC $ 0.77 $ 0.70
========== ==========
NET INCOME PER SHARE - DILUTED $ 0.75 $ 0.68
========== ==========
Weighted average basic shares 98,217 98,217
outstanding
Weighted average equivalent shares 2,204 2,204
---------- ----------
Weighted average diluted shares
outstanding 100,421 100,421
========== ==========
</TABLE>
PRO FORMA ADJUSTMENT LEGEND
(a) Amount represents the net change in goodwill amortization. While the Company
has yet to complete the final purchase accounting entries, based on its
preliminary estimate, the Company believes that any additional adjustments
required will be allocated to goodwill, which is estimated to be amortized
over 40 years. The excess of assets acquired over liabilities assumed of
$119,991,000 has been allocated to goodwill.
(b) Amount represents the net change in interest expense associated with the
financing of the Company's acquisition of Sarah Michaels.
(c) Amount represents income tax expense on pro forma adjustments, adjusted for
nondeductible goodwill, at a 38% marginal tax rate.
19
<PAGE> 20
THE DIAL CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FISCAL YEAR 1997
(000 omitted, except per share data)
<TABLE>
<CAPTION>
Sarah Pro Pro Forma
The Dial Michaels, Forma Consolidated
Corporation Inc. Adj. Balance
----------------------------------------- ----------
<S> <C> <C> <C> <C>
Net sales $1,362,606 71,986 $1,434,592
---------------------------------------- ----------
Costs and expenses:
Cost of products sold 718,112 42,340 760,452
Selling, general and administrative
expenses 482,324 13,980 764(a) 497,068
---------------------------------------- ----------
1,200,436 56,320 764 1,257,520
---------------------------------------- ----------
Operating income 162,170 15,666 (764) 177,072
Interest and other expenses 28,235 7,812 2,473(b) 38,520
---------------------------------------- ----------
Income (loss) before income taxes 133,935 7,854 (3,237) 138,552
Income taxes (benefit) 50,225 4,222 (940)(c) 53,507
---------------------------------------- ----------
NET INCOME (LOSS) $ 83,710 3,632 (2,297) $ 85,045
======================================== ==========
NET INCOME PER SHARE - BASIC $ 0.91 $ 0.93
========== ==========
NET INCOME PER SHARE - DILUTED $ 0.89 $ 0.90
========== ==========
Weighted average basic shares 91,918 91,918
outstanding
Weighted average equivalent shares 2,231 2,231
---------- ----------
Weighted average diluted shares
outstanding 94,149 94,149
========== ==========
</TABLE>
PRO FORMA ADJUSTMENT LEGEND
(a) Amount represents the net change in goodwill amortization. While the Company
has yet to complete the final purchase accounting entries, based on its
preliminary estimate, the Company believes that any additional adjustments
required will be allocated to goodwill, which is estimated to be amortized
over 40 years. The excess of assets acquired over liabilities assumed of
$119,991,000 has been allocated to goodwill.
(b) Amount represents the net change in interest expense associated with the
financing of the Company's acquisition of Sarah Michaels.
(c) Amount represents income tax expense on pro forma adjustments, adjusted for
nondeductible goodwill, at a 38% marginal tax rate.
20
<PAGE> 21
ITEM 7. EXHIBITS AND REPORTS ON FORM 8-K.
(C) Exhibits
23. Consent of Arthur Andersen LLP.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE DIAL CORPORATION
November 25, 1998
\s\ Susan J. Riley
--------------------------------------------------------------
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer and Authorized Officer)
21
<PAGE> 22
Exhibit Index
23. Consent of Arthur Andersen LLP.
22
<PAGE> 1
EXHIBIT 23
ARTHUR ANDERSEN LLP
As independent public accountants, we hereby consent to the incorporation
by reference in the Dial Corporations' Form 8-K of our report dated May
28, 1998 and to all references to our Firm included in this filing. It
should be noted that we have not audited any financial statements of the
Company subsequent to December 31, 1997 or performed any audit procedures
subsequent to the date of our report.
\s\ Arthur Andersen LLP
----------------------------------
Boston, Massachusetts
November 24, 1998
23
