UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 27, 1997
Commission file number 1-11793
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
Indicate by check mark whether the registrant (1) has filed all Exchange Act
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months, and (2) has been subject
to such filing requirements for the past 90 days.
Yes X No
----------- -----------
The number of shares of Common Stock, $.01 par value, outstanding as the close
of business on September 27, 1997 was 96,011,542.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
THE DIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(000 omitted)
(Unaudited)
September 27, December 28,
1997 1996
--------------- --------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . $ 8,834 $ 14,102
Receivables, less allowance of $8,714 and $3,170 . . 56,875 28,689
Inventories. . . . . . . . . . . . . . . . . . . . . 119,031 139,492
Deferred income taxes. . . . . . . . . . . . . . . . 53,476 61,379
Other current assets . . . . . . . . . . . . . . . . 6,119 4,119
--------------- --------------
Total current assets. . . . . . . . . . . . . . . 244,335 247,781
Property and equipment, net. . . . . . . . . . . . . . 248,609 226,551
Deferred income taxes. . . . . . . . . . . . . . . . . 57,881 63,918
Intangibles. . . . . . . . . . . . . . . . . . . . . . 328,207 325,739
Other assets . . . . . . . . . . . . . . . . . . . . . 874 2,137
--------------- --------------
$ 879,906 $ 866,126
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable . . . . . . . . . . . . . . . $ 86,960 $ 91,341
Income taxes payable . . . . . . . . . . . . . . . . 29,216 7,188
Other current liabilities. . . . . . . . . . . . . . 119,162 108,145
--------------- --------------
Total current liabilities . . . . . . . . . . . . 235,338 206,674
Long-term debt . . . . . . . . . . . . . . . . . . . . 207,404 269,515
Pension and other employee benefits. . . . . . . . . . 238,772 233,306
Other liabilities. . . . . . . . . . . . . . . . . . . 8,920 15,974
--------------- --------------
Total liabilities . . . . . . . . . . . . . . . . 690,434 725,469
--------------- --------------
Shareholders' Equity
Common stock, $.01 par value, 300,000,000 shares
authorized, 96,102,553 and 95,638,352 shares issued. 961 956
Additional capital . . . . . . . . . . . . . . . . . 264,243 247,209
Retained earnings (deficit). . . . . . . . . . . . . 19,038 (20,308)
Unearned employee benefits . . . . . . . . . . . . . (93,195) (87,129)
Cumulative translation adjustment. . . . . . . . . . (327) 575
Treasury stock, 91,011 and 49,399 shares held. . . . (1,248) (646)
--------------- --------------
Total shareholders' equity. . . . . . . . . . . . 189,472 140,657
--------------- --------------
$ 879,906 $ 866,126
=============== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(000 omitted, except per share data)
(Unaudited)
Quarter Ended
---------------------------------
September 27, September 28,
1997 1996
---------------- ---------------
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . $ 334,290 $ 350,508
---------------- ---------------
Costs and expenses:
Cost of products sold. . . . . . . . . . . . . . . 173,723 188,340
Write down of discontinued product inventories . . 27,924
---------------- ---------------
173,723 216,264
Selling, general and administrative expenses . . . 119,582 138,561
Restructuring charges and other asset write-downs 27,076
---------------- ---------------
293,305 381,901
---------------- ---------------
Operating income (loss) . . . . . . . . . . . . . . . 40,985 (31,393)
Interest and other expense. . . . . . . . . . . . . . 6,392 6,361
Spinoff transaction costs . . . . . . . . . . . . . . 1,000
---------------- ---------------
6,392 7,361
---------------- ---------------
Income (loss) before income taxes . . . . . . . . . . 34,593 (38,754)
Income taxes (benefit). . . . . . . . . . . . . . . . 12,241 (13,268)
---------------- ---------------
NET INCOME (LOSS). . . . . . . . . . . . . . . . . . $ 22,352 $ (25,486)
================ ===============
NET INCOME (LOSS) PER SHARE . . . . . . . . . . . . . $ 0.24 $ (0.28)
================ ===============
Average outstanding common and equivalent shares. . . 92,872 90,618
================ ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(000 omitted, except per share data)
(Unaudited)
Nine Months Ended
-----------------------------------
September 27, September 28,
1997 1996
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<S> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . $ 999,800 $ 1,056,658
------------------- --------------
Costs and expenses:
Cost of products sold . . . . . . . . . . . . . . 526,050 553,270
Write down of discontinued product inventories 27,924
------------------- --------------
526,050 581,194
Selling, general and administrative expenses. . . 356,051 400,442
Restructuring charges and other asset write-downs 27,076
------------------- --------------
882,101 1,008,712
------------------- --------------
Operating income . . . . . . . . . . . . . . . . . . 117,699 47,946
Interest and other expenses. . . . . . . . . . . . . 21,191 16,146
Spinoff transaction costs. . . . . . . . . . . . . . 5,000
------------------- --------------
21,191 21,146
------------------- --------------
Income before income taxes . . . . . . . . . . . . . 96,508 26,800
Income taxes . . . . . . . . . . . . . . . . . . . . 35,451 13,389
------------------- --------------
NET INCOME. . . . . . . . . . . . . . . . . . . . . $ 61,057 $ 13,411
=================== ==============
NET INCOME PER SHARE. . . . . . . . . . . . . . . . $ 0.66 $ 0.15
=================== ==============
Average outstanding common and equivalent shares . . 92,491 90,618
=================== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<TABLE>
<CAPTION>
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(000 omitted)
(Unaudited)
Nine Months Ended
--------------------------------
September 27, September 28,
1997 1996
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<S> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . $ 61,057 $ 13,411
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . 23,107 21,920
Deferred income taxes. . . . . . . . . . . . . . . 13,940 (16,419)
Restructuring charges and asset write-downs. . . . 55,000
Change in operating assets and liabilities:
Receivables . . . . . . . . . . . . . . . . . . . 2,624 (2,165)
Inventories . . . . . . . . . . . . . . . . . . . 23,133 (12,390)
Trade accounts payable. . . . . . . . . . . . . . (23,142) 5,778
Other assets and liabilities, net . . . . . . . . 19,076 (18,795)
--------------- ---------------
Net cash provided by operating activities. . . . . . 119,795 46,340
--------------- ---------------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures . . . . . . . . . . . . . . . . (29,713) (34,442)
Acquisition of business, net of cash acquired. . . . (25,135)
Proceeds from sale of assets . . . . . . . . . . . . 35,080 509
--------------- ---------------
Net cash (used) by investing activities. . . . . . . (19,768) (33,933)
--------------- ---------------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net payments on long-term borrowings . . . . . . . . (82,913) (3,003)
Proceeds from long-term borrowings . . . . . . . . . 15,000
Net change in short-term bank loans. . . . . . . . . (317)
Dividends paid on common stock . . . . . . . . . . . (21,710) (7,174)
Cash proceeds from stock options . . . . . . . . . . 8,128
Net change in receivables sold . . . . . . . . . . . (8,800) 292
Cash transfers (to) from parent, net . . . . . . . . (14,200)
--------------- ---------------
Net cash provided (used) by financing activities . . (105,295) (9,402)
--------------- ---------------
Net decrease in cash and cash equivalents. . . . . . (5,268) 3,005
Cash and cash equivalents, beginning of year . . . . 14,102 5,884
--------------- ---------------
CASH AND CASH EQUIVALENTS, END OF PERIOD . . . . . . $ 8,834 $ 8,889
=============== ===============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
THE DIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BASIS OF PREPARATION
On July 25, 1996, the Board of Directors of The Dial Corp ("the Former
Parent") declared a dividend (the "Distribution" or "the spinoff") to effect
the spinoff of its Consumer Products Business. The dividend was paid on
August 15, 1996, to shareholders of record as of August 5, 1996. Each Dial
shareholder received a dividend of one share of common stock of The Dial
Corporation ("the Company"), which, after the Distribution, owns and operates
the Consumer Products Business previously conducted by the Former Parent.
Concurrently with the Distribution, the name of the Former Parent was changed
to Viad Corp.
The Consolidated Financial Statements present the financial position, results
of operations and cash flows of the divisions and subsidiaries comprising The
Dial Corporation, as if it had been formed as a separate entity for all
periods presented. The Former Parent's historical cost basis of the assets
and liabilities have been carried over to the new company. All material
intercompany balances and transactions among the entities comprising the
Company have been eliminated.
Accounting policies utilized in the preparation of these financial statements
are the same as set forth in the Company's annual financial statements except
as modified for interim accounting policies, which are within the guidelines
set forth in Accounting Principles Board Opinion No. 28, "Interim Financial
Reporting."
Net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during the year after giving
effect to stock options considered to be dilutive common stock equivalents.
Fully diluted net income per common share is not materially different from
primary net income per common share. The average outstanding and equivalent
shares do not include shares held by the Employee Equity Trust (the "Trust").
Shares held by the Trust are not considered outstanding for net income per
share calculations until the shares are released from the Trust.
At September 27, 1997, there were 96,102,553 shares of common stock issued and
96,011,542 shares outstanding. At September 27, 1997, a total of 5,191,425
of the outstanding shares were held by the Trust. In addition, the Company
held 91,011 shares in treasury.
In addition to common stock, the Company is authorized to issue 10,000,000
shares of preferred stock, par value $.01 per share, none of which has been
issued.
In March 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
("SFAS No. 128"), which is effective for financial statements for both interim
and annual periods ending after December 15, 1997. Early adoption of the
statement is not permitted. This new standard requires dual presentation of
"basic" and "diluted" earnings per share ("EPS") on the face of the earnings
statement and requires a reconciliation of the numerators and denominators of
basic and diluted EPS calculations. The Company's current EPS calculation
conforms to SFAS No. 128's diluted EPS.
In June 1996, FASB issued Statement of Financial Accounting Standards No. 125,
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" ("SFAS No. 125"). SFAS No. 125 permits sale
accounting treatment for transfers of financial assets in which the transferor
surrenders control over those assets and consideration other than beneficial
interests in the transferred assets is received in exchange. SFAS No. 125
defines the conditions under which a transferor has surrendered control. The
Company adopted SFAS No. 125 on January 1, 1997, as required. Sale of trade
accounts receivable entered into in 1997 are structured in a manner that
qualifies for sale accounting under SFAS No. 125. The adoption of SFAS No.
125 did not have a material effect on the Company's financial position or
results of operations.
In June 1997, the FASB issued Statements of Financial Accounting Standards
("SFAS") No. 130 "Reporting Comprehensive Income" and No. 131 "Disclosures
About Segments of an Enterprise and Related Information". SFAS 130 requires
that an enterprise (a) classify items of other comprehensive income by their
nature in a financial statement and (b) display the accumulated balance of
other comprehensive income separately from retained earnings and additional
capital in the equity section of a statement of financial position. SFAS 131
establishes standards for the way that public enterprises report information
about operating segments in annual financial statements and requires that
those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes
standards for disclosures about products and services, geographic areas and
major customers. Both statements are effective for financial statements for
periods beginning after December 15, 1997. The Company has not completed
evaluating the impact of implementing the provisions of SFAS Nos. 130 and 131.
The interim consolidated financial statements are unaudited. In the opinion
of management, all adjustments, consisting of normal recurring accruals,
necessary to present fairly the financial position as of September 27, 1997
and the results of operations and cash flows for the quarters and nine months
ended September 27, 1997 and September 28, 1996 have been included. Interim
results of operations are not necessarily indicative of the results of
operations for the full year.
Certain reclassifications have been made to 1996 balances to conform to 1997
presentations.
This information should be read in conjunction with the financial statements
set forth in the Company's Annual Report to Shareholders for the year ended
December 28, 1996.
NOTE B. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 27, December 28,
1997 1996
--------------- --------------
<S> <C> <C>
(000 omitted)
Raw materials and supplies $ 33,375 $ 37,744
Work in process. . . . . . 9,081 10,939
Finished goods . . . . . . 76,575 90,809
--------------- --------------
$ 119,031 $ 139,492
=============== ==============
</TABLE>
NOTE C. INCOME TAXES
Reconciliations between the statutory federal income tax rate of 35% and the
Company's consolidated effective income tax rate for the nine months ended
September 27, 1997 and September 28, 1996 are as follows:
<TABLE>
<CAPTION>
September 27, September 28,
1997 1996
-------------- --------------
<S> <C> <C>
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0%
Nondeductible goodwill amortization. . . . . . . . . . . . . . . . . . . . . . . . 0.3 2.6
FSC exclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.5) (1.6)
State income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.9 4.5
Impact of lower foreign tax rate . . . . . . . . . . . . . . . . . . . . . . . . . (1.1) (.9)
Provision for potential nondeductible restructuring and spinoff transaction costs
7.6
Other, net (benefit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.9) 2.8
-------------- --------------
Effective income tax rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.7% 50.0%
============== ==============
</TABLE>
NOTE D. RESTRUCTURING CHARGES AND INVENTORY AND ASSET WRITE-DOWNS
In the third quarter of 1996, the Company announced an administrative and line
of business reorganization to streamline its management and administrative
organization, eliminate approximately 250 positions, sell or discontinue a
number of underperforming brands and exit the current corporate headquarters.
The Company recorded restructuring charges and asset write-downs of $55
million ($33.6 million after tax) in the third quarter of 1996 for severance
costs, discontinuance of product lines and building exit costs.
In the third quarter of 1995, the Company recorded restructuring charges and
asset write-downs totaling $156 million ($94.9 million after tax) to provide
for a business-based reorganization through plant closings, work force
reductions and elimination of certain products. The charges provided for the
closing of six plants and the reduction of the work force by approximately 700
people, substantially all of whom were based in the plants that were closed.
All six plants have been closed.
Approximately $14.4 million in reserves for the 1995 and 1996 restructuring
charges remained at September 27, 1997. These reserves are believed to be
adequate and the expenses are expected to be paid utilizing cash flow from
operations. Based upon the discontinuation and product rationalization
analysis completed, the related assets and intangibles were determined to be
impaired and were written down to their net realizable value. Severance pay
and benefits and exit costs have been recognized in accordance with Emerging
Issues Task Force Issue No. 94-3 ("EITF No. 94-3"), "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." Restructure costs
charged against such reserves in the first nine months of 1997 amounted to
$20.6 million, of which $11.9 million were severance and exit costs.
NOTE E. DISPOSITION OF ASSETS
In the third quarter of 1997, the Company sold to Church & Dwight Co., Inc.
for approximately $30 million the following brands and related inventories:
Brillo soap pads and related products, Parsons ammonia, Bo Peep ammonia, Sno
Bol toilet bowl cleaner, Cameo metal cleaner and Rain Drops water softener.
The Company's London, Ohio plant, where Brillo is manufactured, was also part
of the sale. In addition, the Company has sold its Bruce floor care product
trademark and its Magic Sizing/Starch brand and related inventories to other
third parties.
The Company realized a gain of approximately $16 million from the sale of the
non-core businesses. This gain was offset by $16 million in various
non-recurring operating charges, comprised principally of $9.5 million in
expenses from the write-off of capitalized package design costs which were
determined in the third quarter of 1997 to be impaired and $4.5 million in
expenses associated with sales returns of discontinued products.
NOTE F. ACQUISITION OF BUSINESS
On September 24, 1997, the Company announced that it had acquired Nuevo
Federal, a leading manufacturer and marketer of personal care and household
products in Argentina, for a purchase price of approximately $35 million. Of
this amount, $25.1 million was paid in cash with the remainder of the purchase
price comprised of future payments contingent on the completion of certain
transactions. With this venture, the Company will enter what it believes is
one of Latin America's fastest growing consumer markets. The Company intends
to establish a position in Mercosur, a regional trading bloc with over 230
million consumers in Argentina and neighboring countries, including Brazil,
Paraguay, Uruguay and Chile. The Statement of Consolidated Operations
presented for the quarter and nine months ended September 27, 1997 does not
include the operations of Nuevo Federal.
Net cash paid, assets acquired and debt and other liabilities assumed are
shown in the table below.
<TABLE>
<CAPTION>
September 27,
Assets acquired: 1997
- ---------------------------------- ---------------
<S> <C>
Receivables. . . . . . . . . . . . $ 22,773
Inventories. . . . . . . . . . . . 9,085
Property and equipment . . . . . . 21,107
Intangibles. . . . . . . . . . . . 22,194
Other assets . . . . . . . . . . . 1,332
Debt and other liabilities assumed (51,356)
---------------
Net cash paid. . . . . . . . . . . $ 25,135
===============
</TABLE>
NOTE G. SUBSEQUENT EVENTS
On October 16, 1997, the Company filed Amendment No. 1 to its Registration
Statement on Form S-3 (the "Registration Statement"), which was originally
filed on August 14, 1997, to register $115 million in proposed maximum
aggregate offering price of the Company's common stock. The Registration
Statement was declared effective by the Securities and Exchange Commission on
October 16, 1997. On November 10, 1997, the Company entered into an
underwriting agreement with a syndicate of underwriters to sell 5,460,751
shares of its Common Stock, par value $.01 per share (the "Common Stock")
under the Registration Statement (6,279,864 shares if the underwriters'
over-allotment option is exercised in full) at a purchase price of $18.3125
per share. The offering is scheduled to close on November 17, 1997. The net
proceeds to the Company from the offering will be approximately $94.2
million (or approximately $108.5 million if all over-allotment options are
the offering. The Company intends to use the net proceeds of the offering to
repay long-term debt.
In October 1997, the Company acquired three leading personal care soap brands
and two leading laundry brands from Procter & Gamble Co's Argentina subsidiary
for a purchase price of approximately $4.5 million. The purchase of these
five brands complements the Company's acquisition of Nuevo Federal.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Basis of Management's Discussion and Analysis
In the line of business reorganization undertaken in the third quarter of
1996, the Company identified certain brands and lines of business upon which
it intends to dedicate the resources of the Company. These businesses are the
retail branded products which the Company markets under its Dial, Purex,
Renuzit and Armour franchises and the Company's international line of
business. The Dial franchise includes not only the Dial and Liquid Dial
brands but also the Tone, Nature's Accents, Pure & Natural, Fels Naptha,
Boraxo and Breck brands. The Purex franchise includes the Trend, Dutch,
Borateem, Vano, Sta-Flo, 20 Mule Team and La France brands in addition to the
Purex brand. The Renuzit franchise includes only products that bear the
Renuzit name. The Armour franchise includes the Armour, Armour Star and Cream
brands. These brands and lines of business were identified on the basis of
their profitability, strength in the marketplace and potential growth. All
products and lines of business outside of the identified franchises (the
"noncore businesses") have been discontinued or sold.
COMPARISON OF THE THIRD QUARTER OF 1997 WITH THE THIRD QUARTER OF 1996
Net revenues for the third quarter of 1997 decreased to $334.3 million from
$350.5 million for the third quarter of 1996 as a result of the recent
divestiture of several non-core brands. In the third quarter of 1997, the
Company's business, exclusive of brands to be discontinued or divested, grew
9.7% in unit volume and 3.9% in revenues versus the same period in 1996.
This increase was driven primarily by an increase in Purex revenues (up
2.9%), an increase in Renuzit revenues (up 12.1%), an increase in Armour
revenues (up 10.8%), and an increase in International revenues (up 4.1%).
Dial revenues remained relatively constant from the third quarter of 1996 to
the third quarter of 1997.
Noncore revenues in the third quarter of 1997 of $13.0 million declined $28.3
million (or 68.5%) from the third quarter 1996 levels. The Company expects
that any future revenues from noncore businesses will not be significant as
the Company has substantially completed its initiative of discontinuing and
divesting certain brands.
The Company reported net income of $22.4 million for the quarter ended
September 27, 1997, versus a net loss of $25.5 million for the third quarter
of 1996. Operating income for the third quarter of 1997 was $41.0 million, up
$72.4 million over an operating loss in the third quarter of 1996 of $31.4
million. Included in the results of operations for the third quarter of 1996
were restructuring charges, discontinued product inventories and other asset
write-downs of $55.0 million. Operating income for the third quarter of 1996
before these charges was $23.6 million. Net income before restructuring
charges, discontinued product inventories and other asset write-downs, and
spinoff transaction costs for the third quarter of 1996 was $7.4 million.
Included in cost of products sold in the third quarter of 1996 are charges for
the write-down of discontinued product inventories of $27.9 million. Excluding
these charges, gross profit margins increased to approximately 48.0% in the
third quarter of 1997 from approximately 46.3% in the third quarter of 1996.
Selling, general and administrative expenses were $119.6 million in the third
quarter of 1997, a decrease of approximately $19.0 million (or 13.7%) below
the third quarter of 1996. The decrease was the result of decreases in
marketing expenses of approximately $14.1 million and decreases in selling and
administrative expenses of approximately $4.9 million.
The decreases in marketing expenses in the third quarter of 1997 from the
third quarter of 1996 resulted from lower trade marketing spending of
approximately $3.6 million on core businesses and a savings of approximately
$6.5 million of trade marketing expenses on products that have been
discontinued or divested. Additionally, in the third quarter of 1997 versus
the third quarter of 1996, there were favorable consumer promotion expenses of
approximately $4.0 million as a result of the curtailment of consumer
promotion expenses on products that have been discontinued or divested.
The decreases in selling and administrative expenses of approximately $4.9
million in the third quarter of 1997 versus the third quarter of 1996 are a
result of a $6.9 million decrease in selling and administrative expenses
attributable to savings achieved from the Company's restructuring efforts,
offset by approximately $2.0 million in incremental public company costs.
In the third quarter of 1997, the Company completed its disposition of several
non-core businesses. The Company realized a gain of approximately $16.0
million from these sales. This gain was offset by $16.0 million in various
non-recurring operating charges, comprised principally of $9.5 million in
expenses from the write-off of capitalized package design costs which were
determined in the third quarter of 1997 to be impaired and $4.5 million in
expenses associated with sales returns of discontinued products.
Interest and other expenses remained relatively constant from the third
quarter of 1996 to the third quarter of 1997.
The effective tax rate for the quarter ended September 27, 1997 was
approximately 35.4%, up from 34.2% for the comparable period in 1996.
COMPARISON OF THE FIRST NINE MONTHS OF 1997 WITH THE FIRST NINE MONTHS OF 1996
Net revenues for the nine months ended September 27, 1997 decreased to $999.8
million from $1,056.7 million for the nine months ended September 28, 1996.
The decrease in revenues was due to a Purex price reduction taken in the first
quarter of 1996 and a decline of $71.8 million in revenues from discontinued
and divested brands. During the nine months ended September 27, 1997, the
Company's business, exclusive of brands to be discontinued or divested, grew
4.4% in unit volume and 4.2% in revenues versus the same period in 1996.
For the nine months ended September 27, 1997, the Company reported net income
of $61.1 million versus a net income $13.4 million for the nine months ended
September 28, 1996. Operating income for the nine months ended September 27,
1997 increased 145.5% to $117.7 million from $48.0 million for the nine months
ended September 28, 1996. Included in the results of operations for the
first nine months of 1996 were restructuring charges, discontinued product
inventories and other asset write-downs of $55.0 million. Operating income
for the first nine months of 1996 before these charges was $102.9 million.
Net income before restructuring charges, discontinued product inventories and
other asset write-downs, and spinoff transaction costs for the first nine
months of 1996 was $48.7 million.
Included in cost of products sold in the first nine months of 1996 are charges
for the write-down of discontinued product inventories of $27.9 million.
Excluding these charges, gross profits declined $29.6 million, from $503.4
million for the nine months ended September 28, 1996 to $473.8 million for the
first nine months ended September 27, 1997. The principal reason for the
decline in gross profit relates to the Purex price reduction taken in the
second quarter of 1996. Gross profit margins remained relatively constant at
approximately 47% for both periods.
Selling, general and administrative expenses were $356.1 million for the first
nine months of 1997, a decrease of approximately $44.4 million (or 11.1%)
below 1996 levels for the comparable period. The decrease was the result of
decreases in marketing expenses of approximately $34.9 million and decreases
in selling and administrative expenses of approximately $9.5 million.
The decreases in marketing expenses in the first nine months of 1997 from the
first nine months of 1996 is the result of lower trade promotion expenditures
of approximately $16.4 million and lower consumer promotion expenses of
approximately $18.5 million. The decline in trade promotion expense is
comprised of approximately $15.0 million of lower trade promotion expenditures
on Purex which were no longer necessary as a result of the price reduction
taken in the first quarter of 1996, the curtailment of trade marketing
expenses on products that have been discontinued or divested of approximately
$12.8 million, offset by additional trade spending related to incremental
sales volume in the first nine months of 1997 of approximately $11.4 million
on other core businesses. Favorable consumer promotion expenses of
approximately $18.5 million in the first nine months of 1997 versus the first
nine months of 1996 were the result of not repeating the "Buy three, get one
free" promotion on Dial bar soap in 1997, as well as a reduction of marketing
expenses on products that have been discontinued or divested.
The decreases in selling and administrative expenses of approximately $9.5
million in the first nine months of 1997 versus the first nine months of 1996
are a result of a $17.5 million decrease in selling and administrative
expenses attributable to savings achieved from the Company's restructuring
efforts, offset by approximately $8.0 million in incremental public company
costs.
In the third quarter of 1997, the Company completed its disposition of several
non-core businesses. The Company realized a gain of approximately $16.0
million from these sales. This gain was offset by $16.0 million in various
non-recurring operating charges, comprised principally of $9.5 million in
expenses from the write-off of capitalized package design costs which were
determined in the third quarter of 1997 to be impaired and $4.5 million in
expenses associated with sales returns of discontinued products.
Interest and other expenses increased approximately $5.0 million from the nine
months ended September 28, 1996 to the nine months ended September 27, 1997.
This increase was the result of a $4.7 million increase in accretion costs
related to Armour employee benefit liabilities assumed from the Former Parent
in the spinoff and additional sale of accounts receivable expenses of $2.5
million, offset by an interest expense savings on long-term debt of $2.2
million in the first nine months of 1997 versus the first nine months of 1996.
The effective tax rate for the nine months ended September 27, 1997 was
approximately 36.7%, down from 50.0% for the comparable period in 1996. The
net decrease of approximately 13.3% is due to an increase in the income
eligible for the Foreign Sales Corporation exclusion, an increase in foreign
income subject to lower income tax rates, and a reduction in the provision for
potentially nondeductible restructuring and spinoff transaction costs, offset
by slightly higher nondeductible goodwill amortization and additional state
taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $119.8 million during the first
nine months of 1997, an increase of $73.5 million from the comparable period
in 1996. The increase was attributable primarily to higher net income,
decreases in receivables, inventories, deferred income taxes and accounts
payable.
Capital expenditures for the first nine months of 1997 were $29.7 million
versus $34.4 million for the comparable period in 1996. In the third quarter
of 1997, the Company acquired Nuevo Federal, a leading manufacturer and
marketer of personal care and household products in Argentina, for a purchase
price of approximately $35 million. Of this amount, $25.1 million was paid
in cash with the remainder of the purchase price comprised of future payments
contingent on the completion of certain transactions.
In the third quarter of 1997, the Company sold to Church & Dwight Co., Inc.
for approximately $30 million the following brands and related inventories:
Brillo soap pads and related products, Parsons ammonia, Bo Peep ammonia, Sno
Bol toilet bowl cleaner, Cameo metal cleaner and Rain Drops water softener.
The Company's London, Ohio plant, where Brillo is manufactured, was also part
of the sale. In addition, the Company has sold its Bruce floor care product
trademark and its Magic Sizing/Starch brand and related inventories to other
third parties. Total proceeds from the sale of all product lines were $35.1
million.
The Company's financing plan includes the sale of accounts receivable to
accelerate cash flow. Accounts receivable sold but not yet collected under
this plan at September 27, 1997 and September 29, 1996 were $66.1 million and
$77.0 million, respectively. Under, the terms of the plan, the Company
retains the risk of credit loss on the receivables sold.
The Company is also party to a $350 million revolving credit agreement (the
"Credit Agreement") with various banks. The Credit Agreement, which will
terminate on August 15, 2002, unless extended, contains certain covenants
which impose limitations on the Company with respect to, among other things,
its ability to place liens on property, its ability to merge, consolidate or
transfer substantially all its assets, its minimum net worth and the
incurrence of certain indebtedness. The Company, from time to time, makes
short-term borrowings that are supported by the Credit Agreement. As of
September 27, 1997, the Company had $186.6 million aggregate principal amount
of such short-term borrowings outstanding and, at such date, the Company had
$163.4 million available under the Credit Agreement. Such short-term
borrowings are classified as long-term debt because they are supported by the
long-term Credit Agreement. In addition, at September 27, 1997 the Company
had $20.8 million in long-term debt that it had assumed in the acquisition of
Nuevo Federal. In October 1997, the Company repaid in full the long-term debt
of Nuevo Federal.
On October 17, 1997, the Company announced that it was making a public
offering of approximately 5.6 million shares of Common Stock. The offering of
the Common Stock is being done as a take-down from the Company's effective
shelf registration statement for Common Stock, which was filed with the
Securities and Exchange Commission on August 14, 1997. The equity offering
was required to preserve the status of the tax ruling received by the Former
Parent and the Company from the IRS in connection with the Distribution. This
ruling was issued on the basis of certain representations made by the Former
Parent and the Company, including a representation that the Company would
issue at least $100 million in additional equity securities by the first
anniversary of the Distribution (August 15, 1997). The Company petitioned the
IRS to permit it to extend the deadline for the issuance of such equity
securities until December 31, 1997. The IRS granted the Company's petition.
The Company moved its corporate headquarters in the Viad Tower to office space
in Scottsdale, Arizona, in August 1997. The Company has approximately nine
years remaining on the lease for the Viad Tower space, which commits the
Company to payments of approximately $2,676,000 annually through 2006. The
Company is actively marketing the space for sublease. Estimated losses on
this lease were provided for in the restructuring charges and asset
write-downs recorded in the third quarter of 1996.
As of September 27, 1997, the Company had approximately $111.4 million in net
deferred tax benefits, which the Company believes are fully realizable in
future years. The realization of such benefits will require average annual
taxable income of approximately $18.6 million over the next 15 years. The
Company's average income before income taxes over the last three years was
approximately $47.6 million.
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
The Company filed a Form S-3 Registration Statement under the Securities Act
of 1933 with the Securities and Exchange Commission on August 14, 1997.
Amendment No. 1 to Form S-3 Registration Statement under the Securities Act of
1933 was filed with the Securities and Exchange Commission on October 16,
1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
11. Statement Re: Computation of Per Share Earnings.
27. Financial Data Schedule.
(B) No reports on Form 8-K have been filed by the Company during the quarter
for which this report is filed.
SIGNATURES
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
(Registrant)
November 11, 1997
\s\ Lowell L. Robertson
Lowell L. Robertson
Senior Vice President, Finance
(Chief Accounting Officer and Authorized Officer)
<TABLE>
<CAPTION>
THE DIAL CORPORATION
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE
(000 omitted, except per share data)
Quarter ended Quarter ended
September 27, September 28,
1997 1996
-------------- ---------------
<S> <C> <C>
PRIMARY:
Net Income (Loss). . . . . . . . . . . . . . $ 22,352 $ (25,486)
============== ===============
Weighted average common & equivalent shares
outstanding . . . . . . . . . . . . . . . 92,872 90,618
============== ===============
Primary earnings per share:
Net Income (Loss) per share . . . . . . . $ 0.24 $ (0.28)
============== ===============
FULLY DILUTED:
Net Income (Loss). . . . . . . . . . . . . . $ 22,352 $ (25,486)
Weighted average common & equivalent shares
outstanding . . . . . . . . . . . . . . . 92,872 90,618
Incremental shares under stock option plans. 111
-------------- ---------------
Adjusted weighted average common &
equivalent shares outstanding . . . . . . 92,983 90,618
============== ===============
Fully diluted earnings per share:
Net Income (Loss) per share . . . . . . . $ 0.24 $ (0.28)
============== ===============
</TABLE>
<TABLE>
<CAPTION>
THE DIAL CORPORATION
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE
(000 omitted, except per share data)
Nine months Nine months
ended ended
September 27, September 28,
1997 1996
-------------- --------------
<S> <C> <C>
PRIMARY:
Net Income. . . . . . . . . . . . . . . . . $ 61,057 $ 13,411
============== ==============
Weighted average common & equivalent shares
outstanding . . . . . . . . . . . . . . . 92,491 90,618
============== ==============
Primary earnings per share:
Net Income per share. . . . . . . . . . . $ 0.66 $ 0.15
============== ==============
FULLY DILUTED:
Net Income. . . . . . . . . . . . . . . . . $ 61,057 $ 13,411
Weighted average common & equivalent shares
outstanding . . . . . . . . . . . . . . . 92,491 90,618
Incremental shares under stock option plans 401 185
-------------- --------------
Adjusted weighted average common &
equivalent shares outstanding . . . . . . 92,982 90,803
============== ==============
Fully diluted earnings per share:
Net Income per share. . . . . . . . . . . $ 0.66 $ 0.15
============== ==============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE DIAL
CORPORATION'S FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> SEP-27-1997
<CASH> 8,834
<SECURITIES> 0
<RECEIVABLES> 56,875
<ALLOWANCES> 8,714
<INVENTORY> 119,031
<CURRENT-ASSETS> 244,335
<PP&E> 248,609
<DEPRECIATION> 18,514
<TOTAL-ASSETS> 879,906
<CURRENT-LIABILITIES> 235,338
<BONDS> 207,404
0
0
<COMMON> 961
<OTHER-SE> 188,511
<TOTAL-LIABILITY-AND-EQUITY> 879,906
<SALES> 999,800
<TOTAL-REVENUES> 999,800
<CGS> 526,050
<TOTAL-COSTS> 526,050
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,191
<INCOME-PRETAX> 96,508
<INCOME-TAX> 35,451
<INCOME-CONTINUING> 61,057
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,057
<EPS-PRIMARY> .66
<EPS-DILUTED> .66
</TABLE>
