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 March 29, 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.)
1850 NORTH CENTRAL AVENUE
PHOENIX, ARIZONA 85004-4525
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (602) 207-2800
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 March 29, 1997 was 95,960,856.
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(000 omitted)
<S> <C> <C>
March 29, December 28,
1997 1996
----------- --------------
ASSETS
Current Assets:
Cash and cash equivalents $ 5,672 $ 14,102
Receivables, less allowance of $4,153 and $3,170 26,153 28,689
Inventories 128,453 139,492
Deferred income taxes 53,593 61,379
Other current assets 1,543 4,119
----------- --------------
Total current assets 215,414 247,781
Property and equipment, net 227,333 226,551
Deferred income taxes 63,840 63,918
Intangibles 323,653 325,739
Other assets 2,100 2,137
----------- --------------
$ 832,340 $ 866,126
=========== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 64,722 $ 91,341
Income taxes payable 8,348 7,188
Other current liabilities 95,718 108,145
----------- --------------
Total current liabilities 168,788 206,674
Long-term debt 258,682 269,515
Pension and other employee benefits 241,320 233,306
Other liabilities 9,212 15,974
----------- --------------
Total liabilities 678,002 725,469
----------- --------------
Shareholders' Equity
Common stock, $.01 par value, 300,000,000 shares
authorized, 96,026,735 shares issued 960 956
Additional capital 261,440 247,209
Retained deficit (9,205) (20,308)
Unearned employee benefits (97,166) (87,129)
Cumulative translation adjustment (817) 575
Treasury stock, 65,879 shares held (874) (646)
----------- --------------
Total shareholders' equity 154,338 140,657
----------- --------------
$ 832,340 $ 866,126
=========== ==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(000 omitted, except per share data)
<CAPTION>
<S> <C> <C>
Quarter Ended
---------------------------
March 29, March 30,
1997 1996
-------------- -----------
Net sales $ 316,242 $ 352,392
-------------- -----------
Costs and expenses:
Cost of products sold 169,290 175,284
Selling, general and administrative expenses 110,295 140,582
-------------- -----------
279,585 315,866
-------------- -----------
Operating income 36,657 36,526
-------------- -----------
Interest and other expenses 7,666 4,787
-------------- -----------
Income before income taxes 28,991 31,739
Income taxes 10,668 12,131
-------------- -----------
NET INCOME $ 18,323 $ 19,608
============== ===========
NET INCOME PER SHARE $ 0.20
==============
Average outstanding common and equivalent shares 91,943
==============
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(000 omitted)
<CAPTION>
<S> <C> <C>
Quarter Ended
----------------------------
March 29, March 30,
1997 1996
--------------- -----------
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income $ 18,323 $ 19,608
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 7,613 7,330
Deferred income taxes 7,864 (1,232)
Change in operating assets and liabilities:
Receivables 10,736 (1,099)
Inventories 11,039 (5,457)
Trade accounts payable (26,619) 8,183
Other assets and liabilities, net (7,842) (3,055)
--------------- -----------
Net cash provided by operating activities 21,114 24,278
--------------- -----------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures (6,795) (7,909)
--------------- -----------
Net cash used by investing activities (6,795) (7,909)
--------------- -----------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net payments on long-term borrowings (10,833) (3,003)
Net change in short-term bank loans (8)
Dividends paid on common stock (7,220)
Cash proceeds from stock options 3,504
Net change in receivables sold (8,200) 1,209
Cash transfers (to) from parent, net (16,125)
--------------- -----------
Net cash used by financing activities (22,749) (17,927)
--------------- -----------
Net decrease in cash and cash equivalents (8,430) (1,558)
Cash and cash equivalents, beginning of year 14,102 5,884
--------------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 5,672 $ 4,326
=============== ===========
</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. Dial'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.
Net income (loss) per common share is computed by dividing net income (loss)
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 (loss) per common share is not
materially different from primary net income (loss) 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 (loss) per share calculations until the
shares are released from the Trust.
Per share information is not presented for the quarter ended March 30, 1996
because the Company was not a publicly held company during such period.
Income (loss) per share is presented for 1997, as the Company's common shares
were issued on August 15, 1996. 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."
At March 29, 1997, there were 96,026,735 shares of common stock issued and
90,290,038 shares outstanding. At March 29, 1997, a total of 5,670,818 of
the outstanding shares were held by The Dial Corporation Employee Equity
Trust, and 65,879 shares were held in treasury by the Company.
In addition to common stock, the Company is authorized to issue 10,000,000
shares of preferred stock, par value of $.01 per share, none of which has
been issued.
In March 1997, the Financial Accounting Standards Board 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. Basic EPS, which excludes the effects of dilutive
stock options, is not materially different than diluted EPS for the Company.
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 receivables entered into in 1997 are structured in a manner
that qualifies for sale accounting under SFAS No. 125. The adoption of SFAS
No. 125 has not had a material effect on the Company's financial position or
results of operations in the first quarter of 1997 and is not expected to have
a material effect on the Company's financial position or results of operations
for the remainder of the year.
The interim combined financial statements are unaudited. In the opinion of
management, all adjustments, consisting only of normal recurring accruals,
necessary to present fairly the financial position as of March 29, 1997 and
the results of operations and cash flows for the three months ended March 29,
1997 and March 30, 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 with 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>
March 29, December 28,
1997 1996
---------------- -------------
(000 omitted)
<S> <C> <C>
Raw materials and supplies $ 36,327 $ 37,744
Work in process 9,828 10,939
Finished goods 82,298 90,809
---------------- -------------
$ 128,453 $ 139,492
================ =============
</TABLE>
NOTE C. INCOME TAXES
Reconciliations between the statutory federal income tax rate and the
Company's consolidated effective income tax rate for the three months ended
March 29, 1997 and March 30, 1996 are as follows:
<TABLE>
<CAPTION>
March 29, March 30,
1997 1996
---------- ----------
<S> <C> <C>
Federal statutory rate 35.0% 35.0%
Nondeductible goodwill amortization 0.4 0.7
FSC exclusion (benefit) (0.7) (0.2)
State income taxes 4.0 3.2
Impact of lower foreign tax rate (benefit) (0.3) (0.8)
Other, net (benefit) (1.6) 0.3
---------- ----------
Effective income tax rate 36.8% 38.2%
========== ==========
</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.
Approximately $9.1 million in reserves for such costs remained at March 29,
1997. These reserves are believed to be adequate and will 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 quarter of 1997 amounted to $5.9 million, of which
$1.4 million was severance and 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 $16.8 million in reserves for
environmental costs and other plant post-closing expenses remained at March
29, 1997. Such reserves are believed to be adequate and are expected to be
paid utilizing cash flow from operations. Severance pay and benefits and exit
costs, primarily facility closure costs, were also recognized in accordance
with EITF No. 94-3 and are included in the restructuring reserve described
above. Restructure costs charged against such reserves in the first quarter
of 1997 amounted to $3.2 million, of which $1.3 million was severance and exit
costs.
<PAGE>
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 products and lines of business on which
it intends to focus the resources of the Company. These businesses are the
retail branded products which the Company operates 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 products and lines of business were identified on the basis of
their profitability, strength in the marketplace and potential growth. The
Company considers its Dial, Purex, Renuzit and Armour franchises to be its
"core" business. Accordingly, the Company's plan is that all products and
lines of business outside of the identified core franchises (the "noncore
businesses") will be discontinued, sold or managed to maximize their near-term
cash flow.
COMPARISON OF THE FIRST QUARTER OF 1997 WITH THE FIRST QUARTER OF 1996
Revenues for the first quarter of 1997 were $316.2 million, a decrease of
$36.2 million (or 10.3%) below the first quarter of 1996 revenues of $352.4
million. Operating income for the first quarter of 1997 was $36.7 million
which was slightly higher than the first quarter of 1996 operating income of
$36.5 million. Net income for the first quarter of 1997 was $18.3 million, a
decrease of approximately $1.3 million below the first quarter of 1996 net
income of $19.6 million.
The Company's core business experienced a revenue decline of approximately $17
million (or 5.5%) from the first quarter of 1996 to the first quarter of 1997.
This decline was driven primarily by a decline on Dial ( down 13.5%) as a
result of a "Buy three, get one free" promotional program executed in the
first quarter of 1996 that was not repeated in the first quarter of 1997 and,
a decline in Purex revenues of 15.6% as a result of the 15% price reduction on
detergent products initiated late in the first quarter of 1996. After
adjustment for the Purex price reduction, core business revenues increased
2.1% in the first quarter of 1997 as compared to a year ago.
The decreases described above were offset by revenue growth from new product
introductions in the Renuzit business (up 14.4% over the first quarter of
1996), new business on Armour (up 15.1% over the first quarter of 1996) and
strong international performance (up 6.8% over the first quarter of 1996).
Noncore revenues in the first quarter of 1997 of $24.3 million declined $19.2
million (or 44.1%) from the first quarter of 1996 levels. The Company expects
that revenues from noncore businesses will continue to decline during 1997 as
the Company completes its initiative of discontinuing and divesting certain
brands.
Gross profits declined $30.1 million, from $177.1 million in the first
quarter of 1996 to $147.0 million in the first quarter of 1997. Gross profit
margins declined from 50.3% in the first quarter of 1996 to 46.5% in the
first quarter of 1997. The 3.8% decline in the gross profit margin is largely
the result of the price reduction initiative on detergent products to move
to a modified everyday low pricing ("EDLP") for both Purex and Trend. These
decreases were offset by improvements in cost of products sold driven by
lower costs from improved distribution practices instituted in the second
quarter of 1996 and lower manufacturing costs.
Selling, general and administrative expenses were $110.3 million in the first
quarter of 1997, a decrease of approximately $30 million (or 21.5%) below the
first quarter of 1996 levels. The decrease was the result of decreases in
marketing expenses of approximately $28 million and decreases in selling and
administrative expenses of approximately $2 million.
The decreases in marketing expenses from the first quarter of 1996 to the
first quarter of 1997 resulted from lower trade promotion expenditures of
approximately $15 million on Purex which were no longer necessary as a
result of the price reduction taken in the first quarter of 1996, favorable
consumer promotion expenses of approximately $7 million as a result of not
repeating the "Buy three, get one free" promotion on Dial in 1997, as well as
a curtailment of marketing expenses on products that are being discontinued
or divested.
The decrease in selling and administrative expenses of $2 million in the first
quarter of 1997 versus the first quarter of 1996 is comprised of
administrative savings as a result of the administrative and business
reorganization undertaken in 1996, partially offset by the incremental costs
associated with being a public company.
Interest and other expenses increased approximately $2.9 million from the
first quarter of 1996 to the first quarter of 1997 as a result of $1.9 million
in accretion costs related to Armour employee benefit liabilities assumed from
the Former Parent company in the spinoff, as well as $1.3 million in
additional sales of accounts receivable expenses. This increase was offset in
part by a decrease in interest expense of $.3 million in first quarter of
1997 compared to first quarter of 1996.
The effective tax rate for the first quarter of 1997 was approximately 36.8%,
down from 38.2% for the comparable period in 1996. The net decrease of 1.4%
is primarily due to an increase in income eligible for the Foreign Sales Corp
exclusion, offset by higher state income taxes and lower foreign income not
subject to domestic income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $21.1 million during the first
three months of 1997, a decrease of $3.2 million from the comparable period in
1996. Capital expenditures for the first three months of 1997 (net of asset
dispositions) were $6.8 million, a decrease of $1.1 million over the
comparable period of 1996. The Company's financing plan includes the sale of
receivables to accelerate cash flow. Receivables sold but not yet collected
under this plan at March 29, 1997 and March 30, 1996 were $66.7 million and
$77.9 million, respectively.
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, 2001 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 March
29, 1997, the Company had $258.7 million aggregate principal amount of such
short-term borrowings outstanding, and at such date, the Company had $91.3
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.
The Company is planning an equity offering of at least $100 million during
1997. The Company anticipates the proceeds will be used to repay long-term
debt. The equity offering is being effected by the Company in an effort to
preserve the status of the tax ruling received by the Former Parent and the
Company from the Internal Revenue Service 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 has petitioned
the Internal Revenue Service to permit it to extend the deadline for the
issuance of such equity securities until December 31, 1997. If the Internal
Revenue Service grants the Company's petition, the equity offering may proceed
on the current schedule or, if the Company determines it would be beneficial,
on a delayed schedule.
The Company intends to vacate its corporate headquarters in the Viad Tower and
move to more economical office space in Scottsdale, Arizona, during mid-year
1997. The Company has 10 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 March 29, 1997, the Company had approximately $117.4 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 $19.6 million over the next 15 years. The
Company's average income before income taxes over the last three years was
approximately $47.6 million.
<PAGE>
PART II. OTHER INFORMATION
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 filed 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)
May 12, 1997
\s\ Lowell L. Robertson
Lowell L. Robertson
Senior Vice President and Controller
(Chief Accounting Officer and Authorized Officer)
THE DIAL CORPORATION
EXHIBIT 11-COMPUTATION OF EARNINGS PER SHARE*
(000 omitted, except per share data)
<TABLE>
<CAPTION>
<S> <C>
March, 29
1997
----------
PRIMARY:
Income before cumulative effect of accounting changes $ 18,323
Cumulative effect of accounting changes
----------
Net Income $ 18,323
----------
Weighted average shares outstanding 91,943
Primary earnings per share:
Income before cumulative effect of accounting change $ 0.20
Cumulative effect of accounting changes
----------
Net Income per share $ 0.20
----------
FULLY DILUTED:
Income before cumulative effect of accounting changes $ 18,323
Cumulative effect of accounting changes
----------
Net Income $ 18,323
----------
Weighted average shares outstanding 91,943
Incremental shares under stock option plans 557
----------
Adjusted weighted average shares outstanding 92,500
----------
Fully diluted earnings per share:
Income before cumulative effect of accounting changes $ 0.20
Cumulative effect of accounting changes
----------
Net Income per share $ 0.20
----------
</TABLE>
*Per share information is not presented for March 30, 1996 because the
Company was not a publicly held company during such period. Income (loss) per
share is presented for 1997, as the Company's common shares were issued on
August 15, 1996.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DIAL
CORPORATION'S FORM 10-Q FOR THE QUARTER ENDED MARCH 29, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> MAR-29-1997
<CASH> 5,672
<SECURITIES> 0
<RECEIVABLES> 26,153
<ALLOWANCES> 4,153
<INVENTORY> 128,453
<CURRENT-ASSETS> 215,414
<PP&E> 227,333
<DEPRECIATION> 6,076
<TOTAL-ASSETS> 832,340
<CURRENT-LIABILITIES> 168,788
<BONDS> 258,682
0
0
<COMMON> 960
<OTHER-SE> 153,378
<TOTAL-LIABILITY-AND-EQUITY> 832,340
<SALES> 316,242
<TOTAL-REVENUES> 316,242
<CGS> 169,290
<TOTAL-COSTS> 169,290
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,666
<INCOME-PRETAX> 28,991
<INCOME-TAX> 10,668
<INCOME-CONTINUING> 18,323
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,323
<EPS-PRIMARY> .20
<EPS-DILUTED> .20
</TABLE>
