<PAGE> 1
PROSPECTUS SUPPLEMENT Filed pursuant to Rule
- -------------------------------------------- 424(b)(2) Reg No. 333-47355
(TO PROSPECTUS DATED MARCH 10, 1998)
$200,000,000
[THE DIAL CORPORATION LOGO]
6 1/2% SENIOR NOTES DUE 2008
------------------------
Interest on the 6 1/2% Senior Notes due 2008 (the "Notes") of The Dial
Corporation (the "Company" or "Dial") will be payable semi-annually on September
15 and March 15 of each year, commencing March 15, 1999. The Notes will be
redeemable, as a whole or in part, at the option of the Company at any time, at
a redemption price equal to the greater of (i) 100% of the principal amount of
such Notes and (ii) the sum of the present values of the remaining scheduled
payments of principal and interest thereon discounted to such redemption date on
a semiannual basis (assuming a 360-day year consisting of twelve 30-day months)
at the Treasury Rate (as defined herein) plus 25 basis points, plus in each case
accrued interest thereon to such redemption date.
The Notes will be represented by a Global Security registered in the name
of the nominee of The Depository Trust Company (the "Depositary"). Beneficial
interests in the Global Security will be shown on, and transfers thereof will be
effected only through, records maintained by the Depositary and its
participants. Except as described herein, Notes in definitive form will not be
issued. The Notes will trade in the Depositary's Same-Day Funds Settlement
System until maturity or until the Notes are issued in definitive form, and
secondary market trading activity in the Notes will therefore settle in
immediately available funds. See "Description of Notes."
The Notes will constitute unsecured and unsubordinated indebtedness of the
Company and will rank on a parity with the Company's other unsecured and
unsubordinated indebtedness.
SEE "RISK FACTORS," BEGINNING ON PAGE 4 OF THE ACCOMPANYING PROSPECTUS FOR
A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN
INVESTMENT IN THE NOTES OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS TO WHICH IT
RELATES. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................... 99.59% .65% 98.94%
- -----------------------------------------------------------------------------------------------------------------------
Total....................................... $199,180,000 $1,300,000 $197,880,000
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from September 23, 1998.
(2) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $485,000.
------------------------
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by them, subject to approval of certain
legal matters by counsel for the Underwriters and certain other conditions. The
Underwriters reserve the right to withdraw, cancel or modify such offer and to
reject orders in whole or in part. It is expected that delivery of the Notes
will be made in book-entry form through the facilities of The Depository Trust
Company on or about September 23, 1998.
------------------------
MERRILL LYNCH & CO.
BANCAMERICA SECURITIES, INC.
CITICORP SECURITIES, INC.
J.P. MORGAN & CO.
------------------------
The date of this Prospectus Supplement is September 18, 1998.
<PAGE> 2
Dial(R), Purex(R), Purex Toss 'n Soft(R), Purex Rinse n' Soft(R), Purex
StaPuf(R), Renuzit(R), Armour(R), Armour Star(R), Freeman(R), Tone(R), Nature's
Accents(R), Pure & Natural(R), Fels Naptha(R), Boraxo(R), Breck(R), Trend(R),
Borateem(R), Vano(R), Sta-Flo(R), 20 Mule Team(R), Dutch(R), La France(R),
Treet(R) and Cream(R) and related names used herein are registered trademarks of
The Dial Corporation and its subsidiaries or are licensed for their use. This
Prospectus Supplement and the accompanying Prospectus also uses trademarks of
other companies and businesses.
------------------------
Certain persons participating in the offering of the Notes (the "Offering")
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Notes. Such transactions may include stabilizing and the purchase
of Notes to cover syndicate short positions. For a description of these
activities, see "Underwriting."
S-2
<PAGE> 3
SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in or incorporated by reference into this Prospectus Supplement. Prior
to August 15, 1996, the business of the Company was operated as the consumer
products business (the "Consumer Products Business") of Viad Corp (then known as
The Dial Corp) ("Former Parent"). On August 15, 1996, Former Parent distributed
to its stockholders all of the Company's then outstanding common stock (the
"Spin-off") causing the Company to become a separate publicly-traded company.
Unless otherwise indicated, (i) all references in this Prospectus Supplement to
the "Company" or "Dial" for periods prior to the Spin-off refer to the Consumer
Products Business of Former Parent and for periods following the Spin-off refer
to the Company and its consolidated subsidiaries, (ii) all financial information
included or incorporated by reference in this Prospectus Supplement and in the
accompanying Prospectus has been prepared as if the Company had always been a
separate operating company, (iii) the industry data included or incorporated by
reference in this Prospectus Supplement or in the accompanying Prospectus are
derived from publicly available industry trade journals and reports, including,
with respect to market rank and market share, reports published by Information
Resources, Inc., and other publicly available sources which the Company has not
independently verified but which the Company believes to be reliable and (iv)
references to years and periods are to fiscal years and periods and, with
respect to comparative industry data, years are to calendar years. Unless
otherwise noted, all market share data as of any particular date are as of the
52 weeks then ended and are based on sales in the U.S. market, which with
respect to soap products is measured by ounces sold, with respect to detergent
products is measured by standard cases sold and with respect to air fresheners
and canned meats is measured by units sold.
This Prospectus Supplement and the accompanying Prospectus contain
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). When used in
this Prospectus Supplement and in the accompanying Prospectus, the words
"anticipates," "intends," "plans," "believes," "estimates" and similar
expressions are intended to identify forward-looking statements. Such
statements, including, but not limited to, the Company's statements regarding
potential international expansion, the estimated benefits of the Company's
cost-cutting program and potential product introductions, are based on
management's beliefs, as well as on assumptions made by and information
currently available to management, and involve various risks and uncertainties,
certain of which are described under "Risk Factors" in the accompanying
Prospectus and certain of which are beyond the Company's control. The Company's
actual results could differ materially from those expressed in any
forward-looking statements made by or on behalf of the Company. In light of
these risks and uncertainties, there can be no assurance that the forward-
looking information contained in this Prospectus Supplement and in the
accompanying Prospectus will in fact transpire.
THE COMPANY
GENERAL
Dial is a consumer products company with net sales of $1.4 billion and
operating income of $162 million in 1997. The Company markets its products
primarily under such well-known household brand names as Dial(R) soaps, Purex(R)
detergents, Renuzit(R) air fresheners and Armour(R) canned meats. Dial believes
that its brand equities have contributed to its products achieving leading
market positions. Dial believes that its divestiture of certain unprofitable
product lines and the refocusing of its key marketing and sales practices,
together with its cost reduction measures, anticipated product introductions and
strategic acquisitions, will allow the Company to continue its revenue and
earnings growth and command even greater domestic market shares. Moreover, the
Company believes that the strength of its product offerings should allow it to
increase its international presence by taking advantage of the growing demand
for branded personal care and cleaning products throughout the world,
particularly in Latin America and Asia.
At July 4, 1998, the Company's soap products command an approximate 17%
market share, measured in ounces sold, in the $2.0 billion soap category. This
strong market position is largely driven by the Company's
S-3
<PAGE> 4
Dial-branded soap products. Since its introduction in 1948, Dial soap has
demonstrated a record of market leadership and during the past ten years, the
market share of Dial-branded products has increased from 12% in 1987 to 15% as
of July 4, 1998. The Company established the antibacterial segment of the soap
market by formulating the first antibacterial soap mass-marketed to retail
consumers nearly a half century ago. In 1987, with the introduction of Liquid
Dial(R), the Company popularized the use of liquid soap in what had been a
relatively small, slow growth segment of the domestic soap market. During 1997,
the Company increased Liquid Dial sales approximately 40% over 1996 primarily
due to greater penetration of the warehouse club channel where the Company
believes Liquid Dial is the number one selling liquid soap. In the first half of
1998, Liquid Dial shipments have increased 13% over the same period in 1997. At
July 4, 1998, Dial was America's leading bar soap overall, leading antibacterial
bar soap, second leading antibacterial liquid soap and second leading liquid
soap overall.
Since the Company's acquisition of Purex Corporation in 1985, which the
Company believes was the fifth largest producer and marketer of detergents in
the United States at that time, the Purex brand has gained significant market
share and as of July 4, 1998, held the number two market share position,
measured by units sold, in the $4.4 billion domestic laundry detergent market.
From 1986 to 1997, the Company increased Purex annual sales from $160 million to
$393 million. In the first half of 1998, Purex sales were $205.3 million.
Since the Company's acquisition of Renuzit in 1993, Renuzit sales have
grown at a compounded annual rate of 16% to $158 million in 1997. In the first
half of 1998, Renuzit sales were $75.2 million. As a result, Renuzit at July 4,
1998 was the second leading brand in the $900 million growing domestic air
freshener market.
The Company's Armour-branded products are concentrated in the profitable
canned meat market segments. As of July 4, 1998, Armour was the number two
national brand of canned meats and was the market leader in the growing Vienna
sausage segment, with a 48% market share in that segment.
For organizational, marketing and financial reporting purposes, the Company
has organized its business into four domestic franchises and an international
line of business. The four core brands discussed above serve as the flagships
for these franchises. The Company's Dial franchise includes Dial and Liquid Dial
soaps and body washes as well as Tone(R) and Nature's Accents(R) soaps, body
washes and other bath products, Pure & Natural(R), Fels Naptha(R), and Boraxo(R)
soaps and Breck(R) hair care products. The Company's Purex franchise includes
Purex detergents, bleach and fabric softeners as well as Trend(R) and Dutch(R)
detergents, Borateem(R) bleach, Vano(R) and Sta-Flo(R) starches, 20 Mule Team(R)
borax and La France(R) brightener. The products in the Company's Renuzit
franchise consist of a variety of air fresheners, candles and accessories that
all bear the Renuzit name. The Company's Armour franchise includes Armour and
Armour Star canned meats, chilis, hashes and meat spreads and Cream(R) corn
starch. Within its franchises, the Company has chosen to focus its marketing and
product development efforts on the Dial, Purex, Renuzit and Armour core brands.
The Company intends to create a fifth core franchise to focus on the specialty
bath and body category of the health and beauty aids market as discussed under
"-- Recent Acquisitions."
By February 1998, the Company had discontinued or divested substantially
all of its product lines which were not within its four franchises. Under this
strategy, in the third quarter of 1997, the Company sold certain of its
household cleaning brands to Church & Dwight Co., Inc. ("Church & Dwight") for
approximately $30 million. The sale included the following brands and related
inventories: Brillo(R) soap pads and related products, Parsons(R) ammonia, Bo
Peep(R) ammonia, Sno Bol(R) toilet bowl cleaner, Cameo(R) metal polish and Rain
Drops(R) water softener. The Company's London, Ohio plant, where Brillo is
manufactured, was also part of the sale. In addition, the Company also sold its
Bruce(R) floor care product trademark and its Magic(R) sizing starch brand and
related inventories to other third parties. In 1997 and 1996, these brands as
well as discontinued brands generated net sales of approximately $63 million and
$171 million, respectively, or approximately 5% and 12%, respectively, of the
Company's total net sales.
In addition, in February 1998, the Company sold the Purex Toss N'Soft(R)
brand to Church & Dwight for $5.3 million. In 1997 and 1996, this brand
contributed $6.9 million and $11.8 million, respectively, to the Company's total
net sales.
S-4
<PAGE> 5
The Company's products are sold throughout the United States primarily
through supermarkets, mass merchandisers, drug stores and membership club
stores. The Company's products are also sold internationally, principally in
Argentina, Canada, Mexico, Puerto Rico and the Caribbean.
The Company's senior management team has extensive experience in the
consumer packaged goods industry, and has been instrumental in successfully
managing the Company through the Spin-off and subsequent restructuring. Malcolm
Jozoff, the Company's chairman and chief executive officer, has over 25 years of
experience in the industry and the other senior executives average approximately
15 years of consumer packaged goods experience. The Company believes that the
experience of this management team is critical in the implementation of the
Company's business strategy.
THE SPIN-OFF
In August 1996, Former Parent spun-off its Consumer Products Business by
distributing to Former Parent's stockholders all of the Company's then
outstanding common stock. Former Parent effected the Spin-off to enhance the
profitable growth prospects of both the Consumer Products Business and Former
Parent's services businesses, which businesses Former Parent continues to
operate today. Former Parent believed that the Spin-off would enable the
Consumer Products Business to adopt strategies and pursue objectives that were
more appropriate to its industry and operations and place it in a better
position to raise capital and make acquisitions necessary for continued growth.
BUSINESS STRATEGY
The Company has achieved leading market positions in its product categories
and established brand equity among consumers. Since the Spin-off, the Company
has developed and adopted strategies which increased operating margins to 11.9%
in 1997 from 8.9% in 1996 (before restructuring charges and asset write-downs).
Operating margins were further increased to 12.2% in the first half of 1998. The
Company believes these strategies will enable it to continue to streamline and
reposition its businesses for continued growth and profitability. These
strategies include the following:
- CONTINUED FOCUS ON CORE BRANDS. The Company intends to continue to
focus its resources on building its Dial, Purex, Renuzit and Armour
brands. The Company's specific growth strategies to increase sales,
earnings and market share for each core brand include the following:
T Capitalize on Dial Brand. The Company intends to devote additional
resources to new marketing campaigns for its Dial-branded products to
stimulate demand among consumers with diverse skin care needs. In
addition, the Company intends to (i) further develop its body wash
business through product innovation and focused marketing, (ii)
further increase its penetration of the warehouse and membership club
channels and (iii) introduce new products targeted to appeal to
specific demographic groups.
T Enhance Price-Value Relationship of Purex Detergents. Dial intends
to expand Purex's market share by enhancing the price/value
relationship of its detergents, continuing to reduce production and
distribution costs, maintaining competitive pricing and improving
product performance.
T Introduce Innovative Renuzit Products. With approximately one-third
of Renuzit's sales attributable to products introduced since 1996,
the Company plans to further expand Renuzit's market share by
continuing to introduce innovative products and features to meet or
anticipate consumers' changing preferences.
T Increase Distribution of Armour. The Company intends to broaden the
distribution of its Armour-branded products by targeting the
fast-growing mass market channel. Overall, the Company plans to
increase distribution by further penetrating existing distribution
channels, as well as selectively introducing new products and
expanding geographic focus.
S-5
<PAGE> 6
- IMPROVE KEY MARKETING AND SALES PRACTICES. Since the Spin-off, the
Company has taken significant steps to make its marketing and sales
operations more cost-effective by (i) increasing and focusing its
media advertising on the Dial brand, (ii) reducing end-of-quarter
discounts to the trade, (iii) improving the efficiency of its
promotional spending and (iv) upgrading its information systems.
- REDUCE COSTS. The Company has reduced its cost structure through its
(i) divestiture or discontinuation of certain low growth or
unprofitable product lines, (ii) elimination of unprofitable SKUs,
(iii) consolidation of its manufacturing and distribution operations,
thereby reducing excess capacity, (iv) rationalization of its
procurement process by consolidating vendors and negotiating further
cost savings in its supply contracts and (v) reduction of
administrative and other costs. The Company believes that the impact
of the restructuring program announced in the third quarter of 1996,
which program has involved, among other things, a reduction of
approximately 250 employees, saved the Company approximately $50
million in 1997 and will save the Company approximately $50 million in
1998.
- INCREASE INTERNATIONAL SALES. The Company acquired Nuevo Federal
S.A., a manufacturer and marketer of personal care and household
products in Argentina ("Nuevo Federal") in the third quarter of 1997,
and acquired three personal care soap brands and two laundry bar
brands from The Procter & Gamble Company's Argentinean subsidiary in
the fourth quarter of 1997. With these acquisitions, the Company
believes that it will be well-positioned for further expansion in
Latin America. The Company plans to exploit other such opportunities
in selected developing markets, particularly in Latin America and
Asia, by forming joint ventures and strategic alliances with or
acquiring foreign businesses that have established manufacturing or
distribution capabilities in such markets.
- MOTIVATE MANAGEMENT AND OTHER EMPLOYEES MORE EFFECTIVELY. Since the
Spin-off, Dial has revised its compensation structure to align the
interests of management, other employees and stockholders. The Company
has (i) begun to phase out guaranteed pay raises, (ii) tied all non-
union employee bonuses to the achievement of targeted levels of net
sales growth, operating margin improvement and asset turns, (iii)
granted stock options to management and all other non-union employees
and (iv) linked the vesting schedule for such options to stock price
performance.
RECENT ACQUISITIONS
On July 1, 1998, the Company acquired The Freeman Cosmetic Corporation
("Freeman"), a leading manufacturer and marketer of skin, hair, bath, body and
foot care products utilizing natural ingredients. Freeman distributes its
products nationally under the Freeman brand name. The total transaction value of
$83.8 million was financed entirely with short-term bank borrowings supported by
the Company's long-term Credit Agreement (as defined herein), which will be
refinanced with the net proceeds of this Offering. See "Use of Proceeds."
On September 14, 1998, the Company acquired Sarah Michaels, Inc. ("Sarah
Michaels"), a leading marketer of premium specialty bath and body products,
including body washes, body mists, luxury soaps, hand and body lotions, loofahs,
sponges and brushes. Sarah Michaels distributes its products nationally under
the Sarah Michaels brand name. The total transaction value of $185.0 million was
financed entirely by short-term bank borrowings supported by the Company's
long-term Credit Agreement, a portion of which will be refinanced with the net
proceeds of this Offering. See "Use of Proceeds."
The Company intends to create a fifth core franchise to focus on the
specialty bath and body category of the health and beauty aids market. This
franchise would include products marketed under the Sarah Michaels and Freeman
brand names, as well as under the Company's Nature's Accents brand name.
RISK FACTORS
Prospective investors in the Notes offered hereby should carefully consider
the information set forth or incorporated by reference in this Prospectus
Supplement and the accompanying Prospectus, including the factors set forth
under "Risk Factors" in the accompanying Prospectus, before making an investment
in the Notes.
S-6
<PAGE> 7
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are $197.4 million (net of underwriting discounts and commissions and the
estimated expenses of the Offering). The Company intends to use such net
proceeds to repay outstanding short-term bank borrowings supported by the
Company's revolving credit agreement (the "Credit Agreement"). The Credit
Agreement terminates in August 2002. As of September 14, 1998, an aggregate of
$332.2 million principal amount in bank borrowings were outstanding, which bore
interest at that date at a weighted average rate of 5.755% and had maturities
ranging from one to thirty days. Such borrowings were incurred to finance the
Freeman and Sarah Michaels acquisitions and for working capital and general
corporate purposes. The amounts repaid may be subsequently reborrowed for
general corporate purposes, including the funding of working capital and
potential acquisitions. While the Company reviews acquisition opportunities in
the ordinary course of business, there can be no assurance that any acquisitions
considered will be consummated.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for the periods indicated.
<TABLE>
<CAPTION>
SIX MONTHS ENDED FISCAL YEAR ENDED
------------------ ------------------------------------------------
JULY 4, JUNE 28, JAN. 3, DEC. 28, DEC. 30, DEC. 31, DEC. 25,
1998 1997 1998 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to
fixed charges(1)...... 12.27x 6.21x 6.98x 3.01x(2) (2)(3) 9.48x 14.04x
</TABLE>
- ---------------
(1) In calculating this ratio, earnings consist of income (loss) before income
taxes plus fixed charges. Fixed charges consist of interest expense, fees
incurred on the sale of accounts receivable and the portion of rental
expense under operating leases which has been deemed by the Company to be
representative of the interest factor, but exclude the interest cost
associated with capitalized leases. Prior to August 15, 1996, the Company
was the subsidiary of its Former Parent. Interest expense during that period
was incurred primarily on advances from its Former Parent that bore interest
at the prime lending rate. The average balance of interest bearing advances
from the Former Parent prior to the Spin-off were approximately $160
million, $240 million, $163 million and $47 million for 1996, 1995, 1994 and
1993, respectively.
(2) Includes restructuring charges, asset write-downs and Spin-off transaction
costs of $60 million in 1996 and restructuring charges and asset write-downs
of $156 million in 1995.
(3) In 1995, fixed charges exceeded earnings by approximately $47 million.
S-7
<PAGE> 8
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company (i) as of July 4, 1998 and (ii) as adjusted to give effect to the
issuance and sale of the Notes pursuant to the Offering, the application of the
net proceeds therefrom and the Company's acquisition of Sarah Michaels. The
following table should be read in conjunction with the Company's consolidated
financial statements and the notes thereto included elsewhere in this Prospectus
Supplement.
<TABLE>
<CAPTION>
AS OF JULY 4, 1998
------------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(IN THOUSANDS)
<S> <C> <C>
Long term debt:
6 1/2% Senior Notes due 2008.............................. $ -- $ 200,000
Other..................................................... 115,464(1) 103,069
--------- ---------
Total long-term debt................................... $ 115,464 $ 303,069(2)
--------- ---------
Stockholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common Stock, $.01 par value; 300,000,000 shares
authorized; 102,775,954 shares issued(3)............... 1,033 1,033
Additional capital........................................ 421,670 421,670
Retained income........................................... 66,698 66,698
Unearned employee benefits................................ (119,234) (119,234)
Treasury stock, 101,040 shares held....................... (7,122) (7,122)
--------- ---------
Total stockholders' equity............................. 363,045 666,114
--------- ---------
Total capitalization................................... $ 478,509 $ 666,114
========= =========
</TABLE>
- ---------------
(1) Consists of $114.8 million of short-term bank borrowings which are supported
by the Company's five-year Credit Agreement and therefore classified as
long-term debt under generally accepted accounting principles, and a $1.0
million interest-free loan from the State of Arizona, which is carried at
its discounted value of approximately $667,000.
(2) In connection with the acquisition of Sarah Michaels, the Company incurred
an additional $185.0 million of short-term bank borrowings supported by the
Credit Agreement.
(3) Does not include an aggregate of up to 7,308,242 shares of Common Stock,
$.01 par value (the "Common Stock"), reserved for issuance upon exercise (at
an average exercise price of $12.80 per share) of options outstanding as of
July 4, 1998.
S-8
<PAGE> 9
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following table presents selected financial information derived from
the Company's consolidated financial statements. The selected consolidated
balance sheet data as of December 28, 1996 and January 3, 1998 and the
consolidated income statement data for each of the three fiscal years in the
period ended January 3, 1998 have been derived from the audited consolidated
financial statements of the Company which are included elsewhere herein. The
selected consolidated balance sheet data as of December 31, 1994 and December
30, 1995 and the consolidated income statement data for the fiscal year ended
December 31, 1994 have been derived from audited consolidated financial
statements of the Company which are not included elsewhere herein. The
consolidated income statement data for the fiscal year ended December 25, 1993
and the six months ended July 4, 1998 and June 28, 1997 and the consolidated
balance sheet data as of December 25, 1993 and July 4, 1998 and June 28, 1997
were derived from unaudited consolidated financial statements of the Company. In
the opinion of management, such unaudited consolidated financial statements
include all material adjustments necessary to present fairly the information set
forth therein and were prepared as if the Company were a separate entity for all
periods presented. Operating results for the six months ended July 4, 1998 are
not necessarily indicative of the results that may be expected for the full
fiscal year. Prior to the Spin-off, the Company operated as the Consumer
Products Business of Former Parent. The following data should be read in
conjunction with the Company's consolidated financial statements and notes
thereto, "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the other financial information included elsewhere in
this Prospectus Supplement or incorporated by reference herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
------------------- --------------------------------------------------------------
JULY 4, JUNE 28, JAN. 3, DEC. 28, DEC. 30, DEC. 31, DEC. 25,
1998 1997 1998 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- ----------
(000 OMITTED, EXCEPT PER SHARE DATA AND NUMBER OF EMPLOYEES)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS
Net sales................... $701,820 $665,510 $1,362,606 $1,406,400 $1,365,290 $1,511,362 $1,420,173
-------- -------- ---------- ---------- ---------- ---------- ----------
Cost of products sold....... 362,367 352,327 718,112 739,893 709,888 767,507 723,387
Write-down of discontinued
product inventories....... -- -- -- 27,924 20,400 -- --
-------- -------- ---------- ---------- ---------- ---------- ----------
Total cost of products
sold...................... 362,367 352,327 718,112 767,817 730,288 767,507 723,387
-------- -------- ---------- ---------- ---------- ---------- ----------
Gross profit.............. 339,453 313,183 644,494 638,583 635,002 743,855 696,786
-------- -------- ---------- ---------- ---------- ---------- ----------
Selling, general and
administrative expenses... 254,147 236,469 482,324 541,110 523,058 583,847 557,573
Restructuring charges and
other asset write-downs... -- -- -- 27,076 135,600 -- --
-------- -------- ---------- ---------- ---------- ---------- ----------
254,147 236,469 482,324 568,186 658,658 583,847 557,573
-------- -------- ---------- ---------- ---------- ---------- ----------
Operating income
(loss)(1)................. 85,306 76,714 162,170 70,397 (23,656) 160,008 139,213
Spin-off transaction
costs..................... 5,000
Interest and other
expenses.................. 9,386 14,799 28,235 22,974 23,360 12,468 5,909
-------- -------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
taxes..................... 75,920 61,915 133,935 42,423 (47,016) 147,540 133,304
Income taxes (benefit)...... 27,402 23,210 50,225 12,511 (19,527) 56,468 49,123
-------- -------- ---------- ---------- ---------- ---------- ----------
Net income (loss)(1)........ $ 48,518 $ 38,705 $ 83,710 $ 29,912 $ (27,489) $ 91,072 $ 84,181
======== ======== ========== ========== ========== ========== ==========
Net income per share(2)
Basic..................... $ 0.50 $ .43 $ 0.91 $ 0.33
Diluted................... $ 0.48 $ .42 $ 0.89 $ 0.33
Basic shares outstanding.... 97,908 90,277 91,918 89,705
Equivalent shares(2)...... 2,384 1,984 2,231 1,269
-------- -------- ---------- ----------
Diluted shares.............. 100,292 92,261 94,149 90,974
======== ======== ========== ==========
</TABLE>
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<PAGE> 10
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
------------------- --------------------------------------------------------------
JULY 4, JUNE 28, JAN. 3, DEC. 28, DEC. 30, DEC. 31, DEC. 25,
1998 1997 1998 1996 1995 1994 1993
-------- -------- ---------- ---------- ---------- ---------- ----------
(000 OMITTED, EXCEPT PER SHARE DATA AND NUMBER OF EMPLOYEES)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT
PERIOD END)
Total assets................ $950,032 $833,937 $ 883,852 $ 866,126 $ 798,405 $ 887,373 $ 857,516
Working capital (deficit)... (22,164) 23,918 (11,797) 41,107 45,663 56,188 (10,177)
Parent investment and
advances.................. 496,230 555,703 502,199
Long-term debt.............. 115,464 220,695 84,399 269,515 3,320 3,510 6,063
Common stock and other
equity(2)................. 363,045 169,779 320,046 140,657
OTHER DATA
Depreciation and
amortization.............. 16,668 15,464 31,763 30,533 29,118 34,910 33,583
Capital expenditures........ 15,082 17,484 46,715 49,468 27,214 37,471 40,605
Number of employees (end of
period)................... 2,443 2,746 2,533 2,812 3,985 3,995 4,000
Number of employees
(average)................. 2,466 2,639 2,648 3,125 3,992 3,983 4,121
Dividends on common
shares(2)................. 15,712 14,457 29,510 14,365
</TABLE>
- ---------------
(1) Includes restructuring charges and asset write-downs and Spin-off
transaction costs of $60 million ($35.3 million after tax) or $0.39 per
share in 1996 and restructuring charges and asset write-downs of $156
million ($94.9 million after tax) in 1995.
(2) Per share, common stock and other equity and dividends on common shares
information is not presented for 1995 and prior years because the Company
was not a publicly held company during such years. Income (loss) per share
is presented for 1996, as the Company's common shares were issued on August
15, 1996. The calculation of income (loss) per share assumes that the common
shares and common share equivalents were outstanding for the entire year.
The earnings per share calculation reflects the implementation of Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" for all
periods presented.
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<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the business of the Company should be read in conjunction with
"Selected Consolidated Financial Information" and the Company's consolidated
financial statements and notes thereto which are included elsewhere in this
Prospectus Supplement.
OVERVIEW
The Company, which was previously operated as the Consumer Products
Business of Former Parent, was spun-off by Former Parent in August 1996. As a
result, the Company became a separate publicly-traded company. Since the
Spin-off, the Company has adopted and implemented strategies that have enabled
the Company to improve its financial performance.
Historically, the Company's fiscal year has ended on the Saturday closest
to December 31. As a result, the 1997 fiscal year consisted of 53 weeks and the
1996 and 1995 fiscal years consisted of 52 weeks. The Company's 1998 fiscal year
will end on December 31.
RESTRUCTURING CHARGES AND ASSET WRITE-DOWNS
In the third quarter of 1996, the Company announced an administrative and
line of business reorganization to: (i) streamline its management and
administrative organization, (ii) reduce administrative overhead by 20%, (iii)
sell or discontinue a number of underperforming brands and (iv) exit the then
existing corporate headquarters. The Company recorded restructuring charges and
asset write-downs of $55 million ($35.3 million after tax) in the third quarter
of 1996 for severance costs, discontinuance of product lines and building exit
costs. Approximately $27.9 million of the charge related to inventories and was
included in cost of products sold. The Company estimates that the 1996
reorganization saved the Company approximately $50 million in 1997 and will save
approximately $50 million in 1998.
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 or sale of six plants (Clearing, Illinois; Burlington, Iowa; Auburndale,
Florida; Omaha, Nebraska; Memphis, Tennessee; and New Berlin, Wisconsin) and the
reduction of the work force by approximately 700 employees, substantially all of
whom were based in the plants that were closed. All six plants were closed by
September 28, 1996. Approximately $20.4 million of the charge related to
inventories and was included in cost of products sold.
As of July 4, 1998, $12.4 million in reserves remained from the 1996 and
1995 restructurings, consisting primarily of building exit, environmental and
facility closure costs. Such reserves are believed to be adequate and such
expenses are expected to be paid utilizing cash flow from operations.
RESULTS OF OPERATIONS
BASIS OF MANAGEMENT'S DISCUSSION AND ANALYSIS
In the 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, which markets
products internationally under certain of these and other brand names. 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
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<PAGE> 12
the basis of their profitability, strength in the marketplace and potential
growth. Accordingly, substantially all products and lines of business outside of
the identified franchises have been discontinued or sold.
With the acquisitions of Sarah Michaels and Freeman, the Company intends to
create a fifth core franchise to focus on the speciality bath and body category
of the health and beauty aids market. This franchise would include products
marketed under the Sarah Michaels and Freeman brand names, as well as under the
Company's Nature's Accent brand name.
COMPARISON OF THE FIRST SIX MONTHS OF 1998 WITH THE FIRST SIX MONTHS OF 1997
Net sales increased $36.3 million, or 5.5%, to $701.8 million in the first
half of 1998 from $665.5 million in the first half of 1997. The first half of
1997 included $41.4 million of sales from brands that were divested in the third
quarter of 1997. The first six months of 1998 does not include the operations of
Freeman which was acquired by the Company on July 1, 1998.
Sales of products in the Dial, Purex, Renuzit and Armour franchises
accounted for 28%, 29%, 11% and 16% respectively, of the Company's total net
sales in the first half of 1998 compared to 26%, 29% 11% and 17%, respectively,
for the first half of 1997. Compared to the first half of 1997, Dial sales
increased 13%, Purex sales increased 7%, and Renuzit sales increased 2% during
the first half of 1998. During the same period Armour sales decreased 3%. Net
sales in international markets increased $49.7 million, or 150%, to $82.9
million in the first half of 1998. International sales, exclusive of the
acquisitions in Argentina, increased $13.5 million, or 41%, to $46.7 million in
the first half of 1998 from $33.2 million in the first half of 1997.
Gross profit margin increased 1.3% to 48.4% in the first half of 1998 from
47.1% in the first half of 1997. This increase resulted primarily from improved
manufacturing efficiencies and, to a lesser extent, favorable sales mix of
higher margin personal washing products.
Selling, general and administrative expenses for the first half of 1998
increased $17.6 million, or 7.5%, to $254.1 million from $236.5 million in the
first half of 1997. The increase was primarily due to higher marketing expense
to support core business-merchandising initiatives, new product launches and
Dial franchise advertising.
Operating income in the first half of 1998 increased $8.6 million, or
11.2%, to $85.3 million from $76.7 million during the first half of 1997. The
increase was primarily due to increased sales and gross margin improvements.
Interest and other expenses decreased $5.4 million, or 36.6%, to $9.4
million for the first half of 1998 compared to $14.8 million in the first half
of 1997. The decrease resulted primarily from lower average debt, down $128
million from the first half of 1997.
The effective tax rate for the first half of 1998 decreased to 36.1%, from
37.5% for the first half of 1997. The decrease resulted primarily from the
benefits associated with Foreign Sales Corporation sales and foreign tax
holidays.
Net income increased $9.8 million, or 25.3%, to $48.5 million in the first
half of 1998 from $38.7 million in the first half of 1997. The increase was
primarily due to increased sales, gross margin improvements and a lower
effective tax rate.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net sales decreased $43.8 million, or 3%, to $1,362.6 million in 1997 from
$1,406.4 million in 1996. This decrease resulted primarily from the
discontinuation and divestiture of certain non-core businesses and a 15% price
reduction of Purex detergent products initiated in the second quarter of 1996,
offset in part by an increase in sales of the Company's four franchises and
sales attributable to the Company's acquisitions in Argentina in September and
November 1997. After adjusting for the Purex price reduction and excluding the
impact of discontinued and divested non-core businesses, net sales in 1997
increased $67.5 million, or 5.6%, primarily due to a 6% increase in sales of the
Company's four franchises and growth in international markets.
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<PAGE> 13
Sales of products in the Dial, Purex, Renuzit and Armour franchises
accounted for 26%, 29%, 12% and 17%, respectively, of the Company's total net
sales in 1997, compared to 24%, 27%, 10% and 14%, respectively, in 1996. From
1996 to 1997, Dial sales increased 3%, Renuzit sales increased 8% and Armour
sales increased 11%. During that same period, Purex sales decreased 1%, but
after adjusting for the 1996 price reduction Purex sales increased 5%. Net sales
in international markets, including sales attributable to the acquisitions in
Argentina, increased $25.9 million, or 34%, to $102.3 million in 1997 from $76.4
million in 1996.
Excluding write-downs of inventory of $27.9 million associated with the
reorganization in 1996, gross profit margin remained relatively flat in 1997 and
1996 at 47.3% and 47.4%, respectively. Lower costs in 1997, which resulted from
improved procurement, distribution and manufacturing practices, were offset by
the price reduction of Purex detergent products initiated in 1996.
Selling, general and administrative expenses in 1997 decreased $58.8
million, or 11%, to $482.3 million from $541.1 million in 1996, and declined as
a percentage of net sales to 35.4% from 38.5%. This was primarily attributable
to lower consumer and trade promotion expenditures and administrative savings
realized from the restructuring in 1996.
Operating income in 1997 increased $91.8 million, or 130%, to $162.2
million from $70.4 million in 1996. Operating income in 1996 was impacted by
restructuring charges and inventory and asset write-downs totaling $55.0
million. Excluding these charges, operating income increased $36.8 million, or
29%, in 1997, primarily due to the significant reduction of selling, general and
administrative expenses and a reduction of cost of products sold.
In 1997, the Company sold to Church & Dwight for $30.2 million 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 sold to other third parties for $4.5 million its Bruce
floor care trademark and its Magic sizing starch brand and related inventories.
An aggregate gain of $15.7 million from the sale of these businesses is included
in operating income.
Also included in 1997 operating income are $15.9 million of various
impairment and other operating charges. In the third quarter of 1997, the
Company evaluated the estimated life of the capitalized package design costs,
which were being amortized over five years. In light of the accelerated pace of
package design changes occurring at the Company and in the industry, the
estimated life of capitalized package design costs was reduced to one year.
Accordingly, $9.5 million of capitalized package design costs were considered
impaired and written-off against income. In addition, the Company charged
against income $4.5 million of additional discontinued product sales returns and
$1.9 million in additional promotion claims on discontinued products.
Interest and other expenses increased $5.3 million, or 23%, to $28.2
million in 1997 from $23.0 million in 1996, due to an increase of accretion
costs related to Armour employee benefit liabilities assumed from Former Parent
in the Spin-off, offset in part by lower interest expense resulting from the
repayment of debt with cash flow from operations and the proceeds of the
Company's public equity offering in the fourth quarter of 1997.
Net income increased $53.8 million, or 180%, to $83.7 million in 1997 from
$29.9 million in 1996. Excluding the restructuring and spin-off charges taken in
1996, net income increased $18.5 million, or 28%, in 1997, primarily due to the
significant reduction of selling, general and administrative expense.
The effective tax rate for 1997 was 37.5%, up from 29.5% in 1996. The lower
effective tax rate in 1996 resulted from a one-time tax benefit due to the
revaluation of the Company's deferred tax benefits for the higher effective
state tax rate incurred after the Spin-off.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net sales increased $41.1 million, or 3%, to $1,406.4 million in 1996 from
$1,365.3 million in 1995. The increase resulted primarily from the successful
launch of new Renuzit products, increases in marketplace consumption of Dial and
Armour products and growth in international markets. Partially offsetting the
increases was a decline in Purex sales as the result of the 15% price reduction
initiated in the second quarter of 1996 and a 23% decline in net sales from
products discontinued or divested.
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<PAGE> 14
Sales of products in the Dial, Purex, Renuzit and Armour franchises
accounted for 24%, 27%, 10% and 14%, respectively, of the Company's total net
sales in 1996, compared to 22%, 27%, 7% and 13%, respectively, in 1995. From
1995 to 1996, Dial sales increased 16%, Renuzit sales increased 48% and Armour
sales increased 15%. During that same period, Purex sales decreased 8%, but
after adjusting for the 1996 price reduction Purex sales increased 2%.
Gross profit margin declined to 45.4% in 1996 from 46.5% in 1995. Included
in cost of products sold for 1996 and 1995 are write-downs of discontinued
product inventories of $27.9 million and $20.4 million, respectively, associated
with the restructuring in each of those years. Excluding those charges, gross
profit margin declined to 47.4% in 1996 from $48.0% in 1995. The decline in
gross profit margin resulted from the 1996 Purex price reduction initiative,
offset in large part by a reduction of cost of products sold due to lower costs
from both the 1995 manufacturing restructuring and efficiencies from larger
production volumes.
Selling, general and administrative expenses in 1996 increased $18.1
million, or 3.5%, to $541.1 million from $523.1 million in 1995, but remained
relatively constant as a percentage of net sales in 1996 and 1995 at 38.5% and
38.3%, respectively. The increase in absolute dollars resulted from increased
marketing support for existing Dial and Renuzit branded products, introductory
marketing expenses for Renuzit candles and the Dial Ultra Skin Care line, and,
to a lesser extent, increased administrative costs associated with being a
public company, offset in part by lower trade promotion expenses that were no
longer necessary due to the Purex price reduction.
Operating income in 1996 increased $94.1 million to $70.4 million from an
operating loss of $23.7 million in 1995. Operating income in 1996 and 1995 was
impacted by restructuring charges and inventory and asset write-downs totaling
$55.0 million and $156.0 million, respectively. Excluding these charges,
operating income decreased $6.9 million, or 5.2%, in 1996, primarily due to the
increase in selling, general and administrative expenses.
Interest and other expenses remained relatively constant in 1996 and 1995
at $23 million and $23.4 million, respectively. Included in 1996 are $2.6
million in accretion costs related to the Armour employee benefit liability
assumed from Former Parent in the Spin-off. These incremental costs were offset
by lower interest costs from lower interest-bearing advances in 1996 from Former
Parent.
Net income increased $57.4 million to $29.9 million in 1996 from a net loss
of $27.5 million in 1995. Excluding the restructuring charges and spin-off
transaction costs in 1996 and the restructuring charges in 1995, net income
decreased $2.2 million, or 3.3%, in 1996, primarily due to the increase in
selling, general and administrative expense.
The effective tax rate for 1996 was 29.5%, down from 41.5% in 1995. The
lower effective tax rate in 1996 resulted from a one-time tax benefit due to the
revaluation of the Company's deferred tax benefits for the higher effective
state tax rate incurred after the Spin-off, as well as additional income from
certain foreign operations, which was not subject to taxation.
LIQUIDITY AND CAPITAL RESOURCES
The Company generated cash from operations of $31.2 million during the
first half of 1998 compared to cash generated of $84.9 million for the same
period of time in 1997. The decrease of $53.7 million resulted primarily from
inventories remaining relatively flat in the first half of 1998 versus the large
decline of inventory balances in the first half of 1997, the payment of
severance in connection with the closure of a manufacturing facility in
Argentina and a reduction in the deferred portion of the income tax provision.
Capital expenditures for the first half of 1998 were $15.1 million versus
$17.5 million for the comparable period in 1997. Capital spending in 1998 is
expected to approximate $50 million and will be concentrated primarily on
equipment and information systems that provide opportunities to reduce
manufacturing, logistic and administrative costs and address the Year 2000
issue. However, such plans are dependent on the availability of funds, as well
as identification of projects with sufficient returns. As a result, there can be
no assurance as to the quantity and the type of capital spending in the future.
On July 1, 1998, the Company acquired Freeman for $83.8 million which was
financed through short-term borrowings supported by the Company's long-term
Credit Agreement. The Freeman acquisition added
S-14
<PAGE> 15
approximately $18.6 million to current assets, $14.4 to current liabilities and
approximately $76.8 million to goodwill of the Company.
The Company received approximately $10.0 million from the disposition of
assets during the first half of 1998, the majority of which resulted from two
sales. The Purex Toss 'n Soft brand and related inventories were sold to Church
& Dwight for approximately $5.3 million. In addition, a non-operating
manufacturing property was sold for $4.0 million to a third party. No gain or
loss was realized on either of the transactions.
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 July 4, 1998 and June 28, 1997 were $90.0 million and $63.7 million,
respectively. Under the terms of the plan, the Company retains the risk of
credit loss on the receivables sold.
The Company is also a 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 had $350 million available under the Credit
Agreement at July 4, 1998. The Company, from time to time, makes short-term bank
borrowings that are supported by the Credit Agreement. As of July 4, 1998, the
Company had $114.8 million aggregate principal amount of such short-term
borrowings outstanding. The increased borrowings resulted primarily from the
acquisition of Freeman, which was financed entirely by such short-term
borrowings. The bank borrowings are classified as long-term debt because they
are supported by the long-term Credit Agreement.
At July 4, 1998 and June 28, 1997, a total of 329,071 and 65,879 shares of
Common Stock, respectively, were held in treasury by the Company. The shares
held at July 4, 1998 include 218,687 shares valued at $5.2 million purchased by
the Company as part of a small shareholder selling/repurchasing program executed
during the first and second quarters of 1998.
In August 1997, the Company moved its corporate headquarters from the Viad
Tower to office space in Scottsdale, Arizona. The Company has approximately
eight years remaining on the lease for the Viad Tower space, which commits the
Company to payments of approximately $2.7 million annually through 2006. The
Company has subleased a portion of the space and is actively marketing the
remaining space for sublease.
As of July 4, 1998, the Company had approximately $87.1 million in net
deferred tax benefits. The realization of such benefits will require average
annual taxable income of approximately $16.1 million over the next 15 years. The
Company's average income before income taxes over the last three years was
approximately $43.1 million.
On September 14, 1998, the Company acquired Sarah Michaels. The total
transaction value of $185.0 million was financed by short-term bank borrowings
supported by the long-term Credit Agreement. It is currently anticipated that
the acquisition of Sarah Michaels will add approximately $120 million to
goodwill of the Company.
As part of its business strategy, the Company routinely reviews and
evaluates the acquisition of domestic and international companies that market
products that are similar to the Company's product offerings. The Company may
seek additional debt and/or equity financing as necessary to fund any additional
potential acquisitions.
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<PAGE> 16
DESCRIPTION OF NOTES
The Notes offered hereby (the "Offering") constitute a separate series of
Debt Securities (which are more fully described in the accompanying Prospectus)
to be issued pursuant to an indenture (the "Base Indenture"), as amended or
supplemented, including the First Supplemental Indenture (the "First
Supplemental Indenture"), between the Company and Norwest Bank Arizona, N.A., as
trustee (the "Trustee"). The following description of the particular terms of
the Notes offered hereby supplements, and to the extent inconsistent therewith,
replaces the description of the general terms and provisions of the Debt
Securities set forth in the accompanying Prospectus, to which description
reference is hereby made. The terms of the Notes includes those provisions
contained in the Indenture (as defined herein) and those made part of the
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). The Notes are subject to all such terms, and holders of Notes are
referred to the Base Indenture as supplemented by the First Supplemental
Indenture (collectively, the "Indenture") and the TIA for a full statement
thereof. Capitalized terms not otherwise defined herein shall have the meanings
given to them in the Prospectus and the Indenture. The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to and qualified in its entirety by reference to the Indenture,
including the definitions therein of certain defined terms used below and not
otherwise defined below. Copies of the Indenture and the Notes are available for
inspection at the office of the Trustee located at 3300 N. Central Avenue,
Fifteenth Floor, Phoenix, Arizona 85012. As used in this section "Description of
Notes", the "Company" refers to The Dial Corporation, exclusive of its
subsidiaries.
GENERAL
The Notes hereby will be limited to $200,000,000 aggregate principal amount
and will be issued under the Indenture. The Notes will bear interest at the rate
of 6.50% per annum and will mature on September 15, 2008. Interest on the
principal amount of the Notes will be payable semi-annually on September 15 and
March 15 of each year, commencing March 15, 1999 to the persons in whose names
such Notes are registered at the close of business on September 1 or March 1, as
the case may be, preceding such September 15 or March 15. The first payments of
interest will be made in respect of the period commencing September 23, 1998.
The Notes do not have the benefit of a sinking fund. The Notes will be
unsecured and unsubordinated indebtedness of the Company and will rank on a
parity with the Company's other unsecured and unsubordinated indebtedness. At
July 4, 1998, on a pro forma basis after giving effect to the Offering and the
acquisition of Sarah Michaels, the Company would have had approximately $303.1
million of senior unsecured indebtedness, consisting of $200 million aggregate
principal amount of indebtedness under the Notes, $102.4 million aggregate
principal amount of short-term bank borrowings supported by the Credit Agreement
and $700,000 principal amount of indebtedness relating to the discounted value
of an interest-free loan from the State of Arizona. See "Capitalization."
Subject to the limitations set forth in the Notes as described below under
the section "-- Certain Covenants," the Indenture will permit the Company and
its Subsidiaries to incur additional secured and unsecured indebtedness.
The Notes will be issued only in fully registered book-entry form without
coupons in denominations of $1,000 and integral multiples thereof, except under
the limited circumstances described below under "-- Book-Entry, Delivery and
Form." The Notes may be transferred or exchanged without any service charge at
the corporate trust office of the Trustee in the City of New York, or at any
other office or agency maintained by the Company for such purpose, but the
Company may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. See "Description of Debt
Securities -- Modification and Waiver" in the accompanying Prospectus.
Reference is made to the section below entitled "-- Certain Covenants" for
a description of the covenants applicable to the Notes. Compliance with such
covenants generally may not be waived by the Trustee unless the holders of at
least a majority in aggregate principal amount of all outstanding Notes consent
to such waiver; provided, however, that the Company need not comply with such
covenants in the event it
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<PAGE> 17
elects to comply with the defeasance or covenant defeasance provisions of the
Indenture described under "Description of Debt Securities -- Defeasance" in the
accompanying Prospectus.
Except as described under "-- Certain Covenants" below and under
"Description of Debt Securities -- Consolidation, Merger and Transfer of Assets"
in the accompanying Prospectus, the Indenture does not contain any other
provisions that would afford holders of the Notes protection in the event of (i)
a highly leveraged or similar transaction involving the Company, (ii) a change
of control or (iii) a reorganization, restructuring, merger or similar
transaction involving the Company that may adversely affect the holders of the
Notes. In addition, subject to the limitations set forth under "Description of
Debt Securities -- Consolidation, Merger, Conveyance or Transfer of Assets" in
the accompanying Prospectus, the Company may, in the future, enter into certain
transactions such as the sale of all or substantially all of its assets or the
merger or consolidation of the Company with another entity that would increase
the amount of the Company's indebtedness or substantially reduce or eliminate
the Company's assets, which may have a material adverse effect on the Company's
ability to service its indebtedness, including the Notes.
REDEMPTION
The Notes will be redeemable, as a whole or in part, at the option of the
Company at any time, at a redemption price (a "Redemption Price") equal to the
greater of (i) 100% of the principal amount of such Notes and (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
thereon discounted to the redemption date (the "Redemption Date") on a
semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at
the Treasury Rate plus 25 basis points, plus in each case accrued interest
thereon to the Redemption Date.
"Treasury Rate" means, with respect to any Redemption Date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of the Notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of a comparable maturity to the
remaining term of such Notes. "Independent Investment Banker" means one of the
Reference Treasury Dealers appointed by the Trustee after consultation with the
Company.
"Comparable Treasury Price" means, with respect to any Redemption Date, (A)
the average of the Reference Treasury Dealer Quotations for such Redemption
Date, after excluding the highest and lowest such Reference Treasury Dealer
Quotations, or (B) if the Trustee obtains fewer than four such Reference
Treasury Dealer Quotations, the average of all such quotations. "Reference
Treasury Dealer Quotations" means, with respect to each Reference Treasury
Dealer and any Redemption Date, the average, as determined by the Trustee, of
the bid and asked prices for the Comparable Treasury Issue (expressed in each
case as a percentage of its principal amount) quoted in writing to the Trustee
by such Reference Treasury Dealer at 3:30 p.m., New York time, on the third
business day preceding such Redemption Date.
"Reference Treasury Dealer" means each of Merrill Lynch, Pierce, Fenner &
Smith Incorporated and three other primary U.S. Government securities dealers in
The City of New York to be selected by the Company, and their respective
successors.
Notice of any redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each holder of Notes to be redeemed.
Unless the Company defaults in payment of the Redemption Price, on and
after the Redemption Date interest will cease to accrue on the Notes or portions
thereof called for redemption.
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<PAGE> 18
If less than all of the Notes are to be redeemed, the Trustee will select
the Notes to be redeemed by such method as the Trustee shall deem fair and
appropriate. The Trustee may select for redemption Notes and portions of Notes
in amounts of whole multiples of $1,000.
CERTAIN COVENANTS
LIMITATION ON LIENS
The Indenture will provide that the Company will not itself, and will not
permit any Restricted Subsidiary to, create, incur, issue or assume any Debt
secured by any Lien on any Principal Property owned by the Company or any
Restricted Subsidiary, and the Company will not itself, and will not permit any
Restricted Subsidiary to, create, incur, issue or assume any Debt secured by any
Lien on any shares of stock or Debt of any Restricted Subsidiary (such shares of
stock or Debt of any Restricted Subsidiary being called "Restricted
Securities"), without in any such case effectively providing that the Notes
(together with, if the Company shall so determine, any other Debt of the Company
or such Restricted Subsidiary then existing or thereafter created which is not
subordinate to the Notes) shall be secured equally and ratably with (or prior
to) such secured Debt, for so long as such other secured Debt shall be so
secured, unless, after giving effect thereto, the aggregate principal amount of
all such secured Debt then outstanding plus the Attributable Debt of the Company
and its Restricted Subsidiaries in respect of Sale and Leaseback Transactions
(as defined in below) involving Principal Properties entered into after the date
of the first issuance by the Company of Notes issued pursuant to this Indenture
(other than Sale and Leaseback Transactions permitted by paragraph (b) of the
section entitled "Sale and Leaseback Transactions" below) would not exceed an
amount equal to 10% of the Company's Consolidated Net Tangible Assets; provided,
however, that nothing contained in this Section shall prevent, restrict or apply
to, and there shall be excluded from secured Debt in any computation under this
Section, Debt secured by:
(a) Liens on any Principal Property or Restricted Securities of the
Company or any Subsidiary existing as of the date of the first issuance by
the Company of the Notes;
(b) Liens on any Principal Property or Restricted Securities of any
Person existing at the time such Person becomes a Restricted Subsidiary, or
arising thereafter whether or not the obligations secured by such Liens are
assumed by the Company or a Restricted Subsidiary (i) otherwise than in
connection with the borrowing of money arranged thereafter and (ii)
pursuant to contractual commitments entered into prior to and not in
contemplation of such Person's becoming a Restricted Subsidiary;
(c) Liens on any Principal Property or Restricted Securities of the
Company or any Subsidiary existing at the time of acquisition thereof
(including acquisition through merger or consolidation or acquisition of
stock or assets or otherwise) or securing the payment of all or any part of
the purchase price or construction cost of the Principal Property or
Restricted Securities or securing any Debt incurred prior to, at the time
of or within 180 days after, the acquisition of such Principal Property or
Restricted Securities or the completion of any such construction, whichever
is later, for the purpose of financing all or any part of the purchase
price or construction cost thereof (provided such Liens are limited to such
Principal Property or Restricted Securities, to improvements on such
Principal Property and to any other property or assets not then
constituting a Principal Property or Restricted Security);
(d) Permitted Liens;
(e) to the extent not covered by (d) above, pledges or deposits, Liens
resulting from litigation or judgments, taxes or other governmental charges
or landlord or tenant rights and other Liens incidental to the conduct of
the business or the ownership of the property and assets of the Company or
a Restricted Subsidiary which were not incurred in connection with
borrowing of money or the obtaining of advances or credit, and which do
not, in the opinion of the Company, materially detract from the value of
the property or assets or materially impair the use thereof in the
operation of the business of the Company and its Restricted Subsidiaries,
taken as a whole;
S-18
<PAGE> 19
(f) Liens on any property to secure all or part of the cost of
improvements or construction thereon or indebtedness incurred to provide
funds for such purpose in a principal amount not exceeding the cost of such
improvements or construction;
(g) Liens which secure Debt owing by a Subsidiary to the Company or to
a Restricted Subsidiary; and
(h) any extension, renewal, substitution or replacement (or successive
extensions, renewals, substitutions or replacements), as a whole or in
part, of any of the Liens referred to in paragraphs (a) through (g) above
or the Debt secured thereby; provided that (1) such extension, renewal,
substitution or replacement Lien shall be limited to all or any part of the
same Principal Property or Restricted Securities that secured the Lien
extended, renewed, substituted or replaced (plus improvements or expansions
on such property, and plus any other property or assets not then
constituting a Principal Property or Restricted Securities) and (2) in the
case of paragraphs (a) through (g) above, the Debt secured by such Lien at
such time is not increased (except to pay for any premium, interest, fee or
expense payable in connection with any such replacement, extension or
renewal).
For the purposes of this "Limitations on Liens" covenant and the
"Limitation on Sale and Leaseback Transactions" covenant, the giving of a
guarantee which is secured by a Lien on a Principal Property or Restricted
Securities, and the creation of a Lien on a Principal Property or Restricted
Securities to secure Debt which existed prior to the creation of such Lien,
shall be deemed to involve the creation of Debt in an amount equal to the
principal amount guaranteed or secured by such Lien; but the amount of Debt
secured by Liens on Principal Properties and Restricted Securities shall be
computed without cumulating the underlying indebtedness with any guarantee
thereof or Lien securing the same.
LIMITATION ON SALE AND LEASEBACK TRANSACTIONS
The Indenture will provide that the Company will not itself, and will not
permit any Restricted Subsidiary to, enter into any arrangement after the date
of the first issuance by the Company of the Notes with any bank, insurance
company or other lender or investor (other than the Company or another
Restricted Subsidiary) providing for the leasing by the Company or any such
Restricted Subsidiary of any Principal Property (except a lease for a temporary
period not to exceed three years by the end of which it is intended that the use
of such Principal Property by the lessee will be discontinued), which was or is
owned or leased by the Company or a Restricted Subsidiary and which has been or
is to be sold or transferred by the Company or a Restricted Subsidiary, more
than 180 days after the completion of construction and commencement of full
operation thereof by the Company or such Restricted Subsidiary, to such lender
or investor who has advanced or will advance funds on the security of such
Principal Property (herein referred to as a "Sale and Leaseback Transaction")
unless, (i) the gross proceeds of the sale or transfer of the Principal Property
leased equals or exceeds the fair market value of such Principal Property and
(ii) either:
(a) the Attributable Debt of the Company and its Restricted
Subsidiaries in respect of such Sale and Leaseback Transaction and all
other Sale and Leaseback Transactions entered into after the date of the
first issuance by the Company of the Notes (other than such Sale and
Leaseback Transactions as are permitted by paragraph (b) below), plus the
aggregate principal amount of Debt secured by Liens on Principal Properties
and Restricted Securities then outstanding (excluding any such Debt secured
by Liens covered in paragraphs (a) through (h) of the covenant "Limitations
on Liens" above) without equally and ratably securing the Notes, would not
exceed 10% of the Company's Consolidated Net Tangible Assets, or
(b) the Company, within 180 days after the sale or transfer, applies
or causes a Restricted Subsidiary to apply an amount equal to the greater
of the net proceeds of such sale or transfer or fair market value of the
Principal Property so sold and leased back at the time of entering into
such Sale and Leaseback Transaction (in either case as determined by any
two of the following: the Chairman, the President, any Vice President, the
Treasurer and the Controller of the Company) to (i) purchase other
Principal Property having a fair market value at least equal to the fair
market value of the Principal Property (or portion thereof) sold or
transferred in such Sale and Leaseback Transaction or (ii) the
S-19
<PAGE> 20
retirement of the Notes or other Debt of the Company (other than Debt
subordinated to the Notes) or Debt of a Restricted Subsidiary, having a
Maturity more than 12 months from the date of such application (or which is
supported by other borrowings with a maturity of more than 12 months from
the date of application) or which is extendible at the option of the
obligor thereon to a date more than 12 months from the date of such
application; provided that the amount to be so applied shall be reduced by
(i) the principal amount of Notes delivered within 180 days after such sale
or transfer to the Trustee for retirement and cancellation, and (ii) the
principal amount of any such Debt of the Company or a Restricted
Subsidiary, other than Notes, voluntarily retired by the Company or a
Restricted Subsidiary within 180 days after such sale or transfer, or
(c) such Sale and Leaseback Transaction involves property of a Person
existing at the time such Person becomes a Restricted Subsidiary of the
Company or at the time of the sale, lease or other disposition of the
properties of such Person as an entirety or substantially as an entirety to
the Company, in each case (i) otherwise than in connection with the
borrowing of money arranged thereafter and (ii) pursuant to contractual
commitments related to the Sale and Leaseback Transaction entered into
prior to and not in contemplation of such merger, sale, lease or
disposition or such Person's becoming a Restricted Subsidiary.
The Indenture does not restrict (i) the incurrence of unsecured debt by the
Company or any Subsidiary or (ii) the transfer of Principal Property to a
Subsidiary or any third party.
Notwithstanding the foregoing, where the Company or any Restricted
Subsidiary is the lessee in any Sale and Leaseback Transaction, Attributable
Debt shall not include any Debt resulting from the guarantee by the Company or
any other Restricted Subsidiary of the lessee's obligation thereunder.
BOOK-ENTRY, DELIVERY AND FORM
GLOBAL NOTES
Except as set forth below, the Notes will initially be issued in the form
of one or more registered Notes in global form (the "Global Notes"). Each Global
Note will be deposited on the date of the closing of the sale of the Notes (the
"Closing Date") with, or on behalf of, DTC (the "Depositary") and registered in
the name of Cede & Co., as nominee of the Depositary.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Securities Exchange
Act of 1934, as amended. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations, and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the New York Stock Exchange, Inc., the American Stock
Exchange, Inc. and the National Association of Securities Dealers, Inc. Access
to the DTC system is also available to others such as securities brokers and
dealers, banks and trust companies that clear through or maintain a custodial
relationship with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on file
with the Securities and Exchange Commission (the "Commission").
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Notes, the Depositary will credit the
accounts of Participants designated by the Underwriters with an interest in the
applicable Global Notes and (ii) ownership of the Notes evidenced by the Global
Notes will be shown on, and the transfer of that ownership will be effected only
through, records maintained by the Depositary (with respect to Participants'
interests), the Participants and the Indirect Participants. The laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own and
S-20
<PAGE> 21
that security interests in negotiable instruments can only be perfected by
delivery of certificates representing the instruments. Consequently, the ability
to transfer Notes evidenced by the Global Notes will be limited to such extent.
So long as the Depositary or its nominee is the registered owner of a Note,
the Depositary or such nominee, as the case may be, will be considered the sole
owner or holder of the Notes represented by the Global Notes for all purposes
under the Indenture. Except as provided below, owners of beneficial interests in
a Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in certificated form ("Certificated Notes"), and will not be
considered the owners or holders thereof under the Indenture for any purpose,
including with respect to the giving of any directions, instructions or
approvals to the Trustee thereunder. As a result, the ability of a person having
a beneficial interest in Notes represented by a Global Note to pledge such
interest to persons or entities that do not participate in the Depositary's
system, or to otherwise take actions with respect to such interest, may be
affected by the lack of a physical certificate evidencing such interest.
Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depositary, or for maintaining, supervising or reviewing any
records of the Depositary relating to such Notes.
Payments with respect to the principal of, premium, if any, and interest
on, any Note represented by a Global Note registered in the name of the
Depositary or its nominee on the applicable record date will be payable by the
Trustee to, or at the direction of, the Depositary or its nominee in its
capacity as the registered holder of the Global Note representing such Notes
under the Indenture. Under the terms of the Indenture, the Company and the
Trustee may treat the persons in whose names the Notes, including the Global
Notes, are registered as the owners thereof for the purpose of receiving such
payments and for any and all other purposes whatsoever. Consequently, neither
the Company nor the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes (including principal,
premium, if any, or interest), or for immediately crediting the accounts of the
relevant Participants with such payment, in amounts proportionate to their
respective holdings in principal amount of beneficial interests in the Global
Note as shown on the records of the Depositary. Payments by the Participants and
the Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Participants or the Indirect Participants.
CERTIFICATED NOTES
If (i) the Company notifies the Trustee in writing that the Depositary is
unwilling, unable or ineligible to act as a depositary and the Company is unable
to locate a qualified successor within 90 days, (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
certificated form under the Indenture, or (iii) any Event of Default has
occurred or is continuing, then, upon surrender by the Depositary of the
applicable Global Notes, Certificated Notes will be issued to each person that
the Depositary identifies as the beneficial owner of the Notes represented by
such Global Notes. Upon any such issuance, the Trustee is required to register
such Certificated Notes in the name of such person or persons (or the nominee of
any thereof), and cause the same to be delivered thereto.
Neither the Company nor the Trustee shall be liable for any delay by the
Depositary or any Direct Participant or Indirect Participant in identifying the
beneficial owners of the Notes, and the Company and the Trustee may conclusively
rely on, and shall be protected in relying on, instructions from the Depositary
for all purposes (including with respect to the registration and delivery, and
the respective principal amounts, of the Notes to be issued).
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
believes to be reliable. The Company will have no responsibility for the
performance by the Depositary or its Participants of their respect obligations
as described hereunder or under the rules and procedures governing their
respective operations.
S-21
<PAGE> 22
SAME-DAY FUNDS SETTLEMENT AND PAYMENT
Settlement for the Notes will be made by the Underwriters in immediately
available funds. Payments in respect of the Notes represented by the Global
Notes (including principal, premium, if any, and interest) will be made in
immediately available funds to the accounts specified by the Depositary. With
respect to Notes represented by Certificated Notes, the Company will make all
payments of principal, premium, if any, and interest, by mailing a check to the
registered address of each holder of such Notes. The Notes will trade in the
Depositary's Same-Day Funds Settlement System until maturity, or until the Notes
are issued in certificated form, and secondary market trading activity in the
Notes will therefore be required by the Depositary to settle in immediately
available funds. No assurance can be given as to the effect, if any, of
settlement in immediately available funds on trading activity in the Notes.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Attributable Debt" means, as to any particular lease under which any
Person is at the time liable for a term of more than 12 months, at any date as
of which the amount thereof is to be determined, the total net amount of rent
required to be paid by such Person under such lease during the remaining term
thereof (excluding any subsequent renewal or other extension options held by the
lessee), discounted from the respective due dates thereof to such date at a rate
per annum equal to the prevailing market interest rate, at the time such lease
was entered into, on United States Treasury obligations having a maturity
substantially the same as the average term of such lease, plus 3%. The net
amount of rent required to be paid under any such lease for any such period
shall be the aggregate amount of the rent payable by the lessee with respect to
such period after excluding amounts required to be paid by such lessee, whether
or not designated as rent or additional rent, on account of maintenance and
repairs, services, insurance, taxes, assessments, water rates and similar
charges and contingent rents (such as those based on sales). In the case of any
lease which is terminable by the lessee upon the payment of a penalty, such net
amount of rent shall include the lesser of (i) the total discounted net amount
of rent required to be paid from the later of the first date upon which such
lease may be so terminated or the date of the determination of such net amount
of rent, as the case may be, and (ii) the amount of such penalty (in which event
no rent shall be considered as required to be paid under such lease subsequent
to the first date upon which it may be so terminated).
"Consolidated Net Tangible Assets" means the total amount of assets (less
applicable reserves and other properly deductible items) after deducting
therefrom (i) all current liabilities (excluding any current liabilities which
are by their terms extendible or renewable at the option of the obligor thereon
to a time more than 12 months after the time as of which the amount thereof is
being computed or which is supported by other borrowings with a maturity of more
than 12 months from the date of calculation, (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles and (iii) appropriate adjustments on account of minority interests
of other Persons holding stock of the Company's Subsidiaries, all as set forth
on the most recent balance sheet of the Company and its consolidated
Subsidiaries (but, in any event, as of a date within 150 days of the date of
determination) in each case excluding intercompany items and computed in
accordance with generally accepted accounting principles as in effect from time
to time.
"Debt" means notes, bonds, debentures or other similar evidences of
indebtedness for money borrowed.
"Lien" means any pledge, mortgage, lien, charge, encumbrance or security
interest.
"Permitted Liens" means (i) Liens to secure the performance of statutory
obligations, surety or appeal bonds, performance bonds or other obligations of a
like nature incurred in the ordinary course of business; (ii) Liens for taxes,
assessments or governmental charges or claims that are not yet delinquent or
that are being contested in good faith by appropriate proceedings promptly
instituted and diligently concluded, provided that any reserve or other
appropriate provision as shall be required in conformity with Generally
S-22
<PAGE> 23
Accepted Accounting Principles shall have been made therefor; (iii) Liens
securing reimbursement obligations with respect to letters of credit (whether or
not issued under the Credit Agreement) otherwise permitted under the Indenture
and issued in connection with the purchase of inventory or equipment by the
Company or any Subsidiary in the ordinary course of business; (iv) Liens of
carriers, warehousemen, mechanics, suppliers, materialmen, landlords, operators,
repairmen and other similar Liens incurred in the ordinary course of business;
(v) easements, rights-of-way zoning restrictions, reservations, encroachments
and other similar encumbrances in respect of real property, which do not, in the
opinion of the Company, materially impair the use of such property in the
operation of the business of the Company or the value of such property; (vi)
Liens upon specific items of inventory or equipment and proceeds of the Company
or any Subsidiary securing its obligations in respect of bankers' acceptances
issued or created for its account to facilitate the purchase, shipment, or
storage of such inventory and equipment; (vii) leases or subleases granted to
others in the ordinary course of business that do not materially interfere with
the business of the Company and its subsidiaries; (viii) Liens incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance, and other types of social security,
including any Liens securing letters of credit issued in the ordinary course of
business consistent with past practice in connection therewith, or to secure the
performance of tenders, statutory obligations, surety and appeal bonds, bids,
leases, government contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money); (ix) Liens incurred or deposits made to secure liability to insurance
carriers under insurance or self-insurance arrangements, including liens of
judgments thereunder that are not currently dischargeable; (x) Liens on any
property held in trust pursuant to defeasance or covenant defeasance provisions
governing indebtedness of the Company or any Restricted Subsidiary arising in
connection with any defeasance or covenant defeasance of such indebtedness; (xi)
Liens to secure (or encumbering deposits securing) obligations arising from
warranty or contractual service obligations of the Company or any Restricted
Subsidiary, including rights of offset and setoff; and (xii) Liens incurred in
connection with repurchase, swap or other similar agreements.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof or any other entity.
"Principal Property" means any manufacturing plant, distribution center or
warehouse, together with the land upon which it is erected and fixtures
comprising a part thereof, in each case, owned by the Company or any Restricted
Subsidiary and located in the United States, the gross book value (without
deduction of any reserve for depreciation) of which on the date as of which the
determination is being made is an amount which exceeds 1% of Consolidated Net
Tangible Assets but not including such manufacturing plants, distribution
centers or warehouses or portions thereof which in the opinion of the Company,
together with all such other manufacturing plants, distribution centers and
warehouses or portions thereof previously so declared, is not of material
importance to the total business conducted by the Company and its Subsidiaries
as an entirety.
"Restricted Subsidiary" means any Subsidiary of the Company which, at the
time of determination, owns Principal Property.
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<PAGE> 24
UNDERWRITING
Subject to the terms and conditions set forth in a purchase agreement (the
"Purchase Agreement") among the Company and each of Merrill Lynch, Pierce,
Fenner & Smith Incorporated ("Merrill Lynch"), BancAmerica Securities, Inc.,
Citicorp Securities, Inc. and J.P. Morgan Securities Inc. (collectively, the
"Underwriters"), the Company has agreed to sell to the Underwriters, and each of
the Underwriters severally and not jointly has agreed to purchase from the
Company, the aggregate principal amount of the Notes set forth opposite its name
below. The several Underwriters have agreed, subject to the terms and conditions
set forth in the Purchase Agreement, to purchase all of the Notes being sold
pursuant to such agreement if any of the Notes being sold pursuant to such
agreement are purchased. Under certain circumstances, pursuant to the Purchase
Agreement, the commitments of non-defaulting Underwriters may be increased.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- ------------------------------------------------------------ ------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................... $119,000,000
BancAmerica Securities, Inc. ............................... 27,000,000
Citicorp Securities, Inc.................................... 27,000,000
J.P. Morgan Securities Inc.................................. 27,000,000
------------
Total.......................................... $200,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the initial public offering price set forth on
the cover page of this Prospectus Supplement, and to certain dealers at such
price less a concession not in excess of .40% of the principal amount of the
Notes. The Underwriters may allow, and such dealers may reallow, a discount not
in excess of .25% of the principal amount of the Notes to certain other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
There is no public trading market for the Notes and the Company does not
intend to apply for listing of the Notes on any national securities exchange or
for quotation of the Notes on any automated dealer quotation system. The Company
has been advised by the Underwriters that they presently intend to make a market
in the Notes after the consummation of the Offering contemplated hereby,
although they are under no obligation to do so and may discontinue any
market-making activities at any time without any notice. No assurance can be
given as to the liquidity of the trading market for the Notes or that an active
public market for the Notes will develop. If an active public trading market for
the Notes does not develop, the market price and liquidity of the Notes may be
adversely affected. If the Notes are traded, they may trade at a discount from
their initial offering price, depending on prevailing interest rates, the market
for similar securities, the performance of the Company and certain other
factors.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Until the distribution of the Notes is completed, rules of the Securities
and Exchange Commission may limit the ability of the Underwriters and certain
selling group members to bid for and purchase the Notes. As an exception to
these rules, the Underwriters are permitted to engage in certain transactions
that stabilize the price of the Notes. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Notes.
If the Underwriters create a short position in the Notes in connection with
the Offering, i.e., if they sell more Notes than are set forth on the cover page
of this Prospectus Supplement, the Underwriters may reduce that short position
by purchasing Notes in the open market. In general, purchases of a security for
the purpose of stabilization or to reduce a short position could cause the price
of the security to be higher than it might be in the absence of such purchases.
Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Notes. In addition, neither the
Company nor any of the Underwriters makes any representation that the
Underwriters
S-24
<PAGE> 25
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.
The Underwriters and their affiliates have from time to time provided
investment banking and commercial banking services to the Company, for which
they have received customary compensation, and may continue to do so in the
future.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Notes offered
hereby will be passed upon for the Company by Fried, Frank, Harris, Shriver &
Jacobson (a partnership including professional corporations), New York, New
York. Certain legal matters relating to the Offering will be passed upon for the
Underwriters by Shearman & Sterling, San Francisco, California.
EXPERTS
The consolidated financial statements as of January 3, 1998 and December
28, 1996 and for each of the three years in the period ended January 3, 1998
included in this Prospectus Supplement have been audited by Deloitte & Touche
LLP, independent auditors, as stated in their report appearing herein, and has
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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<PAGE> 26
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditor's Report................................ F-2
Consolidated Balance Sheet at January 3, 1998 and December
28, 1996.................................................. F-3
Statements of Consolidated Operations for the years ended
January 3, 1998, December 28, 1996 and December 30,
1995...................................................... F-4
Statements of Consolidated Cash Flows for the years ended
January 3, 1998, December 28, 1996 and December 30,
1995...................................................... F-5
Statements of Consolidated Stockholders' Equity for the
years ended January 3, 1998, December 28, 1996 and
December 30, 1995......................................... F-6
Notes to Consolidated Financial Statements.................. F-7
Consolidated Balance Sheet at July 4, 1998 and January 3,
1998...................................................... F-20
Statements of Consolidated Operations for each of the six
months and quarters ended July 4, 1998 and June 28,
1997...................................................... F-21
Statements of Consolidated Cash Flows for each of the six
months ended July 4, 1998 and June 28, 1997............... F-22
Notes to Consolidated Financial Statements.................. F-23
</TABLE>
F-1
<PAGE> 27
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors of The Dial Corporation:
We have audited the accompanying consolidated balance sheets of The Dial
Corporation as of January 3, 1998 and December 28, 1996, and the related
consolidated statements of operations, cash flows and stockholders' equity for
each of the three fiscal years in the period ended January 3, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Dial Corporation as of
January 3, 1998 and December 28, 1996, and the results of its operations and its
cash flows for each of the three fiscal years in the period ended January 3,
1998 in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
- ------------------------------------------------------
Deloitte & Touche LLP
Phoenix, Arizona
January 22, 1998
F-2
<PAGE> 28
THE DIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(000 OMITTED)
<TABLE>
<CAPTION>
JANUARY 3, 1998 DECEMBER 28, 1996
--------------- -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 10,089 $ 14,102
Receivables, less allowance of $6,841 and $3,170.......... 60,448 28,689
Inventories............................................... 124,058 139,492
Deferred income taxes..................................... 25,185 61,379
Other current assets...................................... 7,174 4,119
-------- --------
Total current assets.............................. 226,954 247,781
Property and equipment, net................................. 260,928 226,551
Deferred income taxes....................................... 63,567 63,918
Intangibles, net............................................ 331,482 325,739
Other assets................................................ 921 2,137
-------- --------
$883,852 $866,126
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable.................................... $102,235 $ 91,341
Short-term borrowings..................................... 8,500
Income taxes payable...................................... 14,581 7,188
Other current liabilities................................. 113,435 108,145
-------- --------
Total current liabilities......................... 238,751 206,674
Long-term debt.............................................. 84,399 269,515
Pension and other benefits.................................. 231,634 233,306
Other liabilities........................................... 9,022 15,974
-------- --------
Total liabilities................................. 563,806 725,469
-------- --------
Commitments and contingencies (Notes M and P)
Stockholders' Equity:
Preferred stock, $.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $.01 par value, 300,000,000 shares
authorized; 102,725,481 and 95,638,532 shares issued... 1,027 956
Additional capital........................................ 393,947 247,209
Retained income (deficit)................................. 33,892 (20,308)
Unearned employee benefits................................ (107,372) (86,554)
Treasury stock, 101,040 and 49,399 shares held............ (1,448) (646)
-------- --------
Total stockholders' equity........................ 320,046 140,657
-------- --------
$883,852 $866,126
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 29
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(000 OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
Net sales............................................. $1,362,606 $1,406,400 $1,365,290
---------- ---------- ----------
Costs and expenses:
Cost of products sold............................... 718,112 739,893 709,888
Write down of discontinued product inventories...... 27,924 20,400
---------- ---------- ----------
718,112 767,817 730,288
Selling, general and administrative expenses........ 482,324 541,110 523,058
Restructuring charges and other asset write-downs... 27,076 135,600
---------- ---------- ----------
1,200,436 1,336,003 1,388,946
---------- ---------- ----------
Operating income (loss)............................... 162,170 70,397 (23,656)
---------- ---------- ----------
Spin-off transaction costs............................ 5,000
Interest and other expenses........................... 28,235 22,974 23,360
---------- ---------- ----------
28,235 27,974 23,360
---------- ---------- ----------
Income (loss) before income taxes..................... 133,935 42,423 (47,016)
Income taxes (benefit)................................ 50,225 12,511 (19,527)
---------- ---------- ----------
NET INCOME (LOSS)..................................... $ 83,710 $ 29,912 $ (27,489)
========== ========== ==========
NET INCOME PER SHARE -- BASIC......................... $ 0.91 $ 0.33
========== ==========
NET INCOME PER SHARE -- DILUTED....................... $ 0.89 $ 0.33
========== ==========
Basic shares outstanding.............................. 91,918 89,705
Equivalent shares................................... 2,231 1,269
---------- ----------
Diluted shares outstanding............................ 94,149 90,974
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 30
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(000 OMITTED)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------
JANUARY 3, DECEMBER 28, DECEMBER 30,
1998 1996 1995
---------- ------------ ------------
<S> <C> <C> <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income (loss)...................................... $ 83,710 $ 29,912 $(27,489)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization........................ 31,763 30,533 29,118
Deferred income taxes................................ 36,545 (965) (34,733)
Restructuring charges and asset write-downs.......... 55,000 156,000
Change in operating assets and liabilities:
Receivables....................................... 9,894 12,766 69,202
Inventories....................................... 17,815 (7,763) (10,005)
Trade accounts payable............................ (3,457) 11,839 (22,356)
Other assets and liabilities, net................. (15,423) (31,870) (69,429)
--------- -------- --------
Net cash provided by operating activities.............. 160,847 99,452 90,308
--------- -------- --------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures................................... (46,715) (49,468) (27,214)
Acquisition of business, net of cash acquired.......... (31,575) (23,558)
Proceeds from sales of product lines and other property
and equipment........................................ 35,853 128 7,099
--------- -------- --------
Net cash used by investing activities.................. (42,437) (49,340) (43,673)
--------- -------- --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net payments on long-term borrowings................... (206,216) (13,488) (491)
Proceeds from sale of common stock..................... 107,990
Net change in short-term borrowings.................... 8,500 (317) 301
Net change in receivables sold......................... (15,997) (1,808) (14,290)
Dividends paid on common stock......................... (29,510) (14,365)
Cash proceeds from stock options....................... 12,810 2,779
Cash transfers to parent, net.......................... (14,695) (32,168)
--------- -------- --------
Net cash used by financing activities.................. (122,424) (41,894) (46,648)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents... (4,014) 8,218 (13)
Cash and cash equivalents, beginning of year........... 14,102 5,884 5,897
--------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 10,089 $ 14,102 $ 5,884
========= ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 31
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
(000 OMITTED)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED UNEARNED PARENT COMMON
---------------- ADDITIONAL INCOME EMPLOYEE INVESTMENT STOCK IN
SHARES AMOUNT CAPITAL (DEFICIT) BENEFITS AND ADVANCES TREASURY TOTAL
------- ------ ---------- --------- --------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995............ $ 555,703 $ 555,703
Net loss.......................... (27,489) (27,489)
Payments to parent................ (31,984) (31,984)
------- ------ -------- -------- --------- --------- ------- ---------
BALANCE, DECEMBER 30, 1995.......... 496,230 496,230
Net income........................ 35,855 35,855
Payments to parent................ (14,695) (14,695)
BALANCE AT SPINOFF, AUGUST 15,
1996.............................. 517,390 517,390
Spinoff capitalization............ 95,346 953 237,664 (81,379) (517,390) (360,152)
------- ------ -------- -------- --------- --------- ------- ---------
BALANCE AFTER SPINOFF, AUGUST 15,
1996.............................. 95,346 953 237,664 (81,379) 157,238
Exercise of stock options......... 293 3 3,165 (389) 2,779
Dividends on common stock......... (14,365) (14,365)
Change in unearned employee
benefits........................ 6,380 (5,175) (257) 948
Net loss.......................... (5,943) (5,943)
------- ------ -------- -------- --------- --------- ------- ---------
BALANCE, DECEMBER 28, 1996.......... 95,639 956 247,209 (20,308) (86,554) (646) 140,657
Exercise of stock options......... 807 8 5,884 10,009 (715) 15,186
Net proceeds from stock
offering........................ 6,279 63 107,927 107,990
Dividends on common stock......... (29,510) (29,510)
Change in unearned employee
benefits........................ 32,927 (30,827) (87) 2,013
Net income........................ 83,710 83,710
------- ------ -------- -------- --------- --------- ------- ---------
BALANCE, JANUARY 3, 1998............ 102,725 $1,027 $393,947 $ 33,892 $(107,372) $ $(1,448) $ 320,046
======= ====== ======== ======== ========= ========= ======= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-6
<PAGE> 32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 3, 1998, DECEMBER 28, 1996,
AND DECEMBER 30, 1995
NOTE A. BASIS OF PREPARATION
On July 25, 1996, the Board of Directors of The Dial Corp ("Former Parent")
declared a dividend to effect the spin-off of its Consumer Products Business
(the "Spin-off"). The dividend was paid on August 15, 1996, to stockholders of
record as of August 5, 1996. Each Dial stockholder received a dividend of one
share of common stock of The Dial Corporation ("the Company"), which, after the
Spin-off, owns and operates the Consumer Products Business previously conducted
by Former Parent. Concurrently with the Spin-off, 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. Concurrent with the
Spin-off, the Company was capitalized through settlement of The Dial Corp's
investment and advances account of $517.4 million by the assumption of $280
million of long-term debt and $80.2 million (net of income taxes) in Armour
employee benefit liabilities, with the net amount remaining of $157.2 million
comprising the Company's stockholders' equity as of the Spin-off date. All
intercompany balances and transactions among the entities comprising the Company
have been eliminated.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
The Consolidated Financial Statements are prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures 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.
The Company's fiscal year ends on the Saturday closest to December 31.
Fiscal year 1997 consisted of 53 weeks. Fiscal years 1996 and 1995 consisted of
52 weeks.
Certain reclassifications have been made to 1996 and 1995 balances to
conform with the 1997 presentation.
REVENUE RECOGNITION. Sales are recorded at the time products are shipped
to trade customers.
MAJOR CUSTOMERS. Major customers are defined as those that individually
accounted for more than 10% of the Company's sales. Sales to a major customer
accounted for 17%, 16% and 13% of the Company's net sales in 1997, 1996 and
1995, respectively.
MARKETING AND RESEARCH AND DEVELOPMENT COSTS. All expenditures for
marketing and research and development are charged against earnings in the year
incurred and are reported in the Statement of Consolidated Operations under the
caption "Selling, general and administrative expenses." The Company's internal
and external research and development expenditures totaled approximately $12.3
million, $15.2 million and $14.7 million in 1997, 1996 and 1995, respectively.
Marketing costs include the costs of advertising and various sales promotional
programs.
CASH EQUIVALENTS. The Company considers all highly liquid investments with
original maturities of three months or less from the date of purchase to be cash
equivalents.
INVENTORIES. Generally, inventories are stated at the lower of cost (first
in, first out and average cost methods) or market.
LONG-LIVED ASSETS. In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, the Company reviews the carrying values of its
long-lived assets and identifiable intangibles for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
F-7
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to be held and used may not be recoverable. For assets to be disposed of, the
Company reports long-lived assets and certain identifiable intangibles at the
lower of carrying amount or fair value less cost to sell.
PROPERTY AND EQUIPMENT. Property and equipment are stated at cost, net of
accumulated depreciation.
Depreciation is provided principally by use of the straight-line method at
annual rates as follows:
<TABLE>
<S> <C>
Buildings.................................... 2% to 5%
Machinery and other equipment................ 5% to 33%
Leasehold improvements....................... Lesser of lease term or useful life
</TABLE>
INTANGIBLES. Intangibles are carried at cost less accumulated
amortization. Intangibles that arose prior to November 1, 1970, as a result of
the Former Parent's initial investment in the Company are not being amortized.
Goodwill arising on or after November 1, 1970, is amortized on the straight-line
method over the periods of expected benefit ranging from 25 to 40 years.
Trademarks are amortized on the straight-line method over 40 years.
PENSION AND OTHER BENEFITS. Trusteed, noncontributory pension plans cover
substantially all employees, with benefit levels supplemented in most cases by
defined matching common stock contributions to employees' 401(k) plans. Defined
benefits are based primarily on final average salary and years of service.
Funding policies provide that payments to defined benefit pension trusts shall
be at least equal to the minimum funding required by applicable regulations.
The Company has defined benefit postretirement plans that provide medical
and life insurance for eligible retirees and dependents. The related
postretirement benefit liabilities are recognized over the period that services
are provided by employees.
STOCK-BASED COMPENSATION. In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123, "Accounting for Stock-Based Compensation."
SFAS No. 123 defines a fair-value based method of accounting for an employee
stock option or similar equity instrument. As permitted by SFAS No. 123, the
Company has elected to continue to measure cost for its stock-based compensation
plans using the intrinsic-value based method of accounting prescribed by
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." See Note O to the Consolidated Financial Statements for additional
information concerning stock-based compensation.
NET INCOME (LOSS) PER COMMON SHARE. 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 was not permitted. This new standard
requires dual presentation of "basic" and "diluted" earnings per share ("EPS")
on the face of the statement of operations and requires a reconciliation of the
numerators and denominators of basic and diluted EPS calculations.
In accordance with SFAS No. 128, basic net income per common share is
computed by dividing net income by the weighted average number of common shares
outstanding during the year before giving effect to stock options considered to
be dilutive common stock equivalents. Diluted 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. Shares held by the Employee Equity Trust
(the "Trust") are not considered outstanding for net income per share
calculations until the shares are released from the Trust.
At January 3, 1998, there were 102,725,481 shares of common stock issued
and 97,551,656 shares outstanding. At January 3, 1998, and December 28, 1996, a
total of 5,072,785 and 5,670,818, respectively, of the issued shares were held
by the Trust.
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.
F-8
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Per share information is not presented for 1995 because the Company was not
a publicly held company during such year. Income per share is presented for 1996
as the Company's common shares were issued on August 15, 1996. The calculation
of income per share assumes that the common shares and common share equivalents
were outstanding for that entire year.
NEW ACCOUNTING PRONOUNCEMENTS. 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 classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately from retained
income and additional capital in the shareholders equity section of the balance
sheet. 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 stockholders. It also establishes standards
for disclosures about products and services, geographic areas and major
customers. Both statements are effective for fiscal year 1998. The Company has
not completed evaluating the impact of implementing the provisions of SFAS Nos.
130 and 131.
NOTE C. ACQUISITION OF BUSINESS
In September 1997, the Company acquired Nuevo Federal S.A., a manufacturer
and marketer of personal care and household products in Argentina, for a
purchase price of approximately $35 million. Of this amount, $26.8 million was
paid in cash with the remainder of the purchase price comprised of future
payments contingent on the completion of certain transactions. In addition, in
November 1997, the Company acquired three personal care soap brands and two
laundry bar brands from The Procter & Gamble Company's Argentinean subsidiary
for a purchase price of $4.8 million paid in cash.
The acquisitions were accounted for as purchases. The purchase price,
including acquisition costs, was allocated to the net tangible and intangible
assets acquired based on estimated fair values at the date of acquisition. The
difference between the purchase price and the related fair value of net assets
acquired represents goodwill, which is being amortized on a straight-line basis
over 25 years. The fair value of patents and other intangible assets acquired is
amortized over their estimated useful lives. The results of the acquired
companies have been included in the Statement of Consolidated Operations from
the date of acquisition.
Net cash paid, assets acquired and debt and other liabilities assumed are
shown in the table below.
<TABLE>
<CAPTION>
(000 OMITTED)
ASSETS ACQUIRED: 1997
---------------- --------
<S> <C>
Receivables................................................. $ 26,414
Inventories................................................. 9,544
Property and equipment...................................... 22,599
Intangibles................................................. 27,635
Other assets................................................ 369
Debt and other liabilities assumed.......................... (54,986)
--------
Net cash paid............................................... $ 31,575
========
</TABLE>
The Company is still gathering certain information required to complete the
allocation of the purchase price of the acquisition of Nuevo Federal. Further
adjustments may arise as a result of the finalization of the ongoing study.
The following unaudited proforma combined condensed financial information
for 1996 and 1997 include the results of operations for the Company, including
the results of operation of Nuevo Federal for the fourth quarter of 1997 and The
Procter & Gamble Company brands for November and December of 1997, along with
adjustments which give effect to events that are directly attributable to the
transaction and are expected
F-9
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to have a continuing impact. The information assumes the transactions were
consummated at the beginning of each period presented.
The unaudited proforma combined condensed financial information does not
purport to represent the results of operations that would have actually resulted
had the purchases occurred on the indicated dates, nor should it be taken as
indicative of future results of operations.
<TABLE>
<CAPTION>
FISCAL YEAR
------------------
1997 1996
-------- ------
(IN MILLIONS)
<S> <C> <C>
Revenues................................................. $ 1,428 $1,477
Operating income......................................... 164 75
Net income............................................... 85 33
Earnings per share-diluted............................... $ 0.90 $ 0.36
</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 existing 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 $27.9
million of the charge related to inventories and was included in cost of
products sold.
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
employees, substantially all of whom were based in the plants that were closed.
All six plants have been closed. Approximately $20.4 million of the charge
related to inventories and was included in cost of products sold.
During 1997, approximately $20.6 million of expenses, consisting of
severance pay and benefits and headquarters building exit costs, were charged
against these reserves. Approximately $14.4 million in reserves from the 1995
and 1996 restructuring charges remained at January 3, 1998, consisting primarily
of facility closure, environmental and building exit costs. These reserves are
believed to be adequate and the expenses are expected to be paid utilizing cash
flow from operations.
NOTE E. INCOME AND EXPENSE ITEMS
In the third quarter of 1997, the Company sold to Church & Dwight Co., Inc.
for $30.2 million 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 sold to other third parties
for approximately $4.5 million its Bruce floor care trademark and its Magic
sizing starch brand and related inventories. Included in operating income is an
aggregate gain of $15.7 million from the sale of these businesses.
Also included in 1997 operating income is $15.9 million of various
impairment and other operating charges. In the third quarter of 1997, the
Company evaluated the estimated life of the capitalized package design costs,
which was being amortized over five years. In light of the accelerated pace of
package design changes taking place in the Company and the industry, the
estimated life of the capitalized package design costs was changed to one year.
Accordingly, $9.5 million of capitalized package design costs were considered
impaired and written-off against income. In addition, the Company charged
against income $4.5 million of discontinued product sales returns and $1.9
million in additional promotion claims on discontinued products.
F-10
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE F. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
(000 OMITTED)
<S> <C> <C>
Raw materials and supplies........................... $ 36,938 $ 37,744
Work in process...................................... 9,373 10,939
Finished goods....................................... 77,747 90,809
-------- --------
$124,058 $139,492
======== ========
</TABLE>
NOTE G. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
(000 OMITTED)
<S> <C> <C>
Land................................................. $ 10,071 $ 5,473
Buildings and leasehold improvements................. 108,613 81,874
Machinery and other equipment........................ 376,582 328,014
Construction in progress............................. 15,936 33,054
-------- --------
511,202 448,415
Less accumulated depreciation........................ (250,274) (221,864)
-------- --------
$260,928 $226,551
======== ========
</TABLE>
NOTE H. INTANGIBLES
Intangibles consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
(000 OMITTED)
<S> <C> <C>
Goodwill(1).......................................... $265,335 $238,623
Trademarks........................................... 54,957 69,675
Customer list and other intangibles.................. 78,997 98,689
-------- --------
399,289 406,987
Less accumulated amortization........................ (67,807) (81,248)
-------- --------
$331,482 $325,739
======== ========
</TABLE>
- ---------------
(1) Includes $155,259,000 of goodwill arising prior to November 1, 1970 that is
not being amortized.
F-11
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE I. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
(000 OMITTED)
<S> <C> <C>
Accrued compensation................................. $ 30,238 $ 12,829
Accrued trade promotions............................. 21,256 22,835
Restructure liabilities.............................. 14,631 34,114
Other................................................ 47,310 38,367
-------- --------
$113,435 $108,145
======== ========
</TABLE>
NOTE J. DEBT
Short-term debt at January 3, 1998 consisted of a $8,500,000 bank loan to
the Company's Argentinean subsidiary, Nuevo Federal. The loan is denominated in
Argentinean pesos, bears interest at the bank's short-term rate (7.3% at January
3, 1998) and reprices monthly. The loan is subject to call by the bank at the
end of each month.
Long-term debt at January 3, 1998 and December 28, 1996, amounted to
$84,399,400 and $269,515,250, respectively, in the form of bank borrowings
supported by a $350,000,000 long-term, revolving credit agreement. The
interest-rate applicable to the bank borrowings is, at the Company's option,
indexed to the bank prime rate or the London Interbank Offering Rate ("LIBOR")
(5.6875% at January 3, 1998), plus appropriate spreads over such indices during
the period of the borrowings.
Any borrowings made under the credit agreement are on a revolving basis
under commitments available until August 15, 2002. The agreement also provides
for commitment fees. Such spreads and fees will change moderately should the
Company's debt ratings change.
The financial covenants of the revolving credit agreement require the
Company to maintain stockholders' equity equal to 80% of such equity as of the
Spin-off date plus 25% of net income subsequent thereto plus certain other
additions to stockholders' equity. The Company is also required to maintain a
three-to-one ratio of long-term debt to income before interest, taxes,
depreciation and amortization. Under the most restrictive of these covenants,
approximately $64,000,000 of stockholders' equity was available for dividends as
of January 3, 1998.
Interest expense incurred on long-term debt in 1997, 1996 and 1995 was
$13,152,000, $6,500,000 and $333,000, respectively.
Interest paid to lenders other than Former Parent in 1997, 1996 and 1995
was approximately $13,567,500, $5,329,800 and $133,300, respectively.
F-12
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE K. INCOME TAXES
The deferred income tax assets (liabilities) included in the Consolidated
Balance Sheet at January 3, 1988 and December 28, 1996, are related to the
following:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
(000 OMITTED)
<S> <C> <C>
Property, plant and equipment........................ $(34,837) $(42,159)
Pension and other employee benefits.................. 83,599 89,098
1995 restructure costs............................... 4,563 28,170
1996 restructure costs............................... 1,662 12,299
Other................................................ 19,237 16,949
Deferred state income taxes.......................... 14,528 20,940
-------- --------
$ 88,752 $125,297
======== ========
</TABLE>
The combined provision (benefit) for income taxes consisted of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- --------
(000 OMITTED)
<S> <C> <C> <C>
Current:
United States:
Federal................................. $10,744 $10,262 $ 14,576
State................................... 2,024 3,081 549
Foreign.................................... 912 133 81
------- ------- --------
13,680 13,476 15,206
------- ------- --------
Deferred:
United States:
Federal................................. 30,133 5,977 (30,955)
State................................... 6,412 (6,942) (3,778)
------- ------- --------
36,545 (965) (34,733)
------- ------- --------
Provision (benefit) for income taxes......... $50,225 $12,511 $(19,527)
======= ======= ========
</TABLE>
Income taxes paid in 1997, 1996 and 1995 amounted to $4,577,000, $3,789,000
and $32,237,000, respectively.
Reconciliations between the statutory federal income tax rate and the
Company's consolidated effective income tax rate for the years ended January 3,
1998; December 28, 1996; and December 30, 1995, are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate................................. 35.0 35.0% 35.0%
Goodwill amortization.................................. .4 1.1 (2.1)
Spin-off transaction costs............................. .5
Foreign Sales Corp. exclusion (benefit)................ (.7) (1.0) .8
State income taxes..................................... 3.7 3.6 2.9
State deferred tax asset adjustment.................... (9.5)
Impact of lower foreign tax rate (benefit)............. (1.1) (1.4)
Other, net............................................. .2 1.2 4.9
---- ---- ----
Effective income tax rate.............................. 37.5% 29.5% 41.5%
==== ==== ====
</TABLE>
F-13
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE L. PENSION AND OTHER BENEFITS
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(000 OMITTED)
<S> <C> <C> <C>
Service cost benefits earned during the
period................................. $ 4,365 $ 4,516 $ 4,483
Interest cost on projected benefit
obligation............................. 11,923 11,419 6,951
Actual return on plan assets (gain)...... (28,421) (13,767) (14,841)
Net amortization and deferral............ 17,406 3,573 8,973
Other items, primarily defined
contribution and multi-employer
plans.................................. 3,137 3,360 3,154
-------- -------- --------
Net pension cost......................... $ 8,410 $ 9,101 $ 8,720
======== ======== ========
</TABLE>
Weighted average assumptions used were:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Discount rate for obligation......................... 7.75% 8.0% 8.0%
Rate of increase in compensation Levels.............. 4.0% 5.0% 5.0%
Long-term rate of return on assets................... 10.0% 9.5% 9.5%
</TABLE>
The following table indicates the plans' funded status and amounts
recognized in the Company's Consolidated Balance Sheet:
<TABLE>
<CAPTION>
ASSETS EXCEED ACCUMULATED BENEFITS
ACCUMULATED BENEFITS EXCEED ASSETS
-------------------------- --------------------------
JANUARY 3, DECEMBER 28, JANUARY 3, DECEMBER 28,
1998 1996 1998 1996
---------- ------------ ---------- ------------
(000 OMITTED)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation................. $126,682 $47,300 $ 5,455 $ 77,506
======== ======= ======= ========
Accumulated benefit obligation............ $136,098 $52,298 $ 5,866 $ 82,562
======== ======= ======= ========
Projected benefit obligation.............. $153,877 $68,802 $ 7,522 $ 85,870
Market value of plan assets, primarily
equity and fixed income securities(1)... 156,754 64,496 862 72,829
-------- ------- ------- --------
Plan assets under projected benefit
obligation.............................. 2,877 (4,306) (6,660) (13,041)
Unrecognized transition (asset)
obligation.............................. 821 (126) 107 1,381
Unrecognized prior service cost
(reduction)............................. 4,090 (579) 1,052 6,168
Unrecognized net (gain)................... (18,500) (829) (94) (195)
Additional minimum liability(2)........... (185) (6,252)
-------- ------- ------- --------
Accrued pension cost...................... $(10,712) $(5,840) $(5,780) $(11,939)
======== ======= ======= ========
</TABLE>
- ---------------
(1) The assets reported at December 28, 1996, represent primarily the portion of
the trust assets funding Former Parent's joint benefit plan allocated to the
Company under separate SFAS No. 87 calculations. In conjunction with the
Spin-off, assets were transferred from the trust funding the joint, defined
benefit plan based upon actuarial determinations made in conformity with
regulatory requirements. There was provision for payment by Former Parent
(from a source other than the trust) to the Company of an amount in cash
equal to the excess of the amount allocated to the Company under separate
SFAS No. 87 calculations over the amount allocated from the trust in
accordance with regulatory requirements. For all free-standing qualified
plans attributable directly to the Company, the related trust assets were
transferred based upon the amounts in the respective plans' trusts.
F-14
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) At January 3, 1998, the Company recorded an additional minimum liability for
pensions of $185,000 and a deferred tax asset of $73,000. At December 28,
1996, the Company recorded an additional minimum liability for pensions of
$6,252,000, an intangible asset of $143,000, a deferred tax asset of
$2,397,000 and a reduction of equity of $3,712,000. There are restrictions
on the use of certain excess pension plan assets in the event of a defined
change in control of the Company.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS. The Company and its
subsidiaries have defined benefit postretirement plans that provide medical and
life insurance for eligible employees, retirees and dependents. In addition, the
Company retained the obligations for such benefits for eligible retirees of
Armour and Company (sold in 1983).
Effective January 1, 1992, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
("OPEB"), which requires that estimated OPEB benefits be accrued during the
years the employees provide services.
The status of the plans was as follows:
<TABLE>
<CAPTION>
JANUARY 3, DECEMBER 28,
1998 1996
---------- ------------
(000 OMITTED)
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees........................................... $144,784 $157,224
Fully eligible active plan participants............ 15,660 13,264
Other active plan participants..................... 29,673 25,748
-------- --------
Accumulated postretirement benefit obligation........ 190,117 196,236
Unrecognized prior service cost...................... 12,212 14,045
Unrecognized net gain................................ 24,373 21,080
-------- --------
Accrued postretirement benefit cost.................. $226,702 $231,361
======== ========
Discount rate for obligation......................... 7.75% 8.0%
</TABLE>
The assumed health-care rate cost trend used in measuring the 1997
accumulated postretirement benefit obligation was 10% for retirees below age 65,
gradually declining to 5% by the year 2002 and remaining at that level
thereafter, and 7.5% for retirees above age 65, gradually declining to 5% by the
year 2002 and remaining at that level thereafter.
A 1.0% increase in the assumed health-care cost trend rate for each year
would increase the accumulated postretirement benefit obligation as of January
3, 1998, by approximately 8% and the ongoing expense by approximately 10%.
The net periodic postretirement benefit cost includes the following
components for the corresponding fiscal years ending:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- ------
(000 OMITTED)
<S> <C> <C> <C>
Service cost-benefits attributed to service
during the period............................ $ 2,276 $ 2,589 $2,979
Interest cost on the accumulated postretirement
benefit obligation........................... 14,453 15,641 6,695
Net amortization and deferral.................. (3,448) (3,087) (233)
------- ------- ------
Net periodic postretirement benefit cost....... $13,281 $15,143 $9,441
======= ======= ======
Curtailment gains due to termination of certain
benefits..................................... $ 4,611
======= ======= ======
</TABLE>
F-15
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The 1997 and 1996 components of net periodic postretirement benefit cost
reflect a full year's expense of approximately $5.8 million and $6.9 million,
respectively, incurred on the Armour employee benefit liabilities assumed in the
Spin-off. Expenses of approximately $5.8 million for the year ended January 3,
1998, and $2.2 million for the year ended December 28, 1996, which were incurred
after the Spin-off, are included in "Interest and other expenses" in the
Statement of Consolidated Operations. For the year ended December 28, 1996,
expenses of $4.7 million incurred prior to the Spin-off were recorded in the
financial statements of Former Parent.
NOTE M. LEASES
Certain sales and administration offices and equipment are leased. The
leases expire in periods ranging generally from one to five years, and some
provide for renewal options ranging from one to eight years. Leases that expire
are generally renewed or replaced by similar leases depending on business needs
at that time. Net rent expense paid in 1997, 1996 and 1995 totaled $6,533,229,
$3,797,000 and $3,234,000, respectively.
At January 3, 1998, the Company's future minimum rental payments with
respect to noncancelable operating leases with terms in excess of one year were
as follows: $7,033,208 (1998), $5,902,048 (1999), $5,577,581 (2000), $5,293,061
(2001) and $4,269,602 (2002), and $7,863,000 thereafter.
Included in the above future minimum rental payments are payments of
$2,676,000 per year through 2006 for office space in the Viad Tower, which the
Company vacated in mid-year 1997 to move its corporate headquarters to office
space in Scottsdale, Arizona. The Company is actively marketing the space for
sublease.
NOTE N. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK. At January 3, 1998, the
Company had an agreement to sell undivided participating interests in a defined
pool of trade accounts receivable in an amount not to exceed $90,000,000 as a
means of accelerating cash flow. From time to time, as collections reduce
accounts receivable in the pool, the Company sells participating interests in
new receivables. The Company's expenses of selling receivables amounted to
approximately $4,752,000, $2,059,000 and $2,323,000 in 1997, 1996 and 1995,
respectively, and are included in the Statement of Consolidated Operations under
the caption "Interest and other expenses." Under the terms of the agreement, the
Company has retained substantially the same risk of credit loss as if the
receivables had not been sold, as the Company is obligated to replace
uncollectible receivables with new accounts receivable. The Company's accounts
receivable sold totaled $58,902,000 and $74,900,000 at January 3, 1998 and
December 28, 1996, respectively. The Company's average accounts receivable sold
approximated $70,727,000, $42,637,000 and $33,500,000 during 1997, 1996 and
1995, respectively.
In connection with the Spin-off, the Company assumed an interest rate swap
agreement in the notional amount of $65,000,000. The agreement, which matured in
December 1997, required the Company to pay a fixed rate of 8.87% and receive a
six-month LIBOR rate (currently 5.63%).
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying values of cash and cash
equivalents, receivables, accounts payable and bank borrowings approximate fair
values due to the short-term maturities of these instruments. The fair value of
the above-described interest rate swap agreement was $1,900,070 at December 28,
1996, representing the estimated amount the Company would pay to the swap
counter-party to terminate the agreement.
NOTE O. STOCK OPTIONS
Certain officers and employees hold options to acquire the Company's common
stock, which were granted under the Former Parent company's stock option plans.
These options were granted over a period of nine years and have been adjusted
for stock splits and the spin-off of a major subsidiary occurring during that
period. Such options were transferred to the Company as part of the spin-off,
with the number of shares and
F-16
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option prices adjusted so as to preserve the economic value of the options to
the optionees. Such options were granted at the market prices on the dates of
grant, became exercisable 50% after one year and 100% after two years and expire
after 10 years. No additional options are to be granted under these plans.
In connection with the Spin-off, the Company adopted The Dial Corporation
1996 Stock Incentive Plan ("1996 Plan") which is administered by the Executive
Compensation Committee of the Board of Directors. Under the 1996 Plan, the
aggregate number of shares of common and preferred stock covered by awards to
any one individual cannot exceed 1,000,000 shares for any three-year period
(plus shares necessary to replace options granted by Former Parent and
transferred to the Company in connection with the Spin-off), and no more than
9,600,000 shares are cumulatively available for options intended to qualify as
"incentive stock options" under the Internal Revenue Code. The term of the
options is 10 years. The 1996 Plan provides that options are generally to be
granted at the market price on the date of grant; however, the Executive
Compensation Committee may grant options at less than such market price. The
1996 Plan also authorizes the issuance of stock appreciation rights and
restricted stock.
During 1997, under the 1996 Plan, incentive stock options to 1,019,802
shares and non-qualified options to 128,800 shares were granted at the market
price on the dates of grant. After one year, one-third of the options become
exercisable when the average closing market price over 20 consecutive days
equals or exceeds 133% of the option price, two-thirds when such price equals or
exceeds 167% of the option price and 100% when such price equals or exceeds 200%
of the option price. All such options become exercisable, in any event, after
five years from the date of grant. It is expected that additional options
granted will generally be limited to new employees.
Options to 87,100 shares were also granted to non-employee members of the
Board of Directors and options to 47,650 were granted to certain non-union
employees at the market prices on the dates of grant. Such options are
exercisable 50% after one year and 100% after two years. The options expire
after 10 years.
A summary of the status of the Company's stock option plans as of January
3, 1998, and changes during the year is presented below:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
---------- --------
<S> <C> <C>
Outstanding at Spin-off............................... 4,298,041 $ 9.63
Granted............................................... 6,226,324 $13.11
Exercised............................................. (293,015) $ 9.25
Cancelled............................................. (61,776) $11.84
Outstanding at December 28, 1996...................... 10,169,574 $11.76
Granted............................................... 1,283,352 $16.23
Exercised............................................. (1,415,570) $ 9.57
Canceled.............................................. (1,056,435) $13.23
---------- ------
Outstanding at end of year............................ 8,980,921 $12.60
========== ======
Options exercisable at end of year.................... 4,380,917 $11.14
========== ======
</TABLE>
F-17
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at January 3, 1998:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF OPTIONS LIFE EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING (IN YEARS) PRICE EXERCISABLE PRICE
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$ 5.62-$ 6.88 614,868 2.4 $ 6.47 614,868 $ 6.47
$ 8.38-$ 9.23 402,151 4.8 $ 8.95 402,151 $ 8.95
$ 9.64-$11.15 800,759 5.9 $10.37 800,759 $10.37
$11.91-$12.88 4,892,271 8.6 $12.75 2,138,810 $12.58
$13.38-$14.50 1,088,128 8.9 $14.30 424,329 $14.21
$15.38-$16.25 686,658 9.4 $15.82
$16.53-$17.78 455,803 9.8 $16.84
$18.31-$20.91 40,283 10.0 $20.03 -- --
--------- ---- ------ --------- ------
8,980,921 6.7 $12.60 4,380,917 $11.14
========= ==== ====== ========= ======
</TABLE>
The estimated fair value of options granted during 1997 was $4.18 per
share, as determined using the Black-Scholes valuation model assuming an
expected average risk-free interest rate of 6.3%, an expected life of 4.4 years,
an expected volatility of 25% and expected dividend rate of 2.0%. The estimated
fair value of options granted during 1996 was $2.27 as determined using the
Black-Scholes valuation model assuming an expected average risk-free interest
rate of 6.3%, an expected life of 4.2 years, an expected volatility of 20.4% and
an expected dividend rate of 2.4%. The Company applies Accounting Principles
Board Opinion No. 25 and related Interpretations in accounting for its stock
option plans. The Company has adopted the disclosure-only provisions of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation." Accordingly, no compensation cost has been recognized for the
stock option plans. Had compensation cost for the Company's stock option plans
been determined based on the fair value at the grant date consistent with the
provisions of SFAS No. 123, the Company's net income and net income per share
would have been reduced to the pro forma amounts indicated below. Compensation
cost computed under SFAS No. 123 for 1995 is immaterial.
<TABLE>
<CAPTION>
1997 1996
------- -------
(000 OMITTED)
<S> <C> <C>
Net income as reported................................... $83,710 $29,912
======= =======
Pro forma net income..................................... $78,224 $27,298
======= =======
Net income per share-basic-as reported................... $ 0.91 $ 0.33
======= =======
Pro forma net income per share-basic..................... $ 0.85 $ 0.30
======= =======
Net income per share-diluted-as reported................. $ 0.89 $ 0.33
======= =======
Pro forma net income per share-diluted................... $ 0.83 $ 0.30
======= =======
</TABLE>
NOTE P. LITIGATION AND CLAIMS
The Company is party to various legal actions, proceedings and pending
claims. Some of the foregoing involve, or may involve, compensatory, punitive or
other damages in material amounts. Litigation is subject to many uncertainties,
and it is possible that some of the legal actions, proceedings and claims
referred to above could be decided against the Company. Although the amount of
liability at January 3, 1998, with respect to these matters is not
ascertainable, the Company believes that any resulting liability will not
materially affect the Company's financial position, liquidity or results of
operations.
F-18
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company is subject to various environmental laws and regulations of the
United States, as well as of the states and other countries in whose
jurisdictions the Company has or had operations and is subject to certain
international agreements. As is the case with many companies, the Company faces
exposure to actual or potential claims and lawsuits involving environmental
matters. Although the Company is party to certain environmental disputes, the
Company believes that any liabilities resulting therefrom, after taking into
consideration amounts already provided for, but exclusive of any potential
insurance recoveries, will not have a material adverse effect on the Company's
financial position or results of operations.
NOTE Q. CONDENSED CONSOLIDATED QUARTERLY RESULTS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------------- ------------------- ------------------- -------------------
1997 1996 1997 1996 1997 1996 1997 1996
-------- -------- -------- -------- -------- -------- -------- --------
(000 OMITTED, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............ $316,242 $352,392 $349,268 $353,758 $334,290 $350,508 $362,806 $349,742
Gross profit......... $146,952 $176,947 $166,231 $163,910 $160,567 $134,357 $170,742 $163,669
Operating income
(loss)(1)(2)....... $ 36,657 $ 36,342 $ 40,057 $ 42,997 $ 40,985 $(31,393) $ 44,471 $ 22,451
Net income
(loss)(1)(2)....... $ 18,323 $ 19,608 $ 20,382 $ 19,289 $ 22,352 $(25,486) $ 22,653 $ 16,501
Net income (loss) per
share(1)(2)
-- Basic........... $0.20 $0.22 $0.22 $0.22 $0.25 $(0.28) $0.24 $0.18
-- Diluted......... $0.20 $0.22 $0.22 $0.22 $0.24 $(0.28) $0.23 $0.18
</TABLE>
- ---------------
(1) After deducting Spin-off transaction costs of $4,000,000 ($2,400,000 after
tax) or $0.03 per share in the second quarter of 1996 and restructuring
charges and asset write-downs and Spin-off transaction costs of $56,000,000
($32,900,000 after tax) or $0.36 per share in the third quarter of 1996.
(2) Included in the fourth quarter of 1996 were credits of approximately $4.6
million ($2.8 million after tax) for pension expense and other
postretirement benefits resulting from favorable variances between budgeted
and actual expense.
In addition, the Company recorded a $4 million increase in deferred state
income tax assets in the fourth quarter of 1996. The Company's future state
income tax rate is approximately 1% higher than that which the Company was
subject to as a subsidiary of Former Parent.
F-19
<PAGE> 45
THE DIAL CORPORATION
CONSOLIDATED BALANCE SHEET
(000 OMITTED)
<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1998 1998
----------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 6,471 $ 10,089
Receivables, less allowance of $7,719 and $6,841.......... 40,894 60,448
Inventories............................................... 128,696 124,058
Deferred income taxes..................................... 25,015 25,185
Other current assets...................................... 3,179 7,174
--------- ---------
Total current assets.............................. 204,255 226,954
Property and equipment, net................................. 259,165 260,928
Deferred income taxes....................................... 62,118 63,567
Intangibles, net............................................ 403,485 331,482
Other assets................................................ 21,009 921
--------- ---------
$ 950,032 $ 883,852
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable.................................... $ 101,052 $ 102,235
Short-term borrowings..................................... 8,616 8,500
Income taxes payable...................................... 28,132 14,581
Other current liabilities................................. 88,619 113,435
--------- ---------
Total current liabilities......................... 226,419 238,751
Long-term debt.............................................. 115,464 84,399
Pension and other benefits.................................. 236,471 231,634
Other liabilities........................................... 8,633 9,022
--------- ---------
Total liabilities................................. 586,987 563,806
--------- ---------
Stockholders' Equity
Preferred Stock, $.01 par value, 10,000,000 shares
authorized; no shares issued and outstanding........... -- --
Common stock, $.01 par value, 300,000,000 shares
authorized, 103,287,013 and 102,725,481 shares
issued................................................. 1,033 1,027
Additional capital........................................ 421,670 393,947
Retained income........................................... 66,698 33,892
Unearned employee benefits................................ (119,234) (107,372)
Treasury stock, 329,071 and 101,040 shares held........... (7,122) (1,448)
--------- ---------
Total stockholders' equity........................ 363,045 320,046
--------- ---------
$ 950,032 $ 883,852
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
F-20
<PAGE> 46
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(000 OMITTED, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
------------------- -------------------
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales............................................. $366,798 $349,268 $701,820 $665,510
-------- -------- -------- --------
Costs and expenses:
Cost of products sold............................... 185,861 183,037 362,367 352,327
Selling, general and administrative expenses........ 136,185 126,174 254,147 236,469
-------- -------- -------- --------
322,046 309,211 616,514 588,796
-------- -------- -------- --------
Operating income...................................... 44,752 40,057 85,306 76,714
Interest and other expenses........................... 4,632 7,133 9,386 14,799
-------- -------- -------- --------
Income before income taxes............................ 40,120 32,924 75,920 61,915
Income taxes.......................................... 14,513 12,542 27,402 23,210
-------- -------- -------- --------
NET INCOME............................................ $ 25,607 $ 20,382 $ 48,518 $ 38,705
======== ======== ======== ========
NET INCOME PER SHARE -- BASIC......................... $ 0.26 $ 0.23 $ 0.50 $ 0.43
======== ======== ======== ========
NET INCOME PER SHARE -- DILUTED....................... $ 0.25 $ 0.22 $ 0.48 $ 0.42
======== ======== ======== ========
Weighted average basic shares outstanding............. 98,158 90,381 97,908 90,277
Weighted average equivalent shares.................. 2,458 2,244 2,384 1,984
-------- -------- -------- --------
Weighted average diluted shares outstanding........... 100,616 92,625 100,292 92,261
======== ======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-21
<PAGE> 47
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(000 OMITTED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------
JULY 4, JUNE 28,
1998 1997
-------- --------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income.................................................. $ 48,518 $ 38,705
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 16,668 15,464
Deferred income taxes..................................... 1,619 9,003
Change in operating assets and liabilities:
Receivables............................................ (9,601) 2,482
Inventories............................................ 1,007 26,542
Trade accounts payable................................. (11,430) (21,825)
Other assets and liabilities, net...................... (15,538) 14,498
-------- --------
Net cash provided by operating activities................... 31,243 84,869
-------- --------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Capital expenditures........................................ (15,082) (17,484)
Acquisition of business, net of cash acquired............... (83,763)
Proceeds from sale of assets................................ 10,053
-------- --------
Net cash used by investing activities....................... (88,792) (17,484)
-------- --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net change in long-term borrowings.......................... 31,065 (48,820)
Common stock purchased for treasury......................... (5,232)
Net change in short-term bank loans......................... 116
Dividends paid on common stock.............................. (15,712) (14,457)
Cash proceeds from stock options............................ 12,594 5,170
Net change in receivables sold.............................. 31,100 (11,200)
-------- --------
Net cash provided (used) by financing activities............ 53,931 (69,307)
-------- --------
Net decrease in cash and cash equivalents................... (3,618) (1,922)
Cash and cash equivalents, beginning of year................ 10,089 14,102
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 6,471 $ 12,180
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-22
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A. BASIS OF PREPARATION
The Consolidated Financial Statements of The Dial Corporation ("the
Company") include the accounts for the Company and all of its subsidiaries. This
information should be read in conjunction with the financial statements set
forth in this Prospectus Supplement and in The Dial Corporation Annual Report to
Stockholders for the year ended January 3, 1998.
Accounting policies utilized in the preparation of the financial
information herein presented 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." 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 July 4, 1998, the results of operations for the quarters and six months ended
July 4, 1998 and June 28, 1997, and the cash flows for the six months ended July
4, 1998 and June 28, 1997 have been included. Interim results of operations are
not necessarily indicative of the results of operations for the full year.
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. This new standard requires dual presentation of
"basic" and "diluted" earnings per share ("EPS") on the face of the statement of
operations and requires a reconciliation of the numerators and denominators of
basic and diluted EPS calculations. Basic net income per share is computed by
dividing net income by the weighted average number of common shares outstanding
during the period. Diluted net income per common share is computed by dividing
net income by the weighted average number of common shares outstanding during
the period after giving effect to stock options considered to be dilutive common
stock equivalents. Shares held by the Employee Equity Trust (the "Trust") are
not considered outstanding for net income per share calculations until the
shares are released from the Trust.
At July 4, 1998, there were 103,287,013 shares of common stock issued and
98,462,157 shares outstanding. At July 4, 1998 and June 28, 1997, a total of
4,495,785 and 5,574,321, respectively, of the issued shares were held by the
Trust.
At July 4, 1998 and June 28, 1997, a total of 329,071 and 65,879,
respectively, shares were held in treasury by the Company. The shares held in
treasury at July 4, 1998 include 218,687 shares purchased by the Company as part
of a small shareholder selling/repurchasing program executed during the first
and second quarters of 1998.
NOTE B. ACQUISITION OF BUSINESS
On July 1, 1998, the Company acquired The Freeman Cosmetic Corporation
("Freeman"), a California corporation and a leading manufacturer and marketer of
natural skin care, hair care, bath and body, and foot care products. The
Statement of Consolidated Operations presented for the quarter and six months
ended July 4, 1998 does not include the operations of Freeman.
The acquisition was accounted for as a purchase. The purchase price,
including acquisition costs, was allocated to the net tangible and intangible
assets acquired based on estimated fair values at the date of acquisition. The
difference between the purchase price and the related fair value of net assets
acquired represents goodwill, which is being amortized on a straight-line basis
over 40 years. The fair value of trademarks and other intangible assets acquired
is amortized over their estimated useful lives.
F-23
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Assets acquired, liabilities assumed and net cash paid are show in the
table below.
<TABLE>
<CAPTION>
JULY 4,
1998
-------------
(000 OMITTED)
<S> <C>
Accounts receivable, net.................................... $ 11,567
Inventories................................................. 7,074
Property and equipment, net................................. 2,063
Intangibles................................................. 76,841
Other assets................................................ 612
Liabilities assumed......................................... (14,394)
--------
Net cash paid............................................... $ 83,763
========
</TABLE>
The Company is still gathering certain information required to complete the
allocation of the purchase price of the acquisition of Freeman. Further
adjustments may arise as a result of the finalization of the ongoing study.
The following unaudited pro forma combined condensed financial information
for the first six months of 1998 and 1997 include the results of operations for
the Company and assumes the Freeman acquisition was consummated at the beginning
of each period presented, along with adjustments which give effect to events
that are directly attributable to the transaction and are expected to have a
continuing impact.
The unaudited pro forma combined condensed financial information does not
purport to represent the results of operations that would have actually resulted
had the purchases occurred on the indicated dates, nor should it be taken as
indicative of future results of operations.
<TABLE>
<CAPTION>
JULY 4, JUNE 28,
1998 1997
---------- ----------
(000 OMITTED, EXCEPT FOR
PER SHARE DATA)
<S> <C> <C>
Net sales.............................................. $730,948 $694,862
Operating income....................................... 85,888 75,726
Net income............................................. 48,518 37,735
Earnings per share -- diluted.......................... $ 0.48 $ 0.41
</TABLE>
NOTE C. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
JULY 4, JANUARY 3,
1998 1998
-------- ----------
(000 OMITTED)
<S> <C> <C>
Raw materials and supplies............................. $ 40,731 $ 36,938
Work in process........................................ 8,744 9,373
Finished goods......................................... 79,221 77,747
-------- --------
$128,696 $124,058
======== ========
</TABLE>
F-24
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE D. INCOME TAXES
Reconciliation between the statutory federal income tax rate of 35% and the
Company's consolidated effective income tax rate for the six months ended July
4, 1998 and June 28, 1997 is as follows:
<TABLE>
<CAPTION>
JULY 4, JUNE 28,
1998 1997
------- --------
<S> <C> <C>
Federal statutory rate..................................... 35.0% 35.0%
Nondeductible goodwill amortization........................ 0.3 0.5
Foreign Sales Corporation exclusion........................ (0.5) (0.6)
State income taxes......................................... 4.0 4.0
Other, net (benefit)....................................... (2.7) (1.4)
---- ----
Effective income tax rate.................................. 36.1% 37.5%
==== ====
</TABLE>
NOTE E. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." SFAS No. 130 requires that enterprises classify items of
other comprehensive income by their nature in a financial statement and display
the accumulated balance of other comprehensive income separately from retained
income and additional capital in the shareholders' equity section of the balance
sheet. The Company's annual comprehensive income is not expected to be
materially different from its net income. Comprehensive income for the quarters
and six months ended July 4, 1998 and June 28, 1997 was $25,497,000 and
$20,377,000 and $48,422,000 and $38,675,000, respectively. The difference
between net income and comprehensive income consists primarily of increases in
the Company's additional minimum pension liability.
F-25
<PAGE> 51
PROSPECTUS
$300,000,000
[THE DIAL CORPORATION LOGO]
DEBT SECURITIES
------------------------
The Dial Corporation (the "Company" or "Dial") may offer, issue and sell
from time to time senior or subordinated debt securities (the "Debt
Securities"), in each case, in amounts, at prices and on such terms to be
determined at the time of the offering.
The Debt Securities offered pursuant to this Prospectus may be issued in
one or more series and/or issuances and will have an aggregate initial public
offering price of up to $300,000,000 (or the equivalent thereof, based on the
applicable exchange rate at the time of offering, in one or more foreign
currencies, currency units, or composite currencies as shall be designated by
the Company). Certain specific terms of the particular Debt Securities in
respect of which this Prospectus is being delivered are set forth in the
accompanying Prospectus Supplement (the "Prospectus Supplement"), including,
where applicable, the specific title, the aggregate principal amount, the
aggregate offering price, the ranking as senior debt or subordinated debt, the
denomination, the maturity, any premium, any interest rate (which may be fixed,
floating or adjustable), the time and method of calculating any payment of
interest, the place or places where principal of, any premium, and any interest,
on such Debt Securities will be payable, the currency in which principal of, any
premium, and any interest, on such Debt Securities will be payable, any terms of
redemption at the option of the Company or repayment at the option of the holder
thereof, any sinking fund provisions, any terms for conversion or exchange into
other securities, any listing on a securities exchange, the public offering
price and any other terms of the offering and sale thereof. If so specified in
the applicable Prospectus Supplement, Debt Securities of a series may be issued
in whole or in part in the form of one or more temporary or permanent global
securities.
Unless otherwise specified in a Prospectus Supplement, the Debt Securities,
when issued, will be unsecured and unsubordinated obligations of the Company and
will rank pari passu in right of payment with all other unsecured and
unsubordinated indebtedness of the Company. This Prospectus may not be used to
consummate sales of Debt Securities unless accompanied by a Prospectus
Supplement.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 HEREIN FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE DEBT
SECURITIES.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The Debt Securities may be sold to or through underwriters or dealers as
designated from time to time, to other purchasers directly or through agents
designated from time to time or through a combination of such methods. If agents
of the Company or any dealers or underwriters are involved in the sale of the
Debt Securities in respect of which this Prospectus is being delivered, the
names of such agents, dealers or underwriters and any applicable commissions or
discounts will be set forth in or may be calculated from the Prospectus
Supplement with respect to such Debt Securities. See "Plan of Distribution."
The date of this Prospectus is March 10, 1998.
<PAGE> 52
Certain persons, including any underwriters, participating in this offering
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Debt Securities. Such transactions may include stabilizing and the
purchase of Debt Securities to cover syndicate short positions. For a
description of these activities, see "Plan of Distribution."
------------------------
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information filed by the Company can be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at Seven World Trade Center, 13th Floor, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. The Commission also maintains a website
(http://www.sec.gov) from which such reports, proxy statements and other
information may be obtained. In addition, reports, proxy statements and other
information concerning the Company may be inspected at the offices of the New
York Stock Exchange, 20 Broad Street, New York, New York 10005.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments, supplements and exhibits thereto, the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"), of which this Prospectus constitutes a part. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which were omitted in accordance with the rules and regulations
of the Commission. For further information, reference is hereby made to the
Registration Statement and to the schedules and exhibits filed therewith. Any
statements contained herein concerning the provisions of any document filed as
an exhibit to the Registration Statement or otherwise filed with the Commission
are not necessarily complete, and in each instance reference is made to the copy
of such document so filed. Each such statement is qualified in its entirety by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following document filed with the Commission by the Company pursuant to
the Exchange Act is incorporated herein by reference: the Company's Annual
Report on Form 10-K for the fiscal year ended January 3, 1998.
All other documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the initial filing of the
Registration Statement and prior to the closing of the offering of the Debt
Securities shall be deemed to be incorporated by reference into this Prospectus
and to be a part hereof from the respective dates of the filing of such
documents.
Any statement contained herein or in a document all or a portion of which
is incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of this Prospectus or any Prospectus
Supplement to the extent that a statement contained herein (with respect to any
statement in such documents which are so incorporated or deemed to be
incorporated), in the accompanying Prospectus Supplement or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus or any Prospectus Supplement.
Upon the request of any person to whom a copy of this Prospectus and any
Prospectus Supplement has been delivered, the Company will provide without
charge to such person (including a beneficial owner) a copy of any documents
incorporated by reference therein (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference into the document that
this Prospectus or any Prospectus Supplement incorporates by reference).
Requests for such copies should be directed to: The Dial Corporation, Attention:
Walter Rogers, Vice President-Investor Relations, 15501 North Dial Boulevard,
Scottsdale, Arizona 85260-1619; telephone number: (602) 754-3425.
2
<PAGE> 53
The following information is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in or
incorporated by reference into this Prospectus. Prior to August 15, 1996, the
business of the Company was operated as the consumer products business (the
"Consumer Products Business") of Viad Corp (then known as The Dial Corp)
("Former Parent"). On August 15, 1996, Former Parent distributed to its
stockholders all of the Company's then outstanding common stock (the "Spin-off")
causing the Company to become a separate publicly-traded company. Unless
otherwise indicated, (i) all references in this Prospectus to the "Company" or
"Dial" for periods prior to the Spin-off refer to the Consumer Products Business
of Former Parent and for periods following the Spin-off refer to the Company and
its consolidated subsidiaries, (ii) all financial information included or
incorporated by reference in this Prospectus has been prepared as if the Company
had always been a separate operating company, (iii) the industry data included
or incorporated by reference in this Prospectus are derived from publicly
available industry trade journals and reports, including, with respect to market
rank and market share, reports published by Information Resources, Inc., and
other publicly available sources which the Company has not independently
verified but which the Company believes to be reliable and (iv) references to
years and periods are to fiscal years and periods and, with respect to
comparative industry data, years are to calendar years. Unless otherwise noted,
all market share data as of any particular date are as of the 52 weeks then
ended and are based on sales in the U.S. market, which with respect to soap
products is measured by ounces sold, with respect to detergent products is
measured by standard cases sold and with respect to air fresheners and canned
meats is measured by units sold.
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act and Section 21E of the Exchange Act. When used
in this Prospectus, the words "anticipates," "intends," "plans," "believes,"
"estimates" and similar expressions are intended to identify forward-looking
statements. Such statements, including, but not limited to, the Company's
statements regarding potential international expansion, the estimated benefits
of the Company's cost-cutting program and potential product introductions, are
based on management's beliefs, as well as on assumptions made by and information
currently available to management, and involve various risks and uncertainties,
certain of which are described under "Risk Factors" in this Prospectus and
certain of which are beyond the Company's control. The Company's actual results
could differ materially from those expressed in any forward-looking statements
made by or on behalf of the Company. In light of these risks and uncertainties,
there can be no assurance that the forward-looking information included or
incorporated by reference in this Prospectus will in fact transpire.
THE COMPANY
Dial is a consumer products company with net sales of $1.4 billion and
operating income of $162 million in 1997. The Company markets its products
primarily under such well-known household brand names as DIAL(R) soaps, PUREX(R)
detergents, RENUZIT(R) air fresheners and ARMOUR(R) canned meats.
The Company was incorporated in the State of Delaware on June 3, 1996. The
Company's corporate headquarters and principal executive offices are located at
15501 North Dial Boulevard, Scottsdale, Arizona 85260-1619, telephone number
(602) 754-3425.
3
<PAGE> 54
RISK FACTORS
In addition to the other information in this Prospectus and any
accompanying Prospectus Supplement, the following factors should be considered
carefully before investing in the Debt Securities offered hereby.
INTENSE COMPETITION IN THE CONSUMER PRODUCTS INDUSTRY
The consumer products industry, particularly its detergent, personal care
and air freshener categories, is intensely competitive. Several of the Company's
most significant competitors, including The Procter & Gamble Company, Lever
Brothers Co. (a division of Unilever plc) and Colgate-Palmolive Company, have
greater financial resources than the Company and may be willing to commit
significant resources to protecting their own market shares or to capturing
market share from the Company. As a result, the Company may need to incur
greater costs than previously incurred for trade and consumer promotions and
advertising to preserve or improve market share and to introduce and establish
new products and line extensions. At the same time, the Company may need to
undertake additional production-related cost-cutting measures to enable it to
respond to competitors' price cuts and marketing efforts without reducing the
Company's margins. There can be no assurance that the Company will be able to
make such additional expenditures or implement such cost-cutting measures or
that if made or implemented they will be effective.
CONSUMER PRICING PRESSURES
Consumer products, particularly those that are value-priced, are subject to
significant price competition. From time to time, the Company may need to engage
in price-cutting initiatives for some of its products to respond to competitive
and consumer pressures. The failure of the Company's sales volumes to grow
sufficiently to improve overall revenues and income as a result of a competitive
price reduction could have a material adverse effect on the financial
performance of the Company.
TRADE CUSTOMER PRICING PRESSURES; COMPETITIVE RETAIL ENVIRONMENT
The Company faces pricing pressure from its trade customers. Because of the
competitive retail environment, retailers have increasingly sought to reduce
inventory levels and obtain pricing concessions from vendors. In addition,
because consumer products companies, including the Company, have historically
offered end-of-quarter discounts to achieve quarterly sales goals, trade
customers have been inclined to delay inventory restocking until quarter-end.
Over the past 18 months, the Company has reduced end-of-quarter discounts to
retailers and has changed its sales incentive structure to emphasize not only
quarterly revenue targets but also trade spending management and other personal
performance targets. The reduction in discounts has not had and the Company
believes it will not have a material adverse effect on sales although there can
be no assurance in that regard. The Company is also subject to the risk that
high-volume customers could seek alternative pricing concessions or better trade
terms. The Company's performance is also dependent upon the general health of
the retail environment and could be materially adversely affected by changes
therein and by the financial difficulties of retailers.
DEPENDENCE ON KEY CUSTOMERS
The Company's top ten customers accounted for 35% of net sales for 1997.
Wal-Mart Stores Inc. (and its affiliate, SAM's Club) ("Wal-Mart") was the
Company's largest customer, accounting for 17% of the Company's net sales in
1997. The loss of, or a substantial decrease in the volume of purchases by,
Wal-Mart or any of the Company's other top customers could have a material
adverse effect on the Company's results of operations.
PRICE VOLATILITY OF RAW MATERIALS; SINGLE SOURCE SUPPLIER
While the Company believes that it may, in certain circumstances, be able
to respond to price increases for certain raw materials by increasing sales
prices, rapid increases in the prices of such raw materials could have a
material adverse impact on the Company's financial results. For example, tallow
(a key ingredient in Dial bar soaps) has experienced price fluctuations within
the range of $0.16 and $0.28 per pound from
4
<PAGE> 55
January 1, 1995 to December 31, 1997. Recently, the price of tallow has been
trading at the lower end of this historical range. Because the majority of the
competitors' soap products use considerably less tallow in their bar soap
products, the Company may not be able to increase the prices of its Dial bar
soaps in response to increases in tallow prices. In addition, the antibacterial
agent, Triclosan, which is the active ingredient used in Liquid Dial products,
is sourced from a single supplier. Although the Company has an adequate supply
of Triclosan for its current and foreseeable needs, a significant disruption in
this supply could have a short-term material adverse impact on the Company's
financial results. The Company seeks to mitigate this risk by entering into
contracts to provide up to six-month supplies of tallow, Triclosan and packaging
materials. Long-term hedging opportunities against price increases for these
items are generally not available.
DEPENDENCE ON DOMESTIC MARKETS; RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
While a number of the Company's competitors have diversified their revenues
to include a strong international component, the Company is currently dependent
primarily on sales generated in the U.S. markets (92% of sales in 1997). With
respect to a number of the Company's most significant product categories,
including detergents and bar soaps, the U.S. markets are mature and
characterized by high household penetration. The Company's unit sales growth in
these domestic markets will depend on increasing usage by consumers, product
innovation and in capturing market share from competitors. There can be no
assurance that the Company will succeed in implementing its strategies to
achieve such domestic growth.
To reduce its dependence on domestic revenues, the Company has adopted a
strategy to further penetrate international markets. In implementing this
strategy, the Company faces barriers to entry and the risk of competition from
local and other companies that already have established global businesses, risks
generally associated with conducting business internationally, including
exposure to currency fluctuations, limitations on foreign investment,
import/export controls, nationalization, unstable governments and legal systems
and the additional expense and risks inherent in operating in geographically and
culturally diverse locations. Because the Company plans to develop its
international business through acquisitions as well as joint ventures, co-
packaging arrangements and/or other alliances, the Company may also be subject
to risks associated with such acquisitions, ventures, arrangements and
alliances, including those relating to the marriage of different corporate
cultures and shared decision-making. In addition, since the Company's current
international distribution capabilities are extremely limited, the Company will
also need to acquire a distribution network or enter into alliances with
existing distributors before it can effectively conduct operations in new
markets. There can be no assurance that the Company will succeed in increasing
its international business in a profitable manner, and a failure to expand this
business may have a material adverse effect on the Company.
The Company has a significant number of registered foreign trademarks as
well as pending foreign trademark applications. There can be no assurance that
the Company will successfully register any foreign trademarks for which
applications are currently pending or that such trademarks, once registered,
together with any existing registered foreign trademarks, will be protected in
the foreign markets in which they are used.
ADVERSE PUBLICITY; PRODUCT RECALLS
Certain news broadcasts by major U.S. television and radio networks have
focused on the use of antibacterial agents to kill germs on various surfaces.
Triclosan, the active ingredient in Liquid Dial, has also been a focus of these
broadcasts. Although none of the broadcasts disputed that Triclosan kills germs
on the skin, some third party experts did question whether it provides any
additional protection beyond that provided by non-antibacterial soap products.
Although the Company has test results that it believes prove that Triclosan
provides consumers with additional protection in limiting exposure to
bacteria-related diseases, there can be no assurance that the adverse publicity
stemming from these broadcasts will not adversely affect the Company's sales of
its antibacterial soap products and its results of operations.
Because the Company shares the use of the Armour trademark for food
products with ConAgra Inc., the manufacturer of Armour-branded non-canned meat
products, the Company faces the risk that consumer
5
<PAGE> 56
preferences and perceptions with respect to any of the Company's Armour products
may be influenced by adverse publicity affecting any of the Armour-branded
products of ConAgra, Inc.
From time to time, consumer product companies, including Dial, have had to
recall certain products for various reasons, which costs of recall or other
liabilities could be material to such companies. To date, the Company has not
made any product recalls that have been material to the Company's financial
condition. In addition, adverse publicity regarding any such product recalls
could also be material to the Company.
ENVIRONMENTAL CONCERNS REGARDING DETERGENT COMPOUND
Nonlyphenol ethoxylate ("NPE") is an ingredient used in the Company's
liquid and powder detergent products. Certain environmental and regulatory
groups have raised concerns regarding the toxicity of compounds produced from
NPE as it decomposes and the adverse impact on the reproductive health of
certain aquatic animals exposed to those compounds. Although to the best of the
Company's knowledge none of the studies undertaken on NPE have demonstrated a
link between the compound and such effect in the environment or in human beings,
there can be no assurance that subsequent studies will not in fact demonstrate
such a link or demonstrate other adverse environmental consequences. Current
government regulations do not impose any restrictions on the use of NPE, or
impose any liability on any of the businesses that utilize NPE in the products
they manufacture. The Company believes, however, that a number of governmental
agencies in North America and Europe are discussing formal regulation of NPE in
the environment. The Company is in the process of reformulating its detergents
to eliminate this compound as an ingredient. The additional expense the Company
expects to incur as a result of this reformulation is not expected to have a
material adverse impact on the Company's financial results. In addition, the
Company believes that it will not incur any significant environmental liability
as a result of the use of NPE in its products.
DEPENDENCE ON KEY PERSONNEL
The operation of the Company requires managerial expertise. Of the
Company's key personnel, only the Chief Executive Officer has an employment
contract with the Company. There can be no assurance that any of the Company's
key employees will remain in the Company's employ. The loss of such key
personnel could have a material adverse effect on the Company's operations.
TURNOVER; EMPLOYEE RELATIONS
Primarily as a result of the restructuring of its business, the Company
discharged approximately 950 salaried and non-salaried employees during 1995 and
1996. In addition, the Company experienced greater aggregate voluntary turnover
of salaried employees in 1996 and 1997 than the industry average. Although the
Company believes that it presently has sufficient staffing, there can be no
assurance that the Company would not be materially adversely affected by any
future significant voluntary turnover of salaried or other employees.
Five of the Company's seven plants are unionized. The Company's contracts
with its various unions are scheduled for renegotiation as follows: (i)
International Brotherhood of Teamsters (covering approximately 350 employees at
the Company's St. Louis, Missouri plant) in July 1998; (ii) Oil, Chemical and
Atomic Workers union (covering approximately 100 employees at the Company's
Bristol, Pennsylvania plant) in May 1999; (iii) United Food and Commercial
Workers union (covering approximately 475 employees at the Company's Aurora,
Illinois plant) in August 1999; and (iv) the United Food and Commercial Workers
union (covering approximately 500 employees at the Company's Fort Madison, Iowa
plant) in September 1999. There can be no assurance that these contracts can be
renegotiated on terms acceptable to the Company. In 1993, the Company's St.
Louis, Missouri plant experienced a five-week stoppage. Although the Company
believes that its relations with the employees at this plant and other plants
are satisfactory, there can be no assurance that the Company will not face
similar labor disputes in the future or that such disputes will not be material
to the Company.
6
<PAGE> 57
ENVIRONMENTAL MATTERS
The Company is subject to a variety of environmental and health and safety
laws in each jurisdiction in which it operates. These laws and regulations
pertain to the Company's present and past operations.
Since 1980, the Company has received notices or requests for information
with respect to 27 sites that have been deemed "Superfund" sites under the
federal Comprehensive Environmental Response, Compensation and Liability Act,
five of which are currently active, 14 of which are inactive, and eight of which
have been settled. The Company is also engaged in investigatory and remedial
activities with respect to four closed plants previously operated by Former
Parent. As of January 3, 1998, the Company had accrued in its financial
statements approximately $10 million in reserves for expenses related to
Superfund sites and the clean-up of closed plant sites, which reserves it
believes are adequate.
The Company does not anticipate that the costs to comply with environmental
laws and regulations or the costs related to Superfund sites and the clean-up of
closed plant sites will have a material adverse effect on the Company's capital
expenditures, earnings or competitive position; however, there can be no
assurance that other developments, such as the emergence of unforeseen claims or
liabilities or the imposition of increasingly stringent laws, regulations and
enforcement policies will not result in material costs in the future.
RISKS OF POTENTIAL ACQUISITIONS
The Company may acquire or make substantial investments in complementary
businesses or products in the future. Any such acquisition or investment would
entail various risks, including the difficulty of assimilating the operations
and personnel of the acquired businesses or products, the potential disruption
of the Company's ongoing business and, generally, the potential inability of the
Company to obtain the desired financial and strategic benefits from the
acquisition or investment. These factors could have a material adverse effect on
the Company's financial results. Future acquisitions and investments by the
Company also could result in substantial cash expenditures, potentially dilutive
issuances of equity securities, the incurrence of additional debt and contingent
liabilities, and amortization expenses related to goodwill and other intangible
assets, which could adversely affect the Company's financial results and
condition. The Company engages from time to time in discussions with respect to
potential acquisitions, some of which may be material.
YEAR 2000 COMPLIANCE
Many existing computer systems and software products, including several
used by the Company, are coded to accept only two digit entries in the date code
field. Beginning in the year 2000, these date code fields will need to accept
four digit entries to distinguish 21st century dates from 20th century dates. As
a result, the Company's date critical functions related to the year 2000 and
beyond, such as sales, distribution, manufacturing, purchasing, inventory
control, trade promotion management, planning and replenishment, facilities and
financial systems may be materially adversely affected unless these computer
systems are or become year 2000 compliant.
The Company has begun a comprehensive upgrade of its information systems to
significantly improve operating efficiencies and to identify, correct or
reprogram, and test its systems for year 2000 compliance. In 1997, the Company
incurred costs of $12 million to upgrade its information technology and expects
to spend an additional $40 million over the next two years for such upgrades.
There can be no assurance, however, that the Company's computer systems will be
year 2000 compliant in a timely manner or that the Company will not incur
significant additional expenses pursuing year 2000 compliance. Furthermore, even
if the Company's systems are year 2000 compliant, there can be no assurance that
the Company will not be materially adversely affected by the failure of others
to become year 2000 compliant. For example, the Company may be adversely
affected by the disruption or inaccuracy of data provided to the Company by
non-year 2000 compliant third parties and the failure of the Company's customers
and service providers, such as independent shipping companies, to become year
2000 compliant. There can be no assurance that the year 2000 problem will not
have a material adverse effect on the Company in the future.
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USE OF PROCEEDS
Unless otherwise indicated in any accompanying Prospectus Supplement, the
Company intends to use the net proceeds from the sale of the Debt Securities for
general corporate purposes, which may include capital expenditures, the
repayment of indebtedness, the funding of working capital, acquisitions and
stock repurchases. While the Company reviews acquisition opportunities in the
ordinary course of business, there can be no assurance that any acquisitions
will be consummated.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the ratio of earnings to fixed charges of
the Company for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------
JAN. 3, DEC. 28, DEC. 30, DEC. 31, DEC. 25,
1998 1996 1995 1994 1993
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges(1)......... 6.98x 3.01x(2) (2)(3) 9.48x 14.04x
</TABLE>
- ---------------
(1) In calculating this ratio, earnings consist of income (loss) before income
taxes plus fixed charges. Fixed charges consist of interest expense, fees
incurred on the sale of accounts receivable and the portion of rental
expense under operating leases which has been deemed by the Company to be
representative of the interest factor. Prior to August 15, 1996, the Company
was the subsidiary of its Former Parent. Interest expense during that period
was incurred primarily on advances from its Former Parent that bore interest
at the prime lending rate. The average balance of interest bearing advances
from the Former Parent prior to the Spin-off were approximately $160
million, $240 million, $163 million and $47 million for 1996, 1995, 1994 and
1993, respectively.
(2) Includes restructuring charges, asset write-downs and Spin-off transaction
costs of $60 million in 1996 and restructuring charges and asset write-downs
of $156 million in 1995.
(3) In 1995, fixed charges exceeded earnings by approximately $47 million.
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DESCRIPTION OF DEBT SECURITIES
The following description of the terms of the Debt Securities sets forth
certain general terms and provisions of the Debt Securities to which any
Prospectus Supplement may relate. The particular terms of the Debt Securities
offered by the Prospectus Supplement (the "Offered Debt Securities") and the
extent, if any, to which such general provisions may apply to the Debt
Securities so offered will be described in the Prospectus Supplement relating to
such Offered Debt Securities.
The Offered Debt Securities are to be issued in one or more series under an
Indenture as amended or supplemented from time to time (the "Indenture") between
the Company and Norwest Bank Arizona, N.A., as Trustee. The term "Trustee," as
used herein shall mean Norwest Bank Arizona, N.A.; if at any time there is more
than one Trustee acting under the Indenture, the term "Trustee" as used herein
with respect to Debt Securities of any particular series shall mean the Trustee
with respect to the Offered Debt Securities of such series. The Indenture has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part and is subject to and governed by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The following summaries of certain
provisions of the Indenture and the Offered Debt Securities do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all provisions of the Indenture, including the definitions of certain terms
therein and of those terms made a part thereof by the Trust Indenture Act.
Wherever particular provisions or defined terms of the Indenture are referred
to, such provisions or defined terms are incorporated herein by reference.
GENERAL
The Debt Securities will be unsecured obligations of the Company. Unless
otherwise stated in a Prospectus Supplement, the Debt Securities will rank pari
passu in right of payment with all other unsecured and unsubordinated
indebtedness of the Company. The Company may issue Debt Securities which are
subordinated in right of payment, in the manner and to the extent described in
the applicable Prospectus Supplement, to all existing and future Senior
Indebtedness (as defined in the applicable Prospectus Supplement).
The Debt Securities to be offered by this Prospectus are limited to
$300,000,000 in aggregate initial public offering price. The Indenture does not
limit the amount of Debt Securities that may be issued thereunder and provides
that Debt Securities may be issued thereunder from time to time in one or more
series. All Debt Securities of one series need not be issued at the same time
and, unless otherwise provided, a series may be reopened, without the consent of
any Holder, for issuances of additional Debt Securities of such series. (Section
301) The Indenture provides that there may be more than one Trustee thereunder,
each with respect to one or more series of Debt Securities.
Reference is made to the Prospectus Supplement relating to the Offered Debt
Securities for the following terms, where applicable, of the Offered Debt
Securities: (i) the title of the Offered Debt Securities or series of which they
are a part; (ii) the aggregate principal amount of the Offered Debt Securities
and any limit on the aggregate principal amount of the Offered Debt Securities;
(iii) the Person to whom any interest on an Offered Debt Security of that series
shall be payable, if other than the Person in whose name that Offered Debt
Security is registered at the close of business on the Regular Record Date for
such series; (iv) the date or dates (or the method or methods, if any, by which
such date or dates shall be determined) on which the principal of such Offered
Debt Securities will be payable; (v) the price or prices (expressed as a
percentage of the aggregate principal amount thereof) at which the Debt
Securities will be issued; (vi) the rate or rates (which may be fixed, floating
or adjustable), or the method of determination thereof, at which the Offered
Debt Securities will bear interest, if any; the date or dates from which such
interest will accrue; the Interest Payment Dates on which any such interest will
be payable; the Regular Record Date for any such interest payable on any
Interest Payment Date and the basis upon which interest shall be calculated if
other than that of a 360-day year of twelve 30-day months; (vii) the place or
places where the principal of and any premium and interest on such Offered Debt
Securities will be payable; (viii) the period or periods within which, the price
or prices at which, the currency or currencies, currency unit or composite
currency in which, and the other terms and conditions upon which such Offered
Debt Securities may be redeemed, in whole or in part, at
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<PAGE> 60
the option of the Company; (ix) the obligation, if any, of the Company to
redeem, repay or purchase any of such Offered Debt Securities pursuant to any
sinking fund or analogous provisions or at the option of a Holder thereof, and
the period or periods within which, the price or prices at which and the terms
and conditions on which any of such Offered Debt Securities will be redeemed,
repaid or purchased, in whole or in part, pursuant to any such obligation; (x)
the denominations in which such Offered Debt Securities will be issuable, if
other than denominations of $1,000 and any integral multiple thereof; (xi) if
other than the currency of the United States of America, the currency,
currencies, composite currencies or currency units in which the principal of or
any premium or interest on such Offered Debt Securities will be payable (and the
manner in which the equivalent of the principal amount thereof in the currency
of the United States of America is to be determined for any purpose, including
for the purpose of determining the principal amount deemed to be outstanding at
any time); (xii) if the amount of payments of principal of or any premium or
interest on such Offered Debt Securities may be determined with reference to an
index, pursuant to a formula or pursuant to other methods, the manner in which
such amounts will be determined; (xiii) if the principal of or any premium or
interest on such Offered Debt Securities is to be payable (at the election of
the Company or a Holder thereof) in one or more currencies, composite currencies
or currency units other than those in which the Offered Debt Securities are
stated to be payable, the currency, currencies or currency units in which
payment of any such amount as to which such election is made will be payable,
and the periods within which and the terms and conditions upon which such
election is to be made; (xiv) if other than the principal amount thereof, the
portion of the principal amount of such Offered Debt Securities which will be
payable upon declaration of acceleration of the Maturity thereof pursuant to the
Indenture or, if applicable, the portion of the principal amount of Offered Debt
Securities that is convertible into or exchangeable for other securities of the
Company ("Securities") or the method by which such portion will be determined;
(xv) if applicable, any terms subjecting such Offered Debt Securities to
defeasance or covenant defeasance (as hereinafter defined) different from the
provisions in the Indenture and any limitations on application of the terms of
the Indenture described below under "Defeasance;" (xvi) if applicable, any terms
governing conversion or exchangeability of such Offered Debt Securities into or
for common stock, par value $.01 per share of the Company, (the "Common Stock")
or other Securities and the terms and conditions upon which such conversion or
exchange will be effected; (xvii) any terms regarding the issuance of any
Offered Debt Securities of the series, in whole or in part, in book-entry form
and, if applicable, the depositary for such book-entry securities and the
circumstances, if any, in addition to the circumstances (if applicable)
described below under "Book-Entry Debt Securities," under which any such
book-entry Debt Securities may be registered in the name of a Person other than
such depositary or its nominee; (xviii) provisions, if any, granting special
rights to the Holders of such Offered Debt Securities upon the occurrence of
such events as may be specified; (xix) any addition to, or modification or
deletion of, any Events of Default or covenants provided for with respect to the
Offered Debt Securities; (xx) the terms, if any, pursuant to which the Offered
Debt Securities will be made subordinate and subject in right of payment to the
prior payment in full of all Senior Indebtedness of the Company; and the
definition of any such Senior Indebtedness; (xxi) the application, if any, of
judgments in respect of any specified currency, to the Debt Securities; (xxii)
whether the payment of principal, premium and interest, if any, and other
amounts due under the Indenture, and performance of the Company's other
obligations under the Indenture, will be guaranteed by one or more guarantors,
including subsidiaries of the Company; and (xxiii) any other terms of such
Offered Debt Securities not inconsistent with the provisions of the Indenture.
(Section 301)
Unless otherwise indicated in the Prospectus Supplement relating to Offered
Debt Securities, the principal of, premium, if any, or interest on the Debt
Securities will be payable, and the Debt Securities will be exchangeable and
transfers thereof will be registrable, at the principal office of the Trustee
(see "Concerning the Trustee"), provided that, at the option of the Company,
payment of interest may be made by check mailed to the address of the Person
entitled thereto as it appears in the Security Register or by wire transfer to
an account maintained by the payee located in the United States. (Sections 305
and 1002). Any payment of principal, premium or interest required to be made on
an Interest Payment Date, Redemption Date or at Maturity (as the case may be)
which is not a Business Day may be made on the next succeeding Business Day with
the same force and effect as if made on the Interest Payment Date, Redemption
Date or at Maturity, as the case may be, and, if such payment is so made, no
interest shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Maturity. (Section 113)
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<PAGE> 61
All monies paid by the Company to the Trustee for the payment of principal
of (and premium, if any or interest, if any, on) any Debt Security that remains
unclaimed by the Holder of such Debt Security at the end of two years after such
principal, premium or interest shall become due and payable will be repaid by
the Trustee to the Company on demand, and such Holder will thereafter look only
to the Company for payment thereof. (Section 1003)
Unless otherwise indicated in the Prospectus Supplement relating to Offered
Debt Securities, the Debt Securities will be issued only in fully registered
form, without coupons, in denominations of $1,000 or any integral multiple
thereof. (Section 302). No service charge will be made for any transfer or
exchange of the Debt Securities, but the Company may, subject to certain
exceptions, require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. (Section 305)
Debt Securities may be issued under the Indenture as Original Issue
Discount Securities (as defined below) to be offered and sold at a substantial
discount from their stated principal amount. In addition, under Treasury
Regulations it is possible that Debt Securities which are offered and sold at
their stated principal amount would, under certain circumstances, be treated as
issued at an original issue discount for Federal income tax purposes. Federal
income tax consequences and other special considerations applicable to any such
Original Issue Discount Securities (or other Debt Securities treated as issued
at an original issue discount) will be described in the Prospectus Supplement
relating thereto. "Original Issue Discount Security" means a security, including
any security that does not provide for the payment of interest prior to
Maturity, which is issued at a price lower than the principal amount thereof and
which provides that upon redemption or acceleration of the Stated Maturity
thereof an amount less than the principal amount thereof shall become due and
payable. (Section 101) Any special United States tax considerations applicable
to any Debt Securities which are denominated in any currencies, currency units
or composite currencies other than United States dollars will be described in
the applicable Prospectus Supplement.
The Indenture does not contain any provisions which may afford the Holders
of Debt Securities of any series protection in the event of a highly leveraged
transaction or other transaction which may occur in connection with a takeover
attempt resulting in a decline in the credit rating of the Debt Securities. Any
such provisions, if applicable to the Debt Securities of any series, will be
described in the Prospectus Supplement or Prospectus Supplements relating
thereto.
EVENTS OF DEFAULT
Unless otherwise specified in the Prospectus Supplement, the following are
the Events of Default under the Indenture with respect to Debt Securities of any
series: (i) failure to pay principal of or premium, if any, on any Debt Security
of that series when due; (ii) failure to pay any interest on any Debt Security
of that series when due, continued for 30 days; (iii) failure to deposit any
sinking fund payment, when due, in respect of any Debt Security of that series;
(iv) failure to perform or breach of any other covenant of the Company in the
Indenture (other than a covenant included in the Indenture solely for the
benefit of a series of Debt Securities other than that series), continued for 60
days after written notice by the Trustee or Holders of at least 25% of the
principal amount of the Outstanding Debt Securities of that series (as provided
in the Indenture); (v) certain events in bankruptcy, insolvency or
reorganization of the Company or a Significant Subsidiary (as defined in
Regulation S-X under the Securities Act of 1933); (vi) default under any bond,
debenture, note, mortgage, indenture or other instrument under which there may
be issued or by which there may be secured or evidenced any indebtedness for
money borrowed for which the Company or a Significant Subsidiary is directly
responsible or liable as obligor or guarantor, having an aggregate principal
amount outstanding of at least $50,000,000, whether such indebtedness exists on
the date of the Indenture or shall thereafter be created, which default shall
have resulted in such indebtedness being declared due and payable prior to the
date on which it would otherwise have become due and payable, without such
indebtedness being discharged or such acceleration having been rescinded or
annulled; and (vii) any other Event of Default provided with respect to Debt
Securities of that series. (Section 501). Unless otherwise specified herein or
in the Prospectus Supplement, no Event of Default with respect to a particular
series of Debt Securities issued under the Indenture necessarily constitutes an
Event of Default with respect to any other series of Debt Securities issued
thereunder.
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<PAGE> 62
If an Event of Default with respect to Outstanding Debt Securities of any
series shall occur and be continuing, either the Trustee or the Holders of at
least 25% in aggregate principal amount of the Outstanding Debt Securities of
that series may declare the principal amount (or, if the Debt Securities of that
series are Original Issue Discount Securities or Indexed Securities, such
portion of the principal amount as may be specified in the terms of that series)
of all the Debt Securities of that series to be due and payable immediately by
written notice to the Company (and to the Trustee, if given by the Holders). If
an Event of Default described in clause (v) above with respect to the Debt
Securities of any series at the time outstanding shall occur, the principal
amount of all the Debt Securities of that series (or, in the case of any such
Original Issue Discount Security or other Debt Security, such specified amount)
will automatically, and without any action by the Trustee or any Holder, become
immediately due and payable. At any time after a declaration of acceleration
with respect to Debt Securities of any series has been made, but before a
judgment or decree based on acceleration has been obtained, the Holders of a
majority in principal amount of the Outstanding Debt Securities of that series
may, under certain circumstances, rescind and annul such acceleration by written
notice, except a default in the payment of principal, premium or interest and
certain covenants and provisions of the Indenture which cannot be amended
without the consent of the Holder of each outstanding Debt Security of such
series affected. (Section 502). For information as to waiver of defaults, see
"Modification and Waiver."
Reference is made to the Prospectus Supplement relating to each series of
Offered Debt Securities which are Original Issue Discount Securities for the
particular provisions relating to acceleration of the Maturity of a portion of
the principal amount of such Original Issue Discount Securities upon the
occurrence and continuation of an Event of Default.
The Trustee shall, within 90 days after the occurrence of a default with
respect to Debt Securities of any series, give all Holders of Debt Securities of
such series then outstanding notice of all uncured defaults known to it (the
term "default" to mean the events specified above without applicable grace
periods), provided that, except in the case of a default in the payment of
principal of (or any premium or interest on) any Debt Security of any series, or
in the payment of any sinking fund installment with respect to Debt Securities
of any series, the Trustee shall be protected in withholding such notice if it,
in good faith, determines that the withholding of such notice is in the interest
of all Holders of Debt Securities of such series then outstanding. (Trust
Indenture Act Section 315)
The Indenture provides that the Trustee will be under no obligation
(subject to the duty of the Trustee during a default to act with the required
standard of care) to exercise any of its rights or powers under the Indenture at
the request or direction of any of the Holders of the Debt Securities of any
series, unless such Holders shall have offered to the Trustee reasonable
security or indemnity against costs, expense and liabilities which might be
incurred by it in compliance with such request. (Section 601). Subject to such
provisions for indemnification of the Trustee, the Holders of a majority in
principal amount of the Outstanding Debt Securities of any series will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee, with respect to the Debt Securities of that series. (Section 512)
Under the Indenture, the Company will be required to furnish to the Trustee
annually a statement by certain officers of the Company to the effect that, to
the best of their knowledge, the Company is not in default in the fulfillment of
any of its obligations under the Indenture or (if there has been a default in
the fulfillment of any such obligation) specifying such default. (Section 1005)
No Holder of any Debt Securities of any series will have any right to
institute any proceeding with respect to the Indenture or for any remedy
thereunder, unless such Holder shall have previously given to the Trustee
written notice of a continuing Event of Default with respect to Debt Securities
of that series, the Holders of at least 25% in aggregate principal amount of the
Outstanding Debt Securities of that series shall have made written request, and
offered reasonable indemnity, to the Trustee to institute such proceeding as
trustee, and the Trustee shall not have received from the Holders of a majority
in aggregate principal amount of the Outstanding Debt Securities of that series
a direction inconsistent with such request and shall have failed to institute
such proceeding within 60 days. (Section 507) However, such limitations do not
apply to a suit
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<PAGE> 63
instituted by a Holder of an Outstanding Debt Security of that series for
enforcement of payment of the principal of, or any premium or interest on, such
Debt Security on or after the respective due dates expressed in such Debt
Security. (Section 508)
COVENANTS
The particular covenants, if any, relating to any series of Debt Securities
will be described in the Prospectus Supplement relating to such series. Unless
otherwise specified in the Prospectus Supplement, the "covenant defeasance"
provisions described below will apply to any such covenants described in the
Prospectus Supplement.
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS
Unless otherwise specified in an applicable Prospectus Supplement, under
the Indenture, without consent of the Holders, the Company may consolidate or
merge with or into any other corporation or entity, and the Company may sell,
lease or convey all or substantially all of its assets to another corporation or
entity, if (i) (a) in the case of a merger, the Company is the surviving company
in the merger, or (b) the entity surviving the merger, formed by such
consolidation or which acquires such assets is an entity organized and existing
under the laws of the United States of America or a state thereof or the
District of Columbia and expressly assumes payment of the principal of (and any
premium and interest on) the Debt Securities and the performance and observance
of all of the covenants and conditions of the Indenture to be performed or
observed by the Company; (ii) immediately thereafter, no Event of Default or
event which, with notice or lapse of time or both, would constitute an Event of
Default shall have occurred and shall be continuing and (iii) certain other
conditions are met. (Article Eight)
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraph in
which the Company is not the surviving company, the successor entity would be
substituted for the Company and the Company would be relieved of any obligations
and covenants under the Indenture and the Debt Securities.
SATISFACTION, DISCHARGE AND DEFEASANCE
Satisfaction and Discharge. Unless otherwise specified in an applicable
Prospectus Supplement, the Indenture, with respect to any series of Debt
Securities (except for certain specified surviving obligations, including (i)
any rights of registration of transfer and exchange and (ii) rights to receive
the principal, premium, if any, and interest, if any, on the Debt Securities)
will be discharged and canceled upon the satisfaction of certain conditions,
including the following: (a) all Debt Securities have been theretofore
authenticated and delivered to the Trustee for cancellation; or (b) (1) all Debt
Securities of such series not theretofore delivered to the Trustee for
cancellation have become due or payable, will become due and payable at their
Maturity within one year or are to be called for redemption within one year and
(2) an amount sufficient to pay the principal, premium, if any, and interest, if
any, to the Stated Maturity or Redemption Date, as the case may be, of all Debt
Securities of such series has been deposited with the Trustee. (Section 401)
Defeasance and Covenant Defeasance. Unless so specified in the Prospectus
Supplement with respect to Debt Securities of any series, the Company at its
option: (i) will be discharged from any and all obligations in respect of the
Debt Securities of such series (except for, among other things, certain
obligations to register the transfer or exchange of Debt Securities of such
series; replace stolen, lost or mutilated Debt Securities of such series;
maintain certain offices or agencies in each Place of Payment; and hold moneys
for payment in trust ("defeasance")); or (ii) will not be subject to provisions
of the applicable Indenture described above under "-- Consolidation, Merger and
Transfer of Assets" and certain other restrictive covenants included in the
applicable Prospectus Supplement with respect to the Debt Securities of such
series ("covenant defeasance"), in each case if the Company irrevocably deposits
with the Trustee, in trust, money or U.S. Government Obligations which through
the payment of interest thereon and principal thereof in accordance with their
terms will provide money in an amount sufficient (in the opinion of a nationally
recognized firm of independent public accountants or investment bank which shall
be delivered to the Trustee) to pay all the
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<PAGE> 64
principal (including any mandatory sinking fund payments) of, and premium, if
any, and interest, if any, on, the Debt Securities of such series on the dates
such payments are due in accordance with the terms of such Debt Securities. To
exercise any such option, the Company is required, among other things, to
deliver to the Trustee (i) an opinion of counsel to the effect that the deposit
and related defeasance or covenant defeasance, as the case may be, will not
cause the Holders of the Debt Securities of such series to recognize income,
gain or loss for Federal income tax purposes and (ii) in the case of defeasance,
a ruling received from or published by the United States Internal Revenue
Service or a change in U.S. income tax law to the effect that the deposit and
related defeasance will not cause the Holders of the Debt Securities of such
series to recognize income, gain or loss for Federal income tax purposes.
(Sections 1402 and 1403)
MODIFICATION AND WAIVER
Unless otherwise specified in an applicable Prospectus Supplement,
modifications and amendments of the Indenture may be made by the Company and the
Trustee with the consent of the Holders of a majority in aggregate principal
amount of the Outstanding Debt Securities of each series affected by such
modification or amendment; provided, however, that no such modification or
amendment may, without the consent of the Holder of each Outstanding Debt
Security affected thereby: (i) change the Stated Maturity of the principal of or
any installment of principal of or interest on any Debt Security; (ii) reduce
the principal amount of, or any premium or interest on, or the rate of interest
on, any Debt Security; (iii) reduce the amount of principal of an Original Issue
Discount Security or other Debt Security payable upon acceleration of the
Maturity thereof; (iv) change the place or currency of payment of principal of,
or any premium or interest on, any Debt Security; (v) impair the right to
institute suit for the enforcement of any payment on or after the Stated
Maturity thereof (or, in the case of redemption on or after the Redemption Date;
or, in the case of repayment at the option of the Holder, on or after the date
fixed for repayment); (vi) reduce the percentage in principal amount of
Outstanding Debt Securities of any series, the consent of whose Holders is
required for modification or amendment of the Indenture; (vii) reduce the
percentage in principal amount of Outstanding Debt Securities of any series, the
consent of whose Holders is required for any waiver (of compliance with certain
provisions of the Indenture or certain defaults thereunder and their
consequences) provided for in the Indenture; or (viii) modify any of the
provisions relating to supplemental indentures, waiver of past defaults or
waiver of certain covenants, except to increase any such percentage or to
provide that certain other provisions of the Indenture cannot be modified or
waived without the consent of the Holder of each outstanding Debt Security
affected thereby. (Section 902)
Unless otherwise specified in an applicable Prospectus Supplement,
modifications and amendments of the Indenture may be made by the Company and the
Trustee without the consent of any Holder of Debt Securities for any of the
following purposes: (i) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of the Company
in the Indenture and in the Debt Securities as obligor under the Indenture; (ii)
to add to the covenants of the Company for the benefit of the Holders of all or
any series of Debt Securities or to surrender any right or power conferred upon
the Company in the Indenture; (iii) to add Events of Default; (iv) to add or
change any provisions of the Indenture to such extent as shall be necessary to
permit or facilitate the issuance of Debt Securities in bearer form, registrable
or not registrable as to principal, and with or without interest coupons, or to
permit or facilitate the issuance of Debt Securities in uncertificated form;
provided, that any such change shall not adversely affect the interests of the
Holders of Debt Securities of such series or any other series of Debt Securities
in any material respect; (v) to add to, change or eliminate any of the
provisions of the Indenture in respect of one or more series of Debt Securities,
provided that, any such addition, change or elimination (a) shall neither (1)
apply to any Debt Security of any series created prior to the execution of such
supplemental indenture and entitled to the benefit of such provision nor (2)
modify the rights of the Holder of any such Debt Security with respect to such
provision or (b) shall become effective only when there is no such Debt Security
outstanding; (vi) to evidence and provide for the acceptance of appointment
under the Indenture by a successor Trustee with respect to the Debt Securities
of one or more series and to add to or change any of the provisions of the
Indenture as shall be necessary to provide for or facilitate the administration
of the trusts under the Indenture by more than one Trustee; (vii) to secure the
Debt Securities; (viii) to supplement any of the provisions of the Indenture to
such extent as shall be necessary to permit or facilitate the defeasance,
covenant defeasance or
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satisfaction and discharge of any series of Debt Securities pursuant to the
Indenture; provided, that any such action shall not adversely affect the
interests of the Holders of Debt Securities of such series or any other series
of Debt Securities in any material respect; (ix) to cure any ambiguity, to
correct or supplement any provision in the Indenture which may be inconsistent
with any other provision in the Indenture or to make any other provisions with
respect to matters or questions arising under the Indenture, provided that such
action shall not adversely affect the interests of the Holders of Debt
Securities of any series in any material respect; (x) to add a guarantor or
guarantors for any or all series of Debt Securities; (xi) to comply with the
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act; and (xii) to establish the form
or terms of any series of Debt Securities. (Section 901)
The Holders of not less than a majority in principal amount of the
Outstanding Debt Securities of any series may, on behalf of the Holders of all
Debt Securities of that series, waive any past default under the Indenture with
respect to that series, except a default in the payment of the principal of or
any premium or interest on any Debt Security of that series or in respect of a
provision which under the Indenture cannot be modified or amended without the
consent of the Holder of each Outstanding Debt Security of that series affected.
(Section 513)
CONVERSION OR EXCHANGE RIGHTS
The terms and conditions, if any, upon which the Debt Securities are
convertible into or exchangeable for Common Stock or other Securities will be
set forth in the applicable Prospectus Supplement relating thereto. Such terms
will include the conversion price or exchange ratio (or manner of calculation
thereof), the conversion or exchange period, provisions as to whether conversion
or exchange will be at the option of the Holders or the Company, the events
requiring an adjustment of the conversion price or exchange ratio and provisions
affecting conversion or exchange in the event of the redemption of such Debt
Securities.
GOVERNING LAW
The Indenture and the Debt Securities will be governed by, and construed in
accordance with, the law of the State of New York, but without regard to
principles of conflicts of law. (Section 112)
CONCERNING THE TRUSTEE
Norwest Bank Arizona, N.A., with its principal offices at 3300 N. Central
Avenue, Fourth Floor, Phoenix, Arizona, 85012, will act as Trustee for the
benefit of the Holders of the Debt Securities under the Indenture.
BOOK-ENTRY DEBT SECURITIES
Debt Securities of a series may be issued in whole or in part in global
form that will be deposited with, or on behalf of, a depository identified in
the applicable Prospectus Supplement. Global Debt Securities may be issued in
either registered or bearer form and in either temporary or permanent form (each
a "Global Security"). Unless otherwise provided in the applicable Prospectus
Supplement, Debt Securities that are represented by a Global Security will be
issued in denominations of $1,000 and any integral multiple thereof, and will be
issued in registered form only, without coupons. Payments of principal of and
any premium and interest on Debt Securities represented by a Global Security
will be made by the Company to the applicable Trustee, and then by such Trustee
to the depository.
The Company anticipates that any Global Securities will be deposited with,
or on behalf of, The Depository Trust Company ("DTC"), New York, New York, that
such Global Securities will be registered in the name of DTC's nominee, and that
the following provisions will apply to the depository arrangements with respect
to any such Global Securities. Additional or differing terms of the depository
arrangement will be described in the applicable prospectus supplement.
So long as DTC or its nominee is the registered owner of a Global Security,
DTC or its nominee, as the case may be, will be considered the sole Holder of
the Securities represented by such Global Security for all
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purposes under the Indenture. Except as provided below, owners of beneficial
interests in a Global Security will not be entitled to have Debt Securities
represented by such Global Security registered in their names, will not receive
or be entitled to receive physical delivery of Debt Securities in certificated
form and will not be considered the owners or Holders thereof under the
Indenture. The laws of some states may require that certain purchasers of
securities take physical delivery of such securities in certificated form; such
laws may limit the transferability of beneficial interests in a Global Security.
If: (i) DTC is at any time unwilling, unable or ineligible to continue as
depository for the Debt Securities of any series and a successor depository is
not appointed by the Company within 90 days following notice to the Company;
(ii) the Company determines, in its sole discretion, not to have the Debt
Securities of any series represented by one or more Global Securities; or (iii)
an Event of Default under the Indenture has occurred and is continuing with
respect to the Debt Securities of any series, then the Company will issue
individual Debt Securities of such series in certificated form in exchange for
the relevant Global Securities. In any such instance, an owner of a beneficial
interest in a Global Security will be entitled to physical delivery of
individual Debt Securities in certificated form of like tenor and rank, equal in
principal amount to such beneficial interest and to have such Debt Securities in
certificated form registered in its name. Unless otherwise provided in the
applicable Prospectus Supplement, Debt Securities so issued in certificated form
will be issued in denominations of $1,000 (or any integral multiple thereof) and
will be issued in registered form only, without coupons.
The following is based on information furnished by DTC:
In the event that DTC acts as securities depository for any Debt
Securities, such Debt Securities will be issued as fully registered
securities registered in the name of Cede & Co. (DTC's partnership
nominee). One fully registered Debt Security certificate will be issued
with respect to each $200 million of principal amount of the Debt
Securities of a series, and an additional certificate will be issued with
respect to any remaining principal amount of such series.
DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New York
Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial Code,
and a "clearing agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement
among Participants of securities transactions, such as transfers and
pledges, in deposited securities through electronic computerized book-entry
changes in Participants' accounts, thereby eliminating the need for
physical movement of securities certificates. Direct Participants include
securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC
is owned by a number of its Direct Participants and by the New York Stock
Exchange, Inc., the American Stock Exchange, Inc. and the National
Association of Securities Dealers, Inc. Access to the DTC system is also
available to others, such as securities brokers and dealers, banks and
trust companies, that clear through or maintain a custodial relationship
with a Direct Participant, either directly or indirectly ("Indirect
Participants"). The rules applicable to DTC and its Participants are on
file with the Commission.
Purchases of Debt Securities under the DTC system must be made by or
through Direct Participants, which will receive a credit for the Debt
Securities on DTC's records. The ownership interest of each actual
purchaser of each Debt Security ("Beneficial Owner") is in turn recorded on
the Direct and Indirect Participants' records. A Beneficial Owner does not
receive written confirmation from DTC of its purchase, but such Beneficial
Owner is expected to receive a written confirmation providing details of
the transaction, as well as periodic statements of its holdings, from the
Direct or Indirect Participant through which such Beneficial Owner entered
into the transaction. Transfers of ownership interests in Debt Securities
are accomplished by entries made on the books of Participants acting on
behalf of Beneficial Owners. Beneficial Owners will not receive
certificates representing their ownership interests in Debt Securities,
except in the limited circumstances described above.
To facilitate subsequent transfers, the Debt Securities are registered
in the name of DTC's partnership nominee, Cede & Co. The deposit of the
Debt Securities with DTC and their registration in
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the name of Cede & Co. effects no change in beneficial ownership. DTC has
no knowledge of the actual Beneficial Owners of the Debt Securities; DTC's
records reflect only the identity of the Direct Participants to whose
accounts Debt Securities are credited, which may or may not be the
Beneficial Owners. The Participants remain responsible for keeping account
of their holdings on behalf of their customers.
Delivery of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by
Direct Participants and Indirect Participants to Beneficial Owners are
governed by arrangements among them, subject to any statutory or regulatory
requirements as may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Debt Securities within an issue are being redeemed, DTC's practice is to
determine by lot the amount of interest of each Direct Participant in such
issue to be redeemed.
Neither DTC nor Cede & Co. consents or votes with respect to the Debt
Securities. Under its usual procedures, DTC mails a proxy (an "Omnibus
Proxy") to the issuer as soon as possible after the record date. The
Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those
Direct Participants to whose accounts the Debt Securities are credited on
the record date (identified on a list attached to the Omnibus Proxy).
Payments of principal of and any premium and interest on the Debt
Securities will be made to DTC. DTC's practice is to credit Direct
Participants' accounts on the payment date in accordance with their
respective holdings as shown on DTC's records unless DTC has reason to
believe that it will not receive payment on the payment date. Payments by
Participants to Beneficial Owners will be governed by standing instructions
and customary practices, as is the case with securities held for the
accounts of customers in bearer form or registered in "street name," and
will be the responsibility of such Participant and not of DTC, any Paying
Agent or the Company, subject to any statutory or regulatory requirements
as may be in effect from time to time. Payment of principal and any premium
and interest, to DTC will be the responsibility of the Company or the
applicable paying agent, disbursement of such payments to Direct
Participants will be the responsibility of DTC, and disbursement of such
payments to the Beneficial Owners will be the responsibility of Direct and
Indirect Participants.
DTC may discontinue providing its services as securities depository
with respect to the Debt Securities at any time by giving reasonable notice
to the Company or the applicable Paying Agent. Under such circumstances, in
the event that a successor securities depository is not appointed, Debt
Securities in certificated form are required to be prepared and delivered
as described above.
The Company may decide to discontinue use of the system of book-entry
transfers through DTC (or a successor securities depository). In that
event, Debt Security certificates will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources (including DTC) that the Company believes to be
reliable. However, neither the Company nor any underwriter or agent takes any
responsibility for the accuracy thereof.
None of the Company, any underwriter or agent, the applicable Trustee or
any applicable paying agent will have any responsibility or liability for any
aspect of the records relating to or payments made on account of beneficial
interests in a Global Security, or for maintaining, supervising or reviewing any
records relating to such beneficial interests.
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DESCRIPTION OF CAPITAL STOCK
GENERAL
Under the Company's Restated Certificate of Incorporation (the "Certificate
of Incorporation"), the total number of shares of all classes of stock that the
Company has authority to issue is 310,000,000 consisting of 10,000,000 shares of
Preferred Stock, par value $.01 per share (the "Preferred Stock"), and
300,000,000 shares of Common Stock. As of March 3, 1998, 102,775,954 shares of
Common Stock were issued and 102,672,370 shares were issued and outstanding
(4,892,845 shares of which were held by an employee equity trust). As part of
the 10,000,000 shares of Preferred Stock authorized, the Company has authorized
and reserved for issuance 1,500,000 shares of Junior Preferred Stock (as defined
herein) in connection with the preferred share purchase rights (the "Rights")
issued by the Company in connection with the Spin-off.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters voted on by the stockholders, including the election of directors and,
except as otherwise required by law or provided in any resolution adopted by the
Company's Board of Directors (the "Board") with respect to any series of
Preferred Stock, the holders of such Common Stock exclusively possess all voting
power. The Certificate of Incorporation does not provide for cumulative voting
in the election of directors. Subject to any preferential rights of any
outstanding series of Preferred Stock, the holders of Common Stock are entitled
to such dividends as may be declared from time to time by the Board from funds
available therefor, and upon liquidation are entitled to receive pro rata all
assets of the Company available for distribution to such holders. The Common
Stock does not have any preemptive rights.
The Common Stock is traded on the NYSE under the symbol "DL."
RIGHTS
In connection with the Spin-off, the Company's Board of Directors declared
a dividend of one Right, paid on August 15, 1996 in respect of each share of
Common Stock issued to the holder of record thereof as of the close of business
on such date. To the extent any Debt Securities issued are convertible into
shares of Common Stock, each such share of Common Stock issued in connection
with a conversion will also be accompanied by a Right. Each Right entitles the
registered holder thereof to purchase from the Company one one-hundredth of a
share of Series A Junior Participating Preferred Stock, par value $.01 per share
(the "Junior Preferred Stock"), of the Company at a price of $75.00 per one
one-hundredth of a share (the "Purchase Price"), subject to adjustment. The
terms of the Rights are set forth in the Rights Agreement (the "Rights
Agreement") between the Company and Wells Fargo Bank of Arizona, N.A., as rights
agent.
Until the earlier to occur of (i) ten days following a public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 20% or more of the then
outstanding shares of the Common Stock or (ii) ten business days (or such later
date as may be determined by action of the Board prior to such time as any
person or group becomes an Acquiring Person) following the commencement of, or
announcement of an intention to make, a tender offer or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of 20% or more of the outstanding shares of Common Stock (the earlier of
such dates being called the "Rights Distribution Date"), the Rights will be
evidenced by the certificates representing shares of Common Stock.
The Rights Agreement provides that until the Rights Distribution Date (or
earlier redemption or expiration of the Rights), the Rights will be transferred
with and only with the shares of Common Stock. As soon as practicable following
the Rights Distribution Date, separate certificates evidencing the Rights
("Rights Certificates") will be mailed to holders of record of the shares of
Common Stock as of the close of business on the Rights Distribution Date and
such separate Rights Certificates alone will evidence the Rights.
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The Rights will not be exercisable until the Rights Distribution Date. The
Rights will expire on August 15, 2006 (the "Final Expiration Date"), unless the
Final Expiration Date is extended or unless the Rights are earlier redeemed or
exchanged by the Company, in each case, as described below.
The Purchase Price payable, and the number of shares of Junior Preferred
Stock or other securities or property issuable, upon exercise of the Rights are
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
shares of Junior Preferred Stock, (ii) upon the grant to holders of the shares
of Junior Preferred Stock of certain rights or warrants to subscribe for or
purchase shares of Junior Preferred Stock at a price, or securities convertible
into shares of Junior Preferred Stock with a conversion price, less than the
then-current market price of the shares of Junior Preferred Stock or (iii) upon
the distribution to holders of the shares of Junior Preferred Stock of evidences
of indebtedness or assets (excluding regular periodic cash dividends paid out of
earnings or retained earnings or dividends payable in shares of Junior Preferred
Stock) or of subscription rights or warrants (other than those referred to
above). The number of outstanding Rights and the number of one one-hundredths of
a share of Junior Preferred Stock issuable upon exercise of each Right are also
subject to adjustment in the event of a stock split of Common Stock or a stock
dividend on Common Stock payable in Common Stock or subdivisions, consolidations
or combinations of Common Stock occurring, in any such case, prior to the Rights
Distribution Date.
Shares of Junior Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Junior Preferred Stock will be entitled to
a minimum preferential quarterly dividend payment of $1.00 per share but will be
entitled to an aggregate dividend equal to 100 times the dividend declared per
share of Common Stock. In the event of liquidation, the holders of the Junior
Preferred Stock will be entitled to a minimum preferential liquidation payment
of $100 per share but will be entitled to an aggregate payment equal to 100
times the payment made per share of Common Stock. Each share of Junior Preferred
Stock will have 100 votes, and shall be entitled to vote with Common Stock.
Finally, in the event of any merger, consolidation or other transaction in which
Common Stock is exchanged, each share of Junior Preferred Stock will be entitled
to receive an amount equal to 100 times the amount received per share of Common
Stock. These rights are protected by customary antidilution provisions.
Because of the nature of the dividend, liquidation and voting rights of
Junior Preferred Stock, the value of the one one-hundredth interest in a share
of Junior Preferred Stock purchasable upon exercise of each Right should
approximate the value of one share of Common Stock.
In the event that any person or group of affiliated or associated persons
becomes an Acquiring Person, proper provisions will be made so that each holder
of a Right, other than Rights beneficially owned by the Acquiring Person (which
will thereafter be void), will thereafter have the right to receive upon
exercise thereof at the then current exercise price that number of shares of
Common Stock having a market value of two times the exercise price of the Right.
In the event that, at any time on or after the date that any person has become
an Acquiring Person, the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provisions will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the then
current exercise price of the Right, that number of shares of common stock of
the acquiring company which at the time of such transaction will have a market
value of two times the exercise price of the Right.
At any time after any person or group of affiliated or associated persons
becomes an Acquiring Person and prior to the acquisition by such person or group
of 50% or more of the outstanding shares of Common Stock, the Board may exchange
the Rights (other than Rights owned by such person or group which will have
become void), in whole or in part, at an exchange ratio of one share of Common
Stock, or one one-hundredth of a share of Junior Preferred Stock, per Right
(subject to adjustment).
With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price.
At any time prior to the acquisition by a person or group of affiliated or
associated persons of beneficial ownership of 20% or more of the outstanding
shares of Common Stock, the Board may redeem the Rights in
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whole, but not in part, at a price of $.01 per Right (the "Redemption Price").
The redemption of the Rights may be made effective at such time, on such basis
and with such conditions as the Company's Board of Directors in its sole
discretion may establish. Immediately upon any redemption of the Rights, the
right to exercise the Rights will terminate and the only right of the holders of
Rights will be to receive the Redemption Price.
The terms of the Rights may be amended by the Board without the consent of
the holders of the Rights, including an amendment to lower (i) the threshold at
which a person or group of affiliated or associated persons becomes an Acquiring
Person and (ii) the percentage of Common Stock proposed to be acquired in a
tender or exchange offer that would cause the Rights Distribution Date to occur,
to not less than the greater of (a) the sum of .001% and the largest percentage
of the outstanding shares of Common Stock then known to the Company to be
beneficially owned by any person or group of affiliated or associated persons
and (b) 10%, except that from and after such time as any person or group of
affiliated or associated persons becomes an Acquiring Person no such amendment
may adversely affect the interests of the holders of the Rights.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. In the event that the Rights become
exercisable, the Company will register the shares of the Junior Preferred Stock
for which the Rights may be exercised, in accordance with applicable law.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
and thereby effect a change in the composition of the Board on terms not
approved by the Board, including by means of a tender offer at a premium to the
market price, other than an offer conditioned on a substantial number of Rights
being acquired. The Rights should not interfere with any merger or business
combination approved by the Board since the Rights may be redeemed by the
Company at the Redemption Price prior to the time that a person or group has
become an Acquiring Person.
PLAN OF DISTRIBUTION
The Company may sell Debt Securities to or through one or more underwriters
or dealers, directly to institutional investors or other purchasers, through
agents, through other methods or through a combination of the foregoing. The
distribution of the Debt Securities may be effected from time to time in one or
more transactions at a fixed price or prices, which may be changed, or at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices.
If underwriters are used in the sale, the Debt Securities will be acquired
by the underwriters for their own account and may be resold from time to time in
one or more transactions (including negotiated transactions) at a fixed public
offering price or at varying prices determined at the time of sale. The Debt
Securities may be offered to the public either through underwriting syndicates
represented by one or more managing underwriters or directly by one or more
firms acting as underwriters. The underwriter or underwriters with respect to a
particular underwritten offering of Debt Securities will be named in the
Prospectus Supplement relating to such offering and, if an underwriting
syndicate is used, the managing underwriter or underwriters will be set forth on
the cover of such Prospectus Supplement. Unless otherwise set forth in the
Prospectus Supplement, the obligations of the underwriters to purchase the Debt
Securities will be subject to certain conditions precedent and the underwriters
will be obligated to purchase all the Debt Securities if any are purchased.
The Debt Securities may be sold directly by the Company or through agents
designated by the Company from time to time. Any agent involved in the offer or
sale of the Debt Securities in respect of which this Prospectus is delivered
will be named, and any commissions payable by the Company to such agent, will be
set forth in the applicable Prospectus Supplement. Unless otherwise indicated in
the Prospectus Supplement, any such agent will be acting on a best efforts basis
for the period of its appointment.
In connection with the sale of the Debt Securities, underwriters or agents
may receive compensation from the Company or from purchasers of the Debt
Securities for whom they may act as agents in the form of discounts, concessions
or commissions. Underwriters may sell Debt Securities to or through dealers, and
such dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters
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and/or commissions from the purchasers for whom they may act as agents.
Underwriters, dealers and agents that participate in the distribution of Debt
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of Debt
Securities by them may be deemed to be underwriting discounts and commissions,
under the Securities Act. Any such underwriter or agent will be identified, and
any such compensation received from the Company will be described, in the
applicable Prospectus Supplement.
If so indicated in the related Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Debt Securities from the
Company at the public offering price set forth in the Prospectus Supplement
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and other institutions, but in all cases
such institutions must be approved by the Company. The obligations of any
purchaser under any such contract will be subject to the condition that the
purchase of the Debt Securities shall not at the time of delivery be prohibited
under the laws of the jurisdiction to which such purchaser is subject. The
underwriters and such other agents will not have any responsibility in respect
of the validity or performance of such contracts.
Under agreements which may be entered into by the Company, underwriters and
agents who participate in the distribution of the Debt Securities may be
entitled to indemnification by the Company against certain liabilities,
including liabilities under the Securities Act, or to contribution by the
Company with respect to payments they may be required to make in respect
thereof.
Certain of the underwriters or agents and their affiliates may engage in
transactions with and perform services for the Company or its affiliates in the
ordinary course of their respective businesses.
If the underwriters create a short position in the Debt Securities in
connection with the offerings (i.e., if they sell more Debt Securities than are
set forth on the cover page of the applicable Prospectus Supplement), the
representatives of the underwriters may reduce that short position by purchasing
Debt Securities in the open market.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. Neither the Company nor any
underwriter or agent makes any representation or prediction as to the direction
or magnitude of any effect that the transactions described above may have on the
price of the Debt Securities. Neither the Company nor any underwriter or agent
makes any representation that the representatives of any underwriters will
engage in such transactions or that such transactions, once commenced, will not
be discontinued without notice.
The Debt Securities may or may not be listed on a national securities
exchange or traded in the over-the-counter market. No assurances can be given as
to the liquidity of the trading market for any such securities.
LEGAL MATTERS
The validity of the Debt Securities will be passed upon for the Company by
Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.
EXPERTS
The financial statements incorporated in this Prospectus by reference from
the Company's Annual Report on Form 10-K for the year ended January 3, 1998 have
been audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so incorporated
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
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NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT OR IN THE ACCOMPANYING PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS SUPPLEMENT AND THE
ACCOMPANYING PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS DO NOT
CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE NOTES IN
ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND
THE ACCOMPANYING PROSPECTUS NOR ANY SALE MADE HEREUNDER OR THEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... S-3
Use of Proceeds....................... S-7
Ratio of Earnings to Fixed Charges.... S-7
Capitalization........................ S-8
Selected Consolidated Financial
Information......................... S-9
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... S-11
Description of Notes.................. S-16
Underwriting.......................... S-24
Legal Matters......................... S-25
Experts............................... S-25
Index to Consolidated Financial
Statements.......................... F-1
PROSPECTUS
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
The Company........................... 3
Risk Factors.......................... 4
Use of Proceeds....................... 8
Ratio of Earnings to Fixed Charges.... 8
Description of Debt Securities........ 9
Description of Capital Stock.......... 18
Plan of Distribution.................. 20
Legal Matters......................... 21
Experts............................... 21
</TABLE>
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$200,000,000
[THE DIAL CORPORATION LOGO]
6 1/2% SENIOR NOTES DUE 2008
------------------------
PROSPECTUS SUPPLEMENT
------------------------
MERRILL LYNCH & CO.
BANCAMERICA
SECURITIES, INC.
CITICORP SECURITIES, INC.
J.P. MORGAN & CO.
September 18, 1998
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