<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended JULY 1, 2000
Commission file number 1-11793
THE DIAL CORPORATION
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 51-0374887
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
15501 NORTH DIAL BOULEVARD
SCOTTSDALE, ARIZONA 85260-1619
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's Telephone Number, Including Area Code: (480) 754-3425
Indicate by check mark whether the registrant (1) has filed all Exchange Act
reports required to be filed by Section 13 or 15 (d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days.
Yes x No
-------- --------
The number of shares of Common Stock, $.01 par value, outstanding as the close
of business on July 29, 2000 was 94,875,673.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE DIAL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) December 31,
(Dollars in thousands, except share data) July 1, 2000 1999
----------------------------------------- ------------ ----
<S> <C> <C>
ASSETS
-----------------------------------------
Current Assets:
Cash and cash equivalents $ 20,007 $ 6,126
Receivables, less allowance of $6,140 and $7,994 172,365 107,413
Inventories 185,613 180,744
Deferred income taxes 18,365 17,852
Other current assets 3,876 20,369
----------- -----------
Total current assets 400,226 332,504
Property and equipment, net 302,632 306,585
Deferred income taxes 59,495 65,200
Intangibles, net 624,412 524,745
Other assets 67,698 40,652
----------- -----------
$ 1,454,463 $ 1,269,686
=========== ===========
-----------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
-----------------------------------------
Current Liabilities:
Trade accounts payable $ 123,206 $ 128,320
Short-term borrowings 130,584 60,263
Income taxes payable 6,992 29,931
Other current liabilities 95,287 99,600
----------- -----------
Total current liabilities 356,069 318,114
Long-term debt 526,368 300,851
Pension and other benefits 226,824 232,586
Other liabilities 6,781 6,864
----------- -----------
Total liabilities 1,116,042 858,415
----------- -----------
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; 105,621,458 and 105,480,645 shares issued 1,056 1,055
Additional capital 397,934 448,977
Retained income 198,176 190,370
Accumulated other comprehensive income (3,517) (2,851)
Unearned employee benefits (41,421) (95,802)
Treasury stock, 10,746,101 and 4,887,176 shares held (213,807) (130,478)
----------- -----------
Total stockholders' equity 338,421 411,271
----------- -----------
$ 1,454,463 $ 1,269,686
=========== ===========
</TABLE>
See Notes to Consolidated Financial Statements.
2
<PAGE> 3
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Unaudited)
Quarter Ended
-------------
(in thousands, except per share data) July 1, 2000 July 3, 1999
------------------------------------- ------------ ------------
<S> <C> <C>
Net sales $ 408,741 $ 430,312
------------------------------------- --------- ---------
Costs and expenses:
Cost of products sold 208,902 211,251
Asset writedowns and discontinued product
inventories as a result of restructuring 17,232 --
--------- ---------
226,134 211,251
Selling, general and administrative expenses 169,342 164,563
Restructuring charges and other asset writedowns 3,835 --
--------- ---------
173,177 164,563
--------- ---------
Total costs and expenses 399,311 375,814
--------- ---------
Operating income 9,430 54,498
Interest and other expenses 12,322 8,289
Earnings (Loss) of joint ventures (3,624) --
Other income - Gain on sale of facility 6,662 --
--------- ---------
Income before income taxes 146 46,209
Income taxes (benefit) (983) 16,776
--------- ---------
NET INCOME $ 1,129 $ 29,433
========= =========
NET INCOME PER SHARE -- BASIC $ 0.01 $ 0.30
========= =========
NET INCOME PER SHARE -- DILUTED $ 0.01 $ 0.29
========= =========
Weighted average basic shares outstanding 91,084 98,580
Weighted average equivalent shares 287 2,033
--------- ---------
Weighted average diluted shares outstanding 91,371 100,613
========= =========
NET INCOME $ 1,129 $ 29,433
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustment (552) 151
--------- ---------
COMPREHENSIVE INCOME $ 577 $ 29,584
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
3
<PAGE> 4
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
----------------
(in thousands, except per share data) July 1, 2000 July 3, 1999
------------------------------------- ------------ ------------
<S> <C> <C>
Net sales $ 781,865 $ 829,260
--------- ---------
Costs and expenses:
Cost of products sold 397,413 413,634
Asset writedowns and discontinued product
inventories as a result of restructuring 17,232 --
--------- ---------
414,645 413,634
Selling, general and administrative expenses 310,772 312,133
Restructuring charges and other asset writedowns 3,835 --
--------- ---------
314,607 312,133
--------- ---------
Total costs and expenses 729,252 725,767
--------- ---------
Operating income 52,613 103,493
Interest and other expenses 21,962 16,647
Earnings (Loss) of joint ventures (4,345) --
Other income - Gain on sale of facility 6,662 --
--------- ---------
Income before income taxes 32,968 86,846
Income taxes 10,342 31,527
--------- ---------
NET INCOME $ 22,626 $ 55,319
========= =========
NET INCOME PER SHARE -- BASIC $ 0.24 $ 0.56
========= =========
NET INCOME PER SHARE -- DILUTED $ 0.24 $ 0.55
========= =========
Weighted average basic shares outstanding 93,121 98,660
Weighted average equivalent shares 521 2,087
--------- ---------
Weighted average diluted shares outstanding 93,642 100,747
========= =========
NET INCOME $ 22,626 $ 55,319
Other comprehensive income (loss) net of tax:
Foreign currency translation adjustment (422) 385
Minimum pension liability (244) 129
--------- ---------
Other comprehensive income (666) 514
--------- ---------
COMPREHENSIVE INCOME $ 21,960 $ 55,833
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
4
<PAGE> 5
THE DIAL CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended
----------------
(in thousands) July 1, 2000 July 3, 1999
-------------- ------------ ------------
<S> <C> <C>
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 22,626 $ 55,319
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation 19,422 15,180
Amortization 6,262 6,019
Deferred income taxes 4,431 7,014
Restructuring charges and asset writedowns 21,067 --
Gain on sale of facility (6,662) --
Change in operating assets and liabilities:
Receivables 9,834 (24,145)
Inventories (11,571) (14,790)
Trade accounts payable (7,230) (24,124)
Other assets and liabilities, net (23,228) 5,415
--------- ---------
Net cash provided by operating activities 34,951 25,888
--------- ---------
CASH FLOWS USED BY INVESTING ACTIVITIES:
Capital expenditures (18,899) (19,675)
Investment in and loans to joint ventures (26,074) --
Acquisition of businesses, net of cash acquired (116,836) 6,046
Proceeds from sale of facility 15,339 --
--------- ---------
Net cash used by investing activities (146,470) (13,629)
--------- ---------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net change in long-term borrowings 225,517 25,401
Common stock purchased for treasury (83,143) (50,669)
Net change in short-term bank loans 70,321 (1,231)
Dividends paid on common stock (14,820) (15,768)
Cash proceeds from stock options 702 14,687
Net change in receivables sold (73,177) 8,175
--------- ---------
Net cash provided (used) by financing activities 125,400 (19,405)
--------- ---------
Net increase (decrease) in cash and cash equivalents 13,881 (7,146)
Cash and cash equivalents, beginning of year 6,126 12,405
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 20,007 $ 5,259
========= =========
</TABLE>
See Notes to Consolidated Financial Statements.
5
<PAGE> 6
THE DIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PREPARATION
The accompanying consolidated financial statements include the accounts of The
Dial Corporation and all majority-owned subsidiaries. This information should be
read in conjunction with the financial statements set forth in The Dial
Corporation Annual Report to Stockholders for the year ended December 31, 1999.
Accounting policies utilized in the preparation of the financial information
herein presented are the same as set forth in Dial'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 1, 2000 and the results of operations and cash flows for the quarters and
six months ended July 1, 2000 and July 3, 1999 have been included. Interim
results of operations are not necessarily indicative of the results of
operations for the full year.
NOTE 2. RESTRUCTURING CHARGE
On June 28, 2000, we announced a $26.0 million restructuring charge ($17.0
million after tax or $.19 per share) designed to improve profitability and
operational efficiencies. Specifically, the charge is to:
- Close our Bristol, Pennsylvania, dry detergent plant. As a
result, our dry detergent manufacturing is expected to be
consolidated into our St. Louis plant by the first quarter of
2001;
- Consolidate each of the manufacturing and distribution
functions of the Specialty Personal Care business, which
resulted in discontinuation of certain formulations and
inventory, and other one-time costs; and
- Restructure domestic and international organizations,
including our sales organization, as a result of acquisitions
and changes in the business environment.
We recorded charges totaling $21.1 million ($13.8 million after tax) during the
quarter ended July 1, 2000, and expect to record additional charges totaling
$4.9 million ($3.2 million after tax) during the next two quarters as the
restructuring is completed. For second quarter 2000, the pre-tax charges consist
of the following:
<TABLE>
<CAPTION>
Cash spent Amount charged Ending
(in thousands ) Total charges during period against assets reserves
--------------- ------------- ------------- -------------- --------
<S> <C> <C> <C> <C>
Employee separations $ 2,673 $(1,135) $ -- $ 1,538
Write-down of fixed assets and
discontinued product inventories 16,889 -- (8,246) 8,643
Other exit costs 1,505 (634) (26) 845
------- ------- ------- -------
Total $21,067 $(1,769) $(8,272) $11,026
------- ------- ------- -------
</TABLE>
For income statement purposes, $17.2 million of the restructuring charge is
included in our cost of products sold and $3.9 million is included in selling,
general and administrative expenses. For segment reporting, $19.4 million of the
charge is included in our Domestic Branded segment and $1.7 million is included
in our International segment.
6
<PAGE> 7
The employee separation charges in the second quarter of 2000 relate to
severance packages for 164 people, primarily selling and administrative
employees in the United States, Mexico and Argentina. The predominantly
involuntary packages are based on salary levels and past service and were
recorded upon acceptance of the package. The restructuring program will result
in approximately 100 additional employee separations in the second half of the
year, which will be recorded upon acceptance of the package.
The asset write-downs relate primarily to manufacturing assets impaired as a
result of the closure of our Bristol, Pennsylvania facility. In order to
determine the impairment, we compared the sum of the estimated future cash
flows, undiscounted and without interest charges, to the carrying value of the
assets. As a result, a charge was recorded for the amount the carrying value of
the assets exceeded the estimated fair value of the assets. In addition, we
expect to record accelerated depreciation on the plant in the third and fourth
quarters and to record additional exit costs relating to the closure of our
Bristol facility once estimates are refined. The asset write-downs recorded in
the second quarter of 2000 are not expected to have a significant impact on
future depreciation charges.
As a result of our consolidation of each of the manufacturing and distribution
functions which resulted in the discontinuance of certain formulations and SKU's
in our Specialty Personal Care business, certain inventories, primarily raw
materials, became unusable. Accordingly, a charge was recorded to cost of
products sold for the difference between cost and net realizable value. A
reserve was established for inventories not disposed of by July 1, 2000. We
expect to dispose of this inventory in the third and fourth quarters of 2000.
The expected timing and estimated amount of costs and projected savings are
based on management's judgment in light of the circumstances and estimates at
the time the judgements were made. Accordingly, such estimates may change as
future events evolve. See "Management Discussion and Analysis of Results of
Operations and Financial Condition - Restructuring Charge" for further
discussion of the restructuring.
NOTE 3. ACQUISITIONS
During the second quarter of 2000, Dial acquired three businesses for $116.8
million in cash. The acquisitions included the COAST bar soap business in the
United States, the PLUSBELLE hair care business in Argentina and the ZOUT stain
remover business in the United States. A portion of the purchase price for Zout
is contingent upon the achievement of a specified level of gross sales of the
Zout business in each of the three years following the acquisition date.
The Coast, Plusbelle and Zout acquisitions were accounted for using the purchase
method of accounting. A portion of the purchase prices have been allocated to
assets acquired of $12.8 million and liabilities assumed of $1.3 million based
on estimated fair values at the date of acquisition while the balance of $105.3
million was recorded as goodwill and will be amortized over 40 years on a
straight line basis. We continue to gather and analyze certain information
required to complete the allocation of the purchase price of these acquisitions.
Further adjustments to the allocation of the purchase price may arise as a
result of the finalization of the ongoing study.
The results of operations of the acquired businesses were included in Dial's
consolidated results of operations from their respective acquisition dates. The
total combined net sales of these acquisitions, since their respective
acquisition dates through the end of the second quarter, was $11.4 million.
7
<PAGE> 8
NOTE 4. DIAL/HENKEL JOINT VENTURES
In March 2000, we formed a joint venture with Henkel KGaA of Dusseldorf, Germany
("Henkel") named Dial/Henkel Mexico, S.A. de C.V. We own 49% of this joint
venture and Henkel owns 51%. We account for our investment in the joint venture
using the equity method of accounting. This joint venture was formed primarily
to develop and market consumer detergent and household cleaning products in
Mexico. In May 2000, this joint venture acquired 80% of Fabrica de Jabon Mariano
Salgado S.A. de C.V. ("FJMS"). Our portion of the investment in FJMS was $18.4
million. Our portion of the net loss of the joint venture has been included in
Dial's consolidated results since the joint venture formation date.
In April 1999, we formed Dial/Henkel LLC, a joint venture with Henkel. Dial and
Henkel each own 50% of this joint venture. The joint venture was formed to
develop and market a range of enhanced laundry products in North America. In
July 1999, the joint venture acquired the Custom Cleaner home dry-cleaning
business.
We account for our joint venture investments under the equity method of
accounting. The joint ventures' results of operations and our portion of the net
losses of the joint ventures are as follows:
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
(in thousands) July 1, 2000 July 1, 2000
-------------- ------------ ----------------
JOINT VENTURES
<S> <C> <C>
Net sales $ 18,061 $ 35,871
Loss before income taxes (19,641) (28,777)
Net loss (17,378) (25,073)
DIAL
Earnings (loss) of joint venture $ (3,624) $ (4,345)
</TABLE>
The Dial/Henkel LLC agreements provide for a monthly marketing, sales and
administrative fee, a trademark fee, and a tolling fee to be paid to us. A
monthly technology fee is paid to Henkel. These fees are based on net sales of
the joint venture. However, the tolling fee is based on cost of goods
manufactured by us for the joint venture. In addition, through November 2000,
Henkel will pay a disproportionate share of the marketing expenses incurred by
the joint venture.
Included in "Other assets" on Dial's consolidated balance sheets are the
following:
<TABLE>
<CAPTION>
(in thousands) July 1, 2000 December 31, 1999
-------------- ------------ -----------------
<S> <C> <C>
Investment in and loans to joint ventures $ 38,190 $ 10,464
Amount due from joint ventures 757 10,855
</TABLE>
Dial incurs the cost to manufacture the Dial/Henkel LLC products and bills the
joint venture monthly for the costs incurred. This is labeled as "Amount due
from joint venture" and is included in "Other current assets" on our
consolidated balance sheet.
8
<PAGE> 9
NOTE 5. INVENTORIES
Inventories consisted of the following:
<TABLE>
<CAPTION>
July 1, December 31,
(in thousands) 2000 1999
------------- ---- ----
<S> <C> <C>
Raw materials and supplies $ 57,843 $ 51,127
Work in process 8,181 9,712
Finished goods 119,589 119,905
-------- --------
Total inventories $185,613 $180,744
======== ========
</TABLE>
NOTE 6. DEBT
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
July 1, December 31,
(in thousands) 2000 1999
-------------- ---- ----
<S> <C> <C>
Short-term bank borrowings, with interest rates ranging
between 6.81% and 6.98% $115,425 $ 43,851
Argentina bank loan with interest at the bank's short-term
rates that ranged between 9% and 12.5% at July 1, 2000, repricing
monthly, subject to call by the bank at the end of each month
15,059 16,312
Current portion of State of Arizona Economic Development Loan due
beginning July of 2000 in equal installments over 10
years 100 100
-------- --------
Total short-term debt $130,584 $ 60,263
======== ========
</TABLE>
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
July 1, December 31,
(in thousands) 2000 1999
------------- ---- ----
<S> <C> <C>
State of Arizona Economic Development Loan due beginning
July of 2000 in equal installments over 10 years $ 900 $ 900
$200 million 6.5% Senior Notes due 2008, net of issue discount
198,255 198,142
Commercial paper supported by the long-term revolving
Credit Agreement, interest rates from 6.35% to
7.35% at July 1, 2000 327,213 101,809
-------- --------
Total long-term debt $526,368 $300,851
======== ========
</TABLE>
9
<PAGE> 10
NOTE 7. EQUITY
At July 1, 2000, there were 105,621,458 shares of common stock issued and
94,875,357 shares outstanding. At July 1, 2000 and July 3, 1999, a total of
3,785,034 and 3,939,671, respectively, of the issued shares were held by the
Employee Equity Trust. At July 1, 2000 and July 3, 1999, a total of 10,746,101
and 2,868,961 shares of common stock, respectively, were held in treasury. The
shares held at July 1, 2000 included 218,725 shares valued at $5.2 million
purchased as part of a small shareholder selling/repurchasing program and
10,323,499 shares valued at $204.3 million purchased as part of our stock
repurchase program.
NOTE 8. INCOME TAXES
A reconciliation between the statutory federal income tax rate of 35% and our
consolidated effective income tax rate for the six months ended July 1, 2000 and
July 3, 1999 is as follows:
<TABLE>
<CAPTION>
July 1, 2000 July 3, 1999
------------ ------------
<S> <C> <C>
Federal statutory rate 35.0% 35.0%
Goodwill amortization 2.4 0.7
Foreign Sales Corp. benefit (4.8) (0.6)
State income taxes 2.3 3.4
Impact of lower foreign tax rate (3.9) (1.6)
Other, net 0.4 (0.6)
-------- -------
Effective income tax rate 31.4% 36.3%
======== ======
</TABLE>
NOTE 9. SALE OF FACILITY
During the second quarter, we sold the Dial Technical and Administrative Center
("DTAC") building and accompanying 23 acre parcel in Scottsdale to an unrelated
third party, for a purchase price of $15.3 million. We will lease back the DTAC
building from the third party pursuant to an operating lease pending
construction of a new DTAC building. The third party will construct a new DTAC
building on an 11 acre portion of the 23 acre parcel. We have entered into an
operating lease for the new DTAC building with an initial term of 15 years. We
have accounted for the land portion of this transaction as a sale and leaseback
transaction in accordance with Statement of Accounting Standards No. 98,
Accounting for Leases. The land and building have been removed from the
Consolidated Balance Sheet and a gain of $6.7 million related to the sale of
land was recognized in the second quarter of 2000. An additional $2.7 million
gain, relating to the land portion of the sale that will be leased back, has
been deferred and will be amortized to rent expense over the life of the
operating lease for the new DTAC building.
NOTE 10. SEGMENTS OF AN ENTERPRISE
For organizational, marketing and financial reporting purposes, we have
organized into three business segments: (i) Domestic Branded, (ii)
International, and (iii) Commercial Markets and Other. The segments were
identified based on the types of products sold, the customer base and method of
distribution.
10
<PAGE> 11
Information as to our operations in different business segments is set forth
below. The accounting policies of the business segments are the same as those
described in the summary of significant accounting policies (Note 2) to the
audited financial statements included in our 1999 Annual Report to Stockholders.
<TABLE>
<CAPTION>
COMMERCIAL
DOMESTIC MARKETS TOTAL
(in thousands) BRANDED AND OTHER DOMESTIC INTERNATIONAL TOTAL
-------------- ------- --------- -------- ------------- -----
<S> <C> <C> <C> <C> <C>
NET SALES:
Quarter ended:
July 1, 2000 $343,406 $18,341 $361,747 $46,994 $408,741
July 3, 1999 365,143 19,219 384,362 45,950 430,312
Six months ended:
July 1, 2000 661,892 34,461 696,353 85,512 781,865
July 3, 1999 704,192 35,377 739,569 89,691 829,260
OPERATING INCOME:
Quarter ended:
July 1, 2000 6,384 1,761 8,145 1,285 9,430
July 3, 1999 46,877 2,654 49,531 4,967 54,498
Six months ended:
July 1, 2000 45,043 4,148 49,191 3,422 52,613
July 3, 1999 89,613 4,980 94,593 8,900 103,493
ASSETS AT:
July 1, 2000 1,238,539 4,146 1,242,685 211,778 1,454,463
December 31, 1999 1,079,722 10,058 1,089,780 179,906 1,269,686
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT DISCUSSION & ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RECENT DEVELOPMENTS
In the second quarter of 2000, we announced that we expect our operating results
to be down for the first half of 2000 and the balance of the year. At the same
time, we announced a $26 million pretax charge to restructure certain operations
of our business. We believe that our lower earnings primarily result from lower
than expected sales and gross margin. The factors primarily causing the lower
than expected sales and gross margin shortfall are summarized below:
Reduction in retail trade inventory
- The trend of our customers to reduce trade inventory results primarily from
consolidation among retailers, as well as our customers' ongoing need to
better manage working capital in a rising interest rate environment. This
trend was evidenced in the first half of the year when our second largest
customer converted from buying direct to buying through two of our existing
wholesalers. We believe that the trend toward reducing retail trade
inventory levels will continue.
- We experienced a shortfall on the sales of Armour canned meats due to
increased Y2K related retail inventory buildup at December 31, 1999. Our
sales of Armour canned meats were also adversely impacted as a result of a
price increase in January that was not matched by competition.
- We also have encountered inventory rotation issues associated with our
restage of the Dial bar soap. In particular, our retail customers have
chosen to run their existing Dial bar inventories down before purchasing
the new restaged Dial bar product.
Increasing costs to compete
- The consumer products industry continues to be intensely competitive and
competitors have increased their promotional spending. This has had a
significant impact in Argentina where there has been a continuing price war
between two of our competitors in the premium segment of the Argentina
detergent market, which has adversely effected our value brand detergent in
Argentina.
- We have also experienced this issue domestically in connection with our
introduction of a mid-tier laundry detergent product, PUREX ADVANCED, with
our joint venture partner Henkel. Competitors have stepped up their
defensive activities in the form of trade spending and consumer coupons.
Our air freshener, meat and soap categories are also experiencing increased
competitive spending.
- As a result of the above, we are budgeting more on an ongoing basis for the
promotional cost of doing business in each of our categories. We expect
that competition will continue to be intensely competitive and that this
will adversely impact our profitability.
Gross margin in the first half and for the year will be impacted by the reduced
manufacturing overhead absorption associated with the lower than expected sales
volumes and a shift in the mix of sales to lower margin products.
On August 8, 2000, we announced the resignations of Malcolm Jozoff as Chairman,
President and Chief Executive Officer, and of Susan J. Riley as Executive Vice
President and Chief Financial Officer. Herbert M. Baum was named as Dial's new
Chairman, President and Chief Executive Officer and John F. Tierney, Vice
President and Controller, was named as acting Chief Financial Officer.
12
<PAGE> 13
At the same time, we announced that we would not meet the consensus analyst
earnings estimate for fiscal year 2000. We currently believe that this earnings
shortfall will result from the factors mentioned above, as well as operational
and logistics difficulties being experienced in consolidating the distribution
function for the Specialty Personal Care business, uncertainty in forecasting
sales and gross margins for the Specialty Personal Care business in light of the
seasonal nature of this business, and lower than expected sales and gross
margins of Dial/Henkel LLC combined with some distribution losses for Purex
Advanced.
See additional discussion of matters that may impact our results in Exhibit 99
to this Form 10-Q.
RESTRUCTURING CHARGE
As more fully described in Note 2 to the Consolidated Financial Statements, in
the second quarter we announced a $26.0 million restructuring charge ($17.0
million after tax or $.19 per share) designed to improve profitability and
operational efficiencies. Specifically, the charge is to:
- Close our Bristol, Pennsylvania, dry detergent plant. As a result, our
dry detergent manufacturing is expected to be consolidated into our St.
Louis plant by the first quarter of 2001;
- Consolidate each of the manufacturing and distribution functions of the
Specialty Personal Care business, which resulted in discontinuation of
certain formulations and inventory and other one-time costs; and
- Restructure domestic and international organizations, including our sales
organization, as a result of acquisitions and changes in the business
environment.
We recorded charges totaling $21.1 million ($13.8 million after tax) during the
quarter ended July 1, 2000, and expect to record additional charges totaling
$4.9 million ($3.2 million after tax) during the next two quarters as the
restructuring is completed. For second quarter 2000, the pre-tax charges consist
of the following:
<TABLE>
<CAPTION>
Cash spent Amount charged Ending
(in thousands ) Total charges during period against assets reserves
--------------- ------------- ------------- -------------- --------
<S> <C> <C> <C> <C>
Employee separations $ 2,673 $(1,135) $ -- $ 1,538
Write-down of fixed assets and
discontinued product inventories 16,889 -- (8,246) 8,643
Other exit costs 1,505 (634) (26) 845
------- ------- ------- -------
Total $21,067 $(1,769) $(8,272) $11,026
------- ------- ------- -------
</TABLE>
Cash requirements for the restructuring will be funded from normal operations.
As a result of the restructuring, beginning in 2001 we currently expect to
realize annual general and administrative expense reductions of $2.0 million and
annual reduced cost of products sold expenses of $3.3 million. Unforeseen
changes in operating requirements and other factors referred to above in "Recent
Developments" could cause actual general and administrative expense and cost of
products sold expense reductions to differ materially from anticipated
reductions.
The expected timing and estimated amount of costs and projected savings are
based on management's judgment in light of the circumstances and estimates at
the time the judgments were made. Accordingly, such estimates may change as
future events evolve.
13
<PAGE> 14
COMPARISON OF THE SECOND QUARTER OF 2000 WITH THE SECOND QUARTER OF 1999
Net sales for the quarter decreased 5.0% to $408.7 million from $430.3 million
in the same period in 1999. Net sales for the second quarter of 2000 include
$11.4 million of net sales from the acquisitions of the Coast, Plusbelle and
Zout businesses. Our Domestic Branded segment decreased 6.0% to $343.4 million
from $365.1 million in the same period last year primarily as a result of year
over year declines in Dial, Purex, Armour and Specialty Personal Care, offset in
part by a 3.9% increase in Renuzit sales over the same period in 1999. Net sales
of our International segment increased 2.2% to $47.0 million from $46.0 million
primarily as a result of the inclusion of the results of the Plusbelle
acquisition in Argentina. Our Commercial Markets and Other segment decreased
4.7% to $18.3 million from $19.2 million primarily as a result of the
discontinuation of our merchant surfactant business in the fourth quarter of
1999. The factors primarily attributing to the declines in our segments are
discussed above in "Recent Developments."
Gross margin for the quarter decreased 200 basis points to 48.9% from 50.9% in
the same period in 1999, excluding the effect of the restructuring charge. The
restructuring charge decreased the gross margin by an additional 420 basis
points to 44.7%. Gross margin was negatively impacted by lower overhead
absorption associated with lower sales and a shift in product mix to lower
margin products, primarily resulting from a shortfall in Dial bar soap sales in
connection with the restage as discussed in "Recent Developments."
Selling, general and administrative expenses, excluding $3.8 million of expenses
attributable to the restructuring, are up 2.9% to $169.3 million from $164.6
million in the same period in 1999. This increase is the result of continued
marketing and promotional spending in the second quarter of 2000 compared to
lower than expected sales volumes.
Interest and other expenses increased 48.6% to $12.3 million from $8.3 million
in the same period in 1999. The increase was primarily due to the elimination of
our sale of receivables program, increased debt to fund our stock buy back
program and increased borrowings to fund acquisitions of the Coast, Plusbelle
and Zout businesses and our investment in Dial/Henkel Mexico, S.A. de C.V.
Our share of the loss in the joint ventures between us and Henkel KGaA was $3.6
million in the second quarter. The Dial/Henkel LLC joint venture had high
marketing expenses for the second quarter due to promotional spending for Purex
Advanced and the restage of Custom Cleaner.
Our pre-tax gain on sale of facility of $6.7 million resulted from the sale of
land in a transaction where we sold our DTAC building and accompanying 23 acre
parcel in Scottsdale to an unrelated third party. An additional $2.7 million
gain has been deferred and will be amortized to rent expense over the term of
the lease for a new building that will be constructed on a portion of the 23
acre parcel.
We had an income tax benefit of $983,000 for the quarter resulting primarily
from lower effective tax rates on income from export sales and the utilization
of capital loss carryforwards.
Net income, excluding the restructuring charge and a one-time gain on the DTAC
sale, was $9.5 million or $0.10 per diluted share, versus $29.4 million, or
$0.29 per diluted share in the second quarter of 1999. Net income, including
$21.1 million of a total expected $26 million pre-tax restructuring charge and a
$6.7 million pre-tax one-time gain on the DTAC sale, was $1.1 million, or $0.01
per share (diluted). This decrease in net income is primarily attributable to
the factors explained above.
14
<PAGE> 15
COMPARISON OF THE FIRST SIX MONTHS OF 2000 WITH THE FIRST SIX MONTHS OF 1999
Net sales for the first six months of 2000 decreased 5.7% to $781.9 million from
$829.3 million in the same period in 1999. Net sales for the first six months of
2000 include $11.4 million of net sales from the acquisitions of the Coast,
Plusbelle and Zout businesses. Our Domestic Branded segment decreased 6.0% to
$661.9 million from $704.2 million in the same period last year primarily as a
result of year over year declines in Dial, Purex, Armour and Specialty Personal
Care, offset in part by a 2.7% increase of Renuzit sales the same period in the
prior year. Net sales of our International segment decreased 4.7% to $85.5
million from $89.7 million primarily as a result of the price war in Argentina,
offset in part by the inclusion of the results of the Plusbelle acquisition in
Argentina. Our Commercial Markets and Other segment decreased 2.5% to $34.5
million from $35.4 million primarily as a result of the discontinuation of our
merchant surfactant business in the fourth quarter of 1999. The factors
primarily attributing to the declines in our segments are discussed above in
"Recent Developments."
Gross margin for the first six months of 2000 decreased 90 basis points to 49.2%
from 50.1% in the same period in 1999, excluding the effect of the restructuring
charge. The restructuring charge decreased the gross margin by an additional 220
basis points to 47.0%. Gross margin was negatively impacted by lower overhead
absorption associated with lower sales, a shift in product mix to lower margin
products primarily resulting from a shortfall in Dial bar soap sales in
connection with the restage as described above, and increased costs of petroleum
that effects, among other things, transportation and distribution expenses.
Selling, general and administrative expenses for the first six months of 2000
were relatively flat compared to the same period in 1999. Selling, general and
administrative expenses increased as a percentage of sales to 39.7% for the
first six months of 2000 compared to 37.6% for same time period in the prior
year. This increase resulted primarily from continued marketing and promotional
spending in the first half of 2000 compared to lower than expected sales.
Interest and other expense for the first six months of 2000 increased 31.9% to
$22.0 million from $16.6 million in the same period in 1999. The increase was
primarily due to the elimination of our sale of receivables program, increased
debt to fund our stock buy back program and the acquisitions of the Coast,
Plusbelle and Zout businesses and our investment in Dial/Henkel Mexico, S.A. de
C.V.
Our share of the loss in the joint ventures between us and Henkel KGaA was $4.3
million in the second quarter. The Dial/Henkel LLC joint venture had high
marketing expenses for the first half due to promotional spending for Purex
Advanced and the restage of Custom Cleaner.
Our pre-tax gain on sale of facility of $6.7 million resulted from the sale of
land in a transaction where we sold our DTAC building and accompanying 23 acre
parcel in Scottsdale to an unrelated third party. An additional $2.7 million
gain has been deferred and will be amortized to rent expense over the term of
the lease for a new building that will be constructed on a portion of the 23
acre parcel.
Our consolidated effective income tax rate for the first six months of 2000 was
31.4%, down from 36.3% for the first six months of 1999. The lower tax rate was
primarily due to lower effective tax rates on income from export sales, lower
state taxes, and the utilization of capital loss carryforwards.
Net income for the first six months of 2000, excluding the restructuring charge
and a one-time gain on the DTAC sale, was $31.0 million, or $0.33 per diluted
share, versus $55.3 million, or $0.55 per diluted share in the same period of
1999. Net income, including $21.1 million of a total expected $26.0 million
pre-tax restructuring charge and a $6.7 million pre-tax one-time gain on the
DTAC sale, was $22.6 million, or $0.24 per share (diluted). This decrease in net
income is primarily attributable to the factors explained above.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
Total debt increased $295.9 million to $657.0 million from $361.1 million at
December 31, 1999. The increase is primarily attributable to the elimination of
the sale of receivables program, the funding of our previously announced share
repurchase program, acquisitions of the Coast, Plusbelle and Zout businesses and
our investment in Dial/Henkel Mexico, S.A. de C.V. As of July 1, 2000 we have
used $54.4 million of the $75.0 million 2000 stock repurchase program to
repurchase shares. We do not plan to spend the remaining $20.6 million of the
stock repurchase program during 2000.
During the first half of 2000, we generated $35.0 million of cash from
operations compared to generating $25.9 million for the same period in 1999. The
increase in cash provided from operations is primarily attributable to reduced
working capital levels, offset in part by a decline in net income.
Capital expenditures for the first six months of 2000 were $18.9 million.
Capital spending in 2000 is expected to approximate $56.0 million and will be
concentrated primarily on equipment and information systems that provide
opportunities to reduce manufacturing, logistic and administrative costs.
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.
During the second quarter, we sold the DTAC building and accompanying 23 acre
parcel in Scottsdale to an unrelated third party, for a purchase price of $15.3
million. We will lease back the DTAC building from the third party pursuant to
an operating lease pending construction of a new DTAC building. The third party
will construct a new DTAC building on an 11 acre portion of the 23 acre parcel.
We have entered into an operating lease for the new DTAC building with an
initial term of 15 years. We have accounted for the land portion of this
transaction as a sale and leaseback transaction in accordance with Statement of
Accounting Standards No. 98, Accounting for Leases. The land and building have
been removed from the Consolidated Balance Sheet and a gain of $6.7 million
related to the sale of land was recognized in the second quarter of 2000. An
additional $2.7 million gain, relating to the land portion of the sale that will
be leased back, has been deferred and will be amortized to rent expense over the
life of the operating lease for the new DTAC building.
We recently entered into a new $450 million credit facility that replaces the
existing $350 million facility. Our credit facility primarily serves as a
backstop facility for our commercial paper program. Borrowings under our credit
facility, if made, are on a revolving basis under commitments available until
July 2005 for up to $270 million and under commitments available until July 2001
for up to $180 million. The interest rate applicable to borrowings under our
credit facility is, at our option, indexed to the bank prime rate or the London
Interbank Offering Rate ("LIBOR"), plus appropriate spreads over such indices
during the term of the credit facility. Our credit facility also requires us to
pay commitment fees to the banks making commitments under the credit facility.
These spreads and fees are subject to adjustment if our debt ratings change.
As part of our business strategy, we routinely review and evaluate the
acquisition of domestic and international companies that market consumer and
other products. We may seek additional debt and/or equity financing as necessary
to fund any potential acquisitions.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 ("SAB 101"), which summarizes the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. This staff accounting bulletin was amended in March and June of 2000
to delay the implementation of SAB 101 until the fourth quarter of 2000.
16
<PAGE> 17
In May 2000, the Financial Accounting Standards Board's Emerging Issues Task
Force ("EITF") issued Issue No. 00-14, Accounting for Certain Sales Incentives.
The Issue addresses the recognition, measurement, and income statement
classification for certain sales incentives. The consensus on EITF 00-14 will be
effective in the fourth quarter of 2000. In addition, the EITF has added a new
item to its agenda to discuss the income statement classification of "trade
spending" costs.
We are in the process of analyzing the requirements of these pronouncements.
17
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 21, 1999, we were served with a complaint filed by the U.S. Equal
Employment Opportunity Commission (the "EEOC") in the U.S. District Court for
the Northern District of Illinois, Eastern Division. This action is entitled
Equal Employment Opportunity Commission v. The Dial Corporation, Civil Action
No. 99 C 3356. The EEOC alleges that Dial has engaged in a pattern and practice
of discrimination against a class of female employees by subjecting them to
sexual or sex-based harassment and failing to take prompt remedial action after
these employees complained about this alleged harassment. The EEOC is seeking to
enjoin Dial from this alleged harassment, to require us to train our managerial
employees regarding the requirements of Title VII of the Civil Rights Act of
1964 and to recover unspecified compensatory and punitive damages. We have
denied the EEOC's allegations. Discovery has been completed and we intend to
file dispositive motions. Assurances cannot be given regarding the ultimate
outcome of this matter.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Stockholders was held on June 1, 2000. The
stockholders elected the following persons to serve three-year terms as
Directors of the Corporation: Joy A. Amundson, Thomas L. Gossage and Michael T.
Riordan. The votes for and against (withheld) each nominee were as follows:
<TABLE>
<CAPTION>
NOMINEE VOTES FOR VOTES WITHHELD
------- --------- --------------
<S> <C> <C>
Joy A. Amundson 78,242,641 1,882,109
Thomas L. Gossage 78,143,922 1,980,828
Michael T. Riordan 78,231,232 1,893,518
</TABLE>
Herbert M. Baum, Joe T. Ford, Donald E. Guinn, Malcolm Jozoff, Barbara S. Thomas
and Salvador M. Villar also continued as Directors following the meeting.
The stockholders also approved The Dial Corporation Employee Stock Purchase
Plan. The votes for and against the Employee Stock Purchase Plan were as
follows:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST ABSTENTIONS
--------- ------------- -----------
<S> <C> <C> <C>
78,059,311 1,724,470 340,969
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
27. Financial Data Schedule.
99. Private Securities Litigation Reform Act of 1995 Safe Harbor
Compliance Statement for Forward-Looking Statements.
(B) Reports on Form 8-K
We filed a Current Report on Form 8-K, dated June 28, 2000, reporting
that Dial issued a press release relating to its financial earnings
outlook for the second quarter and the remainder of 2000.
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<PAGE> 19
We filed a Current Report on Form 8-K, dated July 20, 2000, reporting
that Dial issued a press release relating to its financial results for
the second quarter of 2000.
We filed a Current Report on Form 8-K, dated August 8, 2000, reporting
that Dial issued a press release relating to the resignation of the
Chairman, President and Chief Executive Officer and the Executive Vice
President and Chief Financial Officer. The press release also announced
the appointment of a new Chairman, President and Chief Executive
Officer and an acting Chief Financial Officer and announced that Dial
would not meet the current consensus analyst earnings estimate for the
fiscal year ending December 31, 2000.
19
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
The Dial Corporation
(Registrant)
August 11, 2000
/s/ John F. Tierney
--------------------------------------------
Vice President and Controller and
acting Chief Financial Officer
(Chief Accounting Officer and Authorized Officer)
20
<PAGE> 21
EXHIBIT INDEX
Exhibits
27. Financial Data Schedule.
99. Private Securities Litigation Reform Act of 1995 Safe Harbor
Compliance Statement for Forward-Looking Statements.
