UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission file number 001-11015
THE DIAL CORP
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 36-1169950
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
DIAL TOWER, PHOENIX, ARIZONA 85077
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (602)207-4000
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
--------- ---------
As of April 30, 1996, 94,498,959 shares of Common Stock ($1.50
par value) were outstanding.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE DIAL CORP
CONSOLIDATED BALANCE SHEET
March 31, December 31,
(000 omitted) 1996 1995
----------- -----------
ASSETS
Current assets:
Cash and cash equivalents $ 26,219 $ 23,370
Receivables, less allowance of
$20,066 and $18,895 234,338 210,290
Inventories 252,721 241,338
Deferred income taxes 65,006 64,514
Other current assets 44,411 46,420
---------- ----------
622,695 585,932
Funds, agents' receivables and
current maturities of investments
restricted for payment service
obligations, after eliminating
$90,000 invested in Dial
commercial paper 556,750 786,081
---------- ----------
Total current assets 1,179,445 1,372,013
Investments restricted for
payment service obligations 877,655 880,035
Property and equipment 855,569 857,884
Other investments and assets 103,118 106,590
Deferred income taxes 149,509 145,500
Intangibles 857,730 863,164
---------- ----------
$ 4,023,026 $ 4,225,186
========== ==========
March 31, December 31,
(000 omitted, except number of shares) 1996 1995
---------- ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term bank loans $ 309 $ 317
Accounts payable 248,935 233,253
Accrued compensation 66,049 85,949
Other current liabilities 303,395 312,254
Current portion of long-term debt 77,338 78,000
---------- ----------
696,026 709,773
Payment service obligations 1,528,140 1,739,508
---------- ----------
Total current liabilities 2,224,166 2,449,281
Long-term debt 822,733 814,294
Pension and other benefits 325,592 325,416
Other deferred items and insurance reserves 48,011 50,459
Minority interests 30,220 30,970
$4.75 Redeemable preferred stock 6,599 6,597
Common stock and other equity:
Common stock, $1.50 par value,
200,000,000 shares authorized,
97,108,724 shares issued 145,663 145,663
Additional capital 352,146 362,205
Retained income 332,501 322,439
Cumulative translation adjustments (18,064) (18,380)
Unearned employee benefits (192,778) (213,996)
Unrealized (loss) gain on securities
available for sale, net of tax (5,334) 1,456
Common stock in treasury, at cost,
2,697,234 and 2,877,500 shares (48,429) (51,218)
---------- ----------
Total common stock and other equity 565,705 548,169
---------- ----------
$ 4,023,026 $ 4,225,186
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
THE DIAL CORP
STATEMENT OF CONSOLIDATED INCOME
Three months ended March 31, 1996 1995
(000 omitted, except per share data) ---------- ----------
REVENUES $ 936,413 $ 858,197
---------- ----------
Costs and expenses:
Costs of sales and services 866,591 794,337
Unallocated corporate expense
and other items, net 11,640 11,149
Interest expense 19,955 18,427
Minority interests 31 63
---------- ----------
898,217 823,976
---------- ----------
Income before income taxes 38,196 34,221
Income taxes 13,702 12,714
---------- ----------
Income before cumulative effect of
change in accounting principle 24,494 21,507
Cumulative effect, net of tax benefit
of $7,554, to January 1, 1995, of
initial application of SFAS No. 121,
"Accounting for the Impairment of
Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of" (17,696)
---------- ----------
NET INCOME $ 24,494 $ 3,811
========== ==========
INCOME PER COMMON SHARE:
Income before cumulative effect of
change in accounting principle $ 0.27 $ 0.24
Cumulative effect, to January 1, 1995,
of initial application of SFAS No. 121 (0.20)
---------- ----------
NET INCOME PER COMMON SHARE $ 0.27 $ 0.04
========== ==========
Dividends declared per common share $ 0.16 $ 0.15
========== ==========
Average outstanding common
and equivalent shares 90,783 87,956
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
THE DIAL CORP
STATEMENT OF RETAINED INCOME
Three months ended March 31, 1996 1995
(000 omitted) ---------- ----------
Balance, beginning of year $ 322,439 $ 393,233
Net income 24,494 3,811
Dividends on common and preferred shares (14,432) (13,214)
---------- ----------
Balance, end of period $ 332,501 $ 383,830
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
THE DIAL CORP
STATEMENT OF CONSOLIDATED CASH FLOWS
Three months ended March 31, 1996 1995
(000 omitted) ---------- ----------
CASH FLOWS PROVIDED (USED) BY
OPERATING ACTIVITIES:
Net income $ 24,494 $ 3,811
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 29,878 29,202
Deferred income taxes 974 3,699
Cumulative effect of change in accounting principle 17,696
Other noncash items, net 2,121 3,293
Change in operating assets
and liabilities:
Receivables and inventories (40,106) (10,149)
Payment service assets and
obligations, net 41,196 45,526
Accounts payable and accrued
compensation (4,218) (80,105)
Other assets and liabilities, net (7,274) (840)
---------- ----------
Net cash provided by operating activities 47,065 12,133
---------- ----------
CASH FLOWS PROVIDED (USED) BY
INVESTING ACTIVITIES:
Capital expenditures (20,928) (14,571)
Purchase of cruise ship previously leased (39,447)
Acquisitions of businesses, net of cash acquired (5,898)
Proceeds from sales of property and equipment 834 515
Investments restricted for payment service obligations:
Proceeds from sales and maturities of securities
classified as available for sale 215,962 107,283
Purchases of securities classified as available for sale (155,780) (139,599)
Purchases of securities classified as held to maturity (91,511) (4,516)
Other, net (162) (318)
---------- ----------
Net cash used by investing activities (51,585) (96,551)
---------- ----------
CASH FLOWS PROVIDED (USED) BY
FINANCING ACTIVITIES:
Proceeds from long-term borrowings 15,000
Payments on long-term borrowings (3,106) (48)
Net change in short-term borrowings 10,836 30,622
Dividends on common and preferred stock (14,432) (13,214)
Proceeds from sale of treasury stock 13,077 9,039
Net change in receivables sold 2,248 25,000
Cash payments on interest rate swaps (1,254) (1,922)
---------- ----------
Net cash provided by financing activities 7,369 64,477
---------- ----------
Net increase (decrease) in cash
and cash equivalents 2,849 (19,941)
Cash and cash equivalents, beginning of year 23,370 33,222
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 26,219 $ 13,281
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
THE DIAL CORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--Basis of Preparation
This information should be read in conjunction with the financial
statements set forth in The Dial Corp Annual Report to
Stockholders for the year ended December 31, 1995.
Accounting policies utilized in the preparation of the financial
information presented herein are the same as set forth in The
Dial Corp'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. The interim
consolidated financial information is unaudited. In the opinion
of management, all adjustments, consisting only of normal
recurring accruals, necessary to present fairly Dial's financial
position as of March 31, 1996, and the results of operations and
cash flows for the three months ended March 31, 1996 and 1995
have been included. Interim results of operations are not
necessarily indicative of the results of operations for the full
year.
In February 1996, Dial's Board of Directors approved in principle
(subject to final approval) a tax-free spin-off of its consumer
products business from its services business. The separation is
expected to be completed by the end of 1996. The accompanying
consolidated financial statements include the accounts of Dial
and all of its subsidiaries.
Certain reclassifications have been made to prior year's
financial statements to conform to 1996 classifications.
NOTE B--Investments Restricted for Payment Service Obligations
Investments restricted for payment service obligations includes
the following debt and equity securities:
March 31, December 31,
1996 1995
(000 omitted) ------------ -----------
Securities available for sale, at
fair value (amortized cost of
$641,569 and $701,143) $ 632,825 $ 703,450
Securities held to maturity, at
amortized cost (fair value of
$277,084 and $191,186) 281,749 190,271
----------- -----------
914,574 893,721
Less current maturities (36,919) (13,686)
----------- -----------
$ 877,655 $ 880,035
=========== ===========
NOTE C--Debt
At March 31, 1996 and December 31, 1995, Dial classified as long-
term debt $388 million and $377 million, respectively, of short-
term borrowings supported by unused commitments under long-term
revolving credit agreements.
NOTE D--Income Taxes
A reconciliation of the provision for income taxes and the amount
that would be computed using statutory federal income tax rates
on income before income taxes for the three months ended March
31, is as follows:
1996 1995
(000 omitted) ------------ ------------
Computed income taxes at statutory
federal income tax rate of 35% $ 13,369 $ 11,977
Nondeductible goodwill amortization 1,115 1,167
Minority interests 11 22
State income taxes 1,407 1,008
Tax-exempt income (2,831) (2,238)
Other, net 631 778
----------- -----------
Provision for income taxes $ 13,702 $ 12,714
=========== ===========
NOTE E--Supplementary Information--Revenues and Operating Income
Three months ended March 31,
-----------------------------------------------------
Revenues Operating Income
------------------------- --------------------------
1996 1995 1996 1995
(000 omitted) ----------- ----------- ----------- -----------
Consumer Products $ 352,392 $ 337,862 $ 36,342 $ 33,802
----------- ----------- ----------- -----------
Services:
Airline Catering
and Services 193,263 184,456 11,791 11,026
Convention Services 195,012 154,397 17,134 15,001
Travel and Leisure
and Payment
Services (1) 195,746 181,482 4,555 4,031
----------- ----------- ----------- -----------
Total Services (1) 584,021 520,335 33,480 30,058
----------- ----------- ----------- -----------
Total principal
business segments $ 936,413 $ 858,197 69,822 63,860
=========== ===========
Unallocated
corporate expense
and other
items, net (11,640) (11,149)
----------- -----------
$ 58,182 $ 52,711
=========== ===========
<FN>
(1) Dial's payment services subsidiary is investing increasing amounts in tax-
exempt securities. On a fully taxable equivalent basis, revenues and operating
income would be higher by $4,355,000 for the 1996 quarter and $3,443,000 for the
1995 quarter, respectively.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results:
On February 15, 1996, The Dial Corp ("Dial") announced that its
Board of Directors had approved a proposal for a strategic
restructuring which would separate Dial's consumer products and
services businesses so that each would become an independent and
more focused publicly traded company. Common stockholders are
expected to receive a dividend of one share of the consumer
products company for each Dial common share owned on the record
date (the "Distribution").
The proposed restructuring plan, which was approved in principle,
is subject to final approval by the Board of Directors and to
certain conditions, including the receipt of a ruling from the
Internal Revenue Service that the Distribution will be tax-free
and confirmation that each of the two separate companies will
retain investment-grade credit ratings.
Comparison of First Quarter of 1996 with First Quarter of 1995:
In the first quarter of 1996, revenues increased 9.1 percent to
$936.4 million from $858.2 million in the 1995 quarter.
Net income for the first quarter of 1996 was $24.5 million, or
$0.27 per share, compared to net income of $3.8 million, or $0.04
per share, in the 1995 first quarter. The 1995 first quarter is
after deducting a one-time non-cash charge of $17.7 million, or
$0.20 per share, to record the cumulative effect to January 1,
1995, of the initial application of SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of." Income before cumulative effect of change in
accounting principle was $24.5 million in 1996, up 13.9 percent
from $21.5 million in the first quarter of 1995. Income per
share before cumulative effect of change in accounting principle
increased 12.5 percent to $0.27 per share in 1996 from 1995's
$0.24 per share. Income per share did not increase at the same
rate as income as there were 2.8 million more average common and
equivalent shares outstanding in 1996 than in the 1995 quarter,
due primarily to the effects of stock option exercises and other
issuances related to employee benefit and dividend reinvestment
plans.
Consumer Products
First quarter revenues of the Consumer Products group increased
4.3 percent to $352.4 million from the 1995 quarter's $337.9
million, while operating income increased 7.5 percent to $36.3
million from 1995's $33.8 million. Operating margins improved to
10.3 percent in 1996 from 10 percent in the 1995 first quarter.
Personal Care division's first quarter revenues increased $11
million over those of 1995. The revenue increase was attributed
to new products and increased consumer consumption of all Dial
soaps. The decline in operating income of $300,000 was a result
of higher marketing and advertising expenses to support the Dial
brands.
Food division's revenues increased $5.2 million over those of the
1995 first quarter, principally due to the effects of the 1995
inventory reduction program which resulted in lower revenues in
1995. Operating income decreased $700,000 from that of last
year's quarter due primarily to higher meat costs in 1996.
Household division's first quarter 1996 revenues and operating
income decreased $3.9 million and $400,000, respectively, from
those of 1995's quarter, caused by softness in fabric care
business and the discontinuation of liquid bleach and private
label products, partially offset by strong growth in Renuzit
sales.
Detergent division's 1996 revenues increased $500,000 from those
of 1995's first quarter, with increases in Purex and Trend liquid
detergents offset by decreases in dry detergents. Operating
income increased $3.2 million in the same period due to lower
manufacturing costs and reduced transportation and delivery
expenses.
First quarter 1996 revenues and operating income of the
International division increased $1.7 million and $700,000,
respectively, over those of the 1995 first quarter due to higher
exports to Canada and the operating results contributed by a
subsidiary acquired in the third quarter of 1995.
Services
Combined Services revenues of $584 million were 12.2 percent
greater than the 1995 first quarter's $520.3 million. Operating
income rose 11.4 percent to $33.5 million from $30.1 million in
the 1995 first quarter, with all major components contributing to
the improvement.
Airline Catering and Services. First quarter revenues of the
Airline Catering and Services group were $193.3 million, a 4.8
percent increase from those of the 1995 first quarter, while
operating income increased 6.9 percent to $11.8 million. New
business, including an eight-city contract from Continental
Airlines, offset the adverse impact from severe weather
conditions in the Southeast and on the East Coast which hampered
operations and airline schedules during the first quarter of
1996. Operating margins improved to 6.1 percent from 1995's 6.0
percent.
Convention Services. Convention Services' first quarter
revenues of $195 million were 26.3 percent greater than those of
the 1995 quarter, while operating income increased 14.2 percent
to $17.1 million. The 1996 first quarter benefitted from the
fourth quarter 1995 acquisition of Giltspur. Operating margins
decreased from 9.7 percent in 1995 to 8.8 percent in 1996, due to
the change in the mix of convention business as a result of the
addition of Giltspur.
Travel and Leisure and Payment Services. Revenues of the
Travel and Leisure and Payment Services group were $195.7 million
for the first quarter of 1996, up $14.3 million, or 7.9 percent,
from those of the 1995 first quarter. Operating income increased
13 percent to $4.6 million. Dial's payment services subsidiary
continues to invest increasing amounts in tax-exempt securities.
On a fully taxable equivalent basis, revenues and operating
income would have been $4.4 million and $3.4 million higher in
1996 and 1995, respectively. Operating margins on the fully
taxable equivalent basis would be 4.5 percent in the first
quarter of 1996, up from 4.0 percent in the 1995 first quarter.
On the fully taxable equivalent basis, revenues of payment
services increased $5.4 million over those of 1995's first
quarter, due principally to increased investment income arising
from greater fund balances. On a fully taxable equivalent basis,
operating income was up $1.5 million.
Canadian transportation companies' revenues increased $1.9
million over those of the 1995 first quarter, due largely to
revenues contributed by a tour operation acquired in the second
quarter of 1995 as well as to increased hotel occupancy in 1996.
Operating income decreased $400,000 from 1995 to 1996 due to the
off-season results of the acquired tour operation.
Duty Free airport and shipboard concession revenues increased
$13.7 million, due primarily to a revised airport concession
contract as well as an increase in the number of shipboard
passenger days. Operating income was about the same as that of
1995, as income under the revised airport concession arrangement
continued at 1995 levels.
Cruise revenues for the first quarter of 1996 increased $1.8
million over those of 1995, when drydocks for ship repairs
impacted revenues. Operating results improved $2.8 million due
to the increased revenues as well as lower lease expense
resulting from the 1995 purchase of two cruise ships previously
leased.
Travel tour service revenues increased $900,000 over those of the
1995 quarter while operating results declined $300,000. The
revenue increases are attributed to passenger volume increases
and revenues from a small tour operation acquired in the second
quarter of 1995. Operating results decreased as a result of
unfavorable changes in foreign exchange rates this quarter as
well as off-season operating results of the acquired tour
operation.
Food service revenues and operating income decreased $1 million
and $1.6 million, respectively, from those of the 1995 quarter,
due principally to the General Motors strike in March which
temporarily closed plants served by Restaura's contract
foodservice operation. Also, 1995 included income from a non-
core operation which was sold in the second quarter of 1995.
Unallocated Corporate Expense and Other Items, Net
Unallocated corporate expense increased $500,000, or 4 percent,
over that of 1995 in line with overall business growth.
Interest Expense
Interest expense increased $1.5 million from 1995's quarter.
Although interest rates on floating-rate debt eased somewhat from
the 1995 first quarter, debt levels in the first quarter of 1996
were higher than in 1995. Increased debt levels were due to
expenditures for acquisitions in 1995, including Giltspur in
October 1995, as well as to the purchases of the Star/Ship
Majestic in February 1995 and the Star/Ship Atlantic in July 1995
(both ships were previously leased).
Income Taxes
The effective tax rate in the 1996 first quarter was 35.9
percent, down from 37.2 percent last year. The reduction in the
effective tax rate results primarily from the increased use of
tax-exempt investments by Dial's payment services subsidiary.
Liquidity and Capital Resources:
The Dial Corp's total debt at March 31, 1996 was $900.3 million
compared with $892.6 million at December 31, 1995. The
debt-to-capital ratio at March 31, 1996 and December 31, 1995 was
0.60 to 1.
There were no other material changes in The Dial Corp's financial
condition nor were there any substantive changes relative to
matters discussed in the Liquidity and Capital Resources section
of Management's Discussion and Analysis of Results of Operations
and Financial Condition as presented in The Dial Corp Annual
Report to Stockholders for the year ended December 31, 1995.
Recent Developments:
Dial's request for a ruling from the Internal Revenue Service
that the spin-off of the consumer products business from the
services business is tax-free was filed March 18, 1996. The
timetable for the spin-off calls for a filing with the Securities
and Exchange Commission by early June 1996, at which time certain
preliminary information will become publicly available. It is
currently expected that the actual Distribution will occur in the
fall of 1996.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the first quarter of 1996.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit No. 11 - Statement Re Computation of Per Share
Earnings.
Exhibit No. 27 - Financial Data Schedule
(b) A report on Form 8-K dated February 15, 1996 was filed
by the registrant during the quarter for which this
report is filed. The Form 8-K reported under Item 5 a
proposal for a strategic restructuring which would
separate Dial's consumer products and services
businesses into two publicly traded companies. The
related Press Release was filed as Exhibit 99 in Item 7
of the Form 8-K.
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 CORP
(Registrant)
May 10, 1996 By /s/ Richard C. Stephan
------------------------
Richard C. Stephan
Vice President-Controller
(Chief Accounting Officer
and Authorized Officer)