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UNITED STATES

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13

For the Fiscal Year Ended December 31, 1999

Commission File Number 1-11793

THE DIAL CORPORATION

Registrant’s Telephone Number, Including Area Code: (480) 754-3425

Securities Registered Pursuant to Section 12(b) of the Act:

Securities Registered Pursuant to Section 12(g) of the Act: None

      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  [   ]

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     [   ]

      As of March 22, 2000, 94,774,757 shares of Dial’s common stock were outstanding and the aggregate market value of the common stock (based on its closing price per share on such date) held by nonaffiliates was approximately $1.3 billion.

Documents Incorporated by Reference

      Portions of Dial’s proxy statement relating to the 2000 annual meeting of stockholders to be held on June 1, 2000, have been incorporated by reference into Part III, Items 10, 11 and 12 of this Form 10-K.

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      Unless otherwise indicated the industry data contained herein 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 we have not independently verified but which we believe to be reliable. Unless otherwise noted, all market share data as of any particular date are as of the 52 weeks then ended and are based upon sales in the U.S. market. Soap products are measured by ounces sold. Detergent products are measured by standard cases sold. Air fresheners and canned meats are measured by units sold.

      This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this Form 10-K, the words “anticipates,” “intends,” “plans,” “believes,” “estimates” and similar expressions are intended to identify forward-looking statements. These statements are based upon management’s beliefs, as well as on assumptions made by and information currently available to management, and involve various risks and uncertainties, which are beyond our control. Our actual results could differ materially from those expressed in any forward-looking statements made by, or on behalf of, us. Factors that could cause actual results to differ include those factors identified in “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition — Factors That May Affect Future Results and Financial Condition” in this Form 10-K.

General

      We manufacture and sell consumer products. We market our products primarily under such well-known household brand names as Dial® soaps, Purex® detergents, Renuzit® air fresheners and Armour® canned meats. We also market specialty personal care products under the brand names Freeman®, Sarah Michaels® and Nature’s Accents®. We believe that our brand names have contributed to our products achieving leading market positions.

      For organizational, marketing and financial reporting purposes, we have organized our business into three segments:

	•	Domestic Branded,
	•	International and
	•	Commercial Markets and Other.

Domestic Branded

      Our Domestic Branded business segment is comprised of five franchises:

	•	Dial,
	•	Purex,
	•	Renuzit,
	•	Armour and
	•	Specialty Personal Care (Freeman, Sarah Michaels and Nature’s Accents).

Within our Domestic Branded business segment, we have chosen to focus our marketing and product development efforts on the Dial, Purex, Renuzit, Armour, Freeman, Sarah Michaels and Nature’s Accents brands. Our Domestic Branded business segment accounted for 86%, 85% and 84% of our net sales in 1999, 1998 and 1997, respectively. A discussion of our Domestic Branded franchises follows.

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  Dial

      Our Dial franchise includes Dial and Liquid Dial® soaps and body washes, and Tone ® and Pure & Natural® soaps. Net sales for the Dial franchise for 1999, 1998 and 1997 were 27%, 30% and 30%, respectively, of the Domestic Branded business segment. At December 31, 1999, our Dial and other soap products had a 16.7% market share, measured in ounces sold, in the $2.1 billion soap category. Based on ounces sold, Dial was America’s leading bar soap and antibacterial bar soap and the second leading liquid soap and antibacterial liquid soap as of December 31, 1999.

  Purex

      Our Purex franchise includes Purex detergents, bleach and fabric softeners, and Trend® and Dutch® detergents, Borateem® bleach, Vano® and Sta-Flo® starches, Boraxo® soap and 20 Mule Team® borax, Fels Naptha® laundry soap and La France® brightener. Net sales for the Purex franchise for 1999, 1998 and 1997 were 32%, 32% and 34%, respectively, of the Domestic Branded business segment. As of December 31, 1999, Purex held the number two market share position with an 8.7% share, measured by standard cases sold, in the $4.7 billion domestic laundry detergent market.

      In April 1999, we formed Dial/ Henkel LLC, a joint venture with Henkel KGaA of Düsseldorf, Germany. Dial and Henkel each own 50% of this joint venture. This 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, Inc.® home dry cleaning business. In December 1999, the joint venture launched Purex Advanced®.

  Renuzit

      Our Renuzit franchise includes a variety of air fresheners, candles and accessories that all bear the Renuzit name. Net sales for the Renuzit franchise for each of 1999, 1998 and 1997 were 14% of the Domestic Branded business segment. As of December 31, 1999, Renuzit was the second leading brand in the $976 million domestic air freshener market.

  Armour

      Our Armour franchise includes Armour and Armour Star® canned meats, chili, hashes and meat spreads and Cream® corn starch. Our Armour branded products are concentrated in the profitable canned meat market segment. Net sales for the Armour franchise for 1999, 1998 and 1997 were 17%, 18% and 21%, respectively, of the Domestic Branded business segment. As December 31, 1999, Armour was the number two national brand of canned meats and was the market leader in the growing Vienna sausage segment.

  Specialty Personal Care

      Our Specialty Personal Care franchise includes a variety of skin, hair, bath, body and foot care products sold under the Freeman, Sarah Michaels and Nature’s Accents brand names. We acquired The Freeman Cosmetic Corporation (“Freeman”) in July 1998. Freeman is a manufacturer and marketer of skin, hair, bath, body and foot care products all sold under the Freeman brand name. We acquired Sarah Michaels, Inc. (“Sarah Michaels”) in September 1998. Sarah Michaels is 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, which are distributed under the Sarah Michaels brand name. These two acquisitions were combined with our Nature’s Accents line of translucent soaps and specialty care products and our subsidiary, ISC International, Ltd., a manufacturer of translucent soaps, to create the Specialty Personal Care franchise. Net sales for the Specialty Personal Care franchise for 1999, 1998 and 1997 were 10%, 6% and 1%, respectively, of the Domestic Branded business segment.

International

      We distribute products in more than 40 countries. We have focused our international efforts in Argentina, Canada, Mexico, Puerto Rico and the Caribbean. During 1999, 1998 and 1997 approximately 88%, 89% and

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      In the third quarter of 1997, we acquired Nuevo Federal S.A., a manufacturer and marketer of personal care and household products in Argentina. In the fourth quarter of 1997, we acquired three personal care soap brands and two laundry bar brands from The Procter & Gamble Company’s Argentinean subsidiary. With these acquisitions, we entered what we believe is one of Latin America’s largest consumer markets by establishing a position in Mercosur, a regional trading bloc with more than 230 million consumers in Argentina and neighboring countries, including Brazil, Paraguay, Uruguay and Chile.

      In the Argentinean consumer products market, as of December 31, 1999, Nuevo Federal held the number three position in laundry detergents with the Zorro® , Enzimax® and Limzul® brands, the number two position in laundry bars with the Gran Federal® and Gran Llauro® brands, the number three position in dish detergents with the Cristal® and Zorro brands and the number four position in bar soaps with the Limol® and Campos Verdes® brands.

      In Canada, Purex liquid is the number one liquid laundry detergent overall and the number one liquid laundry detergent in mass merchandisers, Canada’s fastest growing retail channel. Liquid Dial is the number three antibacterial liquid soap in Canada. In Mexico, Liquid Dial is the number one liquid soap with 70% of this category. Breck® haircare products enjoy strong brand recognition in Mexico, with Breck hairspray having 7% of the hairspray category. In Puerto Rico, Purex liquid holds the number three market position in the liquid laundry detergent category with 12% of the category.

Commercial Markets and Other

      Our Commercial Markets business sells branded and nonbranded products, through the commercial channel to hotels, hospitals, schools and other institutional customers. In addition, this business segment includes sales of chemicals principally glycerin and fatty acids, that are by-products of the soap making and detergent making process. Dial’s Commercial Markets and Other business segment accounted for 4%, 4% and 6% of our net sales in 1999, 1998 and 1997, respectively.

Discontinued and Divested Brands

      By February 1998, we had discontinued or divested product lines that were not within our core businesses. Under this strategy, in the third quarter of 1997, we sold some of our household cleaning brands to Church & Dwight for approximately $30 million. The sale included the following brands and related inventories: Brillo® soap pads and related products, Parsons’® ammonia, Bo Peep® ammonia, Sno Bol® toilet bowl cleaner, Cameo® metal polish and Rain Drops® water softener. Our London, Ohio, plant, where Brillo was manufactured, also was part of the sale. In addition, in the third quarter of 1997, we sold our Bruce® floor care product trademark and our Magic® sizing starch brand and related inventories to other third parties for $4.5 million. In February 1998, we sold the Purex Toss N’ Soft® brand to Church & Dwight for $5.3 million. Sales of these products in 1998 were insignificant. In 1997, these brands as well as discontinued brands generated net sales of approximately $53 million, or approximately 4% of our total net sales.

Customers

      Our products are sold throughout the United States primarily through supermarkets, mass merchandisers, drug stores, membership club stores and other outlets. Our top 10 customers accounted for approximately 42%, 40% and 35% of net sales in 1999, 1998 and 1997, respectively. Wal-Mart, including its affiliate, Sam’s Club, was our largest customer, accounting for approximately 18%, 17% and 17% of our net sales in 1999, 1998 and 1997, respectively. No other customer accounted for more than 10% of net sales in 1999, 1998 or 1997. Generally, our payment terms to customers range from 30 to 60 days. For Specialty Personal Care, we have special holiday terms which extend to 90 days.

      Our products are also sold internationally through the same outlets, principally in Argentina, Canada, Mexico, Puerto Rico and the Caribbean.

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Sales

      Our customers are served by a national sales organization of approximately 200 employees. The sales organization is divided into four regions for grocery sales plus specialized sales operations that sell to large mass merchandisers, membership club stores, chain drug stores and vending and military customers. In addition, some customers and regions, representing approximately 16.2% of our 1999 net sales, are served by a national broker sales organization.

Promotion and Advertising

      A significant portion of our revenues are expended for trade discounts and the promotion and advertising of our products. We believe that these expenditures are necessary to maintain and increase market shares in an industry highly dependent on product image and quality, trade support and consumer trends. We incurred discounts and expenses for these purposes of $444.7 million, $373.3 million and $311.4 million in 1999, 1998 and 1997, respectively. This represents 26%, 24% and 23%, of net sales in those years.

Distribution

      We ship product from nine of our warehouses located at or near our domestic manufacturing and assembly facilities and four domestic regional distribution centers. The regional warehouses are operated by third parties, except for one warehouse that we own and operate. We use outside carriers to transport our products.

      We have a just-in-time inventory management program of continuous, automatic replenishment of certain of our trade customers’ inventories. The primary objective of this program is to improve service to our customers and reduce costs by shortening the order-to-delivery pipeline. This occurs by anticipating customer needs based on historical sales, shipping the product just before those needs arise and eliminating redundancy, errors and interruption throughout the replenishment process. Sales under this program accounted for approximately 15% of our net sales in each of 1999, 1998 and 1997.

Suppliers

      We rely on a number of third parties for research and development, manufacturing and packaging. Many of our arrangements with respect to new products contain limited mutual exclusivity provisions. This is designed to permit us and the supplier to profit from the product enhancement or innovation before we use an alternative supplier or the supplier sells to one of our competitors. Most of our outsourcing arrangements can be terminated without material penalties on an average of three months’ notice.

Raw Materials

      We believe that ample sources of raw materials are available with respect to all of our major products. Paper, fats and oils, detergent chemicals and meat have the most significant impact on our costs. Generally, we purchase these raw materials from a variety of suppliers in the United States. While we believe that in certain circumstances we may be able to respond to price increases for certain raw materials by increasing sales prices, rapid increases in the prices of certain raw materials could materially impact our profit margins and financial results. For example, tallow (a key ingredient in Dial bar soaps) has experienced price fluctuations within the range of $0.10 and $0.28 per pound from January 1, 1995, to December 31, 1999. Recently, the price of tallow has been trading at the lower end of this historical range. If prices were to increase, we may not be able to increase the prices of our Dial bar soaps to offset these increases as readily as many competitors, which tend to use less tallow in their products. In addition, we depend on a single supplier for Triclosan, the antibacterial agent that is the active ingredient used in Liquid Dial products. Although we have an adequate supply of Triclosan for our current and foreseeable needs, a significant disruption in this supply could have a material adverse impact on our financial results.

      We attempt to reduce our risk by entering into contracts to provide up to six- to 12-month supplies of tallow, Triclosan and packaging materials. During 1999, we began using financial derivatives to mitigate price

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Competition

      We compete primarily on the basis of brand equity, brand advertising, customer service, product performance and product quality at competitive retail price points. We compete with numerous, well-established local, regional, national and international companies. Some of these companies have greater financial resources than we do and may be willing to commit significant resources to protecting their own market shares or to capturing market share from us. Our principal competitors are as follows:

Research and Development

      We conduct research and development at our facility in Scottsdale, Arizona. Our internal research and development efforts are directed at improving existing products, developing new products, and providing technical assistance and support to our manufacturing activities. We rely on outside sources for general research and development activities. Our internal and external research and development expenditures were approximately $11.7 million, $10.1 million and $10.1 million in 1999, 1998 and 1997, respectively.

Marketing Research

      We rely on industry data, syndicated market share data, various attitude and usage studies prepared by independent marketing firms. We also obtain direct sales information from our largest customers to identify consumer needs and anticipate shifts in consumer preferences. This allows us to develop line extensions and new products to meet changing demands.

Patents and Trademarks

      Our trademarks include Dial, Purex, Renuzit, Armour, Armour Star, Freeman, Sarah Michaels, Tone, Nature’s Accents, Pure & Natural, Breck, Trend, Treet, 20 Mule Team and Boraxo and related trade names. We license the Armour and Armour Star trademarks from ConAgra, Inc. which also sells non canned food products under the Armour trademark. We license the 20 Mule Team trademark from U.S. Borax, Inc.

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      United States trademark registrations are for a term of 10 years, renewable every 10 years so long as the trademarks are used in the regular course of trade. We maintain a portfolio of trademarks representing substantial goodwill in the businesses using these trademarks. We also have a significant number of registered foreign trademarks and pending foreign trademark applications.

      United States patents are currently granted for a term of 20 years from the date a patent application is filed. We own a number of patents that provide competitive advantages in the marketplace.

Government Regulation

      Substantially all of our operations are, or may become, subject to various federal laws and agency regulations. These include the Food, Drug, and Cosmetic Act, which is administered by the Food and Drug Administration (the “FDA”). The FDA regulates the manufacturing, labeling, and sale of our over-the-counter drug and cosmetic products. The Insecticide, Fungicide, and Rodenticide Act and the Toxic Substances Control Act are administered by the Environmental Protection Agency and regulate our disinfectant products and certain of the substances used in the manufacturing of our products. The Meat Inspection Act is administered by the Department of Agriculture and regulates our meat products. The Hazardous Substances Act is administered by the Consumer Product Safety Commission and regulates the labeling of the Company’s household products. The Fair Packaging and Labeling Act is administered by the Federal Trade Commission (the “FTC”) and regulates the packaging and labeling of all of our products. Our products also are subject to regulation by various state laws and various state regulatory agencies. In addition, we are subject to similar laws and regulations imposed by foreign jurisdictions.

      Since the 1970’s, the Food and Drug Administration has regulated antibacterial soaps and hand washes under a proposed regulation. Although the proposed regulation has not been finalized, the FDA ultimately could set standards that result in limiting or even precluding soap manufacturers from using some current antibacterial ingredients or making antibacterial claims for some product forms, such as bar soap. Dial, which uses the antibacterial ingredient Triclosan in Liquid Dial and Triclocarban in Dial bar soap, emphasizes the antibacterial properties of its soap products in its marketing campaigns and product labeling. Any final FDA regulation that limits or precludes this type of advertising could require Dial to develop new marketing campaigns, develop new products or utilize different antibacterial ingredients in its products, all of which could materially adversely affect our business.

Environmental Matters

      We are subject to a variety of environmental and health and safety laws in each jurisdiction in which we operate. These laws and regulations pertain to our present and past operations. Although we currently do not anticipate that the costs to comply with environmental laws and regulations will have a material adverse effect on our financial results or condition, the emergence of unforeseen claims or liabilities or the imposition of increasingly stringent laws, regulations and enforcement policies could result in material, unreserved costs in the future. Since 1980, we have received notices or requests for information with respect to “Superfund” sites under the federal Comprehensive Environmental Response, Compensation and Liability Act, five of which are currently active. As of December 31, 1999, we have accrued in our financial statements approximately $2.3 million in reserves for expenses related to Superfund sites and the clean-up of closed plant sites. We believe our reserves are adequate, but these costs are difficult to predict with certainty.

      We do not currently anticipate that we will incur significant capital expenditures in connection with matters relating to environmental control or compliance in 2000. We do 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 our financial results or condition. 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.

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      Federal, state, local and foreign environmental compliance may from time to time require changes in product formulation or packaging. These changes have not had, and are not expected to have, a material adverse effect on our financial results or condition.

Employees

      We employed approximately 3,750 individuals, of whom approximately 1,150 were covered by collective bargaining agreements, as of December 31, 1999.

      Four of our seven plants in the United States are unionized. Our contract with the Oil, Chemical and Atomic Workers Union (covering approximately 85 employees at our Bristol, Pennsylvania, Plant) is scheduled for renegotiation in May 2000. In 1999, we successfully renegotiated our contract with the United Food and Commercial Workers Union (covering approximately 300 employees at our Aurora, Illinois Plant), which now expires in August 2002. In addition, we successfully renegotiated our contract with the United Food and Commercial Workers Union (covering approximately 420 employees at our Ft. Madison, Iowa Plant), which now expires September 2003. In 1998, we successfully renegotiated our contract with the International Brotherhood of Teamsters (covering approximately 335 employees at the Company’s St. Louis, Missouri and Madison County, Illinois distribution center), which now expires in 2001. Although we believe that our relations with our employees are satisfactory, there can be no assurance that we will not face labor disputes in the future or that such disputes will not be material to us.

Item 2.  Properties

      Our corporate headquarters is located in a leased 130,000-square-foot, single-tenant building in Scottsdale, Arizona, that is adjacent to our owned technical and administrative building comprising 200,000 square feet. Our principal facilities include the following.

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      We believe that our facilities in the aggregate are adequate and suitable for their purposes and that manufacturing capacity is sufficient for current needs. We continue to seek ways to cut costs and may close plants as warranted.

Item 3.  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. This lawsuit is in the discovery stage and, as a result, assurances cannot be given regarding the ultimate outcome of this matter.

      As is the case with many companies, we also face exposure to actual or potential claims and lawsuits involving our business and assets. We are currently party to a number of lawsuits consisting of ordinary, routine litigation incidental to our business, including general and product liability and workers’ compensation claims. We believe that any liabilities resulting from these claims, after taking into account amounts already

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      The Company did not submit any matter to a vote of its stockholders during the fourth quarter of 1999.

PART II

      Our common stock is traded on the New York Stock Exchange under the symbol DL. The following table sets forth the high and low closing sale prices as reported on the NYSE for the periods indicated. The closing sale price of the common stock on March 22, 2000, was $13.75 per share.

      We declared dividends of $0.08 per share of Common Stock in the first, second, third and fourth quarters of 1999 and 1998. The declaration and payment of dividends is subject to the discretion of our Board of Directors. Any future determination to pay dividends will depend on our results of operations, financial condition, capital requirements, contractual restrictions and other factors deemed relevant at the time by the Board. As of March 22, 2000, there were 94,774,757 shares of common stock outstanding, which were held by 35,142 stockholders of record.

      The following table presents selected financial information derived from our consolidated financial statements. The selected consolidated balance sheet data as of December 31, 1999, and December 31, 1998, and the consolidated income statement data for each of the three fiscal years in the period ended December 31, 1999, have been derived from our audited consolidated financial statements. The selected consolidated balance sheet data as of January 3, 1998, December 28, 1996, and December 30, 1995, and consolidated income statement data for the fiscal years ended December 28, 1996, and December 30, 1995 been derived from the audited consolidated financial statements of Dial which are not included in this Form 10-K.

      Prior to August 1996, we operated as the consumer products business of Viad Corp. Viad, our former parent, was then known as The Dial Corp. In August 1996, former parent declared a dividend and distributed to its stockholders all the outstanding common stock causing us to become a separately publicly traded company. This transaction is known as the Spin-off. We have operated as The Dial Corporation since the Spin-off.

      The following data should be read in conjunction with our consolidated financial statements and notes thereto, “Item 7. Management’s Discussion and Analysis of Results of Operations and Financial Condition” and the other financial information included elsewhere or incorporated by reference in this Form 10-K.

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SELECTED FINANCIAL AND OTHER DATA

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Item 7.  Management’s Discussion and Analysis of Results of Operations and Financial Condition

Overview

      For organizational, marketing, financial reporting and method of distribution, we have organized our business into three segments: Domestic Branded, International and Commercial Markets and Other.

      Beginning with 1998, our fiscal year-end is December 31. Prior to 1998, our fiscal year ended on the Saturday closest to the end of December. Fiscal years 1999 and 1998 consisted of 52 weeks while fiscal year 1997 consisted of 53 weeks.

Recent Developments

      We recently announced that we expect our earnings to be down for the first half of 2000 versus our plan and the same period a year ago. We believe certain events leading to these lower than expected earnings will impact both sales and gross margin for the first and second quarters of 2000. We believe that the factors relating to the sales shortfall are primarily:

	•	The consolidation and balancing of inventory that occurred when our second largest customer converted from buying direct to buying through two wholesalers;
	•	The continuing price war between two of our competitors in the premium segment of the Argentina detergent market which has had an adverse impact on Dial’s value brand detergent in Argentina;
	•	A shortfall on the sale of Armour canned meats due to increased Y2K-related retail inventory buildup at year’s end, coupled with a price increase taken by Dial in January that has not been matched by competition.

      In addition, our sales are now lower and the mix of products sold is different than earlier anticipated and this could have an adverse impact on our gross margin and earnings.

      Our gross margin in the first half will be impacted by the reduced manufacturing overhead absorption associated with the lower than expected sales volumes and the increasing cost of petroleum that affects, among other things, transportation and distribution expenses.

      See additional discussion of matters that may impact our results in Factors That May Affect Future Results and Financial Condition.

Fiscal 1999 Compared With Fiscal 1998

      Net sales increased $197.1 million, or 12.9%, to $1,721.6 million in 1999 from $1,524.5 million in 1998. This increase resulted from strong growth in Purex, Dial, Armour and Renuzit franchises which grew at 14%, 5%, 6% and 21%, respectively. Sales from Freeman Cosmetic Corporation, acquired in July of 1998, and Sarah Michaels, Inc., acquired in September of 1998, also contributed to the increase. The Purex franchise instituted a price increase beginning in January of 1999. Sales net of the Purex price increase improved 11% for the year.

      Domestic Branded net sales increased $186.1 million, or 14.4%, to $1,477.4 million in 1999 from $1,291.3 million in 1998. The increase resulted primarily from the inclusion of Sarah Michaels and Freeman acquisitions and strong sales growth in the core franchises. Domestic Branded sales net of the Purex price increase improved 12% for 1999.

      International net sales increased $10.5 million, or 6.4%, to $174.6 million from $164.1 million in 1998, primarily as a result of increased sales in Canada of 18% and Mexico of 5%. Sales in Argentina were up 2% for the year but were slowed as a result of new competition which led to a detergent price war, and a lingering recession.

      Commercial Markets and Other net sales remained relatively flat at $69.6 million in 1999 compared to $69.1 million in 1998. In late 1999, we sold the rights to our merchant surfactant business for an immaterial amount. During 2000, we intend to use internally all of our manufactured surfactants.

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      Gross profit margin increased 1.6 points to 50.0% in 1999 from 48.4% in 1998 resulting primarily from the Purex price increase and continuing improvement in manufacturing efficiencies in the manufacturing facilities. Gross profit margin net of the Purex price increase was 49.2% for 1999.

      Selling, general and administrative expenses for 1999 increased $92.4 million, or 16.7%, to $645.6 million from $553.2 million in 1998. The increase was primarily due to higher marketing expense to support core business-merchandising initiatives including the Purex price increase, new product launches, and amortization of goodwill and incremental administrative expense associated with the acquisitions of Freeman and Sarah Michaels.

      Operating income in 1999 increased $31.2 million, or 17.0%, to $215.1 million from $183.9 million in 1998. The increase was primarily due to increased sales and gross margin improvements.

      Our share of the loss in the joint venture between us and Henkel KGaA was $1.3 million in 1999. We use the equity method of accounting to account for the joint venture and report earnings as a single line item after operating income. See additional discussion of the joint venture in Other Matters — Dial/ Henkel Joint Venture.

      Interest and other expense increased $9.4 million, or 40.2%, to $32.7 million for 1999 compared to $23.4 million in 1998. The increase was primarily due to increased debt to fund the Freeman and Sarah Michaels acquisitions and the impact of the share repurchase program.

      The Company’s consolidated effective income tax rate for 1999 was 35.5%, down from 36.1% for 1998. The lower effective tax rate in 1999 was primarily due to lower state and foreign taxes.

      Net income increased $14.2 million, or 13.8%, to $116.8 million in 1999 from $102.6 million in 1998. The increase was primarily due to increased sales, gross margin improvements and a decrease in our effective tax rate offset in part by a loss in the Dial/ Henkel LLC joint venture of $1.3 million.

Fiscal 1998 Compared with Fiscal 1997

      Net sales increased $161.9 million, or 11.9%, to $1,524.5 million in 1998 from $1,362.6 million in 1997. Net sales in 1997 included $53 million of net sales from brands that were divested in the third quarter of 1997. Net sales in 1998 increased primarily as a result of a full-year contribution from Nuevo Federal, acquired in September 1997; two quarters of sales from Freeman, acquired in July 1998; and one quarter of sales from Sarah Michaels, acquired in September 1998.

      Domestic Branded net sales increased $141.6 million, or 12.3%, to $1,291.3 million in 1998 from $1,149.7 million in 1997. The increase in net sales was the result of the inclusion of the Sarah Michaels and Freeman acquisitions, and sales growth in Dial, up 12.3%; Renuzit, up 12.1%; and Purex, up 5.6%. The increase in sales was offset in part by a 1.9% decline in Armour sales.

      International net sales increased $81.9 million, or 99.8%, to $164.1 million from $82.2 million in 1997. The increase in net sales resulted primarily from the inclusion of a full year of results of Nuevo Federal and sales growth of 30.7% in Canada, 10.0% in Mexico and 7.0% in the Caribbean. In addition, Nuevo Federal’s sales grew 24% in the fourth quarter of 1998 over the same period in 1997. The increase in net sales was offset in part by a 52.3% decline in sales to Asia.

      Commercial Markets and Other net sales decreased $8.7 million, or 11.2%, to $69.1 million in 1998 from $77.8 million in 1997, primarily as a result of softness in the pricing of sulfonate chemicals, glycerin and fatty acids.

      Gross profit margin increased 1.1 points to 48.4% in 1998 from 47.3% in 1997. The increase resulted primarily from significant improvement in manufacturing efficiencies and favorable raw material prices.

      Selling, general and administrative expenses for 1998 increased $70.9 million, or 14.7%, to $553.2 million from $482.3 million in 1997. The increase was primarily due to higher marketing expense to support core business merchandising initiatives, new product launches and core business advertising.

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      Operating income in 1998 increased $21.7 million, or 13.4%, to $183.9 million from $162.2 million in 1997. The increase was primarily due to increased sales and gross margin improvements.

      Interest and other expenses decreased $4.8 million, or 17.3%, to $23.4 million for 1998 compared to $28.2 million in 1997 primarily as a result of lower average monthly debt balances outstanding.

      The Company’s consolidated effective income tax rate for 1998 was approximately 36.1%, down from 37.5% for 1997. The lower effective tax rate in 1998 was primarily due to lower state and foreign taxes.

      Net income increased $18.9 million, or 22.6%, to $102.6 million in 1998 from $83.7 million in 1997. The increase was primarily due to increased sales, gross margin improvements and a lower effective tax rate.

Liquidity and Capital Resources

      We generated cash from operations of $121.8 million during 1999 compared to cash generated of $122.3 million during the same period in 1998. The decrease resulted primarily from higher accounts receivable and an increase in inventories due to new products and a slight build up at year-end as a Year 2000 contingency. The decrease was partially offset by improvements in net income, higher depreciation expense attributable to information technology software and amortization of Freeman and Sarah Michaels goodwill.

      Capital expenditures for 1999 were $62.5 million versus $50.3 million for the comparable period in 1998. Capital spending in 2000 is expected to approximate $60 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.

      Our financing plan includes the sale of accounts receivable to accelerate cash flow. During June 1999, the maximum amount of receivables that could be sold under this plan was increased from $90.0 million to $115.0 million, in line with higher sales. Accounts receivable sold but not yet collected under this plan at December 31, 1999, and December 31, 1998, was $73.2 million and $90.0 million, respectively. Under the terms of the plan, we retain the risk of credit loss on the receivables sold.

      In July 1999, we established a $350 million commercial paper program, which allows us to access the commercial paper market for short-term borrowing needs. The commercial paper program is supported by our Credit Agreement. Accordingly, borrowings under the commercial paper program are classified as long-term debt. At December 31, 1999, we had $101.8 million outstanding in commercial paper, bearing interest at rates ranging from 5.72% to 6.55%.

      We intend to discontinue the sale of accounts receivable program in 2000 and utilize short-term bank borrowings and commercial paper as our principal financing vehicles.

      At December 31, 1999, we had $350 million available under the credit agreement. Borrowings under the Credit Agreement are on a revolving basis under commitments available until August 15, 2002. The interest rate applicable to borrowings under the Credit Agreement 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 period of the Credit Agreement. The Agreement also provides for commitment fees. These spreads and fees may change should our debt ratings change.

      We make use of short-term bank borrowings when needed. The borrowings are unsecured and generally have maturities between 1 and 30 days and bear interest at LIBOR plus appropriate spreads. The banks that provide the borrowings do so on an uncommitted basis.

      Beginning in the third quarter of 1999, short-term bank borrowings, previously classified as long-term debt because they were supported by the credit agreement, are being classified as short-term debt because the credit agreement is being used to support our commercial paper program.

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      On July 1, 1998, we acquired Freeman for $78 million in cash, which was financed through short-term borrowings supported by our long-term credit agreement. The acquisition price reflects a $6 million reduction in the purchase price for Freeman as a result of a net worth adjustment received in January 1999.

      On September 14, 1998, we acquired Sarah Michaels for $187 million in cash, which was financed through short-term borrowings supported by our long-term credit agreement.

      On September 23, 1998, we completed a $200 million public offering of 6.5% Senior Notes due 2008. The proceeds of the debt financing were used to repay outstanding bank borrowings used for the acquisitions of Freeman and Sarah Michaels. The Indenture governing these Senior Notes imposes restrictions on us with respect to, among other things, our ability to redeem the Senior Notes, to place liens on certain properties and to enter into certain sale and leaseback transactions.

      We received approximately $10.7 million from the disposition of assets during 1998, the majority of which resulted from two sales. The Purex Toss ’n Soft® brand and related inventories were sold for approximately $5.3 million and a nonoperating manufacturing property was sold for $4.0 million. No gain or loss was realized on either of the transactions.

      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.

      At December 31, 1999, and December 31, 1998, we held a total of 4,887,176 and 1,176,082 shares, respectively, in treasury. The shares held at December 31, 1999, include 218,725 shares valued at $5.2 million purchased as part of a small shareholder selling/repurchasing program executed during the first quarter of 1998 and 4,476,604 shares valued at $121.3 million purchased as part of our stock repurchase programs.

      At December 31, 1999, we had approximately $83.1 million in net deferred tax benefits. The realization of these benefits will require average annual taxable income of approximately $16.0 million over the next 15 years. Our average income before income taxes over the past three years was approximately $159.0 million.

Other Matters

  Dial/ Henkel Joint Venture

      In April 1999, we formed Dial/ Henkel LLC, a joint venture with Henkel KGaA of Düsseldorf, Germany. Dial and Henkel each own 50% of this joint venture. This 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, Inc.® home dry cleaning business. In December 1999, the joint venture launched Purex Advanced®.

      We include our share of the joint venture operating results in our financial statements using the equity method of accounting. In 1999, our share of the loss in the joint venture was $1.3 million. The joint venture net sales for 1999, although not consolidated in our 1999 financial statements, were $10.7 million.

  New Accounting Pronouncements

      The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities.” We will be required to adopt this new standard in the first quarter of 2001. This statement requires that all derivatives be recorded in the balance sheet as either an asset or liability measured at fair value. The statement requires that changes in a derivatives’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. We are still in the process of evaluating this statement and the impact on our consolidated financial statements.

Factors That May Affect Future Results and Financial Condition.

      Our future results and financial condition are dependent upon our ability to successfully develop, manufacture and market consumer products. Inherent in this process are a number of factors that we must

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	•	We face intense competition in a mature industry that may require us to increase expenditures and lower profit margins to preserve or maintain our market share.

      Currently, we depend primarily on sales generated in U.S. markets (90% of sales in 1999). U.S. markets for consumer products are mature and characterized by high household penetration, particularly with respect to our most significant product categories, including detergents and bar soaps. We may not be able to succeed in implementing our strategies to increase domestic revenues. Our unit sales growth in domestic markets will depend on increasing usage by consumers, product innovation and capturing market share from competitors.

      The consumer products industry, particularly the detergent, personal care and air freshener categories, is intensely competitive. To protect our existing market share or to capture increased market share, we may need to increase expenditures for promotions and advertising and to introduce and establish new products. Additional expenditures could lower our profit margins. Moreover, these additional measures and increased expenditures may not prove successful in maintaining or enhancing our market share. For example, we recently formed a joint venture with Henkel KGaA to introduce enhanced laundry products. This joint venture recently introduced Purex Advanced, an enzyme-based detergent, and began a national rollout of Custom Cleaner, a home dry cleaning product. If sales for these new products do not meet expectations, it would adversely impact our expected operating results for 2000.

      Many of our competitors are large companies, including The Procter & Gamble Company, Lever Brothers Co., Colgate-Palmolive Company, and S.C. Johnson & Son, Inc., which have greater financial resources than we do. They could outspend us in an attempt to take market share from us.

	•	Price-cutting measures in response to competitive pressures could result in decreased profit margins.

      Consumer products, particularly those that are value-priced, are subject to significant price competition. From time to time, we may need to reduce the prices for some of our products to respond to competitive and consumer pressures and to maintain market share. If our sales volumes fail to grow sufficiently to offset any reduction in margins, our results of operations would be materially adversely affected.

	•	Our inability to provide price concessions or trade terms that are acceptable to our trade customers could adversely affect our sales and profitability.

      Because of the competitive environment facing retailers, we face pricing pressure from these customers. Many of our trade customers, particularly our high-volume retail store customers, have increasingly sought to reduce inventory levels and obtain pricing concessions or better trade terms. If we are unable to maintain price or trade terms that are acceptable to our trade customers, they could increase product purchases from our competitors, which would adversely affect our sales and profitability. In addition, consolidation within the retail industry could potentially reduce inventory levels maintained by our retail customers which could adversely impact our operating results. Our performance is also dependent upon the general health of the retail environment and could be materially affected by changes affecting retailing and by the financial difficulties of retailers.

	•	Loss of our principal customers could significantly decrease our sales and profitability.

      Our top ten customers accounted for 42% of net sales in 1999. Wal-Mart, including its affiliate Sam’s Club, was our largest customer, accounting for 18% of net sales in 1999. The loss of or a substantial decrease in the volume of purchases by Wal-Mart or any of our other top customers could have a material adverse effect on sales and profitability.

	•	Price increases in certain raw materials could adversely affect our profit margins.

      Rapid increases in the prices of certain raw materials could materially impact our profit margins. For example, tallow (a key ingredient in Dial bar soaps) has experienced price fluctuations within the range of $0.10 and $0.28 per pound from January 1, 1995, to December 31, 1999. Recently, the price of tallow has been

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