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                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
 
                            ------------------------
 
                                   FORM 10-K
 
                      ANNUAL REPORT PURSUANT TO SECTION 13
                     OF THE SECURITIES EXCHANGE ACT OF 1934
 
                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
 
                         COMMISSION FILE NUMBER 1-11793
 
                              THE DIAL CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
 
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                   DELAWARE                                      51-0374887
       (STATE OR OTHER JURISDICTION OF                        (I.R.S. EMPLOYER
        INCORPORATION OR ORGANIZATION)                      IDENTIFICATION NO.)
 
          15501 NORTH DIAL BOULEVARD                             85260-1619
             SCOTTSDALE, ARIZONA                                 (ZIP CODE)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
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       REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (602) 754-3425
 
          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
 
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                                                           NAME OF EACH EXCHANGE
             TITLE OF EACH CLASS                            ON WHICH REGISTERED
             -------------------                           ---------------------
<S>                                            <C>
         COMMON STOCK, $.01 PAR VALUE                     NEW YORK STOCK EXCHANGE
       PREFERRED SHARE PURCHASE RIGHTS                    NEW YORK STOCK EXCHANGE
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        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 24, 1999, 102,683,910 shares of the Company's Common Stock,
$.01 par value, were outstanding and the aggregate market value of the Common
Stock (based on its closing price per share on such date) held by non affiliates
was approximately $3.4 billion.
 
                      DOCUMENTS INCORPORATED BY REFERENCE
 
     Portions of the Company's Proxy Statement relating to the 1999 Annual
Meeting of Stockholders to be held on June 3, 1999, have been incorporated by
reference into Part III, Items 10, 11 and 12 of this Form 10-K.
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                               TABLE OF CONTENTS
 
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                                  PART I
Item 1   Business....................................................    1
Item 2   Properties..................................................    8
Item 3   Legal Proceedings...........................................    8
Item 4   Submission of Matters to a Vote of Security Holders.........    8
                                  PART II
Item 5   Market for Registrant's Common Equity and Related
         Stockholder Matters.........................................    9
Item 6   Selected Financial and Other Data...........................    9
Item 7   Management's Discussion and Analysis of Results of
         Operations
         and Financial Condition.....................................   11
Item 7A  Quantitative and Qualitative Disclosure About Market Risk...   20
Item 8   Financial Statements and Supplementary Data.................   21
Item 9   Changes in and Disagreements with Accountants on Accounting
         and Financial Disclosures...................................   44
                                 PART III
Item 10  Directors and Executive Officers of the Registrant..........   45
Item 11  Executive Compensation......................................   47
Item 12  Security Ownership of Certain Beneficial Owners and
         Management..................................................   47
Item 13  Certain Relationships and Related Transactions..............   47
                                  PART IV
Item 14  Exhibits, Financial Statement Schedules and Reports on Form
         8-K.........................................................   48
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                                     PART I
 
     Prior to August 15, 1996, the business of the Company was operated as the
consumer products business (the "Consumer Products Business") of Viad Corp (then
known as The Dial Corp) ("Former Parent"). On August 15, 1996, Former Parent
distributed to its stockholders all of the Company's then outstanding common
stock (the "Spin-off") causing the Company to become a separate publicly traded
company. Unless otherwise indicated, (i) all references in this Annual Report on
Form 10-K to the "Company" or "Dial" for periods prior to the Spin-off refer to
the Consumer Products Business of Former Parent and for periods following the
Spin-off refer to the Company and its consolidated subsidiaries, (ii) all
financial information contained in this Form 10-K has been prepared as if the
Company had always been a separate operating company, (iii) 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 the Company has not independently verified but which the Company believes
to be reliable, and (iv) references to years and periods are to fiscal years and
periods and, with respect to comparative industry data, years are to calendar
years. Unless otherwise noted, all market share data as of any particular date
are as of the 52 weeks then ended and are based upon sales in the U.S. market,
which with respect to soap products are measured by ounces sold, with respect to
detergent products are measured by standard cases sold and with respect to 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,"
"expects," "estimates" and similar expressions are intended to identify
forward-looking statements. Such statements, including, but not limited to, the
Company's potential product introductions, capital spending plans, and year 2000
remediation efforts, 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, certain of which are beyond the
Company's control. The Company's actual results could differ materially from
those expressed in any forward-looking statements made by or on behalf of the
Company. Factors that could cause actual results to differ include, but are not
limited to, 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.
 
ITEM 1.  BUSINESS
 
GENERAL
 
     Dial is a consumer products company with net sales of $1.5 billion and
operating income of $184 million in 1998. The Company markets its products
primarily under such well-known household brand names as DIAL(R) soaps, PUREX(R)
detergents, RENUZIT(R) air fresheners and ARMOUR(R) canned meats. Dial believes
that its brand equities have contributed to its products achieving leading
market positions.
 
     For organizational, marketing and financial reporting purposes, the Company
has organized its business into three segments: (i) Domestic Branded, (ii)
International and (iii) Commercial Markets and Other.
 
DOMESTIC BRANDED
 
     The Company's Domestic Branded business segment is comprised of five
franchises: Dial, Purex, Renuzit, Armour and Specialty Personal Care
(FREEMAN(R), SARAH MICHAELS(R) and NATURE'S ACCENTS(R) ). Within its Domestic
Branded business segment, the Company has chosen to focus its marketing and
product development efforts on the Dial, Purex, Renuzit, Armour, Freeman, Sarah
Michaels and Nature's Accents brands. The Company's Domestic Branded business
segment accounted for 85%, 84% and 79% of the Company's net sales in 1998, 1997
and 1996, respectively. A discussion of the Company's Domestic Branded
franchises follows.
 
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  DIAL
 
     The Company's Dial franchise includes Dial and LIQUID DIAL(R) soaps and
body washes, as well as TONE(R), PURE & NATURAL(R) and BORAXO(R) soaps and
BRECK(R) hair care products. Net sales for the Dial franchise for each of the
years 1998, 1997 and 1996 were 30% of the Domestic Branded business segment. At
December 31, 1998, the Company's Dial and other soap products commanded an
approximate 18% market share, measured in ounces sold, in the $2.1 billion soap
category (as measured by Information Resources, Inc.). This strong market share
position is largely driven by the Company's Dial branded soap products. During
the past 10 years, the market share of Dial branded products has increased from
12% in 1987 to 16% as of December 31, 1998. In 1998, the Company introduced Dial
Antibacterial Hand Sanitizer, an alcohol-based gel that eliminates more than 99%
of germs when applied. As of December 31, 1998, based on ounces sold, Dial was
America's leading bar soap overall, the leading antibacterial bar soap, the
second leading liquid soap overall and the second leading antibacterial liquid
soap.
 
  PUREX
 
     The Company's Purex franchise includes Purex detergents, bleach and fabric
softeners, as well as TREND(R) and DUTCH(R) detergents, BORATEEM(R) bleach,
VANO(R) and STA-FLO(R) starches, 20 MULE TEAM(R) borax, FELS NAPTHA(R) laundry
soap and LA FRANCE(R) brightener. Net sales for the Purex franchise for 1998,
1997 and 1996 were 32%, 34% and 36%, respectively, of the Domestic Branded
business segment. As of December 31, 1998, Purex held the number two market
share position, measured by units sold, in the $4.5 billion domestic laundry
detergent market (as measured by Information Resources, Inc.). From 1986 to
1998, the Company has increased Purex annual sales from $160 million to $417
million. In 1998, the Company launched PUREX MOUNTAIN BREEZE(TM), the first
value-priced detergent to offer a full line fragrance alternative in both dry
and liquid forms.
 
  RENUZIT
 
     The products in the Company's Renuzit franchise consist of a variety of air
fresheners, candles and accessories that all bear the Renuzit name. The Company
established its market presence in the air freshener category with the
acquisition of Renuzit in 1993. Since then, Renuzit sales have grown at a
compounded annual rate of 15%. Net sales for the Renuzit franchise for 1998,
1997 and 1996 were 14%, 14% and 13%, respectively, of the Domestic Branded
business segment. As of December 31, 1998, Renuzit was the second leading brand
in the $950 million domestic air freshener market (as measured by Information
Resources, Inc.).
 
  ARMOUR
 
     The Company's Armour franchise includes Armour and ARMOUR STAR(R) canned
meats, chili, hashes and meat spreads and CREAM(R) corn starch. The Company's
Armour branded products are concentrated in the profitable canned meat market
segment. Net sales for the Armour franchise for 1998, 1997 and 1996 were 18%,
21% and 20%, respectively, of the Domestic Branded business segment. As of
December 31, 1998, Armour was the number two national brand of canned meats and
was the market leader in the growing Vienna sausage segment, with a 48% market
share in that segment (as measured by Information Resources, Inc.).
 
  SPECIALTY PERSONAL CARE
 
     The 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. The Company acquired The Freeman Cosmetic
Corporation ("Freeman"), a leading manufacturer and marketer of skin, hair,
bath, body and foot care products utilizing natural ingredients, all sold under
the Freeman brand name, on July 1, 1998. The Company acquired Sarah Michaels,
Inc. ("Sarah Michaels"), a leading marketer of premium specialty bath and body
products, including body washes, body mists, luxury soaps, hand and body
lotions, loofahs, sponges and brushes, which are distributed under the Sarah
Michaels brand name, on September 14, 1998. These two acquisitions were combined
with the Company's Nature's Accents line of translucent soaps and specialty care
products, and the Company's subsidiary, ISC International, Ltd., a manufacturer
of translucent
 
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soaps, to create the Specialty Personal Care franchise. Net sales for the
Specialty Personal Care franchise for 1998, 1997 and 1996 were 6%, 1% and 1%,
respectively, of the Domestic Branded business segment.
 
INTERNATIONAL
 
     The Company distributes products in more than 40 countries. The Company has
focused its international efforts principally in Argentina, Canada, Mexico,
Puerto Rico and the Caribbean. During 1998, 1997 and 1996 approximately 89%, 84%
and 60%, respectively, of international sales came from these markets. The
Company's International business segment accounted for 11%, 6% and 4% of the
Company's net sales in 1998, 1997 and 1996, respectively.
 
     In the third quarter of 1997, the Company acquired Nuevo Federal S.A., a
manufacturer and marketer of personal care and household products in Argentina
("Nuevo Federal") and in the fourth quarter of 1997, acquired three personal
care soap brands and two laundry bar brands from The Procter & Gamble Company's
Argentinean subsidiary. With these acquisitions, the Company entered what it
believes 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.
 
     As of December 31, 1998, Nuevo Federal held the number two position in
laundry detergents with the ZORRO(R), ENZIMAX(R) and LIMZUL(R) brands, the
number two position in laundry bars with the GRAN FEDERAL(R) and GRAN LLAURO(R)
brands, the number three position in dish detergents with the CRISTAL(R) and
Zorro brands and the number four position in bar soaps with the LIMOL(R), CAMPOS
VERDES(R) and GELATTI(R) brands, in each case in the respective Argentinean
consumer products market (as measured by Information Resources, Inc.).
 
     In Canada, Purex Liquid is the number one liquid laundry detergent overall
and the number one liquid laundry detergent in mass merchandisers, the country's
fastest growing retail channel. Liquid Dial is the number three antibacterial
liquid soap in Canada. In Mexico, where revenues have more than tripled since
the business was acquired in 1991, Liquid Dial is the number one liquid soap
with 85% of this category. Breck haircare products enjoy strong brand
recognition in Mexico, with Breck hairspray having 12% of the hairspray
category. In Puerto Rico, Purex Liquid is a strong second in the liquid laundry
detergent category with 14% of the category.
 
COMMERCIAL MARKETS AND OTHER
 
     The Company's Commercial Markets business sells the Company's products,
both branded and non branded, through the commercial channel to end users such
as hotels, hospitals and schools. In addition, this business segment includes
sales of chemicals, principally glycerin, fatty acids and sulfonates, that are
by-products of the soap making and detergent making process. The Company's
Commercial Markets and Other business segment accounted for 4%, 6% and 6% of the
Company's net sales in 1998, 1997 and 1996, respectively.
 
DISCONTINUED AND DIVESTED BRANDS
 
     By February 1998, the Company had discontinued or divested product lines
that were not within its core businesses. Under this strategy, in the third
quarter of 1997, the Company sold certain of its household cleaning brands to
Church & Dwight for approximately $30 million. The sale included the following
brands and related inventories: BRILLO(R) soap pads and related products,
PARSONS'(R) ammonia, BO PEEP(R) ammonia, SNO BOL(R) toilet bowl cleaner,
CAMEO(R) metal polish and RAIN DROPS(R) water softener. The Company's London,
Ohio, plant, where Brillo is manufactured, also was part of the sale. In
addition, in the third quarter of 1997, the Company sold its BRUCE(R) floor care
product trademark and its MAGIC(R) sizing starch brand and related inventories
to other third parties for $4.5 million. In February 1998, the Company sold the
Purex TOSS N' SOFT(R) brand to Church & Dwight for $5.3 million. Sales of these
products in 1998 were insignificant. In 1997 and 1996, these brands as well as
discontinued brands generated net sales of approximately $53 million and $158
million, respectively, or approximately 4% and 11%, respectively, of the
Company's total net sales.
 
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CUSTOMERS
 
     The Company's products are sold throughout the United States primarily
through supermarkets, mass merchandisers, drug stores, membership club stores
and other outlets. The Company's top 10 customers accounted for approximately
40%, 35% and 38% of net sales in 1998, 1997 and 1996, respectively. Wal-Mart
Stores Inc. and its affiliate, SAM's Club (together "Wal-Mart") was the
Company's largest customer in 1998, 1997, and 1996 accounting for 17%, 17% and
16% of the Company's net sales in 1998, 1997 and 1996, respectively. No other
customer accounted for more than 10% of net sales in 1998, 1997 or 1996. The
Company was named one of Wal-Mart's "Suppliers of the Year" in 1998 for its
Armour brand and in 1996 for inventory management. The Company's payment terms
to customers range from 30 to 60 days.
 
     The Company's products also were sold internationally through the same
outlets, principally in Argentina, Canada, Mexico, Puerto Rico and the
Caribbean.
 
SALES
 
     The Company's 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 which sell to large mass
merchandisers, membership club stores, chain drug stores and vending and
military customers. In addition, certain customers and regions, representing
approximately 15.6% of the Company's 1998 net sales, are served by a national
broker sales organization.
 
PROMOTION AND ADVERTISING
 
     The Company expends a significant portion of its revenues for trade
discounts and the promotion and advertising of its products. The Company
believes that such expenditures are necessary to maintain and increase market
shares in an industry highly dependent on product image and quality, trade
support and consumer trends. The Company incurred discounts and expenses for
these purposes of $373.3 million, $311.4 million and $377.2 million in 1998,
1997 and 1996, respectively, or 24%, 23% and 27%, respectively, of net sales in
such years.
 
DISTRIBUTION
 
     Products are shipped by the Company from nine warehouses located at or near
domestic manufacturing and assembly facilities and four domestic regional
distribution centers. The regional warehouses are operated by third parties,
except for one warehouse owned and operated by the Company. Total space is
approximately 2,000,000 square feet at the regional distribution centers and
approximately 1,250,000 square feet at the warehouses located at or near the
manufacturing and assembly facilities. The Company uses outside carriers to
transport its products.
 
     The Company has a just-in-time inventory management program (the
"Continuous Replenishment Program") of continuous, automatic replenishment of
certain of its trade customers' inventories. The primary objective of the
Continuous Replenishment Program is to improve service to customers and reduce
costs by shortening the order-to-delivery pipeline (i.e., 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 the Continuous Replenishment Program
accounted for approximately 15% of the Company's net sales in each of 1998, 1997
and 1996.
 
SUPPLIERS
 
     The Company relies on a number of third parties for research and
development, manufacturing and packaging. Many of the Company's arrangements
with respect to new products contain limited mutual exclusivity provisions
designed to permit both the Company and the supplier to profit from the product
enhancement or innovation before the Company uses an alternative supplier or the
supplier sells to one of the Company's competitors. Most of the Company's
outsourcing arrangements can be terminated without material penalties on an
average of three months' notice.
 
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RAW MATERIALS
 
     The Company believes that ample sources of raw materials are generally
available with respect to all of its major products. Paper, fats and oils,
detergent chemicals and meat are the raw materials that generally have the most
significant impact on the Company's costs. Generally, the Company purchases such
raw materials from a variety of suppliers in the United States. While the
Company believes that it may in certain circumstances be able to respond to
price increases for certain raw materials by increasing sales prices, rapid
increases in the prices of such raw materials could have a short-term material
adverse impact on the Company's financial results. For example, tallow (a key
ingredient in Dial soaps) has experienced price fluctuations within the range of
$0.15 and $0.28 per pound from January 1, 1995, to December 31, 1998. Recently,
the price of tallow has been trading at the lower end of this historical range.
Since the majority of competitors' soap products use significantly less tallow,
the Company may not be able to increase the prices of its Dial soaps in response
to fluctuations in tallow prices. In addition, the antibacterial agent,
Triclosan, which is the active ingredient used in Liquid Dial products, is
sourced from a single supplier. Although the Company has an adequate supply of
Triclosan for its current and foreseeable needs, a significant disruption in
this supply could have a short-term material adverse impact on the Company's
financial results. The Company seeks to mitigate the risk by entering into
contracts to provide up to six to 12-month supplies of tallow, Triclosan and
packaging materials. Long-term hedging opportunities against price increases for
these raw materials are generally not available.
 
COMPETITION
 
     The Company competes primarily on the basis of brand equity, brand
advertising, customer service, product performance and product quality at
competitive retail price points. The Company competes with numerous,
well-established local, regional, national and international companies, some of
which have greater financial resources than the Company and may be willing to
commit significant resources to protecting their own market shares or to
capturing market share from the Company. The principal competitors of the
Company in the soap category are: The Procter & Gamble Company ("P&G"), Lever
Brothers Co., a division of Unilever PLC ("Lever"), and Colgate-Palmolive
Company ("Colgate"); in the detergent category are: P&G, Colgate, Lever, Church
& Dwight Co., Inc. and USA Detergents, Inc.; in the household and air freshener
categories are: S.C. Johnson & Son, Inc., Clorox Co., P&G, Colgate and Reckitt &
Colman Inc.; in the canned meat category are: Hormel Foods Corp. and the Libby's
division of International Home Foods.; and in the Specialty Personal Care
category are: Johnson & Johnson, Inc., Yardley of London and Del Laboratories,
Inc.
 
RESEARCH AND DEVELOPMENT
 
     The Company conducts research and development at its facility in
Scottsdale, Arizona. The Company engages primarily in applied research and
development, relying on outside sources for general research and development
activities. Internal research and development is directed at improving existing
products and developing new products, as well as providing technical assistance
and support to the Company's manufacturing activities. The Company's internal
and external research and development expenditures totaled approximately $10.2
million, $9.8 million and $15.2 million in 1998, 1997 and 1996, respectively.
The decrease in research and development spending from 1996 to 1997 resulted
from the Company's divestiture of certain non core businesses.
 
MARKETING RESEARCH
 
     The Company relies on industry data, purchased syndicated market share
data, various attitude and usage studies prepared by independent marketing firms
on behalf of the Company and direct sales information from its largest customers
to identify consumer needs and anticipate shifts in consumer preferences,
allowing the Company to develop line extensions and new products to meet
changing demands.
 
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PATENTS AND TRADEMARKS
 
     The Company's 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. Use of the Armour and
Armour Star trademarks by the Company is permitted by a perpetual license
granted by ConAgra, Inc., and use of the 20 Mule Team trademark is permitted by
a perpetual license granted by U.S. Borax, Inc. ConAgra, Inc., also sells non
canned food products under the Armour trademark.
 
     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. The Company maintains a portfolio of such trademarks representing
substantial goodwill in the businesses using such trademarks. The Company also
has 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. The Company owns a number of patents that
provide competitive advantages in the marketplace.
 
GOVERNMENT REGULATION
 
     Substantially all of the operations of the Company 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") and regulates the manufacturing, labeling, and sale
of the Company's over-the-counter drug and cosmetic products; the Insecticide,
Fungicide, and Rodenticide Act and the Toxic Substances Control Act, which are
administered by the Environmental Protection Agency and regulate the Company's
disinfectant products and certain of the substances used in the manufacturing of
its products, respectively; the Meat Inspection Act, which is administered by
the Department of Agriculture and regulates the Company's meat products; the
Hazardous Substances Act, which is administered by the Consumer Product Safety
Commission and regulates the labeling of the Company's household products; and
the Fair Packaging and Labeling Act, which is administered by the Federal Trade
Commission (the "FTC") and regulates the packaging and labeling of all the
Company's products. The Company's products also are subject to regulation by
various state laws and various state regulatory agencies. In addition, the
Company is subject to similar laws and regulations imposed by foreign
jurisdictions.
 
     The FDA's regulation of most of the over-the-counter drug products in the
United States (such as the Dial antibacterial products) has not been finalized.
In addition, the FTC continually monitors the advertising practices of consumer
products companies with respect to claims made relating to product functionality
and efficacy.
 
ENVIRONMENTAL MATTERS
 
     The Company is subject to a variety of environmental and health and safety
laws and regulations in each jurisdiction in which it operates. These laws and
regulations pertain to the Company's present and past operations.
 
     In the United States, the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA") authorizes the federal and state
governments and private parties to take action with respect to releases and
threatened releases of hazardous substances and provides a cause of action to
recover the response costs from certain statutorily responsible parties,
including parties who disposed or arranged for disposal of waste. The federal
government may also order responsible parties to take remedial action directly.
Liability under CERCLA may be joint and several among responsible parties. Most
states also have also enacted Superfund-type laws.
 
     Since 1980, the Company has received notices or requests for information
with respect to 27 sites that have been deemed Superfund sites under CERCLA,
five of which are currently active, 14 of which are inactive and eight of which
have been settled. The Company also is engaged in investigatory and remedial
activities with respect to four closed plants previously operated by Former
Parent. As of December 31, 1998,
 
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<PAGE>   9
 
the Company had accrued in its financial statements approximately $3 million in
reserves for expenses related to Superfund and clean-up of closed plant sites
and believes these reserves are adequate.
 
     The Company does not currently anticipate that it will incur significant
capital expenditures in connection with matters relating to environmental
control or compliance in 1999. The Company does not anticipate that the costs to
comply with environmental laws and regulations or the costs related to Superfund
sites and the clean-up of closed plant sites will have a material adverse effect
on the Company's capital expenditures, earnings or competitive position;
however, there can be no assurance that other developments, such as the
emergence of unforeseen claims or liabilities or the imposition of increasingly
stringent laws, regulations and enforcement policies will not result in material
costs in the future.
 
     Federal, state, local and foreign environmental compliance may from time to
time require changes in product formulation or packaging. Such changes have not
had, and are not expected to have, a material adverse effect on revenues,
capital expenditures or earnings of the Company.
 
EMPLOYEES
 
     As of December 31, 1998, the Company employed approximately 3,759
individuals, of whom approximately 1,140 were covered by collective bargaining
agreements.
 
     Four of the Company's seven plants in the United States are unionized.
Certain of the Company's contracts with its various unions are scheduled for
renegotiation in 1999 as follows: (i) Oil, Chemical and Atomic Workers union
(covering approximately 85 employees at the Company's Bristol, Pennsylvania,
plant) in May 1999; (ii) United Food and Commercial Workers union (covering
approximately 300 employees at the Company's Aurora, Illinois, plant) in August
1999; and (iii) the United Food and Commercial Workers union (covering
approximately 420 employees at the Company's Fort Madison, Iowa, plant) in
September 1999. In 1998, the Company successfully renegotiated its contract with
the International Brotherhood of Teamsters (covering approximately 335 employees
at the Company's St. Louis, Missouri, plant and Madison County, Illinois
distribution center), which now expires in August 2001. Although the Company
believes that its relations with its employees are satisfactory, there can be no
assurance that the Company will not face labor disputes in the future or that
such disputes will not be material to the Company.
 
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ITEM 2.  PROPERTIES
 
     The Company's corporate headquarters are located in a leased
130,000-square-foot, single-tenant building in Scottsdale, Arizona, that is
adjacent to its owned technical and administrative building comprising 200,000
square feet.
 
     The Company's principal facilities include the following.
 
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LOCATION                              SQ. FEET                  PURPOSE
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MANUFACTURING FACILITIES
  Aurora, Illinois..................  451,000     Bar soaps
  Fort Madison, Iowa................  447,000     Canned meats and corn starch
  St Louis, Missouri................  272,400     Fabric softeners, dry and liquid
                                                  laundry detergents
  Bristol, Pennsylvania.............  261,800     Dry detergents
  West Hazleton, Pennsylvania.......  214,470     Liquid detergents, fabric softeners
                                                  and liquid soaps
  Los Angeles, California...........   55,000     Powdered soap and fabric softeners
  Compton, California...............  146,400     Shampoos, lotions and facial scrubs
  Guatemala.........................  100,000     Translucent bar soaps
  Mexico............................   68,000     Shampoos and liquid soaps
  Buenos Aires, Argentina...........  150,000     Bar soaps and dry detergents
  Buenos Aires, Argentina...........   15,000     Sulfonic acid
  San Juan, Argentina...............   70,000     Dry detergents and bar soaps
  San Juan, Argentina...............   33,000     Liquid detergents, air fresheners
                                                  and deodorants
DISTRIBUTION CENTERS
  Atlanta, Georgia..................  253,700     Warehousing and distribution of
                                                  finished goods
  Breinigsville, Pennsylvania.......  631,100     Warehousing and distribution of
                                                  finished goods
  Corona, California................  237,400     Warehousing and distribution of
                                                  finished goods
  Granite City, Illinois............  812,000     Warehousing and distribution of
                                                  finished goods
WAREHOUSE FACILITIES
  Dedham, Massachusetts.............  235,000     Warehousing, gift set assembly and
                                                  office
  Stoughton, Massachusetts..........   80,000     Warehousing and office
  Holbrook, Massachusetts...........   72,000     Warehousing and supplies
</TABLE>
 
     The Company believes that its facilities in the aggregate are adequate and
suitable for their purposes and that manufacturing capacity is sufficient for
current needs. The Company continues to seek ways to cut costs and may close
plants as warranted.
 
ITEM 3.  LEGAL PROCEEDINGS
 
     As in the case with many companies, the Company faces exposure to actual or
potential claims and lawsuits involving its business and assets. The Company is
currently party to a number of lawsuits consisting of ordinary, routine
litigation incidental to the business of the Company, including general and
product liability and workers' compensation claims. The Company believes that
any liabilities resulting from such claims, after taking into account amounts
already provided for, but exclusive of any potential insurance recovery, should
not have a material adverse effect on the Company's financial position, cash
flows or results of operations.
 
ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
     The Company did not submit any matter to a vote of its stockholders during
the fourth quarter of 1998.
 
                                        8
<PAGE>   11
 
                                    PART II
 
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
     The Company's common stock is traded on the New York Stock Exchange (the
"NYSE") 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 24, 1999, was $33.125 per share.
 
<TABLE>
<CAPTION>
                                                               PRICE RANGE
                                                              -------------
                                                              HIGH      LOW
                                                              ----      ---
<S>                                                           <C>       <C>
FISCAL 1997
  First Quarter.............................................   16 5/8   13 3/8
  Second Quarter............................................   17 1/2   15 1/8
  Third Quarter.............................................   18 1/8   15 3/8
  Fourth Quarter............................................   21 13/16 15 1/8
FISCAL 1998
  First Quarter.............................................   25 1/4   19 15/16
  Second Quarter............................................   26       22 5/8
  Third Quarter.............................................   25 5/16  19 1/2
  Fourth Quarter............................................   29 11/16 19 15/16
</TABLE>
 
     The Company declared dividends of $0.08 per share of Common Stock in the
first, second, third and fourth quarters of 1997 and 1998. The declaration and
payment of dividends by the Company is subject to the discretion of its Board of
Directors (the "Board"). Any future determination to pay dividends will depend
on the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors deemed relevant at the
time by the Board. As of March 24, 1999, there were 102,683,910 shares of Common
Stock outstanding, which were held by 38,099 stockholders of record.
 
ITEM 6.  SELECTED FINANCIAL AND OTHER DATA
 
     The following table presents selected financial information derived from
the Company's consolidated financial statements. The selected consolidated
balance sheet data as of December 31, 1998, January 3, 1998, and December 28,
1996, and the consolidated income statement data for each of the three fiscal
years in the period ended December 31, 1998, have been derived from the audited
consolidated financial statements of the Company which are included elsewhere
herein. The selected consolidated balance sheet data as of December 30, 1995,
and December 31, 1994, and consolidated income statement data for the fiscal
years then ended have been derived from the audited consolidated financial
statements of the Company which are not included elsewhere herein. Prior to the
Spin-off, the Company operated as the Consumer Products Business of Former
Parent. The following data should be read in conjunction with the Company's
consolidated financial statements and notes thereto, "Item 7. Management's
Discussion and Analysis of Results of Operations and Financial Condition" and
the other financial information included elsewhere in this Form 10-K or
incorporated by reference herein.
 
                                        9
<PAGE>   12
 
                       SELECTED FINANCIAL AND OTHER DATA
 
  (000 OMITTED, EXCEPT PER SHARE DATA, NUMBER OF EMPLOYEES AND SHAREHOLDERS OF
                                    RECORD)
 
<TABLE>
<CAPTION>
                                                                      YEAR ENDED
                                            --------------------------------------------------------------
                                             DEC. 31       JAN. 3      DEC. 28      DEC. 30      DEC. 31
                                               1998         1998         1996         1995         1994
                                            ----------   ----------   ----------   ----------   ----------
<S>                                         <C>          <C>          <C>          <C>          <C>
OPERATIONS
Net sales.................................  $1,524,517   $1,362,606   $1,406,400   $1,365,290   $1,511,362
                                            ----------   ----------   ----------   ----------   ----------
Cost of products sold.....................     787,401      718,112      739,893      709,888      767,507
Write-down of discontinued product
  inventories.............................                                27,924       20,400
                                            ----------   ----------   ----------   ----------   ----------
Total cost of products sold...............     787,401      718,112      767,817      730,288      767,507
                                            ----------   ----------   ----------   ----------   ----------
  Gross profit............................     737,116      644,494      638,583      635,002      743,855
Selling, general and administrative
  expenses................................     553,181      482,324      541,110      523,058      583,847
Restructuring charges and other asset
  write-downs.............................                                27,076      135,600
                                            ----------   ----------   ----------   ----------   ----------
                                               553,181      482,324      568,186      658,658      583,847
                                            ----------   ----------   ----------   ----------   ----------
Operating income (loss)...................     183,935      162,170       70,397      (23,656)     160,008
Spin-off transaction costs................                                 5,000
Interest and other expenses...............      23,358       28,235       22,974       23,360       12,468
                                            ----------   ----------   ----------   ----------   ----------
Income (loss) before income taxes.........     160,577      133,935       42,423      (47,016)     147,540
Income taxes (benefit)....................      57,961       50,225       12,511      (19,527)      56,468
                                            ----------   ----------   ----------   ----------   ----------
Net income (loss)(1)......................  $  102,616   $   83,710   $   29,912   $  (27,489)  $   91,072
                                            ==========   ==========   ==========   ==========   ==========
Net income per share(2)
  Basic...................................  $     1.04   $     0.91   $     0.33
  Diluted.................................  $     1.02   $     0.89   $     0.33
Basic shares outstanding(2)...............      98,294       91,918       89,705
  Equivalent shares.......................       2,185        2,231        1,269
                                            ----------   ----------   ----------
  Diluted shares..........................     100,479       94,149       90,974
                                            ==========   ==========   ==========
BALANCE SHEET DATA (AT YEAR END)
Total assets..............................  $1,175,375   $  883,852   $  866,126   $  798,405   $  887,373
Working capital (deficit).................     (11,535)     (11,797)      41,107       45,663       56,188
Parent investment and advances............                                            496,230      555,703
Long-term debt............................     280,223       84,399      269,515        3,320        3,510
Common stock and other equity(2)..........     390,225      320,046      140,657
OTHER DATA
Depreciation and amortization.............      36,489       31,763       30,533       29,118       34,910
Capital expenditures......................      50,330       46,715       49,468       27,214       37,471
Number of employees (end of year).........       3,759        3,548        2,812        3,985        3,995
Number of employees (average).............       3,654        3,180        3,125        3,992        3,983
Dividends on common shares(2).............      31,497       29,510       14,365
</TABLE>
 
---------------
(1) Includes restructuring charges and asset write-downs and Spin-off
    transaction costs of $60 million ($35.3 million after tax) or $0.39 per
    share in 1996 and restructuring charges and asset write-downs of $156
    million ($94.9 million after tax) in 1995.
 
(2) Per share, common stock and other equity and dividends on common shares
    information is not presented for 1995 and prior years because the Company
    was not a publicly held company during such years. Income (loss) per share
    is presented for 1996, as the Company's common shares were issued on August
    15, 1996. The calculation of income (loss) per share in 1996 assumes that
    the common shares and common share equivalents were outstanding for the
    entire year. The earnings per share calculation reflects the implementation
    of Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
    for all periods presented.
 
                                       10
<PAGE>   13
 
ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
 
OVERVIEW
 
     For organizational, marketing, financial reporting purposes and method of
distribution, the Company has organized its business into three segments:
Domestic Branded, International and Commercial Markets and Other in accordance
with Statement of Financial Accounting Standards No. 131 "Disclosures about
Segments of an Enterprise" ("SFAS No. 131") which was implemented on December
31, 1998. The following Management's Discussion and Analysis of Results of
Operations and Financial Condition has been conformed to reflect the
implementation of SFAS No. 131.
 
     Beginning with 1998, the Company's fiscal year end is December 31. Prior to
1998, the Company's fiscal year ended on the Saturday closest to the end of
December. Fiscal year 1998 consisted of 52 weeks, fiscal year 1997 consisted of
53 weeks and fiscal year 1996 consisted of 52 weeks.
 
RESTRUCTURING CHARGES AND WRITE-DOWNS
 
     In the third quarter of 1996, the Company announced an administrative and
line of business reorganization to: (i) streamline its management and
administrative organization, (ii) reduce administrative overhead by 20%, (iii)
sell or discontinue a number of underperforming brands and (iv) exit the then
existing corporate headquarters. The Company recorded restructuring charges and
asset write-downs of $55 million ($35.3 million after tax) in the third quarter
of 1996 for severance costs, discontinuance of product lines and building exit
costs. Approximately $27.9 million of the charge related to inventories and was
included in cost of products sold.
 
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 $145.4 million, or 12.6%, to $1,295.4
million in 1998 from $1,150.1 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 $81.8 million, or 99%, to $164.6 million
from $82.8 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 $12.8 million, or 16.6%,
to $64.0 million in 1998 from $76.8 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% 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.
 
     Operating income in 1998 increased $21.8 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.
 
                                       11
<PAGE>   14
 
     Interest and other expenses decreased $4.9 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.
 
FISCAL 1997 COMPARED WITH FISCAL 1996
 
     Net sales decreased $43.8 million, or 3.1%, to $1,362.6 million in 1997
from $1,406.4 million in 1996. This decrease resulted primarily from the
discontinuation and divestiture of certain noncore businesses and a 15% price
reduction of Purex detergent products initiated in the second quarter of 1996,
offset in part by an increase in sales of the Company's Domestic Branded
business and sales attributable to the Company's acquisitions in Argentina in
September and November 1997.
 
     Net sales in the Domestic Branded business increased 3.5% to $1,150.1
million in 1997 from $1,111.4 million in 1996. The increase in net sales was the
result of growth in Armour, up 10.0%, Renuzit, up 8.1%, and Dial, up 2.0%. After
adjusting for the Purex price reduction, Domestic Branded net sales increased
5.5%.
 
     International net sales increased 45.6% to $82.8 million in 1997 from $56.9
million in 1996. The increase in net sales resulted primarily from the inclusion
of the Nuevo Federal acquisition, as well as net sales growth of 37.5% in Mexico
and 26.7% in Canada.
 
     Net sales in Commercial Markets and Other declined 4.2% to $76.8 million in
1997 from $80.1 million in 1996. The decrease in net sales resulted primarily
from softness in the pricing of glycerin.
 
     Excluding write-downs of inventory of $27.9 million associated with
administrative and line of business reorganizations in 1996, gross profit margin
remained relatively flat in 1997 and 1996 at 47.3% and 47.4%, respectively.
Lower costs in 1997, which resulted from improved procurement, distribution and
manufacturing practices, were offset by the price reduction of Purex detergent
products initiated in 1996.
 
     Selling, general and administrative expense in 1997 decreased $58.8
million, or 10.9%, to $482.3 million from $541.1 million in 1996, and declined
as a percentage of net sales to 35.4% from 38.5%. This was primarily
attributable to lower consumer and trade promotion expenditures and
administrative savings realized from the restructuring in 1996.
 
     Operating income in 1997 increased $91.8 million, or 130.4%, to $162.2
million from $70.4 million in 1996. Operating income in 1996 was impacted by
restructuring charges and inventory and asset write-downs totaling $55.0
million. Excluding these charges, operating income increased $36.8 million, or
29.3%, in 1997, primarily due to the significant reduction of selling, general
and administrative expense and a reduction of cost of products sold.
 
     In 1997, the Company sold to Church & Dwight Co., Inc., for $30.2 million
Brillo soap pads and related products, Parsons' ammonia, Bo Peep ammonia, Sno
Bol toilet bowl cleaner, Cameo metal cleaner and Rain Drops water softener. The
Company's London, Ohio, plant, where Brillo is manufactured, also was part of
the sale. In addition, the Company sold to other third parties for $4.5 million
its Bruce floor care trademark and its Magic Sizing/Starch brand and related
inventories. An aggregate gain of $15.7 million from the sale of these
businesses is included in operating income.
 
     Also included in 1997 operating income were $15.9 million of various
impairment and other operating charges. In the third quarter of 1997, the
Company evaluated the estimated life of the capitalized package design costs,
which was being amortized over five years. In light of the accelerated pace of
package design changes occurring at the Company and in the industry, the
estimated life of capitalized package design costs was reduced to one year.
Accordingly, $9.5 million of capitalized package design costs were considered
impaired and written-off against income. In addition, in 1997, the Company
charged against income $4.5
 
                                       12
<PAGE>   15
 
million of additional discontinued product sales returns and $1.9 million in
additional promotion claims on discontinued products.
 
     Interest and other expenses increased $5.3 million, or 22.9%, to $28.2
million in 1997 from $23.0 million in 1996, due to an increase of accretion
costs related to Armour employee benefit liabilities assumed from Former Parent
in the Spin-off, offset in part by lower interest expense resulting from the
repayment of debt with cash flow from operations and the proceeds of the
Company's public equity offering in the fourth quarter of 1997.
 
     The effective tax rate for 1997 was 37.5%, up from 29.5% in 1996. The lower
effective tax rate in 1996 resulted from a one-time tax benefit due to the
revaluation of the Company's deferred tax benefits for the higher effective
state tax rate incurred after the Spin-off.
 
     Net income increased $53.8 million, or 180%, to $83.7 million in 1997 from
$29.9 million in 1996. Excluding the restructuring and Spin-off charges taken in
1996, net income increased $18.5 million, or 28%, in 1997, primarily due to the
significant reduction of selling, general and administrative expense.
 
LIQUIDITY AND CAPITAL RESOURCES
 
     The Company generated cash from operations of $122.3 million during 1998
compared to cash generated of $160.8 million for 1997, a decrease of $38.5
million. This decrease resulted primarily from an increase in receivables due to
both an overall growth in sales in 1998, as well as seasonal shipments near
year-end 1998 of holiday-oriented Specialty Personal Care products.
 
     Capital expenditures for 1998 were $50.3 million versus $46.7 million for
1997. Capital spending in 1998 concentrated primarily on equipment and
information technology to reduce manufacturing, logistic and administrative
costs and address the year 2000 issue. Capital spending in 1999 is expected to
approximate $55 million and will be concentrated primarily on equipment and
information technology that provide opportunities to reduce manufacturing,
logistic and administrative costs and address the year 2000 issue. However, such
plans are dependent on the availability of funds, as well as identification of
projects with sufficient returns. As a result, there can be no assurance as to
the quantity and the type of capital spending in the future.
 
     On July 1, 1998, the Company acquired Freeman for $78.0 million, which was
financed through short-term borrowings supported by the Company's long-term
Credit Agreement. The Freeman acquisition added $7.7 million to current assets,
$19.6 million to current liabilities and $87.5 million to goodwill. The
acquisition price reflects a $6.0 million reduction in the purchase price for
Freeman as a result of a net worth adjustment received by the Company in January
1999.
 
     On September 14, 1998, the Company acquired Sarah Michaels for $187
million, which was financed through short-term borrowings supported by the
Company's long-term Credit Agreement. The Sarah Michaels acquisition added $43.9
million to current assets, $16.1 million to current liabilities and $125.8
million to goodwill.
 
     On September 23, 1998, the Company 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 the
Company with respect to, among other things, its ability to redeem the Senior
Notes, to place liens on certain properties and to enter into certain sale and
leaseback transactions.
 
     The Company 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 to Church & Dwight for
approximately $5.3 million. In addition, a non operating manufacturing property
was sold for $4.0 million to a third party. No gain or loss was realized on
either of these transactions.
 
     The Company's financing plan includes the sale of accounts receivable to
accelerate cash flow. Accounts receivable sold but not yet collected under this
plan at December 31, 1998, and January 3, 1998, were $90.0 million and $58.9
million, respectively. Under the terms of the plan, the Company retains the risk
of credit loss on the receivables sold.
 
                                       13
<PAGE>   16
 
     The Company also is party to a $350.0 million revolving credit agreement
(the "Credit Agreement") with various banks. The Credit Agreement, which will
terminate on August 15, 2002, unless extended, contains certain covenants which
impose limitations on the Company with respect to, among other things, its
ability to place liens on property, its ability to merge, consolidate or
transfer all or substantially all its assets, its minimum net worth and the
incurrence of certain indebtedness. The Company had $350.0 million available
under the Credit Agreement at December 31, 1998. The Company, from time to time,
makes short-term bank borrowings. At December 31, 1998, the Company had $82.3
million aggregate principal amount of such short-term borrowings outstanding.
The bank borrowings are classified as long-term debt because they are supported
by the long-term Credit agreement.
 
     As part of its business strategy, the Company routinely reviews and
evaluates the acquisition of domestic and international companies that market
products similar to the Company's product offerings. The Company may seek
additional debt and/or equity financing as necessary to fund any potential
acquisitions.
 
     At December 31, 1998, and January 3, 1998, a total of 4,495,736 and
5,072,785, respectively, of the issued shares were held by the Employee Equity
Trust. At December 31, 1998, and January 3, 1998, a total of 1,176,082 and
101,040 shares, respectively, were held in treasury by the Company. The shares
held at December 31, 1998, included 218,725 shares valued at $5.2 million
purchased by the Company as part of a small shareholder selling/repurchasing
program executed during the first half of 1998 and 831,600 shares valued at
$21.1 million as part of the Company's stock repurchase program.
 
     At December 31, 1998, the Company had approximately $95.4 million in net
deferred tax benefits. The realization of such benefits will require average
annual taxable income of approximately $18.0 million over the next 15 years. The
Company's average income before income taxes over the past three years was
approximately $112.3 million.
 
YEAR 2000 COMPLIANCE
 
  OVERVIEW
 
     Many existing computer systems and software products, including several
used by the Company, are coded to accept only two digit entries in the date code
field. Beginning in the year 2000, these date code fields will need to accept
four digit entries to distinguish 21st Century dates from 20th Century dates. As
a result, the Company's date critical functions related to the year 2000 and
beyond, such as sales, distribution, manufacturing, purchasing, inventory
control, trade promotion management, planning and replenishment, facilities and
financial systems may be materially adversely affected unless computer systems
and embedded microchips in manufacturing equipment are or become year 2000
compliant. In addition, certain of the Company's business activities may be
materially adversely affected if critical business partners, including
customers, vendors, suppliers, brokers and others, experience disruptions in
service as a result of year 2000 problems.
 
     The Company currently believes that the year 2000 issue will not pose
significant operational problems for the Company. However, if all year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected timely with respect to year 2000 problems that are identified,
there can be no assurance that the year 2000 issue will not materially adversely
impact the Company's results of operations or adversely affect the Company's
relationships with customers, vendors, suppliers, brokers or others.
Additionally, there can be no assurance that the year 2000 issues of other
entities will not have a material adverse impact on the Company's systems or
results of operations.
 
     The Company continues to implement changes that it believes are necessary
to assure accurate date recognition and data processing with respect to the year
2000. Activities have been organized into four specific areas: information
technology applications, information technology infrastructure, embedded systems
and business partners.
 
                                       14
<PAGE>   17
 
  INFORMATION TECHNOLOGY APPLICATIONS
 
     The Company's year 2000 efforts include identifying information technology
applications (such as payroll and order entry) requiring remediation, assessing
what is required to remediate those applications, remediating them to be ready
for the year 2000 by either modifying or replacing them and testing them for
year 2000 readiness. The Company has completed the identification and assessment
of the application systems that it believes are critical to maintaining
operations. These systems are in the process of being replaced or upgraded to
year 2000 compliant versions. The Company currently believes that these efforts
will be completed by mid-1999. The various projects that are underway currently
are meeting their respective milestone dates for completion.
 
  INFORMATION TECHNOLOGY INFRASTRUCTURE
 
     The Company also is following the approach described above for its
information technology infrastructure. This includes the computer and
communications hardware and related operating system software on which the
information systems applications are operated. This equipment is in the process
of being replaced or upgraded to year 2000 compliant versions. The Company
believes that these efforts will be completed by mid-1999. The various projects
that are underway currently are meeting their respective milestone dates for
completion.
 
  EMBEDDED SYSTEMS
 
     The Company is also following the same approach as described above for its
embedded systems. These embedded systems include, among other things,
manufacturing equipment with embedded microchips that may fail as a result of
year 2000 date problems. The Company has identified and completed an assessment
of the embedded systems it believes are critical, and currently believes that
such systems will be remediated and tested by mid-1999.
 
  BUSINESS PARTNERS
 
     The Company is communicating with its critical business partners
(customers, vendors, suppliers, brokers and others) to assess their readiness
and to consider the potential impact on the Company if these business partners
experience significant year 2000 problems. The Company has identified those
entities that it believes are critical to its operations, and is assessing and
attempting to mitigate its risks with respect to the failure of these entities
to be year 2000 compliant by developing a contingency plan. The Company has
assessed, and currently is assessing, its risk in this area. The Company
currently plans to complete its work in this area by April 1999 and also plans
to continue monitoring certain business partners after that date for year 2000
issues.
 
  CONTINGENCY PLAN
 
     A contingency plan is being developed for dealing with the most reasonably
likely worst case scenario, and the Company believes that its contingency plan
will be finalized by mid-1999. The Company currently believes that the most
reasonably likely worst case scenario for the Company involves the failure to
timely complete the replacement or upgrade of critical information systems
applications combined with the failure of embedded microchip technology at the
Company's manufacturing facilities and the failure of critical business partners
to be year 2000 compliant. The Company currently believes that the most
reasonably likely worst case scenario would result in increased costs due to
remediation efforts and additional staffing to support business activities, as
well as difficulties in procuring raw materials and meeting customer demand for
the Company's products, all of which could have a material adverse effect on the
Company and its results of operations.
 
  COSTS
 
     The Company is using both internal and external resources to meet the
timetable established for completion of its year 2000 efforts. The Company
incurred costs of $1.0 million in 1998 and currently is expected to incur costs
of $1.6 million in 1999. In addition, the Company incurred costs of $10.8
million in 1998 and is currently expected to incur costs of $9.3 million in 1999
in capital for the upgrade of its
 
                                       15
<PAGE>   18
 
information technology systems. These expenditures will address year 2000
compliance and are expected to provide the Company with improved efficiencies
and cost savings.
 
     The costs of the Company's year 2000 identification, assessment,
remediation and testing efforts and the dates on which the Company believes it
will complete such efforts are based upon management's best estimates, which
were derived using numerous assumptions regarding future events, including the
continued availability of certain resources, third-party remediation plans and
other factors. There can be no assurance that these estimates will prove to be
accurate and actual results could differ materially from those currently
anticipated. Specific factors that could cause such material differences
include, but are not limited to, the availability and cost of personnel trained
in year 2000 issues, the ability to identify, assess, remediate and test all
relevant computer codes and embedded technology and similar uncertainties. In
addition, variability of definitions of "compliance with year 2000" and the
myriad different products and services, and combinations thereof, sold by the
Company may lead to claims having an impact on the Company which is not
currently estimable. No assurance can be given that the aggregate cost of
defending and resolving such claims, if any, will not materially adversely
affect the Company's results of operations. Although some of the Company's
agreements with manufacturers and others from whom it purchases products for
resale contain provisions requiring such parties to indemnify the Company under
some circumstances, there can be no assurance that such indemnification
arrangements will cover all the Company's liabilities and costs related to
claims by third parties related to the year 2000 issue.
 
FACTORS THAT MAY AFFECT FUTURE RESULTS AND FINANCIAL CONDITION
 
     The Company's future results and financial condition are dependent upon the
Company's ability to successfully develop, manufacture and market consumer
products. Inherent in this process are a number of factors that the Company must
successfully manage to achieve favorable future operating results and financial
condition. Potential risks and uncertainties that could affect the Company's
future operating results and financial condition include, but are not limited
to, the factors discussed below.
 
  INTENSE COMPETITION IN THE CONSUMER PRODUCTS INDUSTRY
 
     The consumer products industry, particularly its detergent, personal care
and air freshener categories, is intensely competitive. Among the Company's most
significant competitors are large companies, including P&G, Lever and Colgate.
These companies have greater financial resources than the Company and may be
willing to commit significant resources to protecting their own market shares or
to capturing market share from the Company. As a result, the Company may need to
incur greater costs than previously incurred for trade and consumer promotions
and advertising to preserve or improve market share and to introduce and
establish new products and line extensions. At the same time, the Company may
need to undertake additional production related cost-cutting measures to enable
it to respond to competitors' price cuts and marketing efforts without reducing
the Company's margins. There can be no assurance that the Company will be able
to make such additional expenditures or implement such cost-cutting measures or
that, if made or implemented, they will be effective.
 
  CONSUMER PRICING PRESSURES
 
     Consumer products, particularly those that are value priced, are subject to
significant price competition. From time to time, the Company may need to engage
in price-cutting initiatives for some of its products to respond to competitive
and consumer pressures. The failure of the Company's sales volumes to grow
sufficiently to improve overall revenues and income as a result of a competitive
price reduction could have a material adverse effect on the financial
performance of the Company.
 
  TRADE CUSTOMER PRICING PRESSURES; COMPETITIVE RETAIL ENVIRONMENT
 
     The Company faces pricing pressures from its trade customers. Because of
the competitive retail environment, retailers have increasingly sought to reduce
inventory levels and obtain pricing concessions from vendors. In addition,
because consumer products companies, including the Company, have historically
offered
 
                                       16
<PAGE>   19
 
end-of-quarter discounts to achieve quarterly sales goals, trade customers have
been inclined to delay inventory restocking until quarter-end. Over the past two
years, the Company has reduced end-of-quarter discounts to retailers and has
changed its sales incentive structure to emphasize not only quarterly revenue
targets but also trade spending management and other personal performance
targets. The reduction in discounts has not had, and the Company believes it
will not have, a material adverse effect on sales, although there can be no
assurance in that regard. The Company also is subject to the risk that
high-volume customers could seek alternative pricing concessions or better trade
terms. The Company's performance also is dependent upon the general health of
the retail environment and could be materially adversely affected by changes
therein and by the financial difficulties of retailers.
 
  DEPENDENCE ON KEY CUSTOMERS
 
     The Company's top 10 customers accounted for 40% of net sales in 1998.
Wal-Mart was the Company's largest customer, accounting for 17% of the Company's
net sales in 1998. The loss of, or a substantial decrease in the volume of
purchases by, Wal-Mart or any of the Company's other top customers could have a
material adverse effect on the Company's results of operations.
 
  PRICE VOLATILITY OF RAW MATERIALS; SINGLE SOURCE SUPPLIER
 
     While the Company believes that it may, in certain circumstances, be able
to respond to price increases for certain raw materials by increasing sales
prices, rapid increases in the prices of such raw materials could have a
material adverse impact on financial results. For example, tallow (a key
ingredient in Dial bar soaps) has experienced price fluctuations within the
range of $0.15 and $0.28 per pound from January 1, 1995, to December 31, 1998.
Recently, the price of tallow has been trading near the lower end of this
historical range. Because the majority of the competitors' soap products use
considerably less tallow in their bar soap products, the Company may not be able
to increase the prices of its Dial bar soaps in response to increases in tallow
prices. In addition, the antibacterial agent, Triclosan, which is the active
ingredient used in Liquid Dial products, is sourced from a single supplier.
Although the Company has an adequate supply of Triclosan for its current and
foreseeable needs, a significant disruption in this supply could have a
short-term material adverse impact on the Company's financial results. Although
the Company seeks to enter into contracts to provide up to six-month supplies of
tallow, Triclosan and packaging materials, long-term hedging opportunities
against price increases for these items are generally not available.
 
  DEPENDENCE ON DOMESTIC MARKETS; RISKS ASSOCIATED WITH INTERNATIONAL EXPANSION
 
     While a number of the Company's competitors have diversified their revenues
to include a strong international component, the Company is currently dependent
primarily on sales generated in the U.S. (89% of sales in 1998). With respect to
a number of the Company's most significant product categories, including
detergents and bar soaps, the U.S. markets are mature and characterized by high
household penetration. The Company's unit sales growth in these domestic markets
will depend on increasing usage by consumers and capturing market share from
competitors. There can be no assurance that the Company will succeed in
implementing its strategies to achieve such domestic growth.
 
     To reduce its dependence on domestic revenues, the Company has adopted a
strategy to further penetrate international markets. In implementing this
strategy, the Company faces barriers to entry and the risk of competition from
local and other companies that already have established global businesses, risks
generally associated with conducting business internationally, including
exposure to currency fluctuations, limitations on foreign investment,
import/export controls, nationalization, unstable governments and legal systems
and the additional expense and risks inherent in operating in geographically and
culturally diverse locations. Because the Company plans to develop its
International business through acquisitions as well as joint ventures, co-
packaging arrangements and/or other alliances, the Company also may be subject
to risks associated with such acquisitions, ventures, arrangements and
alliances, including those relating to the marriage of different corporate
cultures and shared decision-making. In addition, because the Company's current
international distribution capabilities are extremely limited, the Company also
will need to acquire a distribution network or enter into alliances with
existing distributors before it can effectively conduct operations in new
markets.
 
                                       17
<PAGE>   20
 
There can be no assurance that the Company will succeed in increasing its
International business in a profitable manner, and a failure to expand this
business may have a material adverse effect on the Company.
 
     The Company has a significant number of registered foreign trademarks as
well as pending foreign trademark applications. There can be no assurance that
the Company will successfully register any foreign trademarks for which
applications are currently pending or that such trademarks, once registered,
together with any existing registered foreign trademarks, will be protected in
the foreign markets in which they are used.
 
  RISKS OF POTENTIAL ACQUISITIONS
 
     As previously disclosed, the Company recently acquired Freeman and Sarah
Michaels. The Company may acquire or make substantial investments in additional
complementary businesses or products in the future. The Freeman and Sarah
Michaels acquisitions entailed, and any future acquisitions or investments would
entail, various risks, including the difficulty of assimilating the operations
and personnel of the acquired business or products, the potential disruption of
the Company's ongoing business and, generally, the potential inability of the
Company to obtain the desired financial and strategic benefits from the
acquisition or investment. These factors could have a material adverse effect on
the Company's financial results. Future acquisitions and investments by the
Company also could result in substantial cash expenditures, potentially dilutive
issuances of equity securities, the incurrence of additional debt and contingent
liabilities and amortization expenses related to goodwill and other intangible
assets, which could adversely affect the Company's financial results and
condition. The Company engages from time to time in discussions with respect to
potential acquisitions, some of which may be material.
 
  ADVERSE PUBLICITY; PRODUCT RECALLS
 
     Certain news broadcasts by major U.S. television and radio networks have
focused on the use of antibacterial agents to kill germs on various surfaces.
Triclosan, the active ingredient in Liquid Dial, also has been a focus of these
broadcasts. Although none of the broadcasts disputed that Triclosan kills germs
on the skin, some third party experts did question whether it provides any
additional protection beyond that provided by non antibacterial soap products.
Although the Company has test results that it believes prove that Triclosan
provides consumers with additional protection in limiting exposure to
bacteria-related diseases, there can be no assurance that the publicity stemming
from these broadcasts will not adversely affect the Company's sales of its
antibacterial soap products and its results of operations.
 
     Because the Company shares the use of the Armour trademark for food
products with ConAgra Inc., the manufacturer of Armour branded non canned meat
products, the Company faces the risk that consumer preferences and perceptions
with respect to any of the Company's Armour products may be influenced by
adverse publicity affecting any of the Armour branded products of ConAgra, Inc.
 
     From time to time, consumer product companies, including Dial, have had to
recall certain products for various reasons, which costs of recall or other
liabilities could be material to such companies. To date, the Company has not
made any product recalls that have been material to the Company's financial
condition. In addition, adverse publicity regarding any such product recalls
could have a material adverse effect on the Company.
 
  ENVIRONMENTAL CONCERNS REGARDING DETERGENT COMPOUND
 
     Nonlyphenol ethoxylate ("NPE") is an ingredient used in the Company's
liquid and powder detergent products. Certain environmental and regulatory
groups have raised concerns regarding the toxicity of compounds produced from
NPE as it decomposes and the adverse impact on the reproductive health of
certain aquatic animals exposed to those compounds. Although to the best of the
Company's knowledge none of the studies undertaken on NPE have demonstrated a
link between the compound and such effect in the environment or in human beings,
there can be no assurance that subsequent studies will, in fact, demonstrate
such a link or demonstrate other adverse environmental consequences. Current
government regulations do not impose any restrictions on the use of NPE, or
impose any liability on any of the businesses that utilize NPE in
 
                                       18
<PAGE>   21
 
the products they manufacture. The Company believes, however, that a number of
governmental agencies in North America and Europe are discussing formal
regulations of NPE in the environment. The Company is in the process of
reformulating its detergents to eliminate this compound as an ingredient. The
additional expense the Company expects to incur as a result of this
reformulation is not expected to have a material adverse impact on the Company's
financial results. In addition, the Company believes that it will not incur any
significant environmental liability as a result of the use of NPE in its
products.
 
  DEPENDENCE ON KEY PERSONNEL
 
     The operation of the Company requires managerial expertise. Of the
Company's key personnel, only the Chief Executive Officer has an employment
contract with the Company. There can be no assurance that any of the Company's
key employees will remain in the Company's employ. The loss of such key
personnel could have a material adverse effect on the Company's operations.
 
  TURNOVER; EMPLOYEE RELATIONS
 
     Primarily as a result of the restructuring of its business, the Company
discharged approximately 950 salaried and non salaried employees during 1995 and
1996. In addition, the Company experienced greater aggregate voluntary turnover
of salaried employees in 1996 and 1997 than the industry average. Although the
Company believes that it presently has sufficient staffing, there can be no
assurance that the Company would not be materially adversely affected by any
future significant voluntary turnover of salaried or other employees.
 
     Four of the Company's seven plants in the United States are unionized.
Certain of the Company's contracts with its various unions are scheduled for
renegotiation in 1999 as follows: (i) Oil, Chemical and Atomic Workers union
(covering approximately 85 employees at the Company's Bristol, Pennsylvania,
plant) in May 1999; (ii) United Food and Commercial Workers union (covering
approximately 300 employees at the Company's Aurora, Illinois, plant) in August
1999; and (iii) the United Food and Commercial Workers union (covering
approximately 420 employees at the Company's Fort Madison, Iowa, plant) in
September 1999. In 1998, the Company successfully renegotiated its contract with
the International Brotherhood of Teamsters (covering approximately 335 employees
at the Company's St. Louis, Missouri, plant and Madison County, Illinois,
distribution center), which now expires in August 2001. Although the Company
believes that its relations with its employees are satisfactory, there can be no
assurance that the Company will not face similar labor disputes in the future or
that such disputes will not be material to the Company.
 
  ENVIRONMENTAL MATTERS
 
     The Company is subject to a variety of environmental and health and safety
laws in each jurisdiction in which it operates. These laws and regulations
pertain to the Company's present and past operations.
 
     Since 1980, the Company has received notices or requests for information
with respect to 27 sites that have been deemed "Superfund" sites under the
federal Comprehensive Environmental Response, Compensation and Liability Act,
five of which are currently active, 14 of which are inactive and eight of which
have been settled. The Company also is engaged in investigatory and remedial
activities with respect to four closed plants previously operated by Former
Parent. As of December 31, 1998, the Company has accrued in its financial
statements approximately $3 million in reserves for expenses related to
Superfund sites and the cleanup of closed plant sites, which reserves it
believes are adequate.
 
     The Company does not anticipate that the costs to comply with such laws and
regulations or the costs related to Superfund sites and the cleanup of closed
plant sites will have any material adverse effect on the Company's capital
expenditures, earnings or competitive position; however, there can be no
assurance that other developments, such as the emergence of unforeseen claims or
liabilities or the imposition of increasingly stringent laws, regulations and
enforcement policies will not result in material costs in the future.
 
                                       19
<PAGE>   22
 
ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
 
     The following discussion of the Company's exposure to various market risks
contains "forward looking statements" that involve risks and uncertainties.
These projected results have been prepared utilizing certain assumptions
considered reasonable in light of information currently available to the
Company. Nevertheless, because of the inherent unpredictability of interest
rates, foreign currency rates and commodity prices, as well as other factors,
actual results could differ materially from those projected in such forward
looking information.
 
  INTEREST RATE RISK
 
     The Company has short-term debt and short-term bank borrowings supported by
a long-term revolving Credit Agreement and a Receivables Purchase and Sale
Program which subject the Company to the risk of loss associated with movements
in market interest rates.
 
     At December 31, 1998, the Company had $10.4 million in short-term
borrowings outstanding, $90 million in receivables sold but not collected and
$280 million in long-term debt outstanding. Of the long-term debt outstanding,
$198 million is fixed-rate debt (6.5%) and, accordingly, does not expose the
Company to risk of earnings loss due to changes in market interest rates (see
Note J to the Company's Consolidated Financial Statements). Both the short-term
debt of $10.4 million and the remaining $82.3 million of short-term borrowings
(which are classified as long-term borrowings because they are supported by the
long-term Credit Agreement) are floating rate obligations. In addition, the
Receivables Purchase and Sale Program allows the Company to sell its trade
receivables prior to collection at a discount that closely approximates the
30-day London Interbank Borrowing Rate ("LIBOR"). Such discount rate reprices
monthly.
 
     If the floating rates were to change by 10% from December 31, 1998, levels,
annual interest expense associated with the floating-rate debt would change by
approximately $500,000 (pretax) and the annual discount paid for the sale of
receivables not yet collected would change by approximately $500,000 (pretax).
 
  FOREIGN CURRENCY
 
     The Company is subject to exposure from fluctuations in foreign currency
exchange rates, primarily U.S. Dollar/Canadian Dollar, U.S. Dollar/Mexican Peso
and U.S. Dollar/Argentinean Peso.
 
     The Argentinean Peso's value has been "pegged" by the Argentinean
government as equal to the U.S. Dollar. Through December 31, 1998, this currency
equivalency applied. However, there can be no assurance in the future that the
Argentinean government will continue this policy or have the ability to ensure
that the value of the Argentinean Peso will continue to equal the U.S. Dollar.
 
     At December 31, 1998, one U.S. Dollar was worth 1.54 Canadian Dollars and
9.90 Mexican Pesos, respectively. For the year ended December 31, 1998, the U.S.
Dollar/Canadian Dollar exchange rate fluctuated between a high of $1.00/C$1.59
to $1.00/C$1.40 and the U.S. Dollar/Mexican Peso exchange rate fluctuated
between $1.00/P$10.62 and a low of $1.00/P$8.02. A hypothetical 10% change in
the exchange rates for the U.S. Dollar to the Canadian Dollar, the Mexican Peso
and the Argentinean Peso from those at December 31, 1998, would result in an
annual currency translation gain or loss of approximately $2.5 million (pretax).
 
  COMMODITY PRICE RISK
 
     In the manufacture of its products the Company utilizes a number of
materials that can be considered commodities, such as tallow, coconut oil and
meat. In addition, the Company uses a variety of products that are priced based
on underlying commodities, such as plastic bottles (resin) and packaging
(cardboard). The Company, in the normal course of business, attempts to enter
into supply agreements that generally fix or set a range of prices of goods to
be purchased. These supply agreements can cover up to six to 12 months of supply
for goods. Financial derivatives to hedge or lock in the prices of these
commodities over the long term generally are not available.
 
                                       20
<PAGE>   23
 
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
     Consolidated financial statements of the Company as of December 31, 1998,
and for each of the fiscal years in the three-year period ended December 31,
1998, together with related notes and the report of Deloitte & Touche LLP are
set forth on the following pages.
 
                                       21
<PAGE>   24
 
         MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
 
     The management of The Dial Corporation has the responsibility for preparing
and assuring the integrity and objectivity of the accompanying financial
statements and other financial information in this report. The financial
statements were prepared using generally accepted accounting principles
consistently applied. The financial statements reflect, where applicable,
management's best estimates and judgments and include disclosures and
explanations that are relevant to an understanding of the financial affairs of
the Company.
 
     The Company's financial statements have been audited by Deloitte & Touche
LLP. Management has made available to Deloitte & Touche LLP all of the Company's
financial records and other relevant data and has made appropriate and complete
written and oral representations and disclosures in connection with the audit.
 
     Management has established and maintains a system of internal control that
is designed to provide reasonable assurance that transactions are authorized and
properly recorded, that assets are protected and that materially inaccurate
financial reporting is prevented and detected. The appropriate segregation of
responsibilities and careful selection of employees are components of the system
of internal controls. The internal control system is independently monitored and
evaluated by an extensive and comprehensive internal auditing program.
 
     The Board of Directors, acting through its Audit Committee, oversees the
adequacy of the Company's internal control environment. The Audit Committee
meets regularly with management representatives and, jointly and separately,
with representatives of Deloitte & Touche LLP and internal auditing management
to review accounting, auditing and financial reporting matters.
 
                                          /s/       MALCOLM JOZOFF
 
                                          --------------------------------------
                                                      Malcolm Jozoff
                                              Chairman, President and Chief
                                                    Executive Officer
 
                                          /s/       SUSAN J. RILEY
 
                                          --------------------------------------
                                                      Susan J. Riley
                                             Senior Vice President and Chief
                                                    Financial Officer
 
                                       22
<PAGE>   25
 
                          INDEPENDENT AUDITORS' REPORT
 
To the Stockholders and Board of Directors of The Dial Corporation:
 
     We have audited the accompanying consolidated balance sheets of The Dial
Corporation as of December 31, 1998, and January 3, 1998, and the related
consolidated statements of operations and comprehensive income, cash flows and
stockholders' equity for each of the three fiscal years in the period ended
December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
 
     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
 
     In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of The Dial Corporation as of
December 31, 1998, and January 3, 1998, and the results of its operations and
its cash flows for each of the three fiscal years in the period ended December
31, 1998, in conformity with generally accepted accounting principles.
 
                                          /s/    DELOITTE & TOUCHE LLP
 
                                          --------------------------------------
                                                  Deloitte & Touche LLP
 
Phoenix, Arizona
January 29, 1999
 
                                       23
<PAGE>   26
 
                              THE DIAL CORPORATION
 
                           CONSOLIDATED BALANCE SHEET
                                 (000 OMITTED)
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JANUARY 3,
                                                                  1998           1998
                                                              ------------    ----------
<S>                                                           <C>             <C>
                                         ASSETS
Current Assets:
  Cash and cash equivalents.................................   $   12,405      $ 10,089
  Receivables, less allowance of $7,378 and $6,841..........       56,477        60,448
  Inventories...............................................      155,441       124,058
  Deferred income taxes.....................................       13,156        25,185
  Other current assets......................................        1,634         7,174
                                                               ----------      --------
          Total current assets..............................      239,113       226,954
Property and equipment, net.................................      281,302       260,928
Deferred income taxes.......................................       82,227        63,567
Intangibles, net............................................      545,999       331,482
Other assets................................................       26,734           921
                                                               ----------      --------
                                                               $1,175,375      $883,852
                                                               ==========      ========
                          LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Trade accounts payable....................................   $  123,911      $102,235
  Short-term borrowings.....................................       10,389         8,500
  Income taxes payable......................................        9,685        14,581
  Other current liabilities.................................      106,663       113,435
                                                               ----------      --------
          Total current liabilities.........................      250,648       238,751
Long-term debt..............................................      280,223        84,399
Pension and other benefits..................................      245,981       231,634
Other liabilities...........................................        8,298         9,022
                                                               ----------      --------
          Total liabilities.................................      785,150       563,806
                                                               ----------      --------
Commitments and contingencies (Notes M and R)
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; 104,355,018 and 102,725,481 shares
     issued.................................................        1,044         1,027
  Additional capital........................................      450,767       393,947
  Retained income...........................................      105,011        33,892
  Accumulated other comprehensive income....................       (8,949)       (1,800)
  Employee benefits.........................................     (129,111)     (105,572)
  Treasury stock, 1,176,082 and 101,040 shares held.........      (28,537)       (1,448)
                                                               ----------      --------
          Total stockholders' equity........................      390,225       320,046
                                                               ----------      --------
                                                               $1,175,375      $883,852
                                                               ==========      ========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       24
<PAGE>   27
 
                              THE DIAL CORPORATION
 
         STATEMENT OF CONSOLIDATED OPERATIONS AND COMPREHENSIVE INCOME
                      (000 OMITTED, EXCEPT PER SHARE DATA)
 
<TABLE>
<CAPTION>
                                                                    FISCAL YEAR ENDED
                                                        ------------------------------------------
                                                        DECEMBER 31,    JANUARY 3,    DECEMBER 28,
                                                            1998           1998           1996
                                                        ------------    ----------    ------------
<S>                                                     <C>             <C>           <C>
Net sales.............................................   $1,524,517     $1,362,606     $1,406,400
                                                         ----------     ----------     ----------
Costs and expenses:
  Cost of products sold...............................      787,401        718,112        739,893
  Write down of discontinued product inventories......                                     27,924
                                                         ----------     ----------     ----------
                                                            787,401        718,112        767,817
  Selling, general and administrative expenses........      553,181        482,324        541,110
  Restructuring charges and other asset write-downs...                                     27,076
                                                         ----------     ----------     ----------
                                                          1,340,582      1,200,436      1,336,003
                                                         ----------     ----------     ----------
Operating income......................................      183,935        162,170         70,397
                                                         ----------     ----------     ----------
Spin-off transaction costs............................                                      5,000
Interest and other expenses...........................       23,358         28,235         22,974
                                                         ----------     ----------     ----------
                                                             23,358         28,235         27,974
                                                         ----------     ----------     ----------
Income before income taxes............................      160,577        133,935         42,423
Income taxes..........................................       57,961         50,225         12,511
                                                         ----------     ----------     ----------
NET INCOME............................................   $  102,616     $   83,710     $   29,912
                                                         ==========     ==========     ==========
NET INCOME PER SHARE -- BASIC.........................   $     1.04     $     0.91     $     0.33
                                                         ==========     ==========     ==========
NET INCOME PER SHARE -- DILUTED.......................   $     1.02     $     0.89     $     0.33
                                                         ==========     ==========     ==========
Basic shares outstanding..............................       98,294         91,918         89,705
  Equivalent shares...................................        2,185          2,231          1,269
                                                         ----------     ----------     ----------
Diluted shares outstanding............................      100,479         94,149         90,974
                                                         ==========     ==========     ==========
 
NET INCOME............................................   $  102,616     $   83,710     $   29,912
Other comprehensive income (loss) net of tax:
  Foreign currency translation adjustment.............         (524)        (2,263)           575
  Minimum pension liability adjustment................       (6,625)         3,600         (3,712)
                                                         ----------     ----------     ----------
Other comprehensive income (loss).....................       (7,149)         1,337         (3,137)
                                                         ----------     ----------     ----------
COMPREHENSIVE INCOME..................................   $   95,467     $   85,047     $   26,775
                                                         ==========     ==========     ==========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
                                       25
<PAGE>   28
 
                              THE DIAL CORPORATION
 
                      STATEMENT OF CONSOLIDATED CASH FLOWS
                                 (000 OMITTED)
 
<TABLE>
<CAPTION>
                                                                     FISCAL YEAR ENDED
                                                         ------------------------------------------
                                                         DECEMBER 31,    JANUARY 3,    DECEMBER 28,
                                                             1998           1998           1996
                                                         ------------    ----------    ------------
<S>                                                      <C>             <C>           <C>
CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES:
Net income.............................................    $102,616      $  83,710       $ 29,912
Adjustments to reconcile net income to net cash
  provided by operating activities:
  Depreciation and amortization........................      36,489         31,763         30,533
  Deferred income taxes................................      33,235         36,545           (965)
  Restructuring charges and asset write-downs..........                                    55,000
  Change in operating assets and liabilities:
     Receivables.......................................     (29,152)         9,894         12,766
     Inventories.......................................       8,651         17,815         (7,763)
     Trade accounts payable............................       2,440         (3,457)        11,839
     Other assets and liabilities, net.................     (32,004)       (15,422)       (31,870)
                                                           --------      ---------       --------
Net cash provided by operating activities..............     122,275        160,848         99,452
                                                           --------      ---------       --------
CASH FLOWS PROVIDED (USED) BY INVESTING ACTIVITIES:
Capital expenditures...................................     (50,330)       (46,715)       (49,468)
Acquisition of business, net of cash acquired..........    (271,043)       (31,575)
Proceeds from sales of property and equipment..........      10,662         35,853            128
                                                           --------      ---------       --------
Net cash used by investing activities..................    (310,711)       (42,437)       (49,340)
                                                           --------      ---------       --------
CASH FLOWS PROVIDED (USED) BY FINANCING ACTIVITIES:
Net proceeds from issuance of senior notes.............     192,377
Common stock purchased for treasury....................     (26,166)
Net payments on long-term borrowings...................      (2,077)      (206,216)       (13,488)
Proceeds from sale of common stock.....................                    107,990
Net change in short-term borrowings....................       1,889          8,500           (317)
Net change in receivables sold.........................      31,100        (15,998)        (1,808)
Dividends paid on common stock.........................     (31,497)       (29,510)       (14,365)
Cash proceeds from stock options.......................      25,126         12,810          2,779
Cash transfers to parent, net..........................                                   (14,695)
                                                           --------      ---------       --------
Net cash provided (used) by financing activities.......     190,752       (122,424)       (41,894)
                                                           --------      ---------       --------
Net increase (decrease) in cash and cash equivalents...       2,316         (4,013)         8,218
Cash and cash equivalents, beginning of year...........      10,089         14,102          5,884
                                                           --------      ---------       --------
CASH AND CASH EQUIVALENTS, END OF YEAR.................    $ 12,405      $  10,089       $ 14,102
                                                           ========      =========       ========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       26
<PAGE>   29
 
                              THE DIAL CORPORATION
 
                 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY
                                 (000 OMITTED)
<TABLE>
<CAPTION>
                                                                                                                 ACCUMULATED
                                  COMMON STOCK                  RETAINED                  PARENT      COMMON        OTHER
                                ----------------   ADDITIONAL    INCOME     EMPLOYEE    INVESTMENT   STOCK IN   COMPREHENSIVE
                                SHARES    AMOUNT    CAPITAL     (DEFICIT)   BENEFITS    & ADVANCES   TREASURY      INCOME
                                -------   ------   ----------   ---------   ---------   ----------   --------   -------------
<S>                             <C>       <C>      <C>          <C>         <C>         <C>          <C>        <C>
BALANCE, DECEMBER 30, 1995....                                                          $ 496,230
  Net income..................                                                             35,855
  Payments to parent..........                                                            (14,695)
                                -------   ------    --------    --------    ---------   ---------    --------      -------
BALANCE AT SPIN-OFF, AUGUST
  15, 1996....................                                                            517,390
  Spin-off capitalization.....   95,346   $ 953     $237,664                $ (81,379)   (517,390)
                                -------   ------    --------    --------    ---------   ---------    --------      -------
BALANCE AFTER SPIN-OFF, AUGUST
  15, 1996....................   95,346     953      237,664                  (81,379)
  Exercise of stock options...      293       3        3,165                                             (389)
  Dividends on common stock...                                   (14,365)
  Change in unearned employee
    benefits..................                         6,380                   (2,038)                   (257)
  Net loss....................                                    (5,943)
  Other comprehensive
    income....................                                                                                     $(3,137)
                                -------   ------    --------    --------    ---------   ---------    --------      -------
BALANCE, DECEMBER 28, 1996....   95,639     956      247,209     (20,308)     (83,417)                   (646)      (3,137)
  Exercise of stock options...      807       8        5,884                   10,009                    (715)
  Net proceeds from stock
    offering..................    6,279      63      107,927
  Dividends on common stock...                                   (29,510)
  Change in unearned employee
    benefits..................                        32,927                  (32,164)                    (87)
  Net income..................                                    83,710
  Other comprehensive
    income....................                                                                                       1,337
                                -------   ------    --------    --------    ---------   ---------    --------      -------
BALANCE, JANUARY 3, 1998......  102,725   1,027      393,947      33,892     (105,572)                 (1,448)      (1,800)
  Exercise of stock options...    1,630      17       18,963                   13,158                    (923)
  Common stock purchased for
    treasury..................                                                                        (26,166)
  Dividends on common stock...                                   (31,497)
  Change in unearned employee
    benefits..................                        37,857                  (36,697)
  Net income..................                                   102,616
  Other comprehensive
    income....................                                                                                      (7,149)
                                -------   ------    --------    --------    ---------   ---------    --------      -------
BALANCE, DECEMBER 31, 1998....  104,355   $1,044    $450,767    $105,011    $(129,111)               $(28,537)     $(8,949)
                                =======   ======    ========    ========    =========   =========    ========      =======
 
<CAPTION>
 
                                  TOTAL
                                ---------
<S>                             <C>
BALANCE, DECEMBER 30, 1995....  $ 496,230
  Net income..................     35,855
  Payments to parent..........    (14,695)
                                ---------
BALANCE AT SPIN-OFF, AUGUST
  15, 1996....................    517,390
  Spin-off capitalization.....   (360,152)
                                ---------
BALANCE AFTER SPIN-OFF, AUGUST
  15, 1996....................    157,238
  Exercise of stock options...      2,779
  Dividends on common stock...    (14,365)
  Change in unearned employee
    benefits..................      4,085
  Net loss....................     (5,943)
  Other comprehensive
    income....................     (3,137)
                                ---------
BALANCE, DECEMBER 28, 1996....    140,657
  Exercise of stock options...     15,186
  Net proceeds from stock
    offering..................    107,990
  Dividends on common stock...    (29,510)
  Change in unearned employee
    benefits..................        676
  Net income..................     83,710
  Other comprehensive
    income....................      1,337
                                ---------
BALANCE, JANUARY 3, 1998......    320,046
  Exercise of stock options...     31,215
  Common stock purchased for
    treasury..................    (26,166)
  Dividends on common stock...    (31,497)
  Change in unearned employee
    benefits..................      1,160
  Net income..................    102,616
  Other comprehensive
    income....................     (7,149)
                                ---------
BALANCE, DECEMBER 31, 1998....  $ 390,225
                                =========
</TABLE>
 
                See Notes to Consolidated Financial Statements.
 
                                       27
<PAGE>   30
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
NOTE A.  BASIS OF PREPARATION
 
     On July 25, 1996, the Board of Directors of The Dial Corp ("Former Parent")
declared a dividend to effect the spin-off of its Consumer Products Business
(the "Spin-off"). The dividend was paid on August 15, 1996, to shareholders of
record as of August 5, 1996. Each Dial shareholder received a dividend of one
share of common stock of The Dial Corporation ("the Company"), which, since the
Spin-off, has owned and operated the Consumer Products Business previously
conducted by Former Parent. Concurrently with the Spin-off, the name of Former
Parent was changed to Viad Corp.
 
     The Consolidated Financial Statements present the financial position,
results of operations and cash flows of the divisions and subsidiaries
comprising the Company, as if it had been formed as a separate entity for all
periods presented. Dial's historical cost basis of the assets and liabilities
have been carried over to the new company. Concurrent with the Spin-off, the
Company was capitalized through settlement of Former Parent's investment and
advances account of $517.4 million by the assumption of $280 million of
long-term debt and $80.2 million (net of income taxes) in Armour employee
benefit liabilities, with the net $157.2 million remaining comprising the
Company's stockholders' equity as of the Spin-off date. All intercompany
balances and transactions among the entities comprising the Company have been
eliminated.
 
NOTE B.  SIGNIFICANT ACCOUNTING POLICIES
 
     The Consolidated Financial Statements are prepared in accordance with
generally accepted accounting principles, which require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
 
     Beginning with 1998, the Company's fiscal year end is December 31. Prior to
1998, the Company's fiscal year ended on the Saturday closest to the end of
December. Fiscal year 1998 consisted of 52 weeks, fiscal year 1997 consisted of
53 weeks and fiscal year 1996 consisted of 52 weeks.
 
     Revenue Recognition.  Sales are recorded at the time products are shipped
to trade customers.
 
     Major Customers.  Major customers are defined as those that individually
accounted for more than 10% of the Company's sales. Sales to a major customer
accounted for 17%, 17% and 16% of the Company's net sales in 1998, 1997 and
1996, respectively.
 
     Marketing and Research and Development Costs.  All expenditures for
marketing and research and development are charged against earnings in the year
incurred and are reported in the Statement of Consolidated Operations under the
caption "Selling, general and administrative expenses." The Company's internal
and external research and development expenditures totaled approximately $10.2
million, $9.8 million and $15.2 million in 1998, 1997 and 1996, respectively.
Marketing costs include the costs of advertising and various sales promotional
programs.
 
     Cash Equivalents.  The Company considers all highly liquid investments with
original maturities of three months or less from the date of purchase to be cash
equivalents.
 
     Inventories.  Generally, inventories are stated at the lower of cost (first
in, first out and average cost methods) or market.
 
     Long-Lived Assets.  In accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121, the Company reviews the carrying values of its
long-lived assets and identifiable intangibles for possible impairment whenever
events or changes in circumstances indicate that the carrying amount of assets
to be held and used may not be recoverable. For assets to be disposed of, the
Company reports long-lived assets and certain identifiable intangibles at the
lower of carrying amount or fair value less cost to sell.
 
                                       28
<PAGE>   31
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     Property and Equipment.  Property and equipment are stated at cost, net of
accumulated depreciation.
 
     Depreciation is provided principally by use of the straight-line method at
annual rates as follows:
 
<TABLE>
<S>                                            <C>
Buildings....................................  2% to 5%
Machinery and other equipment................  5% to 33%
Leasehold improvements.......................  Lesser of lease term or useful life
</TABLE>
 
     Intangibles.  Intangibles are carried at cost less accumulated
amortization. Intangibles that arose prior to November 1, 1970, as a result of
the Former Parent's initial investment in the Company are not being amortized.
Goodwill arising on or after November 1, 1970, is amortized on the straight-line
method over the periods of expected benefit but not in excess of 40 years.
Trademarks are amortized on the straight-line method over 40 years. The customer
list that arose from the acquisition of PUREX(R) is being amortized over 30
years.
 
     Pension and Other Benefits.  Trusteed, noncontributory pension plans cover
substantially all employees, with benefit levels supplemented in most cases by
defined matching common stock contributions to employees' 401(k) plans. Defined
benefits are based primarily on final average salary and years of service.
Funding policies provide that payments to defined benefit pension trusts shall
be at least equal to the minimum funding required by applicable regulations.
 
     The Company has defined benefit post retirement plans that provide medical
and life insurance for eligible retirees and dependents. The related post
retirement benefit liabilities are recognized over the period that services are
provided by employees.
 
     Net Income Per Common Share.  In accordance with SFAS No. 128, basic net
income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during the year before giving effect
to stock options considered to be dilutive common stock equivalents. Diluted net
income per common share is computed by dividing net income by the weighted
average number of common shares outstanding during the year after giving effect
to stock options considered to be dilutive common stock equivalents. Shares held
by the Employee Equity Trust (the "Trust") are not considered outstanding for
net income per share calculations until the shares are released from the Trust.
 
     At December 31, 1998, there were 104,355,018 shares of common stock issued
and 98,683,200 shares outstanding. At December 31, 1998, and January 3, 1998, a
total of 4,495,736 and 5,072,785, respectively, of the issued shares were held
by the Trust. At December 31, 1998, and January 3, 1998, a total of 1,176,082
and 101,040 shares of common stock, respectively, were held in treasury by the
Company. The shares held at December 31, 1998, included 218,725 shares valued at
$5.2 million purchased by the Company as part of a small shareholder
selling/repurchasing program executed during the first half of 1998 and 831,600
shares valued at $21.1 million as part of the Company's stock repurchase
program.
 
     In addition to common stock, the Company is authorized to issue 10,000,000
shares of preferred stock, par value of $.01 per share, none of which has been
issued.
 
     Income per share is presented for 1996 as the Company's common shares were
issued on August 15, 1996. The calculation of income per share assumes that the
common shares and common share equivalents were outstanding for that entire
year.
 
     Reporting on Comprehensive Income.  In June 1997, the FASB issued Statement
of Financial Accounting Standards No. 130 "Reporting Comprehensive Income"
("SFAS No. 130") which was adopted in 1998. SFAS No. 130 requires that
enterprises classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained income and additional capital in the
stockholders' equity section of the balance sheet.
 
                                       29
<PAGE>   32
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     Segments of an Enterprise.  In June 1997, the FASB issued Statement of
Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS No. 131") which was adopted in 1998.
SFAS No. 131 establishes standards for the way that public enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. It also establishes standards
for disclosures about products and services, geographic areas and major
customers. See Note P to the Consolidated Financial Statements for additional
information concerning the Company's segments of an enterprise disclosures.
 
     New Accounting Pronouncements.  In June 1998, the FASB issued Statement of
Financial Accounting Standards No. 133 "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS No. 133"). SFAS No. 133 requires all derivatives
to be recorded on the balance sheet at fair value and provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. The Company is studying the application of this new
Statement. This Statement shall be effective for annual periods beginning after
June 15, 1999.
 
NOTE C.  ACQUISITION OF BUSINESSES
 
     On July 1, 1998, the Company acquired The Freeman Cosmetic Corporation
("Freeman"), a manufacturer and marketer of natural skin care, hair care, bath,
body and foot care products for a cash purchase price of approximately $78.0
million. The cash purchase price for Freeman reflects a $6.0 million reduction
as a result of a net worth adjustment received by the Company in January 1999.
The Freeman acquisition has been accounted for under the purchase method of
accounting. The purchase price has been preliminary allocated based on estimated
fair value of assets and liabilities at date of acquisition, pending final
determination of certain acquired balances. This preliminary allocation added
$7.7 million to current assets, $19.6 million to current liabilities and has
resulted in acquired goodwill of $87.5 million, which is being amortized on a
straight-line basis over 40 years. The results of Freeman have been included in
the consolidated financial statements since the acquisition date.
 
     On September 14, 1998, the Company acquired Sarah Michaels, Inc. ("Sarah
Michaels"), a manufacturer and marketer of specialty bath and body care products
for a cash purchase price of $187.0 million. The Sarah Michaels acquisition has
been accounted for under the purchase method of accounting. The purchase price
has been preliminary allocated based on estimated fair value of assets and
liabilities at date of acquisition, pending final determination of certain
acquired balances. At December 31, 1998, $5.0 million remains in escrow pending
final valuation of certain acquired assets and liabilities. This preliminary
allocation added $43.9 million to current assets, $16.1 million to current
liabilities and has resulted in acquired goodwill of approximately $125.8
million, which is being amortized on a straight-line basis over 40 years. The
results of Sarah Michaels have been included in the consolidated financial
statements since the acquisition date.
 
     The Company continues to gather and analyze certain information required to
complete the allocation of the purchase price of the acquisitions of Freeman and
Sarah Michaels. Further adjustments to the allocation of the purchase price may
arise as a result of the finalization of the ongoing study.
 
     The following unaudited pro forma combined condensed financial information
for 1998 and 1997 includes the results of operations for the Company and assumes
the acquisition of Sarah Michaels and Freeman were consummated at the beginning
of each period presented, along with adjustments which give effect to events
that are directly attributable to the transaction and are expected to have a
continuing impact. The unaudited pro forma combined condensed financial
information does not give any effect to any potential cost savings which may
arise from the consolidation of the acquisitions with the Company.
 
                                       30
<PAGE>   33
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     The unaudited pro forma combined condensed financial information does not
purport to represent the results of operations that would have actually resulted
had the purchases occurred on the indicated dates, nor should it be taken as
indicative of future results of operations.
 
<TABLE>
<CAPTION>
                                                     DECEMBER 31,    JANUARY 3,
                                                         1998           1998
                                                     ------------    ----------
                                                           (000 OMITTED,
                                                       EXCEPT PER SHARE DATA)
<S>                                                  <C>             <C>
Net sales..........................................   $1,580,286     $1,496,058
Operating income...................................      181,534        177,391
Net income.........................................       94,474         83,284
Earnings per share -- diluted......................   $     0.94     $     0.88
</TABLE>
 
     In September 1997, the Company acquired Nuevo Federal S.A., a manufacturer
and marketer of personal care and household products in Argentina, for a
purchase price of approximately $35 million. Of this amount, $26.8 million was
paid in cash with the remainder of the purchase price comprised of future
payments contingent on the completion of certain transactions which have not yet
occurred. In addition, in November 1997, the Company acquired three leading
personal care soap brands and two laundry bar brands from The Procter & Gamble
Company's Argentinean subsidiary for a purchase price of $4.8 million paid in
cash. These acquisitions, accounted for under the purchase method of accounting,
resulted in acquired goodwill of approximately $27.6 million which is being
amortized on a straight-line basis over 25 years.
 
NOTE D.  RESTRUCTURING CHARGES AND INVENTORY AND ASSET WRITE-DOWNS
 
     In the third quarter of 1996, the Company announced a line of business and
an administrative reorganization to streamline its management and administrative
organization, eliminate approximately 250 positions, sell or discontinue a
number of underperforming brands and exit the then existing corporate
headquarters. The Company recorded restructuring charges and asset write-downs
of $55 million ($33.6 million after tax) in the third quarter of 1996 for
severance costs, discontinuance of product lines and building exit costs.
Approximately $27.9 million of the charge related to inventories and was
included in cost of products sold.
 
NOTE E.  INCOME AND EXPENSE ITEMS
 
     During 1998, the Company received approximately $10.7 million from the
disposition of assets. The Purex Toss 'n Soft brand and related inventories were
sold to Church & Dwight Co., Inc. for approximately $5.3 million. In addition, a
non operating manufacturing property was sold for $4.0 million to a third party.
No gain or loss was realized on the transactions.
 
     In the third quarter of 1997, the Company sold to Church & Dwight Co.,
Inc., for $30.2 million Brillo soap pads and related products, Parsons' ammonia,
Bo Peep ammonia, Sno Bol toilet bowl cleaner, Cameo metal cleaner and Rain Drops
water softener. The Company's London, Ohio, plant, where Brillo was
manufactured, also was part of the sale. In addition, the Company sold to other
third parties for approximately $4.5 million its Bruce floor care trademark and
its Magic sizing starch brand and related inventories. Included in operating
income is an aggregate gain of $15.7 million from the sale of these businesses.
 
     Also included in 1997 operating income is $15.9 million of various
impairment and other operating charges. In the third quarter of 1997, the
Company evaluated the estimated life of the capitalized package design costs,
which were being amortized over five years. In light of the accelerated pace of
package design changes taking place in the Company and the industry, the
estimated life of the capitalized package design costs was changed to one year.
Accordingly, $9.5 million of capitalized package design costs were considered
 
                                       31
<PAGE>   34
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
impaired and written-off against income. In addition, the Company charged
against income $4.5 million in discontinued product sales returns and $1.9
million in additional promotion claims on discontinued products.
 
NOTE F.  INVENTORIES
 
     Inventories consisted of the following:
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31,    JANUARY 3,
                                                           1998           1998
                                                       ------------    ----------
                                                             (000 OMITTED)
<S>                                                    <C>             <C>
Raw materials and supplies...........................    $ 55,791       $ 36,938
Work in process......................................       7,855          9,373
Finished goods.......................................      91,795         77,747
                                                         --------       --------
                                                         $155,441       $124,058
                                                         ========       ========
</TABLE>
 
NOTE G.  PROPERTY AND EQUIPMENT
 
     Property and equipment consisted of the following:
 
<TABLE>
<CAPTION>
                                                      DECEMBER 31,    JANUARY 3,
                                                          1998           1998
                                                      ------------    ----------
                                                            (000 OMITTED)
<S>                                                   <C>             <C>
Land................................................   $  10,057      $  10,071
Buildings and leasehold improvements................     118,630        108,613
Machinery and other equipment.......................     385,616        376,582
Construction in progress............................      32,093         15,936
                                                       ---------      ---------
                                                         546,396        511,202
Less accumulated depreciation.......................    (265,094)      (250,274)
                                                       ---------      ---------
                                                       $ 281,302      $ 260,928
                                                       =========      =========
</TABLE>
 
NOTE H.  INTANGIBLES
 
     Intangibles consisted of the following:
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31,    JANUARY 3,
                                                           1998           1998
                                                       ------------    ----------
                                                             (000 OMITTED)
<S>                                                    <C>             <C>
Goodwill(1)..........................................    $488,870       $265,335
Trademarks...........................................      52,718         54,957
Customer list and other intangibles..................      78,365         78,997
                                                         --------       --------
                                                          619,953        399,289
Less accumulated amortization........................     (73,954)       (67,807)
                                                         --------       --------
                                                         $545,999       $331,482
                                                         ========       ========
</TABLE>
 
---------------
(1) Includes $155,259,000 of goodwill arising prior to November 1, 1970, that is
    not being amortized.
 
                                       32
<PAGE>   35
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
NOTE I.  OTHER CURRENT LIABILITIES
 
     Other current liabilities consisted of the following:
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31,    JANUARY 3,
                                                           1998           1998
                                                       ------------    ----------
                                                             (000 OMITTED)
<S>                                                    <C>             <C>
Accrued compensation.................................    $ 25,038       $ 30,238
Accrued trade promotions.............................      24,390         21,256
Employee benefit liabilities.........................      18,114         16,509
Dividends payable....................................       7,905          7,799
Other................................................      31,216         37,633
                                                         --------       --------
                                                         $106,663       $113,435
                                                         ========       ========
</TABLE>
 
NOTE J.  DEBT
 
     Short-term debt at December 31, 1998, consisted of a $10,389,000 bank loan
to the Company's Argentinean subsidiary, Nuevo Federal. The loan is denominated
in Argentinean Pesos, bears interest at the bank's short-term rate (9% at
December 31, 1998) and reprices monthly. The loan is subject to call by the bank
at the end of each month.
 
     Long-term debt consisted of the following:
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31,    JANUARY 3,
                                                           1998           1998
                                                       ------------    ----------
                                                             (000 OMITTED)
<S>                                                    <C>             <C>
$200 million 6.5% Senior Notes due 2008, net of issue
  discount...........................................    $197,938       $    --
Short-term bank borrowings supported by the long-term
  revolving Credit Agreement, with interest rates at
  December 31, 1998 ranging from 5.5% to 6%..........      82,285        84,399
                                                         --------       -------
          Total long-term debt.......................    $280,223       $84,399
                                                         ========       =======
</TABLE>
 
     On September 23, 1998, the Company issued $200,000,000 of 6.5% Senior Notes
due 2008. The Indenture governing these Senior Notes imposes restrictions on the
Company with respect to, among other things, its ability to redeem the Senior
Notes, place liens on certain properties and enter into certain sale and
leaseback transactions.
 
     In addition, long-term debt consists of short-term bank borrowings
classified as long-term because they are supported by the Company's $350 million
long-term, revolving Credit Agreement. At December 31, 1998, the Company 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 bank borrowings under the Credit Agreement
is, at the Company's 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. Such spreads and fees will change moderately should the
Company's debt ratings change.
 
     The financial covenants of the Credit Agreement require the Company to
maintain stockholders' equity equal to 80% of such equity as of the Spin-off
date plus 25% of net income subsequent thereto plus certain other additions to
stockholders' equity. The Company also is required to maintain a three-to-one
ratio of long-term debt to income before interest, taxes, depreciation and
amortization. Under the most restrictive of these
 
                                       33
<PAGE>   36
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
covenants, approximately $110 million of stockholders' equity was available for
dividends as of December 31, 1998.
 
     Interest expense incurred on long-term debt in 1998, 1997 and 1996 was
$10,526,000, $13,152,000 and $6,500,000, respectively.
 
     Interest paid to lenders other than the Former Parent in 1998, 1997 and
1996 was approximately $9,575,000, $13,567,500 and $5,329,800, respectively.
 
NOTE K.  INCOME TAXES
 
     The deferred income tax assets (liabilities) included in the Consolidated
Balance Sheet at December 31, 1998, and January 3, 1998, are related to the
following:
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31,    JANUARY 3,
                                                           1998           1998
                                                       ------------    ----------
                                                             (000 OMITTED)
<S>                                                    <C>             <C>
Property, plant and equipment........................    $(25,806)      $(34,837)
Pension and other employee benefits..................      77,921         83,599
Reserves, accruals and other.........................      29,773         25,462
Deferred state income taxes..........................      13,495         14,528
                                                         --------       --------
                                                         $ 95,383       $ 88,752
                                                         ========       ========
</TABLE>
 
     The combined provision for income taxes consisted of the following:
 
<TABLE>
<CAPTION>
                                                         1998       1997       1996
                                                        -------    -------    -------
                                                                (000 OMITTED)
<S>                                                     <C>        <C>        <C>
Current:
  United States:
     Federal..........................................  $21,898    $10,744    $10,262
     State............................................    1,677      2,024      3,081
  Foreign.............................................    1,151        912        133
                                                        -------    -------    -------
                                                         24,726     13,680     13,476
                                                        -------    -------    -------
Deferred:
  United States:
     Federal..........................................   31,266     30,133      5,977
     State............................................    1,969      6,412     (6,942)
                                                        -------    -------    -------
                                                         33,235     36,545       (965)
                                                        -------    -------    -------
Provision for income taxes............................  $57,961    $50,225    $12,511
                                                        =======    =======    =======
</TABLE>
 
     Income taxes paid in 1998, 1997 and 1996 amounted to $23,109,534,
$4,577,000 and $3,789,000, respectively. Taxes paid in 1997 and 1996 reflect
income tax deductions associated with the 1996 and 1995 restructuring programs.
 
                                       34
<PAGE>   37
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     A reconciliation between the statutory federal income tax rate and the
Company's consolidated effective income tax rate for each of the years ended
December 31,1998, is as follows:
 
<TABLE>
<CAPTION>
                                                              1998    1997    1996
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Federal statutory rate......................................  35.0%   35.0%   35.0%
Goodwill amortization.......................................    .5      .4     1.1
Spin-off transaction costs..................................                    .5
Foreign Sales Corp. benefit.................................   (.6)    (.7)   (1.0)
State income taxes..........................................   3.2     3.7     3.6
State deferred tax asset adjustment.........................                  (9.5)
Impact of lower foreign tax rate............................  (1.5)   (1.1)   (1.4)
Other, net..................................................   (.5)     .2     1.2
                                                              ----    ----    ----
Effective income tax rate...................................  36.1%   37.5%   29.5%
                                                              ====    ====    ====
</TABLE>
 
NOTE L.  PENSION AND OTHER BENEFITS
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31,    JANUARY 3,
                                                           1998           1998
                                                       ------------    ----------
                                                             (000 OMITTED)
<S>                                                    <C>             <C>
CHANGE IN PROJECTED BENEFIT OBLIGATION:
Projected benefit obligation at beginning of year....    $161,399       $154,671
Service cost.........................................       4,230          4,354
Interest cost........................................      12,239         11,923
Actuarial (gain)/loss................................      18,131           (840)
Other (recognition of past service costs)............       2,809
Benefits paid........................................      (9,116)        (8,709)
                                                         --------       --------
Projected benefit obligation.........................    $189,692       $161,399
                                                         ========       ========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year.......    $157,616       $137,325
Actual return on plan assets.........................       6,678         28,421
Company contributions................................         896            579
Benefits paid........................................      (9,116)        (8,709)
                                                         --------       --------
Fair value of plan assets............................    $156,074       $157,616
                                                         ========       ========
</TABLE>
 
     At December 31, 1998, the plans held 501,584 shares of common stock of the
Company.
 
     The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $99,455,000, $97,156,000 and $81,083,000,
respectively, as of December 31, 1998, and $7,522,000, $5,866,000 and $862,000,
respectively, as of January 3, 1998.
 
                                       35
<PAGE>   38
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
<TABLE>
<CAPTION>
                                                           1998        1997
                                                         --------    --------
                                                            (000 OMITTED)
<S>                                                      <C>         <C>
RECONCILIATION OF FUNDED STATUS:
Funded status..........................................  $(33,618)   $ (3,783)
Unrecognized transition obligation.....................       601         928
Unrecognized prior service cost........................     4,692       5,142
Unrecognized actuarial (gain)/loss.....................     7,547     (18,779)
                                                         --------    --------
Accrued pension cost...................................  $(20,778)   $(16,492)
                                                         ========    ========
</TABLE>
 
<TABLE>
<CAPTION>
                                                       DECEMBER 31,    JANUARY 3,
                                                           1998           1998
                                                       ------------    ----------
                                                             (000 OMITTED)
<S>                                                    <C>             <C>
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET:
Prepaid pension cost.................................    $  1,710       $  4,197
Accrued benefit liability............................     (32,403)       (20,717)
Additional minimum liability.........................       9,915             28
                                                         --------       --------
Net amount recognized................................    $(20,778)      $(16,492)
                                                         ========       ========
</TABLE>
 
     At December 31, 1998, the plans held 501,584 shares of common stock of the
Company.
 
     The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plans assets were $99,455,000, $97,156,000, and $81,083,000,
respectively, as of December 31, 1998, and $7,722,000, $5,866,000 and $862,000,
respectively, as of January 3, 1998.
 
<TABLE>
<CAPTION>
                                                       1998        1997        1996
                                                     --------    --------    --------
<S>                                                  <C>         <C>         <C>
CALCULATION OF NET PERIODIC PENSION COST:
Service cost.......................................  $  4,230    $  4,354    $  4,516
Interest cost......................................    12,239      11,923      11,419
Expected return on plan assets.....................   (13,439)    (11,965)    (11,250)
Amortization of:
  Net transition obligation........................       327         327         327
  Unrecognized past service cost...................       450         446         446
  Actuarial loss...................................       238         188         283
                                                     --------    --------    --------
Net periodic pension cost..........................  $  4,045    $  5,273    $  5,741
                                                     ========    ========    ========
Curtailment (Gain)/Loss............................  $     --    $     86    $   (529)
                                                     ========    ========    ========
Other Comprehensive (Income)/Loss..................  $  9,730    $ (6,068)   $  6,109
                                                     ========    ========    ========
ASSUMPTIONS TO BE DISCLOSED:
Discount rate for obligation.......................      7.00%       7.75%       8.00%
Long-term rate of investment return................     10.00%      10.00%       9.50%
Salary increase rate...............................      4.00%       4.00%       5.00%
</TABLE>
 
     For the years ended December 31, 1998, January 3, 1998, and December 28,
1996, defined contribution plan expense was $2,026,000, $2,002,000 and
$2,143,000, respectively: multi-employer pension plan costs were $1,259,000,
$1,135,000 and $1,217,000, respectively.
 
                                       36
<PAGE>   39
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     Post retirement Benefits Other Than Pensions.  The Company and its
subsidiaries have defined benefit post retirement plans that provide medical and
life insurance for eligible employees, retirees and dependents. In addition, the
Company retained the obligations for such benefits for eligible retirees of
Armour and Company (sold in 1983).
 
     Effective January 1, 1992, the Company adopted the provisions of SFAS No.
106, "Employers' Accounting for Post retirement Benefits Other Than Pensions"
("OPEB"), which requires that estimated OPEB benefits be accrued during the
years the employees provide services.
 
     The status of the plans are as follows:
 
<TABLE>
<CAPTION>
                                                              DECEMBER 31,    JANUARY 3,
                                                                  1998           1998
                                                              ------------    ----------
                                                                    (000 OMITTED)
<S>                                                           <C>             <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year.....................   $ 190,117      $ 196,236
Service cost................................................       2,005          2,276
Interest cost...............................................      13,994         14,453
Plan participants' contributions............................       1,091          1,159
Amendments..................................................      (2,274)           952
Actuarial loss/(gain).......................................      10,830         (5,859)
Benefits paid...............................................     (17,075)       (19,100)
                                                               ---------      ---------
Benefit obligation at end of year...........................   $ 198,688      $ 190,117
                                                               =========      =========
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year..............   $      --      $      --
Employer contribution.......................................      15,984         17,941
Plan participants' contribution.............................       1,091          1,159
Benefits paid...............................................     (17,075)       (19,100)
                                                               ---------      ---------
Fair value of plan assets at end of year....................   $      --      $      --
                                                               =========      =========
Funded status...............................................   $(198,688)     $(190,117)
Unrecognized net gain.......................................     (11,873)       (24,373)
Unrecognized prior service cost.............................     (13,314)       (12,212)
                                                               ---------      ---------
Accrued benefit cost........................................   $(223,875)     $(226,702)
                                                               =========      =========
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEETS.......   $(223,875)     $(226,702)
                                                               =========      =========
</TABLE>
 
<TABLE>
<CAPTION>
                                                  DECEMBER 31,    JANUARY 3,    DECEMBER 28,
                                                      1998           1998           1996
                                                  ------------    ----------    ------------
<S>                                               <C>             <C>           <C>
WEIGHTED-AVERAGE ASSUMPTIONS:
Discount rate...................................      7.00%          7.75%          8.00%
</TABLE>
 
     The assumed health care rate cost trend used to measure the accumulated
post retirement benefit obligation for retirees below the age of 65 for 1999 is
8.0%, and for retirees above age 65 for 1999 is 6.5%, both gradually declining
to an ultimate rate of 5% in 2002.
 
                                       37
<PAGE>   40
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
<TABLE>
<CAPTION>
                                                  DECEMBER 31,    JANUARY 3,    DECEMBER 28,
                                                      1998           1998           1996
                                                  ------------    ----------    ------------
                                                                (000 OMITTED)
<S>                                               <C>             <C>           <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost....................................    $ 2,005        $ 2,276        $ 2,589
Interest cost...................................     13,994         14,453         15,641
Amortization of:
  Unrecognized prior service cost...............     (1,172)          (881)          (696)
  Actuarial gain................................     (1,670)        (2,567)        (2,391)
                                                    -------        -------        -------
Net periodic benefit cost.......................    $13,157        $13,281        $15,143
                                                    =======        =======        =======
Curtailment gain................................    $    --        $    --        $(4,611)
                                                    =======        =======        =======
</TABLE>
 
     The 1998, 1997 and 1996 components of net periodic post retirement benefit
cost reflect a full years expense of approximately $6.8 million, $5.8 million
and $6.9 million, respectively, incurred on the Armour employee benefit
liabilities assumed in the Spin-off. Expenses of approximately $6.8 million for
the year ended December 31, 1998, $5.8 million for the year ended January 3,
1998, and $2.2 million for the year ended December 28, 1996, which were incurred
after the Spin-off, are included in "Interest and Other Expenses" in the
Statement of Consolidated Operations. For the year ended December 28, 1996,
expenses of $4.7 million incurred prior to the Spin-off were recorded in the
financial statements of Former Parent.
 
<TABLE>
<CAPTION>
                                                              INCREASE    (DECREASE)
                                                              --------    ----------
<S>                                                           <C>         <C>
EFFECT OF ONE-PERCENTAGE-POINT CHANGE IN ASSUME
  HEALTH CARE COST TREND RATES:
Effect on the total of service and interest cost
  components................................................  $ 1,630      $ (1,357)
Effect on accumulated post retirement benefit obligation....  $16,824      $(14,076)
</TABLE>
 
NOTE M.  LEASES
 
     Certain sales and administration offices and equipment are leased. The
leases expire in periods ranging generally from one to five years, and some
provide for renewal options ranging from one to eight years. Leases that expire
are generally renewed or replaced by similar leases, depending on business needs
at that time. Net rent expense paid in 1998, 1997 and 1996 totaled $8,989,000,
$6,533,000 and $3,797,000, respectively.
 
     At December 31, 1998, the Company's future minimum rental payments with
respect to noncancelable operating leases with terms in excess of one year were
as follows: $8,641,000 (1999), $8,144,000 (2000), $7,407,000 (2001), $6,157,000
(2002), $3,936,000 (2003) and $12,879,000 thereafter.
 
NOTE N.  FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FAIR VALUE OF
FINANCIAL INSTRUMENTS
 
     Financial Instruments with Off-Balance-Sheet Risk.  At December 31, 1998,
the Company had an agreement to sell undivided participating interests in a
defined pool of trade accounts receivable in an amount not to exceed $90,000,000
as a means of accelerating cash flow. From time to time, as collections reduce
accounts receivable in the pool, the Company sells participating interests in
new receivables. The Company's expenses of selling receivables amounted to
approximately $4,295,000, $4,752,000 and $2,059,000 in 1998, 1997 and 1996,
respectively, and are included in the Statement of Consolidated Operations under
the caption "Interest and Other Expenses." Under the terms of the agreement, the
Company has retained substantially the same risk of credit loss as if the
receivables had not been sold, as the Company is obligated to replace
uncollectible receivables with new accounts receivable. The Company's accounts
receivable sold totaled $90,000,000 and $58,902,000 at December 31, 1998, and
January 3, 1998, respectively. The Company's
 
                                       38
<PAGE>   41
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
average accounts receivable sold approximated $82,144,000, $70,727,000 and
$42,637,000 during 1998, 1997 and 1996, respectively.
 
     In connection with the Spin-off, the Company assumed an interest rate swap
agreement in the notional amount of $65,000,000. The agreement, which matured in
December 1997, required the Company to pay a fixed rate of 8.87% and receive a
six-month LIBOR rate.
 
     Fair Value of Financial Instruments.  The carrying values of cash and cash
equivalents, receivables, accounts payable and bank borrowings approximate fair
values due to the short-term maturities of these instruments.
 
NOTE O.  STOCK OPTIONS
 
     Certain officers and employees hold options to acquire the Company's common
stock, which were granted under Former Parent's stock option plans. These
options were granted over a period of nine years and have been adjusted for
stock splits and the Spin-off. Such options were transferred to the Company as
part of the Spin-off, with the number of shares and option prices adjusted so as
to preserve the economic value of the options to the optionees. Such options
were granted at the market prices on the dates of grant, became exercisable 50%
after one year and 100% after two years and expire after 10 years. No additional
options will be granted under these plans.
 
     In connection with the Spin-off, the Company adopted The Dial Corporation
Stock Incentive Plan ("1996 Plan") which is administered by the Executive
Compensation Committee of the Board of Directors. Under the 1996 Plan, the
aggregate number of shares of common and preferred stock covered by awards to
any one individual cannot exceed 1,000,000 shares for any three-year period
(plus shares necessary to replace options granted by the Former Parent and
transferred to the Company in connection with the Spin-off), and no more than
9,600,000 shares are cumulatively available for options intended to qualify as
"incentive stock options" under the Internal Revenue Code. The term of the
options is 10 years. The Plan provides that options are generally to be granted
at the market price on the date of grant; however, the Executive Compensation
Committee may grant options at less than such market price. The 1996 Plan also
authorizes the issuance of stock appreciation rights and restricted stock.
 
     Under the 1996 Plan, incentive stock options to purchase 232,490 shares and
non qualified options to purchase 55,916 shares were granted at the market price
on the dates of grant during 1998. After one year, one-third of the options
become exercisable when the average closing market price over 20 consecutive
days equals or exceeds 133% of the option price, two-thirds when such price
equals or exceeds 167% of the option price and 100% when such price equals or
exceeds 200% of the option price. All such options become exercisable, in any
event, after five years from the date of grant. It is expected that additional
options will not be granted prior to August 1999.
 
     During 1998, options to purchase 39,100 shares also were granted to non
employee members of the Board of Directors at the market prices on the dates of
grant. Such options are exercisable 50% after one year and 100% after two years.
The options expire after 10 years.
 
                                       39
<PAGE>   42
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     A summary of the status of the Company's stock option plans as of December
31, 1998, and changes during the fiscal years 1996, 1997 and 1998, are presented
below:
 
<TABLE>
<CAPTION>
                                                                      WEIGHTED
                                                                      AVERAGE
                                                                      EXERCISE
                                                          SHARES       PRICE
                                                        ----------    --------
<S>                                                     <C>           <C>
Outstanding at spin-off...............................   4,298,041     $ 9.63
Granted...............................................   6,226,324      13.11
Exercised.............................................    (293,015)      9.25
Canceled..............................................     (61,776)     11.84
                                                        ----------
Outstanding at December 28, 1996......................  10,169,574      11.76
Granted...............................................   1,283,352      16.23
Exercised.............................................  (1,415,570)      9.57
Canceled..............................................  (1,056,435)     13.23
                                                        ----------
Outstanding at January 3, 1998........................   8,980,921      12.60
Granted...............................................     328,106      23.78
Exercised.............................................  (2,253,436)     11.62
Canceled..............................................    (701,845)     14.29
                                                        ----------     ------
Outstanding at end of year............................   6,353,746     $13.34
                                                        ==========     ======
Options exercisable at end of year....................   5,393,510     $12.42
                                                        ==========     ======
</TABLE>
 
     The following table summarizes information about stock options outstanding
and exercisable at December 31, 1998:
 
<TABLE>
<CAPTION>
                                 WEIGHTED
                                  AVERAGE
                                 REMAINING    WEIGHTED                 WEIGHTED
                                CONTRACTUAL   AVERAGE                  AVERAGE
   RANGE OF         OPTIONS        LIFE       EXERCISE     OPTIONS     EXERCISE
EXERCISE PRICES   OUTSTANDING   (IN YEARS)     PRICE     EXERCISABLE    PRICE
---------------   -----------   -----------   --------   -----------   --------
<S>               <C>           <C>           <C>        <C>           <C>
 $ 5.62-$ 6.88       291,024        1.9        $ 6.53       291,024     $ 6.53
 $ 8.38-$ 9.23       329,061        3.8          8.95       329,061       8.95
 $ 9.64-$11.15       556,974        4.8         10.44       556,974      10.44
 $11.91-$12.88     3,155,833        7.6         12.75     3,155,833      12.75
 $13.38-$14.50       817,939        7.7         14.27       565,154      14.19
 $15.38-$16.94       721,092        8.5         16.08       441,650      16.06
 $17.25-$18.31       129,184        8.8         17.49        42,384      17.48
 $19.56-$21.81       164,291        9.5         21.45        11,430      20.68
 $22.38-$23.16        40,905        9.7         23.08
 $23.63-$24.50        52,208        9.3         23.99
 $24.84-$25.31        16,210        9.5         25.11
 $25.78-$28.72        79,025        9.8         27.67
                   ---------        ---        ------     ---------     ------
                   6,353,746        7.1        $13.34     5,393,510     $12.42
                   =========        ===        ======     =========     ======
</TABLE>
 
                                       40
<PAGE>   43
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     Average assumptions used in determining the estimated fair value of options
under the Black-Scholes valuation model, and the estimated fair values are as
follows:
 
<TABLE>
<CAPTION>
                                                    DECEMBER 31,   JANUARY 3,   DECEMBER 28,
                                                        1998          1998          1996
                                                    ------------   ----------   ------------
<S>                                                 <C>            <C>          <C>
Estimated fair value of options, per share........     $6.63         $4.18         $2.27
Expected average risk-free interest rate..........       4.9%          6.3%          6.3%
Expected life in years............................       4.6           4.4           4.2
Expected volatility...............................      27.5%         25.0%         20.4%
Expected dividend rate............................       1.4%          2.0%          2.4%
</TABLE>
 
<TABLE>
<CAPTION>
                                                         1998       1997       1996
                                                       --------    -------    -------
                                                               (000 OMITTED)
<S>                                                    <C>         <C>        <C>
Net income as reported...............................  $102,616    $83,710    $29,912
                                                       ========    =======    =======
Pro forma net income.................................  $ 96,912    $78,224    $27,298
                                                       ========    =======    =======
Net income per share-basic-as reported...............  $   1.04    $  0.91    $  0.33
                                                       ========    =======    =======
Pro forma net income per share-basic.................  $   0.99    $  0.85    $  0.30
                                                       ========    =======    =======
Net income per share-diluted-as reported.............  $   1.02    $  0.89    $  0.33
                                                       ========    =======    =======
Pro forma net income per share.......................  $   0.96    $  0.83    $  0.30
                                                       ========    =======    =======
</TABLE>
 
NOTE P.  SEGMENTS OF AN ENTERPRISE
 
     For organizational, marketing and financial reporting purposes, the Company
has 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.
 
     The Domestic Branded business segment consists of franchises that
manufacture and market non durable consumer packaged goods through grocery
store, drug store and mass merchandiser retail outlets. It is comprised of the
Dial, Purex, Renuzit, Armour and Specialty Personal Care operating franchises.
The Company acquired Freeman, a leading manufacturer and marketer of skin, hair,
bath, body and foot care products utilizing natural ingredients, all sold under
the Freeman brand name on July 1, 1998. The Company also acquired Sarah
Michaels, a leading marketer of premium specialty bath and body products,
including body washes, body mists, luxury soaps, hand and body lotions, loofahs,
sponges and brushes, which are distributed under the Sarah Michaels brand name,
on September 14, 1998. These two acquisitions were combined with the Company's
Nature's Accents line of translucent soaps and specialty care products, and its
subsidiary, ISC International, Ltd., a manufacturer of translucent soaps, to
create the Specialty Personal Care franchise.
 
     The International business segment consists of the Company's sale of
consumer products outside of the United States, principally in Argentina,
Canada, Mexico, Puerto Rico and the Caribbean.
 
     The Company's Commercial Markets and Other business sells the Company's
products, both branded and un-branded, through the commercial channel to end
users such as hotels, hospitals and schools. In addition, Commercial Markets
includes sales of chemicals, principally glycerin, fatty acids and sulfonates,
that are by-products of the soap making and detergent making process.
 
                                       41
<PAGE>   44
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
     Information as to the operations of the Company 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 B).
<TABLE>
<CAPTION>
                                    COMMERCIAL                                             DISCONTINUED
                        DOMESTIC     MARKETS       TOTAL                        TOTAL       & DIVESTED
                        BRANDED     AND OTHER     DOMESTIC    INTERNATIONAL   CONTINUING     PRODUCTS
                       ----------   ----------   ----------   -------------   ----------   ------------
                                                        (000 OMITTED)
<S>                    <C>          <C>          <C>          <C>             <C>          <C>
NET SALES:
  1998...............  $1,295,410    $64,020     $1,359,430     $164,586      $1,524,016     $    501
  1997...............   1,150,057     76,790      1,226,847       82,783       1,309,630       52,976
  1996...............   1,111,366     80,115      1,191,481       56,857       1,248,338      158,062
OPERATING INCOME:
  1998...............     161,849      8,421        170,270       13,723         183,993          (58)
  1997...............     142,430      9,814        152,244        9,046         161,290          880
  1996...............     119,874     14,434        134,308        2,325         136,633      (11,236)
CAPITAL EXPENDITURES:
  1998...............      39,039        198         39,237       11,093          50,330
  1997...............      40,840      3,139         43,979        2,736          46,715
  1996...............      47,502                    47,502        1,966          49,468
ACQUISITION OF
  BUSINESSES:
  1998...............     271,043                   271,043                      271,043
  1997...............                                             31,575          31,575
ASSETS AT YEAR END:
  1998...............   1,034,425     10,005      1,044,430      130,945       1,175,375
  1997...............     787,021      9,306        796,327       87,525         883,852
 
<CAPTION>
                       RESTRUCTURING
                         AND OTHER
                         EXPENSES          TOTAL
                       -------------     ----------
                              (000 OMITTED)
<S>                    <C>               <C>
NET SALES:
  1998...............                    $1,524,517
  1997...............                     1,362,606
  1996...............                     1,406,400
OPERATING INCOME:
  1998...............                       183,935
  1997...............                       162,170
  1996...............    $(55,000)(1)        70,397
CAPITAL EXPENDITURES:
  1998...............                        50,330
  1997...............                        46,715
  1996...............                        49,468
ACQUISITION OF
  BUSINESSES:
  1998...............                       271,043
  1997...............                        31,575
ASSETS AT YEAR END:
  1998...............                     1,175,375
  1997...............                       883,852
</TABLE>
 
---------------
(1) See Note D to the Consolidated Financial Statements.
 
     Wal-Mart Stores Inc. (and its affiliate, Sam's Club) was the Company's
largest customer in 1998, 1997 and 1996, accounting for approximately 17%, 17%,
and 16%, respectively, of net sales. No other customer accounted for more than
10% of net sales in 1998, 1997 or 1996. No single foreign country comprised more
than 5% of the Company's total net sales in 1998. Net sales in Argentina were
$85.1 million in 1998. No foreign country comprised more than 5% of the
Company's total net sales in 1997 or 1996.
 
NOTE Q.  CONDENSED CONSOLIDATED QUARTERLY RESULTS (UNAUDITED)
 
<TABLE>
<CAPTION>
                               FIRST QUARTER        SECOND QUARTER         THIRD QUARTER        FOURTH QUARTER
                            -------------------   -------------------   -------------------   -------------------
                              1998       1997       1998       1997       1998       1997       1998       1997
                            --------   --------   --------   --------   --------   --------   --------   --------
                                                  (000 OMITTED, EXCEPT FOR PER SHARE DATA)
<S>                         <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
Net sales.................  $335,022   $316,242   $366,798   $349,268   $383,909   $334,290   $438,788   $362,806
Gross profit..............  $158,516   $146,952   $180,937   $166,231   $188,459   $160,567   $209,204   $170,744
Operating income..........  $ 40,554   $ 36,657   $ 44,752   $ 40,057   $ 47,144   $ 40,985   $ 51,485   $ 44,471
Net income................  $ 22,911   $ 18,323   $ 25,607   $ 20,382   $ 26,728   $ 22,352   $ 27,370   $ 22,653
Net income per share
  --Basic.................  $   0.23   $   0.20   $   0.26   $   0.22   $   0.27   $   0.25   $   0.28   $   0.24
  --Diluted...............  $   0.23   $   0.20   $   0.25   $   0.22   $   0.27   $   0.24   $   0.27   $   0.23
</TABLE>
 
NOTE R.  LITIGATION AND CLAIMS
 
     The Company is party to various legal actions, proceedings and pending
claims. Some of the foregoing involve, or may involve, compensatory, punitive or
other damages in material amounts. Litigation is subject to many uncertainties,
and it is possible that some of the legal actions, proceedings and claims
referred to above
 
                                       42
<PAGE>   45
           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
             FISCAL YEARS ENDED DECEMBER 31, 1998, JANUARY 3, 1998
                             AND DECEMBER 28, 1996
 
could be decided against the Company. Although the amount of liability at
December 31, 1998, with respect to these matters is not ascertainable, the
Company believes that any resulting liability will not materially affect the
Company's financial position or results of operations.
 
     The Company is subject to various environmental laws and regulations of the
United States, as well as states and other countries in whose jurisdictions the
Company has or had operations and is subject to certain international
agreements. As is the case with many companies, the Company faces exposure to
actual or potential claims and lawsuits involving environmental matters.
Although the Company is party to certain environmental disputes, the Company
believes that any liabilities resulting therefrom, after taking into
consideration amounts already provided for, but exclusive of, any potential
insurance recoveries, will not have a material adverse effect on the Company's
financial position or results of operations. As of December 31, 1998, the
Company had accrued in its financial statements approximately $3 million in
reserves for expenses related to Superfund and clean-up of closed plant sites.
 
                                       43
<PAGE>   46
 
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
         FINANCIAL DISCLOSURE
 
     The Company has never filed a Current Report on Form 8-K to report a change
in accountants because of a disagreement over accounting principles or
procedures, financial statement disclosure or otherwise.
 
                                       44
<PAGE>   47
 
                                    PART III
 
ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
     Information concerning the Company's Directors and Executive Officers is
set forth below and under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's Proxy Statement relating to the 1999
Annual Meeting of Stockholders to be held on June 3, 1999 (the "Proxy
Statement"), which is incorporated by reference into this Form 10-K. With the
exception of this foregoing information and other information specifically
incorporated by reference into this Form 10-K, the Proxy Statement is not being
filed as a part hereof.
 
<TABLE>
<CAPTION>
NAME                                   AGE    POSITION
----                                   ---    --------
<S>                                    <C>    <C>
                                              Chairman of the Board, President and Chief Executive
Malcolm Jozoff(1)....................  59     Officer
Jeffrey B. Dias......................  47     Senior Vice President-Marketing and New Business
Arthur E. Hanke......................  51     Senior Vice President-Sales
Daniel J. King.......................  46     Senior Vice President-Product Supply
Jane E. Owens........................  45     Senior Vice President, General Counsel and Secretary
Susan J. Riley.......................  40     Senior Vice President and Chief Financial Officer
Mark R. Shook........................  44     Senior Vice President-International/CMD
Bernhard J. Welle....................  50     Senior Vice President-Human Resources
Joy A. Amundson(1)(2)(3).............  44     Director
Herbert M. Baum(3)(5)................  62     Director
Joe T. Ford(1)(4)(5).................  61     Director
Thomas L. Gossage(1)(2)(5)...........  64     Director
Donald E. Guinn(3)(4)................  66     Director
Michael T. Riordan(1)(3)(5)..........  48     Director
Barbara S. Thomas(2)(4)..............  49     Director
Salvador M. Villar(2)(4).............  48     Director
</TABLE>
 
---------------
(1) Member of the Executive Committee.
 
(2) Member of the Audit Committee.
 
(3) Member of the Executive Compensation Committee.
 
(4) Member of the Finance Committee.
 
(5) Member of the Governance Committee.
 
     Malcolm Jozoff.  Mr. Jozoff has been Chairman of the Board, President and
Chief Executive Officer of the Company since the Company's formation in 1996.
Prior to joining the Company, Mr. Jozoff served as President and Chief Executive
Officer of the Consumer Products Business of Former Parent, positions to which
he was appointed in May 1996. From 1993 to 1995, he was Chairman and Chief
Executive Officer of Lenox, Inc., a manufacturer of consumer durables. From 1967
to 1992, Mr. Jozoff was employed by The Procter & Gamble Company, a manufacturer
of consumer products, where, in 1990, he achieved the positions of
President -- Health Care Sector, Corporate Group Vice President and member of
the Executive Committee. Mr. Jozoff also is a director of the Columbia Energy
Group.
 
     Jeffrey B. Dias.  Mr. Dias joined the Company as Senior Vice
President -- Marketing and New Business in March 1999. From January 1998 to
March 1999, Mr. Dias served as President of The Singer Sewing Company, a
manufacturer of sewing appliances, and from January 1997 until March 1999, he
served as Senior Vice President of The Singer Company N.V., a manufacturer and
retailer of household appliances. From 1978 until 1996, Mr. Dias was employed in
various management positions in the health care, food,
 
                                       45
<PAGE>   48
 
beverages and consumer products divisions of The Procter & Gamble Company, a
manufacturer of consumer products, with his last position being Marketing
Director -- Health Care Products -- Worldwide. In 1992, Mr. Dias served as the
Category Manager -- Oral Health Products for Blendax in Germany, a subsidiary of
The Procter & Gamble Company.
 
     Arthur E. Hanke.  Mr. Hanke has served as Senior Vice President-Sales of
the Company since January 1999. From September 1998 to January 1999, he served
as Vice President, Corporate Sales of the Company, and from the Spin-off to
September 1998, he served as Vice President, Customer Management of the Company.
From 1991 to the Spin-off, Mr. Hanke served in various capacities for the
Consumer Products Business of Former Parent, including Vice President, Western
Division Grocery Sales, from 1991 to 1993; Vice President, Broker Sales, from
1993 to 1994; and Vice President, Marketing, Detergents, from 1994 to the
Spin-off.
 
     Daniel J. King.  Mr. King has served as Senior Vice President-Product
Supply of the Company since September 1996. From the Spin-off to September 1996,
Mr. King served as the Company's Senior Vice President, Customer Service. From
1991 until the Spin-off, Mr. King served as Senior Vice President, Customer
Service of the Consumer Products Business of Former Parent.
 
     Jane E. Owens.  Ms. Owens has served as Senior Vice President, General
Counsel and Secretary of the Company since May 1997. From 1992 to May 1997, Ms.
Owens served as Vice President and General Counsel of The Timberland Company, a
manufacturer of footwear, apparel and accessories.
 
     Susan J. Riley.  Ms. Riley has served as Senior Vice President and Chief
Financial Officer of the Company since September 1997. From 1995 until July
1997, she was Senior Vice President and Chief Financial Officer of Tambrands
Inc. ("Tambrands"). She joined Tambrands in 1987 as Manager, International
Finance and held various positions in Tambrands' international and domestic
operations until she was named Senior Vice President and Chief Financial Officer
in 1995.
 
     Mark R. Shook.  Mr. Shook has served as Senior Vice President-International
of the Company since September 1996. From the Spin-off until September 1996, he
was an Executive Vice President and General Manager, Personal Care, of the
Company. From September 1990 to the Spin-off, Mr. Shook was an Executive Vice
President of the Consumer Products Business of Former Parent, serving as General
Manager, Food from September 1990 to September 1993; General Manager, Food and
International, from September 1993 to April 1994; General Manager, Laundry and
International, from April to September 1994; General Manager, Soaps and
Detergents, from September 1994 to July 1995; and General Manager, Personal
Care, from July 1995 to the Spin-off.
 
     Bernhard J. Welle.  Mr. Welle has served as Senior Vice President-Human
Resources of the Company since August 1996. From 1987 to August 1996, Mr. Welle
served as Vice President, Human Resources of the Consumer Products Business of
Former Parent.
 
     Joy A. Amundson.  Ms. Amundson has been a Director of the Company since
1997, and is Senior Vice President of Abbott Laboratories, a diversified health
care products and services company, and President of Ross Laboratories. She has
held a number of other management positions since joining Abbott in 1982. Ms.
Amundson also is Chairman of the Board of Lutheran General Hospital.
 
     Herbert M. Baum.  Mr. Baum has been a Director of the Company since 1997,
and is President and Chief Operating Officer and a Director of Hasbro, Inc., a
manufacturer and marketer of toy products. Mr. Baum served as Chairman and Chief
Executive Officer of Quaker State Corporation from 1993 to January 1999. From
1978 to 1992, Mr. Baum was employed by Campbell Soup Company ("Campbell"). In
1992, he was named President of Campbell-North and South America. Mr. Baum also
is a director of Meredith Corporation, Whitman Corporation, Fleming Companies,
Inc., Pennzoil-Quaker State Company and Midas, Inc.
 
     Joe T. Ford.  Mr. Ford has been a Director of the Company since 1996, and
is Chairman and Chief Executive Officer and a Director of ALLTEL Corporation
("ALLTEL"), a telecommunications and
 
                                       46
<PAGE>   49
 
information services company. Mr. Ford became Chief Executive Officer of ALLTEL
in 1987 and Chairman of the Board in 1991. Mr. Ford also is a director of
Textron, Inc.
 
     Thomas L. Gossage.  Mr. Gossage has been a Director of the Company since
1996. Mr. Gossage retired as Chairman and Chief Executive Officer of Hercules
Incorporated, a worldwide producer of chemicals and related products, in January
1997. Mr. Gossage also is a director of Fluor Corporation and Alliant
Techsystems Inc.
 
     Donald E. Guinn.  Mr. Guinn has been a Director of the Company since 1996,
and is Chairman Emeritus of Pacific Telesis Group, a telecommunications holding
company ("PacTel"). Mr. Guinn served as Chairman and Chief Executive Officer of
PacTel from 1984 through his retirement in 1988. He also is a director of
Pacific Mutual Life Insurance Company and its affiliates, Pacific LifeCorp and
Pacific Life Insurance Company, and Bank of America Corporation.
 
     Michael T. Riordan.  Mr. Riordan has been a Director of the Company since
1997. From August 1997 to August 1998, Mr. Riordan served as President and Chief
Operating Officer of Fort James Corporation, a paper products manufacturer.
Prior to the merger of Fort Howard Corporation with James River Corporation, he
served as Chairman of the Board, President and Chief Executive Officer of Fort
Howard Corporation from 1992 to 1997. Mr. Riordan also is a director of American
Medical Security Group, Inc.
 
     Barbara S. Thomas.  Ms. Thomas has been a Director of the Company since
1997, and is President of Warner-Lambert Consumer Healthcare, the
over-the-counter pharmaceuticals business of the Warner-Lambert Company. Ms.
Thomas has more than 20 years of experience as a consumer goods marketer and
general manager. She was with the Pillsbury Company ("Pillsbury") from 1993 to
1997, serving last as President of Pillsbury Canada Ltd. Prior to joining
Pillsbury, Ms. Thomas was Senior Vice President-Marketing for Nabisco Brands,
Inc. from 1991 to 1993.
 
     Salvador M. Villar.  Mr. Villar has been a Director of the Company since
June 1998. He is President and Chief Executive Officer of California Commerce
Bank ("CCB"), the U.S. banking arm of Banco Nacional de Mexico ("Banamex"), and
has been with CCB since 1981. Mr. Villar started his banking career in Mexico as
a commercial lender and later became Vice President of Corporate Lending at
Banamex. Mr. Villar also is Vice Chairman and Chair of the Executive Committee
of Banco Bansud, S.A.
 
ITEM 11.  EXECUTIVE COMPENSATION
 
     Information concerning executive compensation matters is incorporated
herein by reference to "Executive Compensation," "Option/SAR Grants in Last
Fiscal Year," "Aggregated Stock Option Exercises in Last Fiscal Year and Fiscal
Year-End Option Values," "Pension Plans" and "Employment Agreements and Change
of Control Arrangements" in the Proxy Statement; provided, however, that the
"Compensation Committee Report on Executive Compensation" and the "Stock Price
Performance Graph" contained in the Proxy Statement are not incorporated by
reference herein.
 
ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
 
     Information concerning the Common Stock beneficially owned by each Director
of the Company, by all Executive Officers and Directors of the Company as a
group and by each stockholder known by the Company to be the beneficial owner of
more than 5% of the outstanding Common Stock is incorporated herein by reference
to "Common Stock Ownership of Certain Beneficial Owners" and "Common Stock
Ownership of Directors and Executive Officers" in the Proxy Statement.
 
ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
     During the last fiscal year, there were no relationships or related
transactions that are required to be disclosed herein.
 
                                       47
<PAGE>   50
 
                                    PART IV
 
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
 
     (A) FINANCIAL STATEMENTS AND SCHEDULES
 
<TABLE>
<CAPTION>
                                                                PAGE
                                                                ----
<S>                                                             <C>
          (i) Financial Statements.
               (1) Management's Report on Responsibility for
              Financial Reporting...........................     22
               (2) Independent Auditor's Report.............     23
               (3) Consolidated Financial Statements:
                      Consolidated Balance Sheet at December
                     31, 1998, and January 3, 1998..........     24
                      Statement of Consolidated Operations
                     and Comprehensive Income for the years
                     ended December 31, 1998, January 3,
                     1998, and December 28, 1996............     25
                      Statement of Consolidated Cash Flows
                     for the years ended December 31, 1998,
                     January 3, 1998, and December 28,
                     1996...................................     26
                      Statement of Consolidated
                     Stockholders' Equity for the years
                     ended December 31, 1998, January 3,
                     1998, and December 28, 1996............     27
                      Notes to Consolidated Financial
                     Statements.............................     28
          (ii) Financial Statement Schedules
</TABLE>
 
               Schedules have been omitted because of the absence of conditions
               under which they are required or because the required material
               information is included in the consolidated financial statements
               or notes to the consolidated financial statements included
               herein.
 
     (B) REPORTS ON FORM 8-K
 
     The Company filed a Current Report on Form 8-K, dated October 20, 1998,
reporting that the Company issued a press release relating to its financial
results for the third quarter of 1998, a copy of which was filed as Exhibit 99.
 
     The Company also filed a Current Report on Form 8-K, dated January 26,
1999, reporting that the Company issued a press release relating to its
financial results for the fourth quarter of 1998 and the 1998 fiscal year, a
copy of which was filed as Exhibit 99.
 
     (C) EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                 DESCRIPTION                               METHOD OF FILING
-------                -----------                               ----------------
<S>      <C>                                         <C>
3(a)     Restated Certificate of Incorporation of    Incorporated by reference to Exhibit
         the Company                                 3(a) of the Company's Form 10/A (Am. No.
                                                     2), dated July 26, 1996 (the "Form 10").
3(b)     Bylaws of the Company                       Incorporated by reference to Exhibit
                                                     3(b) of the Company's Form 10-Q for the
                                                     quarter ended July 4, 1998.
4 (a)    Form of Rights Agreement between the        Incorporated by reference to Exhibit 4
         Company and the Rights Agent                of the Form 10.
4 (b)    Indenture, dated September 23, 1996,
         between the Company and Norwest Bank
         Arizona, N.A.*
4 (c)    First Supplemental Indenture, dated
         September 23, 1996, between the Company
         and Norwest Bank Arizona, N.A.*
10(a)    Director's Indemnification Agreement+       Incorporated by reference to Exhibit
                                                     10(a) of the Company's Form 10-Q, dated
                                                     November 11, 1996 (the "Form 10-Q").
</TABLE>
 
                                       48
<PAGE>   51
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                 DESCRIPTION                               METHOD OF FILING
-------                -----------                               ----------------
<S>      <C>                                         <C>
10(b)    Officer's Indemnification Agreement+        Incorporated by reference to Exhibit
                                                     10(b) of the Form 10-Q.
10(c)    Supplemental Capital Accumulation Plan      Incorporated by reference to Exhibit
         Agreement+                                  10(c) of the Form 10-Q.
10(d)    Supplemental Pension Plan Agreement+        Incorporated by reference to Exhibit
                                                     10(d) of the Form 10-Q.
10(e)    The Dial Corporation 1996 Stock
         Incentive Plan.+*
10(f)    Annual Incentive Plan Agreement+            Incorporated by reference to Exhibit
                                                     10(f) of the Company's Form 10-K for the
                                                     fiscal year ended December 28, 1996 (the
                                                     "Form 10-K").
10(g)    Form of The Dial Corporation Director's     Incorporated by reference to Exhibit
         Charitable Award Program+                   10(f) of the Form 10.
10(h)    Form of Change of Control Agreements
         with certain Executive Officers of the
         Company+*
10(i)    Credit Agreement                            Incorporated by reference to Exhibit
                                                     10(j) of the Form 10.
10(j)    Form of The Dial Corporation Employee       Incorporated by reference to Exhibit
         Equity Trust                                10(k) of the Form 10.
10(k)    The Dial Corporation Amended and            Incorporated by reference to Exhibit 4.5
         Restated Directors Deferred Compensation    of the Company's Registration Statement
         Plan+                                       on Form S-8 (File No. 333-67619) (the
                                                     "Form S-8").
10(l)    The Dial Corporation Amended and            Incorporated by reference to Exhibit 4.4
         Restated Management Deferred                of the Form S-8.
         Compensation Plan+
10(m)    Restated Employment Agreement, dated        Incorporated by reference to Exhibit
         August 11, 1997, between the Company and    10(m) of the Company's Form 10-K for the
         Malcolm Jozoff +                            fiscal year ended January 3, 1998.
10(n)    Change of Control Agreement, dated
         October 28, 1998, between the Company
         and Malcolm Jozoff + *
21       List of Significant Subsidiaries of the
         Company*
23       Consent of Deloitte & Touche LLP
24       Power of Attorney                           See Signature Page
27       Financial Data Schedule*
</TABLE>
 
---------------
+ Management contract or compensatory plan or arrangement
 * Filed herewith.
 
                                       49
<PAGE>   52
 
                                   SIGNATURES
 
     Pursuant to the requirements of Section 13 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, in Scottsdale, Arizona, on March
29, 1999.
 
                                          THE DIAL CORPORATION
 
                                          By: /s/ MALCOLM JOZOFF
 
                                            ------------------------------------
                                            Malcolm Jozoff
                                            Chairman of the Board, President
                                            and Chief Executive Officer
 
     KNOW ALL PERSONS BY THESE PRESENTS that the persons whose signatures appear
below, constitute and appoint Malcolm Jozoff and Susan J. Riley, and each of
them, as their true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, for them and in their names, places and steads,
in any and all capacities, to sign the Annual Report on Form 10-K for the fiscal
year ended December 31, 1998, and any and all amendments to the Form 10-K, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as they might or could do in person,
thereby ratifying and confirming all that said attorney-in-fact and agent, or
any of them, or their or his or her substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
 
     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
 
<TABLE>
<CAPTION>
                     SIGNATURE                                    TITLE                      DATE
                     ---------                                    -----                      ----
<C>                                                  <S>                                <C>
 
                /s/ MALCOLM JOZOFF                   Chairman of the Board,             March 29, 1999
---------------------------------------------------    President and Chief Executive
                  Malcolm Jozoff                       Officer (Principal Executive
                                                       Officer)
 
                /s/ SUSAN J. RILEY                   Senior Vice President and Chief    March 29, 1999
---------------------------------------------------    Financial Officer (Principal
                  Susan J. Riley                       Financial Officer and
                                                       Principal Accounting Officer)
 
                /s/ JOY A. AMUNDSON                  Director                           March 29, 1999
---------------------------------------------------
                  Joy A. Amundson
 
                /s/ HERBERT M. BAUM                  Director                           March 29, 1999
---------------------------------------------------
                  Herbert M. Baum
 
                  /s/ JOE T. FORD                    Director                           March 29, 1999
---------------------------------------------------
                    Joe T. Ford
 
               /s/ THOMAS L. GOSSAGE                 Director                           March 29, 1999
---------------------------------------------------
                 Thomas L. Gossage
</TABLE>
 
                                       50
<PAGE>   53
 
<TABLE>
<CAPTION>
                     SIGNATURE                                    TITLE                      DATE
                     ---------                                    -----                      ----
<C>                                                  <S>                                <C>
                /s/ DONALD E. GUINN                  Director                           March 29, 1999
---------------------------------------------------
                  Donald E. Guinn
 
              /s/ MICHAEL T. RIORDAN                 Director                           March 29, 1999
---------------------------------------------------
                Michael T. Riordan
 
               /s/ BARBARA S. THOMAS                 Director                           March 29, 1999
---------------------------------------------------
                 Barbara S. Thomas
 
               /s/ SALVADO M. VILLAR                 Director                           March 29, 1999
---------------------------------------------------
                Salvador M. Villar
</TABLE>
 
                                       51
<PAGE>   54
 
                               INDEX TO EXHIBITS
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                 DESCRIPTION                               METHOD OF FILING
-------                -----------                               ----------------
<S>      <C>                                         <C>
3 (a)    Restated Certificate of Incorporation of    Incorporated by reference to Exhibit
         the Company                                 3(a) of the Company's Form 10/A (Am. No.
                                                     2), dated July 26, 1996 (the "Form 10").
3 (b)    Bylaws of the Company                       Incorporated by reference to Exhibit
                                                     3(b) of the Company's Form 10-Q for the
                                                     quarter ended July 4, 1998.
4 (a)    Form of Rights Agreement between the        Incorporated by reference to Exhibit 4
         Company and the Rights Agent                of the Form 10.
4 (b)    Indenture, dated September 23, 1996,
         between the Company and Norwest Bank
         Arizona, N.A.*
4 (c)    First Supplemental Indenture, dated
         September 23, 1996, between the Company
         and Norwest Bank Arizona, N.A.*
10(a)    Director's Indemnification Agreement+       Incorporated by reference to Exhibit
                                                     10(a) of the Company's Form 10-Q, dated
                                                     November 11, 1996 (the "Form 10-Q").
10(b)    Officer's Indemnification Agreement+        Incorporated by reference to Exhibit
                                                     10(b) of the Form 10-Q.
10(c)    Supplemental Capital Accumulation Plan      Incorporated by reference to Exhibit
         Agreement+                                  10(c) of the Form 10-Q.
10(d)    Supplemental Pension Plan Agreement+        Incorporated by reference to Exhibit
                                                     10(d) of the Form 10-Q.
10(e)    The Dial Corporation 1996 Stock
         Incentive Plan.+*
10(f)    Annual Incentive Plan Agreement+            Incorporated by reference to Exhibit
                                                     10(f) of the Company's Form 10-K for the
                                                     fiscal year ended December 28, 1996 (the
                                                     "Form 10-K").
10(g)    Form of The Dial Corporation Director's     Incorporated by reference to Exhibit
         Charitable Award Program+                   10(f) of the Form 10.
10(h)    Form of Change of Control Agreements
         with certain Executive Officers of the
         Company+*
10(i)    Credit Agreement                            Incorporated by reference to Exhibit
                                                     10(j) of the Form 10.
10(j)    Form of The Dial Corporation Employee       Incorporated by reference to Exhibit
         Equity Trust                                10(k) of the Form 10.
10(k)    The Dial Corporation Amended and            Incorporated by reference to Exhibit 4.5
         Restated Directors Deferred Compensation    of the Company's Registration Statement
         Plan+                                       on Form S-8 (File No. 333-67619) (the
                                                     "Form S-8").
10(l)    The Dial Corporation Amended and            Incorporated by reference to Exhibit 4.4
         Restated Management Deferred                of the Form S-8.
         Compensation Plan+
10(m)    Restated Employment Agreement, dated        Incorporated by reference to Exhibit
         August 11, 1997, between the Company and    10(m) of the Company's Form 10-K for the
         Malcolm Jozoff +                            fiscal year ended January 3, 1998.
10(n)    Change of Control Agreement, dated
         October 28, 1998, between the Company
         and Malcolm Jozoff + *
</TABLE>
<PAGE>   55
 
<TABLE>
<CAPTION>
EXHIBIT
NUMBER                 DESCRIPTION                               METHOD OF FILING
-------                -----------                               ----------------
<S>      <C>                                         <C>
21       List of Significant Subsidiaries of the
         Company*
23       Consent of Deloitte & Touche LLP
24       Power of Attorney                           See Signature Page
27       Financial Data Schedule*
</TABLE>
 
---------------
+ Management contract or compensatory plan or arrangement
 * Filed herewith.