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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES AND EXCHANGE ACT OF 1934
For the quarter ended April 2, 1999 Commission file No. 1-10585
CHURCH & DWIGHT CO., INC.
(Exact name of registrant as specified in its charter)
Delaware 13-4996950
(State of incorporation) (I.R.S. Employer Identification No.)
469 North Harrison Street, Princeton, N.J. 08543-5297
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (609) 683-5900
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding twelve months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
As of April 30, 1999, there were 19,382,589 shares of Common Stock outstanding.
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<PAGE>
PART I - FINANCIAL INFORMATION
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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<S> <C> <C>
April 2, March 27,
(In thousands, except per share data) 1999 1998
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Net Sales $174,708 $152,011
Cost of sales 97,590 84,393
---------------------------------
Gross profit 77,118 67,618
Advertising, consumer and trade promotion expenses 44,572 40,795
Selling, general and administrative expenses 21,024 18,369
Gain on sale of mineral rights 11,772 -
Impairment and other items 5,320 -
--------------------------------
Income from Operations 17,974 8,454
Equity in earnings of affiliates 2,020 1,224
Investment income 372 309
Other income 102 34
Interest expense (605) (572)
--------------------------------
Income before taxes 19,863 9,449
Income taxes 7,498 3,553
--------------------------------
Net Income 12,365 5,896
Retained earnings at beginning of period 218,618 197,622
--------------------------------
230,983 203,518
Dividends paid 2,321 2,326
--------------------------------
Retained earnings at end of period $228,662 $201,192
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Weighted average shares outstanding - Basic 19,354 19,396
Weighted average shares outstanding - Diluted 20,362 19,932
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Earnings Per Share:
Net income per share - Basic $.64 $.30
Net income per share - Diluted $.61 $.30
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Dividends Per Share: $.12 $.12
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</TABLE>
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<PAGE>
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<S> <C> <C>
April 2, December 31,
1999 1998
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(Dollars in thousands) (Unaudited)
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Assets
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Current Assets
Cash and cash equivalents $20,175 $ 16,189
Short-term investments 3,051 2,042
Accounts receivable, less allowances of $1,559 and $1,579 61,816 65,014
Inventories (Note 2) 65,379 60,285
Current portion of note receivable 11,178 7,485
Deferred income taxes 10,535 10,535
Prepaid expenses 7,483 5,258
--------------------------------
Total Current Assets 179,617 166,808
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Property, Plant and Equipment (Note 3) 153,396 161,712
Notes Receivable 12,272 2,384
Equity Investment in Affiliates 28,763 27,751
Long-Term Supply Contracts 4,714 4,918
Intangibles and Other Assets 29,653 27,865
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Total Assets $408,415 $391,438
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Liabilities and Stockholders' Equity
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Current Liabilities
Short-term borrowings $ 13,000 $ 18,500
Accounts payable and accrued expenses 101,603 98,069
Current portion of long-term debt 856 685
Income taxes payable 13,280 6,983
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Total Current Liabilities 128,739 124,237
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Long-Term Debt 27,959 29,630
Deferred Income Taxes 20,975 21,178
Deferred Liabilities 8,907 6,785
Nonpension Postretirement and Postemployment Benefits 14,995 14,770
Commitments and Contingencies
Stockholders' Equity
Preferred Stock - $1 par value
Authorized 2,500,000 shares, none issued - -
Common Stock - $1 par value
Authorized 100,000,000 shares, issued 23,330,494 shares 23,330 23,330
Additional paid-in capital 38,606 36,502
Retained earnings 228,662 218,618
Accumulated other comprehensive income (loss) (895) (782)
--------------------------------
289,703 277,668
Common stock in treasury, at cost:
3,923,105 shares in 1999 and 4,019,505 shares in 1998 (82,314) (82,281)
Due from officer (549) (549)
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Total Stockholders' Equity 206,840 194,838
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Total Liabilities and Stockholders' Equity $408,415 $391,438
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</TABLE>
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CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
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<S> <C> <C>
April 2, March 27,
(Dollars in thousands) 1999 1998
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Cash Flow From Operating Activities
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Net Income $12,365 $5,896
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation, depletion and amortization 4,529 4,055
Deferred income taxes (191) (284)
Equity in unconsolidated affiliates (2,020) (1,224)
Gain on sale of mineral rights (11,772) -
Asset disposals 4,612 -
Other 117 173
Change in assets and liabilities:
(Increase) decrease in short-term investments (1,009) 996
Decrease (increase) in accounts receivable 3,148 (6,492)
(Increase) in inventories (5,087) (6,461)
(Increase) in prepaid expenses (2,223) (553)
Increase in accounts payable 3,351 8,558
Increase in income taxes payable 7,355 3,602
Increase in other liabilities 2,348 1,017
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Net Cash Provided By Operating Activities 15,523 9,283
Cash Flow From Investing Activities
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Additions to property, plant and equipment (5,415) (6,778)
Proceeds from sale of mineral rights 3,000 -
Purchase of other assets (2,157) (1,382)
Distributions from unconsolidated affiliates 1,158 1,465
Proceeds from repayment of notes receivable 360 665
Investment in affiliates (150) -
Purchase of new product lines - (6,975)
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Net Cash Used In Investing Activities (3,204) (13,005)
Cash Flow From Financing Activities
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(Repayments) proceeds from short-term borrowing (5,500) 10,000
Long-term debt repayments (1,500) -
Payment of cash dividends (2,321) (2,326)
Proceeds from stock options exercised 2,640 678
Purchase of treasury stock (1,652) (3,130)
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Net Cash (Used In) Provided By Financing Activities (8,333) 5,222
Net Change In Cash and Cash Equivalents 3,986 1,500
Cash And Cash Equivalents At Beginning Of Year 16,189 14,949
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Cash And Cash Equivalents At End Of Period $20,175 $16,449
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</TABLE>
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<PAGE>
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated balance sheet as of April 2, 1999, the consolidated
statements of income and retained earnings for the three months ended April 2,
1999 and March 27, 1998 and the consolidated statements of cash flow for the
three months then ended have been prepared by the Company without audit. In the
opinion of management, all adjustments (which include only normal recurring
adjustments, except for the item described in note 7) necessary to present
fairly the financial position, results of operations and cash flow at April 2,
1999 and for all periods presented have been made.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's December 31, 1998 annual
report to shareholders. The results of operations for the period ended April 2,
1999 are not necessarily indicative of the operating results for the full year.
<TABLE>
<S> <C> <C>
2. Inventories consist of the following: April 2, Dec. 31,
(In thousands) 1999 1998
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Raw materials and supplies $20,450 $16,278
Work in process 159 160
Finished goods 44,770 43,847
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$65,379 $60,285
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</TABLE>
<TABLE>
<S> <C> <C>
3. Property, Plant and Equipment consist of the following: April 2, Dec. 31,
(In thousands) 1999 1998
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Land $ 4,898 $ 4,896
Buildings and improvements 73,320 73,529
Machinery and equipment 164,271 173,595
Office equipment and other assets 14,359 14,347
Software 5,311 5,311
Mineral rights 200 5,931
Construction in progress 19,317 14,148
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281,676 291,757
Less accumulated depreciation, depletion and amortization 128,280 130,045
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Net Property, Plant and Equipment $153,396 $161,712
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</TABLE>
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CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Equity Investment in Joint Venture
The following table reflects summarized financial information for the Armand
Products Company joint venture. The Company accounts for its 50 percent interest
in the joint venture under the equity method. Product and services are provided
to the Armand Products Company by the joint venture partners at cost. As a
result, the following information would not be indicative of the financial
position or results of operation had the joint venture operated on a stand-alone
basis.
<TABLE>
<CAPTION>
Three Months Ended
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<S> <C> <C>
April 2, March 27,
(In thousands) 1999 1998
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Net sales $ 9,891 $ 9,242
Gross profit 3,709 3,214
Net income 2,978 2,424
Company's share in net income 1,489 1,212
Elimination of Company's share of intercompany interest expense 69 110
-----------------------------
Equity in joint venture income $ 1,558 $ 1,322
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</TABLE>
5. Earnings Per Share
Basic EPS is calculated based on income available to common shareholders and the
weighted-average number of shares outstanding during the reported period.
Diluted EPS includes additional dilution from potential common stock issuable
pursuant to the exercise of stock options outstanding
6. Gain on Sale of Mineral Rights
As previously announced, the Company sold most of its trona mineral leases in
Wyoming for approximately $22.5 million to Solvay Minerals, Inc., which was due
in annual payments beginning on January 5, 1999 and concluding on January 5,
2011. The Company received its initial payment of $3.0 million and recorded a
note receivable from Solvay for the present value of the remaining payments of
approximately $13.9 million using estimated market discount rates. This, when
combined with the initial receipt, resulted in a gain of approximately $11.8
million.
The Company is negotiating to assign and sell the note to an insurance company
for an amount that approximates the carrying amount on April 2, 1999.
7. Impairment and Other Items
As previously announced, the Company recorded a charge for impairment and
certain other items relating to a planned plant shutdown late in 1999 which
includes the rationalization of both toothpaste and powder laundry detergent
production. The pre-tax charge of $5.3 million is comprised of the following:
(In thousands)
--------------------------------------------------
Fixed asset impairment $4,612
Severance and other charges 708
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$5,320
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<PAGE>
8. Segment Information
Segment sales and operating profit for the first quarter of 1999 and 1998 are as
follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
Unconsolidated
(In thousands) Consumer Specialty Affiliates Corporate Total
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Net Sales - 1999 $143,108 $37,910 $(6,310) - $174,708
- 1998 124,367 32,265 (4,621) - 152,011
Operating Profit - 1999 7,521 5,967 (1,966) 6,452 17,974
- 1998 5,226 4,428 (1,200) - 8,454
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</TABLE>
<TABLE>
<CAPTION>
Product line net sales data for the first quarter is as follows:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Laundry and
Household Oral and Specialty Animal Specialty Unconsolidated
Cleaners Personal Care Deodorizing Chemicals Nutrition Cleaners Affiliates Total
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1999 $69,030 $40,851 $33,227 $20,668 $15,004 $2,238 $(6,310) $174,708
1998 63,826 33,932 26,609 19,085 10,294 2,886 (4,621) 152,011
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</TABLE>
9. Comprehensive Income
The following table presents the Company's Comprehensive Income for the three
months ending April 2, 1999 and March 27, 1998:
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------
<S> <C> <C>
April 2, March 27,
(In thousands) 1999 1998
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Net Income $12,365 $5,896
Other Comprehensive Income, net of tax:
Foreign exchange transaction adjustments (113) 167
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Comprehensive Income $12,252 $6,063
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</TABLE>
10. Subsequent Event
On May 7, 1999, the Company exercised its option and purchased an additional 35%
interest in two Brazilian bicarbonate/carbonate-related chemical companies. The
acquisition, costing approximately $9.1 million, had approximately $4.2 million
allocated to Goodwill and was financed by short-term borrowing. An additional
amount of approximately $2.0 million, may be payable in March, 2001, contingent
upon the performance of the two Brazilian companies.
11. Contingencies
The Company, in the ordinary course of its business, is the subject of, or a
party to, various pending or threatened legal actions. The Company believes that
any ultimate liability arising from these actions will not have a material
adverse effect on its consolidated financial statements.
12. Reclassification
Certain prior year amounts have been reclassified in order to conform with the
current year presentation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
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For the quarter ended April 2, 1999, net income was $12.4 million, equivalent to
basic earnings of $.64 per share, from $5.9 million or $.30 per share, in last
year's first quarter. Diluted earnings were $.61 per share compared to $.30 per
share last year. These results include a net pre-tax gain of $6.5 million or
$.19 per share from two previously announced events - the sale of trona mineral
leases in January, less a charge for impairment and certain other items related
to the planned plant shutdown later in 1999. Excluding this one-time net gain,
net income would have increased by 43% to $8.5 million, or $.42 per diluted
share.
Net sales increased by 15% to $174.7 million from $152.0 million in the same
period last year. All major consumer product lines - oral and personal care,
deodorizing and laundry and cleaning products - were well ahead of last year.
Animal nutrition was particularly strong in the specialty products business
Gross margin was 44.1% in the first quarter, as compared with 44.5% last year.
The major reasons for the decline was the shift in the high margin specialty
cleaning business from having its results fully consolidated in 1998 to being
accounted for as an equity investment in 1999 and the use of co-packers to meet
higher than expected order requirements. These items were partially offset by a
favorable product sales mix.
Advertising, consumer and trade promotion expenses increased by $3.8 million to
$44.6 million in the current quarter. This is due to high promotion costs in
support of both the oral and personal care and deodorizing product lines.
Selling, general and administrative expenses increased $2.7 million versus last
year. This increase is primarily due to higher personnel-related costs and
outside service costs, particularly in information systems.
Earnings from affiliates increased due to the formation of the ArmaKleen Company
as a 50% owned affiliate, which product line prior to this quarter was fully
consolidated, and increases in earnings from the Armand Products Company and the
Brazilian affiliate.
Interest expense was virtually unchanged from last year, while investment income
increased slightly.
Liquidity and Capital Resources
- -------------------------------
The Company considers cash and short-term investments as the principal
measurement of its liquidity. At April 2, 1999, cash, including cash equivalents
and short-term investments totaled $23.2 million as compared to $18.2 million.
During the first quarter of 1999, the Company generated $15.5 million of cash
flow from operating activities, received an initial payment of $3.0 million from
the sale of mineral rights and received $2.6 million from stock options
exercised. Significant expenditures include the partial repayment of debt of
$7.0 million, additions to property, plant and equipment of $5.4 million, the
payment of cash dividends of $2.3 million and the purchase of treasury stock of
$1.7 million.
Year 2000 Update
- ----------------
As outlined in the 10-K for the year ended December 31, 1998, the Company has
developed plans to address the possible exposures related to the impact on its
computer systems of the Year 2000. These plans have not changed materially in
terms of scope or estimated costs to complete, and are progressing according to
previously identified time schedules.
Total expenditures incurred on Y2K-related projects through the first quarter of
1999 are estimated at approximately $11.5 million. While the costs of the
remaining required changes is not yet fully known, we expect the total estimated
costs of the Y2K-related projects to be in the $13 million to $14 million range.
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<PAGE>
PART II - Other Information
Item 4. Results of Vote of Security Holders
-----------------------------------
The Company's Annual Meeting of Stockholders was held on May 6, 1999. The
following nominees were elected to the Company's Board of Directors for a term
of three years.
Nominee For Withhold
Cyril C. Baldwin, Jr. 38,264,357 414,374
William R. Becklean 38,294,718 384,013
Rosina B. Dixon, M.D. 38,267,271 411,460
Robert D. LeBlanc 38,287,672 391,059
The results of voting on the following additional items were as follows:
Approval of the appointment of Deloitte & Touche LLP as independent auditors of
the Company's 1999 financial statements.
For Against Abstained Broker Non-Votes
38,473,531 71,552 133,648 0
To consider and act upon a stockholder proposal requesting that the Board of
Directors take the steps necessary to provide for cumulative voting in the
election of Directors annually and not by class.
For Against Abstained Broker Non-Votes
3,130,102 33,642,879 165,380 1,740,370
To consider and act upon a stockholder proposal requesting that the Company
prepare and place available to stockholders and employees an equal employment
diversity report.
For Against Abstained Broker Non-Votes
2,274,231 34,115,996 548,132 1,740,372
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
a. Exhibits
(11) Computation of earnings per share
(27) Financial Data Schedule
b. No reports on Form 8-K were filed for the three months ended
April 2, 1999.
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<PAGE>
CHURCH & DWIGHT CO., INC. AND SUBSIDIARIES
EXHIBIT 11 - Computation of Earnings Per Share (In thousands
except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------
<S> <C> <C>
April 2, March 27,
1999 1998
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BASIC:
Net Income $12,365 $ 5,896
Weighted average shares outstanding 19,354 19,396
Basic earnings per share $.64 $.30
DILUTED:
Net Income $12,365 $ 5,896
Weighted average shares outstanding 19,354 19,396
Incremental shares under stock option plans 1,008 536
------------------------------
Adjusted weighted average shares outstanding 20,362 19,932
------------------------------
Diluted earnings per share $.61 $.30
</TABLE>
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<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CHURCH & DWIGHT CO.,INC.
--------------------------------------
(REGISTRANT)
DATE: May 11, 1999 Zvi Eiref
--------------------------------------
ZVI EIREF
VICE PRESIDENT FINANCE
DATE: May 11, 1999 Gary P. Halker
--------------------------------------
GARY P. HALKER
VICE PRESIDENT, CONTROLLER AND
CHIEF INFORMATION OFFICER
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> APR-02-1999
<CASH> 20,175
<SECURITIES> 3,051
<RECEIVABLES> 74,553
<ALLOWANCES> 1,559
<INVENTORY> 65,379
<CURRENT-ASSETS> 179,617
<PP&E> 281,676
<DEPRECIATION> 128,280
<TOTAL-ASSETS> 408,415
<CURRENT-LIABILITIES> 128,739
<BONDS> 27,959
0
0
<COMMON> 23,330
<OTHER-SE> 183,510
<TOTAL-LIABILITY-AND-EQUITY> 408,415
<SALES> 174,708
<TOTAL-REVENUES> 174,708
<CGS> 97,590
<TOTAL-COSTS> 97,590
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 50
<INTEREST-EXPENSE> 605
<INCOME-PRETAX> 19,863
<INCOME-TAX> 7,498
<INCOME-CONTINUING> 12,365
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,365
<EPS-PRIMARY> 0.64
<EPS-DILUTED> 0.61
</TABLE>
