-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MdgDKEmlAmJiyNuGj02v5ctD+JVyzDxSo/SeLyC2o6k6SD59G0aPIskF16u/ufgM THkHM0IHA9MIesB0WxH85w== 0000905729-97-000137.txt : 19970814 0000905729-97-000137.hdr.sgml : 19970814 ACCESSION NUMBER: 0000905729-97-000137 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970813 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: HASTINGS MANUFACTURING CO CENTRAL INDEX KEY: 0000046109 STANDARD INDUSTRIAL CLASSIFICATION: MOTOR VEHICLE PARTS & ACCESSORIES [3714] IRS NUMBER: 380633740 STATE OF INCORPORATION: MI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-03574 FILM NUMBER: 97659165 BUSINESS ADDRESS: STREET 1: 325 N HANOVER ST CITY: HASTINGS STATE: MI ZIP: 49058 BUSINESS PHONE: 6169452491 MAIL ADDRESS: STREET 1: 325 NORTH HANOVER STREET STREET 2: 325 NORTH HANOVER STREET CITY: HASTINGS STATE: MI ZIP: 49058 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 =========================================================================== FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended Commission File Number JUNE 30, 1997 1-3574 HASTINGS MANUFACTURING COMPANY (Exact name of registrant as specified in its charter) MICHIGAN 38-0633740 (State or other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 325 NORTH HANOVER STREET HASTINGS, MICHIGAN 49058 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: 616-945-2491 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 12 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 ______ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
OUTSTANDING AT CLASS JULY 28, 1997 ----- -------------- Common stock, $2 par value 390,313 shares
=========================================================================== Hastings Manufacturing Company and Subsidiaries Contents =============================================== PART I - FINANCIAL INFORMATION Page Item 1 - Financial Statements: Report on Review by Independent Certified Public Accountants 3 Condensed Consolidated Balance Sheets - June 30, 1997 and December 31, 1996 4-5 Condensed Consolidated Statements of Operations - Three Months and Six Months Ended June 30, 1997 and 1996 6 Condensed Consolidated Statements of Cash Flows - Six Months Ended June 30, 1997 and 1996 7 Notes to Condensed Consolidated Financial Statements 8-10 Review by Independent Certified Public Accountants 11 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 12-16 PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders 17 Item 6 - Exhibits and Reports on Form 8-K 17 -2- Report on Review by Independent Certified Public Accountants =============================================== Board of Directors Hastings Manufacturing Company Hastings, Michigan We have reviewed the accompanying condensed consolidated balance sheet of Hastings Manufacturing Company and subsidiaries as of June 30, 1997, and the related condensed consolidated statements of operations for the three-month and six-month periods ended June 30, 1997 and 1996, and cash flows for the six-month period ended June 30, 1997 and 1996, included in the accompanying Securities and Exchange Commission Form 10-Q for the period ended June 30, 1997. These condensed consolidated financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of December 31, 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for the year then ended (not presented herein). In our report dated February 28, 1997, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 1996, is fairly stated in all material respects in relation to the consolidated balance sheet from which it has been derived. /s/BDO Seidman, LLP BDO Seidman, LLP Grand Rapids, Michigan July 28, 1997 -3- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Hastings Manufacturing Company and Subsidiaries Condensed Consolidated Balance Sheets ===============================================
JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ ASSETS CURRENT ASSETS Cash $ 183,958 $ 1,457,783 Accounts receivable, less allowance for possible losses of $307,000 and $215,000 5,628,742 4,893,200 Refundable income taxes 46,773 66,667 Inventories: Finished products 6,745,740 7,134,216 Work in process 402,728 415,581 Raw materials 1,732,076 1,751,323 Prepaid expenses and other assets 84,399 152,807 Future income tax benefits 1,937,468 2,413,877 ----------- ----------- TOTAL CURRENT ASSETS 16,761,884 18,285,454 ----------- ----------- PROPERTY AND EQUIPMENT Land and improvements 657,343 660,168 Buildings 4,304,157 4,312,633 Machinery and equipment 18,002,171 17,035,465 ----------- ----------- 22,963,671 22,008,266 Less accumulated depreciation 14,740,334 14,071,826 ----------- ----------- NET PROPERTY AND EQUIPMENT 8,223,337 7,936,440 ----------- ----------- INTANGIBLE PENSION ASSET 941,583 941,583 FUTURE INCOME TAX BENEFITS 6,416,683 6,234,623 OTHER ASSETS 1,119,093 1,056,889 ----------- ----------- $33,462,580 $34,454,989 =========== ===========
-4- Hastings Manufacturing Company and Subsidiaries Condensed Consolidated Balance Sheets ===============================================
JUNE 30, DECEMBER 31, 1997 1996 -------- ------------ LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable to banks $ 3,100,000 $ 3,000,000 Accounts payable 1,150,407 1,479,361 Accruals: Compensation 339,218 446,422 Pension plan contribution 649,241 359,441 Taxes other than income 197,965 283,347 Income taxes 42,732 - Miscellaneous 38,303 240,737 Current portion of postretirement benefit obligation 1,110,442 1,641,040 Current maturities of long-term debt 1,462,500 1,462,500 ------------ ------------ TOTAL CURRENT LIABILITIES 8,090,808 8,912,848 LONG-TERM DEBT, less current maturities 1,296,875 2,028,125 PENSION AND DEFERRED COMPENSATION OBLIGATIONS, less current portion 3,022,992 3,035,576 POSTRETIREMENT BENEFIT OBLIGATION, less current portion 15,663,140 15,545,992 ------------ ------------ TOTAL LIABILITIES 28,073,815 29,522,541 ------------ ------------ STOCKHOLDERS' EQUITY Preferred stock, $2 par value, authorized and unissued 500,000 shares - - Common stock, $2 par value, 1,750,000 shares authorized; 390,313 and 390,138 shares issued and outstanding 780,626 780,276 Additional paid-in capital 145,788 140,206 Retained earnings 6,292,326 5,813,827 -5- Cumulative foreign currency translation adjustment (639,569) (611,455) Pension liability adjustment (1,190,406) (1,190,406) ------------ ------------ TOTAL STOCKHOLDERS' EQUITY 5,388,765 4,932,448 ------------ ------------ $ 33,462,580 $ 34,454,989 ============ ============
See accompanying independent accountants' review report and notes to condensed consolidated financial statements. -6- Hastings Manufacturing Company and Subsidiaries Condensed Consolidated Statements of Operations ===============================================
THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- JUNE 30, 1997 1996 1997 1996 NET SALES $ 9,602,232 $ 10,777,623 $ 18,354,389 $ 22,142,035 COST OF SALES 6,599,540 7,953,961 12,528,797 16,256,875 ------------- ------------ ------------ ------------- Gross profit 3,002,692 2,823,662 5,825,592 5,885,160 ------------- ------------ ------------ ------------- OPERATING EXPENSES Advertising 92,124 113,911 199,142 215,885 Selling 733,722 984,658 1,532,897 1,966,290 General and administrative 1,486,263 1,661,837 2,932,744 3,454,898 Non-recurring relocation costs - 387,392 - 468,422 ------------- ------------ ------------ ------------- 2,312,109 3,147,798 4,664,783 6,105,495 ------------- ------------ ------------ ------------- Operating income 690,583 (324,136) 1,160,809 (220,335) ------------- ------------ ------------ ------------- OTHER EXPENSE (INCOME) Interest expense 134,020 151,367 257,123 264,590 Interest income (13,658) (46,040) (22,779) (93,147) Other, net (5,545) (460) (4,376) (205,938) ------------- ------------ ------------ ------------- 114,817 104,867 229,968 (34,495) ------------- ------------ ------------ ------------- Income (loss) before income tax expense (benefit) 575,766 (429,003) 930,841 (185,840) INCOME TAX EXPENSE (BENEFIT) 231,000 (159,000) 373,000 (75,000) ------------- ------------ ------------ ------------- NET INCOME (LOSS) $ 344,766 $ (270,003) $ 557,841 $ (110,840) ============= ============ ============ ============= NET INCOME (LOSS) PER SHARE OF COMMON STOCK $ .88 $ (.69) $ 1.43 $ (.28) AVERAGE SHARES OF COMMON STOCK OUTSTANDING 390,211 389,798 390,175 389,308 DIVIDENDS PER SHARE OF COMMON STOCK $ .10 $ .10 $ .20 $ .20
See accompanying independent accountants' review report and notes to condensed consolidated financial statements. -7- Hastings Manufacturing Company and Subsidiaries Condensed Consolidated Statements of Cash Flows ===============================================
Six months ended June 30, 1997 1996 ---------- ----------- OPERATING ACTIVITIES Net income (loss) $ 557,841 $ (110,840) Adjustments to reconcile net income (loss) to net cash from (for) operating activities: Depreciation 678,194 693,582 Deferred income taxes 296,000 (53,000) Gain on sale of property and equipment (5,003) (588) Change in postretirement benefit obligation (413,450) 152,807 Changes in operating assets and liabilities: Accounts receivable (742,629) 618,476 Refundable income taxes 19,435 154,637 Inventories 406,925 (189,110) Prepaid expenses and other current assets 68,313 74,668 Other assets (62,199) (30,017) Accounts payable and accruals (395,302) (1,777,055) ---------- ----------- Net cash from (for) operating activities 408,125 (466,440) ---------- ----------- INVESTING ACTIVITIES Capital expenditures (976,258) (1,061,896) Proceeds from sale of property and equipment 6,316 1,000 ---------- ----------- Net cash for investing activities (969,942) (1,060,896) ---------- ----------- FINANCING ACTIVITIES Proceeds from issuance of notes payable to banks 3,600,000 5,900,000 Principal payments on notes payable to banks (3,500,000) (4,900,000) Principal payments on long-term debt (731,250) (731,250) Dividends paid (78,122) (78,014) ---------- ----------- Net cash from (for) financing activities (709,372) 190,736 ---------- ----------- -8- EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,636) (472) ---------- ----------- NET DECREASE IN CASH (1,273,825) (1,337,072) CASH, beginning of period 1,457,783 1,909,506 ---------- ----------- CASH, end of period $ 183,958 $ 572,434 ========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest $ 261,647 $ 272,061 Income taxes, net of refunds 14,268 2,812
See accompanying independent accountants' review report and notes to condensed consolidated financial statements. -9- Hastings Manufacturing Company and Subsidiaries Notes to Condensed Consolidated Financial Statements ==================================================== NOTE 1 In the opinion of the management of Hastings Manufacturing Company and subsidiaries (Company), the accompanying unaudited condensed consolidated financial statements include all normal recurring adjustments considered necessary to present fairly the financial position as of June 30, 1997, and the results of operations for the three months and six months ended June 30, 1997 and 1996, and cash flows for the six months ended June 30, 1997 and 1996. NOTE 2 The results of operations for the six months ended June 30, 1997, are not necessarily indicative of the results for all of 1997. NOTE 3 Net income (loss) per share is determined based on the weighted average number of shares of common stock outstanding during each period. NOTE 4 The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany balances, transactions and stockholdings have been eliminated. The accompanying consolidated financial statements are condensed and do not contain all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. NOTE 5 Under the terms of a debt agreement, the Company is subject to specific limitations and restrictions pertaining to working capital, net worth, dividends, etc. On March 13, 1996, the Company terminated its interest rate swap agreement with a commercial bank. This agreement, having a notional principal amount at the time of termination of $6,487,500, effectively limited the Company's interest rate exposure to a fixed rate of 6.92% on its floating rate borrowings. At termination, the Company received $204,500 from the bank as a result of favorable interest rates. This amount is included in "Other, net" expenses in the accompanying 1996 condensed consolidated statement of operations. -10- At the same time, in order to continue to limit its interest rate exposure, the Company entered into an interest rate collar agreement with a current notional principal amount of $3 million. This agreement provides for a cap rate on floating rate borrowings of 8.25% and a related floor rate of 6.75%. NOTE 6 As disclosed in Note 2 to the Company's consolidated financial statements included in its 1996 Annual Report on Form 10-K, effective on September 3, 1996, the Company entered into an agreement and sold its filter product line assets to CLARCOR Inc. (CLARCOR) of Rockford, Illinois. The Company and CLARCOR also entered into a Transition Agreement on that date whereby the Company continued to manufacture and supply certain filters and filter component parts to CLARCOR through a transition period, which was completed during the third quarter of 1996. The Transition Agreement also provided for the reimbursement to the Company of certain administrative costs directly related to the manufacture and supply of filters and filter components to CLARCOR. Filter-related assets amounted to approximately $1,329,700 at June 30, 1996, comprised of $1,026,000 of accounts receivable and $303,700 of inventory. No amounts remained at December 31, 1996. Of the total $720,400 employee severance benefits accrued and expensed in September 1995 relating to the sale, $369,900 was paid through June 30, 1996 ($147,800 and $223,000 was paid during the three and six months ended June 30, 1996, respectively). Expense reimbursement for the three and six months ended June 30, 1996, included in net sales, amounted to $292,300 and $765,900, respectively. Sales, exclusive of the above expense reimbursement, and estimated operating profit amounts for filter operations were approximately as follows:
JUNE 30, 1996 THREE MONTHS ENDED SIX MONTHS ENDED ------------------ ---------------- Sales $ 2,178,000 $ 4,906,000 Estimated operating profit 314,000 611,000
-11- In conjunction with the sale of its filter operations, the Company relocated its piston ring packaging operations from its former Knoxville, Tennessee facility to its Hastings, Michigan facility in 1996. The relocation and associated training costs, all of which were incurred during the first and second quarters of 1996, are non-recurring in nature. While these costs are directly related to the 1995 sale of filter operations and the restructuring of the Company's remaining operations, they were expensed as incurred in 1996 as required by recently issued accounting standards. Total costs incurred during the three and six months ended June 30, 1996 amounted to $81,030 and $387,392, respectively, and are included as "Non-recurring restructuring and relocation costs" in the accompanying 1996 condensed consolidated statement of operations. NOTE 7 As disclosed in Note 3 to the Company's consolidated financial statements included in its 1996 Annual Report on Form 10-K, in December 1996, management and the Board of Directors approved a restructuring plan. The plan was designed to significantly reduce operating costs and provide a more streamlined and efficient operating structure concentrating on piston ring manufacturing. Total estimated restructuring costs, amounting to $351,500, were accrued and expensed in the fourth quarter of 1996. Of the total, $247,000 and $104,500 related to employee severance benefits and consulting fees, respectively. All of the consulting fees were paid prior to December 31, 1996. Of the $247,000 of employee severance benefits, $237,500 was paid through June 30, 1997 ($126,600 and $211,700 was paid during the three and six months ended June 30, 1997). NOTE 8 One of the many costs reviewed by management as part of its restructuring plan, discussed in Note 7, is the cost of its postretirement benefit plans. For each of the past two years, such costs have exceeded $1.6 million, a cost level that was expected to continue unless plan changes were made. In early April 1997, the Company announced the amendment of its postretirement benefit plans, principally to adjust the cost-sharing provisions. The amendment resulted in a reduction of the Company's accumulated postretirement benefit obligation of $7.35 million, which created an unrecognized prior service benefit. Pre-tax expense for 1997, including amortization of the unrecognized prior service benefit over a period of 15 years, is expected to be reduced by approximately $1,050,000, including $330,000 relating to the second quarter. The balance will be reflected in the third and fourth quarters. -12- Hastings Manufacturing Company and Subsidiaries Review by Independent Certified Public Accountants ================================================== The June 30, 1997 and 1996, condensed consolidated financial statements included in this filing on Form 10-Q have been reviewed by BDO Seidman, LLP, Independent Certified Public Accountants, in accordance with established professional standards and procedures for such a review. -13- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Following the sale of the Company's filter assets and operations in September 1995, the quarterly and annual results were directly impacted by the effects of that transaction. The Company was committed to a period of transition out of the filter operations at both the parent level and through our Canadian subsidiary, Hastings, Inc. Through the last half of 1996, those final commitments were fulfilled. In addition, in December 1996, the Company implemented a restructuring plan to reflect the expected post-transition operating level. While direct filter operations are not expected to impact the 1997 results, comparative operations from 1996 and 1995 continue to be reflected in various relationships as indicated throughout the following analysis. RESULTS OF OPERATIONS NET SALES Net sales in the second quarter of 1997 declined $1,175,391, or 10.9%, from $10,777,623 in the second quarter of 1996 to $9,602,232. Net sales for the first half of 1997 have declined $3,787,646, or 17.1%, from $22,142,035 in the first half of 1996 to $18,354,389. As reported in Note 6, the net sales volume from filter operations were $2,178,000 in the second quarter of 1996 and $4,906,000 through the first half of that year. There are no filter-sensitive sales included in the comparative 1997 results. As such, net sales from the remaining products have increased by $1,002,000, or 11.7%, and $1,118,000, or 6.5%, for the comparative second quarter and six-month periods, respectively. Once again, the Company continued to experience consistently higher volume within the domestic piston ring distributor market resulting from its refocused efforts begun in early 1996. New account activity, gained throughout 1996, is now favorably impacting current period results. Private brand and original equipment volume slightly trails the 1996 comparative periods. A work stoppage at one of the domestic automotive firms had a minimal adverse impact upon the second quarter's net sales results. Export piston ring activity also trails the 1996 results following the termination of the relationship with our former primary export representative in late 1996. Export piston ring volume did, however, increase in the second quarter of 1997 from the first quarter's level and is expected to accelerate further through the second half of this year. Net sales in the second quarter of 1996 declined $7,976,536, or 42.5%, from the second quarter of 1995 and declined $12,946,847, or 36.9%, in -14- the first half of 1996 from the first half of 1995. As sales for the remaining product lines were flat through the first half of 1996, these comparative declines resulted directly from reduced filter related activity between the two years. Through early September 1995, the Company retained its full filter related operations. Subsequent to that date, and through early December 1996, the Company supplied a declining volume of filter component parts and services to the purchaser under the terms of the transition agreement. COST OF SALES AND GROSS PROFIT Cost of sales during the second quarter of 1997 decreased $1,354,421, or 17.0%, from $7,953,961 in the second quarter of 1996 to $6,599,540. For the first half of 1997, cost of sales decreased by $3,728,078, or 22.9%, from $16,256,875 to $12,528,797. The corresponding 1997 gross profit margins increased. The reduced cost of sales totals primarily reflect the absence of the filter related volume as detailed above. The increased gross margin percentages reflect the higher margins generated by the remaining product lines comprising the 1997 sales activity. Under terms of the transition agreement, the gross margin on filter related sales during 1996 was minimal. There was, however, some benefit derived through the first half of 1996 from the liquidation of LIFO reserves as the balance of the Company's filter related inventories were processed into components and sold. The gross profit margin declined to 31.3% in the second quarter of 1997 from 32.3% in the first quarter of 1997 due, in part, to a sales mix change with a higher relative volume of export piston ring activity in the second quarter. The export piston ring sales market has traditionally generated a lower gross margin reflecting the level of operating expenses required to service that sales volume. Individual product cost factors (material, labor and overhead) have remained quite steady through the second quarter. Recent production efficiency gains, as measured by the results of an incentive program, are expected to minimize any significant cost pressures on labor and overhead costs through the balance of this year. Cost of sales during the second quarter of 1996 decreased $6,858,859, or 46.3%, from the second quarter of 1995. For the first half of 1996, cost of sales decreased by $11,059,976, or 40.5%, from the first half of 1995. Again, the primary factor in these relationships was the significant net sales decline resulting from the filter operations sale in September 1995. The gross margin percentage generated in the 1996 comparative quarterly and six-month periods was higher than the levels attained in the comparable 1995 periods. Despite the pricing limitations imposed by the transition agreement, the 1996 results were favorably impacted by the above noted LIFO reserve reductions. -15- OPERATING EXPENSES Total operating expenses for the second quarter of 1997 decreased $835,689, or 26.5%, from $3,147,798 to $2,312,109. For the 1997 six-month period, these expenses decreased $1,440,712, or 23.6%, from $6,105,495 in the first half of 1996 to $4,664,783. This reduction reflects the full elimination of any filter sensitive expenses by the Company in 1997, as well as the interim results of the restructuring plan as reported in the 1996 Annual Report. Advertising costs are now down slightly in both the second quarter and six-month periods reflecting an impact from the restructuring as well as a reduction in outlays for printed materials. Selling expenses, down consistently both in the second quarter and six-month periods, continue to reflect the full phase-out of filter support activities by the Company's Canadian subsidiary as of the end of 1996. In addition, this expense category reflects lower personnel support costs associated with the parent corporation's restructuring efforts and a lower level of direct account promotion costs. Though down in total for 1997, the current year's selling expenses do include increased costs associated with volume-sensitive items such as sales staff and agency commissions. General and administrative expenses decreased $175,574, or 10.6%, from the second quarter of 1996 and are down $522,154, or 15.1%, from the comparative six-months of that year. This expense total reflects consistent declines in most of the personnel driven expenses again reflecting the impact of the restructuring effort. In addition, many of the general office support costs have declined reflecting the general reduction in the post-filter operating environment. The Company has also realized lower group health care costs reflecting certain changes. Costs associated with the active employee base are down due primarily to staffing reductions in the past year and the conversion of certain personnel to a managed care program. As described in Note 8, the Company has likewise realized a cost reduction in its retiree medical expense level reflecting cost-sharing provisions implemented during the second quarter of 1997. Insurance programs for both active employees and retirees were reviewed as a part of the restructuring program and were targeted and modified to reflect the post-filter operating levels. The "Non-recurring relocation costs" category for both comparative periods in 1996 reflects costs associated with the relocation of certain inventories and shipping operations out of the Company's former Knoxville, Tennessee facility. Total operating expenses during both the second quarter and first half of 1996 decreased significantly from the comparative periods in 1995. Again, the filter operations sale is the primary factor in these relationships as the Company scaled back multiple programs and personnel relative to the refocused operations. As noted above, however, 1996 did absorb significant operating expenses associated with the post-filter transition including both the inventory relocation effort in the first half of that year and the subsequent restructuring costs in the final quarter of that year. -16- OTHER EXPENSES (INCOME) Other expenses netted to $114,817 for the second quarter of 1997 compared to $104,867 for the second quarter of 1996. For the six-month period, this total netted to $229,968 for 1997 versus a net income result of $34,495 for the first half of 1996. The net interest position reflects both lower expense and income in the 1997 comparative periods. This reflects a slight reduction in our net borrowed position combined with the elimination of funds previously held for capital equipment acquisition. The 1997 interest income amount primarily reflects the balance of escrowed funds held through September 1998 related to the filter operations sale. The 1996 "Other net" six-month results reflect a $205,000 gain from the termination of an interest rate swap agreement in March of that year. TAXES ON INCOME The 1997 effective tax rate of 40.1% is higher than the domestic federal rate due primarily to the impact of various state income taxes and the impact of a higher statutory rate applied to the earnings of the Canadian subsidiary. As of June 30, 1997, the Company maintained net deferred income tax assets of $8,354,000. The major components include the tax effects of net operating loss carryforwards and accrued retirement and postretirement benefit obligations. The realization of this recorded benefit is dependent upon the generation of future taxable income. Management believes it is more likely than not that adequate levels of future taxable income will be generated to absorb the net operating loss carryforwards, the deductible amounts related to the retirement and postretirement benefit obligations and the remaining net deductible temporary differences. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash requirement continues to be for operating expenses, including labor costs and raw materials, and for funding accounts receivable, capital expenditures and long-term debt service. Historically, the Company's primary sources of cash have been from operations and from bank borrowings. The sale of the filter operations in 1995 had a significant impact upon the 1995 and 1996 cash flow activities. Considering its full transition out of the filter product line, and the impact of the restructuring required to support the smaller organization, the Company expects to generate sufficient future funds from operations and bank borrowings to fund its growth and operating needs. -17- During the first half of 1997, the Company generated net cash of $408,125 from operating activities. The realized net income and absorbed depreciation, combined with reductions in the deferred income tax asset, inventories, and prepaid assets, were more than sufficient to absorb the net increase in accounts receivable and the net decline in accounts payable and accruals. The deferred income tax asset reduction reflects the Company's favorable first half performance while the accounts payable and accruals decline reflects the normal payment of various year-end liabilities. The investing activities for the first half of 1997 reflect a significant portion of the full year's anticipated outlays for capital equipment. Net equipment outlays for the second quarter of 1997 were $196,523 following outlays of $779,735 in the first quarter of this year. The financing activities for the first half of 1997 reflect the continued normal amortization of the Company's long-term debt position, as well as a reduced volatility in and reliance upon, its short-term debt lines usage. The Company has now absorbed significant change during the past two-year period. With its final transition out of all filter activities and the benefits derived thus far from the restructuring effort, the Company anticipates that operations (which will not be subject to current cash outflows for U.S. income taxes due to utilization of the net operating loss carryforwards), will generate adequate cash flows to fund its working capital, capital outlays and dividend needs through 1997. SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 With the exception of historical matters, the matters discussed in this commentary include certain predictions and projections that may be considered forward-looking statements under securities laws, including, but not limited to, those statements under the captions "Net Sales," "Cost of Sales and Gross Profit," "Taxes on Income" and "Liquidity and Capital Resources." These statements are subject to a number of important risks and uncertainties that could cause actual results to differ materially including, but not limited to, economic, competitive, governmental and technological factors affecting the Company's operations, markets, products, services and prices. The Company undertakes no obligation to update, amend, or clarify forward-looking statements, whether as a result of new information, future events or otherwise. -18- PART II - OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of Hastings Manufacturing Company was held on May 6, 1997. The purpose of the meeting was to elect directors. (a) The name of each director elected at the meeting (along with the number of votes cast for or authority withheld) and the name of each other director whose term of office as a director continued after the meeting follows:
VOTES CAST ------------------------- AUTHORITY ELECTED DIRECTORS FOR WITHHELD ------------------------------------------------------------------ Mark R.S. Johnson 275,900 1,600 Dale W. Koop 275,900 1,600 Douglas A. DeCamp 275,900 1,600 DIRECTORS WHO CONTINUE TO SERVE ------------------------------- Andrew J. Johnson William R. Cook Monty C. Bennett Richard L. Foster Neil A. Gardner
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) EXHIBIT. The following document is filed as an exhibit to this report on Form 10-Q: EXHIBIT NUMBER DOCUMENT ------ -------- 4 Fourth Amendment, dated as of May 31, 1997, to the NBD Bank, N.A. $4,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994. 27 Financial Data Schedule. (b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed during the quarter for which this report is filed. -19- 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. HASTINGS MANUFACTURING COMPANY Date: August 13, 1997 /S/MONTY C. BENNETT Monty C. Bennett Its Vice-President, Employee Relations, Secretary and Director Date: August 13, 1997 /S/THOMAS J. BELLGRAPH Thomas J. Bellgraph Its Vice-President, Finance -20- EXHIBIT INDEX EXHIBIT NUMBER DOCUMENT - ------ -------- 4 Fourth Amendment, dated as of May 31, 1997, to the NBD Bank, N.A. $4,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994. 27 Financial Data Schedule. EX-4 2 EXHIBIT 4 FOURTH AMENDMENT TO LETTER AGREEMENT THIS FOURTH AMENDMENT TO LETTER AGREEMENT, dated as of May 31, 1997 (this "Amendment"), is between HASTINGS MANUFACTURING COMPANY, a Michigan corporation (the "Company"), and NBD BANK, a Michigan banking corporation, formerly known as NBD Bank, N.A. (the "Bank"). RECITALS A. The Company and the Bank are parties to a letter agreement dated May 31, 1994, as amended by a First Amendment to Letter Agreement dated as of May 2, 1995, by a Second Amendment to Letter Agreement dated as of September 30, 1995 and by a Third Amendment to Letter Agreement dated as of May 31, 1996 (as amended, the "Letter Agreement"), pursuant to which the Bank agreed, subject to the terms and conditions thereof, to extend credit to the Company in a maximum principal amount of $4,000,000. B. The Company has requested that the Bank amend the Letter Agreement as set forth herein to provide, among other things, for the extension of the Termination Date (as defined in the Letter Agreement) from May 31, 1997 to May 31, 1998, for the amendment of certain covenants and for certain other changes as more particularly described herein. C. The parties now desire to amend certain terms and provisions of the Letter Agreement as set forth herein. TERMS In consideration of the premises and of the mutual agreements herein contained, the parties agree as follows: ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth in Article III hereof, the Letter Agreement shall be amended as follows: 1.1 The reference to "May 31, 1997" in the definition of "Termination Date" in Section 1 of the Letter Agreement shall be deemed to refer to "May 31, 1998". 1.2 The reference to "May 31, 1997" in Section 2 of the Letter Agreement shall be deemed to refer to "May 31, 1998". 1.3 Section 10(a) of the Letter Agreement shall be deemed deleted in its entirety and replaced with the following language: "(a) CURRENT RATIO. Permit or suffer the ratio of consolidated Current Assets of the Company and its Subsidiaries to consolidated Current Liabilities of the Company and its Subsidiaries to be less than 1.75 to 1.00 at any time." 1.4 Section 10(b) of the Letter Agreement shall be deemed deleted in its entirety and replaced with the following language: "(b) TANGIBLE NET WORTH. Permit or suffer the consolidated Tangible Net Worth of the Company and its Subsidiaries to be less than the sum of (i) $16,500,000 at any time plus (ii) beginning July 1, 1997, an amount equal to 50% of consolidated Cumulative Net Income of the Company and its Subsidiaries." 1.5 Section 10(c) of the Letter Agreement shall be deemed deleted in its entirety and replaced with the following language: "(c) TOTAL LIABILITIES TO TANGIBLE NET WORTH. Permit or suffer the ratio of the consolidated Total Liabilities of the Company and its Subsidiaries to the consolidated Tangible Net Worth of the Company and its Subsidiaries to be greater than 2.20 to 1.00 at any time." 1.6 Exhibit A to the Letter Agreement is hereby deleted in its entirety and Exhibit A attached hereto is hereby substituted in place of Exhibit A thereof. ARTICLE II. REPRESENTATIONS. The Company represents and warrants to the Bank that: 2.1 The execution, delivery and performance of this Amendment are within its powers, have been duly authorized and are not in contravention with any law, of the terms of its Articles of Incorporation or By-laws, or any material undertaking to which it is a party or by which it is bound. 2.2 This Amendment is the legal, valid and binding obligations of the Company enforceable against it in accordance with the respective terms hereof. 2.3 After giving effect to the amendments herein contained, the representations and warranties contained in Section 11 of the Letter Agreement are true on and as of the date hereof with the same force and effect as if made on and as of the date hereof, PROVIDED, THAT, the representations and warranties contained in Section 11(f) of the Letter Agreement shall be deemed to have been made with respect to the financial -2- statements most recently delivered pursuant to Section 9(d) of the Letter Agreement. 2.4 After giving effect to the amendments contained in Article 1 hereof, the representations and warranties contained in Section 11 of the Letter Agreement are true and correct on and as of the date hereof with the same force and effect as if made on and as of the date hereof, and no Event of Default or event or condition which, with notice or lapse of time or both could become such an Event of Default shall have occurred and be continuing or will exist under the Letter Agreement as of the effective date hereof. ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not become effective until each of the following has been satisfied: 3.1 Copies of resolutions adopted by the Board of Directors of the Company, certified by an officer of the Company, as being true and correct and in full force and effect without amendment as of the date hereof, authorizing the Company to enter into this Amendment and any other documents or agreements executed pursuant hereto, if any, shall have been delivered to the Bank. 3.2 This Amendment shall be signed by the Company and the Bank. 3.3 The Company shall deliver a duly executed copy of a new promissory note in the principal amount of $4,000,000 in the form of Exhibit A attached hereto. ARTICLE IV. MISCELLANEOUS. 4.1 References in the Letter Agreement to "this Agreement" and references in any note, certificate, instrument or other document to the "Letter Agreement" or "Authorization Agreement" shall be deemed to be references to the Letter Agreement as amended hereby and as further amended from time to time. 4.2 The Company agrees to pay and to save the Bank harmless for the payment of all costs and expenses arising in connection with this Amendment, including the reasonable fees of counsel to the Bank in connection with preparing this Amendment and the related documents. 4.3 The Company acknowledges and agrees that the Bank has fully performed all of its obligations under all documents executed in connection with the Letter Agreement and all actions taken by the Bank is reasonable and appropriate under the circumstances and within its rights under the Letter Agreement and all other documents executed in connection therewith and otherwise available. The Company represents and warrants -3- that it is not aware of any claims or causes of action against the Bank, or any of its successors or assigns. Notwithstanding this representation and as further consideration for the agreements and understandings herein, the Company and its heirs, successors and assigns, hereby release the Bank and its heirs, successors and assigns from any liability, claim, right or cause of action which now exists or hereafter arises, whether known or unknown, arising from or in any way related to facts in existence as of the date hereof to any agreements or transactions between the Bank and the Company or to any acts or omissions of the Bank in connection therewith or otherwise. 4.4 Except as expressly amended hereby, the Company agrees that the Letter Agreement, the promissory note and all other documents and agreements executed by the Company in connection with the Letter Agreement in favor of the Bank are ratified and confirmed and shall remain in full force and effect and that it has no set off, counterclaim or defense with respect to any of the foregoing. Terms used but not defined herein shall have the respective meanings ascribed thereto in the Letter Agreement. 4.5 This Amendment shall be governed by and construed in accordance with the laws of the State of Michigan, without giving effect to choice of law principles of such State. 4.6 This Amendment may be signed upon any number of counterparts with the same effect as if the signatures thereto and hereto were upon the same instrument. IN WITNESS WHEREOF, the parties signing this Amendment have caused this Amendment to be executed and delivered as of the date first above written. HASTINGS MANUFACTURING COMPANY By: /S/THOMAS J. BELLGRAPH Thomas J. Bellgraph Its: Vice President - Finance NBD BANK By: /S/THOMAS A. GAMM Thomas A. Gamm Its: Vice President -4- MASTER PROMISSORY NOTE $4,000,000.00 Detroit, Michigan May 31, 1997 For value received, and in any event no later than May 31, 1998, HASTINGS MANUFACTURING COMPANY (the "Borrower") promises to pay to the order of NBD BANK (the "Bank"), at the Bank's principal office in the State of Michigan, in lawful money of the United States of America and in immediately available funds, the principal sum of Four Million and 00/100 Dollars ($4,000,000.00), or such lesser amount as is indicated on the Bank's records, together with interest computed on the balance from time to time unpaid on the basis of the actual number of days elapsed in a year of 360 days at the rate(s) per annum determined from time to time pursuant to the "Letter Agreement", as defined below, and reflected on the Bank's records, which interest shall be payable in accordance with the terms set forth in the Letter Agreement, and to pay interest on overdue principal from the date of demand or default until paid at the Overdue Rate (as defined in the Letter Agreement). In no event shall the interest rate exceed the maximum rate allowed by law. Any interest which would for any reason be deemed unlawful under applicable law shall be applied to principal. WAIVER: The Borrower and each endorser of this note and any other party liable for the debt evidenced by this note severally waives demand, presentment, notice of dishonor and protest of this note, and consents to any extension or postponement of time of its payment without limit as to number or period, to the addition of any party, and to the release, discharge, or suspension of any rights and remedies against any person who may be liable for the payment of this note. No delay on the part of the holder in the exercise of any right or remedy shall operate as a waiver. No single or partial exercise by the holder of any right or remedy shall preclude any future exercise of that right or remedy or the exercise of any other right or remedy. No waiver or indulgence by the holder of any default shall be effective unless it is in writing and signed by the holder, nor shall a waiver on one occasion be construed as a bar to or waiver of any right on any future occasion. This note is issued in substitution for and replacement of, but not in satisfaction of, a Master Promissory Note dated May 31, 1996 in the maximum principal amount of $4,000,000 and evidences a debt under the terms of a certain letter agreement between the Bank and the Borrower dated May 31, 1994, as amended by a First Amendment to Letter Agreement dated as of May 2 1995, by a Second Amendment to Letter Agreement dated as of September 30, 1995, by a Third Amendment to Letter Agreement dated as of May 31, 1996, and by a Fourth Amendment to Letter Agreement dated as of May 31, 1997, and as further amended from time to time (the "Letter Agreement"), which is incorporated by reference for additional terms and conditions, including default and acceleration provisions. WAIVER OF JURY TRIAL: The Bank and the Borrower, after consulting or having had the opportunity to consult with counsel, knowingly, voluntarily and intentionally waive any right either of them may have to a trial by jury in any litigation based upon or arising out of this note, or any related instrument or agreement or any of the transactions contemplated by this note, or any course of conduct, dealing, statements (whether oral or written), or actions of either of them. Neither the Bank nor the Borrower shall seek to consolidate, by counterclaim or otherwise, any such action in which a jury trial has been waived with any other action in which a jury trial cannot be or has not been waived. These provisions shall not be deemed to have been modified in any respect or relinquished by either the Bank or the Borrower except by a written instrument executed by both of them. Address: HASTINGS MANUFACTURING COMPANY 325 North Hanover Hastings, Michigan 49058 Attention: Treasurer By: /S/THOMAS J. BELLGRAPH Thomas J. Bellgraph Its: Vice President-Finance -2- EX-27 3 ART. 5 FDS FOR 2ND QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES FORM 10-Q FOR THE SIX MONTHS ENDED JUNE 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 183,958 0 5,628,742 307,000 8,880,544 16,761,884 22,963,671 14,740,334 33,462,580 8,090,808 2,759,375 780,626 0 0 4,608,139 33,462,580 18,354,389 18,354,389 12,528,797 12,528,797 0 88,200 257,123 930,841 373,000 557,841 0 0 0 557,841 1.43 1.43
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