-----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, O592q6S3w/3oDHtXd22ARaKsF+m4jNusPMmJdxhovP2Wa99Tt9rQVXTM7K03oi6z pH9i2q/CtD3r77ah/K1Epg== 0000905729-98-000080.txt : 19980331 0000905729-98-000080.hdr.sgml : 19980331 ACCESSION NUMBER: 0000905729-98-000080 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 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-K405 SEC ACT: SEC FILE NUMBER: 001-03574 FILM NUMBER: 98579472 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-K405 1 =========================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ________________ FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to __________. Commission File Number 1-3574 HASTINGS MANUFACTURING COMPANY (Exact name of registrant as specified in its charter) Michigan 38-0633740 (State of incorporation) (I.R.S. Employer 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 Securities registered pursuant to Section 12(b) of the Act: NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED --------------------------------- --------------------------- Common Stock, $2.00 par value American Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None 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 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 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. [X] Aggregate market value of voting stock of Registrant held by non-affiliates as of March 20, 1998 was $6,297,291. Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 20, 1998: Common Stock - $2 par value 391,963 Shares Documents and Information Incorporated by Reference Part III, Items 10, 11, 12 and 13 Proxy Statement for Annual Meeting to be held May 5, 1998 =========================================================================== PART I ITEM 1. BUSINESS. Hastings Manufacturing Company (the "Company") is a Michigan corporation organized in 1929 with its headquarters and U.S. manufacturing facilities in Hastings, Michigan. The Company operates in one business segment, automotive replacement parts. It primarily produces and sells automotive and light duty truck piston rings. To a lesser extent, it packages and sells mechanics' specialty hand tools and additives for engines, transmissions and cooling systems. These products are distributed nationally and internationally through numerous warehouse distributors, large-scale engine rebuilders and various retailer outlets primarily in the automotive replacement market. Certain of the Company's piston ring products are produced for original equipment applications. All of the Company's products are also sold in Canada. These products are produced and/or packaged and distributed, by the Company's Canadian subsidiary, Hastings, Inc., located in Barrie, Ontario. Effective on September 3, 1995, the Company entered into an agreement that resulted in the sale of its former filter product line assets to CLARCOR Inc. ("CLARCOR") of Rockford, Illinois. Certain filter and filter component parts inventory located at the Company's Hastings, Michigan plant was not included in the sale as the Company, as discussed below, continued to supply CLARCOR with component parts during a transition period. The Company and CLARCOR entered into a Transition Agreement, also dated September 3, 1995. That Agreement provided for the Company's manufacture and supply to CLARCOR of certain filters and filter component parts until certain manufacturing equipment, located at the Company's Hastings, Michigan plant, could be moved and set up at CLARCOR's plant facilities. It also provided for reimbursement to the Company of certain administrative costs directly related to the manufacture and supply of filters and filter components to CLARCOR. The transition period concluded in August 1996. Effective in May 1996, the Company moved its piston ring packaging operations from its former facility in Knoxville, Tennessee to Hastings, Michigan thus consolidating its piston ring operations. The Transition Agreement also included certain provisions for the continued distribution (not manufacture) of filter products through the Company's Canadian subsidiary, at the discretion of CLARCOR. In early -1- November 1996, the Company received notification from CLARCOR that this arrangement would terminate on December 31, 1996. As described in Note 3 to the Consolidated Financial Statements (included in Item 8), in December 1996, management and the Board of Directors approved a restructuring plan designed to significantly reduce operating costs and provide for a more streamlined operating structure concentrating on piston ring manufacturing. In addition to reducing staffing levels at both the U.S. and Canadian manufacturing facilities, the restructuring plan calls for the termination of most Canadian piston ring manufacturing effective April 30, 1997. The Company's Canadian subsidiary continues to distribute piston rings throughout Canada. However, its product is now sourced primarily by U.S. operations. The Canadian facility also continues to manufacture certain piston ring parts and provide packaging operations for tools and piston ring sets. Fiscal 1997 was a critical year for the Company as it returned to profitability, recognizing net income for the first full year since 1994. This return to profitability was the result of various factors, including (1) a net sales gain in 1997 from 1996 within the remaining products lines, (2) a gross profit percentage improvements driven, in part, by the completion of the transition period in 1996 and (3) a net reduction in operating expenses reflecting the absorption of certain non-recurring items in 1996 and the favorable impact of the restructuring effort in 1997. Fiscal 1997 also saw significant changes in the way the Company distributes its products overseas and, at home, how changes in the manufacturing processes improved quality and productivity. Prior to 1997, the Company had a single distributor conducting the majority of its export sales under a series of negotiated three-year contracts. Considering perceived changes in the global market, a mutual decision was made to allow this arrangement to expire effective December 31, 1996. During 1997, the Company made significant progress in expanding its overseas distribution channels on a country-direct basis. By the close of 1997, the Company had contracted with new distributors and was selling products direct in Australia, South America, the Middle East, Israel, Puerto Rico and South America. While export sales were down in 1997 compared to 1996, due to the time lag associated with converting to the direct export distributors, the Company remains committed to broadening its direct export business and feels that efforts will be justified in the coming years. Beginning in 1996 and carrying over to 1997, the Company made significant strides in improving its manufacturing operations. The Company's initiatives to improve quality and productivity were rewarded with QS-9000 and ISO-9002 quality registrations in July 1997. -2- The market for the Company's products is highly competitive. The principal methods of competition in the industry are price, service, product performance and product availability. Accurate figures are not available, but the Company believes it ranks among the three largest domestic producers of replacement piston rings. Among the Company's trade names used in marketing its products are "Hastings," "Casite" and "Flex-Vent," which are registered trademarks in the United States and many foreign countries. The Company also holds a number of patents and licenses. In the opinion of management, the Company's business generally is not dependent upon patent protections. The Company ships orders to customers within a short period, ordinarily one week or less from the time orders are received. Accordingly, backlog is not significant in the business of the Company and no separate figures of backlog are kept by the Company. The Company's sales have limited seasonal fluctuations. None of the practices of the Company or the industries in which it operates create any unusual working capital requirements that would be material to an understanding of the business taken as a whole. The sales of the Company are to many customers and are not dependent upon a single customer or a few customers. Raw materials essential to the production of the Company's products are standard items obtainable in the open market and are purchased from many vendors. Research and development are performed by the Company's engineering staff relating to improvements in products and production as well as the design and testing of new products. The Company's expenditures for research and development are not material. The Company has no material governmental contracts. Compliance with federal, state and local environmental laws and regulations governing discharges into the environment is not expected to have a material effect upon the capital expenditures, earnings or competitive position of the Company. The Company and its subsidiaries have a total employment of approximately 440 employees. Employee relations at all of the Company's plant locations are considered to be satisfactory. While the Company maintains operations in Canada, there are no unusual risks attendant to the Company's foreign operations. The products of the Company are sold worldwide. Financial information regarding the -3- Company's Canadian subsidiary including sales, operating profit or loss and identifiable assets, along with total export sales from the Company's U.S. operations to unaffiliated customers, is included in Note 11 to the Consolidated Financial Statements contained in Item 8 below. ITEM 2. PROPERTIES. The general offices and manufacturing and distribution plant, which produces and distributes piston rings and, through the transition date discussed in Item 1 above, produced filters and filter component parts for CLARCOR Inc., are owned by the Company and are located at 325 North Hanover Street, Hastings, Michigan. This facility consists of approximately 260,000 square feet of production space, 154,000 square feet of available warehouse area, and 35,000 square feet of office area. The Company's wholly owned Canadian subsidiary, Hastings, Inc., owns and operates manufacturing and warehouse facilities for piston rings, oil additives, and mechanics' hand tools and is located in Barrie, Ontario. This facility includes approximately 65,000 square feet of production and warehouse space and 4,000 square feet of office space. As of year-end, production levels within the Company's Hastings, Michigan facility were near 75% of capacity. ITEM 3. LEGAL PROCEEDINGS. The Company is not a party to any pending legal proceedings other than routine litigation incidental to its business. In the opinion of management, the outcome of any litigation currently pending will not materially affect the Company's consolidated financial position. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matter was submitted during the fourth quarter of 1997 to a vote of security holders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS. The Company's common stock is traded on the American Stock Exchange (ticker symbol HMF). At March 20, 1998, there were 391,963 outstanding shares and the approximate number of shareholders, excluding those held by security brokers, was 299. -4- High and low sales prices and cash dividends, per quarter, are as set forth below. All results are on a pre-split basis and have not been adjusted to reflect the two-for-one stock split as discussed in Note 12 to the Consolidated Financial Statements in Item 8 below.
1997 1996 ---------------------------- --------------------------- CASH CASH STOCK PRICE DIVIDENDS STOCK PRICE DIVIDENDS HIGH LOW PAID HIGH LOW PAID ---------------------------------------------------------- First Quarter. . . . 30-1/4 25 .10 23-3/4 21 .10 Second Quarter . . . 28-7/8 26 .10 26 22-3/4 .10 Third Quarter. . . . 39-1/4 26-3/4 .15 27 23 .10 Fourth Quarter . . . 41-1/2 37-3/4 .15 26 24 .10
The Company expects to continue its policy of paying regular quarterly dividends, although this policy is dependent upon future earnings, capital requirements, and financial condition. In addition, cash dividends are restricted in accordance with the Company's loan agreements as described in Note 6 to the Consolidated Financial Statements included in Item 8 below. Unrestricted retained earnings under the agreements amounted to $2,183,785 at December 31, 1997. The Company made no unregistered sales of any of its securities during fiscal year 1997. ITEM 6. SELECTED FINANCIAL DATA.
1997 1996 1995 1994 1993 ----------- ----------- ----------- ----------- ----------- Net Sales . . . . . . . . . . . . $35,574,954 $39,408,610 $63,228,312 $74,572,222 $72,477,617 Net Income (Loss) . . . . . . . . 955,233 (884,843) (3,023,180) 448,921 (10,254,450) Basic and Diluted Net Income (Loss) per Share . . 1.24 (1.15) (3.93) .58 (13.34) Long-Term Debt. . . . . . . . . . 565,625 2,028,125 3,490,625 6,223,900 4,340,150 Total Assets. . . . . . . . . . . 33,390,331 34,454,989 37,547,568 47,854,279 46,149,236 Dividends per Share . . . . . .25 .20 .20 .20 .20 Average Shares Outstanding: Basic . . . . . . . . . . . . . 768,516 768,516 768,516 768,516 768,516 Diluted . . . . . . . . . . . . 768,680 768,516 768,516 768,516 768,516 -5- Average shares outstanding and the related per share results have been adjusted to reflect the two-for-one stock split discussed in Note 12 to the Consolidated Financial Statements included in Item 8 below. The 1996 data includes non-recurring restructuring and relocation costs totaling $819,900. Refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 2 and 3 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementing Data." The 1995 data includes the effects of the sale of filter operations and the subsequent realignment of the organizational structure to a smaller size. Refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 2 to the Consolidated Financial Statements included in Item 8, "Financial Statements and Supplementary Data." The 1993 data includes the cumulative effect of changes in accounting principles of ($11,208,934) or ($14.59) per share.
ITEM 7. 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, as discussed in Note 2 to the Consolidated Financial Statements, quarterly and annual results were impacted to varying degrees through the fourth quarter of 1996. The Company was obligated during a transition period to provide the purchaser with support for the filter operations. The terms of the related Transition Agreement have been fully documented in previous disclosures. Numerous operating relationships were impacted by the sale and by the subsequent transition period. While filter operations had no direct impact on the 1997 results, comparative operations from 1996 and 1995 continue to reflect certain "filter" relationships as indicated throughout the following analysis. In addition to the filter operations sale impact, the Company announced a restructuring program in the fourth quarter of 1996 as discussed in Note 3 to the Consolidated Financial Statements. The impact from that program is likewise reflected in the following analysis as applicable. For the year, the Company generated net income of $955,233 compared to a net loss of $884,843 in 1996. This return to profitability was the result of various factors, each of which is more fully described below. These include (1) a net sales gain in 1997 from 1996 within the remaining product lines, (2) a gross profit percentage improvement driven, in part, by the completion of the transition period in 1996 and (3) a net reduction in operating expenses reflecting the absorption of certain -6- non-recurring items in 1996 and the favorable impact of the restructuring effort on 1997. For 1997, the Company reported four quarters of positive earnings from operations for the first time since 1993. Contrary to 1996, when significant positive and/or negative factors impacted the individual quarterly results, 1997 realized a more consistent operating performance. RESULTS OF OPERATIONS NET SALES The Company's net sales increased by $236,147 in the final quarter of 1997 relative to 1996 despite the inclusion of $207,800 of "filter sensitive" volume in the 1996 period. As such, sales from the remaining products increased by $443,947, or 5.6%, in the 1997 final quarter from the same period in 1996. The net sales decline of 9.7% for the full year of 1997 versus 1996, from $39,408,610 to $35,574,954, reflects an impact from the filter transition. Total 1996 filter related sales were $5,992,800. Net of this component, the remaining product lines posted a net sales gain of 6.5%, or $2,159,144. As discussed in Note 11, the Company's export sales volume was down in 1997 from 1996. This was due to lower export sales through traditional export channels and the time lag associated with converting additional export markets to a country-direct basis. This market conversion effort follows the expiration of an agreement with our former export representative as of December 31, 1996. Activity with that representative had been conducted under a series of negotiated three-year agreements. Considering perceived changes in the global market, a mutual decision was made to allow the arrangement to expire. The Company remains committed to broadening its direct export business and feels that those efforts will be justified in the coming years. Following on the success of 1996 in its traditional domestic aftermarket channels, the Company again realized solid growth during 1997. These gains were achieved through a continued focus on our aftermarket customers combined with the presence of an acceptable sales order fill performance. That order fill success continued a commitment from 1996 following the Company's less than desired performance in this area through much of 1995. The Company's private brand and original equipment volumes were steady in 1997 when compared to their 1996 levels. That volume is primarily driven by industry demands that were relatively flat in 1997. While the Company remains cautious as to its private brand and original equipment markets, early 1998 results are favorable in both its domestic and export sales activities. Net sales in 1996 were down $23,819,702, or 37.7%, from 1995. Approximately $22,300,000 of that decline was directly related to the filter operations sale with the remaining decline resulting from a reduction in sales of the remaining product lines. That decline resulted -7- directly from reduced export sales in 1996 from 1995 reflecting lower export sales through the Company's traditional markets and an inventory reduction effort on the part of the Company's former primary export representative through 1996. That volume decline was a factor in the decision to expand our country-direct efforts. COST OF SALES AND GROSS PROFIT Total cost of sales for 1997 declined by $5,013,944, or 17.1%, from 1996. The reported gross profit percentage increased to 31.7% for the full year 1997 from 25.7% in 1996. The aggregate cost of sales reduction, with a corresponding improvement of the gross profit percentage, reflects the absence of any filter operations in 1997 following the inclusion of $5,992,800 of filter net sales activity in 1996. That filter activity included $736,000 of support expenses billed back to the filter operations purchaser. The gross margin on the remainder of the filter related sales was at a minimal rate as dictated by the terms of the Transition Agreement. In addition to specific filter product costs included in the 1996 results, certain product driven distribution and support operating costs are included in cost of sales. Those operating costs declined following the 1996 relocation from the Knoxville facility. Distribution costs decreased from $1,925,000 in 1996 to $921,000 in 1997. In addition, the reduction of certain other costs, such as retiree medical expenses, combined with the absence of all Knoxville related support costs contributed to the lower cost of sales level in 1997. With respect to retiree medical expenses, reference is made to Note 9 to the Consolidated Financial Statements in Item 8, which more fully discusses the April 1997 amendment to the Company's postretirement benefit plans, the related financial statement effects and a recent response to such by legal representatives of certain affected retirees. For 1997, product cost factors (materials, labor and overhead) changed little from 1996. Material costs incurred only minimal inflation as reflected in Note 4. Though labor rates increased by 3% early in 1997, productivity gains offset most of that adjustment. The gross profit margin generated in the fourth quarter (31.2%) was only slightly lower than the margin reported through the third quarter of this year (31.9%). Higher payroll support costs, including pension costs and workers' compensation premiums, contributed to this lower relative margin in the final quarter of 1997. Total cost of sales for 1996 declined by $20,666,684, or 41.4%, from 1995. The primary contributor to this significant net dollar decline was again the reduced filter operations throughout 1996. The corresponding increase in the realized gross profit margin percentage for 1996 (25.7%) from 1995 (21.0%) was the result of several factors. Relocation out of the Knoxville facility in early 1996 resulted in lower relative distribution costs in the 1996 cost of sales category. In addition, the phase-out of filter operations in general, combined with the improved distributor piston ring volume, further improved the 1996 realized gross profit percentage. The 1996 results were also favorably impacted by the liquidation of certain -8- LIFO inventory reserves related to the final transfer of inventory balances to the purchaser. OPERATING EXPENSES Total operating expenses declined $1,896,427, or 17.1%, from $11,082,798 to $9,186,371. As a percent of net sales, these costs declined 2.3%, from 28.1% in 1996 to 25.8% in 1997. Exclusive of the non-recurring restructuring and relocation costs discussed below, 1997 operating expenses still declined by $1,076,527. This reduction reflects the absence of filter expenses in 1997, as well as the positive results of the restructuring plan as reported in Note 3. Advertising, up $23,321, or 6.7%, reflects increased outlays for a biannual product line catalog and cooperative advertising programming offset by lower support staff salaries and reduced printed materials purchases. Selling expenses, down $472,928, or 13.2%, primarily reflects reduced sales staff support costs driven by the restructuring efforts by both the parent company and the Canadian subsidiary. In addition, this expense line item now reflects the full absence of any filter related sales support costs as incurred through the 1996 comparative period. These filter support costs, reported within the selling expense category, totaled $425,000 for 1996. The general and administrative expenses, down $626,920, or 9.9%, in 1997 from 1996, reflect several factors. This category included certain filter support costs totaling $311,000 in 1996 that were "billed back" to the purchaser in combination with the noted selling expenses. In addition, this category reflects a consistent decline in many of the general office operating costs, reflecting the reduced demands from the post-filter operating environment, as well as a reduction in retiree medical expenses as discussed in Note 9. Slightly offsetting these cost reductions was the 1997 cost related to Year 2000 compliance, as discussed below. The non-recurring restructuring and relocation costs for 1996 reflect the costs associated with the relocation of certain inventories and shipping operations out of the Company's former Knoxville, Tennessee facility and the restructuring program announced in the fourth quarter of 1996. These events are more fully discussed in Notes 2 and 3 to the Consolidated Financial Statements. During 1997, the Company utilized the services of an outside consultant to assist in converting its computer systems to be Year 2000 compliant. At December 31, 1997, management believes the Company's core mainframe operating system and applications, its personal computer (PC) operating systems and the majority of its PC applications are compliant. The remaining PC applications are expected to be compliant during 1998 with the next software release or upgrade. Manufacturing equipment testing for Year 2000 compliance has been substantially completed with the remainder to be completed during 1998. The Company's software vendors have been contacted requesting assurances regarding Year 2000 compliance. Responses are in the process of being received and reviewed. Costs relating to the project during 1997, which approximated $110,000, were expensed as incurred -9- and are included in 1997 "General and Administrative" expenses. Future costs to be incurred to complete the Year 2000 project are not expected to be material. Total operating expenses for 1996 decreased significantly from 1995 for each of the primary categories. Again, the filter operations sale was the primary factor in that decline as the Company scaled down multiple programs and personnel relative to the refocused operations. As noted above, however, 1996 then absorbed 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 fourth quarter of that year. OTHER EXPENSES Other expenses, net increased by $261,639 in 1997 from 1996. The net interest position for 1997 reflects both lower expense and income. This relationship represents a continued decline in net borrowings resulting from normal long-term debt amortization combined with the use of interest earning funds previously held through 1996 for capital equipment acquisitions. The 1997 interest income amount primarily reflects earnings on the balance of escrowed funds to be held through September 1998 related to the filter operations sale. The favorable 1996 "Other, net" results reflect a $204,500 gain from the termination of an interest rate swap agreement in March of that year. Other expenses, net declined by $712,746 in 1996 from 1995. The comparative interest expense and interest income relationships reflect primarily the impact from financing activities related to the filter operations sales. Following the sale, various short-term and long-term debt obligations were liquidated. In addition, 1995 absorbed the minimal loss incurred on the filter operations sale while 1996 absorbed the gain from the noted favorable interest rate swap termination. TAXES ON INCOME The impact of income taxes on the reported results of the Company is detailed in Note 10 to the Consolidated Financial Statements. The 1997 effective tax rate of 39.4% is higher than the statutory federal rate due primarily to the impact of state income taxes. The 1996 effective tax credit rate of 28.5% is lower than the statutory rate due primarily to the increase of a valuation allowance for certain unused foreign tax credits and the recognition of an accumulated state income tax obligation. The 1995 effective tax credit rate of 19.2% was due primarily to the initial establishment of that valuation allowance for unused tax credits and the reversal and adjustment of certain prior temporary differences. As of December 31, 1997, the Company recorded net deferred income tax assets of $8,180,610. The major components included the tax effect of -10- net operating loss carryforwards of $796,643 and accrued retirement and postretirement benefit obligations totaling $6,512,584. The realization of these recorded benefits is dependent upon the generation of future taxable income. The net operating loss carryforwards fully expire in 2010 and 2011, if not previously utilized. Management has prepared projections of taxable income for future years indicating that the cumulative net operating loss is expected to be fully utilized by early 1999. Management elected to carry the entire operating loss forward to future years rather than carry a portion of it back to prior years because carrying the loss back would result in the loss of certain foreign tax credits. It is further felt that the 1995 and 1996 operating losses resulted from factors that are not expected to recur. They were largely attributable to the Company's transition out of the filter operations and a delay in recognizing the restructuring required to support the ongoing product operations. As evidenced by the improved 1997 results, management is confident that the restructuring will result in continued profitability. The Company further expects to be able to realize the deferred tax assets related to the retirement and postretirement benefit obligations as it pays these benefits. Such payments will constitute an expense which is deductible for tax reporting purposes over many future years. During each of the last ten years, with the exception of 1995 and 1996, the Company has been able to deduct these benefits for tax reporting purposes and reduce its current tax liability accordingly. Amounts currently paid and deducted have historically approximated the annual expense recognized for financial reporting purposes. As a result of the retiree medical plan amendment as discussed in Note 9, current tax deductible payments are expected to exceed the annual expense recognition for financial reporting purposes, thus accelerating the absorption of the future periods' tax benefit. Management believes it is more likely than not that adequate levels of future 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. In addition, based upon projected foreign source income, management believes it is more likely than not that the foreign tax credits will be utilized prior to their expiration. LIQUIDITY AND CAPITAL RESOURCES The Company's primary cash requirements continue 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 -11- flow activities. With the full transition out of filter operations, and the favorable impact to date of the restructuring effort, the Company expects to generate sufficient future funds from operations and bank borrowings to fund its growth and operating needs. The short-term borrowing lines available to the Company as of December 31, 1997 totaled $4.7 million, of which $1.3 million was unused. During January 1998, the Company obtained an additional $1.5 million unsecured line of credit with another bank. An interest rate collar arrangement is currently in place, effectively limiting the borrowing rate on certain long-term and short-term funds to a minimum of 6.75% and a maximum of 8.25%. During 1997, the Company generated net cash of $2,129,643 from operating activities. The reported net income, depreciation and deferred income tax components were only partially countered by increased accounts receivable and a reduction in the postretirement benefit obligation. The deferred income tax change reflects the absorption of a portion of the loss carryforwards in the current year while the postretirement benefit factor reflects, in part, the current impact from the plan modification effective in April 1997. The investing activities for 1997 essentially reflect capital equipment purchases of $1,770,302 as the Company continues to enhance its production capabilities. That total should decline somewhat in 1998 as the Company focuses on certain capacity issues. The financing activities for 1997 reflect a modest decrease in our reliance upon short- term borrowings combined with the reduction of long-term debt levels through normally scheduled quarterly payments. During 1996, the Company generated net cash of $1,188,280 from operating activities. The reported net loss and the reductions in accounts payable and accruals were more than offset by depreciation expense and by reductions in accounts receivable and inventories. The realized reductions in accounts payable, accounts receivable and inventories were primarily a result of the Company's full transition out of filter operations. The outlay of $1,343,291 for capital expenditures in 1996 reflects, in part, enhancements to the Hastings, Michigan facility in relation to the inventory and shipping operations relocation from the Knoxville facility. The financing activities for 1996 reflected a reduced reliance upon short- term borrowings throughout most of that year combined with the reduction of long-term debt levels through scheduled payments. From a cash flow perspective, 1995 was a year of substantial change. The Company incurred an operating loss while attempting to structure its transition out of the filter operations. Proceeds from the sale, however, were used to acquire capital assets in support of continuing product operations and to restructure our debt position as evidenced by the financing activities section. Within the operating activities section, inventory levels were increased late in the year in response to customer backorder concerns from earlier in that year. The structure and operations of the Company have changed -12- considerably over the past three year period. With the filter operations transition completed and the initial benefits now being reflected from the restructuring effort, the Company anticipates that operations (which should be subject to minimal current cash outflows for U.S. income taxes due to utilization of the net operating loss carryforwards), in combination with the unused portion of available short-term lines of credit, will generate adequate cash flows to fund its working capital, capital outlays and dividend needs through 1998. NEW ACCOUNTING STANDARDS Statement of Financial Accounting Standards (SFAS) No. 130, REPORTING COMPREHENSIVE INCOME, issued in June 1997, establishes standards for the reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS No. 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION, issued in June 1997 and which supersedes SFAS No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE, establishes standards for the way that public companies report information about operating segments in annual financial statements and requires reporting of selected information about operating segments in interim financial statements issued to the public. It also establishes standards for disclosures regarding products and services, geographic areas and major customers. SFAS No. 131 defines operating segments as components of a company about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. SFAS No. 132, EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS, issued in February 1998, revises employers' disclosures about pension and other postretirement benefit plans. It does not change the measurement or recognition of those plans. SFAS No. 132 standardizes the disclosure requirements to the extent practicable, requires additional information on changes in the benefit obligations and fair values of plan assets that will facilitate financial analysis and eliminates certain disclosures that are no longer as useful as when they were first required to be presented. All three of these new Statements are effective for the Company in 1998 and require restatement of prior year comparative information. The implementation of these new Statements will not affect results of operations and financial position, but may have an impact on future -13- financial statement disclosures. With respect to SFAS No. 131, the Company does not expect to change its operating segment groupings. 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 "Results of Operations" 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. ITEM 7A. QUANTITIVE AND QUALITIVE DISCLOSURES ABOUT MARKET RISK. No information is required to be disclosed under this item. -14- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. Hastings Manufacturing Company and Subsidiaries Consolidated Balance Sheets ===========================================================================
DECEMBER 31 1997 1996 ----------- ----------- ASSETS CURRENT ASSETS Cash $ 558,172 $ 1,457,783 Accounts receivable, less allowance for possible losses of $215,000 5,148,906 4,893,200 Refundable income taxes 13,475 66,667 Inventories (Note 4): Finished products 7,460,534 7,134,216 Work in process 572,307 415,581 Raw materials 1,239,657 1,751,323 Prepaid expenses and other assets 75,669 152,807 Future income tax benefits (Note 10) 2,351,687 2,413,877 Other current assets (Note 2) 958,517 - ----------- ----------- TOTAL CURRENT ASSETS 18,378,924 18,285,454 ----------- ----------- PROPERTY AND EQUIPMENT Land and improvements 658,243 660,168 Buildings 4,633,937 4,312,633 Machinery and equipment 18,180,840 17,035,465 ----------- ----------- 23,473,020 22,008,266 Less accumulated depreciation 15,156,120 14,071,826 ----------- ----------- NET PROPERTY AND EQUIPMENT 8,316,900 7,936,440 ----------- ----------- INTANGIBLE PENSION ASSET (Note 8) 815,189 941,583 FUTURE INCOME TAX BENEFITS (Note 10) 5,828,923 6,234,623 -15- OTHER ASSETS (Note 2) 50,395 1,056,889 ----------- ----------- $33,390,331 $34,454,989 =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -16- Hastings Manufacturing Company and Subsidiaries Consolidated Balance Sheets ===========================================================================
DECEMBER 31 1997 1996 ----------- ----------- LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable to banks (Note 5) $ 3,400,000 $ 3,000,000 Accounts payable 1,475,098 1,479,361 Accruals: Compensation 494,781 446,422 Pension plan contribution (Note 8) 608,786 359,441 Taxes other than income 172,854 283,347 Miscellaneous 217,731 240,737 Current portion of postretirement benefit obligation (Note 9) 1,110,442 1,641,040 Current maturities of long-term debt (Note 6) 1,462,500 1,462,500 ----------- ----------- TOTAL CURRENT LIABILITIES 8,942,192 8,912,848 LONG-TERM DEBT, less current maturities (Note 6) 565,625 2,028,125 PENSION AND DEFERRED COMPENSATION OBLIGATIONS, less current portion (Note 8) 3,243,618 3,035,576 POSTRETIREMENT BENEFIT OBLIGATION, less current portion (Note 9) 15,318,770 15,545,992 ----------- ----------- TOTAL LIABILITIES 28,070,205 29,522,541 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Notes 6, 8 and 9) -17- STOCKHOLDERS' EQUITY (Notes 6, 7, 8 and 12) Preferred stock, $2 par value, authorized and unissued 500,000 shares - - Common stock, $2 par value, 1,750,000 shares authorized; 780,626 and 388,138 shares issued and outstanding 1,561,252 780,276 Additional paid-in capital 145,788 140,206 Retained earnings 5,793,219 5,813,827 Cumulative foreign currency translation adjustment (750,655) (611,455) Pension liability adjustment (Note 8) (1,429,478) (1,190,406) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY 5,320,126 4,932,448 ----------- ----------- $33,390,331 $34,454,989 =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -18- Hastings Manufacturing Company and Subsidiaries Consolidated Statements of Operations ===========================================================================
YEAR ENDED DECEMBER 31, 1997 1996 1995 ----------- ----------- ----------- NET SALES $35,574,954 $39,408,610 $63,228,312 COST OF SALES (Note 9) 24,285,197 29,299,141 49,965,825 ----------- ----------- ----------- Gross profit 11,289,757 10,109,469 13,262,487 ----------- ----------- ----------- OPERATING EXPENSES Advertising 372,981 349,660 1,295,321 Selling 3,120,215 3,593,143 6,101,583 General and administrative (Note 9) 5,693,175 6,320,095 8,631,503 Non-recurring restructuring and relocation costs (Notes 2 and 3) - 819,900 - ----------- ----------- ----------- 9,186,371 11,082,798 16,028,407 ----------- ----------- ----------- Operating income (loss) 2,103,386 (973,329) (2,765,920) ----------- ----------- ----------- OTHER EXPENSES (INCOME) Interest expense 510,322 570,397 892,891 Interest income (47,062) (145,853) (121,091) Loss on sale of filter operations (Note 2) - - 67,254 Other, net 62,893 (160,030) 138,206 ----------- ----------- ----------- 526,153 264,514 977,260 ----------- ----------- ----------- Income (loss) before income tax expense (benefit) 1,577,233 (1,237,843) (3,743,180) -19- INCOME TAX EXPENSE (BENEFIT) (Note 10) 622,000 (353,000) (720,000) ----------- ----------- ----------- NET INCOME (LOSS) $ 955,233 $ (884,843) $(3,023,180) =========== =========== =========== BASIC AND DILUTED NET INCOME (LOSS) PER SHARE OF COMMON STOCK (Note 12) $ 1.24 $ (1.15) $ (3.93) =========== =========== ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -20- Hastings Manufacturing Company and Subsidiaries Consolidated Statements of Stockholders' Equity ===========================================================================
CUMULATIVE FOREIGN ADDITIONAL CURRENCY PENSION COMMON PAID-IN RETAINED TRANSLATION LIABILITY STOCK CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT --------- ---------- ----------- ----------- ----------- BALANCE, January 1, 1995 777,336 $147,384 $10,033,512 $(716,307) $(1,941,774) Net loss - - (3,023,180) - - Shares issued under restricted stock plan, net of shares forfeited 290 (28,066) - - - Cash dividends ($.20 per share) - - (155,467) - - Foreign currency translation adjustment - - - 115,906 - Pension liability adjustment (Note 8) - - - - 15,344 --------- -------- ----------- --------- ----------- BALANCE, December 31, 1995 777,626 119,318 6,854,865 (600,401) (1,926,430) Net loss - - (884,843) - - Shares issued under restricted stock plan, net of shares forfeited 2,650 20,888 - - - Cash dividends ($.20 per share) - - (156,195) - - Foreign currency translation adjustment - - - (11,054) - Pension liability adjustment (Note 8) - - - - 736,024 --------- -------- ----------- --------- ----------- -21- BALANCE, December 31, 1996 780,276 140,206 5,813,827 (611,455) (1,190,406) Net income - - 955,233 - - Shares issued under restricted stock plan, net of shares forfeited 350 5,582 - - - Cash dividends ($.25 per share) - - (195,215) - - Foreign currency translation adjustment - - - (139,200) - Pension liability adjustment (Note 8) - - - - (239,072) Two-for-one stock split (Note 12) 780,626 - (780,626) - - --------- -------- ----------- --------- ----------- BALANCE, December 31, 1997 1,561,252 $145,788 $ 5,793,219 $(750,655) $(1,429,478) ========= ======== =========== ========= ===========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -22- Hastings Manufacturing Company and Subsidiaries Consolidated Statements of Cash Flows ===========================================================================
YEAR ENDED DECEMBER 31, 1997 1996 1995 ----------- ----------- ------------ OPERATING ACTIVITIES Net income (loss) $ 955,233 $ (884,843) $ (3,023,180) Adjustments to reconcile net income (loss) to net cash from (for) operating activities: Depreciation 1,337,100 1,255,252 1,635,753 Loss on sale of filter operations (Note 2) - - 67,254 Gain on sale of property and equipment - - (900) Deferred income taxes (benefit) 591,000 (370,000) (680,000) Change in postretirement benefit obligation (757,820) 70,058 151,364 Changes in operating assets and liabilities, net of effects from 1995 sale of filter operations: Accounts receivable (291,894) 1,764,615 4,673,975 Refundable income taxes 51,933 159,290 99,222 Inventories (37,063) 709,006 (2,498,226) Prepaid expenses and other current assets 31,656 (21,651) (55,291) Other assets 93,315 (97,240) (96,636) Accounts payable and accruals 156,183 (1,396,207) (1,941,240) ----------- ----------- ------------ Net cash from (for) operating activities 2,129,643 1,188,280 (1,667,905) ----------- ----------- ------------ -23- INVESTING ACTIVITIES Capital expenditures (1,770,302) (1,343,291) (2,053,626) Proceeds from sale of filter operations, net of related expenses paid (Note 2) - - 13,291,695 Investment of proceeds from filter sale escrow - - (870,549) Proceeds from sale of property and equipment 1,299 - 900 ----------- ----------- ------------ Net cash from (for) investing activities (1,769,003) (1,343,291) 10,368,420 ----------- ----------- ------------
-24- Hastings Manufacturing Company and Subsidiaries Consolidated Statements of Cash Flows ===========================================================================
YEAR ENDED DECEMBER 31, 1997 1996 1995 ----------- ----------- ------------ FINANCING ACTIVITIES Proceeds from issuance of notes payable to banks $ 7,850,000 $ 9,900,000 $ 23,893,920 Principal payments on notes payable to banks (7,450,000) (8,400,000) (28,066,710) Principal payments on long-term debt (1,462,500) (1,560,500) (2,951,575) Dividends paid (195,215) (156,195) (155,467) ----------- ----------- ------------ Net cash for financing activities (1,257,715) (216,695) (7,279,832) ----------- ----------- ------------ EFFECT OF EXCHANGE RATE CHANGES ON CASH (2,536) (80,017) 3,789 ----------- ----------- ------------ NET INCREASE (DECREASE) IN CASH (899,611) (451,723) 1,424,472 CASH, beginning of year 1,457,783 1,909,506 485,034 ----------- ----------- ------------ CASH, end of year $ 558,172 $ 1,457,783 $ 1,909,506 =========== =========== ============ SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the year for: Income taxes, net of refunds $ (40,793) $ (172,890) $ (129,686) Interest 524,814 578,061 943,205
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. -25- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NATURE OF OPERATIONS Hastings Manufacturing Company and subsidiaries (Company) is primarily a manufacturer of automotive and light duty truck piston rings and, through September 3, 1995, oil and air filters. To a lesser extent, it produces and/or sells oil additives and hand tools. Prior to September 3, 1995, manufacturing operations were located in Hastings, Michigan; Knoxville, Tennessee; Yankton, South Dakota; and Barrie, Ontario, Canada. As discussed in Note 2, effective September 3, 1995, the Company sold its filter product line assets, including its Yankton and Knoxville plant facilities. In conjunction with the sale, the Company relocated its piston ring packaging operations from its Knoxville, Tennessee facility to its Hastings, Michigan facility in 1996. The Company distributes its products primarily through numerous auto parts jobbers and warehouse distributors for sale primarily in the automotive replacement market throughout the U.S. and Canada. International sales have historically been distributed primarily through one U.S. customer. Beginning in early 1997, the Company began distributing the majority of its export volume on a direct country basis. The Company performs ongoing credit evaluations of its customers and provides reserves for potential credit losses. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the parent company and its subsidiaries. Upon consolidation, all significant intercompany accounts and transactions are eliminated. USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities 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. -26- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== REVENUE RECOGNITION The Company recognizes revenue when its products are shipped to its customers. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of the Company's financial instruments, comprised of cash, short-term receivables and payables, notes payable to banks (variable interest rate) and long-term debt (variable interest rate) approximates their carrying values. The fair value of the Company's interest rate collar agreement, as disclosed in Note 6, is not material. INVENTORIES Inventories are stated at cost, not in excess of market. The Company uses the last-in, first-out (LIFO) method of determining costs for U.S. raw material inventories. Remaining inventories are valued using the first-in, first-out (FIFO) method. PROPERTY, EQUIPMENT AND DEPRECIATION Property and equipment are stated at cost, less accumulated depreciation. Depreciation is computed primarily by the straight-line method for financial reporting purposes and accelerated methods with minimum lives for income tax purposes. RETIREMENT PLANS The Company sponsors noncontributory, defined benefit plans which cover all employees of the Company who are covered by collective bargaining agreements. The plans provide benefits based on an employee's earnings and years of benefit service. The Company funds these plans in amounts consistent with the funding requirements of federal laws and regulations. The plans' assets are invested in stocks, bonds, annuities and short-term investments. The Company also sponsors defined contribution retirement savings plans for its employees and has entered into a deferred compensation agreement with a former officer as described in Note 8. -27- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== The Company provides certain healthcare and life insurance benefits for eligible retired employees. Postretirement benefits are accounted for on the accrual basis, during the employee's years of service, based on the expected cost of providing benefits to that employee and the employee's beneficiaries and covered dependents. STOCK OPTIONS The Company applies the provisions of Accounting Principles Board Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES (APB 25), and related interpretations in accounting for its stock option plan. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. ADVERTISING COSTS All advertising costs are expensed in the period in which they are incurred. INCOME TAXES The Company provides deferred income taxes based on enacted income tax rates in effect on the dates temporary differences between the financial reporting and tax bases of assets and liabilities reverse. The effect on deferred tax assets and liabilities of a change in income tax rates is recognized in income in the period that includes the enactment date. To the extent that available evidence about the future raises doubt about the realization of a deferred tax asset, a valuation allowance is established. As disclosed in Note 10, the Company has recorded deferred tax assets reflecting the benefit of net operating loss carryforwards expiring in 2010 and 2011, foreign tax credit carryforwards expiring through 2002, accrued retirement and postretirement obligations estimated to be payable in varying amounts over the next 25 to 30 years and other net deductible temporary differences. Realization of the recorded income tax benefits is dependent on generating sufficient taxable income and foreign source income prior to expiration of the loss carryforwards and foreign tax credit carryforwards. Although realization is not assured, management believes it is more likely than not that all of the deferred tax assets will be realized. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable -28- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== income and foreign source income during the carryforward periods are reduced. No provision for income taxes has been made on the accumulated undistributed earnings of approximately $3,757,000 of the Canadian subsidiary. These earnings are intended to be permanently reinvested in facilities and other assets and have borne income taxes that would offset, in major part, any tax liability resulting from their distribution. NET INCOME (LOSS) PER SHARE In February 1997, Statement of Financial Accounting Standards (SFAS) No. 128, EARNINGS PER SHARE, was issued. SFAS No. 128 replaced the calculation of "primary" and "fully diluted" earnings per share (EPS) with "basic" and "diluted" EPS. Unlike primary EPS, basic EPS excludes any dilutive effects of options, warrants and convertible securities. It also excludes the dilutive effect of contingently issuable shares (such as the Company's outstanding restricted stock plan shares described in Note 7). Basic EPS is computed by dividing net income (loss) by the weighted average number of shares outstanding during each year (excluding the restricted shares). Diluted EPS is computed in a manner very similar to fully diluted EPS. Basic and diluted EPS are retroactively adjusted for stock dividends and stock splits. The weighted average number of shares outstanding for 1997 was 768,516 and 768,680 for basic and diluted EPS calculations, respectively, with the 164 share difference related to the dilutive effect of the Company's restricted shares. The weighted average number of shares outstanding was 768,516 for both 1996 and 1995 for purposes of both basic and diluted EPS calculations, due to the anti-dilutive effect of the restricted shares for both years. The Company has not included the effects of its December 1997 stock option grant in its calculation of diluted EPS due to its anti-dilutive effect. All outstanding shares have been adjusted for the two-for-one stock split discussed in Note 12. Basic and diluted EPS are equal for all periods presented. INTEREST RATE AGREEMENTS The Company enters into interest rate swap and collar agreements to reduce the impact of changes in interest rates on its floating rate borrowings. Interest rate swap agreements are contracts to exchange floating rate for fixed rate interest payments over the life of the agreements without the exchange of the underlying notional amounts. Interest rate collar -29- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== agreements limit the Company's interest rates on floating rate borrowings to a range within a minimum (floor) and a maximum (cap) interest rate. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The differential paid or received on interest rate agreements is recognized as an adjustment to interest expense. The initial cost of interest rate collar agreements is recorded in "Other assets" in the consolidated balance sheet and is amortized over the life of the agreement. The counterparty to the Company's interest rate agreements is a commercial bank with which the Company has other financial relationships. While the Company is exposed to credit loss in the event of nonperformance by the counterparty, the Company does not anticipate nonperformance by the other party, and no material loss would be expected from such non-performance. The Company does not enter into interest rate agreements, or other derivative financial instruments, for trading purposes. FOREIGN CURRENCY TRANSLATION The financial statements of the Company's Canadian operations, where the functional currency is the Canadian dollar, are translated at the exchange rate in effect at year-end for assets and liabilities. Income and expense items are translated at the average exchange rate for the year. Related translation adjustments are reported as a separate component of stockholders' equity. Gains and losses from foreign currency transactions, which are not significant, are included in current earnings. NOTE 2 - SALE OF FILTER OPERATIONS Effective on September 3, 1995, the Company entered into an agreement and sold its filter product line assets to CLARCOR Inc. (CLARCOR) of Rockford, Illinois. The Company's filter operations comprised a portion of its one business segment, automotive replacement parts. As such, the sale of the filter product line was accounted for as a sale of a portion of a segment of a business. The sales price amounted to $13,874,000, resulting in a pre-tax loss of $67,254 after consideration of all direct costs and expenses associated with the sale, including $720,400 relating to employee severance benefits. At December 31, 1997, "Other current assets" consisted of $958,517 held in escrow until September 1998 to secure certain indemnification obligations -30- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== of the Company relating to the sale. The escrow balance amounted to $913,200 at December 31, 1996, and was included in noncurrent "other assets." Of the total $720,400 employee severance benefits accrued and expensed in September 1995 relating to the sale, $430,053 was paid through December 31, 1997, with the $290,347 balance to be paid in monthly payments through 2005. No other filter-related assets or liabilities remained at December 31, 1997 and 1996. The Company and CLARCOR also entered into a Transition Agreement, dated September 3, 1995. The Transition Agreement provided for the Company's manufacture and supply to CLARCOR of certain filters and filter component parts until certain manufacturing equipment, located at the Company's Hastings, Michigan plant, could be moved and set up at CLARCOR's plant facilities. It also provided for the reimbursement of certain administrative costs directly related to the manufacture and supply of filters and filter components to CLARCOR. The transition period was completed during the third quarter of 1996. Expense reimbursement included in net sales, amounted to $736,000 and $1,153,000 in 1996 and 1995, respectively. Sales of filters and filter component parts for the period from September 4, 1995 through December 31, 1995, amounted to $2,008,500, exclusive of the above expense reimbursement. The Transition Agreement also included certain provisions for the continued distribution (not manufacture) of filter products through the Company's Canadian subsidiary, at the discretion of CLARCOR. In early November 1996, the Company received notification from CLARCOR that this arrangement would terminate on December 31, 1996. Related distribution revenue, included in net sales, amounted to $1,123,000 and $421,700 in 1996 and 1995, respectively. Total 1996 and 1995 sales and estimated operating profit (loss) amounts for filter operations were approximately as follows: -31- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements ===========================================================================
YEAR ENDED DECEMBER 31, 1996 1995 ---------- ----------- Sales $5,992,800 $28,262,500 ========== =========== Estimated operating profit (loss) $ 525,000 $(2,786,000) ========== ===========
A significant portion of the Company's filter manufacturing and distribution operations had historically been combined with its piston ring and other operations. While records of sales and cost of sales amounts were maintained by operation, the Company did not maintain separate records of operating expenses. The above estimated operating profit (loss) amounts reflect those operating expenses which the Company estimated would not recur as a result of the sale. The 1996 estimated operating profit of $525,000 includes $625,000 of reduced filter cost of sales resulting from liquidation of LIFO inventories caused by the elimination of all remaining filter inventory. In 1996, during the course of the transition period, the Company relocated its piston ring packaging operations from Knoxville, Tennessee to Hastings, Michigan. The relocation and associated training costs are non-recurring in nature. While these costs were directly related to the 1995 sale and the subsequent restructuring of the Company's remaining operations, they were expensed as incurred during 1996 as required by generally accepted accounting standards. These costs, all of which were incurred during the first and second quarters of 1996, totaled approximately $468,400 and are included in "Non-recurring restructuring and relocation costs" in the accompanying 1996 consolidated statements of operations. NOTE 3 - RESTRUCTURING COSTS In December 1996, management and the Board of Directors approved a restructuring plan designed to significantly reduce operating costs and provide for a more streamlined and efficient operating structure concentrating on piston ring manufacturing. Operating results for 1996, exclusive of non-recurring restructuring and relocation costs discussed -32- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== here and in Note 2, were adversely affected by two major factors. First, fulfilling the Company's production and administrative responsibilities under the filter Transition Agreement, discussed in Note 2, proved more costly than anticipated. Second, with the assistance of an outside corporate consulting firm, management determined that staffing remained at too high of a level throughout the remainder of 1996 based on actual and anticipated revenues. These factors, in addition to the CLARCOR notification discussed in Note 2, precipitated the restructuring plan. In addition to reducing staffing levels at both the U.S. and Canadian manufacturing facilities, the restructuring plan called for the termination of most Canadian piston ring manufacturing effective April 30, 1997. The Canadian subsidiary continues to distribute piston rings throughout Canada, being sourced entirely by U.S. operations. This facility also continues to manufacture certain piston ring parts and provide packaging operations for tools and piston ring sets. No future impairment loss is anticipated relating to the current Canadian facilities should management determine that another, smaller facility is more cost beneficial in carrying out these functions. Total restructuring costs, all recognized in the fourth quarter of 1996, amounted to $351,500 and are included in "Non-recurring restructuring and relocation costs" in the accompanying 1996 consolidated statement of operations. Of the total, $247,000 and $104,500 related to employee severance benefits and consulting fees, respectively, and were paid during 1996 and 1997. NOTE 4 - INVENTORIES Inventories valued using the LIFO method were $2,272,000 and $2,744,000 at December 31, 1997 and 1996, respectively. If the FIFO method of inventory valuation had been used by the Company, inventories would have been $1,387,000 and $1,380,000 higher than reported at December 31, 1997 and 1996, respectively. Reduction of inventory quantities in 1997, 1996 and 1995 resulted in a liquidation of LIFO inventories carried at lower costs prevailing in prior years as compared to current years' purchases. The effect of these reductions increased net income (or reduced the net loss) by $35,000, $447,300 and $829,200 ($.05, $.58, and $1.08 per share, on a diluted basis, as adjusted for the stock split discussed in Note 12) for 1997, 1996 and -33- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== 1995, respectively. Of the $829,200 amount for 1995, $689,200 resulted from the filter operations sale discussed in Note 2 and was included in determining the loss on sale. Of the $447,300 amount for 1996, $412,500 resulted from the elimination of all remaining filter inventory during 1996. Fourth quarter 1996 gross profit was reduced by approximately $310,000 related to changes in estimates pertaining to the valuation of inventories. These year-end adjustments relate to the level of absorbed labor in ending inventories, overhead cost adjustments resulting from the fourth quarter being the first period without filter operations, and other year-end adjustments relating to normal obsolescence and quantity adjustments which were not significant relative to annual cost of sales. NOTE 5 - SHORT-TERM BORROWINGS The Company maintains unsecured lines of credit with various banks aggregating $4,700,000 and $5,000,000 at December 31, 1997 and 1996, respectively, with interest at negotiated rates based upon prime or LIBOR. Available borrowings under the lines of credit amounted to $1,300,000 and $2,000,000 at December 31, 1997 and 1996, respectively. During January 1998, the Company obtained an additional $1,500,000 unsecured line of credit with another bank. The weighted average interest rate on short-term borrowings outstanding at December 31, 1997 and 1996, was 8.0% and 8.25%, respectively. -34- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== NOTE 6 - LONG-TERM DEBT Long-term debt consists of:
DECEMBER 31, 1997 1996 ---------- ---------- (a) Term loan, unsecured $1,200,000 $2,000,000 (b) Term loan, unsecured 828,125 1,490,625 ---------- ---------- 2,028,125 3,490,625 Less current maturities 1,462,500 1,462,500 ---------- ---------- Long-term debt, less current maturities $ 565,625 $2,028,125 ========== ==========
(a) The loan calls for quarterly payments of $200,000 plus interest based on LIBOR (effectively 7.625% at December 31, 1997) through May 1999. (b) The loan calls for quarterly payments of $165,625 plus interest based on LIBOR (effectively 7.56% at December 31, 1997) through January 1999. The noncurrent portion of long-term debt at December 31, 1997 matures in 1999. The term loan agreements referred to above require the Company to maintain certain financial balances and ratios and limit the amount of cash dividends. As of December 31, 1997, the Company was in compliance with respect to all financial covenants. Unrestricted retained earnings under the agreements amounted to $2,183,785 at December 31, 1997. In March 1996, the Company terminated its interest rate swap agreement related to its floating rate borrowings, receiving $204,500 from the bank -35- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== as a result of favorable interest rates. This amount is included in "Other, net" in the accompanying 1996 consolidated statement of operations. 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 amount of $3 million. This agreement provides for a cap rate on floating rate borrowings of 8.25% and a related floor of 6.75%. NOTE 7 - STOCKHOLDERS' EQUITY STOCKHOLDERS' RIGHTS PLAN On February 13, 1996, the Company's Board of Directors authorized the adoption of a Series A Preferred Stock Purchase Rights Plan (Plan). Under the Plan, a dividend distribution of one Series A Preferred Stock Purchase Right (Right) was made for each outstanding share of common stock, payable to shareholders of record on March 8, 1996. The Plan is designed to protect shareholders against unsolicited attempts to acquire control of the Company in a manner that does not offer a fair price to all shareholders. In addition, it is intended to help protect and preserve ownership of the Company's principal tradenames and trademarks. Each Right entitles shareholders to purchase one one-hundredth of a share of preferred stock from the Company at a price of $100 per share, subject to adjustment. The Rights will become exercisable only if a person or group (Acquiring Person) acquires 15% or more of the Company's common stock or announces a tender offer that would result in ownership of 30% or more of the common stock. A person beneficially owning 15% or more of the outstanding shares of common stock on February 13, 1996, or any affiliates or associates thereof, do not constitute an Acquiring Person under the Plan. The Company's Series A Preferred Stock consists of 500,000 shares authorized, at $2 par value, none of which are issued. Shares of preferred stock are reserved at a level sufficient to permit the exercise in full of all the outstanding Rights. Under terms specified in the Plan, the Company has the right to redeem the Rights at one cent per Right. STOCK OPTION PLAN The Company's Stock Option And Restricted Stock Plan of 1997 permits the grant of options to directors, officers and key employees to purchase shares of common stock. A total of 38,000 shares (all share and option -36- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== amounts adjusted for the two-for-one stock split discussed in Note 12) are available for grant under the plan. During December 1997, 12,850 options were granted at $20.125 per share (equivalent to $40.25 per share on a pre- split basis), which represented the fair value of the common stock on the grant date. The options may be exercised for up to ten years after the date of the grant. Of the 12,850 options outstanding at December 1997, none were exercisable. The plan and December 1997 grant are subject to shareholder approval at the Company's May 5, 1998 shareholders' meeting. The Company has adopted the disclosure-only provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, relating to its stock option plan. Accordingly, no compensation cost has been recognized. Had compensation cost been determined based on the fair value of the options at the December 1997 grant date consistent with the provisions of SFAS No. 123, the Company's 1997 net income would have been reduced by approximately $83,700, or $.11 per share on a diluted basis. The fair value of options was estimated at the grant date using a Black-Scholes option pricing model with the following weighted average assumptions: risk-free interest rate of 5.71%, dividend yield of 4%, stock price volatility factor of .34 and an expected option life of five years. RESTRICTED STOCK PLAN The Company has established a restricted stock plan under which certain officers and key employees may be awarded shares of restricted stock as deferred compensation. Shares awarded pursuant to the plan are restricted as to sale and transfer for periods of up to five years. The stock awards vest 20% per year over the five-year period if predetermined corporate performance goals are met. If goals are not met, the current year's vesting amount is forfeited. If there is a change in control of the Company, the shares will vest immediately. The recipient of the award has all the rights of a shareholder, provided that all performance goals are met. During 1997, 1996 and 1995, the Company awarded 5,000, 5,600 and 3,200 shares, respectively, of its common stock valued at $68,438, $71,400 and $35,600, respectively, as deferred compensation which is ratably charged to expense from the date of award to the end of the deferral period. Shares valued at $62,506 (4,650 shares), $47,862 (2,950 shares) and $63,376 (2,910 shares) were forfeited during 1997, 1996 and 1995, respectively. Share amounts have been adjusted for the stock split discussed in Note 12. -37- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== NOTE 8 - PENSION AND RETIREMENT SAVINGS The components of pension expense and the actuarial assumptions used to determine this cost for the defined benefit pension plans are as follows:
YEAR ENDED DECEMBER 31, 1997 1996 1995 ----------- ----------- ----------- Service cost for benefits earned during the year $ 14,073 $ 23,316 $ 23,321 Interest cost on projected benefit obligation 1,187,023 1,177,904 1,220,336 Actual return on plan assets (1,815,742) (1,134,411) (1,335,309) Net amortization and deferral 1,186,817 569,634 649,936 ----------- ----------- ----------- Pension expense $ 572,171 $ 636,443 $ 558,284 =========== =========== =========== Discount rate 7.00% 7.50% 7.25% Expected rate of return on assets 8.00% 8.00% 8.00% Range of expected rates of increase in compensation levels, subject to maximum amounts per participant 0-5.50% 0-5.50% 0-5.50% =========== =========== ===========
The funded status of the defined benefit pension plans and amounts included in the consolidated balance sheets are as follows: -38- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements ===========================================================================
DECEMBER 31, 1997 1996 ------------ ------------ Actuarial present value of accumulated benefit obligation: Vested benefit obligation $(15,979,843) $(15,178,212) Nonvested benefit obligation (1,017,171) (1,170,248) ------------ ------------ Accumulated benefit obligation $(16,997,014) $(16,348,460) ============ ============ Projected benefit obligation $(16,999,923) $(16,361,101) Plan assets, at fair value 13,407,163 12,729,054 ------------ ------------ Projected benefit obligation in excess of plan assets (3,592,760) (3,632,047) Unrecognized net transition obligation 815,189 1,018,986 Unrecognized net loss 2,168,785 2,253,620 ------------ ------------ Accrued pension cost $ (608,786) $ (359,441) ============ ============
The excess of the accumulated benefit obligation over plan assets is reflected in the consolidated balance sheets. This amount, less the accrued pension plan contribution recorded in current liabilities, is reflected in the accompanying consolidated balance sheets as an additional noncurrent pension liability, a noncurrent intangible asset, a noncurrent future income tax benefit, and a charge to stockholders' equity (net of tax), representing the excess of the additional noncurrent pension liability over the unrecognized net transition liability. The Company's foreign subsidiary maintains a defined contribution retirement savings plan. Due to overfunding of the plan, there were no contributions in 1997, 1996 and 1995. -39- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== The Company has two defined contribution retirement savings plans, covering substantially all domestic employees, which are funded solely through contributions based on formulas as defined in the plan agreements. The assets are held in trust for the sole benefit of the employees. Contribution expense was $569,000, $656,000 and $857,000 for 1997, 1996 and 1995, respectively, relating to these plans. As part of the sale of its filter operations, as described in Note 2, the Company entered into a deferred compensation agreement with a former officer of the Company. The deferred compensation benefits are to be paid over a period of ten years, commencing in November 1995. Deferred compensation expense, representing the present value of future payments, amounted to $343,450 in 1995 and is included as a cost of the filter operations sale. At December 31, 1997 and 1996, respectively, the deferred compensation liability amounted to $290,347 and $315,998, of which $27,780 and $25,651 was due within one year. NOTE 9 - POSTRETIREMENT BENEFIT PLANS The Company provides certain health care, dental, prescription drug and life insurance benefits for eligible retired employees under various plans. The plans are unfunded. Net periodic postretirement benefit cost included the following components:
YEAR ENDED DECEMBER 31, 1997 1996 1995 --------- ---------- ---------- Service cost for benefits earned during the year $ 93,153 $ 216,106 $ 209,214 Interest cost on projected benefit obligation 851,571 1,350,383 1,440,280 Net amortization and deferral (377,672) 49,072 - --------- ---------- ---------- Net periodic postretirement benefit cost $ 567,052 $1,615,561 $1,649,494 ========= ========== ==========
-40- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== The following table sets forth the accrued postretirement benefit cost:
DECEMBER 31, 1997 1996 ----------- ----------- Accumulated postretirement benefit obligation: Retirees $ 5,610,778 $ 9,997,231 Fully eligible participants 2,140,644 3,412,908 Other active participants 2,072,875 5,391,624 ----------- ----------- Unfunded accumulated postretirement benefit obligation 9,824,297 18,801,763 Unrecognized prior service benefit relating to 1997 plan amendment 6,968,577 - Unrecognized net loss (363,662) (1,614,731) ----------- ----------- Accrued postretirement benefit cost 16,429,212 17,187,032 Less current portion 1,110,442 1,641,040 ----------- ----------- Long-term portion $15,318,770 $15,545,992 =========== ===========
The weighted average discount rate used in determining the accumulated postretirement benefit obligation was 7.0% and 7.50% at December 31, 1997 and 1996, respectively. 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 by $7,346,249, which created an unrecognized prior service benefit. Net periodic postretirement benefit cost for 1997, including amortization of the unrecognized prior service benefit over a period of 15 years, was reduced by approximately $1,050,000 (approximately $870,000 related to "Cost of Sales" and $180,000 related to "General and Administrative" expenses) as a result of the plan amendment. In -41- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== early 1998, the Company received a letter from legal representatives of its bargaining unit retirees requested a meeting with Company management and legal counsel to discuss the Company's legal obligations to provide the postretirement benefits at the pre-amendment level. While it is reasonably possible that a change in estimated future postretirement benefits could occur, management strongly believes, after meeting with its legal counsel, that it was within the Company's right to amend the postretirement benefit plans. Because the Company's contributions to the plans are fixed on a per active and retired employee basis, assumed inflationary increases in health care costs would have no impact on the accumulated postretirement benefit obligation at December 31, 1997 or on the future annual aggregate service and interest costs. NOTE 10 - INCOME TAXES The components of income (loss) before income taxes are as follows:
YEAR ENDED DECEMBER 31, 1997 1996 1995 ---------- ----------- ----------- Domestic $1,648,915 $(1,087,158) $(3,352,216) Foreign (71,682) (150,685) (390,964) ---------- ----------- ----------- $1,577,233 $(1,237,843) $(3,743,180) ========== =========== ===========
Income tax expense (benefit) is made up of the following components: -42- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements ===========================================================================
Year ended December 31, 1997 DEFERRED- VALUATION ALLOWANCE CURRENT DEFERRED CHANGE TOTAL -------- --------- --------- --------- Domestic $ 39,000 $ 602,000 $ - $ 641,000 Foreign (8,000) (11,000) - (19,000) -------- --------- --------- --------- $ 31,000 $ 591,000 $ - $ 622,000 ======== ========= ========= ========= Year ended December 31, 1996 Domestic $ 54,000 $(399,000) $ 40,000 $(305,000) Foreign (37,000) (11,000) - (48,000) -------- --------- --------- --------- $ 17,000 $(410,000) $ 40,000 $(353,000) ======== ========= ========= ========= Year ended December 31, 1995 Domestic $103,000 $(935,000) $ 205,000 $(627,000) Foreign (143,000) 50,000 - (93,000) -------- --------- --------- --------- $(40,000) $(885,000) $ 205,000 $(720,000) ======== ========= ========= =========
-43- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== The tax effects of temporary differences that give rise to the net future income tax benefit are as follows:
DECEMBER 31, 1997 1996 ---------- ---------- Deferred income tax assets: Retirement and postretirement benefit obligations $6,512,584 $6,456,831 Current asset valuation allowances 736,138 793,936 Net operating loss carryforwards 796,643 1,308,206 Foreign tax credit carryforwards 304,659 283,723 Deferred compensation 98,718 107,439 Other 273,295 472,369 ---------- ---------- Gross deferred income tax assets 8,722,037 9,422,504 Valuation allowance - foreign tax credits (noncurrent) - (243,723) ---------- ---------- Total deferred income tax assets 8,722,037 9,178,781 ---------- ---------- Deferred income tax liabilities: Accumulated depreciation (374,306) (335,344) Other (167,121) (194,937) ---------- ---------- Total deferred income tax liabilities (541,427) (530,281) ---------- ---------- Net deferred income tax assets 8,180,610 8,648,500 Less current portion 2,351,687 2,413,877 ---------- ---------- Noncurrent portion $5,828,923 $6,234,623 ========== ==========
-44- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== The Company's net operating loss carryforwards for federal income tax purposes amounted to $2,343,068 at December 31, 1997, of which $2,242,883 expires in 2010 and $100,185 in 2011, if not previously utilized. Foreign tax credits, amounting to $304,659 at December 31, 1997, expire through 2002, if not previously utilized. Income taxes differed from the amount computed by applying the federal statutory rate of 34% to income before income tax expense (benefit) as follows:
YEAR ENDED DECEMBER 31, 1997 1996 1995 -------- --------- ----------- Computed "expected" tax (benefit) $536,000 $(421,000) $(1,273,000) Increase (decrease) in tax resulting from: Valuation allowance change due to foreign tax credits - 40,000 205,000 Adjustment of prior temporary differences - - 209,000 State income taxes, net of federal income tax benefit 44,000 36,000 - Other 42,000 (8,000) 139,000 -------- --------- ----------- $622,000 $(353,000) $ (720,000) ======== ========= ===========
-45- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== NOTE 11 - GEOGRAPHIC SEGMENTS AND EXPORT SALES Sales, operating profit (loss) and identifiable assets by geographic area are as follows:
YEAR ENDED DECEMBER 31, 1997 1996 1995 ----------- ----------- ----------- NET SALES United States $32,347,845 $35,726,283 $59,436,864 Canada 4,552,463 5,004,885 5,820,802 Eliminations (1,325,354) (1,322,558) (2,029,354) ----------- ----------- ----------- Total net sales $35,574,954 $39,408,610 $63,228,312 =========== =========== =========== OPERATING PROFIT (LOSS) United States $ 2,040,166 $ (969,940) $(2,528,334) Canada (71,682) (148,926) (390,347) Eliminations 134,902 145,537 152,761 ----------- ----------- ----------- Operating profit (loss) 2,103,386 (973,329) (2,765,920) Interest expense 510,322 570,397 892,891 Interest income (47,062) (145,853) (121,091) Loss on sales of filter operations - - 67,254 Other, net 62,893 (160,030) 138,206 ----------- ----------- ----------- Income (loss) before income tax expense (benefit) $ 1,577,233 $(1,237,843) $(3,743,180) =========== =========== =========== -46- IDENTIFIABLE ASSETS United States $30,108,712 $30,919,370 $34,140,981 Canada 3,461,456 3,736,021 4,323,670 Eliminations (129,449) (150,014) (215,789) Investment in Canadian affiliate (50,388) (50,388) (701,294) ----------- ----------- ----------- Total identifiable assets $33,390,331 $34,454,989 $37,547,568 =========== =========== ===========
-47- Hastings Manufacturing Company and Subsidiaries Notes to Consolidated Financial Statements =========================================================================== Non-recurring restructuring and relocation costs, discussed in Notes 2 and 3, included in 1996 United States and Canadian operating losses amounted to $692,234 and $127,666, respectively. As discussed in Note 2, United States and Canadian operating losses for 1995 included the effects of the sale of filter operations and the subsequent realignment of the organizational structure to a smaller size. Net export sales from the Company's United States operations to unaffiliated customers, amounted to $4,430,445, $5,421,519 and $8,412,779 in 1997, 1996 and 1995, respectively. NOTE 12 - STOCK SPLIT On February 17, 1998, the Board of Directors authorized a two-for-one stock split, effected in the form of a stock dividend, effective March 23, 1998, payable to shareholders of record on March 2, 1998. On a split basis, the Company had 780,626 shares outstanding at December 31, 1997. An amount equal to the par value of the common shares issued will be transferred from retained earnings to common stock to effect the stock split. This transfer has been reflected in the consolidated statements of stockholders' equity at December 31, 1997. All references to number of common shares, except shares authorized, and to all per share information have been adjusted to reflect the stock split on a retroactive basis. -48- Report of Independent Certified Public Accountants Hastings Manufacturing Company Hastings, Michigan We have audited the accompanying consolidated balance sheets of Hastings Manufacturing Company and subsidiaries as of December 31, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 2, the Company sold its filter product line assets effective on September 3, 1995. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Hastings Manufacturing Company and subsidiaries at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997, in conformity with generally accepted accounting principles. /s/BDO Seidman, LLP BDO Seidman, LLP Grand Rapids, Michigan February 27, 1998 -49- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. No information is required to be disclosed under this item. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information required by this item is incorporated herein by reference from the sections entitled "Directors and Executive Officers" and "Compliance with Section 16(a) of the Exchange Act" in the Registrant's definitive proxy statement relating to its Annual Meeting of Shareholders to be held May 5, 1998. In addition, Stephen G. Uhen, age 49, has served as Vice President of Information Services of the Company since December 15, 1997. From November 16, 1995 through 1997, Mr. Uhen served as Information Services Manager of the Company. From 1988 through 1995, Mr. Uhen served as Systems Programs Manager of the Company. ITEM 11. EXECUTIVE COMPENSATION. The information required by this item is incorporated herein by reference from the sections entitled "Executive Compensation," "Deferred Compensation" and "Compensation of Directors" in the Registrant's definitive proxy statement relating to its Annual Meeting of Shareholders to be held May 5, 1998. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required by this item is incorporated herein by reference from the section entitled "Voting Securities" in the Registrant's definitive proxy statement relating to its Annual Meeting of Shareholders to be held May 5, 1998. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required by this item, if any, is incorporated herein by reference from the sections entitled "Directors and Executive Officers" and "Compensation Committee Interlocks and Insider Participation" in the Registrant's definitive proxy statement relating to its Annual Meeting of Shareholders to be held May 5, 1998. -50- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. ITEM 14(A)1. FINANCIAL STATEMENTS. (A) The following financial statements are filed as part of this document in Item 8, "Financial Statements and Supplementary Data." PAGE Consolidated Balance Sheets as of December 31, 1997 and 1996. 13 Consolidated Statements of Operations for the years ended December 31, 1997, 1996 and 1995. 15 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1997, 1996 and 1995. 16 Consolidated Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995. 17 Notes to Consolidated Financial Statements 19 Report of Independent Certified Public Accountants 37 (B) Financial Statement Schedule Report of Independent Certified Public Accountants 47 Schedule II - Valuation and Qualifying Accounts 48 ITEM 14(A)2. FINANCIAL STATEMENT SCHEDULES. The Financial Statement Schedule set forth in the Index to Financial Statement Schedules hereto is filed as a part of this Form 10-K Report. ITEM 14(A)3. EXHIBITS. NUMBER 3(a) Amended Articles of Incorporation of Hastings Manufacturing Company filed as an exhibit to the Form 8-K Current Report filed on December 8, 1988, are incorporated herein by reference. 3(b) Bylaws of Hastings Manufacturing Company filed as an exhibit to the Form 8-K Current Report filed on December 8, 1988, are incorporated herein by reference. 4(a) Instruments defining the rights of security holders, including indentures filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 1983, are incorporated herein by reference. -51- 4(b) NBD Bank, N.A. $3,312,500 Term Loan Agreement and Term Note, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1993, is incorporated herein by reference. 4(c) NBD Bank, N.A. $4,000,000 Term Loan Agreement and Term Note, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1994, is incorporated herein by reference. 4(d) NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1994, is incorporated herein by reference. 4(e) First Amendment, dated May 2, 1995, to the NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1995, is incorporated herein by reference. 4(f) Second Amendment, dated September 30, 1995, to the NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1995, is incorporated herein by reference. 4(g) Third Amendment, dated as of May 31, 1996, to the NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1996, is incorporated herein by reference. 4(h) 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, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended June 30, 1997, is incorporated herein by refernece. 4(i) Preferred Stock Purchase Rights, filed as an exhibit to Form 8-K filed with the Securities and Exchange Commission on February 15, 1996, is incorporated herein by reference. -52- 4(j) Confirmation, dated as of March 12, 1996, regarding an interest rate collar transaction between Hastings Manufacturing Company and NBD Bank, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1996, is incorporated herein by reference. 10(a) List of Recipients of Indemnity Agreement and Form of Indemnity Agreement, filed as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1988, are incorporated herein by reference. 10(b) 1990 Restricted Stock Plan, filed as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1992, is incorporated herein by reference. 10(c) Asset Purchase Agreement between Hastings Manufacturing Company and CLARCOR Inc. dated as of September 3, 1995, filed as an exhibit to the Form 8-K filed with the Securities and Exchange Commission on September 20, 1995, is incorporated herein by reference. 10(d) Transition Agreement, dated September 3, 1995, among Hastings Filters, Inc., Hastings Manufacturing Company and Hastings Inc. and joined in by CLARCOR Inc., filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1997, is incorporated herein by reference. 21 Subsidiaries of Hastings Manufacturing Company. 24 Powers of Attorney 27(a) Financial Data Schedule as of December 31, 1997 and for the year then ended. 27(b) Restated Financial Data Schedule as of September 30, 1997 and for the nine months then ended. 27(c) Restated Financial Data Schedule as of June 30, 1997 and for the six months then ended. 27(d) Restated Financial Data Schedule as of March 31, 1997 and for the three months then ended. 27(e) Restated Financial Data Schedule as of December 31, 1996 and for the year then ended. 27(f) Restated Financial Data Schedule as of September 30, 1996 and for the nine months then ended. -53- 27(g) Restated Financial Data Schedule as of June 30, 1996 and for the six months then ended. 27(h) Restated Financial Data Schedule as of March 31, 1996 and for the three months then ended. 27(i) Restated Financial Data Schedule as of December 31, 1995 and for the year then ended. [FN] - ---------------------- Management contract or compensatory plan or arrangement. Exhibits 27(b) through 27(i) represent previously filed Financial Data Schedules restated to reflect the effects of Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, and to reflect the two-for-one stock split discussed in Note 12 to the Consolidated Financial Statements (included in Item 8). All amounts, except for the "Earnings per share" amounts, are the same as previously filed. ITEM 14(B). REPORTS ON FORM 8-K. No reports on Form 8-K were filed during the fourth quarter of 1997. -54- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report on Form 10-K to be signed below on its behalf by the undersigned, thereunto duly authorized. HASTINGS MANUFACTURING COMPANY (registrant) Dated: March 27, 1998 By /S/ THOMAS J. BELLGRAPH Thomas J. Bellgraph Its Vice President, Finance (Principal Financial and Accounting Officer) -55- Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated (such persons constituting a majority of the board of directors). SIGNATURE TITLE DATE */s/ ANDREW F. JOHNSON Co-Chief Executive March 27, 1998 Andrew F. Johnson Officer, President/ Operations and Director */s/ MARK R. S. JOHNSON Co-Chief Executive March 27, 1998 Mark R. S. Johnson Officer, President/ Marketing and Director */s/ DALE W. KOOP Vice President/ March 27, 1998 Dale W. Koop Engineering and Director */s/ MONTY C. BENNETT Vice President/ March 27, 1998 Monty C. Bennett Employee Relations, Secretary and Director */s/ DOUGLAS A. DECAMP President and Chief March 27, 1998 Douglas A. DeCamp Executive Officer FHI, Inc., Hastings, MI and Director */s/ WILLIAM R. COOK President, Pidgas, March 27, 1998 William R. Cook Inc., Hastings, MI and Director */s/ NEIL A. GARDNER Executive Vice March 27, 1998 Neil A. Gardner President, Hastings City Bank, Hastings, MI and Director */s/ RICHARD L. FOSTER Director March 27, 1998 Richard L. Foster *By /s/ THOMAS J. BELLGRAPH Thomas J. Bellgraph Attorney In Fact -56- HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES FINANCIAL STATEMENT SCHEDULES FORM 10-K ITEM 14(a)2 YEAR ENDED DECEMBER 31, 1997 -57- HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENT SCHEDULES PAGE Report of Independent Certified Public Accountants on Financial Statement Schedule 47 Schedule: II - Valuation and Qualifying Accounts 48 Other schedules have been omitted because they were inapplicable or otherwise not required. -58- REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE Hastings Manufacturing Company Hastings, Michigan The audits referred to in our report dated February 27, 1998 relating to the consolidated financial statements of Hastings Manufacturing Company and subsidiaries, which is contained in Item 8 of this Form 10-K, included the audit of the financial statement schedule listed in the accompanying index. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based upon our audits. In our opinion, such financial statement schedule presents fairly, in all material respects, the information set forth therein. /s/ BDO Seidman, LLP BDO Seidman, LLP Grand Rapids, Michigan February 27, 1998 -59- HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E - -------- ---------- ------------------------ ----------- ---------- ADDITIONS BALANCE AT CHARGED TO CHARGED TO BALANCE AT BEGINNING COSTS AND OTHER DEDUCTIONS/ END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD - ----------- ---------- ---------- ---------- ----------- ---------- $ $ $ $ $ Year Ended December 31, 1997: Allowance for possible losses on receivables 215,000 36,000 -- 36,000 215,000 ======= ======= ======= ======= ======= Year Ended December 31, 1996: Allowance for possible losses on receivables 225,000 5,300 -- 15,300 215,000 ======= ======= ======= ======= ======= Year Ended December 31, 1995: Allowance for possible losses and receivables 415,000 316,000 -- 506,000 225,000 ======= ======= ======= ======= =======
-60- EXHIBIT INDEX NUMBER 3(a) Amended Articles of Incorporation of Hastings Manufacturing Company filed as an exhibit to the Form 8-K Current Report filed on December 8, 1988, are incorporated herein by reference. 3(b) Bylaws of Hastings Manufacturing Company filed as an exhibit to the Form 8-K Current Report filed on December 8, 1988, are incorporated herein by reference. 4(a) Instruments defining the rights of security holders, including indentures filed as an exhibit to the Form 10-K Annual Report for the year ended December 31, 1983, are incorporated herein by reference. 4(b) NBD Bank, N.A. $3,312,500 Term Loan Agreement and Term Note, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1993, is incorporated herein by reference. 4(c) NBD Bank, N.A. $4,000,000 Term Loan Agreement and Term Note, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1994, is incorporated herein by reference. 4(d) NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year- ended December 31, 1994, is incorporated herein by reference. 4(e) First Amendment, dated May 2, 1995, to the NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year- ended December 31, 1995, is incorporated herein by reference. 4(f) Second Amendment, dated September 30, 1995, to the NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year- ended December 31, 1995, is incorporated herein by reference. -61- 4(g) Third Amendment, dated as of May 31, 1996, to the NBD Bank, N.A. $6,000,000 Credit Authorization and Master Promissory Note, dated May 31, 1994, filed as an exhibit to the Form 10-K Annual Report for the year- ended December 31, 1996, is incorporated herein by reference. 4(h) 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, filed as an exhibit to the Form 10-Q Quarterly Report for the period ended June 30, 1997, is incorporated herein by reference. 4(i) Preferred Stock Purchase Rights, filed as an exhibit to Form 8-K filed with the Securities and Exchange Commission on February 15, 1996, is incorporated herein by reference. 4(j) Confirmation, dated as of March 12, 1996, regarding an interest rate collar transaction between Hastings Manufacturing Company and NBD Bank, filed as an exhibit to the Form 10-K Annual Report for the year-ended December 31, 1996, is incorporated herein by reference. 10(a) List of Recipients of Indemnity Agreement and Form of Indemnity Agreement, filed as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1988, is incorporated herein by reference. 10(b) 1990 Restricted Stock Plan, filed as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1992, are incorporated herein by reference. 10(c) Asset Purchase Agreement between Hastings Manufacturing Company and CLARCOR Inc. dated as of September 3, 1995, filed as an exhibit to the Form 8-K filed with the Securities and Exchange Commission on September 20, 1995, is incorporated herein by reference. 10(d) Transition Agreement, dated September 3, 1995, among Hastings Filters, Inc., Hastings Manufacturing Company and Hastings Inc. and joined in by CLARCOR Inc., filed as an exhibit to the Form 10-Q Quarterly Report for the period ended September 30, 1997, is incorporated herein by reference. 21 Subsidiaries of Hastings Manufacturing Company. -62- 24 Powers of Attorney 27(a) Financial Data Schedule as of December 31, 1997 and for the year then ended. 27(b) Restated Financial Data Schedule as of September 30, 1997 and for the nine months then ended. 27(c) Restated Financial Data Schedule as of June 30, 1997 and for the six months then ended. 27(d) Restated Financial Data Schedule as of March 31, 1997 and for the three months then ended. 27(e) Restated Financial Data Schedule as of December 31, 1996 and for the year then ended. 27(f) Restated Financial Data Schedule as of September 30, 1996 and for the nine months then ended. 27(g) Restated Financial Data Schedule as of June 30, 1996 and for the six months then ended. 27(h) Restated Financial Data Schedule as of March 31, 1996 and for the three months then ended. 27(i) Restated Financial Data Schedule as of December 31, 1995 and for the year then ended. Exhibits 27(b) through 27(i) represent previously filed Financial Data Schedules restated to reflect the effects of Statement of Financial Accounting Standards No. 128, EARNINGS PER SHARE, and to reflect the two- for-one stock split discussed in Note 12 to the Consolidated Financial Statements (included in Item 8). All amounts, except for the "Earnings per share" amounts, are the same as previously filed. -63- EX-21 2 EXHIBIT 21 SUBSIDIARIES OF REGISTRANT
JURISDICTION OF PERCENT NAME OF SUBSIDIARY INCORPORATION OWNERSHIP - ------------------ --------------- --------- Hastings, Inc Ontario 100% HMC, Inc. Michigan 100% - --------------------------------- Formerly Douglas Corporation
EX-24 3 POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: WILLIAM R. COOK Print Name: WILLIAM R. COOK Title: DIRECTOR -1- POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: D. A. DECAMP Print Name: D. A.DECAMP Title: DIRECTOR -2- POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: RICHARD FOSTER Print Name: RICHARD FOSTER Title: DIRECTOR -3- POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: NEIL A. GARDNER Print Name: NEIL A. GARDNER Title: DIRECTOR -4- POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: ANDREW F. JOHNSON Print Name: ANDREW F. JOHNSON Title: CO-CEO AND DIRECTOR -5- POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: M. C. BENNETT Print Name: M. C. BENNETT Title: DIRECTOR -6- POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: MARK R. S. JOHNSON Print Name: MARK R. S. JOHNSON Title: CO-CEO AND DIRECTOR -7- POWER OF ATTORNEY KNOW ALL MEN AND WOMEN BY THESE PRESENTS, that the person whose signature appears below constitutes and appoints ANDREW F. JOHNSON and THOMAS J. BELLGRAPH, and each of them, such individual's true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for such individual and in his or her name, place and stead, in any and all capacities, to sign the Form 10-K of HASTINGS MANUFACTURING COMPANY for the year ended December 31, 1997, together with any and all amendments thereto, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission or other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Signature: DALE W. KOOP Print Name: DALE W. KOOP Title: DIRECTOR -8- EX-27 4 ART. 5 FDS FOR 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES FORM 10-K FOR THE PERIOD ENDED DECEMBER 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 558,172 0 5,148,906 215,000 9,272,498 18,388,924 23,473,020 (15,156,120) 33,390,331 8,942,192 2,028,125 1,561,252 0 0 3,758,874 33,390,331 35,574,954 35,574,954 24,285,197 24,285,197 0 36,000 510,322 1,577,233 622,000 955,233 0 0 0 955,233 1.24 1.24
EX-27 5 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 76,270 0 5,514,069 334,000 9,070,269 18,361,614 23,116,284 (14,906,751) 33,288,416 8,399,518 2,393,750 780,626 0 0 4,760,517 33,288,416 27,193,053 27,193,053 18,519,107 18,519,107 0 131,600 385,022 1,316,190 526,000 790,190 0 0 0 790,190 1.03 1.03
EX-27 6 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 .73 .73
EX-27 7 ART. 5 FDS FOR 1ST QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 91,218 0 4,946,899 262,000 9,198,775 16,701,479 22,782,167 (14,408,973) 33,388,350 8,146,163 3,125,000 780,276 0 0 4,299,815 33,388,350 8,752,157 8,752,157 5,929,257 5,929,257 0 43,400 123,103 355,075 142,000 213,075 0 0 0 213,075 .28 .28
EX-27 8 ART. 5 FDS FOR YEAR END 1996 FORM 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE YEAR END 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS DEC-31-1996 JAN-01-1996 DEC-31-1996 1,457,783 0 4,893,200 215,000 9,301,120 18,285,454 22,008,266 (14,071,826) 34,454,989 8,912,848 3,490,625 780,276 0 0 4,152,172 34,454,989 39,408,610 39,408,610 29,299,141 29,299,141 0 5,300 570,397 (1,237,843) (353,000) (884,843) 0 0 0 (884,843) (1.15) (1.15)
EX-27 9 ART. 5 FDS FOR 3RD QUARTER 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES FORM 10-Q FOR THE NINE MONTHS ENDED SEPTMEBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 842,542 0 5,168,352 435,000 9,989,930 18,404,576 22,109,208 13,961,282 35,357,869 7,872,984 3,954,250 780,946 0 0 4,204,241 35,357,869 31,262,856 31,262,856 22,872,877 22,872,877 0 128,000 304,473 (250,261) (85,000) (165,261) 0 0 0 (165,261) (.22) (.22)
EX-27 10 ART. 5 FDS FOR 2ND QTR 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, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 572,434 0 5,966,246 410,000 10,124,841 18,952,765 21,829,352 13,607,218 36,004,486 7,947,914 4,319,875 780,946 0 0 4,291,589 36,004,486 22,142,035 22,142,035 16,256,875 16,256,875 0 103,000 171,443 (185,840) (75,000) (110,840) 0 0 0 (110,840) (.14) (.14)
EX-27 11 ART. 5 FDS FOR 1ST QUARTER FORM 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES FORM 10-Q FOR THE THREE MONTHS ENDED MARCH 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 3-MOS DEC-31-1996 JAN-01-1996 MAR-31-1996 874,859 0 5,927,742 225,000 10,298,163 19,432,858 21,477,162 13,274,022 36,461,015 7,885,990 4,685,500 777,626 0 0 4,575,227 36,461,015 11,364,412 11,364,412 8,302,914 8,302,914 0 55,000 138,384 243,163 84,000 159,163 0 0 0 159,163 .21 .21
EX-27 12 ART. 5 FDS FOR HASTINGS MANUFACTURING COMPANY FORM 10-K
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE HASTINGS MANUFACTURING COMPANY FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1 12-MOS DEC-31-1995 JAN-1-1995 DEC-31-1995 1,909,506 0 6,584,392 225,000 9,935,694 20,895,373 20,755,465 12,902,944 37,547,568 8,798,503 5,051,125 777,626 0 0 4,447,352 37,547,568 63,228,312 63,228,312 44,990,825 44,990,825 0 316,000 892,891 (3,743,180) (720,000) (3,023,180) 0 0 0 (3,023,180) (3.93) (3.93)
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