Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Financial Statements
March 31, 1995 and 1994
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
March 31, 1995 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
None
Former name, former address, and former fiscal year if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class April 19, 1995
Common stock, $2 par value 388,668 shares
-1-
Hastings Manufacturing Company and Subsidiaries
Contents
===============================================
Part I - Financial Information
Item 1 - Financial Statements:
Report on Review by Independent Certified Public
Accountants 3
Condensed Consolidated Balance Sheets -
March 31, 1995 and December 31, 1994 4
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1995 and 1994 5
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1995 and 1994 6-7
Notes to Condensed Consolidated Financial Statements 8
Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Review by Independent Certified Public Accountants 13
Part II - Other Information 14-15
-2-
Report on Review by Independent Certified Public Accountants
Board of Directors
Hastings Manufacturing Company
Hastings, Michigan
We have reviewed the accompanying condensed consolidated balance sheets of
Hastings Manufacturing Company and subsidiaries as of March 31, 1995, and
the related condensed consolidated statements of operations and cash flows
for the three month periods ended March 31, 1995 and 1994, included in the
accompanying Securities and Exchange Commission Form 10-Q for the period
ended March 31, 1995. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein). In our report
dated March 3, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1994, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
BDO Seidman
Grand Rapids, Michigan
April 19, 1995
-3-
Hastings Manufacturing Company and Subsidiaries
Balance Sheets
=============================================
<TABLE>
<CAPTION>
March 31, December 31,
Assets 1995 1994
<S> <C> <C>
Current Assets
Cash $ 94,604 $ 485,034
Accounts receivable, less allowance of
$515,000 and $415,000 for possible
losses 9,468,340 10,734,164
Refundable income taxes 257,439 307,494
Inventories:
Finished products 9,511,308 8,720,119
Work in process 1,474,903 1,273,155
Raw materials 4,371,332 4,468,048
Prepaid expenses and other assets 79,057 91,905
Future income tax benefits 2,294,982 2,294,982
Total Current Assets 27,551,965 28,374,901
Property and Equipment
Land and improvements 1,214,300 1,217,716
Buildings 8,800,629 8,770,979
Machinery and equipment 26,086,478 25,881,850
36,101,407 35,870,545
Less accumulated depreciation 23,198,949 22,672,063
Net Property and Equipment 12,902,458 13,198,482
Intangible Pension Asset 1,426,580 1,426,580
Future Income Tax Benefits 4,690,579 4,688,969
Other Assets 156,047 165,347
$46,727,629 $47,854,279
</TABLE>
-4-
Hastings Manufacturing Company and Subsidiaries
Balance Sheets
=============================================
<TABLE>
<CAPTION>
March 31, December 31,
Liabilities and Stockholders' Equity 1995 1994
<S> <C> <C>
Current Liabilities
Notes payable to banks $ 6,376,325 $ 5,671,280
Accounts payable 1,802,700 3,283,078
Accruals:
Compensation 726,219 542,102
Pension plan contribution 857,364 725,882
Taxes other than income 608,244 468,565
Miscellaneous 487,786 526,557
Current portion of postretirement
benefit obligation 1,413,374 1,473,374
Current maturities of
long-term debt 1,778,800 1,778,800
Total Current Liabilities 14,050,812 14,469,638
Long-Term Debt,
less current maturities 5,794,833 6,223,900
Pension Liability,
less current portion 3,368,354 3,368,354
Postretirement Benefit Obligation,
less current portion 15,543,580 15,492,236
Total Liabilities 38,757,579 39,554,128
Stockholders' Equity
Preferred stock, $2 par value,
authorized and unissued
500,000 shares - -
Common stock, $2 par value,
1,750,000 shares authorized;
388,668 shares issued
and outstanding 777,336 777,336
Additional paid-in capital 147,384 147,384
Retained earnings 9,745,479 10,033,512
Cumulative foreign currency
translation adjustment (758,375) (716,307)
Pension liability adjustment (1,941,774) (1,941,774)
Total Stockholders' Equity 7,970,050 8,300,151
$46,727,629 $47,854,279
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
-5-
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Operations
=================================================
<TABLE>
<CAPTION>
Three months ended March 31, 1995 1994
<S> <C> <C>
Net Sales $16,334,723 $16,929,483
Cost of Sales 11,304,031 11,120,874
Gross profit 5,030,692 5,808,609
Expenses
Advertising 303,575 351,628
Selling 2,112,875 2,410,299
General and administrative 2,773,238 2,871,124
Interest 241,050 214,113
Other, net (2,724) (217,497)
Total expenses 5,428,014 5,629,667
Income (loss) before
income tax expense (benefit) (397,322) 178,942
Income Tax Expense (Benefit) (147,000) 80,000
Net Income (Loss) $ (250,322) $ 98,942
Net Income (Loss) Per Share
of Common Stock $ (.64) $ .25
Average Shares of
Common Stock Outstanding 388,668 388,383
Dividends Per Share of Common Stock $ .10 $ .10
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
-6-
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
=================================================
<TABLE>
<CAPTION>
Three months ended March 31, 1995 1994
<S> <C> <C>
Operating Activities
Net income (loss) $ (250,322) $ 98,942
Adjustments to reconcile net
income (loss) to net cash
for operating activities:
Depreciation 531,072 521,575
Gain on sale of property and equipment - (220,850)
Change in postretirement
benefit obligation (8,656) (92,597)
Changes in operating
assets and liabilities:
Accounts receivable 1,256,714 1,081,304
Inventories (922,892) (651,940)
Prepaid expenses and other
current assets 12,779 36,733
Future income tax benefits and
refundable income taxes 50,055 42,026
Other assets 9,353 (30,625)
Accounts payable and accruals (1,061,602) (1,747,171)
Net cash for operating activities (383,499) (962,603)
Investing Activities
Capital expenditures (245,784) (931,583)
Proceeds from sale of property
and equipment - 224,068
Net cash for investing activities (245,784) (707,515)
Financing Activities
Proceeds from issuance of notes
payable to banks 5,645,605 4,500,000
Principal payments on notes
payable to banks (4,939,090) (2,900,000)
Principal payments on long-term debt (429,067) (229,021)
Dividends paid (38,867) (38,838)
Net cash from financing activities 238,581 1,332,141
Effect of Exchange Rate Changes on Cash 272 6,817
Net Decrease in Cash $ (390,430) $ (331,160)
Cash, beginning of period 485,034 597,556
Cash, end of period $ 94,604 $ 266,396
Supplemental Disclosures of Cash Flow
Information
Cash paid during the period for:
Interest $ 245,360 $ 262,999
Income taxes, net of refunds (197,392) 44,191
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
-7-
Hastings Manufacturing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
=====================================================
Note 1 In the opinion of the management of Hastings Manufacturing
Company and subsidiaries (Company), the accompanying
unaudited condensed consolidated financial statements
include all normal recurring adjustments considered
necessary to present fairly the financial position as of
March 31, 1995, and the results of operations and cash
flows for the three months ended March 31, 1995 and 1994.
Note 2 The results of operations for the three months ended
March 31, 1995, are not necessarily indicative of the
results for all of 1995.
Note 3 Net income (loss) per share is determined based on the
weighted average number of shares of common stock
outstanding during each period.
Note 4 Under the terms of a debt agreement, the Company is subject
to a restriction on the distribution or payment of
dividends, such that dividend distributions may not exceed
50 percent of cumulative net income of the Company and its
subsidiaries, beginning January 1, 1994. The Company
obtained a waiver from the bank for its noncompliance with
this restriction.
Note 5 The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries.
All significant intercompany balances, transactions and
stockholdings have been eliminated.
The accompanying consolidated financial statements are
condensed and do not contain all information required by
generally accepted accounting principles in a complete set
of financial statements.
-8-
Hastings Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
==================================================
Net Sales
Net sales in the first quarter of 1995 decreased $549,760, or 3.5%, from
$16,929,483 in the first quarter of 1994 to $16,334,723. The decline
primarily resulted from the 1994 inclusion of the sale of technology and
equipment to a foreign customer and, as discussed below, the Company's
inability to meet customer demand during the quarter due to inventory
shortages. Certain product sales have been slightly higher in 1995 with
brand and export piston ring increases offset somewhat by a lower
distributor filter sales volume. The distributor filter sales volume was
down due, in part, to Company inventory shortages subsequent to a
successful December 1994 promotion. Attainment of increased inventory
levels necessary to support customer demand is anticipated during the
second quarter. The piston ring volume likewise experienced some level of
inventory shortages. The recent conversion to a new production control
framework is expected to contribute to an improved product availability
level.
Net sales in the first quarter of 1994 increased $1,020,166, or 6.4%, from
$15,909,317 in the first quarter of 1993 to $16,929,483. That increase
resulted from higher piston ring sales within the Company's traditional
distributor network and from the inclusion of a portion of the proceeds
from the noted sale of technology and equipment. The sale of manufactured
filter parts to a competitor also increased during the first half of 1994,
although that volume will decline in 1995 as that customer converts to
additional in-house sourcing.
Cost of Sales and Gross Profit
Cost of sales during the first quarter of 1995 increased $183,157, or 1.6%,
from $11,120,874 in 1994 to $11,304,031. As a percent of net sales, cost
of sales during the first quarter of 1995 increased 3.5% from 65.7% to
69.2%. This increase resulted in a reduced gross profit margin from 34.3%
in 1994 to 30.8% in the current quarter. The gross profit related to the
technology and equipment sale contributed favorably to the 1994
performance. The current quarter's gross profit performance, while
comparable to the fourth quarter of 1994, was reduced by the sales mix
change noted above. Higher relative brand and export volumes, with lower
incremental gross profit margins, added to the first quarter's performance.
Lower margins on those sales segments are offset by lower required sales
and administrative support costs.
Cost of sales during the first quarter of 1994 increased $294,816 or 2.7%
from $10,826,058 in 1993 to $11,120,874. As a percent of net sales, cost
of sales during the first quarter of 1994 decreased 2.4% from 68.1% to
65.7%. This reduction resulted in an increased gross profit margin from
-9-
Hastings Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
==================================================
31.9% in 1993 to 34.3% in 1994. Volume increases attained in late 1993
carried over as cost efficiencies into early 1994 through lower direct
labor and fixed overhead costs for many of the Company's products. In
addition, the gross profit related to the technology and equipment sale
contributed to the favorable 1994 gross profit result.
Expenses
Total expenses during the first quarter of 1995, excluding interest
expense, decreased $228,590, or 4.2%, from $5,415,554 to $5,186,964.
Advertising expenses decreased $48,053 due to lower printed materials
purchases and lower cooperative advertising promotions. Selling expenses
decreased $297,424 due to a reduction in inventory conversion efforts
related to new account activity and the absence in 1995 of a marketing
assistance program as extended in 1994 to our export representative.
General and administrative expenses decreased $97,886 due to lower employee
education costs in the current quarter and a lower initial estimate for
retiree medical care costs for 1995. The "other, net" amount for 1994
reflects a one-time gain on the sale of a warehouse facility. Excluding
this one-time gain, first quarter 1995 total expenses, excluding interest
expense, are down $449,444, or 8.0%, compared to first quarter 1994.
Total expenses during the first quarter of 1994, excluding interest
expense, increased $593,001, or 12.3%, from $4,822,553 to $5,415,554.
Selling expenses increased $359,375 due to increased inventory conversion
efforts through that period related to the buying group members and to the
noted marketing assistance program absorbed throughout 1994. General and
administrative expenses increased $349,794 as a result of increased group
health costs, increased compensation costs driven by wage adjustments and
increased employee education costs as the Company initiated various
employee and systems development programs.
Interest Expense
Interest expense increased $26,937, or 12.6%, from $214,113 in the first
quarter of 1994 to $241,050. The level of outstanding total debt during
the first quarter of 1995 was higher than the level during the first
quarter of 1994. Most of the Company's variable-rate debt is covered by an
interest rate swap agreement with a fixed rate of 6.92%. The balance of
the Company's variable-rate borrowings, however, reflect the interest rate
increases experienced during the second half of 1994 and early 1995.
Interest expense decreased $23,229, or 9.8%, from $237,342 in the first
quarter of 1993 to $214,113. The level of outstanding short-term debt
increased in early 1994 from early 1993 due to increased working capital
-10-
Hastings Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
==================================================
needs; however, the Company reduced the amount of outstanding long-term
debt through its scheduled principal payments. The Company's interest
rates were lower during the first quarter of 1994 due primarily to lower
variable rates on certain of its borrowings and a lower fixed interest rate
in the interest rate swap agreement covering the 1994 period.
Liquidity and Capital Resources
The Company's primary cash requirements are for operating expenses,
including labor costs and raw materials, and for funding of 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 Company expects to continue to generate cash from
these sources.
During the first quarter of 1995, the Company used $383,499 of cash for
operating activities. Finished goods inventories increased at March 31,
1995, following the December 1994 sales promotion, which resulted in
inventory shortages during the quarter, and in anticipation of demand
during the next two quarters. In addition, the Company reduced the level
of its accounts payable and accrued liabilities during the first quarter
via scheduled payments to vendors and payment of accruals for rebate and
promotional programs driven by the late 1994 operating results. Such cash
needs were partly offset by a reduction of approximately $1.25 million in
trade accounts receivable. The remaining cash needs were financed by an
increase in the short-term borrowings under the Company's lines of credit.
During the first quarter of 1994, the Company used $962,603 of cash for
operating activities. The 1994 first quarter's factors were similar to the
1995 items with increased inventories and decreased payables and accruals
offset by a decline in accounts receivable.
During the first quarter of 1995, the Company invested $245,784 in new
equipment to expand certain production capabilities within its existing
facilities. Capital equipment expenditures for 1995 are expected to be
considerably lower than 1994 when a total of $3,530,848 was used for
capital expenditures. During the first quarter of that year, the Company
invested $931,583 in new machinery and equipment. That outlay was part of
an effort to increase certain production capacities within the Company's
existing facilities. During the first quarter of 1994, the Company also
sold a warehouse facility for approximately $225,000 for cash and a note
receivable.
-11-
Hastings Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
==================================================
During the first quarter of 1995, the Company extended its short-term lines
of credit with two of its current banks by an aggregate amount of $2.5
million. With the traditional soft first quarter results anticipated and
the need to replenish the finished goods inventories, that added line
capacity was considered appropriate. As of March 31, 1995, the Company had
available approximately $4.3 million of unused capacity under its short-
term lines of credit. The Company believes that current financing
agreements with its lenders, along with the cash flow generated by future
operating activities, will be sufficient to meet its working capital,
capital expenditure and dividend requirements through 1995.
-12-
Hastings Manufacturing Company and Subsidiaries
Review by Independent Certified Public Accountants
====================================================
The March 31, 1995 and 1994 condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by BDO Seidman,
Independent Certified Public Accountants, in accordance with established
professional standards and procedures for such a review.
The review report of BDO Seidman is included in Part I, Item 1.
-13-
Part II - Other Information
ITEM 6
EXHIBITS AND REPORTS ON
FORM 8-K
(a) Exhibit 27 - Financial Data Schedule - Page 15
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on his behalf by the
undersigned thereunto duly authorized.
HASTINGS MANUFACTURING COMPANY
Monty C. Bennett May 12, 1995
Monty C. Bennett Date
(Vice-President)
Thomas J. Bellgraph May 12, 1995
Thomas J. Bellgraph Date
(Treasurer)
-14-
Part II - Other Information
ITEM 6
EXHIBITS AND REPORTS ON
FORM 8-K
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on his behalf by the
undersigned thereunto duly authorized.
HASTINGS MANUFACTURING COMPANY
Monty C. Bennett May 12, 1995
Monty C. Bennett Date
(Vice-President)
Thomas J. Bellgraph May 12, 1995
Thomas J. Bellgraph Date
(Treasurer)
-15-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FORM 10-Q OF HASTINGS MANUFACTURING COMPANY AND
SUBSIDIARIES FOR THE PERIOD ENDED MARCH 31, 1995 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 94,604
<SECURITIES> 0
<RECEIVABLES> 9,468,340
<ALLOWANCES> 515,000
<INVENTORY> 15,357,543
<CURRENT-ASSETS> 27,551,965
<PP&E> 36,101,407
<DEPRECIATION> 23,198,949
<TOTAL-ASSETS> 46,727,629
<CURRENT-LIABILITIES> 14,050,812
<BONDS> 7,573,633
<COMMON> 777,336
0
0
<OTHER-SE> 7,192,714
<TOTAL-LIABILITY-AND-EQUITY> 46,727,629
<SALES> 16,334,723
<TOTAL-REVENUES> 16,334,723
<CGS> 11,304,031
<TOTAL-COSTS> 11,304,031
<OTHER-EXPENSES> 5,428,014
<LOSS-PROVISION> 62,115
<INTEREST-EXPENSE> 241,050
<INCOME-PRETAX> (397,322)
<INCOME-TAX> (147,000)
<INCOME-CONTINUING> (250,322)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (250,322)
<EPS-PRIMARY> (.64)
<EPS-DILUTED> (.64)
</TABLE>
