<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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
SEPTEMBER 30, 1997 1-3574
HASTINGS MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0633740
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
325 NORTH HANOVER STREET
HASTINGS, MICHIGAN 49058
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 616-945-2491
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ___X___ No _______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OCTOBER 21, 1997
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<S> <C> <C>
Common stock, $2 par value 390,313 shares
</TABLE>
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Hastings Manufacturing Company and Subsidiaries
Contents
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PART I - FINANCIAL INFORMATION
PAGE
Item 1 - Financial Statements: ----
Report on Review by Independent Certified Public
Accountants 3
Condensed Consolidated Balance Sheets -
September 30, 1997, and December 31, 1996 4-5
Condensed Consolidated Statements of Operations -
Three Months and Nine Months Ended
September 30, 1997 and 1996 6
Condensed Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1997 and 1996 7-8
Notes to Condensed Consolidated Financial
Statements 9-11
Review by Independent Certified Public Accountants 12
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-18
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 19
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Report on Review by Independent Certified Public Accountants
============================================
Board of Directors
Hastings Manufacturing Company
Hastings, Michigan
We have reviewed the accompanying condensed consolidated balance sheet of
Hastings Manufacturing Company and subsidiaries as of September 30, 1997,
and the related condensed consolidated statements of operations for the
three-month and nine-month periods ended September 30, 1997 and 1996, and
cash flows for the nine-month period ended September 30, 1997 and 1996,
included in the accompanying Securities and Exchange Commission Form 10-Q
for the period ended September 30, 1997. These condensed consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1996, and the
related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein). In our report
dated February 28, 1997, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1996, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
October 21, 1997
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Balance Sheets
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<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 76,270 $ 1,457,783
Accounts receivable, less allowance
for possible losses of $334,000
and $215,000 5,514,069 4,893,200
Refundable income taxes 50,536 66,667
Inventories:
Finished products 7,055,081 7,134,216
Work in process 415,060 415,581
Raw materials 1,600,128 1,751,323
Prepaid expenses and other assets 104,871 152,807
Future income tax benefits 2,602,694 2,413,877
Other current assets 942,905 -
----------- -----------
TOTAL CURRENT ASSETS 18,361,614 18,285,454
----------- -----------
PROPERTY AND EQUIPMENT
Land and improvements 655,248 660,168
Buildings 4,487,611 4,312,633
Machinery and equipment 17,973,425 17,035,465
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23,116,284 22,008,266
Less accumulated depreciation 14,906,751 14,071,826
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NET PROPERTY AND EQUIPMENT 8,209,533 7,936,440
----------- -----------
INTANGIBLE PENSION ASSET 941,583 941,583
----------- -----------
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FUTURE INCOME TAX BENEFITS 5,601,685 6,234,623
----------- -----------
OTHER ASSETS 174,001 1,056,889
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$33,288,416 $34,454,989
=========== ===========
</TABLE>
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<TABLE>
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Balance Sheets
====================================
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
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<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks $ 3,200,000 $ 3,000,000
Accounts payable 1,052,963 1,479,361
Accruals:
Compensation 528,138 446,422
Pension plan contribution 672,800 359,441
Taxes other than income 107,260 283,347
Income taxes 47,777 -
Miscellaneous 217,638 240,737
Current portion of postretirement
benefit obligation 1,110,442 1,641,040
Current maturities of
long-term debt 1,462,500 1,462,500
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TOTAL CURRENT LIABILITIES 8,399,518 8,912,848
LONG-TERM DEBT,
less current maturities 931,250 2,028,125
PENSION AND DEFERRED COMPENSATION
OBLIGATIONS, less current portion 3,016,517 3,035,576
POSTRETIREMENT BENEFIT OBLIGATION,
less current portion 15,399,988 15,545,992
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TOTAL LIABILITIES 27,747,273 29,522,541
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STOCKHOLDERS' EQUITY
Preferred stock, $2 par value,
authorized and unissued
500,000 shares - -
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Common stock, $2 par value,
1,750,000 shares authorized;
390,313 and 390,138
shares issued and outstanding 780,626 780,276
Additional paid-in capital 145,788 140,206
Retained earnings 6,466,128 5,813,827
Cumulative foreign currency
translation adjustment (660,993) (611,455)
Pension liability adjustment (1,190,406) (1,190,406)
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TOTAL STOCKHOLDERS' EQUITY 5,541,143 4,932,448
----------- -----------
$33,288,416 $34,454,989
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</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
-7-
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<TABLE>
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Operations
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<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
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September 30, 1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $8,838,664 $9,120,821 $27,193,053 $31,262,856
COST OF SALES 5,990,310 6,616,002 18,519,107 22,872,877
---------- ---------- ----------- -----------
Gross profit 2,848,354 2,504,819 8,673,946 8,389,979
---------- ---------- ----------- -----------
OPERATING EXPENSES
Advertising 107,343 79,008 306,485 294,893
Selling 749,305 819,908 2,282,202 2,786,198
General and administrative 1,469,236 1,525,744 4,401,980 4,980,642
Non-recurring relocation costs - - - 468,422
---------- ---------- ----------- -----------
2,325,884 2,424,660 6,990,667 8,530,155
---------- ---------- ----------- -----------
Operating income 522,470 80,159 1,683,279 (140,176)
---------- ---------- ----------- -----------
OTHER EXPENSE (INCOME)
Interest expense 127,899 164,580 385,022 429,170
Interest income (8,670) (31,600) (31,449) (124,747)
Other, net 17,892 11,600 13,516 (194,338)
---------- ---------- ----------- -----------
137,121 144,580 367,089 110,085
---------- ---------- ----------- -----------
Income (loss) before income
tax expense (benefit) 385,349 (64,421) 1,316,190 (250,261)
INCOME TAX EXPENSE (BENEFIT) 153,000 (10,000) 526,000 (85,000)
---------- ---------- ----------- -----------
NET INCOME (LOSS) $ 232,349 $ (54,421) $ 790,190 $ (165,261)
========== ========== =========== ===========
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NET INCOME (LOSS) PER SHARE
OF COMMON STOCK $ .60 $ (.14) $ 2.02 $ (.42)
AVERAGE SHARES OF COMMON
STOCK OUTSTANDING 390,313 390,473 390,222 389,695
DIVIDENDS PER SHARE
OF COMMON STOCK $ .15 $ .10 $ .35 $ .30
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
-9-
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<TABLE>
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
========================================
<CAPTION>
Nine months ended September 30, 1997 1996
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<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 790,190 $ (165,261)
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation 1,013,017 1,045,507
Deferred income taxes (benefit) 447,000 (53,000)
Gain on sale of property
and equipment (9,534) (588)
Change in postretirement
benefit obligation (676,602) 90,072
Changes in operating
assets and liabilities:
Accounts receivable (630,906) 1,417,838
Refundable income taxes 15,282 126,613
Inventories 205,810 (7,229)
Prepaid expenses and other
current assets 28,750 (11,641)
Other assets (41,091) (6,184)
Accounts payable and accruals (191,315) (2,208,747)
----------- -----------
Net cash from operating activities 950,601 227,380
----------- -----------
INVESTING ACTIVITIES
Capital expenditures (1,300,416) (1,337,519)
Proceeds from sale of property
and equipment 5,386 1,000
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Net cash for investing activities (1,295,030) (1,336,519)
----------- -----------
</TABLE>
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<TABLE>
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
========================================
<CAPTION>
Nine months ended September 30, 1997 1996
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<S> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance of notes
payable to banks 5,300,000 7,900,000
Principal payments on notes
payable to banks (5,100,000) (6,600,000)
Principal payments on long-term debt (1,096,875) (1,096,875)
Dividends paid (136,669) (117,105)
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Net cash from (for) financing activities (1,033,544) 86,020
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3,540) (43,845)
----------- -----------
NET DECREASE IN CASH (1,381,513) (1,066,964)
CASH, beginning of period 1,457,783 1,909,506
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CASH, end of period $ 76,270 $ 842,542
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the period for:
Interest $ 389,546 $ 418,164
Income taxes, net of refunds 15,205 4,880
</TABLE>
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
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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 September 30, 1997, and the results of
operations for the three months and nine months ended September
30, 1997 and 1996, and cash flows for the nine months ended
September 30, 1997 and 1996.
NOTE 2 The results of operations for the nine months ended September 30,
1997, are not necessarily indicative of the results for all of
1997.
NOTE 3 Net income (loss) per share is determined based on the weighted
average number of shares of common stock outstanding during each
period.
NOTE 4 The condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances, transactions and stockholdings
have been eliminated.
The accompanying consolidated financial statements are condensed
and do not contain all of the information and footnote
disclosures required by generally accepted accounting principles
for complete financial statements.
NOTE 5 On March 13, 1996, the Company terminated its interest rate swap
agreement with a commercial bank. This agreement, having a
notional principal amount at the time of termination of
$6,487,500, effectively limited the Company's interest rate
exposure to a fixed rate of 6.92% on its floating rate
borrowings. At termination, the Company received $204,500 from
the bank as a result of favorable interest rates. This amount is
included in "Other, net" expenses in the accompanying 1996
condensed consolidated statement of operations.
At the same time, in order to continue to limit its interest rate
exposure, the Company entered into an interest rate collar
agreement with a current notional principal amount of $3 million.
This agreement provides for a cap rate on floating rate
borrowings of 8.25% and a related floor rate of 6.75%.
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NOTE 6 As disclosed in Note 2 to the Company's consolidated financial
statements included in its 1996 Annual Report on Form 10-K,
effective on September 3, 1995, the Company entered into an
agreement and sold its filter product line assets to CLARCOR Inc.
(CLARCOR) of Rockford, Illinois. The Company and CLARCOR also
entered into a Transition Agreement on that date whereby the
Company continued to manufacture and supply certain filters and
filter component parts to CLARCOR through a transition period,
which was completed during the third quarter of 1996.
The Transition Agreement provided for the reimbursement to the
Company of certain administrative costs directly related to the
manufacture and supply of filters and filter components to
CLARCOR. Expense reimbursement for the three and nine months
ended September 30, 1996, included in net sales, amounted to
$10,900 and $776,800, respectively.
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. Related distribution revenue, included in net sales,
amounted to $309,000 and $915,000 for the three and nine months
ended September 30, 1996. In early November 1996, the Company
received notification from CLARCOR that this arrangement would
terminate on December 31, 1996.
Sales, exclusive of the above expense reimbursement, and
estimated operating profit amounts for filter operations were
approximately as follows:
<TABLE>
<CAPTION>
September 30, 1996 THREE MONTHS ENDED NINE MONTHS ENDED
------------------ -----------------
<S> <C> <C> <C>
Sales $879,000 $5,785,000
Estimated operating profit 87,000 698,000
</TABLE>
Filter-related assets, comprised entirely of accounts receivable,
amounted to approximately $52,000 at September 30, 1996. No
amounts remained at December 31, 1996.
Of the total $720,400 employee severance benefits accrued and
expensed in September 1995 relating to the sale, $404,402 was
paid through September 30, 1996, with the $315,998 balance to be
paid in monthly payments through 2005.
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<PAGE>
In conjunction with the sale of its filter operations, the
Company relocated its piston ring packaging operations from its
former Knoxville, Tennessee facility to its Hastings, Michigan
facility in 1996. The relocation and associated training costs,
all of which were incurred during the first and second quarters
of 1996, are non-recurring in nature. While these costs are
directly related to the 1995 sale of filter operations and the
restructuring of the Company's remaining operations, they were
expensed as incurred in 1996 as required by recently issued
accounting standards. Total costs incurred amounted to $468,422,
and are included as "Non-recurring restructuring and relocation
costs" in the accompanying 1996 condensed consolidated statement
of operations.
NOTE 7 As disclosed in Note 3 to the Company's consolidated financial
statements included in its 1996 Annual Report on Form 10-K, in
December 1996, management and the Board of Directors approved a
restructuring plan. The plan was designed to significantly reduce
operating costs and provide a more streamlined and efficient
operating structure concentrating on piston ring manufacturing.
Total estimated restructuring costs, amounting to $351,500, were
accrued and expensed in the fourth quarter of 1996. Of the total,
$247,000 and $104,500 related to employee severance benefits and
consulting fees, respectively. All of the consulting fees and
$16,300 of the employee severance benefits were paid prior to
December 31, 1996. The remaining employee severance benefits,
amounting to $230,700, were paid through September 30, 1997.
NOTE 8 One of the many costs reviewed by management as part of its
restructuring plan, discussed in Note 7, is the cost of its
postretirement benefit plans. For each of the past two years, such
costs have exceeded $1.6 million, a cost level that was expected to
continue unless plan changes were made. In early April 1997, the
Company announced the amendment of its postretirement benefit
plans, principally to adjust the cost-sharing provisions. The
amendment resulted in a reduction of the Company's accumulated
postretirement benefit obligation of $7.35 million, which created
an unrecognized prior service benefit. Pre-tax expense for 1997,
including amortization of the unrecognized prior service benefit
over a period of 15 years, is expected to be reduced by
approximately $1,050,000, including $715,000 through September 30,
1997 ($334,000 during the third quarter). The balance will be
reflected in the fourth quarter.
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Hastings Manufacturing Company and Subsidiaries
Review by Independent Certified Public Accountants
====================================
The September 30, 1997 and 1996, condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by BDO Seidman, LLP,
Independent Certified Public Accountants, in accordance with established
professional standards and procedures for such a review.
-15-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Following the sale of the Company's filter assets and operations in September
1995, the quarterly and annual results were directly impacted by the effects
of that transaction. The Company was committed to a period of transition out
of the filter operations at both the parent level and through our Canadian
subsidiary, Hastings, Inc. Through the last half of 1996, those final
commitments were fulfilled. In addition, in December 1996, the Company
implemented a restructuring plan to reflect the expected post-transition
operating level.
While direct filter operations had no impact on 1997 results, comparative
operations from 1996 and 1995 continue to be reflected in various
relationships as indicated throughout the following analysis.
RESULTS OF OPERATIONS
NET SALES
Net sales in the third quarter of 1997 decreased $282,157, or 3.1%, from
$9,120,821 in the third quarter of 1996 to $8,838,664. Net sales for the
nine-month period ended September 30, 1997 decreased $4,069,803, or 13.0%,
from $31,262,856 in 1996 to $27,193,053. As reported in Note 6, the net
sales volume from filter operations was $879,000 in the third quarter of 1996
and $5,785,000 through the first nine months of that year. There are no
filter product sales included in the 1997 comparative results. As such, net
sales from the remaining products have increased by $597,000, or 7.2%, and
$1,715,000, or 6.7%, for the comparative third quarter and nine-month
periods, respectively. The Company continues to experience growth within the
domestic replacement piston ring market resulting from its refocused efforts
begun in early 1996. New account activity throughout 1996 and thus far in
1997 has also contributed to the increase in net sales for non-filter products.
The total private brand and original equipment volume continues to slightly
trail the 1996 comparative results. Export piston ring activity also trails
the 1996 level. The Company is in the process of converting to a more
country-direct distribution system for export piston ring sales following
the termination of the Company's relationship with its former primary export
representative in late 1996. Activity with that representative had been
conducted under a series of negotiated three-year agreements. Considering
perceived changes in the global markets, and the development of the Company's
ability to service those markets, a mutual decision was made to allow the
Company's agreement with its export representative to expire as of December
31, 1996.
Net sales in the third quarter of 1996 declined $8,248,643, or 47.5%, from
the third quarter of 1995 and were down $21,195,490, or 40.4% through the
first nine months of 1996 from the same period in 1995. As total net sales
for the Company's non-filter product lines were down $1,522,000 through the
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first nine months of 1996, the majority of these comparative declines
resulted directly from reduced filter related activity between the two years.
The decline in non-filter product lines resulted from lower export sales and
an internal inventory reduction effort on the part of the Company's primary
export representative through mid-1996.
COST OF SALES AND GROSS PROFIT
Cost of sales during the third quarter of 1997 decreased $625,692, or 9.5%,
from $6,616,002 in the third quarter of 1996 to $5,990,310. For the first
nine months of 1997, cost of sales decreased by $4,353,770, or 19.0%, from
$22,872,877 to $18,519,107. The corresponding quarterly and year-to-date
gross profit margins increased. The reduced cost of sales total primarily
reflects the absence of any filter related volume as detailed above. The
comparative increased gross margin percentages reflect the higher inherent
margins generated by the remaining product lines comprising the 1997 sales
activity. Under the terms of a transition agreement with the purchaser of
the filter operations, the gross margin on filter related sales activities
during 1996 was quite limited. The gross profit margin increased to 32.2%
in the third quarter of 1997 from 31.3% in the second quarter of 1997 due,
in part, to a sales mix change with a higher relative volume of domestic
piston ring activity in the third quarter. Product cost factors (materials,
labor and overhead) have continued to be quite steady through the most recent
quarter. Production efficiency gains, as measured by the results of an
incentive program, are expected to minimize any significant cost pressures
on labor and overhead throughout the next several quarters.
Cost of sales during the third quarter of 1996 decreased $8,030,260, or
54.8%, from the third quarter of 1995. For the first nine months of 1996,
cost of sales decreased by $19,090,236, or 45.5%, from the same period in
1995. Again, the primary factor in these declines was the significant net
sales decline resulting from the filter operations sale in September 1995.
Filter component sales to the purchaser under the transition agreement were
phased out by August 1996. As such, the cost of sales decline, as driven by
the related net sales decline, was higher during the third quarter than
through the first half of 1996. The gross margin reported in the 1996
comparative quarterly and nine-month periods was higher than 1995 due to
the reduced sales of lower-margin filter products. The 1996 results were
also favorably impacted by the liquidation of certain LIFO inventory
reserves related to the final transfer of inventory balances to the
purchaser.
OPERATING EXPENSES
Total operating expenses for the third quarter of 1997 decreased $98,776, or
4.1%, from $2,424,660 to $2,325,884. For the 1997 nine-month period, these
expenses decreased $1,539,488, or 18.0%, from $8,530,155 to $6,990,667.
These reductions reflect the absence of filter expenses in 1997 as well as
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the positive results of the restructuring plan as reported in the 1996 Annual
Report. Advertising costs are up slightly in both the current third quarter
and nine-month periods, however, reflecting the cost of a biannual catalog
required in 1997 and increased cooperative advertising costs as driven, in
part, by higher domestic aftermarket net sales. Selling expenses, which
decreased both in the current quarter and year-to-date, continue to reflect
the full phase-out of filter support activities by the Company as of the end
of 1996. Most of the filter support costs were phased out by June of 1996
though certain costs continued reflecting the Canadian subsidiary's support
activities through the end of 1996. These filter support costs, reported
within the selling expense category for 1996, totaled $425,000 through the
nine-month period ended September 30, 1996. These costs, as well as the
general and administrative amount noted below, were billed back to the
purchaser with the resulting total included in Net Sales as revenue for
services. Total selling expenses, net of those filter items, still reflect a
year-to-date decline of approximately $79,000. That decline is the net
result of higher volume-sensitive costs (agents' commissions and sales staff
compensation) offset by savings resulting from the noted restructuring effort
(lower direct staff levels and related support costs).
The general and administrative category for 1996 likewise included certain
filter support costs totaling $294,000 through the first nine months of 1996.
Net of filter support costs, the 1997 general and administrative expenses are
down $284,662, or 6.1%, from the first nine months of 1996. For the third
quarter, the 1997 total general and administrative expense is down $56,508,
or 3.7%, from the third quarter of 1996. This expense category continues to
reflect consistent declines in most of the personnel driven expenses
reflecting the impact of the December 1996 restructuring effort. Many of the
general office operating costs have likewise declined, further reflecting the
reduced demands from the post-filter operating environment. The "Non-
recurring relocation costs" for the nine-month period in 1996 reflects costs
associated with the relocation of certain inventories and shipping operations
out of the Company's former Knoxville, Tennessee facility.
Total operating expenses during both the third quarter and first nine months
of 1996 decreased significantly from the comparative periods in 1995. Again,
the filter operations sale is the primary factor in these relationships as
the Company scaled down multiple programs and personnel relative to the
refocused operations. As noted above, however, 1996 did absorb significant
operating expenses associated with the post-filter transition including both
the inventory relocation effort in the first half of that year and the
subsequent restructuring costs in the final quarter of that year.
OTHER EXPENSES
Other expenses netted to $137,121 for the third quarter of 1997 compared to
$144,580 for the third quarter of 1996. For the nine-month period, other
expenses netted to $367,089 for 1997 versus $110,085 for the same period in
1996. The net interest position continues to reflect both lower expense and
income in the 1997 comparative periods. This reflects a continued decline in
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our net borrowed position resulting from normal long-term debt amortization
activity combined with the use of interest earning funds previously held 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 1996 "Other, net"
nine-month results reflect a $205,000 gain from the termination of an
interest rate swap agreement in March of that year.
TAXES ON INCOME
The 1997 effective tax rates (39.7% for the third quarter and 40.0% year-to-
date) are higher than the domestic federal rate due primarily to the impact
of various state income taxes. As of September 30, 1997, the Company
maintained net deferred income tax assets of $8,204,379. The major
components include the tax effects of net operating loss carryforwards and
accrued retirement and postretirement benefit obligations. The realization
of this recorded benefit is dependent upon the generation of future taxable
income.
Management believes it is more likely than not that adequate levels of
future taxable income will be generated to absorb the net operating loss
carryforwards, the deductible amounts related to the retirement and
postretirement benefit obligations and the remaining net deductible
temporary differences.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash 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 flow activities. Considering its full
transition out of filter operations, and the impact of the restructuring
required to support the smaller organization, the Company expects to generate
sufficient future funds from operations and bank borrowings to fund its
growth and operating needs. The short-term borrowing lines currently
available to the Company total $5 million. The majority of those funds are
available on a LIBOR based interest rate. An interest rate collar
arrangement is currently in place effectively limiting the borrowing rate on
these funds to a minimum of 6.75% and a maximum of 8.25%. As of September
30, 1997, there were $3.2 million borrowed against these available lines.
During the first nine months of 1997, the Company generated net cash of
$950,601 from operating activities. The reported net income and
depreciation, combined with reductions in the net deferred income tax asset,
inventories and prepaid assets, were more than sufficient to absorb the net
increase in accounts receivable and the net decline in accounts payable and
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accruals and the periodic postretirement benefit obligation. The net
deferred income tax asset reduction, primarily resulting from the current
utilization of net operating loss carryforwards, reflects the Company's
favorable nine-month performance while the accounts payable and accruals
decline reflects the normal payment of various year-end liabilities. The
change in the postretirement benefit obligation is due primarily to medical
coverage program changes implemented earlier this year as a result of the
restructuring effort, as discussed in Note 8. The investing activities for
the first nine months of 1997 reflect the application of funds held
throughout 1996, as noted above, for capital equipment acquisitions. The
fourth quarter of 1997 should reflect moderate additional capital
expenditures. The financing activities for the first nine months of 1997
reflect the continued normal amortization of the Company's long-term debt
position, as well as a reduced volatility in, and reliance upon, its
short-term debt lines.
The Company has now absorbed significant change during the past two-year
period. With its final transition out of all filter activities, and the
benefits derived thus far from the restructuring effort, the Company
anticipates that operations (which will not be subject to current cash
outflows for U.S. income taxes due to utilization of the net operating loss
carryforwards), will generate adequate cash flows to fund its working
capital, capital outlays and dividend needs through 1997.
NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued two
new disclosure standards.
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income," 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 distribution 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," 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
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decision maker in deciding how to allocate resources and in assessing
performance.
Both of these new standards are effective for financial statements for
periods beginning after December 15, 1997 and require comparative information
for earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
they may have on future financial statement disclosures. Results of
operations and financial position, however, will be unaffected by
implementation of these standards.
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<PAGE>
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995
With the exception of historical matters, the matters discussed in this
commentary include certain predictions and projections that may be considered
forward-looking statements under securities laws, including, but not limited
to, those statements under the captions "Net Sales," "Cost of Sales and Gross
Profit," "Taxes on Income" and "Liquidity and Capital Resources." These
statements are subject to a number of important risks and uncertainties that
could cause actual results to differ materially including, but not limited
to, economic, competitive, governmental and technological factors affecting
the Company's operations, markets, products, services and prices. The Company
undertakes no obligation to update, amend, or clarify forward-looking
statements, whether as a result of new information, future events or
otherwise.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT. The following documents are filed as an exhibit to this
report on Form 10-Q:
EXHIBIT
NUMBER DOCUMENT
------ --------
10 Transition Agreement, dated September 3, 1995,
among Hastings Filters, Inc., Hastings
Manufacturing Company and Hastings Inc. and joined
in by CLARCOR Inc.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. No reports on Form 8-K have been filed during
the quarter for which this report is filed.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HASTINGS MANUFACTURING COMPANY
Date: November 13, 1997 By: /S/ MONTY C. BENNETT
Monty C. Bennett
Its Vice President, Employee Relations,
Secretary and Director
Date: November 13, 1997 By: /S/ THOMAS J. BELLGRAPH
Thomas J. Bellgraph
Its Vice President, Finance
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EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
------ --------
10 Transition Agreement, dated September 3, 1995,
among Hastings Filters, Inc., Hastings
Manufacturing Company and Hastings Inc. and joined
in by CLARCOR Inc.
27 Financial Data Schedule
<PAGE>
EXHIBIT 10
TRANSITION AGREEMENT
dated as of September 3,1995
among
HASTINGS FILTERS, INC.
HASTINGS MANUFACTURING COMPANY
and
HASTINGS INC.
and joined in by
CLARCOR INC.
<PAGE>
TRANSITION AGREEMENT
TRANSITION AGREEMENT, dated as of September 3, 1995 (this
"Agreement"), between Hastings Filters Inc., a Delaware corporation
("Buyer"), Hastings Manufacturing Company, a Michigan corporation
("Seller"), and Hastings Inc., a Canadian corporation ("Hastings Canada").
Buyer is a wholly-owned indirect subsidiary of CLARCOR, Inc., a Delaware
corporation ("CLARCOR"). CLARCOR joins in this Agreement to guarantee the
performance of Buyer's obligations hereunder as set forth in Section 9.12.
WITNESSETH:
WHEREAS, Seller and its subsidiary, Hastings Canada, are, among
other things, engaged in the business (the "Business") of manufacturing,
purchasing, selling, reselling and distributing oil, air, diesel fuel,
radiator, water, gas and transmission fluid filters and crankcase breathers
and pollution control valves (the "Filter Products");
WHEREAS, Buyer, Seller and Hastings Canada have entered into an
Asset Purchase Agreement, dated the hereof (the "Asset Purchase
Agreement"), which provides for the purchase by Buyer of certain of the
properties and assets of Seller and Hastings Canada related to the
Business; and
WHEREAS, Buyer, Seller and Hastings Canada desire to set forth
their understanding and agreement with respect to certain matters regarding
the transition of the operation of the Business from Seller and Hastings
Canada to Buyer;
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WHEREAS, Seller has agreed to furnish Buyer with certain filter
products, component parts and related services during a transition period
on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
TRANSITION PERIOD
Section 1.01. TRANSITION PERIOD. As used in this Agreement, the
"Transition Period" shall mean the Initial Transition Period, as such
Initial Transition Period may be extended pursuant to SECTION 1.03 hereof.
Section 1.02. INITIAL TRANSITION PERIOD. The "Initial
Transition Period" shall mean the period commencing on the Closing Date and
terminating on the date occurring eight months after such Closing Date (the
"Termination Date").
Section 1.03. EXTENSION OPTION. Buyer shall have the option
(the "Extension Option"), exercisable in its sole discretion, to extend the
Transition Period beyond the Initial Transition Period to any date
occurring not more than four months after the date of termination of the
Initial Transition Period. The Extension Option shall be exercisable by
delivery of written notice (the "Option Exercise Notice") from Buyer to
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Seller not less than 30 days prior to the termination of the Initial
Transition Period. The Option Exercise Notice shall be executed by an
officer of Buyer and shall state the date on which the Transition Period,
as extended, shall terminate (the "Extended Termination Date"). Buyer may
amend the Option Exercise Notice by modifying the Extended Termination Date
at any time, provided that Buyer provides written notice of such
modification to Seller not less than 30 days prior to the earlier of the
existing Extended Termination Date or the proposed new Extended Termination
date. Such modification notice shall be executed by an officer of Buyer.
In no event shall the Transition Period by extended beyond the period set
forth in the first sentence of this SECTION 1.03.
Section 1.04. CERTAIN DEFINED TERMS USED HEREIN. Capitalized
terms used herein but not defined herein shall have the respective meaning
specified in the Asset Purchase Agreement.
ARTICLE II
PERFORMANCE OBLIGATIONS
Section 2.01. GENERAL. Seller hereby covenants and agrees to
perform the obligations set forth in this ARTICLE II during the Transition
Period. Seller acknowledges that the purpose of this Agreement is to
minimize any disruptions to the operation of the Business during the
Transition Period. Accordingly, Seller shall devote such resources and
personnel as is necessary to perform such obligations in a manner
reasonably satisfactory to Buyer and shall produce Hastings Filters
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Products (a) of a quality at least equal to the quality of Filter Products
produced or acquired by Seller prior to the Closing Date and (b) in
quantities which satisfy the standards set forth in this Agreement. For
purposes of this Agreement, "Transition Filter Products" shall consist of
components for and finished spin on filters, components for cartridge style
oil filters, gas filters, and components for and finished heavy duty air
filters identified in detail on SCHEDULE 2.01 hereto.
Section 2.02. PRODUCTION. (a) During the Transition Period, the
scheduling and component part and finished goods production releases shall
continue under the same processes as currently are employed between the
Hastings, Michigan plant (the "Hastings Plant") and the Yankton, South
Dakota plant (the "Yankton Plant"), as further described below. On each
Monday (the "Forecast/Order Date") during the Transition Period, Buyer
shall advise Seller in writing of (i) Buyer's forecast (the "Forecast") of
the type and quantity of Transition Filter Products which Buyer then
anticipates that Buyer will ask Seller to produce for Buyer during the
eight-week period beginning on the Forecast/Order Date (the "Forecast
Period") and (ii) Buyer's order (the "Order") of the type and quantity of
Transition Filter Products to be produced by Seller for Buyer and shipped
by Seller to Buyer during the five business day period beginning seven days
after the Forecast/Order Date (the "Order Period"). Seller shall (x) take
such preparatory actions as are reasonably necessary to enable Seller to
perform in accordance with the Forecast during the Forecast Period and (y)
manufacture and/or acquire and ship to Buyer such Transition Filter
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Products as are set forth in the Order during the Order Period, provided
that (A) the actual amount of Transition Filter Products produced with
respect to any Order may not be more than 10% more or 10% less than the
amount specified in such Order and (B) no Forecast or Order shall require
the production of a quantity of Transition Filter Products in excess of the
standards set forth in subsection (b) of this SECTION 2.02 ("Accepted
Filter Products"). Buyer shall pay Seller for all such Accepted Filter
Products in accordance with SECTION 3.01; Transition Filter Products not
meeting such standards and therefore rejected by Buyer shall remain the
property of Seller and Buyer shall have no obligation with respect thereto.
(b) Seller agrees that its production of Transition Filter
Products pursuant to this Agreement shall be at a rate which, if annualized
and sold, is not less than the greater of (i) the production rate of
Transition Filter Products in 1994, or (ii) the annualized production rate
of Transition Filter Products in 1995 through the date of this Agreement,
PROVIDED that if annualized Orders for Transition Filter Products pursuant
to this Agreement are less than such amount, then Seller's required
production rate shall be reduced to the annualized level which would result
from such Orders (the "Target Production Rate"). Buyer and Seller
acknowledge and agree, so long as the product mix of Buyer's Orders remains
roughly similar to the product mix during the period applied to calculate
the Target Production Rate under this Section, that Seller maintains the
capacity to fill such Orders and that such Orders will generally not
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<PAGE>
require price increases as a result of increased production costs in
accordance with Section 2.02(c).
(c) Seller will provide Buyer with Transition Filter Products at
the Target Production Rate for the price set forth in SECTION 3.01 of this
Agreement. In the event that Buyer's annualized Orders for Transition
Filter Products exceeds the Target Production Rate, Buyer acknowledges that
Seller may incur increased production costs (such as labor overtime) and
Buyer agrees that the price applicable to any Orders exceeding the Target
Production Rate will be increased by an amount to be negotiated in good
faith and mutually agreed upon by Buyer and Seller. In the event Buyer and
Seller are unable to agree upon the price for Orders exceeding the Target
Production Rate, Seller shall have no obligation to fill any orders
exceeding the Target Production Rate.
Section 2.03. COMPONENTS AND RESOURCES. (a) None of the raw
materials, work-in-process, components or finished goods inventory of
Transition Filter Products located at the Hastings Plant on the Closing
Date (except for certain finished goods located in Warehouse #3, normally
distributed from the Knoxville Facility) shall be purchased by Buyer
pursuant to the Asset Purchase Agreement but shall be retained by Seller
and utilized by Seller so long as available in production of Transition
Filter Products by Seller pursuant to this Agreement. In the event that
such inventories are or become inadequate to produce Transition Filter
Products pursuant to a Forecast or Order, Seller shall, at its cost and
expense and subject to compensation as set forth in Article III, acquire
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<PAGE>
such additional raw materials and other components as may be required for
such purposes. In addition, Seller shall, at its cost and expense and
subject to compensation as set forth in Article III, provide such power,
supplies and other standard overhead items as are necessary to manufacture
Transition Filter Products pursuant to Forecasts or Orders at the Hastings
Plant in accordance with this Agreement. As various manufacturing
processes utilized in producing Transition Filter Products are transferred
during the Transition Period from the Hastings Plant to the Yankton Plant,
Seller shall, consistent with Buyer's Forecasts and Orders, reduce or
eliminate its purchases of raw materials and utilize existing work-in-
process to produce finished components and finished goods.
(b) At the end of the Transition Period Buyer shall purchase
from Seller any remaining raw materials, work-in-process, finished
components and finished goods, at a price determined as follows:
(i) the total quantity of such inventory shall be determined by
a physical count to be taken by representatives of Seller and Buyer in
accordance with generally accepted auditing standards on a date no
more than 10 business days prior to the end of the Transition Period.
The Seller shall report to the Buyer in writing as of the end of the
Transition Period the quantity of each item of inventory determined
from such count. The total quantity of inventory so reported is
hereafter called the "Base Inventory". The Base Inventory for all
items of inventory multiplied by the lower of cost or market (the
"Inventory Price") for each item shall be the "Total Inventory";
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<PAGE>
(ii) as of the end of the Transition Period, Seller shall advise
Buyer in writing of the quantity of each separate item of such
inventory included in Base Inventory used or sold by Seller in the 12
month period preceding the date hereof (the "Inventory Calculation
Base");
(iii) (A) the Inventory Calculation Base for each item of
finished goods shall be multiplied by three and the resulting product,
which shall not exceed the Base Inventory amount for each item, shall
be multiplied by the Inventory Price of each item of inventory and (B)
the Inventory Calculation Base for each item of raw material and work-
in-process inventory shall be multiplied by the Inventory Price of
such items. The sum of the amounts calculated pursuant to (A) and (B)
above shall be the "Gross Dollar Amount of Inventory". For purposes
of calculating the Gross Dollar Amount of Inventory, any part number
added to the Seller's master file within the two years prior to the
date hereof shall be included in the Gross Dollar Amount of Inventory
at its fully recorded amount (i.e., Base Inventory times the Inventory
Price);
(iv) The Obsolescence Reserve Credit, calculated pursuant to
Section 3.6 of the Asset Purchase Agreement, shall be added to the
Gross Dollar Amount of Inventory. The amount so calculated shall be
paid by Buyer to Seller within 10 days of the end of the Transition
Period. Buyer shall remove such Inventory from the Hastings Plant
within such 10 day period.
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<PAGE>
Section 2.04. MANUFACTURE. Seller shall provide such personnel
as are necessary to manufacture Transition Filter Products as the Hastings
Plant in accordance with this Agreement. Such manufacture shall be
performed at the direction and under the supervision of Seller. Seller
acknowledges that Buyer's Orders will be designed to provide Transition
Filter Products during the Transition Period and (b) to increase production
of Transition Filter Products during the Transition Period to enable buyer
to carry an excess inventory of Transition Filter Products during the
period of time between the expiration of the Transition Period and the
commencement of production of Transition Filter Products by Buyer at an
alternate location, which excess inventory is intended to minimize any
disruptions in the distribution of Transition Filter Products to customers.
Buyer shall compensate Seller for the carrying costs of excess inventory
pursuant to SECTION 3.03.
Section 2.05. SUPPORT SERVICES. Seller shall provide continuing
support services for so long as requested by Buyer during the Transition
Period with regard to Transition Filter Products. Seller shall make
appropriate personnel available upon the reasonable request by Buyer to
facilitate and to assist conversion of such support services from Seller's
computer systems to those of Buyer. Additionally, Seller shall provide for
Buyer such support services as Seller deems reasonably necessary to furnish
the Transition Filter Products in accordance with this Agreement and to
comply with its other obligations under this Agreement. Assuming that
Orders do not materially exceed the Target Production Rate and do not
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<PAGE>
materially vary from the product mix during the period applied in
calculating the Target Production Rate, Seller currently maintains all of
the support services it reasonably believes necessary to fulfill its
obligations to Buyer during the Transition Period under this Agreement.
Buyer acknowledges that Seller shall have no obligation to provide any
continuing support services for which Buyer is unwilling to pay for or has
not paid for in accordance with this Agreement. Seller shall bear no
liability to Buyer, including liability for consequential damages, in
connection with not furnishing any support services for reason of
nonpayment by Buyer. Notwithstanding the foregoing, this Section 2.05
shall not relieve Seller from liability or performance under this Agreement
if Buyer withholds payment for support services because Seller has breached
its obligations under other provisions of this Agreement.
Section 2.06 STORAGE. (a) In order to facilitate Buyer's
accumulation of surplus inventory during the Transition Period, Seller
agrees that Buyer shall be permitted to store Transition Filter Products
sold by Seller to Buyer in surplus storage space of Seller designated as
"Warehouse #3" (the "Warehouse"). Buyer may store purchased Transition
Filter Products at Seller's Warehouse only in such quantities as will not
cause any disruption in Seller's business operations, as determined in
Seller's discretion, or require Seller to acquire or occupy any additional
storage space. Buyer will be solely responsible for any storage containers
required in connection with storing purchased Transition Filter Products at
Seller's Warehouse.
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<PAGE>
(b) Seller will deliver Transition Filter Products to the
Warehouse at Buyer's request to be stated in an Order. Buyer shall be
provided with a reasonable opportunity to inspect finished Transition
Filter Products at the Hastings Plant prior to delivery to the Warehouse.
All Transition Filter Products delivered to the Warehouse at Buyer's
request will be deemed accepted by Buyer.
(c) Buyer shall bear all risk of loss for any and all Transition
Filter Products shipped to and stored at the Warehouse at Buyer's request.
ARTICLE III
COMPENSATION AND LIABILITY
Section 3.01. PRICES FOR TRANSITION FILTER PRODUCTS. Upon
shipment by Seller of all or any part of any Order, Buyer shall become
obligated to pay to Seller in accordance with SECTION 3.03(A), unless
contested in good faith by Buyer, an amount calculated from the unit prices
for Transition Filter Products set forth on SCHEDULE 2.01 (the "Page One
Costs") plus an additional amount not to exceed 5% thereof (the "Page Two
Costs") plus an amount equal to 5% of the sum of the Page One and Page Two
Costs. Such Page Two Costs shall be expressed as a flat percentage of the
unit standard prices at a percentage as reviewed and agreed between a
designee of Buyer and Seller. Seller confirms that such unit prices (Page
One Costs) are equal on the date hereof to Seller's standard cost for each
such Transition Filter Product. Such Page One Costs are the direct
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<PAGE>
material, labor and overhead costs of such Transition Filter Products.
Buyer and Seller agree that such Page One Costs may be adjusted from time
to time to reflect applicable labor rates per Seller's union contract,
material costs changes as reviewed by Buyer and overhead rate changes as
reviewed by Buyer as the relationship between incurred direct labor and
incurred overhead costs changes; provided that, in no event shall any such
increase in the labor rate component of such price exceed the amount, if
any, by which such labor rates have increased for Seller's piston ring
business. Seller further confirms that the Page Two Costs represents
certain indirect costs (production scrap, waste disposal, material price
variances, incoming freight, inventory adjustments, product development
costs, scrap sales and cash discounts earned) related to the production of
Transition Filter Products which are not included in the Page One Costs for
each such Transition Filter Product supplied by Seller. The prices paid by
Buyer hereunder are FOB the Hastings Plant and all shipping costs therefore
shall be borne by Buyer.
Section 3.02. CARRYING COSTS. Buyer acknowledges that Seller
has agreed to maintain inventory relating to Transition Filter Products in
order to provide Buyer with Transition Filter Products during the
Transition Period. Accordingly, Buyer shall compensate Seller on a monthly
basis for the costs of carrying inventory relating to Transition Filter
Products in an amount determined by multiplying (i) the Prime Rate as
established by The First National Bank of Chicago from time to time divided
by twelve by (ii) the amount of the cost or average standard costs of all
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<PAGE>
raw materials, work-in-process, components parts and unbilled finished
goods inventory of Transition Filter Products at the Hastings Plant.
Section 3.03. PAYMENT OF COMPENSATION. (a) Upon shipment by
Seller of Transition Filter Products during the Transition Period pursuant
to an Order, Seller shall submit to Buyer an invoice for all amounts to
which it is entitled pursuant to SECTION 3.01 of this Agreement. Buyer
shall pay such invoice in accordance with its normal payment practices, but
in no event more than 15 days after the invoice date thereof unless
contested in good faith by Buyer. Any amounts due from Buyer to Seller in
connection with Orders exceeding the Target Production Rate under Section
2.02(c) shall be invoiced and paid by Buyer to Seller in accordance with
this Section 3.03(a).
(b) Not less than seven days prior to the commencement of the
first month of the Transition Period and not less than seven days prior to
the beginning of each month thereafter, Buyer and Seller shall agree to a
good faith written estimate prepared by Seller for such subsequent month of
Seller's carrying costs to which Seller is entitled to compensation from
Buyer pursuant to SECTION 3.02. Buyer shall pay such estimated carrying
costs to Seller on a weekly basis during such month, subject to adjustment
at the end of each month for any difference between the estimated amounts
paid by Buyer and the actual carrying costs of Seller calculated in
accordance with Section 3.02.
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<PAGE>
(c) Not less than seven days prior to the commencement of the
first month of the Transition Period and not less than seven days prior to
the beginning of each month thereafter, Buyer and Seller shall agree to a
good faith written estimate prepared by Seller for the cost of support
services to be provided by Seller to Buyer during the subsequent month to
which Seller is entitled to compensation from Buyer pursuant to SECTION
2.05. Buyer shall pay such estimated support service costs, plus an amount
equal to 5% of such support service costs, to Seller on a weekly basis
during such month, subject to adjustment at the end of each month for any
difference between the estimated amounts paid by Buyer and the actual
support services costs plus 5% incurred by Seller.
Section 3.04. WARRANTY COSTS; PRODUCT LIABILITY CLAIMS. Buyer
shall be liable for all warranty costs and product liability claims related
to any Transition Filter Products manufactured and accepted by Buyer after
the commencement of the Transition Period; PROVIDED, HOWEVER, that (a) this
SECTION 3.04 shall not relieve Seller of any liability to Buyer in
connection with such warranty costs or product liability claims resulting
from the gross negligence or willful misconduct of Seller in performing its
obligations hereunder if such action or failure to act by Seller
constituting gross negligence or willful misconduct was not at the
direction of Buyer and (b) Seller shall not sell or permit to be used any
Filter Products manufactured by Seller after the commencement of the
Transition Period and rejected in good faith by Buyer for reason that the
products failed to conform to the standard set forth in Section 2.01(a) of
this Agreement.
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<PAGE>
Section 3.05. SELLER'S EMPLOYEES. Seller acknowledges that
employees of Seller utilized by Seller to perform its obligations hereunder
shall remain the employees of Seller rather than Buyer during the
Transition Period. Accordingly, Seller shall remain liable for all costs,
expenses and liabilities with respect to such employees, including, without
limitation, wages, salaries, bonuses, employee benefits, insurance claims
and taxes. Seller shall use its best efforts to prevent any disruption by
its employees of the activities pursuant to Article V. In the event of any
such disruptions or attempted disruptions, Seller shall cooperate with
Buyer to mitigate the effects thereof.
ARTICLE IV
KNOXVILLE FACILITY
Section 4.01. PISTON RING DISTRIBUTION. (a) Buyer and Seller
acknowledge that, pursuant to the Asset Purchase Agreement, Buyer is
acquiring from Seller a facility located in Knoxville, Tennessee (the
"Knoxville Facility"), from which Seller currently also ships and
distributes its piston ring products (the "Rings"). For a period beginning
on the Closing Date and ending on the third day after written notice of
termination is given by Seller to Buyer (but in no event later than 90 days
after the termination of the Transition Period), Buyer shall permit Seller
to accept shipments of Rings at the Knoxville Facility and, using the
facilities and Seller's personnel located at the Knoxville Facility, ship
such Rings to Seller's customers. Buyer shall not be responsible for
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<PAGE>
Seller's personnel located at the Knoxville Facility, the quality or the
condition of the Rings so shipped or incur any liability to Seller for
defaults by Seller's customers, returned products or warranty claims with
respect to Rings.
(b) For the period of time that Seller occupies a portion of the
Knoxville Facility, Seller agrees to reimburse Buyer for out-of-pocket
costs incurred by Buyer allocable to the portion of the Knoxville Facility
occupied by Seller. Out-of-pocket costs reimbursable by Seller to Buyer
shall include costs such as taxes, insurance, utilities, janitorial,
maintenance and security (allocable to the period of Seller's occupancy)
but shall not include costs such as special assessments or capital
improvements or repairs with respect to the facility. Any out-of-pocket
costs not attributable solely to Seller's occupancy of a portion of the
Knoxville Facility shall be prorated between Seller and Buyer with Seller
paying an amount equal to such costs multiplied by a fraction, the
numerator being the square footage of the Knoxville Facility occupied by
Seller during the applicable period and the denominator being the total
square footage of the Knoxville Facility. Buyer shall furnish Seller with
statements reasonably detailing reimbursable costs due from Seller
following the end of each month and Seller shall reimburse Buyer for such
costs, unless contested in good faith by Seller, within fourteen days of
receipt of each statement. For the first and last month of Seller's use of
a portion of the Knoxville facility, any reimbursable out-of-pocket costs
otherwise billed on a monthly basis shall be multiplied by a fraction, the
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numerator of which is the number of days during the preceding month during
which Seller used the Knoxville Facility and the denominator of which is
the total number of days in such month. Notwithstanding the foregoing,
Buyer and Seller shall each pay their own direct costs arising from their
use of the Knoxville Facility (e.g. Seller shall pay for piston ring
shipping cartons and Buyer shall pay for filter product shipping cartons).
Section 4.02. FILTER DISTRIBUTION. During the same period of
time as set forth in SECTION 4.01 hereof, Seller agrees to provide to Buyer
the services of such of Seller's employees as are necessary to accept
shipment of Transition Filter Products at the Knoxville Facility and to
distribute such Transition Filter Products to Buyer's customers. In
addition, Seller shall provide Buyer with customer order entry and customer
billing support services for Transition Filter Products at the Knoxville
Facility.
Section 4.03. (a) COMPENSATION. Buyer shall compensate Seller
on a weekly basis for the services provided by Seller pursuant to SECTION
4.02 during such week by reimbursing Seller for its costs and expenses
directly related thereto incurred during such week plus 5% of such costs
and expenses. Within 15 days after the date of this Agreement, Buyer and
Seller shall agree to a proposed budget setting forth their best estimate
of the weekly costs and expenses directly related to the provision by
Seller of such services. Seller shall not be entitled to weekly
compensation under this SECTION 4.03 for costs and expenses (exclusive of
the 5% add-on) in excess of 110% of the total weekly budgeted out-of-pocket
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costs and expenses as set forth on such budget (exclusive of the 5% add-
on), such costs and expenses and such budgeted amount to be prorated for
any final partial week during which such services are rendered by Buyer
based on the number of days elapsed in such final partial week.
(b) Any related overhead expenses as determined and agreed to by
a designee of each of Buyer and Seller will be paid by Buyer to Seller on a
monthly basis on the 15th day of each month for overhead expenses incurred
during the prior month.
Section 4.04. SELLER'S EMPLOYEES. (a) Except as set forth in
paragraph (b) hereof, Seller acknowledges that employees of Seller located
at the Knoxville Facility shall remain the employees of Seller rather than
Buyer during the Transition Period. Accordingly, Seller shall remain
liable for all costs, expenses and liabilities with respect to such
employees, including, without limitation, wages, salaries, bonuses,
employee benefits, insurance claims and taxes. Seller shall use its best
efforts to prevent any disruption by its employees of the activities
undertaken by Seller and Buyer at the Knoxville Facility. In the event of
any such disruptions or attempted disruptions, Seller shall cooperate with
Buyer to mitigate the effects thereof. At the end of the Transition
Period, Buyer may elect to hire any or all of the employees located at the
Knoxville Facility.
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ARTICLE V
REMOVAL OF PURCHASED ASSETS FROM HASTINGS PLANT
Section 5.01. GENERAL. (a) At any time during the Transition
Period, Buyer shall have the right to remove from the Hastings Plant any or
all of the Purchased Assets located therein. All costs and expenses
involved in preparing the Purchased Assets for shipment, loading and
shipping such Purchased Assets shall be borne by Buyer and Buyer shall be
responsible for and bear any risk of loss for any damages to the Purchased
Assets, the Hastings Plant or the equipment of Seller caused by Buyer's
agents, contractors or representatives. Buyer may utilize Seller's
employees in such removal process, provided that Seller shall be
compensated by Buyer for the cost of such employees' hourly labor. Subject
to SECTION 5.03, Seller shall provide Buyer and its agents and contractors
such easements over and access to its property and the Hastings Plant as
may be reasonably necessary for Buyer to accomplish the removal from the
Hastings Plant of the Purchased Assets.
(b) Any Purchased Assets not removed by Buyer from the Hastings
Plant during the Transition Period shall be deemed to have been abandoned
by Buyer. Seller shall have the right to dispose of any such abandoned
Purchased Assets in its sole discretion. The costs of such disposal to be
borne by Seller.
Section 5.02. EFFECT ON SELLERS OBLIGATIONS UNDER ARTICLE II.
In the event that Buyer's activities pursuant to SECTION 5.01 result in the
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shipment from the Hastings Plant of equipment necessary or required for the
production by Seller of any Transition Filter Product, Seller's obligations
under ARTICLE II to manufacture such Transition Filter Products shall
terminate.
Section 5.03. COORDINATION WITH SELLER. Upon the commencement
of the Transition Period, Buyer shall provide Seller with a forecast, to be
updated by Buyer as necessary, of Buyer's estimated schedule for the
removal of the Purchased Assets from the Hastings Plant. In addition to
such forecasts, Buyer shall give Seller not less than 7 business days
written notice of its intention to remove any Purchased Assets from the
Hastings Plant and will promptly provide Seller with written notice of any
of the Purchased Assets that Buyer has decided to abandon and which may be
removed by Seller. Buyer and Seller agree to cooperate in good faith so
that Buyer's activities pursuant to SECTION 5.01 shall not (a) be impeded
by any activity by Seller or its employees or agents or (b) disrupt
unnecessarily Seller's manufacturing operations at the Hastings Plant.
ARTICLE VI
CANADIAN FACILITY
Section 6.01. FILLING CUSTOMER ORDERS. (a) Hastings Canada
shall continue to fill orders for Filter Products during the period
specified in Section 6.02 hereof. Such orders shall be filled from
inventory of Filter Products on hand at Hastings Canada facility at Barrie,
Ontario, Canada (the "Canadian Facility"); and, to the extent necessary,
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Hastings Canada shall acquire additional inventory of Filter Products to
fill such orders from Knoxville Facility in accordance with past practices.
(b) Hastings Canada shall invoice the customer for the price of
the Filter Products so ordered and shipped in accordance with the price
lists for such Products in existence on the date hereof or as changed with
the advance written consent of Buyer. Upon payment to Hastings Canada of
such invoices, Hastings Canada shall remit to Buyer's subsidiary, 1137447
Ontario, Inc., the owner of such Filter Products, within 5 days of such
payment, an amount equal to 83% of the total amount paid less any portion
thereof which is in payment of applicable taxes. Hastings Canada shall
retain the balance of such net payment, after remitting any such tax to the
proper governmental authority. Such retention shall constitute all of the
compensation due to Hastings Canada for its services pursuant to this
Article VI.
The parties acknowledge that (a) a total of approximately $55,000
(the "Transfer Tax") has been paid to the Canadian Government in respect of
the Canadian Federal Goods and Service Tax ("GST"), (b) each of the Seller
and the Buyer have paid one half of such tax, and (c) such amount (the
"Credit Amount") is refundable to 1137447 or may be used to offset GST
taxes otherwise payable with respect to sales of Filter Product pursuant to
this Agreement. To the extent of such refunds or credits, Hastings Canada
shall first be entitled to retain or be paid an amount equal to the portion
of the Transfer Tax paid by Seller. After Seller has been paid in full
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with respect to its portion of the Transfer Taxes, all future refunds or
credits shall be made or paid to 1137447.
Section 6.02. TERM. The obligations of Hastings Canada and
Buyer pursuant to this Article VI shall begin on the date hereof and
terminate on the later of (a) the 60th day after Buyer gives written notice
to Seller of such termination or (b) the Termination Date.
Section 6.03. REMOVAL OF PURCHASED ASSETS FROM THE CANADIAN
FACILITY. (a) Buyer shall remove all of the Purchased Assets located at
the Canadian Facility from the Canadian Facility no later than the end of
the term specified in SECTION 6.02. All costs and expenses involved in
preparing such Purchased Assets for shipment, loading and shipping such
Purchased Assets shall be borne by Buyer and Buyer shall be responsible for
and bear any risk of loss for any damages to such Purchased Assets, the
Canadian Facility or the equipment of Hastings Canada caused by Buyer's
agents, contractor or representatives. Buyer may utilize employees of
Hastings Canada in such removal process, provided that Hastings Canada
shall be compensated by Buyer for the cost of such employees' hourly labor.
Hastings Canada shall provide Buyer and its agents and contractors such
easements over and access to the Canadian Facility as may be reasonably
necessary for Buyer to accomplish the removal from the Canadian Facility of
such Purchased Assets.
(b) Any Purchased Assets not removed by Buyer from the Canadian
Facility during the term specified in SECTION 6.02 shall be deemed to have
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been abandoned by Buyer. Hastings Canada shall have the right to dispose
of any such abandoned Purchased Assets in its sole discretion. The costs
of such disposal shall be borne by Hastings Canada.
Section 6.04. TREATMENT OF INVENTORY AT CANADIAN FACILITY. Any
inventory of Filter Products on hand at the Canadian Facility at the end of
the period specified in SECTION 6.02 shall be removed by Buyer in
accordance with SECTION 6.03.
Section 6.05. HASTINGS CANADA'S EMPLOYEES. Hastings Canada
acknowledges that employees of Hastings Canada utilized by Hastings Canada
to perform its obligations hereunder shall remain the employees of Hastings
Canada rather than Buyer. Accordingly, Hastings Canada shall remain liable
for all costs, expenses and liabilities with respect to such employees,
including, without limitation, wages, salaries, bonuses, employee benefits,
insurance claims and taxes. Hastings Canada shall use its best efforts to
prevent any disruption by its employees of the activities undertaken by
Hastings Canada herein or of Buyer's activities pursuant to this Article
VI. In the event of any such disruptions or attempted disruptions,
Hastings Canada shall cooperate with Buyer to mitigate the effects thereof.
ARTICLE VII
CONFIDENTIALITY
Section 7.01. CONFIDENTIALITY. Buyer and Seller agree that the
terms of Section 11.2 of the Asset Purchase Agreement shall apply to and be
incorporated by reference in this Agreement, the same as if any information
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acquired in the course of transactions contemplated by this Agreement
were obtained during the course of the negotiations or investigation
contemplated in the Asset Purchase Agreement, with the effect that the
confidentiality obligations of Buyer and Seller shall be the same under
this Agreement as under the Asset Purchase Agreement.
Section 7.02. REMEDIES. (a) The parties agree that the
provisions of SECTION 7.01 hereof are reasonable with respect to the scope
and duration set forth therein. In the event that a court or agency of
competent jurisdiction shall determine that any of the provisions set forth
in SECTION 7.01 hereof are unreasonable under circumstances then existing,
the parties hereto agree that the maximum scope or duration permissible
under such circumstances shall be substituted for the scope or duration
stated therein.
(b) Without limiting the right to pursue all other legal and
equitable remedies available for violation of the covenants contained in
ARTICLE VII hereof, it is expressly agreed that such other remedies cannot
fully compensate Buyer or Seller for any violation and that Buyer and
Seller, as the case may be, shall be entitled to injunctive relief to
prevent any such violation or any continuing violation thereof.
ARTICLE VIII
TERMINATION
Section 8.01. EVENTS OF TERMINATION BY BUYER. In the event that
during the Transition Period there should occur the failure or inability of
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Seller to perform any of its obligations under this Agreement, Buyer may
elect to terminate the rights and obligations of Seller and Buyer hereunder
by written notice to Seller. Buyer agrees to provide Seller with a
reasonable opportunity to cure any breach or default reasonably susceptible
to cure. In the event that Buyer exercises its election to terminate this
Agreement pursuant to this SECTION 8.01, Buyer's and Seller's rights and
obligations under this Agreement shall terminate effective with such
notice. Such termination shall not relieve either party of any liability
to the other party incurred prior to or, with respect to the liability of
the party in default, resulting from the termination of this Agreement.
Section 8.02. EVENTS OF TERMINATION BY SELLER. In the event
that during the Transition Period there should occur the failure or
inability of Buyer to perform any of its obligations under this Agreement,
Seller may elect to terminate the rights and obligations of Seller and
Buyer hereunder by written notice to Buyer. Seller agrees to provide Buyer
with a reasonable opportunity to cure any breach or default reasonably
susceptible to cure. In the event that Seller exercises its election to
terminate this Agreement pursuant to this SECTION 8.02, Buyer's and
Seller's rights and obligations under this Agreement shall terminate
effective with such notice. Such termination shall not relieve either
party of any liability to the other party incurred prior to or, with
respect to the liability of the party in default, resulting from the
termination of this Agreement.
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<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.01. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN,
WITHOUT GIVING REGARD TO THE CONFLICT OF LAWS AND PRINCIPLES THEREOF.
Section 9.02. NOTICES. All notices and requests given pursuant
to this Agreement shall be in writing and shall be made by hand-delivery,
first-class mail (registered or certified, return receipt requested),
confirmed facsimile or overnight air courier guaranteeing next business day
delivery to the relevant address specified below:
If to Buyer, to:
CLARCOR Inc.
2323 Sixth Street
P.O. Box 7007
Rockford, IL 61125
Attention: Bruce A. Klein
Tel. 815/961-5717
Fax 815/962-8371
with a copy to:
Sidley & Austin
Suite 4200
One First National Plaza
Chicago, IL 60603
Tel. 312/853-7444
Fax 312/853-7036
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If to Seller or Hastings Canada, to:
Hastings Manufacturing Company
325 North Hanover Street
Hastings, Michigan 49058
Attention: Mark R.S. Johnson
Andrew Johnson
Co-Presidents
Tel. 616/945-2491
Fax 616/945-2983
with a copy to:
Warner Norcross & Judd LLP
900 Old Kent Bank Building
111 Lyon Street, N.W.
Grand Rapids, Michigan 49503
Attention: Stephen C. Waterbury, Esq.
Tel. 616/752-2000
Fax 616/752-2500
or to such other address as such party may indicate by a notice delivered
to the other party hereto. Except as otherwise provided in this Agreement,
the date of each such notice and request shall be deemed to be, and the
date on which each such notice and request shall be deemed given shall be:
at the time delivered, if personally delivered or mail; when receipt is
acknowledged, if sent by facsimile; and the next business day after timely
delivery to the courier, if sent by overnight air courier guaranteeing next
business day delivery.
Section 9.03. ENTIRE AGREEMENT; INTEGRATION. This Agreement
supersedes all prior agreements between or among any of the parties hereto
with respect to the subject matter contained herein and therein, and such
agreements embody the entire understanding among the parties relating to
such subject matter.
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<PAGE>
Section 9.04. INJUNCTIVE RELIEF. Each of the parties hereto
acknowledges that in the event of a breach by any of them of any material
provision of this Agreement, the aggrieved party may be without an adequate
remedy at law. Each of the parties therefore agrees that in the event of
such a breach hereof the aggrieved party may elect to institute and
prosecute proceedings in any court of competent jurisdiction to enforce
specific performance or to enjoin the continuing breach hereof. By seeking
or obtaining any such relief, the aggrieved party shall not be precluded
from seeking or obtaining any other relief to which it may be entitled.
Section 9.05. SECTION HEADINGS. Section headings are for
convenience of reference only and shall not affect the meaning of any
provision of this Agreement.
Section 9.06. COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original, and all of
which shall together constitute one and the same instrument. All
signatures need not be on the same counterpart.
Section 9.07. SEVERABILITY. If any provision of this Agreement
shall be invalid or unenforceable, such invalidity or unenforceability
shall not affect the validity and enforceability of the remaining
provisions of this Agreement, unless the result thereof would be
unreasonable, in which case the parties hereto shall negotiate in good
faith as to appropriate amendments hereto.
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<PAGE>
Section 9.08. FILING. A copy of this Agreement and of all
amendments thereto shall be filed at the principal executive office of
Buyer with the corporate recorder of Buyer.
Section 9.09. ATTORNEY'S FEES. In any action or proceeding
brought to enforce any provision of this Agreement, or where any provision
hereof is validly asserted as a defense, the successful party shall be
entitled to recover reasonable attorneys' fees (including any fees incurred
in any appeal) in addition to its costs and expenses and any other
available remedy.
Section 9.10. SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
successors. The rights of either party hereto under this Agreement shall
not be assignable by such party, except that the rights of Buyer hereunder
may be assigned without the consent of Seller to any corporation all of the
capital stock or to any general or limited partnership in which Buyer or
any such corporation is a general partner, PROVIDED that Buyer shall not be
released from any of its obligations hereunder by reason of such
assignment.
Section 9.11. NO THIRD PARTY BENEFICIARIES. Nothing herein
expressed or implied is intended to confer upon any person, other than the
parties hereto, or their respective successors, assigns and legal
representatives, any rights, remedies, obligations or liabilities under or
by reason of this Agreement.
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<PAGE>
Section 9.12. CERTAIN MEDICAL INSURANCE. With respect to each
person employed at the Yankton Plant (a "Transferred Employee") who, on
the day before the Closing Date, is a participant in the Hastings
Manufacturing Company Employee Health Plan (the "Medical Plan"), Seller
shall provide, within the period required by law, notice of the
Transferred Employee's rights to health care continuation coverage under
the Consolidated Omnibus Budget Reconciliation Act of 1985 (ERISA
<Section> 601-609 and Internal Revenue Code <Section> 4980B) ("COBRA").
Buyer shall pay to Seller, with respect to the period beginning on the
Closing Date and ending on the earlier of (i) December 31, 1995, and (ii)
the end of the month in which such Transferred Employee's employment with
Buyer is terminated (the "Benefit Transition Period"), the full amount of
the COBRA applicable premium for each Transferred Employee who elects COBRA
continuation coverage under the Plan. At the end of the Benefit Transition
Period, Seller shall, with respect to the COBRA coverage of Transferred
Employees during the Benefit Transition Period, provide Buyer with a
statement reasonably detailing the total costs of (i) claims paid under the
Medical Plan (less any stop-loss insurance proceeds received with respect
thereto), (ii) stop-loss insurance premiums, and (iii) administrative costs
and fees paid to any third-party administrator. Buyer agrees to reimburse
Seller promptly for any amount by which the total of these costs exceeds
the COBRA applicable premium paid by Seller for the Benefit Transition
Period. If the total cost is less than the COBRA premium, then Seller will
promptly reimburse Buyer for the difference. Buyer agrees that, at or
before the end of the Benefit Transition Period, it will transfer coverage
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<PAGE>
of the Transferred Employees and their covered dependents to a group
health plan maintained by Buyer. It is intended that coverage under
Buyer's plan will terminate all COBRA obligations of Seller except as
otherwise required by law and that the Medical Plan shall have no further
obligations to pay any claims attributable to the Transferred Employees,
whether such claims were incurred during or after the Benefit Transition
Period. During any period that Seller is making payroll payments to the
Transferred Employees on behalf of Buyer, Seller shall continue to collect
payroll deductions in the same amounts as prior to the Closing Date, and
shall promptly remit all such withheld amounts to Buyer.
Section 9.13. GUARANTY BY CLARCOR. By joining in this
Agreement, CLARCOR guarantees to Seller and Hastings Canada the full and
prompt payment and performance (not just collection) by Buyer and its
assigns of all of Buyer's covenants and obligations under this Agreement.
CLARCOR's guaranty of all of Buyer's covenants and obligations under this
Agreement shall remain effective notwithstanding any assignment of any of
Buyer's covenants or obligations. If Buyer does not perform a covenant or
obligation under this Agreement, CLARCOR shall promptly perform the
covenant or obligation. This guaranty is an absolute, irrevocable,
primary, continuing, unconditional, and unlimited guaranty of performance
and payment, and is not a guaranty of collection. This guaranty shall
remain in full force and effect (and shall remain in effect notwithstanding
any amendment to this Agreement) until all of Buyer's obligations, under
this Agreement have been paid, observed, performed, or discharged in full.
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<PAGE>
* * * * *
IN WITNESS WHEREOF, this Agreement has been duly executed by the
parties hereto as of the date first written above.
ATTEST: HASTINGS FILTER, INC.
By: /S/ MARCIA S. BLAYLOCK By: /S/ NORMAN E. JOHNSON
Marcia S. Blaylock Norman E. Johnson
Secretary Its President
ATTEST: CLARCOR INC.
By: /S/ MARCIA S. BLAYLOCK By: /S/ NORMAN E. JOHNSON
Marcia S. Blaylock Norman E. Johnson
Secretary Its President
ATTEST: HASTINGS MANUFACTURING COMPANY
By: /S/ M.C. BENNETT By: /S/ MARK R.S. JOHNSON
Monty C. Bennett Mark R.S. Johnson
Secretary Co-President
ATTEST: HASTINGS INC.
By: /S/ M.C. BENNETT By: /S/ MARK R.S. JOHNSON
Monty C. Bennett Mark R.S. Johnson
Assistant Secretary Vice President
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SCHEDULE 2.01
DESCRIPTION AND UNIT PRICE OF
TRANSITION FILTER PRODUCTS
See attached computer printout together with cover page.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> 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.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 76,270
<SECURITIES> 0
<RECEIVABLES> 5,514,069
<ALLOWANCES> 334,000
<INVENTORY> 9,070,269
<CURRENT-ASSETS> 18,361,614
<PP&E> 23,116,284
<DEPRECIATION> (14,906,751)
<TOTAL-ASSETS> 33,288,416
<CURRENT-LIABILITIES> 8,399,518
<BONDS> 2,393,750
<COMMON> 780,626
0
0
<OTHER-SE> 4,760,517
<TOTAL-LIABILITY-AND-EQUITY> 33,288,416
<SALES> 27,193,053
<TOTAL-REVENUES> 27,193,053
<CGS> 18,519,107
<TOTAL-COSTS> 18,519,107
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 131,600
<INTEREST-EXPENSE> 385,022
<INCOME-PRETAX> 1,316,190
<INCOME-TAX> 526,000
<INCOME-CONTINUING> 790,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 790,190
<EPS-PRIMARY> 2.02
<EPS-DILUTED> 2.02
</TABLE>
