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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________.
Commission File Number 1-3574
HASTINGS MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0633740
(State of incorporation) (I.R.S. Employer Identification No.)
325 North Hanover Street
Hastings, Michigan 49058
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 945-2491
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
Common Stock, $2.00 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (<Section> 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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Aggregate market value of voting stock of Registrant held by non-affiliates
as of March 6, 1997 was $6,091,377.
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of March 6, 1997:
Common Stock - $2 par value 390,903 Shares
Documents and Information Incorporated by Reference
Part III, Items 10, 11, 12 and 13 Proxy Statement for
Annual Meeting
to be held May 6, 1997
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PART I
ITEM 1. BUSINESS.
Hastings Manufacturing Company (the "Company") is a Michigan
corporation organized in 1929 with its headquarters and U.S. manufacturing
facilities in Hastings, Michigan.
The Company operates in one business segment, automotive
replacement parts. It primarily produces and sells automotive and light
truck application piston rings. To a lesser extent, it packages and sells
mechanics' specialty hand tools and additives for engines, transmissions
and cooling systems. These products are distributed nationally and
internationally through numerous warehouse distributors, large-scale engine
rebuilders and various retailer outlets primarily in the automotive
replacement market. Certain of the Company's piston ring products are
produced for original equipment applications.
All of the Company's products are also sold in Canada. These
products are produced and/or packaged and distributed, by the Company's
Canadian subsidiary, Hastings, Inc., located in Barrie, Ontario.
Effective on September 3, 1995, the Company entered into an
agreement that resulted in the sale of its former filter product line
assets to CLARCOR Inc. ("CLARCOR") of Rockford, Illinois. Certain filter
and filter component parts inventory located at the Company's Hastings,
Michigan plant was not included in the sale as the Company, as discussed
below, continued to supply CLARCOR with component parts during a transition
period.
The Company and CLARCOR entered into a Transition Agreement, also
dated September 3, 1995. That Agreement provided for the Company's
manufacture and supply to CLARCOR of certain filters and filter component
parts until certain manufacturing equipment, located at the Company's
Hastings, Michigan plant, could be moved and set up at CLARCOR's plant
facilities. It also provided for reimbursement to the Company of certain
administrative costs directly related to the manufacture and supply of
filters and filter components to CLARCOR. The transition period concluded
in August 1996.
Effective in May 1996, the Company moved its piston ring
packaging operations from its former facility in Knoxville, Tennessee to
Hastings, Michigan thus consolidating its piston ring operations.
As described in Note 3 to the Consolidated Financial Statements
(included in Item 8), in December 1996, management and the Board of
Directors approved a restructuring plan designed to significantly reduce
operating costs and provide for a more streamlined operating structure
concentrating on piston ring manufacturing. In addition to reducing
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staffing levels at both the U.S. and Canadian manufacturing facilities, the
restructuring plan calls for the termination of most Canadian piston ring
manufacturing effective April 30, 1997. The Company's Canadian subsidiary
will continue to distribute piston rings throughout Canada, however, its
product will be sourced entirely by U.S. operations. The Canadian facility
will also continue to manufacture certain piston ring parts and provide
packaging operations for tools and piston ring sets. Upon completion of
the restructuring, the Company anticipates that the total number of U.S.
and Canadian employees will be reduced by approximately 69, (48 production,
4 sales and 17 administration).
The market for the Company's products is highly competitive. The
principal methods of competition in the industry are price, service,
product performance and product availability. Accurate figures are not
available, but the Company believes it ranks among the three largest
domestic producers of replacement piston rings.
Among the Company's trade names used in marketing its products
are "Hastings," "Casite" and "Flex-Vent," which are registered trademarks
in the United States and many foreign countries. The Company also holds a
number of patents and licenses. In the opinion of management, the
Company's business generally is not dependent upon patent protections.
The Company ships orders to customers within a short period,
ordinarily one week or less from the time orders are received.
Accordingly, backlog is not significant in the business of the Company and
no separate figures of backlog are kept by the Company. The Company's
sales have limited seasonal fluctuations.
None of the practices of the Company or the industries in which
it operates create any unusual working capital requirements that would be
material to an understanding of the business taken as a whole.
The sales of the Company are to many customers and are not
dependent upon a single customer or a few customers.
Raw materials essential to the production of the Company's
products are standard items obtainable in the open market and are purchased
from many vendors.
Research and development are performed by the Company's
engineering staff relating to improvements in products and production as
well as the design and testing of new products. The Company's expenditures
for research and development are not material.
The Company has no material governmental contracts.
Compliance with federal, state and local environmental laws and
regulations governing discharges into the environment is not expected to
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have a material effect upon the capital expenditures, earnings or
competitive position of the Company.
The Company and its subsidiaries have a total employment of
approximately 480 employees. Employee relations at all of the Company's
plant locations are considered to be satisfactory.
While the Company maintains operations in Canada, there are no
unusual risks attendant to the Company's foreign operations. The products
of the Company are sold worldwide. Financial information regarding the
Company's Canadian subsidiary including sales, operating profit or loss and
identifiable assets, along with total export sales from the Company's U.S.
operations to unaffiliated customers, is included in Note 11 to the
Consolidated Financial Statements contained in Item 8 below.
ITEM 2. PROPERTIES.
The general offices and manufacturing and distribution plant,
which produces and distributes piston rings and, through the transition
date discussed in Item 1 above, produced filters and filter component parts
for CLARCOR, are owned by the Company and are located at 325 North Hanover
Street, Hastings, Michigan. This facility consists of approximately
260,000 square feet of production space, 154,000 square feet of available
warehouse area, and 35,000 square feet of office area.
The Company's wholly owned Canadian subsidiary, Hastings, Inc.,
owns and operates manufacturing and warehouse facilities for piston rings,
oil additives, and mechanics' hand tools and is located in Barrie, Ontario.
This facility includes approximately 65,000 square feet of production and
warehouse space and 4,000 square feet of office space.
As of year-end, production levels within the Company's Hastings,
Michigan facility were near 65% of capacity.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any pending legal proceedings other
than routine litigation incidental to its business. In the opinion of
management, the outcome of any litigation currently pending will not
materially affect the Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fourth quarter of 1996 to a
vote of security holders through the solicitation of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS.
The Company's common stock is traded on the American Stock
Exchange (ticker symbol HMF). At March 6, 1997, there were 390,903
outstanding shares and the approximate number of stockholders, excluding
those held by security brokers, was 321.
High and low sales prices and cash dividends, per quarter, are as
follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------- ---------------------------------
CASH CASH
STOCK PRICE DIVIDENDS STOCK PRICE DIVIDENDS
HIGH LOW PAID HIGH LOW PAID
-----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter. . . . . . . . 23-3/4 21 .10 25-1/4 18-1/4 .10
Second Quarter . . . . . . . 26 22-3/4 .10 20 17-1/2 .10
Third Quarter. . . . . . . . 27 23 .10 28-1/4 17-1/4 .10
Fourth Quarter . . . . . . . 26 24 .10 27-1/2 20-5/8 .10
</TABLE>
The Company expects to continue its policy of paying regular
quarterly dividends, although this policy is dependent upon future
earnings, capital requirements, and financial condition. In addition, cash
dividends are restricted to the extent described in Note 6 to the
Consolidated Financial Statements included at Item 8 below.
ITEM 6. SELECTED FINANCIAL DATA.
<TABLE>
<CAPTION>
1996<F1> 1995<F2> 1994 1993<F3> 1992
-------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Net Sales . . . . . . . $ 39,408,610 $ 63,228,312 $ 74,572,222 $ 72,477,617 $ 64,967,100
Net Income (Loss) . . . (884,843) (3,023,180) 448,921 (10,254,450) (436,128)
Net Income (Loss) per Share (2.27) (7.78) 1.16 (26.41) (1.13)
Long-Term Debt. . . . . 2,028,125 3,490,625 6,223,900 4,340,150 5,405,323
Total Assets. . . . . . 34,454,989 37,547,568 47,854,279 46,149,236 41,313,313
Dividends per Share .40 .40 .40 .40 .60
Average Shares Outstanding 389,678 388,675 388,572 388,191 387,259
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<FN>
<F1> The 1996 data includes non-recurring restructuring and relocation costs
totaling $819,900. Refer to Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and Notes 2 and 3 to the
Consolidated Financial Statements included at Item 8, "Financial Statements
and Supplementing Data."
<F2> The 1995 data includes the effects of the sale of filter operations and
the subsequent realignment of the organizational structure to a smaller
size. Refer to Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 2 to the Consolidated
Financial Statements included at Item 8, "Financial Statements and
Supplementary Data."
<F3> The 1993 data includes the cumulative effect of changes in accounting
principles of ($11,208,934) or ($28.87) per share.
</FN>
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Following the sale of the Company's filter assets and operations
in September 1995, as discussed in Note 2 to the Consolidated Financial
Statements contained in Item 8 below, the Company was committed to a period
of transition both out of filter activities and to an organization targeted
to support its remaining product offerings. The transition out of filters
was structured under the terms of a formal Transition Agreement with the
acquirer of the filter operations. The transition to an efficient and
profitable organization in support of the remaining products was less
structured though just as important to the long-term success of the
Company. Subsequent to the conclusion of the filter transition period, and
in response to several months of operating losses in late 1996, management
reviewed its operations and structure. Based on that review, the Company's
Board of Directors approved hiring an independent consulting firm to assist
with the transition into an efficient, post-filter environment. Under
their guidance, many issues were reviewed resulting in a reduction of both
personnel and non-personnel related future operating expenses. As a
result, the Company recognized a fourth quarter restructuring charge of
$351,500 as detailed in Note 3. This charge was in addition to the
$468,400 of relocation costs reported through June of 1996 as discussed in
Note 2. The combined total of these events is reported in the Consolidated
Statements of Operations as "Non-recurring restructuring and relocation
costs" of $819,900 for 1996.
For the year, the Company experienced a net loss of $884,843.
The loss was primarily due to three factors, each of which is more fully
described below, including (1) low gross profit margins realized in the
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filter product line through the balance of the transition period,
(2) excessive expenses throughout and following the transition period in
anticipation of projected operating needs and (3) the noted relocation and
restructuring costs related to the filter sale (relocation) and the
excessive operating expenses (restructuring).
While the Company reported net earnings of $159,000 in the first
quarter of 1996, the remaining quarters each resulted in a net loss. The
first quarter was impacted by specific export piston ring volume combined
with the gain on the termination of an interest rate swap agreement. The
second quarter, reflecting a net loss of $270,000, was directly impacted by
$387,000 of relocation costs. The third quarter net loss of $54,000
reflects, in part, the excess operating expenses as noted above which led
to the restructuring program. The fourth quarter results, with a net loss
of $720,000, reflect the full impact of the restructuring costs, combined
with the results derived from operating at that "excess expense" level and
from adjustments to cost of sales from the year-end inventory valuation.
RESULTS OF OPERATIONS
NET SALES
The Company's net sales, largely affected by significantly
reduced filter sales, declined in the final quarter of 1996 relative to
1995. The fourth quarter net sales of $8,145,754 which included filter
related volume of $207,800, were down 24.4% from 1995's fourth quarter
sales of $10,769,966, which included filter related sales of $2,804,500.
Excluding filter sales, remaining product sales were comparable between the
two quarters.
The net sales decline of 37.7% for the full year of 1996 versus
1995, or $39,408,610 versus $63,228,312, also reflects the filter
operations sale as of September 3, 1995. Total 1996 filter related sales
were $5,992,800, compared to $28,262,500 for 1995. The remaining product
lines posted a net sales decline of approximately 4.4%, or $1,550,000. As
disclosed in Note 11 to the Consolidated Financial Statements, the
Company's export piston ring volume was down in 1996 from 1995 reflecting
lower export sales through its traditional markets and an inventory
reduction effort on the part of the Company's primary export
representative. During 1996, the Company was also more selective in its
commitment to certain export opportunities due to pricing issues. For 1997
and future years, the Company has decided to broaden its export sales base
to minimize annual fluctuations of this magnitude. In contrast to the
decreased 1996 export activity, the Company attained higher sales within
its domestic aftermarket and original equipment markets. These gains were
attained through a concerted sales effort following the filter operations
sale and through a return to an acceptable customer order fill level gained
through increased on-hand inventories following the Company's less than
desired performance in this area through much of 1995. While the Company
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remains cautious as to its potential results in the private brand and
export markets, early 1997 results are favorable in both domestic sales
levels achieved and in export orders recorded.
Net sales in 1995 were down $11,343,910, or 15.2%, from 1994.
That sales decline was driven primarily by the reduction of filter sales
activity through the last one-third of 1995, combined with the favorable
inclusion in 1994 of a portion of the proceeds from the sale of equipment
and technology to a foreign competitor.
COST OF SALES AND GROSS PROFIT
Effective January 1, 1996, various operating expenses have been
reclassified into cost of sales to more closely reflect their "operations"
relationship. Those expenses include the group health care costs
associated with production personnel and distribution costs associated with
product handling and shipping. Cost of sales for 1995 and 1994, reported
as $44,990,825 and $50,818,049, respectively, in the December 31, 1995 Form
10-K, now reflect this change.
As reclassified, total cost of sales for 1996 declined by
$20,666,684, or 41.4%, from 1995. As a percent of net sales, this cost
declined from 79.0% in 1995 to 74.3% in 1996. The primary contributor to
the net dollar decline was again the reduced filter volume throughout 1996.
The decline in the cost of sales percent, with a corresponding increase in
the gross margin, was the result of several factors. Under the terms of
the filter Transition Agreement, the filter gross profit margin was minimal
for both domestic and Canadian activities. The decline in 1996 of this
activity thus resulted in an improved margin. In addition, the increased
domestic piston ring aftermarket sales volume provided a higher margin than
that realized from export activities, which declined in 1996. Differing
support costs for these markets allow for their gross profit margins to
differ as well. While improved from 1995 for the full year, the 1996
fourth quarter gross profit margin was reduced by approximately $310,000
related to changes in estimates pertaining to the valuation of inventories.
These year-end adjustments relate to the level of absorbed labor in ending
inventories, overhead cost adjustments resulting from the fourth quarter
being the first period without filter operations, and other year-end
adjustments relating to normal obsolescence and quantity adjustments which,
in total, amounted to only 1.1% of annual cost of sales.
As reclassified, total cost of sales for 1995 declined by
$5,852,224, or 10.5%, from 1994. As a percent of net sales, however, this
cost increased from 74.9% in 1994 to 79.0% in 1995. The net dollar decline
is directly related to the reduction of filter sales volume in 1995, while
the stronger relative gross profit margin in 1994 resulted from a favorable
sales mix with higher distributor volume, a strong gross margin realized on
the technology and equipment sale and the absence of any filter transition
sales activity, with lower margins, during 1994.
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OPERATING EXPENSES
Total operating expenses, reclassified as discussed above,
declined $4,945,609, or 30.9%, from $16,028,407 in 1995 to $11,082,798. As
a percent of net sales, however, these costs increased 2.7%, from 25.4% in
1995 to 28.1% in 1996. Exclusive of the non-recurring restructuring and
relocation costs discussed below, 1996 operating expenses as a percent of
sales were comparable to 1995. Advertising, down $945,661, or 73.0%,
reflects lower totals within each of the major items including catalogs,
printed materials and rebate, premium and cooperative advertising programs.
This entire decline is attributable to the filter operations sale. Selling
expenses, down $2,508,440, or 41.1%, likewise reflect the impact of the
filter sale as the sales staff was realigned shortly after the transaction
in 1995. This category thus reflects reduced staff support costs as well
as the elimination of filter related costs such as agents' commissions and
inventory conversion and direct promotion programs. General and
administrative expenses declined $2,311,408, or 26.8%, in 1996 from 1995.
This expense group reflects many of the administrative costs that were
reimbursed to the Company through the transition period as described in
Note 2. The overall decline primarily reflects staff reductions subsequent
to the filter sale.
As stated in the introduction to this Item 7, and as further
described in Notes 2 and 3 to the Consolidated Financial Statements, 1996
operations absorbed costs related to two significant events as quantified
under "Non-recurring relocation and restructuring costs" in the
Consolidated Statements of Operations. As stated in last year's Form 10-K
report, the Company was obligated to relocate its piston ring packing and
shipping operations out of its former Tennessee facility. That project was
estimated to cost between $350,000 and $500,000. The actual cost of that
move was $468,400. While then consolidated within one facility, initial
estimates of the level of administrative personnel and related costs
necessary to support those ongoing operations were too high. As further
described in Note 3, the Company committed to a major restructuring in late
1996 with a resulting reduction of U.S. and Canadian staff and operations
personnel. The restructuring plan also calls for the termination of most
Canadian piston ring manufacturing effective April 30, 1997. The Company's
Canadian facility will continue to manufacture certain piston ring parts
and provide packaging operations for tools and piston rings sets. It will
also continue to distribute piston rings throughout Canada, being sourced
entirely by U.S. operations. No future impairment loss is anticipated
relating to the current Canadian facility should management determine that
another, smaller facility is more cost beneficial in carrying out these
functions. Numerous other operating expenses were reviewed as well,
resulting in an anticipated further operating expense reduction in 1997.
Annual pre-tax savings, which are primarily personnel related, are
estimated to be $1,100,000 to $1,500,000, once the program is entirely in
place. Related costs for 1997 are expected to decline by $1,050,000 to
$1,400,000 as the Company continues to phase out certain functions during
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early 1997. While management has no reason to believe these cost
reductions won't be achieved, unplanned events or circumstances could arise
in 1997 which could result in reduced benefits.
Total operating expenses, reclassified as discussed above,
declined $1,133,860, or 6.6%, from $17,162,267 in 1994 to $16,028,407 in
1995. The expense categories for 1995 include the results for the full
filter operations through September 3 of that year as well as certain
incurred costs absorbed subsequent to that date. Advertising costs in 1995
reflect higher product catalog costs associated with a biannual
publication. Selling expenses for that year reflect reduced sales staff
costs as that group was realigned subsequent to the sale. General and
administrative costs did not decline significantly in 1995 as this category
includes a major portion of the operating costs that were reimbursed to the
Company for the period September 4, 1995 through December 31, 1995 by the
acquirer. That reimbursement is included in the net sales results as a
part of filter sales.
OTHER EXPENSES (INCOME)
Other expenses declined $712,746, or 72.9%, from 1995.
Interest expense and interest income reflect, in part, the impact from
financing activities related to the filter operations sale. Following
the sale, various short-term and long-term debt obligations were
liquidated. As incurred interest rates have remained quite stable through
the comparative periods, those debt reductions, combined with the normal
amortization of the remaining long-term financing vehicles, resulted in the
interest expense decline. Certain of the sales proceeds, including the
escrowed portion of the sales proceeds, remained invested through 1996
resulting in the realized interest income. The "Other, net" income for
1996 reflects the $204,500 gain realized on the termination of an interest
rate swap agreement in early 1996.
Interest expense decreased somewhat in 1995 from 1994 after being
higher through the first nine months of 1995. Financing activities
subsequent to the filter sale, as detailed above, resulted in this
comparative interest reduction in late 1995 with borrowing costs declining
and interest income rising.
TAXES ON INCOME
The impact of income taxes on the reported results of the Company
is detailed in Note 10 to the Consolidated Financial Statements. The 1996
effective tax credit of 28.5% is lower than the statutory rate due
primarily to the increase of a valuation allowance for certain unused
foreign tax credits and the recognition of an accumulated state income tax
obligation. The 1995 effective tax rate of 19.2% was due primarily to the
initial establishment of that valuation allowance for unused foreign tax
credits and the reversal and adjustment of certain prior temporary
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differences. The 1994 effective tax rate of 42.3% is higher than the
statutory rate due primarily to state income tax requirements and taxes on
the Company's Canadian subsidiary's income at a higher statutory rate.
As of December 31, 1996, the Company recorded net deferred income
tax assets of $8,646,500. The major components include net operating loss
carryforwards of $1,308,206 and the tax effects of accrued retirement and
postretirement benefit obligations totaling $6,456,831. The realization of
these recorded benefits is dependent upon the generation of future taxable
income.
The net operating loss carryforwards fully expire in 2010 and
2011, if not previously utilized. Management has prepared projections of
taxable income for future years indicating that the cumulative net
operating loss is expected to be fully utilized during 1997 and 1998.
Management elected to carry the entire operating loss forward to future
years rather than carry a portion of it back to prior years because
carrying the loss back would result in the loss of certain foreign tax
credits. As previously discussed, the 1995 and 1996 operating losses
resulted from factors that are not expected to recur. They were largely
attributable to the Company's transition out of the filter operations and a
delay in fully recognizing the minimal operating structure required to
support the ongoing product operations. Management is confident that its
recent restructuring will result in a near-term return to profitability.
The Company further expects to be able to realize the deferred
tax assets related to the retirement and postretirement benefit obligations
as it pays these benefits. Such payments will constitute an expense which
is deductible for tax reporting purposes over many future years. During
each of the last ten years, with the exception of 1995 and 1996, the
Company has been able to deduct these benefit payments for tax reporting
purposes and reduce its current tax liability accordingly. Amounts
currently paid and deducted have historically approximated the annual
expense recognized for financial reporting purposes. As such, these
temporary differences, while large, will reverse slowly over many future
years with future carryback and carryforward opportunities.
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. As indicated above, management does not
believe that the future realization of all foreign tax credit carryforwards
is assured. As such, an appropriate valuation allowance adjustment related
to these credits has been recorded at December 31, 1996.
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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 Company's filter
operations, as described in Note 2 to the Consolidated Financial
Statements, had, however, a significant impact upon the 1995 and 1996 cash
flow activities. Following the divestiture of the filter operations, and
considering the impact of the restructuring required to support the smaller
organization, the Company expects to generate sufficient future cash flows
from operations and bank borrowings to fund its growth and operating needs.
During 1996, the Company generated net cash of $1,188,280 from
operating activities. The reported net loss and the reductions in accounts
payable and accruals were more than offset by the depreciation expense and
by the reductions in accounts receivable and inventories. The realized
reductions in accounts payable, accounts receivable and inventories are
primarily a result of the Company's full transition out of filter
operations through 1996. Future operating periods are not expected to have
fluctuations of this magnitude within those operating activities. The
investing activities for 1996 reflect capital expenditures of $1,343,291.
That total should be similar in 1997 as the Company aligns its
manufacturing capacities with its anticipated operating needs. As part of
that alignment, and as described above and in Note 3 to the Consolidated
Financial Statements, the Company has elected to terminate most of the
piston ring manufacturing operations at its Canadian subsidiary effective
April 30, 1997. That decision should require no incremental capital
outlays at the parent's facilities in Hastings, Michigan. Conversely,
consolidation of the additional volume may improve operating efficiencies
within the Hastings facility. The financing activities for 1996 reflect a
reduced reliance upon short-term borrowings throughout most of the year
combined with the reduction of long-term debt levels through normally
scheduled quarterly payments.
During 1995, the Company used net cash of $1,667,905 to fund
operating activities. The reported net loss, increased inventories related
to the remaining product lines and reduced accounts payable more than
offset the depreciation and accounts receivable reduction realized for that
year. The accounts receivable reduction primarily reflected the collection
of filter-related accounts which were not included in the filter operations
sale. The inventory increase was in response to customer backorder
concerns earlier that year. The accounts payable reduction represented, in
part, the net reduction in working capital needs following the filter sale.
The net proceeds from that sale are reflected in the investing activities
section for 1995. That section also reflects the impact of capital
equipment outlays and the balance of funds held in escrow from the filter
sale. Those funds, held until September 1998, are intended to secure
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certain indemnification obligations of the Company relating to the sale.
The 1995 financing activities section reflects the net reduction from 1994
in both short-term and long-term debt obligations prior to and following
the filter operations sale.
The Company has endured significant change during the past
two-year period. While the filter operations sale, with its related
transition period, has now concluded, the success of the future direction
of the organization remains to be measured. The noted recent restructuring
of the Company's remaining operations is intended to contribute to that
success with a near-term return to profitability. In consideration of the
full transition out of the filter operations, and in anticipation of a
favorable result from the restructuring program, the Company fully
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 flow to fund its working
capital, capital outlays and dividend needs through 1997.
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
With the exception of historical matters, the matters discussed
in this commentary include certain predictions and projections that may be
considered forward-looking statements under securities laws, including, but
not limited to, those statements under the captions "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.
-12-
<PAGE>
<TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Hastings Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
=================================================================================================================================
<CAPTION>
DECEMBER 31,
1996 1995
------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 1,457,783 $ 1,909,506
Accounts receivable, less allowance
for possible losses of $215,000
and $225,000 (Note 2) 4,893,200 6,584,392
Refundable income taxes 66,667 226,037
Inventories (Notes 2 and 4):
Finished products 7,134,216 6,544,211
Work in process 415,581 769,917
Raw materials 1,751,323 2,621,566
Prepaid expenses and other assets 152,807 131,166
Future income tax benefits (Note 10) 2,413,877 2,108,578
----------- -----------
TOTAL CURRENT ASSETS 18,285,454 20,895,373
----------- -----------
PROPERTY AND EQUIPMENT
Land and improvements 660,168 648,266
Buildings 4,312,633 4,045,784
Machinery and equipment 17,035,465 16,061,415
----------- -----------
22,008,266 20,755,465
Less accumulated depreciation 14,071,826 12,902,944
----------- -----------
NET PROPERTY AND EQUIPMENT 7,936,440 7,852,521
INTANGIBLE PENSION ASSET (Note 8) 941,583 1,222,783
FUTURE INCOME TAX BENEFITS (Note 10) 6,234,623 6,548,202
OTHER ASSETS (Note 2) 1,056,889 1,028,689
----------- -----------
$34,454,989 $37,547,568
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-13-
<PAGE>
<TABLE>
Hastings Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
=================================================================================================================================
<CAPTION> DECEMBER 31,
1996 1995
------------- --------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks (Note 5) $ 3,000,000 $ 1,500,000
Accounts payable 1,479,361 2,487,870
Accruals:
Compensation 446,422 384,909
Pension plan contribution (Note 8) 359,441 659,387
Taxes other than income 283,347 204,992
Miscellaneous 240,737 459,719
Current portion of postretirement
benefit obligation (Note 9) 1,641,040 1,541,126
Current maturities of long-term
debt (Note 6) 1,462,500 1,560,500
----------- -----------
TOTAL CURRENT LIABILITIES 8,912,848 8,798,503
LONG-TERM DEBT, less current
maturities (Note 6) 2,028,125 3,490,625
PENSION AND DEFERRED COMPENSATION
OBLIGATIONS, less current portion
(Note 8) 3,035,576 4,457,614
POSTRETIREMENT BENEFIT OBLIGATION,
less current portion (Note 9) 15,545,992 15,575,848
----------- -----------
TOTAL LIABILITIES 29,522,541 32,322,590
----------- -----------
COMMITMENTS AND CONTINGENCIES
(Notes 6, 8 and 9)
STOCKHOLDERS' EQUITY (Notes 6, 7 and 8)
Preferred stock, $2 par value,
authorized and unissued 500,000 shares -- --
Common stock, $2 par value, 1,750,000
shares authorized; 390,138 and
388,813 shares issued and
outstanding 780,276 777,626
Additional paid-in capital 140,206 119,318
Retained earnings 5,813,827 6,854,865
-14-
<PAGE>
Cumulative foreign currency
translation adjustment (611,455) (600,401)
Pension liability adjustment (Note 8) (1,190,406) (1,926,430)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 4,932,448 5,224,978
------------ ------------
$34,454,989 $37,547,568
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-15-
<PAGE>
<TABLE>
Hastings Manufacturing Company and Subsidiaries
Consolidated Statements of Operations
=================================================================================================================================
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ -------------
<S> <C> <C> <C>
NET SALES $39,408,610 $63,228,312 $74,572,222
COST OF SALES 29,299,141 49,965,825 55,818,049
------------ ------------ -------------
Gross profit 10,109,469 13,262,487 18,754,173
------------ ------------ -------------
OPERATING EXPENSES
Advertising 349,660 1,295,321 1,140,347
Selling 3,593,143 6,101,583 7,215,649
General and administrative 6,320,095 8,631,503 8,806,271
Non-recurring restructuring
and relocation costs
(Notes 2 and 3) 819,900 -- --
------------ ------------ -------------
11,082,798 16,028,407 17,162,267
------------ ------------ -------------
Operating income (loss) (973,329) (2,765,920) 1,591,906
------------ ------------ -------------
OTHER EXPENSES (INCOME)
Interest expense 570,397 892,891 933,810
Interest income (145,853) (121,091) (12,070)
Loss on sale of filter
operations (Note 2) -- 67,254 --
Other, net (160,030) 138,206 (107,755)
------------ ------------ -------------
264,514 977,260 813,985
------------ ------------ -------------
Income (loss) before income tax
expense (benefit) (1,237,843) (3,743,180) 777,921
INCOME TAX EXPENSE (BENEFIT)
(Note 10) (353,000) (720,000) 329,000
------------ ------------ -------------
NET INCOME (LOSS) $ (884,843) $(3,023,180) $ 448,921
============ ============ =============
NET INCOME (LOSS) PER SHARE
OF COMMON STOCK $ (2.27) $ (7.78) $ 1.16
============ ============ =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-16-
<PAGE>
<TABLE>
Hastings Manufacturing Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
=================================================================================================================================
<CAPTION>
CUMULATIVE
FOREIGN
ADDITIONAL CURRENCY PENSION
COMMON PAID-IN RETAINED TRANSLATION LIABILITY
STOCK CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT
--------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, January 1, 1994 $776,766 $145,680 $ 9,740,030 $(479,580) $(2,309,795)
Net income -- -- 448,921 -- --
Shares issued under restricted
stock plan, net of shares
forfeited 570 1,704 -- -- --
Cash dividends
($.40 per share) -- -- (155,439) -- --
Foreign currency translation
adjustment -- -- -- (236,727) --
Pension liability adjustment
(Note 8) -- -- -- -- 368,021
--------- -------- ----------- ---------- ------------
BALANCE, December 31, 1994 777,336 147,384 10,033,512 (716,307) (1,941,774)
Net loss -- -- (3,023,180) -- --
Shares issued under restricted
stock plan, net of shares
forfeited 290 (28,066) -- -- --
Cash dividends
($.40 per share) -- -- (155,467) -- --
Foreign currency translation
adjustment -- -- -- 115,906 --
Pension liability adjustment
(Note 8) -- -- -- -- 15,344
--------- -------- ----------- ---------- ------------
BALANCE, December 31, 1995 777,626 119,318 6,854,865 (600,401) (1,926,430)
Net loss -- -- (884,843) -- --
-17-
<PAGE>
Shares issued under restricted
stock plan, net of shares
forfeited 2,650 20,888 -- -- --
Cash dividends
($.40 per share) -- -- (156,195) -- --
Foreign currency translation
adjustment -- -- -- (11,054) --
Pension liability adjustment
(Note 8) -- -- -- -- 736,024
--------- -------- ----------- ---------- ------------
BALANCE, December 31, 1996 $780,276 $140,206 $ 5,813,827 $(611,455) $(1,190,406)
========= ======== =========== ========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-18-
<PAGE>
<TABLE>
Hastings Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows
==================================================================================================================================
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ (884,843) $(3,023,180) $ 448,921
Adjustments to reconcile net
income (loss) to net cash
from (for) operating activities:
Depreciation 1,255,252 1,635,753 1,871,825
Loss on sale of filter
operations (Note 2) -- 67,254 --
Gain on sale of property
and equipment -- (900) (201,167)
Deferred income taxes (370,000) (680,000) 89,000
Change in postretirement
benefit obligation 70,058 151,364 (1,952)
Changes in operating assets and
liabilities, net of effects
from 1995 sale of filter
operations:
Accounts receivable 1,764,615 4,673,975 (659,027)
Refundable income taxes 159,290 99,222 58,599
Inventories 709,006 (2,498,226) (233,828)
Prepaid expenses and other
current assets (21,651) (55,291) 34,972
Other assets (97,240) (96,636) 95,143
Accounts payable and
accruals (1,396,207) (1,941,240) (49,241)
------------ ------------ ------------
Net cash from (for)
operating activities 1,188,280 (1,667,905) 1,453,245
------------ ------------ ------------
-19-
<PAGE>
INVESTING ACTIVITIES
Capital expenditures (1,343,291) (2,053,626) (3,530,848)
Proceeds from sale of filter
operations, net of related
expenses paid (Note 2) -- 13,291,695 --
Investment of proceeds from
filter sale escrow -- (870,549) --
Proceeds from sale of property
and equipment -- 900 256,774
------------ ------------ ------------
Net cash from (for)
investing activities (1,343,291) 10,368,420 (3,274,074)
------------ ------------ ------------
</TABLE>
-20-
<PAGE>
<TABLE>
Hastings Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows
==================================================================================================================================
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------- -------------
<S> <C> <C> <C>
FINANCING ACTIVITIES
Proceeds from issuance
of notes payable
to banks $ 9,900,000 $ 23,893,920 $ 18,773,140
Principal payments on
notes payable to banks (8,400,000) (28,066,710) (15,500,000)
Principal payments on
long-term debt (1,560,500) (2,951,575) (1,402,650)
Dividends paid (156,195) (155,467) (155,439)
------------ ------------- -------------
Net cash from (for)
financing activities (216,695) (7,279,832) 1,715,051
------------ ------------- -------------
EFFECT OF EXCHANGE RATE
CHANGES ON CASH (80,017) 3,789 (6,744)
------------ ------------- -------------
NET INCREASE (DECREASE) IN CASH (451,723) 1,424,472 (112,522)
CASH, beginning of year 1,909,506 485,034 597,556
------------ ------------- -------------
CASH, end of year $ 1,457,783 $ 1,909,506 $ 485,034
============ ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for:
Income taxes, net of
refunds $ (172,890) $ (129,686) $ 169,619
Interest 432,208 943,205 924,093
============ ============= =============
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-21-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Hastings Manufacturing Company and subsidiaries (Company) is primarily
a manufacturer of automotive and light duty truck piston rings and,
through September 3, 1995, oil and air filters. To a lesser extent,
it produces and/or sells oil additives and hand tools. Prior to
September 3, 1995, manufacturing operations were located in Hastings,
Michigan; Knoxville, Tennessee; Yankton, South Dakota; and Barrie,
Ontario, Canada. As discussed in Note 2, effective September 3, 1995,
the Company sold its filter product line assets including its Yankton
and Knoxville plant facilities. In conjunction with the sale, the
Company relocated its piston ring packaging operations from its
Knoxville, Tennessee facility to its Hastings, Michigan facility in
1996.
The Company distributes its products primarily through numerous auto
parts jobbers and warehouse distributors for sale primarily in the
automotive replacement market throughout the U.S. and Canada.
International sales have historically been distributed primarily
through one U.S. customer. Beginning in early 1997, the Company began
distributing the majority of its export volume on a direct country
basis. The Company performs ongoing credit evaluations of its
customers and provides reserves for potential credit losses.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
parent company and its subsidiaries. Upon consolidation, all
significant intercompany accounts and transactions are eliminated.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
-22-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
REVENUE RECOGNITION
The Company recognizes revenue when its products are shipped to its
customers.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments, comprised of
cash, short-term receivables and payables, notes payable to banks
(variable interest rate) and long-term debt (variable interest rate)
approximates their carrying values. The fair value of the Company's
interest rate collar agreement, as disclosed in Note 6, is not
material.
INVENTORIES
Inventories are stated at cost, not in excess of market. The Company
uses the last-in, first-out (LIFO) method of determining costs for
U.S. raw material inventories. Remaining inventories are valued using
the first-in, first-out (FIFO) method.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are stated at cost, less accumulated
depreciation. Depreciation is computed primarily by the straight-line
method for financial reporting purposes and accelerated methods with
minimum lives for income tax purposes.
RETIREMENT PLANS
The Company sponsors noncontributory, defined benefit plans which
cover all employees of the Company who are covered by collective
bargaining agreements. The plans provide benefits based on an
employee's earnings and years of benefit service. The Company funds
these plans in amounts consistent with the funding requirements of
federal laws and regulations. The plans' assets are invested in
stocks, bonds, annuities and short-term investments.
The Company also sponsors defined contribution retirement savings
plans for its employees and has entered into a deferred compensation
agreement with a former officer as described in Note 8.
-23-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company provides certain healthcare and life insurance benefits
for eligible retired employees. Postretirement benefits are accounted
for on the accrual basis, during the employee's years of service,
based on the expected cost of providing benefits to that employee and
the employee's beneficiaries and covered dependents.
ADVERTISING COSTS
All advertising costs are expensed in the period in which they are
incurred.
INCOME TAXES
The Company provides deferred income taxes based on enacted income tax
rates in effect on the dates temporary differences between the
financial reporting and tax bases of assets and liabilities reverse.
The effect on deferred tax assets and liabilities of a change in
income tax rates is recognized in income in the period that includes
the enactment date. To the extent that available evidence about the
future raises doubt about the realization of a deferred tax asset, a
valuation allowance is established.
As disclosed in Note 10, the Company has recorded deferred tax assets
reflecting the benefit of net operating loss carryforwards expiring in
2010 and 2011, foreign tax credit carryforwards expiring through 2001,
accrued retirement and postretirement obligations estimated to be
payable in varying amounts over the next 25 to 30 years and other net
deductible temporary differences. Realization of the recorded income
tax benefits is dependent on generating sufficient taxable income and
foreign source income prior to expiration of the loss carryforward and
foreign tax credit carryforwards. Although realization is not
assured, management believes it is more likely than not that all of
the deferred tax assets, less an estimated valuation allowance related
to foreign tax credits which will likely expire before realized, will
be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income and foreign source income during the
carryforward periods are reduced.
No provision for income taxes has been made on the accumulated
undistributed earnings of approximately $3,810,000 of the Canadian
subsidiary. These earnings are intended to be permanently reinvested
in facilities and other assets and have borne income taxes that would
offset, in major part, any tax liability resulting from their
distribution.
-24-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
NET INCOME (LOSS) PER SHARE
Net income (loss) per share is computed by dividing net income (loss)
by the weighted average number of shares outstanding during each year;
389,678 for 1996, 388,675 for 1995, and 388,572 for 1994.
INTEREST RATE AGREEMENTS
The Company enters into interest rate swap and collar agreements to
reduce the impact of changes in interest rates on its floating rate
borrowings. Interest rate swap agreements are contracts to exchange
floating rate for fixed rate interest payments over the life of the
agreements without the exchange of the underlying notional amounts.
Interest rate collar agreements limit the Company's interest rates on
floating rate borrowings to a range within a minimum (floor) and a
maximum (cap) interest rate. The notional amounts of interest rate
agreements are used to measure interest to be paid or received and do
not represent the amount of exposure to credit loss. The differential
paid or received on interest rate agreements is recognized as an
adjustment to interest expense. The initial cost of interest rate
collar agreements is recorded in "Other assets" in the consolidated
balance sheet and is amortized over the life of the agreement.
The counterparty to the Company's interest rate agreements is a
commercial bank with which the Company has other financial
relationships. While the Company is exposed to credit loss in the
event of nonperformance by the counterparty, the Company does not
anticipate nonperformance by the other party, and no material loss
would be expected from such non-performance.
The Company does not enter into interest rate agreements, or other
derivative financial instruments, for trading purposes. However, at
December 31, 1995, the notional amount of the interest rate swap
agreement exceeded the outstanding balance of the associated long-term
debt due to the partial reduction of debt with the filter operation sale
proceeds. The effects of the non-hedged portion of the interest rate
swap agreement was immaterial to the consolidated financial
statements. As discussed in Note 6, in March 1996, the Company
terminated the interest rate swap agreement and concurrently entered
into an interest rate collar agreement.
-25-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
FOREIGN CURRENCY TRANSLATION
The financial statements of the Company's Canadian operations, where
the functional currency is the Canadian dollar, are translated at the
exchange rate in effect at year-end for assets and liabilities.
Income and expense items are translated at the average exchange rate
for the year. Related translation adjustments are reported as a
separate component of stockholders' equity. Gains and losses from
foreign currency transactions, which are not significant, are included
in current earnings.
RECLASSIFICATIONS
During 1996, the Company reclassified its group health care costs
related to production employees (formerly included in general and
administrative expenses) and its distribution costs (formerly included
in selling expenses) to cost of sales. Related amounts for 1995
($2,491,000 of general and administrative expenses and $2,472,000 of
selling expenses) and 1994 ($3,050,000 of general administrative
expenses and $1,925,000 of selling expenses) were reclassified to cost
of sales to conform with the 1996 presentation.
NOTE 2 - SALE OF FILTER OPERATIONS
Effective on September 3, 1995, the Company entered into an agreement
and sold its filter product line assets to CLARCOR Inc. (CLARCOR) of
Rockford, Illinois. The Company's filter operations comprised a
portion of its one business segment, automotive replacement parts. As
such, the sale of the filter product line was accounted for as a sale
of a portion of a segment of a business. The sales price amounted to
$13,874,000, resulting in a pre-tax loss of $67,254 after
consideration of all direct costs and expenses associated with the
sale, including $720,400 relating to employee severance benefits.
The sale did not include filter-related accounts receivable of
approximately $5,725,000, which were retained for collection by the
Company. Certain filter and filter component parts inventory, located
at the Company's Hastings, Michigan plant, was not included in the
sale as the Company, as discussed below, continued to supply CLARCOR
with component parts through a transition period, which was completed
during the third quarter of 1996. CLARCOR did not assume any
liabilities of the Company relating to the filter operations being
sold. Remaining balances of these liabilities, which were immaterial,
-26-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
were included in accounts payable and accruals at December 31, 1995.
Filter-related assets amounted to approximately $2,223,000 at
December 31, 1995, comprised of $765,000 of accounts receivable and
$1,458,000 of inventory. No related amounts remained at December 31,
1996.
Of the total $720,400 employee severance benefits accrued and expensed
relating to the sale, $146,900 and $257,502 were paid during 1995 and
1996, respectively, with the $315,998 balance to be paid in monthly
payments through 2005. Approximately 15 salary and 40 hourly
employees were involved in the severance program. Remaining former
Company employees were hired by CLARCOR.
At December 31, 1996 and 1995, "Other assets" included cash of
$913,200 and $870,600, respectively, held in escrow until September
1998, to secure certain indemnification obligations of the Company
relating to the sale.
The Company and CLARCOR also entered into a Transition Agreement,
dated September 3, 1995. The Transition Agreement provided for the
Company's manufacture and supply to CLARCOR of certain filters and
filter component parts until certain manufacturing equipment, located
at the Company's Hastings, Michigan plant, could be moved and set up
at CLARCOR's plant facilities. It also provided for the reimbursement
of certain administrative costs directly related to the manufacture
and supply of filters and filter components to CLARCOR. Expense
reimbursement included in net sales, amounted to $736,000 and
$1,153,000 in 1996 and 1995, respectively.
Sales of filters and filter component parts for the period from
September 4, 1995 through December 31, 1995, amounted to $2,008,500,
exclusive of the above expense reimbursement.
The Transition Agreement also included certain provisions for the
continued distribution (not manufacture) of filter products through
the Company's Canadian subsidiary, at the discretion of CLARCOR.
Related distribution revenue, included in net sales, amounted to
$1,123,000 and $421,700 in 1996 and 1995, respectively. In early
November 1996, the Company received notification from CLARCOR that
this arrangement would terminate on December 31, 1996.
-27-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
Total sales and estimated operating profit (loss) amounts for filter
operations were approximately as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
----------- ------------- -------------
<S> <C> <C> <C> <C>
Sales $ 5,992,800 $ 28,262,500 $ 40,370,000
=========== ============= =============
Estimated operating
profit (loss) $ 525,000 $ (2,786,000) (1,320,000)
=========== ============= =============
</TABLE>
A significant portion of the Company's filter manufacturing and
distribution operations have historically been combined with its
piston ring and other operations. While records of sales and cost of
sales amounts were maintained by operation, the Company did not
maintain separate records of operating expenses. The above estimated
operating profit (loss) amounts reflect those operating expenses which
the Company estimated would not recur as a result of the sale. The
1996 estimated operating profit of $525,000 includes $625,000 of
reduced filter cost of sales resulting from liquidation of LIFO
inventories caused by the elimination of all remaining filter
inventory.
In 1996, during the course of the transition period, the Company
relocated its piston ring packaging operations from Knoxville,
Tennessee to Hastings, Michigan. The relocation and associated
training costs are non-recurring in nature. While these costs are
directly related to the 1995 sale and the subsequent restructuring of
the Company's remaining operations, they were expensed as incurred
during 1996 as required by recently issued accounting standards.
These costs, all of which were incurred during the first and second
quarters, totaled approximately $468,400 and are included in "Non-recurring
restructuring and relocation costs" in the accompanying 1996
consolidated statements of operations.
NOTE 3 - RESTRUCTURING COSTS
In December 1996, management and the Board of Directors approved a
restructuring plan designed to significantly reduce operating costs
and provide for a more streamlined and efficient operating structure
concentrating on piston ring manufacturing. Operating results for
1996, exclusive of non-recurring restructuring and relocation costs
discussed here and in Note 2, were adversely affected by two major
-28-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
factors. First, fulfilling the Company's production and
administrative responsibilities under the filter Transition Agreement,
discussed in Note 2, proved more costly than anticipated. Second,
with the assistance of an outside corporate consulting firm,
management determined that staffing remained at too high of a level
throughout the remainder of 1996 based on actual and anticipated
revenues. These factors, in addition to the CLARCOR notification
discussed in Note 2, precipitated the restructuring plan.
In addition to reducing staffing levels at both the U.S. and Canadian
manufacturing facilities, the restructuring plan calls for the
termination of most Canadian piston ring manufacturing effective April
30, 1997. The Canadian subsidiary will continue to distribute piston
rings throughout Canada, being sourced entirely by U.S. operations.
This facility will also continue to manufacture certain piston ring
parts and provide packaging operations for tools and piston ring sets.
No future impairment loss is anticipated relating to the current
Canadian facilities should management determine that another, smaller
facility is more cost beneficial in carrying out these functions.
Total restructuring costs, all recognized in the fourth quarter,
amounted to $351,500 and are included in "Non-recurring restructuring
and relocation costs" in the accompanying 1996 consolidated statement
of operations. Of the total, $247,000 and $104,500 related to
employee severance benefits and consulting fees, respectively.
Employee severance benefits paid through December 31, 1996 amounted to
$25,800. Twenty-one salary and eight hourly employees were involved
in the severance program.
NOTE 4 - INVENTORIES
Inventories valued using the LIFO method were $2,744,000 and
$3,855,000 at December 31, 1996 and 1995, respectively.
If the FIFO method of inventory valuation had been used by the
Company, inventories would have been $1,380,000 and $2,134,000 higher
than reported at December 31, 1996 and 1995, respectively.
Reduction of inventory quantities in 1996, 1995 and 1994 resulted in a
liquidation of LIFO inventories carried at lower costs prevailing in
prior years as compared to current years' purchases. The effect of
these reductions increased net income (or reduced the net loss) by
-29-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
$447,300, $829,200 and $214,400 ($1.15, $2.13, and $.55 per share) for
1996, 1995 and 1994, respectively. Of the $829,200 amount for 1995,
$689,200 resulted from the filter operations sale discussed in Note 2
and was included in determining the loss on sale. Of the $447,300
amount for 1996, $412,500 resulted from the elimination of all
remaining filter inventory during 1996.
Fourth quarter 1996 gross profit was reduced by approximately $310,000
related to changes in estimates pertaining to the valuation of
inventories. These year-end adjustments relate to the level of
absorbed labor in ending inventories, overhead cost adjustments
resulting from the fourth quarter being the first period without
filter operations, and other year-end adjustments relating to normal
obsolescence and quantity adjustments which were not significant
relative to annual cost of sales.
NOTE 5 - SHORT-TERM BORROWINGS
The Company maintains unsecured lines of credit with various banks
aggregating $5,000,000 and $6,500,000 at December 31, 1996 and 1995,
respectively, with interest at negotiated rates based upon prime or
LIBOR. Available borrowings under the lines of credit amounted to
$2,000,000 and $5,000,000 at December 31, 1996 and 1995, respectively.
The weighted average interest rate on short-term borrowings
outstanding at December 31, 1996 and 1995, was 8.25% and 8.0%,
respectively.
-30-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
NOTE 6 - LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C> <C>
<Fa> Term loan, unsecured $ 2,000,000 $ 2,800,000
<Fb> Term loan, unsecured 1,490,625 2,153,125
Other -- 98,000
----------- -----------
3,490,625 5,051,125
Less current maturities 1,462,500 1,560,500
----------- -----------
Long-term debt,
less current maturities $ 2,028,125 $ 3,490,625
=========== ===========
<FN>
<Fa> The loan calls for quarterly payments of $200,000 plus
interest based on LIBOR (effectively 7.25% at December 31,
1996) through May 1999.
<Fb> The loan calls for quarterly payments of $165,625 plus
interest based on LIBOR (effectively 7.375% at December 31,
1996) through January 1999.
</FN>
</TABLE>
The term loan agreements referred to above require the Company to
maintain working capital of at least $11,000,000 and maintain tangible
net worth, as defined, of at least $6,291,066. In addition,
cumulative cash dividends declared and paid since January 1, 1995, may
not exceed the sum of $2,500,000 and 50% of the cumulative net income
after January 1, 1996. Unrestricted retained earnings amounted to
$1,745,916 at December 31, 1996. The Company has obtained a waiver
from the bank for its noncompliance with certain restrictions.
-31-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
<S> <C> <C>
1997 $ 1,462,500
1998 1,462,500
1999 565,625
</TABLE>
At December 31, 1995, the Company had an interest rate swap agreement
outstanding with a notional amount of $6.7 million. The swap
agreement effectively limited the Company's interest rate exposure to
a fixed rate of 6.92% on its floating rate borrowings. The estimated
unrecorded fair value of the interest rate swap agreement,
representing the amount the bank would have paid the Company to
terminate the agreement, amounted to $96,000 at December 31, 1995. In
March 1996, the Company terminated the interest rate swap agreement,
receiving $204,500 from the bank as a result of favorable interest
rates. This amount is included in "Other, net" in the accompanying
1996 consolidated statement of operations.
At the same time, in order to continue to limit its interest rate
exposure, the Company entered into an interest rate collar agreement
with a current notional amount of $3 million. This agreement provides
for a cap rate on floating rate borrowings of 8.25% and a related
floor of 6.75%. At December 31, 1996, the estimated fair value of the
interest rate collar agreement amounted to $10,100.
NOTE 7 - STOCKHOLDERS' EQUITY
STOCKHOLDERS' RIGHTS PLAN
On February 13, 1996, the Company's Board of Directors authorized the
adoption of a Series A Preferred Stock Purchase Rights Plan (Plan).
Under the Plan, a dividend distribution of one Series A Preferred
Stock Purchase Right (Right) was made for each outstanding share of
common stock, payable to shareholders of record on March 8, 1996. The
Plan is designed to protect shareholders against unsolicited attempts
to acquire control of the Company in a manner that does not offer a
fair price to all shareholders. In addition, it is intended to help
protect and preserve ownership of the Company's principal tradenames
and trademarks.
-32-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company's newly designated Series A Preferred Stock consists of
500,000 shares authorized, at $2 par value, none of which are issued.
Shares of preferred stock are reserved at a level sufficient to permit
the exercise in full of all the outstanding Rights.
Each Right entitles shareholders to purchase one one-hundredth of a
share of preferred stock from the Company at a price of $100 per
share, subject to adjustment. The Right will become exercisable only
if a person or group (Acquiring Person) acquires 15% or more of the
Company's common stock or announces a tender offer that would result
in ownership of 30% or more of the common stock. A person
beneficially owning 15% or more of the outstanding shares of common
stock on February 13, 1996, or any affiliates or associates thereof,
do not constitute an Acquiring Person under the Plan.
If the Company is acquired in a merger or other business combination
transaction or if 50% or more if its assets or earning power are sold,
each Right will entitle the Right holder to receive, upon exercise,
the number of the shares of common stock of the acquiring company
which at the time of the transaction would have a market value of two
times the exercise price of the Right. Alternatively, if an Acquiring
Person (1) acquires the Company in a transaction in which the Company
and its common stock survive, (2) engages in certain self-dealing
transactions or (3) becomes the owner of more than 30% of the
outstanding shares of common stock, remaining Right holders will have
the right to receive additional shares of the Company's common stock
having a market value of two times the exercise price of the Right.
Under terms specified in the Plan, the Company has the right to redeem
the Rights at one cent per Right.
RESTRICTED STOCK PLAN
The Company has established a restricted stock plan under which
certain officers and key employees may be awarded shares of restricted
stock as deferred compensation. Shares awarded pursuant to the plan
are restricted as to sale and transfer for periods of up to five
years. The stock awards vest 20% per year over the five-year period
if predetermined corporate performance goals are met. If goals are
not met, the current year's vesting amount is forfeited. If there is
a change in control of the Company, the shares will vest immediately.
The recipient of the award has all the rights of a shareholder,
provided that all performance goals are met. During 1996, 1995 and
1994, the Company awarded 2,800, 1,600 and 1,425 shares, respectively,
of its common stock valued at $71,400, $35,600, and $45,065,
-33-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
respectively, as deferred compensation which is ratably charged to
expense from the date of award to the end of the deferral period.
Shares valued at $47,862 (1,475 shares), $63,376 (1,455 shares) and
$42,791 (1,140 shares) were forfeited during 1996, 1995 and 1994,
respectively.
NOTE 8 - PENSION AND RETIREMENT SAVINGS
The components of pension expense and the actuarial assumptions used
to determine this cost for the defined benefit pension plans are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ -----------
<S> <C> <C> <C> <C>
Service cost for benefits
earned during the year $ 23,316 $ 23,321 $ 23,328
Interest cost on projected
benefit obligation 1,177,904 1,220,336 1,156,354
Actual return on plan assets (1,134,411) (1,335,309) (455,781)
Net amortization and deferral 569,634 649,936 (138,041)
------------ ------------ -----------
Pension expense $ 636,443 $ 558,284 $ 585,860
============ ============ ===========
Discount rate 7.50% 7.25% 8.25%
Expected rate of return on
assets 8.00% 8.00% 8.00%
Range of expected rates of
increase in compensation
levels, subject to maximum
amounts per participant 0-5.50% 0-5.50% 0-5.50%
============ ============ ===========
</TABLE>
-34-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The funded status of the defined benefit pension plans and amounts
included in the consolidated balance sheets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------ -------------
<S> <C> <C> <C>
Actuarial present value of
accumulated benefit obligation:
Vested benefit obligation $(15,178,212) $ 15,683,431)
Nonvested benefit obligation (1,182,889) (1,200,726)
------------- -------------
Accumulated benefit obligation $(16,361,101) $ 16,884,157)
============= =============
Projected benefit obligation $(16,361,101) $(16,902,042)
Plan assets, at fair value 12,729,054 12,083,154
------------- -------------
Projected benefit obligation
in excess of plan assets (3,632,047) (4,818,888)
Unrecognized net transition
obligation 1,018,986 1,222,783
Unrecognized net loss 2,253,620 2,936,718
------------- -------------
Accrued pension cost $ (359,441) $ (659,387)
============= =============
</TABLE>
The excess of the accumulated benefit obligation over plan assets is
reflected in the consolidated balance sheets. This amount, less the
accrued pension plan contribution recorded in current liabilities, is
reflected in the accompanying consolidated balance sheets as an
additional noncurrent pension liability, a noncurrent intangible
asset, a noncurrent future income tax benefit, and a charge to
stockholders' equity (net of tax), representing the excess of the
additional noncurrent pension liability over the unrecognized net
transition liability.
The decrease from December 31, 1995 to December 31, 1996, in the
noncurrent pension liability was primarily due to a change in the
discount rate used to determine the accumulated benefit obligation.
-35-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company's foreign subsidiary maintains a defined contribution retirement
savings plan. Due to overfunding of the plan, there were no contributions in
1996, 1995 and 1994.
The Company has two defined contribution retirement savings plans, covering
substantially all domestic employees, which are funded solely through
contributions based on formulas as defined in the plan agreements. The
assets are held in trust for the sole benefit of the employees. Contribution
expense was $656,000, $857,000 and $861,000, for 1996, 1995 and 1994,
respectively, relating to these plans.
As part of the sale of its filter operations, as described in Note 2, the
Company entered into a deferred compensation agreement with a former officer
of the Company. The deferred compensation benefits are to be paid over a
period of ten years, commencing in November 1995. Deferred compensation
expense, representing the present value of future payments, amounted to
$343,450 in 1995 and is included as a cost of the filter operations sale.
At December 31, 1996 and 1995, respectively, the deferred compensation
liability amounted to $315,998 and $339,683, of which $25,651 and $23,685
was due within one year.
NOTE 9 - POSTRETIREMENT BENEFIT PLANS
The Company provides certain health care, dental, prescription drug and life
insurance benefits for eligible retired employees under various plans. The
plans are unfunded.
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C> <C>
Service cost for benefits
earned during the year $ 216,106 $ 209,214 184,197
Interest cost on projected
benefit obligation 1,350,383 1,440,280 $1,229,734
Net amortization and
deferral 49,072 -- --
---------- ---------- ----------
Net periodic postretirement
benefit cost $1,615,561 $1,649,494 $1,413,931
========== ========== ==========
</TABLE>
-36-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The following table sets forth the accrued postretirement benefit
cost:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees $ 9,997,231 $ 9,875,799
Fully eligible participants 3,412,908 3,210,463
Other active participants 5,391,624 6,350,841
------------ ------------
Unfunded accumulated postretirement
benefit obligation 18,801,763 19,437,103
Unrecognized net gain (loss) (1,614,731) (2,320,129)
------------ ------------
Accrued postretirement benefit cost 17,187,032 17,116,974
Less current portion 1,641,040 1,541,126
------------ ------------
Long-term portion $15,545,992 $15,575,848
============ ============
</TABLE>
The decrease from December 31, 1995 to December 31, 1996, in the
unfunded accumulated postretirement benefit obligation was primarily
due to a change in the discount rate used in its determination.
For two of the three active and retired employee groups covered by the
Company's postretirement benefit plans, the medical inflation rate is
assumed to be 6.34% per year. In addition, for prescription drug
costs, the annual inflation rate is assumed to decline over the next
10 years from a present 8.53% to 5.50%. For the remainder of the
active and retired employees, principally salaried personnel, the cost
of benefits does not assume any inflation because, effective in 1993,
the Company fixed the dollar amount of its contribution per active and
retired employee. The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was
7.50% and 7.25% at December 31, 1996 and 1995, respectively.
Increasing each of the assumed health care cost trend rates by one
percentage point in each year would increase the accumulated
postretirement benefit obligation by approximately $276,700 as of
December 31, 1996, and would increase the annual aggregate service and
interest cost by approximately $33,300.
-37-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
NOTE 10 - INCOME TAXES
The components of income (loss) before income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ --------
<S> <C> <C> <C> <C>
Domestic $(1,087,158) $(3,352,216) $670,926
Foreign (150,685) (390,964) 106,995
------------ ------------ --------
$(1,237,843) $(3,743,180) $777,921
============ ============ ========
</TABLE>
Income tax expense (benefit) is made up of the following components:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 DEFERRED-
VALUATION
ALLOWANCE
CURRENT DEFERRED CHANGE TOTAL
---------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Domestic $ 54,000 $(399,000) $ 40,000 $(305,000)
Foreign (37,000) (11,000) - (48,000)
---------- ---------- -------- ----------
$ 17,000 $(410,000) $ 40,000 $(353,000)
========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
<S> <C> <C> <C> <C> <C>
Domestic $ 103,000 $(935,000) $205,000 $(627,000)
Foreign (143,000) 50,000 - (93,000)
---------- ---------- -------- ----------
$ (40,000) $(885,000) $205,000 $(720,000)
========== ========== ======== ==========
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
<S> <C> <C> <C> <C> <C>
Domestic $ 183,000 $ 101,000 $ - $ 284,000
Foreign 57,000 (12,000) - 45,000
---------- ---------- -------- ----------
$ 240,000 $ 89,000 $ - $ 329,000
========== ========== ======== ==========
</TABLE>
-39-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The tax effects of temporary differences that give rise to the net
future income tax benefit are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Deferred income tax assets:
Retirement and postretirement
benefit obligations $6,456,831 $6,812,174
Current asset valuation
allowances 793,936 789,202
Net operating loss carryforwards 1,308,206 1,063,699
Foreign tax credit carryforwards 283,723 284,918
Deferred compensation 107,439 107,439
Other 472,369 331,694
----------- -----------
Gross deferred income tax assets 9,422,504 9,389,126
Valuation allowance - foreign tax
credits (noncurrent) (243,723) (204,918)
----------- -----------
Total deferred income tax assets 9,178,781 9,184,208
----------- -----------
Deferred income tax liabilities:
Accumulated depreciation (335,344) (320,187)
Other (194,937) (207,241)
----------- -----------
Total deferred income tax liabilities (530,281) (527,428)
----------- -----------
Net deferred income tax assets 8,648,500 8,656,780
Less current portion 2,413,877 2,108,578
----------- -----------
Noncurrent portion $6,234,623 $6,548,202
=========== ===========
</TABLE>
-40-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
The Company's net operating loss carryforwards for federal income tax
purposes amounted to $1,308,206 at December 31, 1996, of which
$1,018,812 expires in 2010 and $289,394 in 2011, if not previously
utilized. Foreign tax credits, amounting to $40,000 at December 31,
1996, net of valuation allowance, expire through 2001, if not
previously utilized.
Income taxes differed from the amount computed by applying the federal
statutory rate of 34% to income before income taxes provisions
(benefit) as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
---------- ------------ --------
<S> <C> <C> <C>
Computed "expected" tax
(benefit) $(421,000) $(1,273,000) $264,000
Increase (decrease) in
tax resulting from:
Valuation allowance change
due to foreign tax credits 40,000 205,000 -
Adjustment of prior
temporary differences - 209,000 -
State income taxes, net of
federal income tax
benefit 36,000 - 62,000
Other (8,000) 139,000 3,000
---------- ------------ --------
$(353,000) $ (720,000) $329,000
========== ============ ========
</TABLE>
NOTE 11 - GEOGRAPHIC SEGMENTS AND EXPORT SALES
Sales, operating profit (loss) and identifiable assets by geographic
area are as follows:
-41-
<PAGE>
<TABLE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
NET SALES
United States $35,726,283 $59,436,864 $70,155,090
Canada 5,004,885 5,820,802 6,764,019
Eliminations (1,322,558) (2,029,354) (2,346,887)
------------ ------------ ------------
Total net sales $39,408,610 $63,228,312 $74,572,222
============ ============ ============
OPERATING PROFIT (LOSS)
United States $ (969,940) $(2,528,334) $ 1,319,212
Canada (148,926) (390,347) 98,167
Eliminations 145,537 152,761 174,527
------------ ------------ ------------
Operating profit (loss) (973,329) (2,765,920) 1,591,906
Interest expense 570,397 892,891 933,810
Interest income (145,853) (121,091) (12,070)
Loss on sales of filter operations - 67,254 -
Other, net (160,030) 138,206 (107,755)
------------ ------------ ------------
Income (loss) before income tax
expense (benefit) $(1,237,843) $(3,743,180) $ 777,921
============ ============ ============
IDENTIFIABLE ASSETS
United States $30,919,370 $34,140,981 $44,268,659
Canada 3,736,021 4,323,670 4,681,970
Eliminations (150,014) (215,789) (395,056)
Investments in Canadian
affiliate (50,388) (701,294) (701,294)
------------ ------------ ------------
Total identifiable assets $34,454,989 $37,547,568 $47,854,279
============ ============ ============
</TABLE>
Non-recurring restructuring and relocation costs, discussed in Notes 2
and 3, included in 1996 United States and Canadian operating losses
amounted to $692,234 and $127,666, respectively.
-42-
<PAGE>
Hastings Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
================================================================================
As discussed in Note 2, United States and Canadian operating losses
for 1995 included the effects of the sale of filter operations and the
subsequent realignment of the organizational structure to a smaller
size.
Export sales from the Company's United States operations to
unaffiliated customers amounted to $5,421,519, $8,412,779 and
$5,770,977 in 1996, 1995 and 1994, respectively.
-43-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Hastings Manufacturing Company
Hastings, Michigan
We have audited the accompanying consolidated balance sheets of
Hastings Manufacturing Company and subsidiaries as of December 31,
1996 and 1995, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the
period ended December 31, 1996. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the consolidated financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As described in Note 2, the Company sold its filter product line
assets effective on September 3, 1995.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Hastings Manufacturing Company and subsidiaries at December 31,
1996 and 1995, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
/s/BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
February 28, 1997
-44-
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
No information is required to be disclosed under this item.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this item is incorporated herein
by reference from the sections entitled "Directors and Executive
Officers" and "Compliance with Section 16(a) of the Exchange Act" in
the Registrant's definitive proxy statement relating to its Annual
Meeting of Shareholders to be held May 6, 1997.
In addition, Thomas J. Bellgraph, Age 45, has served as Vice
President, Finance of the Company since January 1, 1996. From 1986
through 1995, Mr. Bellgraph served as Treasurer of the Company.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated herein
by reference from the sections entitled "Executive Compensation,"
"Deferred Compensation" and "Compensation of Directors" in the
Registrant's definitive proxy statement relating to its Annual Meeting
of Shareholders to be held May 6, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is incorporated herein
by reference from the section entitled "Voting Securities" in the
Registrant's definitive proxy statement relating to its Annual Meeting
of Shareholders to be held May 6, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item, if any, is
incorporated herein by reference from the sections entitled "Directors
and Executive Officers" and "Compensation Committee Interlocks and
Insider Participation" in the Registrant's definitive proxy statement
relating to its Annual Meeting of Shareholders to be held May 6, 1997.
-45-
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K.
ITEM 14(A)1. FINANCIAL STATEMENTS.
The following financial statements are filed as part of this
document in Item 8, "Financial Statements and Supplementary Data."
Consolidated Balance Sheets as of December 31, 1996 and
1995.
Consolidated Statements of Operations for the years
ended December 31, 1996, 1995 and 1994.
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
ITEM 14(A)2. FINANCIAL STATEMENT SCHEDULES.
The Financial Statement Schedule set forth in the Index to
Financial Statement Schedules hereto is filed as a part of this Form
10-K Report.
ITEM 14(A)3. EXHIBITS.
NUMBER
3(a) Amended Articles of Incorporation of Hastings
Manufacturing Company filed as an exhibit to the Form 8-K
Current Report filed on December 8, 1988, are incorporated
herein by reference.
3(b) Bylaws of Hastings Manufacturing Company filed as an
exhibit to the Form 8-K Current Report filed on December
8, 1988, are incorporated herein by reference.
4(a) Instruments defining the rights of security holders,
including indentures filed as an exhibit to the Form 10-K
Annual Report for the year ended December 31, 1983, are
incorporated herein by reference.
4(b) NBD Bank, N.A. $3,312,500 Term Loan Agreement and Term
Note, filed as an exhibit to the Form 10-K Annual Report
for the year-ended December 31, 1993, is incorporated
herein by reference.
-46-
<PAGE>
4(c) NBD Bank, N.A. $4,000,000 Term Loan Agreement and Term
Note, filed as an exhibit to the Form 10-K Annual Report
for the year-ended December 31, 1994, is incorporated
herein by reference.
4(d) NBD Bank, N.A. $6,000,000 Credit Authorization and Master
Promissory Note, dated May 31, 1994, filed as an exhibit
to the Form 10-K Annual Report for the year-ended December
31, 1994, is incorporated herein by reference.
4(e) First Amendment, dated May 2, 1995, to the NBD Bank, N.A.
$6,000,000 Credit Authorization and Master Promissory
Note, dated May 31, 1994, filed as an exhibit to the Form
10-K Annual Report for the year-ended December 31, 1995,
is incorporated herein by reference.
4(f) Second Amendment, dated September 30, 1995, to the NBD
Bank, N.A. $6,000,000 Credit Authorization and Master
Promissory Note, dated May 31, 1994, filed as an exhibit
to the Form 10-K Annual Report for the year-ended December
31, 1995, is incorporated herein by reference.
4(g) Third Amendment, dated as of May 31, 1996, to the NBD
Bank, N.A. $6,000,000 Credit Authorization and Master
Promissory Note, dated May 31, 1994.
4(h) Preferred Stock Purchase Rights, filed as an exhibit to
Form 8-K filed with the Securities and Exchange Commission
on February 15, 1996, is incorporated herein by reference.
4(i) Confirmation, dated as of March 12, 1996, regarding an
interest rate collar transaction between Hastings
Manufacturing Company and NBD Bank.
10(a) List of Recipients of Indemnity Agreement and Form of
Indemnity Agreement, filed as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1988, are incorporated herein by
reference.
10(b) 1990 Restricted Stock Plan, filed as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1992, is incorporated herein by
reference.<F1>
10(c) Asset Purchase Agreement between Hastings Manufacturing
Company and CLARCOR Inc. dated as of September 3, 1995,
filed as an exhibit to the Form 8-K filed with the
Securities and Exchange Commission on September 20,
1995, is incorporated herein by reference.
-47-
<PAGE>
<F1> Management contract or compensatory plan or arrangement.
21 Subsidiaries of Hastings Manufacturing Company.
27 Financial Data Schedule.
ITEM 14(B). REPORTS ON FORM 8-K.
No reports on Form 8-K were filed during the fourth quarter
of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused this
report on Form 10-K to be signed below on its behalf by the
undersigned, thereunto duly authorized.
HASTINGS MANUFACTURING COMPANY
(registrant)
Dated: March 25, 1997 By /S/ THOMAS J. BELLGRAPH
Thomas J. Bellgraph
Its Vice President, Finance
(Principal Financial and
Accounting Officer)
-48-
<PAGE>
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated (such persons constituting a majority of the board of
directors).
<TABLE>
SIGNATURE TITLE DATE
--------- ----- ----
<CAPTION>
<S> <C> <C>
/S/ ANDREW F. JOHNSON Co-Chief Executive March 25, 1997
Andrew F. Johnson Officer, President/
Operations and
Director
/S/ MARK R.S. JOHNSON Co-Chief Executive March 25, 1997
Mark R.S. Johnson Officer, President/
Marketing and
Director
/S/ DALE W. KOOP Vice President/ March 25, 1997
Dale W. Koop Engineering and
Director
/S/ MONTY C. BENNETT Vice President/ March 25, 1997
Monty C. Bennett Employee Services,
Secretary and Director
/S/ DOUGLAS D. DECAMP President and Chief March 25, 1997
Douglas A. DeCamp Executive Officer
FHI, Inc., Hastings,
MI and Director
/S/ WILLIAM R. COOK President, Pidgas, March 25, 1997
William R. Cook Inc., Hastings, MI
and Director
/S/ NEIL A. GARDNER Executive Vice March 25, 1997
Neil A. Gardner President, Hastings
City Bank, Hastings,
MI and Director
</TABLE>
-49-
<PAGE>
HASTINGS MANUFACTURING COMPANY
AND SUBSIDIARIES
FINANCIAL STATEMENT SCHEDULES
FORM 10-K ITEM 14(a)2
YEAR ENDED DECEMBER 31, 1996
-50-
<PAGE>
HASTINGS MANUFACTURING COMPANY
AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE
Report of Independent Certified Public Accountants
on Financial Statement Schedule 47
Schedule:
II - Valuation and Qualifying Accounts 48
Other schedules have been omitted because they were inapplicable
or otherwise not required.
-51-
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Hastings Manufacturing Company
Hastings, Michigan
The audits referred to in our report dated February 28, 1997 relating
to the consolidated financial statements of Hastings Manufacturing
Company and subsidiaries, which is contained in Item 8 of this Form
10-K, included the audit of the financial statement schedule listed in
the accompanying index. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our
audits.
In our opinion, such financial statement schedule presents fairly, in
all material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
February 28, 1997
-52-
<PAGE>
<TABLE>
HASTINGS MANUFACTURING COMPANY AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------- ----------- ------------------------ ------------ ------------
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER DEDUCTIONS/ END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
---------- ---------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
$ $ $ $ $
Year Ended December 31,
1996:
Allowance for possible
losses on receivables 225,000 5,300 -- 15,300 215,000
======= ======== ======= ========= ========
Year Ended December 31,
1995:
Allowance for possible
losses on receivables 415,000 316,000 -- 506,000 225,000
======= ======== ======= ========= ========
Year Ended December 31,
1994:
Allowance for possible
losses and receivables 367,000 464,000 -- 416,000 415,000
======= ======== ======= ========= ========
</TABLE>
-53-
<PAGE>
EXHIBIT INDEX
NUMBER
3(a) Amended Articles of Incorporation of Hastings
Manufacturing Company filed as an exhibit to the
Form 8-K Current Report filed on December 8, 1988,
are incorporated herein by reference.
3(b) Bylaws of Hastings Manufacturing Company filed as
an exhibit to the Form 8-K Current Report filed on
December 8, 1988, are incorporated herein by
reference.
4(a) Instruments defining the rights of security
holders, including indentures filed as an exhibit
to the Form 10-K Annual Report for the year ended
December 31, 1983, are incorporated herein by
reference.
4(b) NBD Bank, N.A. $3,312,500 Term Loan Agreement and
Term Note, filed as an exhibit to the Form 10-K
Annual Report for the year-ended December 31,
1993, is incorporated herein by reference.
4(c) NBD Bank, N.A. $4,000,000 Term Loan Agreement and
Term Note, filed as an exhibit to the Form 10-K
Annual Report for the year-ended December 31,
1994, is incorporated herein by reference.
4(d) NBD Bank, N.A. $6,000,000 Credit Authorization and
Master Promissory Note, dated May 31, 1994, filed
as an exhibit to the Form 10-K Annual Report for
the year-ended December 31, 1994, is incorporated
herein by reference.
4(e) First Amendment, dated May 2, 1995, to the NBD
Bank, N.A. $6,000,000 Credit Authorization and
Master Promissory Note, dated May 31, 1994, filed
as an exhibit to the Form 10-K Annual Report for
the year-ended December 31, 1995, is incorporated
herein by reference.
4(f) Second Amendment, dated September 30, 1995, to the
NBD Bank, N.A. $6,000,000 Credit Authorization and
Master Promissory Note, dated May 31, 1994, filed
as an exhibit to the Form 10-K Annual Report for
the year-ended December 31, 1995, is incorporated
herein by reference.
-54-
<PAGE>
4(g) Third Amendment, dated as of May 31, 1996, to the
NBD Bank, N.A. $6,000,000 Credit Authorization and
Master Promissory Note, dated May 31, 1994.
4(h) Preferred Stock Purchase Rights, filed as an
exhibit to Form 8-K filed with the Securities and
Exchange Commission on February 15, 1996, is
incorporated herein by reference.
4(i) Confirmation, dated as of March 12, 1996,
regarding an interest rate collar transaction
between Hastings Manufacturing Company and NBD
Bank.
10(a) List of Recipients of Indemnity Agreement and
Form of Indemnity Agreement, filed as an
exhibit to the Company's Form 10-K Annual
Report for the year ended December 31, 1988,
are incorporated herein by reference.
10(b) 1990 Restricted Stock Plan, filed as an
exhibit to the Company's Form 10-K Annual
Report for the year ended December 31, 1992,
are incorporated herein by reference.
10(c) Asset Purchase Agreement between Hastings
Manufacturing Company and CLARCOR Inc. dated
as of September 3, 1995, filed as an exhibit
to the Form 8-K filed with the Securities and
Exchange Commission on September 20, 1995, is
incorporated herein by reference.
21 Subsidiaries of Hastings Manufacturing
Company.
27 Financial Data Schedule.
-55-
<PAGE>
EXHIBIT 4(G)
THIRD AMENDMENT TO LETTER AGREEMENT
THIS THIRD AMENDMENT TO LETTER AGREEMENT, dated as of May 31,
1996 (this "Amendment"), is between HASTINGS MANUFACTURING COMPANY, a
Michigan corporation (the "Company"), and NBD BANK, a Michigan banking
corporation, formerly known as NBD Bank, N.A. (the "Bank").
RECITALS
A. The Company and the Bank are parties to a letter agreement
dated May 31, 1994, as amended by a First Amendment to Letter
Agreement dated as of May 2, 1995 and by a Second Amendment to Letter
Agreement dated as of September 30, 1995 (as amended, the "Letter
Agreement"), pursuant to which the Bank agreed, subject to the terms
and conditions thereof, to extend credit to the Company in a maximum
principal amount of $4,000,000.
B. The Company has requested that the Bank amend the Letter
Agreement as set forth herein to provide, among other things, for the
extension of the Termination Date (as defined in the Letter Agreement)
from May 31, 1996 to May 31, 1997, for the amendment of certain
covenants and for certain other changes as more particularly describe
herein.
C. The parties now desire to amend certain terms and provisions
of the Letter Agreement as set forth herein.
TERMS
In consideration of the premises and of the mutual agreements
herein contained, the parties agree as follows:
ARTICLE I. AMENDMENTS. Upon fulfillment of the conditions set forth
in Article III hereof, the Letter Agreement shall be amended as
follows:
1.1 The reference to "May 31, 1996" in the definition of
"Termination Date" in Section 1 of the Letter Agreement shall be
deemed to refer to "May 31, 1997".
1.2 The reference to "May 31, 1996" in Section 2 of the Letter
Agreement shall be deemed to refer to "May 31, 1997".
1.3 Section 10(b) of the Letter Agreement shall be deemed
deleted in its entirety and replaced with the following language:
<PAGE>
"(b) TANGIBLE NET WORTH. Permit or suffer
the consolidated Tangible Net Worth of the Company
and its Subsidiaries to be less than the sum of
(i) $17,500,000 at any time plus (ii) beginning
July 1, 1996, an amount equal to 50% of
consolidated Cumulative Net Income of the Company
and its Subsidiaries."
1.4 The reference to "1.40 to 1.00" in Section 10(c) of the
Letter Agreement shall be deemed to refer to "2.00 to 1.00".
1.5 Exhibit A to the Letter Agreement is hereby deleted in its
entirety and Exhibit A attached hereto is hereby substituted in place
of Exhibit A thereof.
ARTICLE II. REPRESENTATIONS. The Company represents and warrants to
the Bank that:
2.1 The execution, delivery and performance of this Amendment
are within its powers, have been duly authorized and are not in
contravention with any law, of the terms of its Articles of
Incorporation or By-laws, or any material undertaking to which it is a
party or by which it is bound.
2.2 This Amendment is the legal, valid and binding obligations
of the Company enforceable against it in accordance with the
respective terms hereof.
2.3 After giving effect to the amendments herein contained, the
representations and warranties contained in Section 11 of the Letter
Agreement are true on and as of the date hereof with the same force
and effect as if made on and as of the date hereof, PROVIDED, THAT,
the representations and warranties contained in Section 11(f) of the
Letter Agreement shall be deemed to have been made with respect to the
financial statements most recently delivered pursuant to Section 9(d)
of the Letter Agreement.
2.4 After giving effect to the amendments contained in Article I
hereof, the representations and warranties contained in Section 11 of
the Letter Agreement are true and correct on and as of the date hereof
with the same force and effect as if made on and as of the date
hereof, and no Default or Event of Default shall have occurred and be
continuing or will exist under the Letter Agreement as of the
effective date hereof.
ARTICLE III. CONDITIONS OF EFFECTIVENESS. This Amendment shall not
become effective until each of the following has been satisfied:
-2-
<PAGE>
3.1 Copies of resolutions adopted by the Board of Directors of
the Company, certified by an officer of the Company, as being true and
correct and in full force and effect without amendment as of the date
hereof, authorizing the Company to enter into this Amendment and any
other documents or agreements executed pursuant hereto, if any, shall
have been delivered to the Bank.
3.2 This Amendment shall be signed by the Company and the Bank.
3.3 The Company shall deliver a duly executed copy of a new
promissory note in the principal amount of $4,000,000 in the form of
Exhibit A attached hereto.
ARTICLE IV. WAIVERS.
The Bank hereby waives the right to declare any Default or Event
of Default arising under Section 10(b) or Section 10(c) of the Letter
Agreement as a result (and solely as a result) of the breach of any of
such Sections by the Company through the period ending March 30, 1996.
Such waiver shall be strictly limited to such breach or breaches and
nothing herein shall be construed as a waiver or limitation on any
rights of the Bank under the Letter Agreement to declare a Default or
an Event of Default and to exercise the remedies provided for in
Section 13 of the Letter Agreement in any other circumstance.
ARTICLE V. MISCELLANEOUS.
5.1 References in the Letter Agreement to "this Agreement" and
references in any note, certificate, instrument or other document to
the "Letter Agreement" or "Authorization Agreement" shall be deemed to
be references to the Letter Agreement as amended hereby and as further
amended from time to time.
5.2 The Company agrees to pay and to save the Bank harmless for
the payment of all costs and expenses arising in connection with this
Amendment, including the reasonable fees of counsel to the Bank in
connection with preparing this Amendment and the related documents.
5.3 The Company acknowledges and agrees that the Bank has fully
performed all of its obligations under all documents executed in
connection with the Letter Agreement and all actions taken by the Bank
is reasonable and appropriate under the circumstances and within its
rights under the Letter Agreement and all other documents executed in
connection therewith and otherwise available. The Company represents
and warrants that it is not aware of any claims or causes of action
against the Bank, or any of its successors or assigns.
Notwithstanding this representation and as further consideration for
-3-
<PAGE>
the agreements and understandings herein, the Company and its heirs,
successors and assigns, hereby release the Bank and its heirs,
successors and assigns from any liability, claim, right or cause of
action which now exists or hereafter arises, whether known or unknown,
arising from or in any way related to facts in existence as of the
date hereof to any agreements or transactions between the Bank and the
Company or to any acts or omissions of the Bank in connection
therewith or otherwise.
5.4 Except as expressly amended hereby, the Company agrees that
the Letter Agreement, the promissory note and all other documents and
agreements executed by the Company in connection with the Letter
Agreement in favor of the Bank are ratified and confirmed and shall
remain in full force and effect and that it has no set off,
counterclaim or defense with respect to any of the foregoing. Terms
used but not defined herein shall have the respective meanings
ascribed thereto in the Letter Agreement.
5.5 This Amendment shall be governed by and construed in
accordance with the laws of the State of Michigan.
5.6 This Amendment may be signed upon any number of counterparts
with the same effect as if the signatures thereto and hereto were upon
the same instrument.
IN WITNESS WHEREOF, the parties signing this Amendment have
caused this Amendment to be executed and delivered as of the date
first above written.
HASTINGS MANUFACTURING COMPANY
By: /S/ THOMAS J. BELLGRAPH
Its: VP - FINANCE
NBD BANK
By: /S/ THOMAS A. GAMM
Its: VICE PRESIDENT
-4-
<PAGE>
EXHIBIT 4(I)
CONFIRMATION
DATED AS OF MARCH 12, 1996
Hastings Manufacturing Company
325 N. Hanover
Hastings, MI 49058
Attention: Mr. Thomas J. Bellgraph
Treasurer
Dear Tom:
We are pleased to confirm the terms of the transaction described
below between Hastings Manufacturing Company ("Hastings") and NBD
Bank ("NBD") as follows:
NOW, THEREFORE, in consideration of the, fee paid by the Company
to the Bank in the amount of $42,060 the parties hereto agree as
follows:
Type of Transaction: Interest Rate Collar
Currency for Payments: U.S. Dollar
Notional Amount: $3,000,000
Term:
Trade Date: March 12, 1996
Effective Date: April 22, 1996
Termination Date: April 20, 1999
Floating Amounts:
Cap Rate: 6.50%
Floor Rate: 5.00%
Cap Rate Floating Rate Payer: NBD
Floor Rate Floating Rate Payer: Hastings
Payment Dates: the 20th day of July, October, January and April
of each year
BUSINESS DAY: New York and London
Business/Banking Day Convention: Modified Following
Initial Floating Rate: to be determined
Floating Rate Option: USD-LIBOR-Telerate Pg. 3750
Designated Maturity: 3 Months
Floating Rate Day Count: Actual/360
<PAGE>
Floating Rate determined: 2 London Banking Days prior to
each Reset Date
Reset Dates (value dates): The first day of each
Calculation Period
Rounding Convention: 5 decimal places per ISDA
BANK ACCOUNTS:
Payments to NBD and Hastings, DDA Account No. xxxxxxx
DOCUMENTATION:
An International Swaps and Derivatives, Inc. ("ISDA") Master
Agreement ("Master Agreement") with a schedule thereto dated as
of 12-20-88. All provisions contained or incorporated by
reference in the Master Agreement shall govern this Confirmation
except as expressly modified below.
Please confirm that the foregoing correctly sets forth the terms of
our agreement by executing this letter and returning it via facsimile.
For and on behalf of Hastings
Manufacturing Company
By: /S/ THOMAS J. BELLGRAPH
Its: VICE PRESIDENT - FINANCE
Address:
Telephone: 616-945-2491, Ext. 300
Telefax: 616-945-3104
For and on behalf of
NBD Bank.
By: /S/ BEVERLY R. HENRETTY
Beverly R. Henretty
Its Second Vice President
By: /S/ THOMAS VALLESKY
Thomas Vallesky
Vice President
Address:
Capital Markets Division
NBD Bank
611 Woodward Avenue
Detroit, Michigan 48223
Telephone: (313) 225-3747
Telefax: (313) 225-4533
-2-
<PAGE>
<TABLE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
<CAPTION>
JURISDICTION OF PERCENT
NAME OF SUBSIDIARY INCORPORATION OWNERSHIP
- ------------------ --------------- ---------
<S> <C> <C>
Hastings, Inc Ontario 100%
HMC, Inc. <F3> Michigan 100%
<FN>
_________________________________
<F3> Formerly Douglas Corporation
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE YEAR END 1996 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,457,783
<SECURITIES> 0
<RECEIVABLES> 4,893,200
<ALLOWANCES> 215,000
<INVENTORY> 9,301,120
<CURRENT-ASSETS> 18,285,454
<PP&E> 22,008,266
<DEPRECIATION> (14,071,826)
<TOTAL-ASSETS> 34,454,989
<CURRENT-LIABILITIES> 8,912,848
<BONDS> 3,490,625
<COMMON> 780,276
0
0
<OTHER-SE> 4,152,172
<TOTAL-LIABILITY-AND-EQUITY> 34,454,989
<SALES> 39,408,610
<TOTAL-REVENUES> 39,408,610
<CGS> 29,299,141
<TOTAL-COSTS> 29,299,141
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 5,300
<INTEREST-EXPENSE> 570,397
<INCOME-PRETAX> (1,237,843)
<INCOME-TAX> (353,000)
<INCOME-CONTINUING> (884,843)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (884,843)
<EPS-PRIMARY> (2.27)
<EPS-DILUTED> (2.27)
</TABLE>
