SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended Commission File Number
June 30, 1995 1-3574
HASTINGS MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0633740
(State of Incorporation) (I.R.S. Employer Identification No.)
325 North Hanover Street
Hastings, Michigan 49058
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 616-945-2491
None
Former name, former address, and former fiscal year if changed since last
report.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class July 31, 1995
Common stock, $2 par value 388,668 shares
1
Hastings Manufacturing Company and Subsidiaries
Contents
===============================================
Part I - Financial Information
Item 1 - Financial Statements:
Report on Review by Independent Certified Public
Accountants 3
Condensed Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 4-5
Condensed Consolidated Statements of Operations -
Three and Six Months Ended June 30, 1995 and 1994 6
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 7-8
Notes to Condensed Consolidated Financial Statements 9
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Review by Independent Certified Public Accountants 14
Part II - Other Information 15
2
Report on Review by Independent Certified Public Accountants
Board of Directors
Hastings Manufacturing Company
Hastings, Michigan
We have reviewed the accompanying condensed consolidated balance sheets of
Hastings Manufacturing Company and subsidiaries as of June 30, 1995, and
the related condensed consolidated statements of operations for the three
month and six month periods ended June 30, 1995 and 1994 and the condensed
consolidated statements of cash flows for the six month periods ended June
30, 1995 and 1994, included in the accompanying Securities and Exchange
Commission Form 10-Q for the period ended June 30, 1995. These financial
statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1994, and the
related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein). In our report
dated March 3, 1995, we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of
December 31, 1994, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
BDO Seidman, LLP
Grand Rapids, Michigan
July 31, 1995
3
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Balance Sheets
=============================================
June 30, December 31,
1995 1994
Assets
Current Assets
Cash $ 521,498 $ 485,034
Accounts receivable, less allowance
of $575,000 and $415,000 for
possible losses 9,271,080 10,734,164
Refundable income taxes 387,281 307,494
Inventories:
Finished products 8,676,990 8,720,119
Work in process 1,536,810 1,273,155
Raw materials 4,566,943 4,468,048
Prepaid expenses and other assets 89,036 91,905
Future income tax benefits 2,294,982 2,294,982
Total Current Assets 27,344,557 28,374,901
Property and Equipment
Land and improvements 1,224,687 1,217,716
Buildings 8,831,515 8,770,979
Machinery and equipment 26,772,318 25,881,850
36,828,520 35,870,545
Less accumulated depreciation 23,770,569 22,672,063
Net Property and Equipment 13,057,951 13,198,482
Intangible Pension Asset 1,426,580 1,426,580
Future Income Tax Benefits 4,685,686 4,688,969
Other Assets 146,747 165,347
$46,661,521 $47,854,279
4
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Balance Sheets
=============================================
June 30, December 31,
1995 1994
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 6,900,000 $ 5,671,280
Accounts payable 1,704,639 3,283,078
Accruals:
Compensation 927,575 542,102
Pension plan contribution 966,755 725,882
Taxes other than income 641,350 468,565
Miscellaneous 307,051 526,557
Current portion of postretirement
benefit obligation 1,473,374 1,473,374
Current maturities of
long-term debt 1,778,800 1,778,800
Total Current Liabilities 14,699,544 14,469,638
Long-Term Debt,
less current maturities 5,365,755 6,223,900
Pension Liability,
less current portion 3,368,354 3,368,354
Postretirement Benefit Obligation,
less current portion 15,404,285 15,492,236
Total Liabilities 38,837,938 39,554,128
Stockholders' Equity
Preferred stock, $2 par value,
authorized and unissued
500,000 shares - -
Common stock, $2 par value,
1,750,000 shares authorized;
388,668 shares issued
and outstanding 777,336 777,336
Additional paid-in capital 147,384 147,384
Retained earnings 9,462,532 10,033,512
Cumulative foreign currency
translation adjustment (621,895) (716,307)
Pension liability adjustment (1,941,774) (1,941,774)
Total Stockholders' Equity 7,823,583 8,300,151
$46,661,521 $47,854,279
See accompanying independent accountants' review report
and notes to condensed consolidated financial statements.
5
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Operations
=================================================
Three months ended Six months ended
June 30, 1995 1994 1995 1994
Net Sales $18,754,159 $20,148,878 $35,088,882 $37,078,361
Cost of Sales 13,512,820 13,498,695 24,816,851 24,619,569
Gross profit 5,241,339 6,650,183 10,272,031 12,458,792
Expenses
Advertising 300,688 355,656 604,263 707,284
Selling 2,276,493 2,582,052 4,389,368 4,992,351
General and
administrative 2,773,893 2,849,949 5,547,131 5,721,073
Interest 239,239 162,209 480,289 376,322
Other, net 23,106 (2,367) 20,382 (232,864)
Total expenses 5,613,419 5,947,499 11,041,433 11,564,166
Income (loss) before
income tax expense
(benefit) (372,080) 702,684 (769,402) 894,626
Income Taxes Expense
(Benefit) (128,000) 270,000 (275,000) 363,000
Net Income (Loss) $ (244,080) $ 432,684 $ (494,402) $ 531,626
Net Income (Loss)
Per Share
of Common Stock $ (.63) $ 1.11 $ (1.27) $ 1.37
Average Shares of
Common Stock
Outstanding 388,668 388,565 388,668 388,474
Dividends Per Share
of Common Stock $ .10 $ .10 $ .20 $ .20
See accompanying independent accountants' review report
and notes to condensed consolidated financial statements.
6
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
=================================================
Six months ended June 30, 1995 1994
Operating Activities
Net income (loss) $ (494,402) $ 531,626
Adjustments to reconcile net
income (loss) to net cash
from operating activities:
Depreciation 1,062,755 1,042,729
Gain on sale of property and
equipment (900) (231,616)
Change in postretirement
benefit obligation (87,951) (95,128)
Changes in operating
assets and liabilities:
Accounts receivable 1,482,341 246,885
Inventories (265,164) (339,790)
Prepaid expenses and other
current assets 3,103 18,739
Future income tax benefits
and refundable income taxes (79,724) 292,810
Other assets 16,437 25,343
Accounts payable and accruals (1,005,317) (1,370,462)
Net cash from operating activities 631,178 121,136
Investing Activities
Capital expenditures (889,834) (2,457,392)
Proceeds from sale of property
and equipment 900 236,275
Net cash for investing activities (888,934) (2,221,117)
Financing Activities
Proceeds from issuance of notes
payable to banks 12,546,065 9,700,000
Principal payments on notes
payable to banks (11,317,975) (7,500,000)
Principal payments on
long-term debt (858,145) (544,552)
Dividends paid (77,734) (77,704)
7
Net cash from financing activities 292,211 1,577,744
Effect of Exchange Rate Changes
on Cash 2,009 (4,504)
Net Increase (Decrease) in Cash 36,464 (526,741)
Cash, beginning of period 485,034 597,556
Cash, end of period $ 521,498 $ 70,815
Supplemental Disclosures of Cash Flow Information
Cash paid during the period for:
Interest $ 547,593 $ 450,391
Income taxes, net of refunds (194,883) 77,218
See accompanying independent accountants' review report
and notes to condensed consolidated financial statements.
8
Hastings Manufacturing Company and Subsidiaries
Notes to Condensed Consolidated Financial Statements
=====================================================
Note 1 In the opinion of the management of Hastings Manufacturing Company
and subsidiaries (Company), the accompanying unaudited condensed
consolidated financial statements include all normal recurring
adjustments considered necessary to present fairly the financial
position as of June 30, 1995, the results of operations for the
three months and six months ended June 30, 1995 and 1994, and cash
flows for the six months ended June 30, 1995 and 1994.
Note 2 The results of operations for the six months ended June 30, 1995,
are not necessarily indicative of the results for all of 1995.
Note 3 Net income (loss) per share is determined based on the weighted
average number of shares of common stock outstanding during each
period.
Note 4 Under the terms of a debt agreement, the Company is subject to a
restriction on the declaration or payment of dividends, such that
dividend distributions may not exceed 50 percent of cumulative net
income of the Company and its subsidiaries, beginning January 1,
1994. The Company has obtained a waiver from the bank for its
noncompliance with this restriction.
Note 5 The condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances, transactions and stockholdings
have been eliminated.
The accompanying consolidated financial statements are condensed
and do not contain all information required by generally accepted
accounting principles in a complete set of financial statements.
9
Hastings Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
==================================================
Net Sales
Net sales in the second quarter of 1995 decreased $1,394,719, or 6.9%, from
$20,148,878 in the second quarter of 1994 to $18,754,159. Net sales for
the first half of 1995 decreased $1,989,479, or 5.4%, from $37,078,361 in
the first half of 1994 to $35,088,882. These declines resulted from the
1994 inclusion of the sale of technology and equipment to a foreign
customer, an increased level of inventory backorder problems early in the
year and a general reduction in sales through our traditional distributor
account network. The export piston ring portion of our business has
experienced significant growth resulting in added demands upon certain
production capacities. As the distributor volume softness is the partial
result of production availability problems, the Company is reviewing
various methods to enhance production capacities and efficiencies.
Net sales for the second quarter of 1995 exceeded the first quarter of this
year by $2,419,436, or 14.8%. This increase reflects, in part, seasonality
within the automotive aftermarket. This increase also resulted from some
improved product availability attained from increased production levels
during the second quarter. Net sales for the second quarter of 1994
exceeded the 1993 second quarter by $854,085, or 4.4%. That increase
reflects the 1994 inclusion of a portion of the noted equipment sale.
Cost of Sales and Gross Profit
Cost of sales during the second quarter of 1995 increased $14,125, or .1%,
from the second quarter of 1994. As a percent of net sales, cost of sales
during the second quarter of 1995 (72.1%) increased from the 1994 second
quarter results (67.0%). The six-month performance likewise reflects a
higher cost of sales ratio for 1995 (70.7% versus 66.4%). The resulting
gross profit margins declined a similar amount in the 1995 comparative
periods. The gross profit margin decline is driven, in part, by the
technology and equipment sale in 1994 with its higher relative margin. The
1995 results reflect higher material, labor and overhead costs. The
material costs reflect price increases absorbed to date on purchased items.
The direct labor costs and overhead costs reflect slightly higher average
labor rates combined with significant overtime costs as the Company has
worked toward an improved order fill performance. The 1995 results also
reflect a gross profit margin decline driven by the noted sales mix change.
The Company's export sales have always generated a lower gross margin under
the logic that they require a lower level of operating expense support.
10
Hastings Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
==================================================
Cost of sales during the second quarter of 1994 increased 4.2% from the
second quarter of 1993. The six-month results for 1994 reflect an increase
in the gross margin results, however, up to 33.6% from 32.4% in the first
half of 1993. The stronger 1994 gross margin was due primarily to the
noted sale of equipment and technology combined with steady material and
labor cost components.
Expenses
Total expenses during the second quarter of 1995, excluding interest
expense, declined $411,110, or 7.1%, from $5,785,290 to $5,374,180. For
the 1995 six-month period, these expenses decreased $626,700, or 5.6%, from
$11,187,844 to $10,561,144. Advertising expenses decreased $103,021
through the first six months of 1995, reflecting lower printed materials
costs and cooperative advertising program credits. Selling expenses
decreased $602,983 due to a continued rollback in inventory conversion
efforts related to new account activity and the absence in 1995 of a
marketing assistance program as offered in 1994 to our export
representative. General and administrative expenses have decreased
$173,942 thus far due to continued lower employee education costs and a
lower interim estimate for retiree medical costs in 1995. The "other"
expense category for 1994 reflects a one-time gain on the sale of a
warehouse facility.
Total expenses during the first half of 1994, excluding interest expense,
increased $967,466, or 9.5%, from the first half of 1993. Advertising
expenses were higher due to increased regional cooperative campaign costs.
Selling expenses were higher due to a run-up in inventory conversion costs
and to the noted export marketing assistance program. The 1994 general and
administrative expenses were higher due to increased group health care
estimates, increased compensation costs driven by wage and personnel
adjustments, increased employee education costs and higher computer support
costs driven by a systems upgrade.
Interest Expense
Interest expense during the first half of 1995 increased $103,967, or
27.6%, from the first half of 1994. The level of total debt outstanding
during the first half of 1995 was higher than the debt level during the
first half of 1994. While most of the Company's variable-rate borrowings
are covered by an interest rate swap agreement, certain borrowings outside
of that agreement were carried at a higher interest rate in early 1995.
11
Hastings Manufacturing Company and Subsidiaries
Management's Discussion and Analysis of
Financial Condition and Results of Operations
==================================================
The recorded interest expense for the first half of 1994 was lower than the
first have of 1993. The level of total debt outstanding during the first
half of 1994 projected lower borrowing costs for the full year due to lower
variable rates on certain loan agreements and a lower fixed interest rate
within the rate swap agreement covering the 1994 period.
Liquidity and Capital Resources
The Company's primary cash requirements are for operating expenses,
including labor costs and raw materials, and for funding 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 1995 operating results to date have led to a greater
reliance upon short-term borrowings. The Company, however, expects to
generate sufficient future cash flows from these sources.
During the first half of 1995, the Company generated $631,178 of net cash
from operating activities. The depreciation and accounts receivable
sources were offset by the operating loss and reduced accounts payable and
accrued liabilities. The accounts receivable reduction developed, in part,
from the reduced sales level for the quarter. The accounts payable and
accrued liabilities declined via scheduled payments to vendors and payment
of accruals for rebate and promotional programs driven by the late 1994
operating results.
During the first half of 1994, the Company generated $121,136 of net cash
from operating activities. The net income and depreciation sources were
offset by higher inventories and reduced accounts payable and accrued
liabilities.
During the first half of 1995, the Company invested $889,834 in new
machinery and equipment. This pace is slightly below the half year
depreciation level and reflects a more normal relationship for the Company.
During the first half of 1994, the Company invested $2,457,392 in new
machinery and equipment as part of an effort to increase certain piston
ring and filter manufacturing capacities.
During the first half of 1995, the Company extended its short-term lines of
credit with two of its current banks by an aggregate amount of $2.5
million. That extension was implemented, in part, to fund an increase in
12
finished goods inventories and to offset any cash shortfall from
operations. To date, the added short-term reserves have been sufficient to
fund that shortfall. The Company has likewise actively pursued
improvements in its operating potential. The Company believes that current
financing agreements with its lenders, combined with cash flows generated
by future operating activities and operating enhancements, will be
sufficient to meet its working capital, capital expenditure and dividend
requirements through 1995.
13
Hastings Manufacturing Company and Subsidiaries
Review by Independent Certified Public Accountants
====================================================
The June 30, 1995 and 1994 condensed consolidated financial statements
included in this filing of Form 10-Q have been reviewed by BDO Seidman,
LLP, Independent Certified Public Accountants, in accordance with
established professional standards and procedures for such a review.
The review report of BDO Seidman, LLP is included in Part I, Item 1.
14
Part II - Other Information
ITEM 6
EXHIBITS AND REPORTS ON
FORM 8-K
(a) Exhibit 27 - Financial Data Schedule - Page 16
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on his behalf by the
undersigned thereunto duly authorized.
HASTINGS MANUFACTURING COMPANY
Date: July 8, 1995 /s/ Monty C. Bennett
Monty C. Bennett
(Vice-President)
Date: July 8, 1995 /s/ Thomas J. Bellgraph
Thomas J. Bellgraph
(Treasurer)
15
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