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 Quarterly Period Ended Commission File Number
MARCH 31, 1999 1-3574
HASTINGS MANUFACTURING COMPANY
- ---------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MICHIGAN 38-0633740
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
325 NORTH HANOVER STREET
HASTINGS, MICHIGAN 49058
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 616-945-2491
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes ___X___ No _______
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
OUTSTANDING AT
CLASS APRIL 20, 1999
----- --------------
Common stock, $2 par value 789,529 shares
Hastings Manufacturing Company and Subsidiaries
Contents
===============================================
PART I - FINANCIAL INFORMATION
Page
Item 1 - Financial Statements:
Report on Review by Independent Certified Public
Accountants 3
Condensed Consolidated Balance Sheets -
March 31, 1999 and December 31, 1998 4-5
Condensed Consolidated Statements of Income -
Three Months Ended March 31, 1999 and 1998 6
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1999 and 1998 7-8
Notes to Condensed Consolidated Financial
Statements 9-10
Review by Independent Certified Public Accountants 11
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12-18
Item 3 - Quantitative and Qualitative Disclosures
About Market Risk 19
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 20
2
Report on Review by Independent Certified Public Accountants
Board of Directors
Hastings Manufacturing Company
Hastings, Michigan
We have reviewed the accompanying condensed consolidated balance sheets of
Hastings Manufacturing Company and subsidiaries as of March 31, 1999, and
the related condensed consolidated statements of income and cash flows for
the three-month periods ended March 31, 1999 and 1998, included in the
accompanying Securities and Exchange Commission Form 10-Q for the period
ended March 31, 1999. These condensed consolidated financial statements are
the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical
procedures to financial data and making inquiries of persons responsible
for financial and accounting matters. It is substantially less in scope
than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding
the financial statements taken as a whole. Accordingly, we do not express
such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial
statements for them to be in conformity with generally accepted accounting
principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1998, and the
related consolidated statements of income, stockholders' equity and cash
flows for the year then ended (not presented herein). In our report dated
February 26, 1999, 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, 1998, is fairly stated in all material respects in relation to
the consolidated balance sheet from which it has been derived.
/s/BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
April 20, 1999
3
PART I - FINANCIAL INFORMATION
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Balance Sheets
=============================================
Item 1. Financial Statements
MARCH 31, DECEMBER 31,
ASSETS 1999 1998
----------- -----------
CURRENT ASSETS
Cash $ 85,369 $ 635,773
Accounts receivable, less allowance
for possible losses of $250,000 and
$210,000 5,800,743 5,489,165
Inventories:
Finished products 8,298,508 8,317,084
Work in process 589,412 660,534
Raw materials 1,355,366 1,620,604
Prepaid expenses and other assets 91,594 75,655
Future income tax benefits 2,376,856 2,395,856
----------- -----------
TOTAL CURRENT ASSETS 18,597,848 19,194,671
----------- -----------
PROPERTY AND EQUIPMENT
Land and improvements 640,384 635,692
Buildings 5,313,398 5,275,207
Machinery and equipment 19,647,385 19,503,267
----------- -----------
25,601,167 25,414,166
Less accumulated depreciation 16,780,848 16,411,078
----------- -----------
NET PROPERTY AND EQUIPMENT 8,820,319 9,003,088
----------- -----------
PREPAID PENSION ASSET 2,597,688 2,675,688
INTANGIBLE PENSION ASSET 564,949 564,949
4
FUTURE INCOME TAX BENEFITS 4,717,093 4,719,637
OTHER ASSETS 21,720 30,467
----------- -----------
$35,319,617 $36,188,500
=========== ===========
5
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Balance Sheets
=============================================
MARCH 31, DECEMBER 31,
LIABILITIES AND STOCKHOLDERS' EQUITY 1999 1998
----------- -----------
CURRENT LIABILITIES
Notes payable to banks $ 2,800,000 $ 2,300,000
Accounts payable 1,081,738 1,536,612
Accruals:
Compensation 396,165 600,599
Income taxes 13,661 41,294
Taxes other than income 126,676 152,932
Miscellaneous 127,985 300,780
Current portion of postretirement
benefit obligation 1,044,175 1,044,175
Current maturities of
long-term debt 1,320,000 1,320,000
----------- -----------
TOTAL CURRENT LIABILITIES 6,910,400 7,296,392
LONG-TERM DEBT,
less current maturities 4,290,000 4,620,000
PENSION AND DEFERRED COMPENSATION
OBLIGATIONS, less current portion 2,596,812 2,604,111
POSTRETIREMENT BENEFIT OBLIGATION,
less current portion 14,474,449 14,650,755
----------- -----------
TOTAL LIABILITIES 28,271,661 29,171,258
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, $2 par value,
authorized and unissued
500,000 shares - -
6
Common stock, $2 par value,
1,750,000 shares authorized;
789,526 shares issued
and outstanding 1,579,052 1,579,052
Additional paid-in capital 338,272 338,272
Retained earnings 7,255,891 7,273,410
Accumulated other comprehensive
income (Note 3):
Cumulative foreign currency
translation adjustment (932,840) (981,073)
Pension liability adjustment (1,192,419) (1,192,419)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 7,047,956 7,017,242
----------- -----------
$35,319,617 $36,188,500
=========== ===========
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
7
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Income
=================================================
Three months ended March 31, 1999 1998
---------- ----------
NET SALES $8,959,131 $9,946,018
COST OF SALES 6,597,554 6,771,980
---------- ----------
Gross profit 2,361,577 3,174,038
---------- ----------
OPERATING EXPENSES
Advertising 70,301 97,566
Selling 736,710 760,036
General and administrative 1,360,040 1,504,124
---------- ----------
2,167,051 2,361,726
---------- ----------
Operating income 194,526 812,312
---------- ----------
OTHER EXPENSE (INCOME)
Interest expense 147,087 109,130
Interest income - (8,117)
Other, net (37,204) 1,024
---------- ----------
109,883 102,037
---------- ----------
Income before income tax expense 84,643 710,275
INCOME TAX EXPENSE 39,000 292,000
---------- ----------
NET INCOME $ 45,643 $ 418,275
========== ==========
8
BASIC AND DILUTED NET INCOME
PER SHARE OF COMMON STOCK (Note 2) $.06 $.54
DIVIDENDS PER SHARE OF COMMON STOCK $.08 $.075
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
9
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
=================================================
Three months ended March 31, 1999 1998
---------- ----------
OPERATING ACTIVITIES
Net income $ 45,643 $ 418,275
Adjustments to reconcile net
income to net cash for
operating activities:
Depreciation 354,470 371,456
Gain on sale of property and
equipment (42,300) -
Deferred income taxes 19,000 247,000
Change in postretirement
benefit obligation (176,306) (246,840)
Changes in operating
assets and liabilities:
Accounts receivable (303,376) (1,354,834)
Refundable income taxes - 2,487
Inventories 378,771 (380,735)
Prepaid expenses and other
current assets (15,899) (26,056)
Other assets 86,747 12,329
Accounts payable and accruals (896,642) 204,571
---------- ----------
Net cash for operating activities (549,892) (752,347)
---------- ----------
INVESTING ACTIVITIES
Capital expenditures (152,345) (453,768)
Proceeds from sale of property and
equipment 42,300 -
---------- ----------
Net cash for investing activities (110,045) (453,768)
---------- ----------
10
Hastings Manufacturing Company and Subsidiaries
Condensed Consolidated Statements of Cash Flows
=================================================
Three months ended March 31, 1999 1998
---------- ----------
FINANCING ACTIVITIES
Proceeds from issuance of notes
payable to banks 1,900,000 1,900,000
Principal payments on notes
payable to banks (1,400,000) (800,000)
Principal payments on long-term debt (330,000) (365,625)
Dividends paid (63,162) (58,794)
---------- ----------
Net cash from financing activities 106,838 675,581
---------- ----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 2,695 1,721
---------- ----------
NET DECREASE IN CASH (550,404) (528,813)
CASH, beginning of period 635,773 558,172
---------- ----------
CASH, end of period $ 85,369 $ 29,359
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ 157,639 $ 120,008
Income taxes, net of refunds 26,680 8,885
See accompanying independent accountants' review report and notes to
condensed consolidated financial statements.
11
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 (the "Company"), the accompanying
unaudited condensed consolidated financial statements include all
normal recurring adjustments considered necessary to present
fairly the financial position as of March 31, 1999, and the
results of operations and cash flows for the three months ended
March 31, 1999 and 1998.
The results of operations for the three months ended March 31,
1999, are not necessarily indicative of the expected results for
all of 1999.
The condensed consolidated financial statements include the
accounts of the Company and its wholly owned subsidiaries. All
significant intercompany balances, transactions and stockholdings
have been eliminated.
The accompanying consolidated financial statements are condensed
and do not contain all of the information and footnote
disclosures required by generally accepted accounting principles
in a complete set of financial statements.
NOTE 2 A reconciliation of the numerators and denominators used in the
"basic" and "diluted" earnings per share (EPS) calculations
follows:
Three months ended March 31, 1999 1998
-------- --------
Numerator:
Net income used for both
basic and diluted EPS
calculation $ 45,643 $418,275
======== ========
Denominator:
Weighted average shares
outstanding for the period -
used for basic EPS calculation 775,046 771,496
Dilutive effect of stock options
and contingently issuable shares - 1,031
-------- --------
12
Weighted average shares outstanding
for the period - used for
diluted EPS calculation 775,046 772,527
======== ========
NOTE 3 Comprehensive income and its components consist of the following:
Three months ended March 31, 1999 1998
-------- --------
Net income $ 45,643 $418,275
Other comprehensive income,
net of tax:
Foreign currency translation
adjustments 48,233 15,761
Minimum pension liability
adjustment - -
-------- --------
Other comprehensive income 48,233 15,761
-------- --------
Comprehensive income $ 93,876 $434,036
======== ========
Accumulated comprehensive income totaled $2,125,259 and
$2,173,492 at March 31, 1999 and December 31, 1998, respectively.
13
Hastings Manufacturing Company and Subsidiaries
Review by Independent Certified Public Accountants
=====================================================
The March 31, 1999 and 1998, condensed consolidated financial statements
included in this filing on Form 10-Q have been reviewed by BDO Seidman,
LLP, Independent Certified Public Accountants, in accordance with
established professional standards and procedures for such a review.
14
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
RESULTS OF OPERATIONS
NET SALES
1999 COMPARED TO 1998
Net sales in the first quarter of 1999 decreased $986,887, or 9.9%, from
$9,946,018 in the first quarter of 1998 to $8,959,131. The 1999 decrease
reflects a decline in both the domestic piston ring aftermarket and export
markets, offset by a slight increase in the private brand and original
equipment volumes. The domestic aftermarket decline reflects an industry-
wide replacement parts softness through the early part of 1999. The export
volume has been adversely affected to date by specific political and
economic factors, in addition to the carryover effect of the global
economic concerns from late 1998. One of the Company's 1999 goals is to
increase the percentage of orders filled within a specific time after
receipt of the order. While the Company was able to improve its order fill
performance during the first quarter, the potential improvement was impeded
during this period by a temporary production issue as discussed below in
the "Cost of Sales and Gross Profit" section.
1998 COMPARED TO 1997
Net sales in the first quarter of 1998 increased $1,193,861, or 13.6%, from
the first quarter of 1997. This growth reflects the success of the
Company's increased focus on the domestic piston ring aftermarket, combined
with an acceleration of export volume. As detailed in previous filings,
the Company broadened its direct account export efforts throughout 1997.
The success realized in early 1998 reflects, in part, the development and
growth of those relationships.
COST OF SALES AND GROSS PROFIT
1999 COMPARED TO 1998
Cost of sales in the first quarter of 1999 decreased $174,426, or 2.6%,
from the first quarter of 1998. The gross profit margin on net sales
declined from 31.9% in the first quarter of 1998 to 26.4% in the 1999
comparative period. Given the net sales decline detailed above, a larger
cost of sales decline, with a higher relative gross profit margin, would
have been anticipated. The first quarter of 1999 was, however, negatively
15
impacted by non-recurring costs associated with the conversion and start-up
of various production processes. Both equipment and personnel factors
contributed to this situation with associated costs approximating $400,000.
The Company believes that these factors have been corrected to prevent any
future impact. Had this production incident not occurred, the gross profit
margin for the first quarter would have approached the 31.9% level attained
in the first quarter of 1998.
1998 COMPARED TO 1997
Cost of sales in the first quarter of 1998 increased $842,723, or 14.2%,
from the first quarter of 1997. This increase mirrors the reported net
sales gain. The gross profit margin on net sales declined slightly from
32.3% in the first quarter of 1997 to 31.9% in the 1998 comparative period.
This slight decrease reflects the impact of the sales mix change with a
higher relative portion of export sales activity in the first quarter of
1998. Those sales have traditionally not required the same level of gross
profit margin as domestic sales due to the lower level of ongoing operating
support costs associated with export markets.
OPERATING EXPENSES
1999 COMPARED TO 1998
Total operating expenses in the first quarter of 1999 decreased $194,675,
or 8.2%, from $2,361,726 in the first quarter of 1998, to $2,167,051.
Advertising expenses decreased $27,265, or 27.9%, in the first quarter of
1999 in comparison to the same period in 1998. This decrease is the result
of the inclusion, in 1998, of a biannual customer service tips manual,
combined with a slight decrease in advertising support costs in 1999.
Selling expenses, down $23,326, or 3.1%, reflect a decrease in various
volume-driven selling support costs. General and administrative expenses
decreased $144,084, or 9.6%, from $1,504,124 in the first quarter of 1998
to $1,360,040. This decrease reflects the inclusion in 1998 of
approximately $50,000 of severance costs related to staffing reductions,
combined with a reduction, in 1999, of certain personnel support costs.
1998 COMPARED TO 1997
Total operating expenses in the first quarter of 1998 increased $9,052, or
0.4%, from the first quarter of 1997. Advertising expenses declined
slightly reflecting the inclusion of a biannual product catalog expense in
1997. Selling expenses, down $39,139, or 4.9%, reflect certain sales staff
reductions realized in late 1997. This sales staff reduction resulted in
lower compensation-driven costs and lower support costs including travel
and benefit costs. General and administrative costs increased $57,643, or
4.0%, reflecting higher personnel support costs offset in part by further
16
reductions in various expenses associated with the general office and
corporate operations.
OTHER EXPENSES
1999 COMPARED TO 1998
Other expenses netted to $109,883 for the first quarter of 1999 compared to
a net expense of $102,037 for the first quarter of 1998. This increase
reflects a higher interest expense on the Company's long-term debt
associated with the restructuring of its debt obligations in late August of
1998, as detailed in previous reports. This higher interest expense
related to long-term obligations was offset by lower interest expense on
short-term borrowings, reflecting decreased working capital requirements as
driven by the net sales decrease. The other, net amount in 1999 primarily
reflects the gain on the sale of obsolete plant equipment.
1998 COMPARED TO 1997
Other expenses netted to $102,037 for the first quarter of 1998 compared to
a net expense of $115,151 for the first quarter of 1997. Interest costs
declined, reflecting the normal amortization of the Company's long-term
debt obligations, offset slightly by an increase in the interest expense
associated with short-term borrowings. The increase in short-term
borrowings reflects the increased working capital requirements that were
driven by the net sales increase. The interest income totals reflect the
income derived from the funds generated by the filter operations sale which
were held in escrow through September of 1998.
TAXES ON INCOME
The 1999 and 1998 effective tax rates of 46.1% and 41.1%, respectively, are
higher than the domestic statutory rate due primarily to the impact of
various state income taxes and the impact of a higher statutory rate
applicable to the earnings of the Canadian subsidiary.
As of March 31, 1999, the Company recorded net deferred income tax assets
of $7,093,949. The major components of those assets are the tax effects of
the net operating loss carryforwards and accrued retirement and
postretirement benefit obligations. The realization of these recorded
benefits is dependent upon the generation of future taxable income.
Management believes it is more likely than not that adequate levels of
future taxable income will be generated to absorb the net operating loss
carryforwards, the deductible amounts related to the retirement and
postretirement benefit obligations and the remaining net deductible
temporary differences.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements continue to be for operating
expenses such as 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 Company expects to generate sufficient future funds
from operations and bank borrowings to fund its growth and operating needs.
Total short-term lines available to the Company as of March 31, 1999
totaled $5,200,000, of which $2,400,000 was unused.
During the first quarter of 1999, the Company used $549,892 of net cash for
operating activities. The realized net income, depreciation and decrease
in inventories were offset by an increase in accounts receivable, a
decrease in accounts payable and accruals and a decrease in the periodic
postretirement benefit obligation. The decrease in inventories is due
primarily to the production situation noted in the "Cost of Sales and Gross
Profit" section of this discussion. The increase in accounts receivable
reflects the timing of customer sales and the related payment terms
associated with those sales. The decrease in the accounts payable and
accruals is due to several large payments being made in the first quarter
on year-end accruals for compensation, workers compensation and general
accounts payable. The investing activities for the first quarter of 1999
reflect the decreased requirement for new capital equipment, as the Company
makes the transition toward a cellular manufacturing environment. This
trend should continue for the remainder of 1999. The investing activities
also reflect the proceeds from the sale of obsolete plant equipment. The
financing activities for the first quarter of 1999 reflect the additional
working capital requirements that were primarily needed to fund the
operating activity items noted above. The financing activities also
reflect the amortization of the Company's long-term debt obligation that
resulted from the adoption of a new long-term debt agreement with the
Company's primary lender in late August 1998. The details of this
agreement have been disclosed in prior reports.
During the first quarter of 1998, the Company used $752,347 of net cash for
operating activities. The realized net income, depreciation and decrease
in deferred income taxes were offset by increases in accounts receivable
and inventories, and a decrease in the periodic postretirement benefit
obligation. The decrease in the deferred income taxes reflects the
utilization of a portion of the net operating loss carryforward based on
first quarter earnings. The increased accounts receivable and inventory
values reflect the working capital needs resulting from the higher sales
level. The investing activities for the first quarter of 1998 reflect the
Company's continued commitment to enhancing its production capabilities.
The financing activities reflect the continued amortization of the
Company's long-term debt obligations as well as the increased reliance on
short-term borrowings in response to the increased working capital needs.
18
As noted throughout the above discussion, the Company has experienced
several events during the first quarter of 1999 that have negatively
affected its cash flow. The decline in net sales and the resulting decline
in net income are viewed as temporary in nature. The production situation
described above is considered to be a "one-time" event that should not recur
in the future. As a result, the Company anticipates that operations
(which should be subject to minimal current cash outflows for U.S. income
taxes due to utilization of the net operating loss carryforwards), in
combination with the balancing of available short-term lines of credit
with our operations, will generate cash flows sufficient to fund its
working capital, capital outlays and dividend needs through 1999.
NEW ACCOUNTING STANDARD
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities," issued in June 1998, requires companies to recognize all
derivative contracts as either assets or liabilities in the balance sheet
and to measure them at fair value. If certain conditions are met, a
derivative may be specifically designated as a hedge, the objective of
which is to match the timing of gain or loss recognition on the hedging
derivative with the recognition of (i) the changes in the fair value of the
hedged asset or liability that are attributable to the hedged risk of (ii)
the earnings effect of the hedged forecasted transaction. For a derivative
not designated as a hedging instrument, the gain or loss is recognized in
income in the period of change. SFAS No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999.
Historically, the Company has not entered into derivative contracts for
speculative purposes. The Company does periodically enter into interest
rate swap and collar agreements to reduce the impact of changes in interest
rates on its floating rate borrowings. However, the fair value of such
derivatives are not significant. Accordingly, the Company does not expect
adoption of the new standard on January 1, 2000 to materially affect its
consolidated financial statements.
YEAR 2000 READINESS DISCLOSURE
The year 2000 (Y2K) issue is the result of computer programs having been
written using two digits, rather than four, to define the applicable year.
Any of the Company's computers, computer programs, manufacturing and
administrative equipment or products that have date-sensitive software or
microprocessor may recognize a date using "00" as the year 1900 rather than
the year 2000. If any of the Company's systems that are date-sensitive use
only two digits, system failures or miscalculations may result causing
disruptions of operations, including, among other things, a temporary
inability to process transactions or engage in similar normal business
activities.
19
During 1995, the Company's internal data processing personnel began an
evaluation of the Company's exposure to the effects of the Y2K issue. As a
member of certain automotive supplier trade associations, awareness of the
Y2K issue was both highlighted and documented beginning in early 1996. At
that point, a multi-disciplined committee was established to coordinate the
Company's efforts in addressing the Y2K impact. This committee continues to
include several members of the internal Executive Committee with
responsibility for full board-level reporting on this issue. Through the
efforts of this committee, the Company coordinates both internal and
external reviews of its Y2K exposure.
Internally, this committee evaluated the general operating systems for the
Company as well as the security systems, telecommunications networks,
manufacturing equipment and internal personal computer (PC) operations.
Through the second half of 1996 and much of 1997, the Company utilized the
services of an outside consultant, as well as its internal resources, to
convert its computer system to be Y2K compliant. As of December 31, 1998,
the Company's core operating system and applications, its PC operating
systems and the majority of its PC applications were believed to be
compliant. The remaining PC applications are expected to be compliant by
mid-1999, pending installation of the next software release or upgrade as
needed. Manufacturing equipment testing has been completed with no
perceived Y2K exposure. At this point, the Company is coordinating live
tests of its operating systems for Y2K compliance. Those test events are
expected to extend through mid-1999. Incremental costs related to the Y2K
project, primarily consisting of expenses related to the consultant,
approximated $120,000 through 1998 with $10,000, $80,000 and $30,000
charged to operating expenses as incurred in 1998, 1997 and 1996,
respectively. Internal costs, which are not incremental in nature, have
not been tracked by the Company. Future costs to be incurred to complete
Y2K compliance and testing procedures, primarily related to Company
personnel are not expected to be material.
With the inception of the committee in 1996, the Company began to focus
externally as well. The committee identified suppliers of products and
services deemed to be critical to the Company's operations as well as
customers deemed to have the greatest Y2K exposure (e.g., EDI
communications). The Company has coordinated via surveys with these key
contacts. While the Company cannot guarantee Y2K compliance by its key
suppliers and customers, and in many cases will be relying on statements
from outside vendors without independent verification, preliminary results
indicate that these key suppliers and customers are aware of the issues and
are working to assure their compliance before the year 2000. At this time,
the Company is not aware of any key suppliers or customers who will not be
Y2K compliant by the year 2000. The Company's next steps will be to update
the solicitation of key customers, obtain more detailed information from
certain key suppliers and customers and follow-up with those companies who
20
did not respond to the original surveys. Pending the results of the
internal testing, the Company intends to prepare a contingency plan that
will specify what exposures it still perceives and what it plans to do if
it or important external companies are not Y2K compliant in a timely
manner. The Company expects to prepare and evaluate its contingency plan
during the third quarter of 1999.
Assessments that the Company is or will be Y2K "compliant" or "ready" are
necessarily statements of belief as to the outcome of future events, based
in part on information provided by third parties that the Company has not
independently verified.
FORWARD-LOOKING STATEMENTS
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. 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.
21
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
The Company is exposed to potential market risks on interest rates relating
to an interest swap agreement transacted with its primary lender in
connection with its long-term debt agreement. Management believes that the
fluctuation in interest rates in the near future will not have a material
impact on the consolidated financial statements taken as a whole. The
Company does not use derivative financial instruments for trading purposes.
22
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) EXHIBIT. The following document is filed as an exhibit
to this report on Form 10-Q:
EXHIBIT
NUMBER DOCUMENT
3(a) Amended Articles of Incorporation of Hastings
Manufacturing Company, filed as an exhibit to the Form
10-Q Quarterly Report for the period ended September
30, 1998, are here incorporated by reference.
3(b) Bylaws of Hastings Manufacturing Company, as amended
to date.
4(a) NBD Bank Amended and Restated Letter Agreement for
$6,600,000 Term Loan and $3,000,000 Credit
Authorization to Make Revolving Credit Loans and Issue
Letters of Credit dated August 28, 1998, filed as an
exhibit to the Form 10-Q Quarterly Report for the
period ended September 30, 1998, is here incorporated
by reference.
4(b) Restated Master Agreement dated August 10, 1998,
regarding an interest rate swap transaction between
Hastings Manufacturing Company and NBD Bank, filed as
an exhibit to the Form 10-Q Quarterly Report for the
period ended September 30, 1998, is here incorporated
by reference.
4(c) Commercial Line of Credit Agreement and Note, dated as
of January 23, 1998, between Hastings Manufacturing
Company and Hastings City Bank, filed as an exhibit to
the Form 10-Q Quarterly Report for the period ended
June 30, 1998, is here incorporated by reference.
4(d) Preferred Stock Purchase Rights Plan, filed as an
exhibit to Form 8-K filed with the Securities and
Exchange Commission on February 15, 1996, is here
incorporated by reference.
4(e) Confirmation, dated as of March 12, 1996, regarding an
interest rate collar transaction between Hastings
Manufacturing Company and NBD Bank, filed as an exhibit
23
to the Form 10-K Annual Report for the year ended
December 31, 1996, is here incorporated by reference.
27 Financial Data Schedule
(b) REPORTS ON FORM 8-K. No reports on Form 8-K have been
filed during the quarter for which this report is
filed.
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HASTINGS MANUFACTURING COMPANY
Date: May 17, 1999 /S/MONTY C. BENNETT
Monty C. Bennett
Its Vice-President, Employee
Relations, Secretary and Director
Date: May 17, 1999 /S/THOMAS J. BELLGRAPH
Thomas J. Bellgraph
Its Vice-President, Finance
25
EXHIBIT INDEX
EXHIBIT
NUMBER DOCUMENT
3(a) Amended Articles of Incorporation of Hastings
Manufacturing Company, filed as an exhibit to the Form
10-Q Quarterly Report for the period ended September
30, 1998, are here incorporated by reference.
3(b) Bylaws of Hastings Manufacturing Company, as amended
to date.
4(a) NBD Bank Amended and Restated Letter Agreement for
$6,600,000 Term Loan and $3,000,000 Credit
Authorization to Make Revolving Credit Loans and Issue
Letters of Credit dated August 28, 1998, filed as an
exhibit to the Form 10-Q Quarterly Report for the
period ended September 30, 1998, is here incorporated
by reference.
4(b) Restated Master Agreement dated August 10, 1998,
regarding an interest rate swap transaction between
Hastings Manufacturing Company and NBD Bank, filed as
an exhibit to the Form 10-Q Quarterly Report for the
period ended September 30, 1998, is here incorporated
by reference.
4(c) Commercial Line of Credit Agreement and Note, dated as
of January 23, 1998, between Hastings Manufacturing
Company and Hastings City Bank, filed as an exhibit to
the Form 10-Q Quarterly Report for the period ended
June 30, 1998, is here incorporated by reference.
4(d) Preferred Stock Purchase Rights Plan, filed as an
exhibit to Form 8-K filed with the Securities and
Exchange Commission on February 15, 1996, is here
incorporated by reference.
4(e) Confirmation, dated as of March 12, 1996, regarding an
interest rate collar transaction between Hastings
Manufacturing Company and NBD Bank, filed as an exhibit
to the Form 10-K Annual Report for the year ended
December 31, 1996, is here incorporated by reference.
27 Financial Data Schedule
26