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	[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the year ended December 31, 1999
		OR
	[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____________ to ______________.

	Michigan (State of incorporation)		38-0633740 (I.R.S. Employer Identification No.)
	325 North Hanover Street Hastings, Michigan (Address of principal executive offices)		49058 (Zip Code)

	Title of each class		Name of each exchange on which registered
	Common Stock, $2.00 par value		American Stock Exchange

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 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]

Aggregate market value of voting stock of Registrant held by non-affiliates as of March 20, 2000 was $2,667,552.

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 20, 2000:

Common Stock - $2 par value

760,766 Shares

Part III, Items 10, 11, 12 and 13

Proxy Statement for Annual Meeting to be held May 9, 2000

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 is primarily a manufacturer of piston rings for automotive and light duty truck applications for the replacement market. In addition, some of the Company's piston ring products are produced for original equipment applications. To a lesser extent, the Company packages and sells automotive mechanics' specialty tools and additives for engines, transmissions and cooling systems. Prior to October 4, 1999, the Company directly administered and sold those additives. Effective that day, the Company entered into a joint venture agreement for the marketing of those additive products worldwide. In addition, all of the Company's products are currently sold in Canada where they are produced and/or packaged and distributed by the Company's Canadian subsidiary, Hastings, Inc., located in Barrie, Ontario. Effective in early 1999, that facility became responsible for all specialty tool packaging and distribution throughout the Canadian, U.S. and other foreign markets reflecting the most efficient management of that product offering.

                The Company distributes its replacement products through numerous auto parts jobbers and warehouse distributors in the U.S. and Canada. These products are also distributed nationally and internationally through numerous large-scale engine rebuilders and various retailer outlets. The Company now distributes the majority of its export sales on a country direct basis. Prior to early 1997, international sales had been primarily distributed through one U.S. based customer.

                Fiscal 1997 was a critical year for the Company as it returned to profitability for the first full year period since 1994. The Company built upon that success through the 1998 fiscal year, fueled by added sales growth and a continued commitment to control its operating costs. The Company made several significant operating changes in its way of conducting business through that period. During 1997, for instance, the Company made substantial progress in expanding its overseas distribution channels on a country direct basis. By the close of 1997, the Company had contracted new distribution in Australia, South Africa, the Middle East, Israel, Puerto Rico, and South America. The maturity of several of those markets contributed to the overall sales gain that the Company achieved in 1998. Conversely, a softening in some of those markets in 1999 contributed to the net sales decline reported for 1999. Indications through early 2000 are favorable that those markets will approach their 1998 levels.

                The manufacturing demands required to support the 1998 sales increase revealed certain operating constraints within the Company's manufacturing capabilities. As a result, the Company experienced a period of product shortages through the latter half of 1998. In response to those pressures, the Company began the implementation of lean manufacturing principles, including the conversion to a cellular approach for some manufacturing processes. (Lean manufacturing refers to a discipline of arranging the workflow in such a manner as to minimize or eliminate any waste of materials or labor.) This conversion is expected to result in production efficiencies through both reduced product lead times and capacity improvements. While this conversion process will continue through mid-2000, early results from this conversion are encouraging.

                During 1999, the Company faced multiple challenges as it began the lean manufacturing implementation. That conversion did not proceed without some costs in time and efficiencies. Despite

                Beginning in 1996, and carrying over to 1997, the Company made substantial strides in its quality and business control operations. The Company's commitment to these initiatives was rewarded with QS-9000 and ISO-9002 quality registrations in July 1997. In February 1999, following several successful follow-up audits, the Company was recommended for upgrade to ISO-9001, thus giving recognition to its product design capabilities.

                The market for the Company's products is highly competitive. The Company has two principal competitors in the piston ring market. The principal methods of competition in the industry are price, service, product performance and product availability. The Company ranks among the three largest domestic producers of replacement piston rings.

                Among the Company's trade names used in marketing its products are "Hastings" and "Flex-Vent," which are registered trademarks in the United States and many foreign countries. The "Casite" trademark, used by the Company in the past for its additives line, has been transferred to the joint venture described above for use in its operations. 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 Company's business and the Company does not keep separate figures of backlog. 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 Company's business taken as a whole.

                The Company's sales are made to many customers and are not dependent upon a single customer or a few customers. As stated in Note 11 to the Consolidated Financial Statements (included in Item 8), net sales to one customer (Chrysler Corporation), however, represented approximately $4,242,000, $3,874,000 and $3,180,000 of the Company's consolidated sales for 1999, 1998, and 1997 respectively.

                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. The Company maintains its own

                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 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 442 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 Company's products are sold worldwide. Financial information regarding the Company's geographic sales and long-lived assets 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, 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., located in Barrie, Ontario, owns and operates manufacturing and warehouse facilities for piston rings, additives, and mechanics' specialty tools and for the distribution of products for other U.S. based suppliers into the Canadian market. 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 70% of capacity.

Item 3.

Legal Proceedings.

                As a result of the Company's amendment of its postretirement benefit plans, as discussed in Note 6 to the Consolidated Financial Statements (included in Item 8), the Company's retirees filed a class action lawsuit in the Western District of Michigan on January 24, 2000, under the Employee Retirement Income Security Act of 1974 (ERISA) and the Labor Management Relations Act of 1947 (LMRA). The suit alleges that the Company denied retirees and their dependents certain health insurance benefits to which the retirees have "vested" rights pursuant to the terms of the Company's collective bargaining agreements (1964 to the present). Specifically, the retiree class disputes the increase in their health insurance deductibles, the elimination of their prescription drug card and the requirement that they pay a portion of their health insurance premiums. The Company has denied any wrongdoing in this suit, and intends to defend it and any related class certification vigorously. However, because the lawsuit is in

its very early stages, the Company's ultimate chances of success are uncertain. If the retirees prevail, the Company anticipates that a requirement to provide postretirement benefits at the pre-amendment level would have a material adverse effect on the future financial position, results of operations and cash flows of the Company. The case is scheduled for trial on June 18, 2001.

                In the normal course of business, the Company is a named party in various environmental matters, as well as routine litigation incidental to its business. In the opinion of management, disposition of these items will not have a material impact on the results of operations or financial condition of the Company.

Item 4.

Submission of Matters to a Vote of Security Holders.

                No matter was submitted during the fourth quarter of 1999 to a vote of the Company's shareholders through the solicitation of proxies or otherwise.

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). On March 20, 2000, there were 760,766 outstanding shares and the approximate number of record shareholders was 271.

                High and low sales prices and cash dividends, per quarter, are as set forth below. All results have been adjusted to reflect the two-for-one stock split as discussed in Note 8 to the Consolidated Financial Statements in Item 8 below.

		1999				1998
		Stock Price		Cash Dividends		Stock Price		Cash Dividends
		High	Low	Paid		High	Low	Paid
First Quarter		$21	$16	$.08		$24-1/2	$19-7/8	$.075
Second Quarter		16-1/8	13	.08		24-3/4	22-3/4	.08
Third Quarter		13-5/8	11-13/16	.08		23	20-3/4	.08
Fourth Quarter		11-7/8	8	.08		20-3/4	16-1/2	.08

                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 in accordance with the Company's loan agreements as described in Note 4 to the Consolidated Financial Statements included in Item 8 below. Unrestricted retained earnings under the agreements amounted to $2,529,014 at December 31, 1999.

                The Company made no unregistered sales of any of its securities during 1999.

	1999(2)			1998			1997			1996(3)			1995(4)
Net Sales	$	36,596,260		$	38,752,104		$	35,574,954		$	39,408,610		$	63,228,312
Net Income (Loss)		326,770			1,730,427			955,233			(884,843	)		(3,023,180	)
Basic and Diluted
Earnings (Loss) per Share(1)		.42			2.24			1.24			(1.15	)		(3.93	)
Long-Term Debt		3,660,000			4,620,000			565,625			2,028,125			3,490,625
Total Assets		35,662,817			36,188,500			33,390,331			34,454,989			37,547,568
Dividends per Share(1)		.32			.315			.25			.20			.20
Average Shares Outstanding:(1)
Basic		775,046			771,496			768,516			768,516			768,516
Diluted		775,046			772,694			768,680			768,516			768,516

(1)	Average shares outstanding and the related per share results have been adjusted to reflect the two-for-one stock split discussed in Note 8 to the Consolidated Financial Statements included in Item 8 below.
(2)	Reference is made to Note 7 to the Consolidated Financial Statements included in Item 8 below for disclosure of an uncertainty regarding the outcome of a lawsuit filed on January 24, 2000.
(3)	The 1996 data includes non-recurring restructuring and relocation costs totaling $819,900.
(4)	The 1995 data includes the effects of the sale of filter operations and the subsequent realignment of the organizational structure to a smaller size.

Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operations.

                For the year ended December 31, 1999, the Company generated net income of $326,770 compared to net income of $1,730,427 in 1998. This decreased profitability was the result of various factors, each of which is more fully described below. These factors include a decrease in net sales in 1999 of 5.6%; a decrease in the gross profit margin, which was primarily impacted by non-recurring costs associated with the conversion and start-up of various production processes; and an increase in other expenses, which was driven by higher interest costs associated with the 1998 restructuring of long-term debt. These negative factors were offset slightly by a reduction in total operating expenses, reflecting the Company's continued efforts to control these expenses.

                While, as discussed below, net sales, operating expenses and other expenses were relatively comparable between fourth quarter 1999 and 1998, fourth quarter 1999 cost of sales increased by $805,893, or 14.5%. The increase in cost of sales was primarily due to increased workers' compensation costs combined with an increase in cast iron costs. The cost of sales increase is the primary cause of the fourth quarter pre-tax loss of $38,010 compared to 1998 fourth quarter pre-tax income of $706,598, a change of $744,608. The 1999 fourth quarter net loss was $37,010 compared to net income of $531,598 for the comparable period in 1998.

                As disclosed in Note 1 to the Consolidated Financial Statements, in October 1999 the Company formed a 50/50 joint venture company for the purpose of expanding its additives offerings through both increased global market penetration and an expansion of the product offerings under the "Casite" name. The additional product offerings are expected to become available in mid-2000. While the Company is optimistic regarding the future opportunities relative to the expansion of the additives business, it is not expected to have a significant impact on 2000 operations.

RESULTS OF OPERATIONS

NET SALES

1999 Compared to 1998

                Net sales for 1999 decreased $2,155,844, or 5.6%, from $38,752,104 in 1998 to $36,596,260. The decrease in net sales primarily reflects a decline in the Company's export volume. The export volume was negatively affected by specific political and economic factors in the foreign countries where the Company conducts business, combined with the effects of realigning the distribution channel within one of the Company's major foreign markets. The net sales decrease also reflects slight reductions in volume in the Company's domestic aftermarket and private brand and original equipment markets, offset by a sales increase in the Canadian aftermarket.

                Net sales were relatively flat in the fourth quarter of 1999 in comparison to the same period in 1998.

1998 Compared to 1997

                Net sales for 1998 increased $3,177,150, or 8.9%, from 1997. The increase reflected growth in the Company's domestic aftermarket, private brand and export markets. Growth in the domestic aftermarket reflected the Company's increased focus on that aspect of the piston ring market. Growth in the private brand area was the result of increased volume to several major customers. The increase in the export area reflected the success of the on-going development of the Company's country direct export efforts.

COST OF SALES AND GROSS PROFIT

1999 Compared to 1998

                Cost of sales for 1999 increased $341,351, or 1.3%, from $26,094,399 in 1998 to $26,435,750. This increase, along with the noted decrease in net sales, resulted in a gross profit margin decrease to 27.8% in 1999 from 32.7% in 1998. The increase in cost of sales and decrease in the gross profit margin are the result of several factors. During 1999, the Company's cost of sales was negatively impacted by non-recurring costs associated with the conversion and start-up of various production processes. As a result of this conversion, productivity levels were not at their anticipated needs. In order to cover these production deficiencies and further improve production levels, additional labor and overhead costs were incurred throughout 1999. These additional costs were necessary in order to raise production levels up to the point where customer order fill performance could be, and was, improved in 1999. In addition, due to the tight labor market in the local area, the Company experienced unplanned employee turnover in 1999, which also negatively affected the production efficiency issue. The Company aggressively addressed these issues throughout 1999, and is now focusing on further elevating its production capabilities as it continues the implementation of lean manufacturing methods. Lean manufacturing refers to a discipline of arranging the workflow in such a manner as to minimize or eliminate any waste of materials or labor. The Company is likewise evaluating the changes necessary to support and sustain an efficient workforce. These issues had an effect on several of the individual production cost factors for 1999. Material costs remained relatively unchanged from the prior year average with increases in cast iron costs, primarily in the fourth quarter, being offset by reductions in rolled steel costs. Labor costs increased slightly as a result of the collective bargaining agreement, but

                As previously noted, cost of sales for the fourth quarter of 1999 increased by $805,893, or 14.5%, over the fourth quarter of 1998. The increase was primarily due to an increase in workers' compensation costs combined with an increase in cast iron costs which, by being on the LIFO method of costing for raw materials inventory, were recognized currently in cost of sales. In spite of the increased fourth quarter cost of sales compared to the prior year, the gross profit margin generated in the fourth quarter (28.7%) was higher than the margin reported through the third quarter of 1999 (27.5%), reflecting the Company's initial success in aggressively addressing the above noted production issues.

1998 Compared to 1997

                Cost of sales for 1998 increased $1,809,202, or 7.4%, from 1997. The increase in cost of sales reflected the corresponding increase in net sales. The gross profit margin increased to 32.7% in 1998 from 31.7% in 1997. This increase was primarily due to a decrease in certain raw material costs with overhead costs increasing at a rate lower than the sales increase, given the fixed nature of a large portion of those costs. These decreases were partially offset by increased labor costs. Labor costs increased in 1998 as a result of the collective bargaining agreement, additional overtime required to support increased customer demand and the Company's efforts to significantly reduce the cycle time from customer order to product shipment.

OPERATING EXPENSES

1999 Compared to 1998

                Total operating expenses for 1999 decreased $396,444, or 4.2%, from $9,341,138 in 1998 to $8,944,694. Advertising expenses decreased $49,028, or 15.1%, from the 1998 total. This decrease reflects a reduction in advertising support costs in 1999, combined with the inclusion, in 1998, of a biannual customer service tips manual. Selling expenses increased $135,574, or 4.6%, from the 1998 total. This increase reflects increases in agent-based commissions, salesmen's travel and sales promotion costs, offset by a slight decrease in sales support costs. General and administrative expenses decreased $482,990, or 7.9%, from the 1998 total. This decrease is due to reductions in the provision for doubtful accounts receivable, as discussed below, and salaried personnel costs, offset by slight increases in various administrative support costs. The decrease also reflects the inclusion, in 1998, of approximately $50,000 of severance costs related to staffing reductions.

                Fourth quarter 1999 operating expenses were 2.3% lower than the 1998 total primarily due to increased 1999 agent-based commissions, sales bonuses and workers' compensation costs, as

1998 Compared to 1997

                Total operating expenses for 1998 increased $154,767, or 1.7%, from 1997. Advertising expenses decreased $47,911, or 12.8%, from the 1997 total. This decrease reflected the cost of a biannual product catalog expense in 1997, combined with minor 1998 reductions in cooperative advertising, printed material and various other advertising costs. These reductions were offset slightly by an increase in advertising support staff salaries and the inclusion of the biannual customer service tips manual in 1998. Selling expenses decreased $179,737, or 5.8%, from the 1997 total. This decrease was primarily due to a reduction in various sales personnel expenses, offset slightly by a sales driven increase in agency commissions. General and administrative expenses increased $382,415, or 6.7%, from the 1997 total. This increase was primarily due to an increase in the provision for doubtful accounts receivable, offset by a number of insignificant account decreases. The provision increase, which amounted to $422,500, related primarily to two customer accounts.

OTHER EXPENSES

1999 Compared to 1998

                Other expenses, net for 1999 increased $106,906 over the 1998 net total. This increase primarily reflects the higher interest expense associated with the restructuring of the Company's long-term debt obligations in late August of 1998. Other expenses also reflects the 1998 interest income derived from the funds generated by the filter operations sale held in escrow through September 1998 and the 1999 gain on sale of obsolete plant equipment, which is included in the other, net expense.

                Other expenses, net for the fourth quarters of 1999 and 1998 were comparable.

1998 Compared to 1997

                Other expenses, net for 1998 increased by $5,987 over the 1997 total. Interest expense for 1998 was significantly impacted by the restructuring of the Company's short- and long-term debt obligations in late August of that year. Increased short-term borrowings through late August of 1998 reflected the increased working capital requirements as driven by the net sales increase. The restructuring of the short- and long-term debt resulted in increased long-term debt obligations which resulted in increased interest expense for the fourth quarter, and year end, of 1998. The interest income reflects the income derived from the escrowed filter sale funds.

TAXES ON INCOME

                The impact of income taxes on the reported results of the Company is detailed in Note 9 to the Consolidated Financial Statements. The 1999, 1998 and 1997 effective tax rates of 43.3%, 37.9% and 39.4%, respectively, are higher than the statutory federal tax rate of 34.0% due primarily to the impact of state income taxes and certain nondeductible expenses. The 1999 effective tax rate was also affected by the increase in the valuation allowance related to foreign tax credits that are expected to expire unutilized in 2000.

                As of December 31, 1999, the Company recorded net deferred income tax assets of $6,979,345. The major components include the tax effect of net operating loss carryforwards of $1,392,619 and net accrued retirement and postretirement benefit obligations totaling $4,849,520. The realization of these recorded benefits is dependent upon the generation of future taxable income.

                The net operating loss carryforwards fully expire in 2010, 2011, 2012 and 2019, 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 by late 2001.

                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 that is deductible for tax reporting purposes over many future years. During each of the ten years prior to when the recent net operating loss carryforwards arose, the Company has been able to deduct these benefits for tax reporting purposes and reduce its tax liability accordingly. As a result of the 1997 plan amendment to the retiree medical plan as discussed in Note 6 to the Consolidated Financial Statements, current tax deductible payments are expected to exceed the annual expense recognition for financial reporting purposes, thus accelerating the absorption of the future periods' tax benefit.

                Management believes that it is more likely than not that adequate levels of future 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. In addition, based upon projected foreign source income, management believes that it is more likely than not that the foreign tax credits, net of the valuation allowance at December 31, 1999, will be utilized prior to their expiration.

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 capital expenditures and long-term debt service. Historically, the Company's primary sources of cash have been from operations and from bank borrowings. Subsequent to December 31, 1999, the Company entered into an agreement with its primary lender to amend the terms of its short- and long-term debt obligations. The amendment increases the short-term line available to the Company from $3,000,000 to $3,500,000. The amendment also modifies the payment schedule of the Company's long-term debt obligation, and provides the primary lender with a security position in certain assets of the Company, as detailed in Note 12 to the Consolidated Financial Statements. As a result of this amendment, and based on an anticipated improvement in profitability, 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 December 31, 1999 totaled $5,200,000, of which $1,200,000 was unused. This increased to $5,700,000 and $1,700,000, respectively, with the amended loan agreement. In an effort to minimize its floating rate debt exposure, the Company is a party to an interest rate swap agreement essentially fixing the interest rate on that debt within a small range. The rate will fluctuate within 7.45% to 7.95% depending upon certain Company performance parameters. As of December 31, 1999, the "fixed" rate on those borrowings was 7.95%.

                During 1999, the Company generated $1,112,546 of net cash from operating activities. The realized net income and depreciation, combined with decreases in accounts receivable, prepaid pension cost and deferred income taxes, were partially offset by increases in inventories and decreases in accounts payable and accruals and the postretirement benefit obligation. The decrease in accounts receivable reflects the timing of customer sales and related payment terms associated with those sales.

                On February 10, 2000, the Company announced a common stock repurchase program. The program calls for the repurchase of up to 100,000 shares in the open market. The repurchased stock will be retired. On February 14, 2000, the Company repurchased 30,000 shares. Funds for the repurchase, amounting to approximately $231,000, were borrowed on the Company's short-term line of credit. The Company intends to purchase additional shares of its stock under this program throughout 2000, subject to acceptable levels of cash flows and favorable market conditions.

                In late August 1998, the Company entered into a $6,600,000 long-term debt agreement with its primary lender. This new agreement allowed the Company to take advantage of favorable interest rate conditions. Borrowings under this new long-term debt agreement were used for several purposes including: raising the Company's defined benefit plans to funding levels that would alleviate the payment of the variable rate Pension Benefit Guaranty Corporation (PBGC) premiums; consolidating the remaining long-term debt obligations; and paying down certain short-term notes payable. As a result of this new agreement, the Company's short-term line with its primary lender was reduced from $5,000,000 to $3,000,000. (This amount has subsequently been raised to $3,500,000 per the amended short- and long-term debt agreement as described above).

                During 1998, the Company used $1,192,259 of net cash for operating activities. The realized net income, depreciation and decrease in deferred income taxes, were offset by increases in accounts receivable, inventories, prepaid pension cost and a decrease in the postretirement benefit obligation. The decline in the deferred income tax asset was primarily the result of the additional funding of the Company's defined benefit pension plans, and the partial utilization of the net operating loss carryforwards. The increase in accounts receivable and inventories reflect the additional working capital requirements that were necessary to support the higher sales level. The increase in the prepaid pension cost of $2,675,688 reflects the funding of the Company's defined benefit plans to specified limits. As such, it did not have a direct effect on operations during 1998. Excluding this item, net cash generated from operating activities amounted to $1,483,429. The investing activities for 1998 reflect the Company's commitment to enhancing its production capabilities through the implementation of lean manufacturing principles. Investing activities also reflect the September 1998 release of escrowed funds relating to the 1995 sale of filter operations. These funds were subsequently used to reduce short-term notes payable. Financing activities reflect the increased reliance on short-term borrowings to help satisfy increased working capital needs. Financing activities also reflect the proceeds from the new long-term debt agreement and subsequent utilization of a portion of the proceeds to pay down short- and long-term debt. Dividends paid increased in 1998 due to the improved operating results.

                During 1997, the Company generated net cash of $2,129,643 from operating activities. The realized net income, depreciation and decrease in deferred income taxes were only partially countered by increases in accounts receivable and a reduction in the postretirement benefit obligation. The decline in the deferred income tax asset is the result of the partial utilization of the net operating loss carryforwards, while the postretirement benefit factor reflects, in part, the impact from the modification of the retiree health plan that was effective in April 1997. The majority of the Company's 1997 investing activities reflect capital equipment purchases that the Company utilized to enhance its production capabilities. The financing activities for 1997 reflect a modest decrease in reliance on short-term borrowings combined with the reduction of long-term debt levels through normally scheduled quarterly payments.

                As noted throughout the above discussion, the Company is aggressively addressing the production issues that negatively affected its earnings in 1999. As the Company completes its move toward the adoption of a lean manufacturing environment, it should enhance its ability to further its growth and to generate sufficient cash flow to sustain this growth. The Company will continue to monitor its working capital needs in order to balance its cash and growth demands. At this time, the Company anticipates that operations (which will be subject to minimal current cash outflows for U.S. income taxes due to the utilization of the net operating loss carryforwards), in combination with the balancing of available short-term lines with operations, will generate cash flows that will be sufficient to funds its working capital, capital outlays and dividend requirements through 2000.

LITIGATION CONTINGENCY

                As disclosed in Note 7 to the Consolidated Financial Statements, on January 24, 2000, the Company's retirees filed a class-action lawsuit against the Company as a result of the April 1997 amendment of the Company's postretirement benefit plans. The plans were amended principally to adjust the cost-sharing provisions. The suit alleges that the Company denied class retirees and their dependents certain health insurance benefits to which the retirees had a "vested" right pursuant to the terms of the Company's collective bargaining agreements (1964 to the present). The Company has denied any wrongdoing in this suit, and intends to defend it and any related class certification vigorously. However, due to the fact that this lawsuit is in its early stages, the Company's ultimate success in prevailing against the retirees' charges is uncertain at this time. If the retirees' position prevails, it is anticipated that a requirement to provide postretirement benefits at the pre-amendment level would have a material adverse effect on the future financial position, results of operations and cash flows of the Company. The case is scheduled for trial June 18, 2001.

NEW ACCOUNTING STANDARDS

                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 or (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, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000.

                Historically, the Company has not entered into derivatives contracts for speculative purposes. The Company does periodically enter into interest rate swap 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, 2001 to materially affect its consolidated financial statements.

YEAR 2000 READINESS DISCLOSURE

                The Company experienced no Y2K problems on or after January 1, 2000 and does not anticipate any future material problems related to Y2K. Incremental costs relating to the Company's Y2K readiness project, primarily consisting of expenses related to use of an outside 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 (none in 1999).

FORWARD-LOOKING STATEMENTS

                With the exception of historical matters, the matters discussed in this commentary include forward-looking statements that describe the Company's plans, objectives, goals, expectations or projections. These forward-looking statements are identifiable by words or phrases indicating that the Company or management "expects," "anticipates," "projects," "plans" or "believes" that a particular event "may occur" or "will likely occur" in the future, or similar statements. In addition to other risks and uncertainties described in connection with the forward-looking statements contained in this commentary, there are many important factors that could cause actual results to be materially different from the Company's current expectations.

                Anticipated future sales are subject to competitive pressures from many sources. As an example, future sales could be affected by consolidation within the automotive replacement parts industry, whereby the Company could lose sales due to a competitor purchasing all of the assets of a current customer of the Company. Future sales could also be affected by current and future political and economic factors in the foreign markets where the Company conducts business.

                Cost of sales and operating expenses may be adversely affected by unexpected costs associated with various issues. For example, future cost of sales could be affected by unexpected expenses related to the future maintenance of a lean manufacturing environment. Future operating expenses could also be affected, for example, by such items as unexpected large claims within the Company's self-funded group health insurance plan, increased retiree health insurance claim exposure as a result of an adverse court ruling on the current retiree health issue, or bad debt expenses related to deterioration in the credit worthiness of a customer.

                The foregoing is intended to provide meaningful cautionary statements of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The foregoing should not be construed as an exhaustive list of all economic, competitive, governmental and technological factors that could adversely affect the Company's expected consolidated financial position, results of operations or liquidity. The Company disclaims any obligation to update its forward-looking statements to reflect subsequent events or circumstances.

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk.

                The Company is exposed to potential market risks on interest rates relating to a 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 its consolidated financial statements taken as a whole. The Company does not use derivative financial instruments for trading purposes.

				December 31,
				1999		1998
Assets
Current Assets
	Cash			$   1,011,630		$    635,773
	Accounts receivable, less allowance for
		possible losses of $230,000 and $210,000
		(Note 12)		4,836,969		5,489,165
	Refundable income taxes			30,000		-
	Inventories (Notes 2 and 12):
		Finished products		9,264,412		8,317,084
		Work in process		456,960		660,534
		Raw materials		1,727,445		1,620,604
	Prepaid expenses and other assets			67,690		75,655
	Future income tax benefits (Note 9)			2,124,962		2,395,856
Total Current Assets				19,520,068		19,194,671
Property and Equipment
	Land and improvements			654,871		635,692
	Buildings			5,369,345		5,275,207
	Machinery and equipment (Note 12)			20,273,718		19,503,267
				26,297,934		25,414,166
	Less accumulated depreciation			17,762,201		16,411,078
Net Property and Equipment				8,535,733		9,003,088
Prepaid Pension Asset (Notes 4 and 5)				2,359,980		2,675,688
Intangible Pension Asset (Note 5)				376,632		564,949
Future Income Tax Benefits (Note 9)				4,854,383		4,719,637
Other Assets				16,021		30,467
				$35,662,817		$36,188,500

				December 31,
				1999		1998
Liabilities and Stockholders' Equity
Current Liabilities
	Notes payable to banks (Notes 3 and 12)			$ 4,000,000		$  2,300,000
	Accounts payable			1,727,611		1,536,612
	Accruals:
		Compensation		268,543		600,599
		Income taxes		61,673		41,294
		Taxes other than income		142,239		152,932
		Miscellaneous		425,000		300,780
	Current portion of postretirement
		benefit obligation (Notes 6 and 7)		1,045,756		1,044,175
	Current maturities of long-term
		debt (Notes 4 and 12)		960,000		1,320,000
Total Current Liabilities				8,630,822		7,296,392
Long-Term Debt, less current
	maturities (Notes 4 and 12)			3,660,000		4,620,000
Pension and Deferred Compensation
	Obligations, less current portion
	(Note 5)			2,394,036		2,604,111
Postretirement Benefit Obligation,
	less current portion (Notes 6 and 7)			13,715,222		14,650,755
Total Liabilities				28,400,080		29,171,258
Commitments and Contingencies
	(Notes 4, 5, 6 and 7)
Stockholders' Equity (Notes 4, 5 and 8)
	Preferred stock, $2 par value,
		authorized and unissued 500,000 shares		-		-
	Common stock, $2 par value, 1,750,000
		shares authorized; 790,766 and
		789,526 shares issued and
		outstanding		1,581,532		1,579,052
	Additional paid-in capital			313,907		338,272
	Retained earnings			7,347,532		7,273,410
	Accumulated other comprehensive income:
		Cumulative foreign currency
			translation adjustment	(780,679	)	(981,073	)
		Pension liability adjustment
			($1,817,507 and $1,806,695, net of
			tax of $617,952 and $614,276,
			respectively) (Note 5)	(1,199,555	)	(1,192,419	)
	Total accumulated other comprehensive
		income		(1,980,234	)	(2,173,492	)
Total Stockholders' Equity				7,262,737		7,017,242
				$35,662,817		$36,188,500

		Year ended December 31,
		1999		1998		1997

Net Sales				$36,596,260		$38,752,104		$35,574,954
Cost of Sales				26,435,750		26,094,399		24,285,197
Gross profit				10,160,510		12,657,705		11,289,757
Operating Expenses
	Advertising			276,042		325,070		372,981
	Selling			3,076,052		2,940,478		3,120,215
	General and administrative			5,592,600		6,075,590		5,693,175
				8,944,694		9,341,138		9,186,371
Operating income				1,215,816		3,316,567		2,103,386
Other Expenses (Income)
Interest expense				671,723		571,774		510,322
Interest income				-		(35,982	)	(47,062	)
Other, net				(32,677	)	(3,652	)	62,893
				639,046		532,140		526,153
Income before income tax
	expense			576,770		2,784,427		1,577,233
Income Tax Expense (Note 9)				250,000		1,054,000		622,000
Net Income				$   326,770		$  1,730,427		$   955,233
Basic and Diluted Earnings
	Per Share of Common Stock
	(Notes 8 and 10)			$        .42		$       2.24		$       1.24

						Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income		Total
Balance, January 1, 1997						$ 780,276		$140,206		$5,813,827		$ (1,801,861	)	$4,932,448
Comprehensive income:
	Net income					-		-		955,233		-		955,233
	Other comprehensive income:
		Foreign currency
			translation adjustment			-		-		-		(139,200	)	(139,200	)
		Pension liability
			adjustment (($362,230),
			net of tax of ($123,158))
			(Note 5)			-		-		-		(239,072	)	(239,072	)
														(378,272	)
Total comprehensive income														576,961
Shares issued under restricted
	stock plan, net of shares
	forfeited					350		5,582		-		-		5,932
Cash dividends ($.25 per share)						-		-		(195,215	)	-		(195,215	)
Two-for-one stock split
	(Note 8)					780,626		-		(780,626	)	-		-
Balance, December 31, 1997						1,561,252		145,788		5,793,219		(2,180,133	)	5,320,126
Comprehensive income:
	Net income					-		-		1,730,427		-		1,730,427
	Other comprehensive income:
		Foreign currency
			translation adjustment			-		-		-		(230,418	)	(230,418	)
		Pension liability
			adjustment ($359,181,
			net of tax of $122,122)
			(Note 5)			-		-		-		237,059		237,059
														6,641
Total comprehensive income														1,737,068
Shares issued under restricted
	stock plan, net of shares
	forfeited					17,800		192,484		(3,300	)	-		206,984
Cash dividends ($.315 per
	share)					-		-		(246,936	)	-		(246,936	)

Common stock

Additional paid-in capital

Retained earnings

Accumulated other comprehensive income

Total

 

Balance, December 31, 1998						1,579,052		338,272		7,273,410		(2,173,492	)	7,017,242
Comprehensive income:
	Net income					-		-		326,770		-		326,770
	Other comprehensive income:
		Foreign currency
			translation adjustment			-		-		-		200,394		200,394
		Pension liability
			adjustment (($10,812),
			net of tax of ($3,676))
			(Note 5)			-		-		-		(7,136	)	(7,136	)
														193,258
Total comprehensive income														520,028
Shares issued under restricted
	stock plan, net of shares
	forfeited					2,480		(24,365	)	-		-		(21,885	)
Cash dividends ($.32 per share)						-		-		(252,648	)	-		(252,648	)
Balance, December 31, 1999						$1,581,532		$313,907		$7,347,532		$(1,980,234	)	$7,262,737

				Year ended December 31,
				1999		1998		1997
Operating Activities
	Net income			$   326,770		$   1,730,427		$   955,233
	Adjustments to reconcile net
	income to net cash from
	(for) operating activities:
	Depreciation			1,464,889		1,464,944		1,337,100
	Gain on sale of property
		and equipment		(42,300	)	(1,991	)	-
	Deferred income taxes			168,000		955,000		591,000
	Change in postretirement
		benefit obligation		(933,952	)	(734,282	)	(757,820	)
	Changes in operating assets
		and liabilities:
	Accounts receivable			692,292		(420,582	)	(291,894	)
		Refundable income taxes		(30,000	)	12,994		51,933
		Inventories		(751,144	)	(1,434,958	)	(37,063	)
		Prepaid expenses and other
		current assets		8,121		(203	)	31,656
		Prepaid pension cost		315,708		(2,675,688	)	-
		Other assets		(24,167	)	20,274		93,315
		Accounts payable and
		accruals		(81,671	)	(108,194	)	156,183
Net cash from (for)
	operating activities			1,112,546		(1,192,259	)	2,129,643
Investing Activities
	Capital expenditures			(919,606	)	(2,246,598	)	(1,770,302	)
	Release of filter sale escrow
	funds			-		958,517		-
	Proceeds from sale of property
	and equipment			42,300		7,899		1,299
Net cash for investing
	activities			(877,306	)	(1,280,182	)	(1,769,003	)

				Year ended December 31,
				1999		1998		1997
Financing Activities
	Proceeds from issuance
	of notes payable
	to banks			$  8,500,000		$  9,500,000		$ 7,850,000
	Principal payments on
	notes payable to banks			(6,800,000	)	(10,600,000	)	(7,450,000	)
	Proceeds from issuance
	of long-term debt
	to banks			-		6,600,000		-
	Principal payments on
	long-term debt			(1,320,000	)	(2,688,125	)	(1,462,500	)
	Dividends paid			(252,648	)	(246,936	)	(195,215	)
Net cash from (for)
	financing activities			127,352		2,564,939		(1,257,715	)
Effect of Exchange Rate
	Changes on Cash			13,265		(14,897	)	(2,536	)
Net Increase (Decrease) in Cash				375,857		77,601		(899,611	)
Cash, beginning of year				635,773		558,172		1,457,783
Cash, end of year				$  1,011,630		$   635,773		$   558,172
Supplemental Cash Flow Information
	Cash paid during the year for:
	Income taxes, net of
		refunds		$   140,056		$    52,593		$   (40,793	)
	Interest			631,905		591,639		524,814

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 for the replacement market. In addition, some of the Company's piston rings are produced for original equipment applications. To a lesser extent, the Company packages and sells automotive mechanics' specialty tools and additives for engines, transmissions and cooling systems. The Company's headquarters and primary manufacturing facilities are located in Hastings, Michigan. All of the Company's products are also sold in Canada, where they are produced and/or packaged and distributed by the Company's Canadian subsidiary, Hastings, Inc., located in Barrie, Ontario.

                The Company distributes its replacement products through numerous auto parts jobbers and warehouse distributors for sale primarily in the automotive replacement market throughout the U.S. and Canada. These products are also distributed nationally and internationally through numerous large-scale engine rebuilders and various retailer outlets. The Company distributes the majority of its export sales on a country direct basis. Prior to early 1997, international sales had historically been distributed through one U.S. customer. During 1999, Hastings, Inc. began to distribute and administer products for other U.S. based suppliers into the Canadian market. The products complement the current piston ring offerings as to both distribution channels and customer base.

                In October 1999, the Company entered into a joint venture agreement for the purpose of expanding its additives offerings through both increased global market penetration and through an expansion of the product offerings under the "Casite" brand name. There was no activity within the joint venture during 1999. The additional product offerings are expected to become available in mid-2000. The 50% owned joint venture company, Casite Intraco, LLC, which will do business as The Casite Company, was formed in late 1999. Initial capitalization, amounting to $75,000 by each party, was in February 2000.

                The Company performs ongoing credit evaluations of its customers and provides reserves for probable credit losses.

                As defined by Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company has two operating segments, U.S. operations and Canadian operations, based on management's geographic reporting responsibilities. As discussed above, all of the Company's products are sold in both the U.S. and Canada. In addition, the operating segments' production processes, types of customers, distribution methods, regulatory environment and expected long-term financial performance are very similar. Because management believes aggregation of its two operating segments is consistent with the objective and basic principles of SFAS No. 131, financial information regarding its operating segments has been aggregated for financial reporting purposes. Additional information required to be disclosed by SFAS No. 131 is included in Note 11.

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. The Company's investment in its 50% owned joint venture is accounted for on the equity method.

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.

Revenue Recognition

                The Company recognizes revenue when its products are shipped to its customers. Likewise, revenues from distribution of products for unaffiliated suppliers, which are not significant, are recognized on a commission-only basis at the time of shipment and are included in net sales.

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 swap agreement, as disclosed in Note 4, 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, based on the estimated useful lives of the respective assets, 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. As discussed in Note 4, the Company provided additional funding to the plans during 1998. The plans' assets are invested in stocks, bonds, annuities and short-term investments.

                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.

Stock Options

                The Company applies the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), and related interpretations in accounting for its stock option plan. Under APB 25, because the exercise price of the Company's employee stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.

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 9, the Company has recorded deferred tax assets reflecting the benefit of net operating loss carryforwards expiring in 2010, 2011, 2012 and 2019, foreign tax credit carryforwards expiring through 2004, accrued pension 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 carryforwards 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, except for $30,027 of foreign tax credits expiring in 2000, 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 not achieved.

                No provision for income taxes has been made on the accumulated undistributed earnings of approximately $3,911,000 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.

                Basic earnings per share (EPS) is based on the weighted average number of shares of common stock outstanding during each period. It excludes the dilutive effects of additional common shares that would have been outstanding if the shares, under the Company's stock option plan, had been issued. It also excludes the dilutive effect of contingently issuable shares, outstanding under the Company's restricted stock plan described in Note 8, to the extent those shares have not yet been vested. Diluted EPS includes the effects of the Company's stock options and contingently issuable shares. Basic and diluted EPS are retroactively adjusted for stock dividends and stock splits.

Comprehensive Income

                Total comprehensive income is reported in the consolidated statement of stockholders' equity and includes net income, the foreign currency translation adjustment relating to the Company's Canadian operations and the pension liability adjustment relating to the Company's underfunded pension plan, as disclosed in Note 5.

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 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.

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 accumulated other comprehensive income. Gains and losses from foreign currency transactions, which are not significant, are included in current earnings.

                SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, issued in June 1998, requires companies to recognize all derivatives 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 or (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, as amended by SFAS No. 137, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000.

                Historically, the Company has not entered into derivatives contracts for speculative purposes. The Company does periodically enter into interest rate swap 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, 2001 to materially affect its consolidated financial statements.

Note 2 - Inventories

                Inventories valued using the LIFO method were $2,604,000 and $2,654,000 at December 31, 1999 and 1998, respectively.

                If the FIFO method of inventory valuation had been used by the Company, inventories would have been $1,222,000 and $1,212,000 higher than reported at December 31, 1999 and 1998, respectively.

                Reduction of inventory quantities in 1999, 1998 and 1997 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 by $50,000, $40,000 and $35,000 ($.06, $.05 and $.05 per share, on a diluted basis, as adjusted for the stock split discussed in Note 8) for 1999, 1998 and 1997, respectively.

Note 3 - Short-Term Borrowings

                In August 1998, the Company entered into a loan agreement with its primary lender which provides for an unsecured $6,600,000 term credit loan (see Note 4) and an unsecured $3,000,000 credit authorization for revolving credit loans and letters of credit. Under the agreement, the Company's short-term line with its primary lender was reduced from $5,000,000 to $3,000,000. It is due on demand, but no later than May 31, 2000. Interest for both the short-term and long-term borrowings is based on three different pricing options: a negotiated rate, a Eurodollar rate plus a factor, and a floating rate (greater of the federal funds rate plus a factor or the prime rate). The effective Eurodollar rate and floating rate are increased by a margin rate, ranging from 1.50% to 2.00%, which is based upon certain Company performance parameters. The Company maintains two additional unsecured lines of credit with banks aggregating $2,200,000, with interest rates based on prime. Of the $5,200,000 total short-term lines available to the Company at December 31, 1999 and 1998, $1,200,000 and $2,900,000, respectively, was unused.

                Subsequent to year-end, the Company's loan agreement with its primary lender relating to its short-term and long-term borrowings was amended. See Note 12 regarding the primary changes to the loan agreement (e.g., credit line amount, maturity date, principal payments, restrictive financial covenants and collateralization).

Note 4 - Long-Term Debt

                As discussed in Note 3, the Company restructured its short-term and long-term borrowing arrangements in August 1998. The entire $6,600,000 under the term loan portion of the new loan agreement was borrowed and was used to additionally fund the Company's defined benefit plans, to pay off the previously outstanding long-term debt and, as discussed in Note 3, to reduce short-term notes payable. The additional funding to the Company's defined benefit plans resulted in the $2,359,980 and $2,675,688 prepaid pension asset in the accompanying consolidated balance sheets at December 31, 1999 and 1998, respectively. The term loan is payable in quarterly principal payments of $330,000, plus interest based on the pricing options discussed in Note 3. In connection with the $6,600,000 term loan, the Company entered into an interest rate swap agreement essentially to fix the interest rate on these long-term borrowings at 5.95% plus the margin, discussed in Note 3, resulting in an interest rate range of 7.45% to 7.95%. At December 31, 1999, the interest rate in effect on these long-term borrowings was 7.95% and the notional amount of the swap agreement amounted to $4,620,000. Of the $4,620,000 outstanding long-term debt balance at December 31, 1999, $1,320,000 is due annually for the years 2000 through 2002 with the $660,000 balance due in 2003.

                The term loan agreement requires the Company to maintain certain financial balances and ratios and limits the amount of cash dividends. Unrestricted retained earnings under the agreement amounted to $2,529,014 at December 31, 1999. The Company has obtained a waiver from the bank for its noncompliance with certain of these restrictions as of December 31, 1999. The bank also agreed to modify the restriction levels as part of the impending restructuring of the Company's current loan agreement (see Note 12).

                As discussed above, subsequent to year-end, the Company's loan agreement with its primary lender relating to its short-term and long-term borrowings was amended (see Note 12).

Note 5 - Pension and Retirement Savings

                Information regarding the Company's defined benefit plans as of and for the years ended December 31, 1999, 1998 and 1997 is as follows:

                The above represents the aggregation of amounts for the Company's two defined benefit plans. As of December 31, 1999 and 1998, one of the plans had an accumulated benefit obligation in excess of plan assets. For that plan, the benefit obligation and accumulated benefit obligation, which are equal, amounted to $13,799,506 and $14,888,810 and the fair value of plan assets amounted to $13,443,256 and $14,659,752 as of December 31, 1999 and 1998, respectively.

                The Company's foreign subsidiary maintains a defined contribution retirement savings plan. Due to overfunding of the plan, there were no contributions in 1999, 1998 and 1997.

                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 $669,000, $668,000 and $569,000 for 1999, 1998 and 1997, respectively, relating to these plans.

                As part of the sale of its filter operations in 1995, the Company entered into a deferred compensation agreement with a former officer of the Company. The related deferred compensation expense was included as a cost of the 1995 sale. The deferred compensation benefits are to be paid over a period of ten years, commencing in November 1995. At December 31, 1999 and 1998, respectively, the present value of the deferred compensation liability amounted to $232,480 and $262,566, of which $32,583 and $30,086 was due within one year.

Note 6 - Postretirement Benefit Plans

                Information regarding the Company's postretirement benefit plans as of and for the years ended December 31, 1999, 1998 and 1997 is as follows:

		Year end December 31,
		1999		1998		1997
Change in Benefit Obligation
Benefit obligation, beginning of year		$   9,892,472		$   9,824,296		$  18,801,763
Service cost		32,316		49,855		93,153
Interest cost		618,182		669,152		851,571
Amendment		-		-		(7,346,249	)
Actuarial (gain) loss		(856,701	)	298,894		(1,251,069	)
Benefits paid		(1,080,887	)	(949,725	)	(1,324,872	)
Benefit obligation, end of year		$   8,605,382		$   9,892,472		$   9,824,297
Funded status		$  (8,605,382	)	$  (9,892,472	)	$  (9,824,297	)
Unrecognized prior service benefit
	relating to 1997 plan amendment	(5,961,451	)	(6,465,014	)	(6,968,577	)
Unrecognized actuarial (gain) loss		(194,145	)	662,556		363,662
Net amount recognized in the
	consolidated balance sheets	(14,760,978	)	(15,694,930	)	(16,429,212	)
Less current portion		(1,045,756	)	(1,044,175	)	(1,110,442	)
Long-term portion		$(13,715,222	)	$(14,650,755	)	$(15,318,770	)
Weighted-Average Discount Rate
	Assumption as of December 31	7.75%		6.75%		7.00%
Components of Net Periodic Benefit Cost
Service cost		32,316		49,855		93,153
Interest cost		618,182		669,152		851,571
Amortization of unrecognized
	prior service cost	(503,563	)	(503,563	)	(377,672	)
Net periodic benefit cost		$     146,935		$     215,444		$     567,052

                Because the Company's contributions to the plans are fixed on a per active and retired employee basis, assumed inflationary increases or decreases in health care costs would have no impact on the postretirement benefit obligation at December 31, 1999, or on the future annual aggregate service and interest costs.

                In early April 1997, the Company announced the amendment of its postretirement benefit plans, principally to adjust the cost-sharing provisions. The amendment resulted in a reduction of the Company's accumulated postretirement benefit obligation by $7,346,249, creating an unrecognized prior service benefit that is being amortized over a period of 15 years.

                As a result of the Company's amendment of its postretirement benefit plans, as discussed in Note 6, the Company's retirees filed a class action lawsuit in the Western District of Michigan on January 24, 2000, under the Employee Retirement Income Security Act of 1974 (ERISA) and the Labor Management Relations Act of 1947 (LMRA). The suit alleges that the Company denied retirees and their dependents certain health insurance benefits to which the retirees have "vested" rights pursuant to the terms of the Company's collective bargaining agreements (1964 to the present). Specifically, the retiree class disputes the increase in their health insurance deductibles, the elimination of their prescription drug card and the requirement that they pay a portion of their health insurance premiums. The Company has denied any wrongdoing in this suit, and intends to defend it and any related class certification vigorously. However, because the lawsuit is in its very early stages, the Company's ultimate chances of success are uncertain. If the retirees prevail, the Company anticipates that a requirement to provide postretirement benefits at the pre-amendment level would have a material adverse effect on the future financial position, results of operations and cash flows of the Company. The case is scheduled for trial on June 18, 2001.

                In the normal course of business, the Company is a named party in various environmental matters. In the opinion of management, disposition of these items will not have a material impact on the results of operations or financial condition of the Company.

Note 8 - Stockholders' Equity

Common Stock Repurchase Program

                On February 10, 2000, the Company announced a common stock repurchase program. The program calls for the repurchase of up to 100,000 shares in the open market. The repurchased stock will be retired. On February 14, 2000, the Company repurchased 30,000 shares. Funds for the repurchase, amounting to approximately $231,000, were borrowed on the Company's short-term line of credit discussed in Note 3.

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.

                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 Rights 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.

                The Company's 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. Under terms specified in the Plan, the Company has the right to redeem the Rights at one cent per Right.

Stock Option Plan

                The Company's Stock Option and Restricted Stock Plan of 1997 permits the grant of options to directors, officers and key employees to purchase shares of common stock. A total of 38,000 shares (all share and option amounts adjusted for the two-for-one stock split discussed below) are authorized for grant under the plan. During 1999 and 1998, 10,200 and 12,850 options, respectively, were granted under the plan. The options, which were immediately vested upon grant, may be exercised for up to ten years after the date of the grant.

                A summary of activity for the plan is as follows:

				Year end December 31,
				1999				1998
				Shares		Weighted average exercise price		Shares		Weighted average exercise price
	Options outstanding,
		beginning of year		24,000		$ 19.121		12,850		$ 20.125
	Granted			10,200		9.625		12,850		18.250
	Exercised			-		-		-		-
	Terminated			(1,800	)	18.718		(1,700	)	20.125
	Options outstanding
		and exercisable,
		end of year		32,400		$ 16.154		24,000		$ 19.121
	Options available for
		grant, end of year		5,600				14,000

                The Company has adopted the disclosure-only provisions of SFAS No. 123, Accounting For Stock-Based Compensation, relating to its stock option plan. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's stock options been determined based on their fair values at the grant dates consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share, on a diluted basis, would have been reduced to the pro forma amounts indicated below:

					Year ended December 31,
					1999		1998
	Net income - as reported				$  326,770		$ 1,730,427
	Net income - pro forma				296,974		1,654,919
	Earnings per share on a
		diluted basis - as reported			.42		2.24
	Earnings per share on a
		diluted basis - pro forma			.38		2.14

                The weighted average fair values per option at the date of grant for options granted under the plan during 1999 and 1998 was $3.27 and $6.17, respectively. The fair values of the option awards were estimated using the Black-Scholes option-pricing model with the following weighted-average assumptions:

				Year ended December 31,
				1999		1998
			Dividend yield	2.30	%	1.50	%
			Expected volatility	36.42	%	35.98	%
			Risk-free interest rate	6.11	%	4.51	%
			Expected life in years	5.00		5.00

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 1999, 1998 and 1997, the Company awarded 5,600, 10,600 and 5,000 shares, respectively, of its common stock valued at $53,900, $219,700 and $68,438, respectively, as deferred compensation, which is charged to expense based upon the vesting schedule and upon achievement of the performance goals. Shares valued at $72,545 (4,360 shares), $21,402 (1,700 shares) and $62,506 (4,650 shares) were forfeited during 1999, 1998 and 1997, respectively. Share amounts have been adjusted for the stock split discussed below.

Stock Split

                On February 17, 1998, the Board of Directors authorized a two-for-one stock split, effected in the form of a stock dividend, effective March 23, 1998, payable to shareholders of record on March 2, 1998. On a split basis, the Company had 780,626 shares outstanding at December 31, 1997. An amount equal to the par value of the common shares issued was transferred from retained earnings to common stock to effect the stock split. This transfer has been reflected in the consolidated statements of stockholders' equity at December 31, 1997. All references to number of common shares, except shares authorized, and to all per share information have been adjusted to reflect the stock split on a retroactive basis.

                The components of income (loss) before income taxes are as follows:

			Year ended December 31,
			1999		1998		1997
	Domestic		$357,739		$2,717,888		$1,648,915
	Foreign		219,031		66,539		(71,682	)
			$576,770		$2,784,427		$1,577,233

                Income tax expense (benefit) is made up of the following components:

	Year ended December 31, 1999	Current		Deferred		Deferred Valuation Allowance Change		Total
	Domestic	$ (21,000	)	$ 137,000		$  30,000		$  146,000
	Foreign	103,000		1,000		-		104,000
		$  82,000		$ 138,000		$  30,000		$  250,000
	Year ended December 31, 1998
	Domestic	$  68,000		$ 958,000		$           - -		$1,026,000
	Foreign	31,000		(3,000	)	-		28,000
		$  99,000		$ 955,000		$           - -		$1,054,000
	Year ended December 31, 1997
	Domestic	$  39,000		$ 602,000		$           - -		$   641,000
	Foreign	(8,000	)	(11,000	)	-		(19,000	)
		$  31,000		$ 591,000		$           - -		$   622,000

			December 31,
			1999		1998
	Deferred income tax assets:
		Postretirement benefit
		obligation	$  5,018,732		$  5,336,277
		Current asset valuation
		allowances	640,214		751,214
		Net operating loss carryforwards	1,392,619		1,206,318
		Foreign tax credit carryforwards	329,520		316,924
		Deferred compensation	79,043		89,268
		Other	360,113		293,393
	Gross deferred income tax assets		7,820,241		7,993,394
	Valuation allowance - - foreign tax
		credits (current)	(30,027	)	-
	Total deferred income tax assets		7,790,214		7,993,394
	Deferred income tax liabilities:
		Accumulated depreciation	(469,224	)	(437,023	)
		Prepaid pension costs	(169,212	)	(280,229	)
		Other	(172,433	)	(160,649	)
	Total deferred income tax liabilities		(810,869	)	(877,901	)
	Net deferred income tax assets		6,979,345		7,115,493
	Less current portion		2,124,962		2,395,856
	Noncurrent portion		$ 4,854,383		$ 4,719,637