<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 13, 1996
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NO. 0-21362
HARVARD INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
FLORIDA 21-0715310
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)
2502 N. ROCKY POINT DRIVE, SUITE 960
TAMPA, FLORIDA 33607
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(813) 288-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 [ ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
INDICATE BY CHECK MARK WHETHER THE REGISTRANT HAS FILED ALL DOCUMENTS
AND REPORTS REQUIRED TO BE FILED BY SECTION 12, 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 SUBSEQUENT TO THE DISTRIBUTION OF SECURITIES UNDER A PLAN
CONFIRMED BY A COURT. YES [X] NO [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
THE NUMBER OF SHARES OUTSTANDING OF REGISTRANT'S COMMON STOCK, AS OF AUGUST 13,
1996, WAS 7,004,407.
================================================================================
<PAGE> 2
<TABLE>
<CAPTION>
HARVARD INDUSTRIES, INC.
INDEX
<S> <C>
PART 1. FINANCIAL INFORMATION: PAGE
----
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1996 (Unaudited) and September 30, 1995 (Audited)...... 2
Consolidated Statements of Operations ( Unaudited)
Three and Nine Months Ended June 30, 1996 and 1995.............. 3
Consolidated Statements of Cash Flows ( Unaudited)
Nine Months Ended June 30, 1996 and 1995........................ 4
Notes to Consolidated Financial Statements - ( Unaudited)............... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................ 17
PART II. OTHER INFORMATION:
Item 5. Other Information............................................... 22
Item 6. Exhibits and Reports on Form 8-K................................ 22
SIGNATURES............................................................... 23
</TABLE>
- 1 -
<PAGE> 3
HARVARD INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND SEPTEMBER 30, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
June 30, September 30,
1996 1995
--------- ------------
ASSETS (Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents.................................. $ 1,108 $ 19,925
Accounts receivable, net................................... 118,738 102,714
Inventories................................................ 60,134 63,742
Net assets of discontinued operations...................... - 7,621
Prepaid expenses and other current assets.................. 1,791 1,415
----------- -------------
Total current assets................................ 181,771 195,417
Property, plant and equipment, net........................... 304,867 307,247
Intangible assets, net....................................... 134,816 132,537
Net assets of discontinued operations........................ 4,080 -
Other assets,net............................................. 25,157 27,061
----------- -------------
$ 650,691 $ 662,262
=========== =============
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Current portion of long-term debt.......................... $ 1,993 $ 2,801
Revolving working capital loan............................. 31,000 -
Accounts payable........................................... 77,696 79,702
Accrued expenses........................................... 79,483 85,232
Income taxes payable....................................... 6,889 8,265
----------- -------------
Total current liabilities........................... 197,061 176,000
Long-term debt............................................... 320,734 322,000
Postretirement benefits other than pensions.................. 101,410 95,642
Other ....................................................... 27,978 31,175
----------- -------------
Total liabilities................................... 647,183 624,817
----------- -------------
14 1/4% Pay-In-Kind Exchangeable Preferred Stock,
($110,784 liquidation value at June 30, 1996 - includes
$10,782 of undeclared dividends payable on
September 30, 1996)..................................... 110,784 99,651
----------- -------------
Shareholders' deficiency:
Common Stock, $.01 par value; 30,000,000 shares authorized;
shares issued and outstanding : 6,999,407 at June 30,
1996 and 6,994,907 at September 30, 1995............... 70 70
Additional paid-in capital................................. 45,803 56,899
Additional minimum pension liability...................... (1,836) (1,836)
Foreign currency translation adjustment.................... (1,934) (1,743)
Accumulated deficit........................................ (149,379) (115,596)
----------- -------------
Total shareholders' deficiency.................... (107,276) (62,206)
----------- -------------
Commitments and contingent liabilities.......................
$ 650,691 $ 662,262
=========== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
2
<PAGE> 4
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
(In thousands of dollars, except share and per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
----------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Sales............................................................ $ 222,300 $ 149,926 $ 633,657 $ 457,766
------------- ------------- ------------- -------------
Costs and expenses:
Cost of sales................................................. 208,275 129,123 593,051 400,751
Selling, general and administrative........................... 10,335 8,423 32,534 23,163
Interest expense.............................................. 10,918 3,917 31,279 11,686
Other (income) expense, net................................... 3,117 (170) 8,375 (367)
------------- ------------- ------------- -------------
Total costs and expenses.................................. 232,645 141,293 665,239 435,233
------------- ------------- ------------- -------------
Income (loss) before income taxes................................ (10,345) 8,633 (31,582) 22,533
Provision for income taxes....................................... 752 4,256 2,201 9,885
------------- ------------- ------------- -------------
Net income (loss)................................................ $ (11,097) $ 4,377 $ (33,783) $ 12,648
============== ============= ============= =============
Net income (loss) attributable to common shareholders (a)........ $ (14,808) $ 359 $ (44,916) $ 1,097
============== ============= ============= =============
Net income (loss) per common share (a)........................... $ (2.12) $ 0.05 $ (6.42) $ 0.16
============== ============= ============= =============
Weighted average number of common shares outstanding............. 6,999,407 7,244,477 6,997,157 7,026,782
============== ============= ============= =============
</TABLE>
(a) After deducting accrued dividends and accretion related to the Company's
14 1/4% PIK Exchangeable Preferred Stock.
See accompanying Notes to Consolidated Financial Statements (Unaudited).
3
<PAGE> 5
HARVARD INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1996 AND 1995
(Unaudited)
(In thousands of dollars)
<TABLE>
<CAPTION>
Nine months ended
-----------------------
June 30, June 30,
1996 1995
---------- ----------
<S> <C> <C>
Cash flows related to operating activities:
Net income (loss)..................................................... $ (33,783) $ 12,648
Add back (deduct) items not affecting cash and cash equivalents:
Income tax allocation charge........................................ - 7,210
Depreciation and amortization....................................... 40,875 23,322
Loss on disposition of property, plant and equipment
and property held for sale......................................... 918 968
Postretirement benefits............................................. 5,768 2,700
Changes in operating assets and liabilities :
Accounts receivable................................................ (16,024) 2,382
Inventories........................................................ 879 (737)
Other current assets............................................... (376) 831
Accounts payable................................................... (2,006) 2,394
Accrued expenses and income taxes payable......................... (12,281) (17,893)
Other noncurrent liabilities....................................... (986) 2,184
---------- ----------
Net cash provided by (used in) operations............................. (17,016) 36,009
---------- ----------
Cash flows related to investing activities:
Acquisition of property, plant and equipment.......................... (28,560) (11,979)
Proceeds to date from sale of discontinued operations................. 3,541 2,836
Proceeds from disposition of property, plant and equipment............ 663 943
Net change in other noncurrent accounts............................... 585 544
---------- ----------
Net cash used in investing activities................................. (23,771) (7,656)
---------- ----------
Cash flows related to financing activities:
Redemption of PIK preferred stock (including accrued dividends)....... - (15,000)
Proceeds from exercise of stock options............................... 37 2,416
Net borrowings under credit agreement................................. 31,000 -
Repayments of long-term debt.......................................... (2,074) (5,155)
Pension fund payment pursuant to PBGC settlement agreement............ (4,500) (4,500)
Payment of EPA settlements............................................ (2,493) (1,907)
---------- ----------
Net cash provided by (used in) financing activities................... 21,970 (24,146)
---------- ----------
Net increase (decrease) in cash and cash equivalents.................... (18,817) 4,207
Beginning of period.................................................... 19,925 60,360
---------- ----------
End of period.......................................................... $ 1,108 $ 64,567
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
4
<PAGE> 6
HARVARD INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996 AND 1995
(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
NOTE 1
The interim consolidated financial statements are unaudited but, in the
opinion of management, reflect all adjustments (consisting only of normal
recurring adjustments) necessary for a fair presentation of the results for the
periods presented. The results of operations for any interim period are not
necessarily indicative of the results to be expected for the full year. These
interim consolidated financial statements should be read in conjunction with
the consolidated financial statements and notes thereto for the year ended
September 30, 1995 included in the Company's Annual Report on Form 10 - K.
NOTE 2
On three separate occasions in fiscal 1994, the Company became aware that
certain products of its discontinued ESNA division were not manufactured and/or
tested in accordance with required specifications at its Union, New Jersey
and/or Pocahontas, Arkansas facilities. These fastener products were sold to
the United States government and other customers for application in the
construction of aircraft engines and air frames.
In connection therewith, the Company notified the Department of Defense
Office of Inspector General ("DoD/OIG") and, upon request, was admitted into
the Voluntary Disclosure Program of the Department of Defense. The Company
also notified ESNA's customers, including the Defense Industrial Supply
Center, of these matters and has offered to retest and/or reprocess affected
parts. The Company, with the assistance of outside counsel and a fastener
specialist, investigated this matter and the Company recorded a provision of
$21,000 as of September 30, 1993. The Company retested and/or reprocessed
affected parts, including affected parts in its inventory, from September 1993
until July 31, 1995, when such activities terminated with respect to those
parts which were returned by customers. For those fasteners which had been
destroyed during retesting, credits were issued to affected customers'
accounts. As a result of its admission into the Voluntary Disclosure Program,
the Company expects that it will receive favorable consideration from the
government with respect to whether or not criminal charges should be brought,
administrative sanctions should be imposed and civil penalties should be sought
in connection with sales of affected parts to the government. There is no
assurance, however, that the Company will receive such treatment with respect
to any of the disclosures made by the Company in connection with its admission
to the Voluntary Disclosure Program.
The Company may also be subject to civil damages which could result from
claims made by other customers. In May 1995, a major customer, Harco Division
of VSI Corporation ("Harco"), filed a complaint in United States District Court
seeking damages. The Company has also received notification of possible claims
from other customers similar to Harco. In April 1996, the Company and Harco
negotiated a settlement whereby Harco dismissed its complaint against the
Company and the proceedings are now concluded. The Company has agreed to
indemnify Harco against any future claims relating to the ESNA matter, if any,
that may be asserted against Harco by its customers. Additionally, the Company
agreed to indemnify Harco for certain future costs, if any, which may result
from non-performance by the Company's sub-contractor in filling Harco's orders.
- 5 -
<PAGE> 7
At June 30, 1996, the remaining accrued costs of discontinued operations
are primarily related to legal costs, fines and penalties, subcontractor costs
and severance pay.The ultimate cost of disposition of the ESNA matter, as well
as the required funding of such cost, is dependent upon future events, the
outcomes of which are not determinable at the present time. Such outcomes
could have a material effect on the Company's financial condition, results of
operations and/or liquidity.
If it is ultimately determined that the deviations from specifications and
certifications made in connection therewith, constitute violations of various
statutory and regulatory provisions, the Company may, among other things, be
subject to criminal prosecution, treble damages and penalties under the Civil
False Claims Act or Racketeer Influenced and Corrupt Organization Act, as well
as administrative sanctions, such as debarment from future government
contracting.
Net assets of discontinued operations reflect the estimated net realizable
value of remaining assets consisting primarily of the Union, New Jersey
facility and certain royalty receivables. The Company has reclassified such
net assets as noncurrent since existing facts indicate that realization will
not occur during the current operating cycle. On May 6, 1996, the Company
entered into an Agreement to sell the ESNA property in Union, New Jersey (the
"Property") to a New Jersey developer, subject to certain conditions including
(i) the developer obtaining all necessary development approvals and permits so
as to permit the construction of a 200 unit townhouse complex on the Property,
(ii) the Company obtaining applicable environmental clearances for the Property
from the New Jersey Department of Environmental Protection and (iii) the
Company demolishing and removing the building and related structures which are
currently on the Property. The Agreement calls for the developer to purchase
the Property in two (2) sections. While the closing dates for this transaction
are contingent upon the satisfaction of the aforementioned conditions and,
therefore, are not certain at this time, the Company estimates that the closing
on the first section will take place within the next 24 months and the closing
on the second section will take place within the next 36 months.
NOTE 3
As of October 1, 1995, the Company changed its accounting for certain
inventory (which comprised approximately 25% of the Company's previously
reported inventory balance of $62,465 at September 30, 1995) from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method. As a result
of changes in the Company's manufacturing and inventory management processes,
which are attributable to a continuing emphasis on cost reduction in the
automotive industry, the Company believes that the FIFO method provides for a
better matching of inventory costs with product sales for all of the Company's
inventory. These changes include an emphasis on cost reduction programs,
promotion of production efficiencies and the implementation of inventory
reduction programs. The change from the LIFO method to the FIFO method has
been applied retroactively by restating the financial statements of prior
periods which are summarized as follows:
<TABLE>
<CAPTION>
Decrease In
Beginning Reduction Increase Increase
Accumulated In Cost Net In Income
Deficit Of Sales Income Per Share
--------------- --------------- ------------ -------------
<S> <C> <C> <C> <C>
Nine months ended June 30, 1995
previously reported $1,126 $296 $166 $.01
Three months ended June 30, 1995 $1,224 $133 $ 68 $.03
previously reported
</TABLE>
- 6 -
<PAGE> 8
NOTE 4
On July 28, 1995, the Company acquired Doehler-Jarvis Inc. ("Doehler-
Jarvis") for a purchase cost aggregating approximately $107,000. The
acquisition was accounted for under the purchase method of accounting. The
cost and repayment of existing Doehler-Jarvis debt aggregated approximately
$218,000 and was financed through the proceeds from the private placement of
$200,000 principal amount of 11 1/8% Senior Notes Due 2005 and cash on hand.
In July 1995, Doehler-Jarvis initiated production of lower intake
manifolds for one of its major customers (hereinafter "the Manifold Program").
In fiscal 1996, the Company finalized its purchase accounting analysis and
determined that the estimated manufacturing costs of fulfilling the Manifold
Program will exceed estimated revenues to be generated by $10,000.
Accordingly, the Company adjusted the goodwill initially recorded at the
July 28, 1995 date of acquisition of Doehler-Jarvis by $10,000 and established
a liability (accrued program costs) to reflect the operating loss under the
Manifold Program. Remaining accrued program costs at June 30, 1996 were
$2,540. The Manifold Program reflected an additional negative gross margin of
$4,400, for the nine months ended June 30, 1996, due to cost overruns in
excess of the established liability.
On July 25, 1996, the Company completed initial negotiations with the major
customer for program modifications for the Manifold Program discussed above.
The Company and the customer executed a term sheet which summarizes the points
of agreement. The customer has notified the Company that it will go forward
immediately with certain elements of the agreement concerning the Manifold
Program while the Company and the customer negotiate certain definitive
agreements to memorialize the settlement. The Company and the customer also
agreed upon a schedule whereby the customer will resource a bell housing
program, currently produced by the Company, to another supplier. The bell
housing program resulted in a negative gross margin loss of $1,800 for the nine
months ended June 30, 1996. While termination and resourcing of the bell
housing program commenced in July 1996, it is anticipated that it will not be
completed until the end of December 1996.
It is currently expected that the finalization of the resourcing of the
bell housing program and the successful negotiation of the agreements for the
modifications to the Manifold Program, together with the planned reduction of
excess production costs, will substantially eliminate the negative gross
margins with respect to these programs by September 30, 1996, and completely by
the end of December 1996.
Pro forma unaudited results of operations for the nine months ended June
30, 1995, assuming the acquisition of Doehler-Jarvis had occurred on October 1,
1994, are as follows:
<TABLE>
<S> <C>
Sales $670,001
Net income $ 5,251
Net loss attributable to common stockholders $ (6,300)
Net loss per share $ ( .90)
</TABLE>
The summary pro forma financial data do not purport to represent what the
Company's results of operations would actually have been had the transaction,
in fact, occurred on such date or to project the Company's results of
operations at any future date or for any future period.
- 7 -
<PAGE> 9
NOTE 5
During the nine months ended June 30, 1996, the Company recorded an
increase of $11,133 in its 14 1/4% Pay-In-Kind Exchangeable Preferred Stock
("PIK Preferred Stock") and a corresponding deduction in additional
paid-in-capital to recognize (i) an accrual of 75% of the required 1996 dividend
which is payable in shares of PIK Preferred Stock on September 30, 1996 and (ii)
the accretion of the related difference between the fair value of such stock at
August 23, 1992 and redemption value.
NOTE 6
Net income (loss) per common share is computed by dividing net income
(loss) [after deducting accrued dividends and accretion related to PIK
Preferred Stock] by the weighted average number of common shares outstanding.
No consideration was given in both of the 1996 periods to equivalent shares
related to stock options since such shares are anti-dilutive.
NOTE 7
The Company is also a party to various claims and routine litigation
arising in the normal course of its business. Based on information currently
available, management of the Company believes, after consultation with legal
counsel, that the result of such claims and litigation, except for the
uncertainties related to ESNA discussed in Note 2, will not have a material
effect on the financial position or results of operations of the Company.
NOTE 8
The differences between the statutory federal income tax rate and the
Company's effective income tax rates result principally from the fact of having
an operating profit in Canada and an operating loss in the U.S.
NOTE 9
As of June 30, 1996, the Company had $31,000 of revolving working capital
loans and $21,000 of standby letters of credit outstanding pursuant to its
Credit Agreement. As a result of the adverse operating results during the
current year, the Company was not in compliance with the minimum consolidated
interest coverage ratio of 2.0 to 1.0, the minimum current ratio of 1.0 to 1.0,
nor the maximum consolidated total debt ratio of 3.5 to 1.0 required by its
Credit Agreement.
The Company on July 25, 1996 entered into an agreement with its banks
under the Company's Revolving Credit Agreement pursuant to which the banks
waived the non-compliance with the covenants involving maintenance of financial
ratios and other coverages at June 30, 1996. The Company had previously
notified the banks that it was unable to comply with these covenants both at
June 30, 1996 and September 30, 1996, because it had experienced lower than
expected operating performance.
- 8 -
<PAGE> 10
The new arrangements with the banks include, among other things, an
effective increase in the applicable interest rate under the Revolving Credit
Agreement by 3.75% per year, as well as a reduction of available inventory to
be used in the borrowing base. As of June 30, 1996, the effect of the new
arrangement was to reduce the inventory borrowing base from $13,000 to a
maximum of $5,000. Effective September 2, 1996, inventory will be eliminated
from the borrowing base, leaving accounts receivable as the basis upon which to
borrow funds. Due to the fluctuating nature of accounts receivable, the
borrowing base will change over time. The Company believes the lowest point of
its borrowing base availability, approximately $51,000 occurred during the week
ending August 2, 1996. The Company believes the low point of its borrowing
base was primarily due to the seasonal shut down of its customers'
manufacturing plants during the first two weeks in July, 1996, thereby reducing
accounts receivable. The Company anticipates its borrowing base availability
will range from approximately $60,000 during the week ending August 9, 1996 to
a high of $85,000 during the week ending September 27, 1996.
In view of the Company's operating performance to date, new business and
cost savings programs requiring capital expenditures of $28,000 during the
first nine months of the fiscal year, and the reduction of the inventory
borrowing base by $8,000, the Company determined that additional short term
liquidity was necessary. On August 2, 1996, the Company borrowed $7,000 under
a new $10,000 short term credit facility maturing on December 31, 1996, with
certain of its existing banks. The new credit facility is collateralized by
the Company's machinery and equipment. The interest rate is 4% over the
alternate base rate as defined. The Company paid a $1,000 facility fee on
August 2, 1996. The Company will pay an additional facility fee of $250 for
each month any loans under the facility are outstanding beyond September 29,
1996.
The Company and the banks have tentatively scheduled a meeting to be held
in September of 1996 to discuss future modifications to the Company's Revolving
Credit Agreement. The Company is also actively pursuing other financing
alternatives.
The Company is also in the process of investigating other strategic
alternatives, including, among other things, the sale of certain assets and
businesses. In this regard, the Company has retained an investment banker to
begin the process of the sale of non-core assets and another investment banker
will be retained shortly.
NOTE 10
Both the 12% Notes and the 11 1/8% Notes are guarantied on a senior
unsecured basis, pursuant to guaranties (the Guaranties) by all of the Company's
wholly-owned direct and certain of its wholly-owned indirect domestic
subsidiaries (the Guarantors). The Notes are unconditionally guarantied,
jointly and severally, on a senior unsecured basis, by each of the Guarantors
under such Guarantor's guaranty (a Guaranty). Each Guaranty by a Guarantor is
limited in amount to an amount not to exceed the maximum amount that can be
guarantied by that Guarantor without rendering the Guaranty, as it relates to
such Guarantor, voidable under applicable law relating to fraudulent conveyance
or fraudulent transfer. As such, a Guaranty could be effectively subordinated
to all other indebtedness (including guaranties and other contingent
liabilities) of the applicable Guarantor, and, depending on the amount of such
indebtedness, a Guarantor's liability on its Guaranty could be reduced to zero.
The Company conducts all of its automotive business through and derives
virtually all of its income from its subsidiaries. Therefore, the Company's
ability to make required principal and interest payments with respect to the
Company's indebtedness (including the Notes) and other obligations depends on
the earnings of its subsidiaries and on its ability to receive funds from its
subsidiaries through dividends or other payments. The ability of its
subsidiaries to pay such dividends or make payments on intercompany
indebtedness or otherwise will be subject to applicable state laws.
- 9 -
<PAGE> 11
Upon the sale or other disposition of a Guarantor or the sale or
disposition of all or substantially all of the assets of a Guarantor (in each
case other than to the Company or an affiliate of the Company) permitted by the
indentures governing the Notes, such Guarantor will be released and relieved
from all of its obligations under its Guaranty.
The following condensed consolidating information presents:
1. Condensed balance sheets as of June 30, 1996 and September 30, 1995
and condensed statements of operations and cash flows for the nine months ended
June 30, 1996 and 1995.
2. The Parent Company and Combined Guarantor Subsidiaries with their
investments in subsidiaries accounted for on the equity method.
3. Elimination entries necessary to consolidate the Parent Company and all
of its subsidiaries.
4. The Parent Company, pursuant to the terms of an interest bearing note
with Guarantor Subsidiaries, has included in their allocation of expenses,
interest expense for the nine months ended
June 30, 1996 and 1995, respectively.
The Company believes that providing the following condensed consolidating
information is of material interest to investors in the Notes and has not
presented separate financial statements for each of the Guarantors.
- 10 -
<PAGE> 12
HARVARD INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
JUNE 30, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 1,076 $ - $ 32 $ - $ 1,108
Accounts receivable, net...................... 5,867 105,105 7,766 - 118,738
Inventories................................... 5,067 52,906 2,161 - 60,134
Prepaid expenses and other current assets..... 499 1,284 8 - 1,791
--------- ------------- -------------- -------------- -------------
Total current assets........................ 12,509 159,295 9,967 - 181,771
Investment in Subsidiaries...................... 322,750 46,785 - (369,535) -
Property, plant and equipment, net.............. 4,855 292,017 7,995 - 304,867
Intangible assets, net.......................... - 134,816 - - 134,816
Net assets of discontinued operations........... 4,080 - - - 4,080
Intercompany receivables........................ 396,642 177,160 38,793 (612,595) -
Other assets.................................... 16,716 8,201 240 - 25,157
--------- ------------- -------------- -------------- -------------
$ 757,552 $ 818,274 $ 56,995 $ (982,130) $ 650,691
========= ============= ============== ============== =============
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt............. $ 6 $ 1,987 $ - $ - $ 1,993
Revolving working capital loan................ 31,000 - - - 31,000
Accounts payable.............................. 3,480 70,212 4,004 - 77,696
Accrued expenses ............................. 22,828 56,561 94 - 79,483
Income taxes payable ......................... 991 1,326 4,572 - 6,889
--------- ------------- -------------- -------------- -------------
Total current liabilities................ 58,305 130,086 8,670 - 197,061
Long-term debt.................................. 300,000 20,734 - - 320,734
Postretirement benefits other than
pensions.................................... - 101,410 - - 101,410
Intercompany payables........................... 390,267 221,758 570 (612,595) -
Other........................................... 5,472 21,536 970 - 27,978
--------- ------------- -------------- -------------- -------------
Total liabilities........................ 754,044 495,524 10,210 (612,595) 647,183
--------- ------------- -------------- -------------- -------------
PIK Preferred................................... 110,784 - - - 110,784
--------- ------------- -------------- -------------- -------------
Shareholders' equity (deficiency):
Common stock and additional
paid-in-capital............................. 45,873 73,054 135 (73,189) 45,873
Additional minimum pension liability.......... (1,836) (1,836) - 1,836 (1,836)
Foreign currency translation adjustment....... (1,934) (1,923) (1,923) 3,846 (1,934)
Retained earnings (deficit)................... (149,379) 253,455 48,573 (302,028) (149,379)
--------- ------------- -------------- -------------- -------------
Total shareholders' equity (deficit)..... (107,276) 322,750 46,785 (369,535) (107,276)
--------- ------------- -------------- -------------- -------------
$ 757,552 $ 818,274 $ 56,995 $ (982,130) $ 650,691
========= ============= ============== ============== =============
</TABLE>
11
<PAGE> 13
HARVARD INDUSTRIES, INC.
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Eliminations Consolidated
--------- ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................... $ 18,645 $ (2,180) $ 3,491 $ (31) $ 19,925
Accounts receivable, net...................... 6,138 89,589 6,987 - 102,714
Inventories................................... 5,304 57,286 1,152 - 63,742
Net assets of discontinued operations......... 7,621 - - - 7,621
Prepaid expenses and other current assets..... 341 1,073 1 - 1,415
--------- ------------- -------------- ------------- -------------
Total current assets........................ 38,049 145,768 11,631 (31) 195,417
Investment in Subsidiaries...................... 328,523 45,266 - (373,789) -
Property, plant and equipment, net.............. 5,527 296,047 5,673 - 307,247
Intangible assets, net.......................... - 132,537 - - 132,537
Intercompany receivables........................ 322,282 260,511 41,659 (624,452) -
Other assets.................................... 18,859 7,962 240 - 27,061
--------- ------------- -------------- ------------- -------------
$ 713,240 $ 888,091 $ 59,203 $ (998,272) $ 662,262
========= ============= ============== ============= =============
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt............. $ 31 $ 2,770 $ - $ - $ 2,801
Accounts payable.............................. 3,273 72,089 4,340 - 79,702
Accrued expenses.............................. 27,199 57,422 611 - 85,232
Income taxes payable.......................... 3,133 2,428 2,715 (11) 8,265
--------- ------------- -------------- ------------- -------------
Total current liabilities................. 33,636 134,709 7,666 (11) 176,000
Long-term debt.................................. 300,000 22,000 - - 322,000
Postretirement benefits other than pensions.... - 95,642 - - 95,642
Intercompany payables........................... 337,179 284,983 2,290 (624,452) -
Other........................................... 4,980 22,234 3,961 - 31,175
--------- ------------- -------------- ------------- -------------
Total liabilities........................ 675,795 559,568 13,917 (624,463) 624,817
--------- ------------- -------------- ------------- -------------
PIK Preferred................................... 99,651 - - - 99,651
--------- ------------- -------------- ------------- -------------
Shareholders' equity (deficiency):
Common stock and additional
paid-in-capital............................. 56,969 73,054 135 (73,189) 56,969
Additional minimum pension liability.......... (1,836) (1,836) - 1,836 (1,836)
Foreign currency translation adjustment....... (1,743) (1,727) (1,743) 3,470 (1,743)
Retained earnings (deficit)................... (115,596) 259,032 46,894 (305,926) (115,596)
--------- ------------- -------------- ------------- -------------
Total shareholders' equity (deficit)........ (62,206) 328,523 45,286 (373,809) (62,206)
--------- ------------- -------------- ------------- -------------
$ 713,240 $ 888,091 $ 59,203 $ (998,272) $ 662,262
========= ============= ============== ============= =============
</TABLE>
12
<PAGE> 14
HARVARD INDUSTRIES, INC.
CONSOLIDATING INCOME STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
(In thousand of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
---------- -------------- -------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Sales........................................... $ 24,476 $ 588,493 $ 20,688 $ - $ 633,657
---------- -------------- -------------- ------------- --------------
Costs and expenses:
Cost of sales................................. 23,593 551,682 17,776 - 593,051
Selling, general and administrative........... 7,989 24,541 4 - 32,534
Interest expense.............................. 28,446 2,803 30 - 31,279
Other (income) expense, net................... 1,431 8,462 (1,518) - 8,375
Equity in (income) loss of subsidiaries...... 15,169 (1,838) - (13,331) -
Allocated expenses............................ (18,369) 16,923 1,446 - -
---------- -------------- -------------- ------------- --------------
Total costs and expenses.................. 58,259 602,573 17,738 (13,331) 665,239
---------- -------------- -------------- ------------- --------------
Income (loss) before provision for
income taxes ................................. (33,783) (14,080) 2,950 13,331 (31,582)
Provision for income taxes...................... - 1,089 1,112 - 2,201
---------- -------------- -------------- ------------- --------------
Net income (loss)............................... $ (33,783) $ (15,169) $ 1,838 $ 13,331 $ (33,783)
========== ============== ============== ============= ==============
</TABLE>
13
<PAGE> 15
HARVARD INDUSTRIES, INC.
CONSOLIDATING INCOME STATEMENTS OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1995
(In thousand of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
---------- ------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Sales....................................... $ 23,521 $ 409,423 $ 24,822 $ - $ 457,766
Intercompany sales.......................... - - 8,570 (8,570) -
---------- ------------- -------------- ------------ -------------
Total sales........................... 23,521 409,423 33,392 (8,570) 457,766
---------- ------------- -------------- ------------ -------------
Costs and expenses:
Cost of sales............................. 21,223 360,689 27,409 (8,570) 400,751
Selling, general and administrative....... 8,941 14,222 - - 23,163
Interest expense.......................... 10,240 1,446 - - 11,686
Other (income) expense, net............... (1,055) 396 292 - (367)
Equity in (income) loss of
subsidiaries............................ (18,466) (2,120) - 20,586 -
Allocated expenses........................ (10,010) 8,600 1,410 -
---------- ------------- -------------- ------------ -------------
Total costs and expenses.............. 10,873 383,233 29,111 12,016 435,233
---------- ------------- -------------- ------------ -------------
Income (loss) before income taxes........... 12,648 26,190 4,281 (20,586) 22,533
Provision for income taxes.................. - 7,724 2,161 - 9,885
---------- ------------- -------------- ------------ -------------
Net income (loss)........................ $ 12,648 $ 18,466 $ 2,120 $ (20,586) $ 12,648
========== ============= ============== ============ =============
</TABLE>
14
<PAGE> 16
HARVARD INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1996
(In thousands of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
---------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Net income (loss)..............................................$ (33,783) (15,169) 1,838 13,331 $ (33,783)
Add back (deduct) items not affecting
cash and cash equivalents:
Equity in (income) loss of subsidiaries..................... 15,169 (1,838) - (13,331) -
Depreciation and amortization............................... 2,641 37,483 751 - 40,875
Loss on disposition of property, plant and
equipment and property held for sale....................... - 883 35 - 918
Postretirement benefits..................................... - 5,768 - - 5,768
Changes in operating assets and liabilities:
Accounts receivable......................................... 271 (15,516) (779) - (16,024)
Inventories................................................. 237 1,651 (1,009) - 879
Other current assets........................................ (158) (211) (7) - (376)
Accounts payable............................................ 207 (1,877) (336) - (2,006)
Accrued expenses and income taxes payable................... (4,513) (10,093) 2,314 11 (12,281)
Other noncurrent liabilities................................ (1,633) 3,588 (2,941) - (986)
---------- --------- -------------- ------------ -------------
Net cash provided by (used in) operations............. (21,562) 4,669 (134) 11 (17,016)
---------- --------- -------------- ------------ -------------
Cash flows related to investing activities:
Acquisition of property, plant and equipment.................. (14) (25,323) (3,223) - (28,560)
Proceeds to date from sale of discontinued operations......... 3,541 - - - 3,541
Proceeds from disposition of property, plant and equipment.... - 663 - - 663
Net change in other noncurrent accounts....................... 2,113 (815) (1,089) 376 585
---------- --------- -------------- ------------ -------------
Net cash provided by (used in) investing activities............. 5,640 (25,475) (4,312) 376 (23,771)
---------- --------- -------------- ------------ -------------
Cash flows related to financing activities:
Proceeds from exercise of stock options....................... 37 - - - 37
Net borrowings under revolving working capital loan........... 31,000 - - - 31,000
Repayments of long-term debt.................................. (25) (2,049) - - (2,074)
Pension fund payment pursuant to PBGC settlement agreement ... - (4,500) - - (4,500)
Payment of EPA settlement agreements.......................... (1,991) (502) - - (2,493)
Net changes in intercompany balances.......................... (30,668) 30,037 987 - -
---------- --------- -------------- ------------ -------------
Net cash provided by (used in) financing activities............ (1,647) 22,986 987 - 21,970
---------- --------- -------------- ------------ -------------
Net increase (decrease) in cash and cash equivalents............ (17,569) 2,180 (3,459) 387 (18,817)
Cash and cash equivalents :
Beginning of period........................................... 18,645 (2,180) 3,491 (31) 19,925
---------- --------- -------------- ------------ -------------
End of period................................................. $ 1,076 $ 0 $ 32 $ - $ 1,108
========== ========= ============== ============ =============
</TABLE>
15
<PAGE> 17
HARVARD INDUSTRIES, INC.
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1995
(In thousands of dollars)
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Cash flows related to operating activities:
Net income (loss)........................................... $12,648 $ 18,466 $ 2,120 $(20,586) $ 12,648
Add back (deduct) items not affecting
cash and cash equivalents:
Income tax allocation charge.............................. - 7,210 - - 7,210
Equity in (income) loss of subsidiaries................... (18,466) (2,120) - 20,586 -
Depreciation and amortization............................. 2,021 20,293 1,008 - 23,322
Disposition of property, plant and
equipment and property held for sale..................... - 968 - - 968
Postretirement benefits................................... - 2,700 - - 2,700
Changes in operating assets and liabilities :
Accounts receivable....................................... (228) 2,519 91 - 2,382
Inventories............................................... (898) (917) 1,078 - (737)
Other current assets...................................... 1,266 (434) (1) - 831
Accounts payable.......................................... 473 3,755 (1,834) - 2,394
Accrued expenses and income taxes payable................. (8,746) (5,101) (4,060) 14 (17,893)
Other noncurrent liabilities............................... - 2,184 - - 2,184
------- --------- -------- -------- ---------
Net cash provided by (used in) operations................. (11,930) 49,523 (1,598) 14 36,009
------- --------- -------- -------- ---------
Cash flows related to investing activities:
Acquisition of property, plant and equipment................ (46) (11,933) - - (11,979)
Proceeds to date from sale of discontinued operations....... 2,836 - 614 (614) 2,836
Proceeds from disposition of property,
plant and equipment....................................... - 943 - - 943
Net change in other noncurrent accounts..................... (810) (694) 1,365 683 544
------- --------- -------- -------- ---------
Net cash provided by (used in) investing activities........... 1,980 (11,684) 1,979 69 (7,656)
------- --------- -------- -------- ---------
Cash flows related to financing activities:
Redemption of PIK preferred stock........................... (15,000) - - - (15,000)
Proceeds from exercise of stock options..................... 2,416 - 2,416
Repayments of long-term debt................................ (1,139) (4,016) - - (5,155)
Pension fund payment pursuant to PBGC settlement agreement.. - (4,500) (4,500)
Payment of EPA settlements.................................. (1,245) (391) (271) - (1,907)
Net changes in intercompany balances........................ 22,177 (23,468) 1,291 - -
------- --------- -------- -------- ---------
Net cash provided by (used in) financing activities.......... 7,209 (32,375) 1,020 0 (24,146)
------- --------- -------- -------- ---------
Net increase (decrease) in cash and cash equivalents.......... (2,741) 5,464 1,401 83 4,207
Cash and cash equivalents :
Beginning of period......................................... 4,218 54,417 1,839 (114) 60,360
------- --------- -------- -------- ---------
End of period............................................... $ 1,477 $ 59,881 $ 3,240 $ (31) $ 64,567
======= ========= ======== ======== =========
</TABLE>
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
(IN THOUSANDS OF DOLLARS)
FORWARD - LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements.
Additional written or oral forward-looking statements may be made by the
Company from time to time, in filings with the Securities and Exchange
Commission or otherwise. Such forward-looking statements are within the
meaning of that term in Section 27A of the Securities Act of 1933 and Section
21E of the Securities Exchange Act of 1934. Such statements may include, but
not be limited to, projections of revenues, income or losses, capital
expenditures, plans for future operations, financing needs or plans, plans for
sale of assets or businesses, plans relating to products or services of the
Company, as well as assumptions relating to the foregoing.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted or quantified. Future events
and actual results could differ materially from those set forth in,
contemplated by, or underlying the forward-looking statements. Statements in
this Quarterly Report, particularly the Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations," describe factors, among others, that could contribute
to or cause such differences. Other factors that could contribute to or cause
such differences include unanticipated increases in launch and other operating
costs, a reduction and inconsistent demand for passenger cars and light trucks,
the inability to finalize the definitive agreements for program modifications
with the major customer and the inability to agree to future modifications of
the Company's Revolving Credit Agreement with its banks or to arrange for
alternate financing for the future.
GENERAL
The volume of the Company's business has changed significantly due
principally to the acquisition of Doehler-Jarvis on July 28, 1995. The
acquisition was accounted for under the purchase method of accounting and,
accordingly, this operation is reflected in the consolidated financial results
of the Company only since the date of acquisition. For this reason, comparison
of financial results may not be meaningful. The Company's results of
operations have been adversely impacted during the three and nine months ended
June 30, 1996 by the following conditions: decline in large passenger car
sales, the effects of the March 1996 General Motors "GM" strike, adverse
weather conditions in January and February 1996, increased launch costs related
to new and replacement business, and losses related to two Doehler-Jarvis
Programs with a major customer which were launched in fiscal 1995. During the
three and six months ended June 30, 1996, the cost of sales exceeded revenues
(negative gross margin) under the Manifold Program and a program for Bell
Housings ("the Programs").
On July 25, 1996, the Company completed initial negotiations with the major
customer to program modifications for the Manifold Program discussed above.
The Company and the customer executed a term sheet which summarizes the points
of agreement. The Company and the customer also agreed upon a schedule
whereby the customer will resource the bell housing program to another
supplier. While termination and resourcing of the bell housing program
commenced in July 1996, it is anticipated that it will not be completed until
the end of December 1996. The customer has notified the Company that it will
go forward immediately with certain elements of the agreement concerning the
Manifold Program while the Company and the customer negotiate certain
definitive agreements to memorialize the settlement.
- 17 -
<PAGE> 19
It is currently expected that the finalization of the resourcing of the
bell housing program and the successful negotiation of the agreements for the
modifications to the Manifold Program, together with the planned reduction of
excess production costs, will substantially eliminate the negative gross
margins with respect to these programs by September 30, 1996, and completely by
the end of December 1996.
RESULTS OF OPERATIONS
Nine Months Ended June 30, 1996 Compared to Nine Months Ended June 30, 1995
Sales. Excluding $227,000 of Doehler-Jarvis sales, consolidated sales
decreased $51,000, substantially all of which occurred during the first six
months. The automotive accessories segment sales accounted for 96% and 95%,
respectively, of consolidated sales for the nine months ended June 30, 1996 and
1995. Automotive component sales, excluding $220,000 of such sales by
Doehler-Jarvis, decreased $46,000, of which $28,000 was due to both the lower
volumes for existing light vehicle platforms, principally for large passenger
cars and due to the effects of the March 1996 Strike at GM and $18,000 was
attributable to the inclusion in 1995 of sales to Ford phased out in June
1995, as previously disclosed. Nonautomotive sales increased $1,000 due to an
increase in furniture sales.
Gross Profit. The consolidated gross profit expressed as a percentage of
sales (the "gross profit margin") decreased from 12.5% to 6.4%. The gross
profit margin of the automotive segment decreased from 12.7% to 6.5%. However,
excluding Doehler-Jarvis' gross profit margin of 3.9%, the automotive segment
would have decreased from 12.7% to 8.3%. The decrease in the gross profit
margin was due principally to the lower passenger car sales mentioned above,
effects of the March 1996 GM Strike, January and February 1996 adverse weather
conditions, and excess launch costs for new and replacement products.
Doehler-Jarvis had sales of the Programs aggregating $38,000 for which a
negative gross margin of $6,200 was incurred. The nonautomotive segment had a
decrease in gross profit of $1,100 due principally to the fact that the prior
year's gross profit included a one time favorable settlement with a supplier
amounting to $475, as well as a product mix change in 1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $2,445, or 10.6% , after excluding $9,926 of
such expenses of Doehler-Jarvis, and after considering the fact that 1996 does
not include any bonus provision with respect to the Company's key management
and operating personnel, as compared to $3,000 in 1995. The current year
includes salary increases and additional nonautomotive selling costs incurred
to penetrate the mass merchandising furniture market. As a percentage of
sales, such consolidated expenses were 5.1% for both the nine months ended June
30, 1996 and 1995.
Interest Expense. Interest expense increased from $11,686 to $31,279 for
the nine months ended June 30, 1996. The increase in interest expense was the
result of the issuance in July 1995 of the 11 1/8% Senior Notes, capital
leases (which were assumed in the Doehler-Jarvis acquisition) and the revolving
working capital loans under its Credit Agreement.
Other (income) Expense, Net. The change in this caption was due,
principally, to the increase in goodwill amortization of $6,558 due to the
acquisition of Doehler-Jarvis and the reduction in interest income due to the
use of approximately $26,300 of cash on hand in the acquisition of
Doehler-Jarvis.
- 18-
<PAGE> 20
Provision for Income Taxes. The differences between the statutory
federal income tax rate and the Company's effective income tax rates result,
principally, from generating an operating profit in Canada and an operating
loss in the U.S.
Net Income (Loss). Net loss for the nine months ended June 30, 1996 was
$33,783 compared to a net income of $12,648 in the comparable prior year nine
month period. The change is because operating results (as described above)
were insufficient to cover increases of $26,151 in interest expense and
amortization of goodwill.
Three Months Ended June 30, 1996 Compared to Three Months Ended June 30, 1995
Sales. Excluding $77,000 of Doehler-Jarvis sales, consolidated sales
decreased $5,000. The automotive accessories segment sales accounted for 96%
of consolidated sales for both the three months ended June 30, 1996 and 1995.
Automotive component sales, excluding $76,000 of such sales by Doehler-Jarvis,
decreased $4,000 which was mainly attributable to the inclusion in 1995 of
sales to Ford phased out in June 1995, as previously disclosed.
Doehler-Jarvis had sales of the Programs aggregating $15,000 for which a
negative gross margin of $2,900 was incurred. Nonautomotive sales reflected a
decrease in furniture sales of $1,400.
Gross Profit. The consolidated gross profit expressed as a percentage of
sales (the "gross profit margin") decreased from 13.9% to 6.3%. The gross
profit margin of the automotive segment decreased from 14.2 to 6.6%. However,
if Doehler-Jarvis' gross profit margin for the quarter was eliminated, the
automotive segment would have decreased from 14.2% to 10.8%. The decrease in
the gross profit margin was due principally to the lower passenger car sales
volumes mentioned above and excess launch costs for new and replacement
products. Cost of sales exceeded revenues for Doehler-Jarvis operations during
the third fiscal quarter as a result of losses incurred related to the
Programs previously discussed. Additionally, the nonautomotive segment had a
decrease in gross profit of $500, principally due to sales mix and to the
scrapping of defective merchandise.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased $188 after excluding $3,100 of such expenses
of Doehler-Jarvis, and after considering the fact that 1996 does not include
any bonus provision with respect to the Company's key management and operating
personnel, as compared to $1,000 in 1995. The current year includes salary
increases and additional nonautomotive selling costs incurred to penetrate the
mass merchandising furniture market offset by the recovery of certain
engineering costs. As a percentage of sales, such consolidated expenses were
4.6% and 5.6% for the three months ended June 30, 1996, and 1995, respectively.
Interest Expense. Interest expense increased from $3,917 to $10,918 for
the quarter ended June 30, 1996. The increase in interest expense was the
result of the issuance in July 1995 of the 11 1/8% Senior Notes, capital leases
(which were assumed in the Doehler-Jarvis acquisition), and the revolving
working capital loans under its Credit Agreement.
Other (Income) Expense, Net. The change in this caption was due,
principally, to the increase in goodwill amortization of $2,186 attributable to
the acquisition of Doehler-Jarvis and the reduction in interest income due to
the use of approximately $26,300 of cash on hand in the acquisition of
Doehler-Jarvis.
Provision for Income Taxes. The differences between the statutory federal
income tax rate and the Company's effective income tax rates result,
principally, from generating an operating profit in Canada and an operating
loss in the U.S.
- 19 -
<PAGE> 21
Net Income (Loss). Net loss for the three months ended June 30, 1996 was
$11,097 compared to a net income of $4,377 in the comparable prior year
quarter. The change is because operating results (as described above) were
insufficient to cover increased interest costs and goodwill amortization
related to the acquisition.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months and three months ended June 30, 1996, the Company had
a negative cash flow from operations of $17,016 and $6,492, respectively.
Proceeds from the sale of discontinued operations and a sale of a building
generated cash of $4,204 during the nine months ended June 30, 1996. The
negative cash flow from operations in 1996 resulted in requirements for the
Company to borrow under its Credit Agreement. At June 30, 1996, such working
capital loans amounted to $31,000. These working capital loans, together with
cash on hand at September 30, 1995, were used primarily to fund working capital
needs, to purchase of property, plant and equipment of $28,560, to meet debt
service obligations (principal and interest) of $31,400, and to fund pension
payments pursuant to the PBGC settlement agreement and EPA payments of $6,993.
The Company had a deficiency of earnings over fixed charges and dividends on
preferred stock of $42,715 and $14,056, respectively, for the nine months and
three months ended June 30, 1996.
Capital Expenditures. Company expenditures for property, plant and
equipment during the first nine months ended June 30, 1996 and 1995 were
$28,560 and $11,979, respectively, principally for machinery and equipment
required in the ordinary course of operating the Company's business.
Approximately, $10,158 of the increase in capital expenditures was attributable
to Doehler-Jarvis. The Company revised its use of anticipated funds from
operations from $45,000 to $30,000, with respect to 1996 capital expenditures
which excludes certain equipment which may be leased pursuant to operating
leases. The Company does not anticipate any material effect upon operations as
a result of such revised use of anticipated funds.
General. In addition to its debt service and capital expenditures'
requirements, the Company will have requirements during the last three months
of fiscal 1996 to fund: (i) costs associated with the ESNA matter, estimated to
be $1,500, (ii) restructuring costs of approximately $1,125, (iii) costs
associated with legal proceedings and claims relating to environmental matters
estimated to be approximately $1,000 and (iv) contributions of an additional
$1,500 to be made to certain pension plans (in addition to the Company's
minimum funding requirements with respect to each such plan).
ESNA. Although the Company has projected that the 1996 estimated cost of
the ESNA matter will not be material, the ultimate cost of disposition of this
matter, as well as the required funding of such costs, is dependent upon future
events, the outcomes of which are not determinable at the present time. Such
outcomes could have a material effect on the Company's financial condition,
results of operations and/or liquidity. If it is ultimately determined that
the deviations from specifications and certifications made in connection
therewith, constitute violations of various statutory and regulatory
provisions, the Company may, among other things, be subject to criminal
prosecution, treble damages and penalties under the Civil False Claims Act or
Racketeer Influenced and Corrupt Organization Act, as well as administrative
sanctions, such as debarment from future government contracting.
- 20 -
<PAGE> 22
Credit Agreement. The Company on July 23, 1996 entered into an agreement
with its banks under the Company's Revolving Credit Agreement pursuant to which
the banks waived certain covenants involving maintenance of financial ratios
and other coverages at June 30, 1996. The Company had previously notified the
banks that it was unable to comply with these covenants , both at June 30,
1996 and September 30, 1996, because it had experienced lower than expected
operating performance. On June 30, 1996, the Company had revolving credit
loans of $31,000 and standby letters of credit of $21,000 outstanding under its
Revolving Credit Agreement.
The new arrangements with the banks include, among other things, an
effective increase in the applicable interest rate under the Revolving Credit
agreement by 3.75% per year, as well as a reduction of available inventory to
be used in the borrowing base. As of June 30, 1996, the effect of the new
arrangement was to reduce the inventory borrowing base from $13,000 to a
maximum of $5,000. Effective September 2, 1996, inventory will be eliminated
from the borrowing base leaving accounts receivable as the basis upon which to
borrow funds. Due to the fluctuating nature of accounts receivable, the
borrowing base will change over time. The Company believes the low point of
its borrowing base was primarily due to the seasonal shut down of its
customers' manufacturing plants during the first two weeks in July, 1996,
thereby reducing accounts receivable. The Company anticipates its borrowing
base availability will range from approximately $60,000 during the week ending
August 9, 1996 to a high of $85,000 during the week ending September 27, 1996.
In view of the Company's operating performance to date, new business and
cost savings programs requiring capital expenditures of $28,000 during the
first nine months of the fiscal year, and the reduction of the inventory
borrowing base by $8,000, the Company determined that additional short term
liquidity was necessary. On August 2, 1996, the Company borrowed $7,000 under
a new $10,000 short term credit facility maturing on December 31, 1996, with
its existing banks. The new credit facility is collateralized by the
Company's machinery and equipment. The interest rate is 4% over the alternate
base rate as defined. The Company paid a $1,000 facility fee on August 2,
1996. The Company will pay an additional facility fee of $250 for each month
any loans under the facility are outstanding beyond September 29, 1996. The
Company currently intends to repay this short term loan by the end of September
1996.
The Company and the banks have tentatively scheduled a meeting to be held
in September of 1996 to discuss future modifications to the Company's Revolving
Credit Agreement. The Company is also actively pursuing other financing
alternatives.
The Company is also in the process of investigating other strategic
alternatives, including, among other things, the sale of certain assets and
businesses. In this regard, the Company has retained an investment banker to
begin the process of the sale of non-core assets and another investment banker
will be retained shortly.
PIK Preferred Stock. The Company continues to explore various financing
alternatives, including capital market alternatives with respect to its 14 1/4%
PIK Preferred Stock outstanding, which shares are required to be redeemed on or
before November 16, 1998. If the Company fails to redeem the PIK Preferred
Stock on said date, or otherwise fails to make a dividend payment, then the
number of directors constituting the Board shall be increased by two and the
outstanding shares of the PIK Preferred Stock shall vote as a class, with each
shareholder entitled to one vote, to elect two Directors to fill such newly
created directorships.
- 21 -
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION.
The Ratio of Earnings to Fixed Charges and Dividends on Preferred Stock,
and the supporting computation thereof, are filed as Exhibit 12.1 to this
Quarterly Report on Form 10-Q and are incorporated herein by reference.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
4. Amendment No. 2 to Rights Agreement, effective May 31, 1996,
between the Registrant and Fleet National Bank (formerly Shawmut
Bank, Connecticut, National Association), as Rights Agent
(incorporated by reference to Exhibit 4.1(c) to the Registration
Statement on Form 8-B of the Registrant filed with the Securities
and Exchange Commission on June 19, 1996 (File No. 0-21362)).
10.1 Waiver, Amendment and Agreement, dated as of July 2, 1996, to the
Credit Agreement, dated as of July 28, 1995, among the Company and
certain of its subsidiaries with Chase Manhattan Bank, for itself
and as agent for the other lenders party thereto.
10.2 Amendment No. 3, Waiver and Agreement, d ated as of July 23, 1996,
to the Credit Agreement, dated as of July 28, 1995, among the
Company and certain of its subsidiaries with Chase Manhattan Bank,
for itself and as agent for the other lenders party thereto.
12.1 Computation of Ratio of Earnings to Fixed Charges and Dividends on
Preferred Stock.
27 Financial Data Schedule (For SEC Use Only)
(b) Reports on Form 8-K:
None
- 22 -
<PAGE> 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 authorized.
HARVARD INDUSTRIES, INC.
---------------------------------
(Registrant)
August 13, 1996 /s/ Joseph J. Garliardi
---------------------------------
Joseph J. Gagliardi
Vice President Finance and
Chief Financial Officer
(Principal Financial Officer)
August 13, 1996 /s/ William J. Warren
--------------------------------
William J. Warren
Vice President and
Chief Accounting Officer
(Principal Accounting Officer)
- 23-
<PAGE> 25
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION PAGE NO.
4. Amendment No. 2 to Rights Agreement, effective May 31, 1996, between the
Registrant and Fleet National Bank (formerly Shawmut Bank, Connecticut,
National Association), as Rights Agent (incorporated by reference to
Exhibit 4.1(c) to the Registration Statement on Form 8-B of the
Registrant filed with the Securities and Exchange Commission on June 19,
1996 (File No. 0-21362)).
10.1 Waiver, Amendment and Agreement, dated as of July 2, 1996, to the Credit
Agreement, dated as of July 28, 1995, among the Company and certain of
its subsidiaries with Chase Manhattan Bank, for itself and as agent for
the other lenders party thereto.
10.2 Amendment No. 3, Waiver and Agreement, dated as of July 23, 1996, to
the Credit Agreement, dated as of July 28, 1995, among the Company and
certain of its subsidiaries with Chase Manhattan Bank, for itself and as
agent for the other lenders party thereto.
12.1 Computation of Ratio of Earnings to Fixed Charges and Dividends on
Preferred Stock.
27 Financial Data Schedule (For SEC Use Only)
<PAGE> 1
EXHIBIT 10.1
WAIVER, AMENDMENT AND AGREEMENT dated
as of July 2, 1996 (this "Waiver"), to the
Credit Agreement dated as of July 28, 1995,
as amended by Amendment No. 1, Waiver and
Consent thereto dated as of March 31, 1996
(the "Credit Agreement"), among HARVARD
INDUSTRIES, INC., a Florida corporation
("Harvard"), DOEHLER-JARVIS, INC, a Delaware
corporation ("Doehler-Jarvis"), the Borrowers
named therein (the "Borrowers"), the several
banks and other financial institutions party
to the Credit Agreement (the "Lenders"),
CHEMICAL BANK, a New York banking corporation
("Chemical Bank"), as administrative agent
(in such capacity, the "Administrative
Agent") and as collateral agent (in such
capacity, the "Collateral Agent") for the
Lenders, and CHEMICAL BANK DELAWARE, a
Delaware banking corporation, as issuing bank
(in such capacity, the "Issuing Bank").
A. The Lenders and the Issuing Bank have extended credit to the
Borrowers, and have agreed to extend credit to the Borrowers, in each case
pursuant to the terms and subject to the conditions set forth in the Credit
Agreement.
B. Harvard, Doehler-Jarvis and the Borrowers have informed the
Lenders (a) that the lower than expected performance of Doehler-Jarvis has
resulted in a Material Adverse Effect and (b) that a Default exists under the
Credit Agreement, as the results of operation of Harvard and its Subsidiaries
are not expected to be sufficient to satisfy the provisions of Sections 6.09,
6.10 and 6.11 of the Credit Agreement.
C. Notwithstanding the foregoing, Harvard, Doehler-Jarvis and the
Borrowers have delivered to the Administrative Agent a Borrowing Request dated
July 2, 1996, attached hereto as Exhibit A, and a Borrowing Request dated July
12, 1996, attached hereto as Exhibit B (collectively, the "Borrowing
Requests"). In connection therewith, Harvard, Doehler-Jarvis and the Borrowers
have requested that the Lenders grant a limited waiver of Section 4.01 of the
Credit Agreement to the extent necessary to permit the making of Loans relating
to the Borrowing Requests (the "New Loans").
D. The Required Lenders are willing to grant such limited waiver
pursuant to the terms and subject to the conditions set forth herein.
E. Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the
<PAGE> 2
sufficiency and receipt of which are hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. Waiver. In connection with the making of the New Loans,
the Required Lenders hereby (a) waive Section 4.01(b) of the Credit Agreement
with respect to the representation and warranty set forth in Section 3.06 of
the Credit Agreement and (b) waive Section 4.01(c) of the Credit Agreement with
respect to any Default or Event of Default arising solely as a result of a
breach by Harvard of one or more of Section 6.09, 6.10 or 6.11 of the Credit
Agreement.
SECTION 2. Amendments Relating to the Borrowing Base. (a) The
definition of the terms "Eligible Inventory", "Eligible Inventory Value", "Raw
Materials and Finished Goods Inventory" and "Work-in Process" are hereby
deleted.
(b) The definition of the term "Borrowing Base" is hereby
amended and restated in its entirety as follows:
"Borrowing Base" shall mean an amount equal to the
sum, without duplication, of (a) 85% of Eligible Accounts
Receivable of the Harvard Borrowers and (b) 80% of the
Eligible Accounts Receivable of Doehler-Jarvis and the DJ
Borrowers. The Borrowing Base shall be determined by
reference to the Borrowing Base Certificate most recently
delivered hereunder.
(c) Section 5.04(f) of the Credit Agreement is hereby
amended by deleting (a) the words "Inventory and" from the fourth line thereof
and (b) the words "Eligible Inventory and" from the fifth line thereof.
(d) Section 5.11(b) of the Credit Agreement is hereby
amended by deleting the words "and Eligible Inventory" from each of the third
and fourth lines thereof.
SECTION 3. Amendment to Section 2.06 of the Credit Agreement.
Section 2.06 of the Credit Agreement is hereby amended by deleting from the end
of paragraph (a) thereof the number "1.75%" and substituting therefor the
number "3.75%".
SECTION 4. Agreement as to Interest Rate. Harvard, Doehler-Jarvis
and each Borrower agrees that commencing on the Effective Date, all outstanding
Loans shall bear interest (computed on the basis of the actual number of days
elapsed over a year of 365 or 366 days, as the case may be, when the Alternate
Base Rate is determined by reference to the Prime Rate and over a year of 360
days at all other times) at a rate per annum equal to the Alternate Base Rate
plus 3.75%.
2
<PAGE> 3
SECTION 5. Acknowledgement and Agreement. Harvard, Doehler-Jarvis
and each Borrower acknowledges and agrees that (a) the Lenders are not required
to honor the Borrowing Requests due to the failure to satisfy the conditions to
Borrowing set forth in Section 4.01 of the Credit Agreement, (b) neither this
Waiver nor the making of the New Loans shall constitute a waiver of any Default
or Event of Default that has occurred or may occur in the future, (c) the
Lenders shall not, by implication or otherwise, be required to honor any future
requests for Borrowings unless all the conditions precedent thereto shall have
been satisfied and (d) neither this Waiver nor the making of the New Loans
shall, by implication or otherwise, limit, impair, constitute a waiver of, or
otherwise affect the rights and remedies of the Lenders, the Administrative
Agent, the Collateral Agent or the Issuing Bank under the Credit Agreement or
any other Loan Document.
SECTION 6. Representations and Warranties. To induce the other
parties hereto to enter into this Waiver, each of Harvard, Doehler-Jarvis and
the Borrowers represents and warrants to each of the Lenders, the
Administrative Agent, the Collateral Agent and the Issuing Bank that, after
giving effect to this Waiver, (a) other than with respect to Section 3.06 of
the Credit Agreement, the representations and warranties set forth in Article
III of the Credit Agreement are true and correct in all material respects on
and as of the date hereof with the same effect as though made on and as of the
date hereof, except to the extent such representations and warranties expressly
relate to an earlier date, and (b) other than with respect to Sections 6.09,
6.10 and 6.11 of the Credit Agreement, no Default or Event of Default has
occurred and is continuing.
SECTION 7. Conditions to Effectiveness. This Waiver shall become
effective as of the date first above written (the "Effective Date") on the date
that the Administrative Agent shall have received counterparts of this Waiver
that, when taken together, bear the signatures of Harvard, Doehler-Jarvis, the
Borrowers and the Required Lenders.
SECTION 8. Effect of Waiver. Except as expressly set forth herein,
this Waiver shall not alter, modify, amend or in any way affect any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement, or any other Loan Document, all of which are ratified and affirmed
in all respects and shall continue in full force and effect. Nothing herein
shall be deemed to entitle Harvard, Doehler-Jarvis or the Borrowers to a
consent to, or a waiver, amendment, modification or other change of, any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances.
This Waiver shall apply and be effective only with respect to the provision of
the Credit Agreement specifically referred to
3
<PAGE> 4
herein. Any default under this Waiver shall constitute an Event of Default
under the Credit Agreement.
SECTION 9. Counterparts. This Waiver may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, but all
such counterparts together shall constitute but one and the same instrument.
Delivery of any executed counterpart of a signature page of this Waiver by
facsimile transmission shall be as effective as delivery of a manually executed
counterpart hereof.
SECTION 10. Applicable Law. THIS WAIVER SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 11. Headings. The headings of this Waiver are for purposes
of reference only and shall not limit or otherwise affect the meaning hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be
duly executed by their duly authorized officers, all as of the date and year
first above written.
HARVARD INDUSTRIES, INC.,
by /s/ Joseph J. Gagliardi
------------------------------
Name:
Title:
HARMAN AUTOMOTIVE, INC.,
by /s/ Joseph J. Gagliardi
------------------------------
Name:
Title:
HAYES-ALBION CORPORATION,
by /s/ Joseph J. Gagliardi
------------------------------
Name:
Title:
THE KINGSTON-WARREN CORPORATION,
by /s/ Joseph J. Gagliardi
------------------------------
Name:
Title:
4
<PAGE> 5
DOEHLER-JARVIS, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS GREENEVILLE, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS POTTSTOWN, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS TECHNOLOGIES, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS TOLEDO, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
CHEMICAL BANK, individually and as
Administrative Agent, Collateral Agent
and Swingline Lender,
by /s/ Rosemary Bradley
-----------------------------
Name:
Title:
CHEMICAL BANK DELAWARE, an Issuing Bank
by /s/ Michael P. Handago
-----------------------------
Name:
Title: Vice-President
5
<PAGE> 6
COMERICA BANK,
by /s/ Deborah Albrecht
-----------------------------
Name:
Title: Account Representative
FIRST UNION COMMERCIAL CORPORATION,
by /s/ Roseanne Disalvatore
-----------------------------
Name:
Title: Vice President
LBJ SCHRODER BANK AND TRUST COMPANY
by /s/ Wing C. Louie
-----------------------------
Name:
Title: Vice President
MIDLANTIC BANK, INC.
by /s/ Susan M. Graham
-----------------------------
Name:
Title: Vice-President
NBD BANK,
by /s/ Mark W. Widawski
-----------------------------
Name:
Title: First Vice-President
SANWA BUSINESS CREDIT CORPORATION,
by
-----------------------------
Name:
Title:
TPA2-362725
6
<PAGE> 1
EXHIBIT 10.2
AMENDMENT No. 3, WAIVER AND AGREEMENT, dated as of
July 23, 1996 (this "Amendment"), to the Credit Agreement
dated as of July 28, 1995, as amended by Amendment No. 1,
Waiver and Consent thereto dated as of March 31, 1996, and
Waiver, Amendment and Agreement thereto dated as of July 2,
1996 (the "Credit Agreement"), among HARVARD INDUSTRIES, INC.,
a Florida corporation ("Harvard"), DOEHLER-JARVIS, Inc., a
Delaware corporation ("Doehler-Jarvis"), the Borrowers named
therein (the "Borrowers"), the several banks and other
financial institutions party to the Credit Agreement (the
"Lenders"), THE CHASE MANHATTAN BANK, a New York banking
corporation, as administrative agent (in such capacity, the
"Administrative Agent") and as collateral agent (in such
capacity, the "Collateral Agent") for the Lenders, and
CHEMICAL BANK DELAWARE, a Delaware banking corporation, as
Issuing Bank (in such capacity, the "Issuing Bank").
A. The Lenders and the Issuing Bank have extended credit to the
Borrowers, and have agreed to extend credit to the Borrowers, in each case
pursuant to the terms and subject to the conditions set forth in the Credit
Agreement.
B. Harvard, Doehler-Jarvis and the Borrowers have requested that
the Lenders grant a limited waiver of Sections 6.09, 6.10 and 6.11 of the
Credit Agreement.
C. The Required Lenders are willing to grant such limited waiver
pursuant to the terms and subject to the conditions set forth herein.
D. Capitalized terms used but not defined herein shall have the
meanings assigned to them in the Credit Agreement.
Accordingly, in consideration of the mutual agreements herein
contained and other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereto agree as follows:
SECTION 1. Amendment to Section 1.01 of the Credit Agreement.
(a) Section 1.01 of the Credit Agreement is hereby amended as follows:
(a) by amending and restating the definition of the term
"Borrowing Base" in its entirety as follows:
"Borrowing Base" shall mean an amount equal to the sum,
without duplication, of (a) 85% of Eligible Accounts Receivable of the
Harvard Borrowers and (b) 80% of Eligible Accounts Receivable of
Doehler-Jarvis and the DJ Borrowers. In addition, for any date
occurring before September 3, 1996, the Borrowing Base shall be
increased by the lesser of (i) the sum of (A) 50% of the Eligible
Inventory Value of the Harvard
<PAGE> 2
Borrowers, (B) 50% of the Eligible Inventory Value of Work-in-Process
of Doehler-Jarvis and the DJ Borrowers and (C) 60% of the Eligible
Inventory Value of Raw Materials and Finished Goods Inventory of
Doehler-Jarvis and the DJ Borrowers and (ii) $5,000,000. The
Borrowing Base at any time in effect shall be determined by reference
to the Borrowing Base Certificate most recently delivered hereunder.
(b) by adding the following definitions, in the appropriate
alphabetical order.
"Concentration Account" shall have the meaning assigned to
such term in the Security Agreement.
"Eligible Inventory" shall mean, with respect to any person on
any date, all Inventory (other than tooling or prototypes) of such
person and its consolidated subsidiaries on such date deemed by the
Collateral Agent in good faith to be eligible for inclusion in the
calculation of the Borrowing Base. Without limiting the foregoing, to
qualify as "Eligible Inventory" no person other than a Borrower or a
Subsidiary Guarantor shall have any direct or indirect ownership
interest or title to such Inventory and no person other than a
Borrower or Subsidiary Guarantor shall be indicated on any purchase
order or invoice with respect to such Inventory as having or
purporting to have an interest therein. Unless otherwise from time to
time approved in writing by the Administrative Agent, no Inventory
shall be deemed Eligible Inventory if:
(a) it is not owned solely by a Borrower or a
Subsidiary Guarantor or a Borrower or a Subsidiary Guarantor
does not have a sole and good, valid and unencumbered title
thereto (except for Liens expressly permitted by Section 6.02,
provided that such Inventory shall not be deemed Eligible
Inventory to the extent of the obligations secured by such
Liens), or
(b) it is not located in the continental United States; or
(c) it is not located on property owned or leased
by such Borrower or Subsidiary Guarantor or in a contract
warehouse, in each case, specified on Schedule 1.01(a) to this
Agreement, and, except as otherwise approved by the Collateral
Agent, covered by an agreement satisfactory in form and
substance to the Collateral Agent covering the Collateral
Agent's access to such Inventory and waiving the lessor's or
contract warehouseman's Liens therein, and segregated or
otherwise separately identifiable from goods of all others, if
any, stored on the premises other than Inventory that has been
sent out to intermediary processors in the ordinary course of
such person's business and consistent with past practice;
provided, however, that, notwithstanding the foregoing, 5% of
all
<PAGE> 3
such Inventory that is not located at such properties or in such
warehouses shall be deemed Eligible Inventory; or
(d) it is packing or shipping materials or
maintenance supplies; or
(e) it is not subject to a valid and perfected
first priority Lien in favor of the Collateral Agent for the
benefit of the Secured Parties, except, with respect to
Inventory stored at sites described in clause (c) above, for
Liens for unpaid rent or normal and customary warehousing
charges, in each case, not yet due; or
(f) it is goods returned or rejected by such
person's customers or goods in transit to third parties (other
than to warehouse sites described in clause (c) above; or
(g) it is seconds or thirds, or is obsolete or
slow moving or unmerchantable, or does not otherwise conform
to the representations and warranties contained in the Loan
Documents.
Without limiting the foregoing, Inventory shall not be
Eligible Inventory if (i) the purchase order, invoice or any other
document in connection therewith indicates that any person other than
a Borrower or a Subsidiary Guarantor has any ownership interest
therein (other than any such interest permitted by the Loan Documents
or (ii) it arises from a contract or other agreement with a supplier
or customer that has a contracting party other than a Borrower or a
Subsidiary Guarantor and the relevant supplier or customer (it being
understood that Harvard may separately guarantee the performance of
any such contract or agreement by such Borrower).
"Eligible Inventory Value" shall mean at the time of any
determination thereof the lower of cost (less any appropriate
re-valuation reserves or reserve for obsolete Inventory and any
profits accrued in connection with transfers of Inventory between any
Loan Party and its subsidiaries or between subsidiaries of any Loan
Party) and fair market value of the Eligible Inventory at such time,
in dollars, determined in accordance with the first in/first out
method of accounting and on a basis otherwise consistent such person's
current and historical accounting practices.
"Raw Materials and Finished Goods Inventory" shall mean, with
respect to any person on any date, the Eligible Inventory of such
person and its consolidated subsidiaries on such date that constitutes
raw materials and finished goods Inventory.
"Work-in-Process" shall mean, with respect to any person on any date,
the Eligible Inventory of such person and its
<PAGE> 4
consolidated subsidiaries on such date that constitutes work-in-process
Inventory.
SECTION 2. Amendment to Section 2.02 of the Credit Agreement.
Section 2.02 of the Credit Agreement is hereby amended by deleting the numbers
"1,000,000" and "5,000,000" in the last line thereof and substituting therefor
the numbers "500,000" and "1,000,000", respectively.
SECTION 3. Amendment to Section 2.11 of the Credit Agreement.
Section 2.11 of the Credit Agreement is hereby amended by adding as a new
paragraph (e) thereof the following:
(e) Notwithstanding the foregoing, at the opening
of business on each Business Day the Collateral Agent shall
remit all funds then on deposit in the Concentration Account
to the Administrative Agent to be applied by the
Administrative Agent first, to prepay the then outstanding
Loans (if any) and second, to the extent of any remaining
funds (after the prepayment of Loans), to replace outstanding
Letters of Credit and/or deposit an amount in cash in a cash
collateral account established with the Collateral Agent for
the benefit of the Secured Parties.
SECTION 4. Amendment to Section 5.04 of the Credit Agreement.
Section 5.04 of the Credit Agreement is hereby amended as follows:
(a) by deleting paragraph (f) thereof in its entirety;
(b) by relettering clause (e) thereof as clause (f) and inserting
the following as a new clause (e) thereof:
"(e) not later than 10:00 a.m., New York City time,
on each Business Day (i) a Borrowing Base Certificate showing
the Borrowing Base as of the close of business on the
immediately preceding Business Day, each such certificate to
be certified as complete and correct on behalf of Harvard by a
Financial Officer of Harvard and (ii) such other supporting
documentation and additional reports with respect to the
Borrowing Base as the Administrative Agent shall reasonably
request"; and
(c) by (i) deleting the words "12:00 (noon)" in the first line of
new paragraph (f) thereof and substituting therefor the words "10:00 a.m." and
(ii) inserting immediately after the word "week" in the third line of new
paragraph (f) thereof the words "(which shall reflect a recalculation of the
portion of Inventory and Accounts of the Borrowers and Doehler-Jarvis that did
not constitute Eligible Inventory and Eligible Accounts as of such day)".
<PAGE> 5
SECTION 5. Amendments to Section 5.11(b) of the Credit
Agreement. Section 5.11(b) of the Credit Agreement is hereby amended by
inserting immediately after the words "Eligible Accounts Receivable" in each of
the third and fourth lines thereof the words "and Eligible Inventory".
SECTION 6. Amendment to Section 5.01 of the Security Agreement.
Section 5.01 of the Security Agreement is hereby amended by deleting paragraphs
(c) and (d) thereof in their entirety and substituting therefor the following:
(c) The Concentration Account is, and shall remain, under the sole
dominion and control of the Collateral Agent. Each Grantor acknowledges and
agrees that (i) such grantor has no right of withdrawal from the Concentration
Account, (ii) the funds on deposit in the Concentration Account shall continue
to be collateral security for all the Obligations and (iii) the funds on
deposit in the Concentration Account shall be used to prepay Loans as provided
in Section 2.11(e) of the Credit Agreement. The Collateral Agent shall
promptly remit any remaining funds in the Concentration Account (after the
prepayment of Loans as required by Section 2.11 of the Credit Agreement) to the
General Fund Account and Harvard and the Borrowers shall have the right, at any
time and from time to time, to withdraw such amounts from the General Fund
Accounts as they shall deem to be necessary or desirable.
SECTION 7. Agreements as to Eurodollar Loans. Each Borrower
agrees that it shall not be entitled to request, and the Lenders shall not be
obligated to make, Eurodollar loans without the prior written consent of the
Required Lenders.
SECTION 8. Waiver. (a) The Required Lenders hereby waive any
Default or Event of Default arising solely as a result of a breach by Harvard
of one or more of Section 6.09, 6.10 or 6.11 of the Credit Agreement with
respect to the fiscal period ending on June 30, 1996.
(b) The Required Lenders hereby waive through October 15,
1996, any Default or Event of Default arising solely as a result of a breach by
Harvard of one or more of Sections 6.09, 6.10 or 6.11 of the Credit Agreement
with respect to the fiscal period ending on September 30, 1996.
SECTION 9. Representations and Warranties. To induce the other
parties hereto to enter into this Amendment, each of Harvard, Doehler-Jarvis
and the Borrowers represents and warrants to each of the Lenders, the
Administrative Agent, the Collateral Agent and the Issuing Bank that, after
giving effect to this Amendment, (a) the representations and warranties set
forth in Article III of the Credit Agreement are true and correct in all
material respects on and as of the date hereof with the same effect as though
made on and as of the date hereof, except to the extent such representations
and warranties expressly relate to an earlier date,
<PAGE> 6
and (b) after giving effect to this Amendment, no Default or Event of Default
has occurred and is continuing.
SECTION 10. Conditions to Effectiveness. (a) This Amendment
shall become effective on the date that the Administrative Agent shall have
received counterparts of this Amendment that, when taken together, bear the
signatures of Harvard, Doehler-Jarvis, the Borrowers and the Required Lenders;
provided that on such date the waiver set forth in Section 8(a) hereof shall be
effective as of June 30, 1996.
(h) Notwithstanding the foregoing, the waiver set forth
in Section 8(a) hereof shall be effective after July 25, 1996, only if the
Required Lenders shall have been notified of, and shall be satisfied with, the
terms of an agreement reached by Doehler-Jarvis and General Motors Corporation
to reprice Doehler-Jarvis's AC Rochester purchase order for intake manifolds.
SECTION 11. Effect of Amendment. Except as expressly set forth
herein, this Amendment shall not by implication or otherwise limit, impair,
constitute a waiver of, or otherwise affect the rights and remedies of the
Lenders, the Administrative Agent, the Collateral Agent, the Issuing Bank,
Harvard, Doehler-Jarvis or the Borrowers under the Credit Agreement or any
other Loan Document, and shall not alter, modify, amend or in any way affect
any of the terms, conditions, obligations, covenants or agreements contained in
the Credit Agreement, or any other Loan Document, all of which are ratified and
affirmed in all respects and shall continue in full force and effect. Nothing
herein shall be deemed to entitle Harvard, Doehler-Jarvis or the Borrowers to a
consent to, or a waiver, amendment, modification or other change of, any of the
terms, conditions, obligations, covenants or agreements contained in the Credit
Agreement or any other Loan Document in similar or different circumstances.
This Amendment shall apply and be effective only with respect to the provisions
of the Credit Agreement specifically referred to herein. Any default under
this Amendment shall constitute an Event of Default under the Credit Agreement.
SECTION 12. Counterparts. This Amendment may be executed in any
number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument. Delivery of any executed counterpart of a signature page of
this Amendment by facsimile transmission shall be as effective as delivery of a
manually executed counterpart hereof.
SECTION 13. Applicable Law. THIS AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE> 7
SECTION 14. Headings. The headings of this Amendment are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be duly executed by their duly authorized officers, all as of the date and year
first above written.
HARVARD INDUSTRIES, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
HARMAN AUTOMOTIVE, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
HAYES-ALBION CORPORATION
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
THE KINGSTON-WARREN CORPORATION
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
<PAGE> 8
DOEHLER-JARVIS GREENEVILLE, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS POTTSTOWN, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS TECHNOLOGIES, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
DOEHLER-JARVIS TOLEDO, INC.
by /s/ Joseph J. Gagliardi
-----------------------------
Name:
Title:
<PAGE> 9
THE CHASE MANHATTAN BANK, as
successor by merger to Chemical Bank,
individually and as Administrative
Agent and Collateral Agent
by /s/ Rosemary Bradley
-----------------------------
Name:
Title: Vice-President
CHEMICAL BANK DELAWARE,
as Issuing Bank,
by /s/ Michael P. Handago
-----------------------------
Name:
Title: Vice-President
COMERICA BANK,
by /s/ Deborah Albrecht
-----------------------------
Name:
Title: Account Representative
FIRST UNION COMMERCIAL CORPORATION
by /s/ Roseanne Disalvatore
-----------------------------
Name:
Title: Vice-President
<PAGE> 10
IRJ SCHRODER BANK AND TRUST
COMPANY
by /s/ Wing C. Louie
-----------------------------
Name:
Title: Vice-President
MIDLANTIC BANK, N.A.
by /s/ Susan M. Graham
-----------------------------
Name:
Title: Vice-President
NBD BANK,
by /s/ Mark W. Widawski
-----------------------------
Name:
Title: First Vice-President
SANWA BUSINESS CREDIT CORPORATION
by /s/ Peter L. Skavla
-----------------------------
Name:
Title: Vice-President
<PAGE> 1
EXHIBIT 12.1
HARVARD INDUSTRIES INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND
DIVIDENDS ON PREFERRED STOCK
(In thousands of dollars)
<TABLE>
<CAPTION>
Three months ended Nine months ended
June 30, June 30,
---------------------- ----------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Pre-tax income (loss)........................................ $ (10,345) $ 8,633 $ (31,582) $ 22,533
Add: Fixed charges........................................... 11,152 4,073 31,981 12,154
---------- ---------- ---------- ----------
Income as adjusted........................................... $ 807 $ 12,706 $ 399 $ 34,687
========== ========== ========== ==========
Fixed charges:
Interest on indebtedness................................. $ 10,918 $ 3,917 $ 31,279 $ 11,686
Portion of rents representative of the interest factor... 234 156 702 468
---------- ---------- ---------- ----------
Fixed charges............................................ 11,152 4,073 31,981 12,154
Dividends on preferred stock and accretion................... 3,711 4,018 11,133 11,551
---------- ---------- ---------- ----------
Fixed charges and dividends on preferred stock............... $ 14,863 $ 8,091 $ 43,114 $ 23,705
========== ========== ========== ==========
Ratio of earnings over fixed charges and dividends
on preferred stock ...................................... 1.57x 1.46x
========== ==========
Deficiency of earnings over fixed charges and
dividends on preferred stock............................. $ (14,056) $ (42,715)
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,108
<SECURITIES> 0
<RECEIVABLES> 118,738
<ALLOWANCES> 0
<INVENTORY> 60,134
<CURRENT-ASSETS> 181,771
<PP&E> 416,183
<DEPRECIATION> 111,316
<TOTAL-ASSETS> 650,691
<CURRENT-LIABILITIES> 197,061
<BONDS> 320,734
110,784
0
<COMMON> 70
<OTHER-SE> (107,346)
<TOTAL-LIABILITY-AND-EQUITY> 650,691
<SALES> 633,657
<TOTAL-REVENUES> 633,657
<CGS> 593,051
<TOTAL-COSTS> 593,051
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,279
<INCOME-PRETAX> (31,582)
<INCOME-TAX> 2,201
<INCOME-CONTINUING> (33,783)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,783)
<EPS-PRIMARY> (6.42)
<EPS-DILUTED> (6.42)
</TABLE>
