<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
OR
[X] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 0-21362
HARVARD INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
Florida 21-0715310
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Werner Way, Lebanon, New Jersey 08833
(Address of principal executive offices) (Zip code)
(908) 437-4100
(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 REGISTRANTS 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 REGISTRANTS)
<PAGE>
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Class A Common 7,026,437
<PAGE>
Index
HARVARD INDUSTRIES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE
PART I. FINANCIAL INFORMATION: -----
<S> <C>
Item 1. Financial Statements:
Consolidated Balance Sheets
June 30, 1998 (Unaudited) and September 30, 1997 (Audited) ..................... 2
Consolidated Statements of Operations (Unaudited)
Three and Nine Months Ended June 30, 1998 and 1997 ............................. 3
Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended June 30, 1998 and 1997 ....................................... 4
Notes to Consolidated Financial Statements -- (Unaudited) .......................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations .................................................................... 16
PART II. OTHER INFORMATION:
Item 5. Other Information .......................................................... 20
Item 6. Exhibits and Reports on Form 8-K ........................................... 21
SIGNATURES ......................................................................... 22
</TABLE>
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND SEPTEMBER 30, 1997
(IN THOUSANDS )
<TABLE>
<CAPTION>
June 30, September 30,
1998 1997
ASSETS (Unaudited) (Audited)
----------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents ........................................... $ 17,868 $ 9,212
Accounts receivable, net ............................................ 75,672 76,190
Inventories ......................................................... 31,473 54,218
Prepaid expenses and other current assets ........................... 5,908 7,602
--------- ---------
Total current assets ........................................... 130,921 147,222
Property, plant and equipment, net ...................................... 115,915 132,266
Intangible assets, net .................................................. 3,229 4,417
Other assets, net ....................................................... 22,108 23,589
--------- ---------
$ 272,173 $ 307,494
========= =========
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities:
Current portion of Debtor-in-possession (DIP) loans ................. $ 45,696 $ 36,436
Current portion of Creditors Subordinated Term Loan ................. 25,000 --
Current portion of long-tem debt .................................... -- 1,748
Accounts payable .................................................... 21,108 32,267
Accrued expenses .................................................... 90,616 72,235
Income taxes payable ................................................ 3,950 2,440
--------- ---------
Total current liabilities ...................................... 186,370 145,126
Liabilities subject to compromise ....................................... 401,249 397,319
DIP loans ............................................................... -- 51,035
Long-term debt .......................................................... -- 12,339
Postretirement benefits other than pensions ............................. 99,752 96,929
Other ................................................................... 23,920 27,237
--------- ---------
Total liabilities .............................................. 711,291 729,985
--------- ---------
14 1/4% Pay-In-Kind Exchangeable Preferred Stock,
(Includes $10,142 of undeclared accrued dividends) ................. 124,637 124,637
--------- ---------
Shareholders' deficiency:
Common Stock, $ 01 par value; 15,000,000 shares authorized;
shares issued and outstanding: 7,026,437 at June 30,
1998 and at September 30, 1997 ................................. 70 70
Additional paid-in capital .......................................... 32,134 32,134
Additional minimum pension liability ............................... (3,665) (3,665)
Foreign currency translation adjustment ............................. (2,644) (1,930)
Accumulated deficit ................................................. (589,650) (573,737)
--------- ---------
Total shareholders' deficiency ................................. (563,755) (547,128)
--------- ---------
$ 272,173 $ 307,494
========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements (Unaudited).
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(Unaudited)
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Nine months ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales ........................................................................$ 169,234 $ 217,914 $ 572,625 $ 614,401
--------- --------- --------- ---------
Costs and expenses:
Cost of sales ............................................................ 156,361 211,609 542,174 612,043
Selling, general and administrative ...................................... 15,389 10,832 40,742 35,422
Interest expense (contractual interest of $11,521 and
$38,262 for the three and nine months ended June
30, 1998, respectively) ............................................ 2,616 8,822 11,548 33,154
Impairment of long-lived assets and restructuring costs .................. 10,842 134,987
Gain on sale of operations ............................................... 397 -- (26,561) --
Amortization of goodwill ................................................. 396 396 1,188 8,052
Other (income) expense, net .............................................. 73 947 1,044 2,744
--------- --------- --------- ---------
Total costs and expenses ............................................ 175,232 232,606 580,977 826,402
--------- --------- --------- ---------
Loss before reorganization items and income taxes ............................ (5,998) (14,692) (8,352) (212,001)
Reorganization items ......................................................... 1,144 13,232 7,045 13,232
--------- --------- --------- ---------
Loss before income taxes ..................................................... (7,142) (27,924) (15,397) (225,233)
Provision for income taxes ................................................... 171 367 516 1,380
--------- --------- --------- ---------
Net loss .....................................................................$ (7,313) $ (28,291) $ (15,913) $(226,613)
========= ========= ========= =========
PIK preferred dividends and accretion (contractual amounts were $4,763
and $14,289 for the three and nine months ended June 30, 1998,
respectively )............................................................$ -- $ 1,694 $ -- $ 10,142
--------- --------- --------- ---------
Net loss attributable to common shareholders .................................$ (7,313) $ (29,985) $ (15,913) $(236,755)
========= ========= ========= =========
Basic and Diluted Loss per common share ..................................$ (1.04) $ (4.27) $ (2.26) $ (33.73)
========= ========= ========= =========
Weighted average number of common shares outstanding ..................... 7,026 7,024 7,026 7,019
========= ========= ========= =========
</TABLE>
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS )
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Cash flows related to operating activities:
Loss from continuing operations before reorganization items ................... $ (8,868) $(213,381)
Add back (deduct) items not affecting cash and cash equivalents: -- --
Depreciation and amortization ............................................ 22,432 47,997
Impairment of long-lived assets and restructuring costs .................. 10,842 134,987
Gain on sale of operations ............................................... (26,561)
Loss on disposition of property, plant and equipment ..................... 839 1,759
Postretirement benefits .................................................. 2,823 5,145
Write-off of deferred debt expense ....................................... -- 1,792
Senior notes interest accrued prior to chapter 11, not paid .............. -- 9,728
Changes in operating assets and liabilities of continuing operations, -- --
net of effects of divestitures and reorganization items: -- --
Accounts receivable ...................................................... (2,827) 13,236
Inventories .............................................................. 20,608 (1,338)
Other current assets ..................................................... 1,694 (1,587)
Accounts payable ......................................................... (11,027) (60,704)
Accounts payable prepetition ............................................. (826) 82,246
Accrued expenses and income taxes payable ................................ 11,705 (12,992)
Other, net ............................................................... 3,476 6,636
--------- ---------
Net cash provided by operations before reorganization items .................. 24,310 13,524
Net cash used by reorganization items ......................................... (6,668) (1,224)
--------- ---------
Net cash provided by operations .............................................. 17,642 12,300
--------- ---------
Cash flows related to investing activities:
Acquisition of property, plant and equipment .................................. (12,543) (30,540)
Cash flows related to discontinued operations ................................. -- 212
Net proceeds from sale of operations .......................................... 20,475 --
Proceeds from disposition of property, plant and equipment .................... -- 622
--------- ---------
Net cash provided by (used in) investing activities ........................... 7,932 (29,706)
--------- ---------
Cash flows related to financing activities:
Net payments under financing/credit agreement ................................. -- (38,834)
Net borrowings (repayments) under DIP financing agreement ..................... (39,275) 68,931
Deferred DIP financing costs .................................................. -- (2,200)
Proceeds of Creditors Subordinated Term Loan, net of financing costs of $ 2,500 22,500 --
Proceeds from sale of stock and exercise of stock options ..................... -- 32
Repayments of long-term debt .................................................. (88) (1,099)
Pension fund payments pursuant to PBGC settlement agreement ................... -- (4,500)
Payment of EPA settlements .................................................... (55) (1,723)
--------- ---------
Net cash provided by (used in) financing activities ........................... (16,918) 20,607
--------- ---------
Net increase in cash and cash equivalents ........................................ 8,656 3,201
Cash and cash equivalents beginning of period ..................................... 9,212 1,107
--------- ---------
Cash and cash equivalents end of period ........................................... $ 17,868 $ 4,308
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
(UNAUDITED)
(IN THOUSANDS)
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, 1997 included in the Company's Annual Report on Form 10-K.
NOTE 2
On May 8, 1997, Harvard Industries, Inc. and its domestic subsidiaries
(all of whom are hereinafter sometimes designated the "Debtors") filed
voluntary petitions for relief under chapter 11 ("chapter 11") of the Federal
bankruptcy laws in the United States Bankruptcy Court for the District of
Delaware (the "Court"). Under chapter 11, holders of most claims arising prior
to the filing of the petitions for relief under the Federal bankruptcy laws are
stayed from collecting on such claims while the Debtors continue business
operations as debtors-in-possession ("DIP"). Additional claims may arise
subsequent to the filing date resulting from rejection of executory contracts,
including leases. Holders of pre-petition claims secured by liens against the
Debtors' assets ("secured claims") also are stayed from enforcing their rights
as secured creditors without leave of the Court.
The Debtors have received approval from the Court to pay or otherwise
honor certain pre-petition obligations, including certain employee wages,
salaries and other compensation, employee benefits, reimbursable employee
expenses and certain workers' compensation claims, as well as to continue
pre-petition customer practices with respect to warranties, refunds and return
policies. All proofs of claim were required to be filed against the Debtors by
February 9, 1998 or be forever barred from assertion.
The Debtors filed a plan of reorganization with the Court on July 10,
1998. The Court has given the Debtors until October 30, 1998 to formulate and
file their plans of reorganization, and until January 28, 1999 to solicit plan
acceptances thereto. In the event the plan is approved by the creditors and the
Court, continuation of the Debtors' business after reorganization is dependent
upon the success of future operations and the ability to meet obligations as
they become due. The accompanying consolidated financial statements have been
prepared on a going concern basis, which contemplates continuity of operations
and the realization of assets and liquidation of liabilities in the ordinary
course of business. However, as a result of the chapter 11 proceedings and
circumstances related thereto, including the Company's highly leveraged
financial structure and recurring losses from operations as reflected in the
consolidated statements of operations, such realization of assets and
liquidation of liabilities is subject to substantial doubt. Management is
unable to predict how and when the chapter 11 proceedings or the expenses
associated therewith, which could be substantial, will be concluded.
There can be no assurances that the liabilities of the Company will not be
found in the chapter 11 proceedings to exceed the fair value of its assets.
This would result in claims being provided for in the chapter 11 proceedings at
less than 100% of their face value. It is impossible at this time to predict
with certainty the actual recovery the creditors and shareholders will realize.
The Company discontinued accruing interest on its 12% and 11 1/8%
Notes (aggregating $300,000 of principal amount) and dividends on the PIK
Preferred Stock since the date of filing under chapter 11.
<PAGE>
NOTE 3
In November 1997, the Company sold the Material Handling division of
its Kingston-Warren subsidiary for approximately $18,000 of gross proceeds, of
which $7,840 was applied to the scheduled DIP term loans' quarterly payments in
November 1997 and February and May 1998 and $7,840 was applied to the final
installment due May 1999. The balance of the proceeds was used to reduce the
DIP revolving facility. The transaction resulted in a gain on sale of
approximately $11,400 in the first quarter of fiscal 1998.
In June 1998, the Company finalized the sale of its land, building and
certain other assets related to the Harvard Interiors Furniture Division located
in St. Louis, Missouri for aggregate proceeds of approximately $4,400. Of the
proceeds, $830 was applied to the May 31, 1998 DIP quarterly term payment, $501
was applied to the August 31, 1998 payment, $1,330 was applied to the May 8,
1999 payment and the balance was applied to reduce the DIP revolving facility.
The transaction resulted in a gain on sale of approximately $1,200, which was
recorded in the second and third quarters of fiscal 1998.
In June 1998, the Company sold its ESNA facility located in Union, New
Jersey for $1,900. On July 30, 1998, the Company filed a motion in Bankruptcy
Court for authority to sell substantially all of the assets of Doehler-Jarvis
Greeneville, Inc. to Tennessee Aluminum Casting, L.L.C. ("TAC"). Pursuant to
the terms of the Asset Purchase Agreement, TAC will pay $10,907 in cash to the
Company, subject to certain adjustments. The sale to TAC is subject to the
submission of higher or better offers.
Management is in the process of winding down operations at the
Company's Doehler-Jarvis Toledo, Inc. subsidiary. The Company has entered into
agreements with General Motors and Ford to defray certain expenses and obtain
certain assets and assume the related lease obligation with respect to the
wind-down. Based on these agreements and the anticipated sale of assets, the
Company believes that the net cost of the wind-down will not be material.
Condensed operating data of operations designated for sale or
wind-down (Harman Automotive, Harvard Interiors, Material Handling, Toledo,
Greeneville and the Tiffin, Ohio facility of the Hayes-Albion subsidiary) are
as follows:
Three months ended Nine months ended
June 30 June 30
1998 1997 1998 1997
---------- --------- ---------- ---------
Sales $ 42,163 $ 80,801 $ 196,309 $ 238,611
Gross profit (loss) 2,835 (3,136) 11,501 (12,843)
Improvements in operating results are primarily a result of decreased
depreciation expense due to the write down of property, plant and equipment at
the Toledo and Greeneville facilities and at Harman Automotive in the fourth
quarter of 1997 and the wind-down agreements with Ford and General Motors.
NOTE 4
The Company failed to meet the fixed charge ratio financial covenant
in connection with its DIP financing agreement during October and November
1997, and on December 29, 1997 obtained a waiver of such default from its
lenders. On December 29, 1997, the Company entered into Amendment No. 1 Waiver
and Consent (the "Amendment") to Post-Petition Loan and Security Agreement with
its lenders whereby the lenders from December 29, 1997 waived all defaults or
events of default which have occurred prior to such date from the failure to
comply with the above financial covenant. The lenders also entered into the
Amendment to replace the fixed charge ratio covenant with monthly consolidated
EBITDA and consolidated tangible net worth covenants, commencing calculations
at December 31, 1997. The Amendment requires the lenders' consent for capital
expenditures in excess of $30,000 for the year ending September 30, 1998. The
Company was in compliance with the EBITDA and consolidated tangible net worth
covenants at June 30, 1998.
<PAGE>
The Company also entered into Amendment No. 2 and Consent to the
Post-petition Loan and Security Agreement, dated January 27, 1998 (the "Amended
DIP Financing Agreement"), pursuant to which the lenders consented to the term
loan, discussed in Note 7, the creation of subordinated liens thereunder and to
certain asset sales. In addition, the Amended DIP Financing Agreement presently
provides for an availability reserve of $5,000 and will be eliminated upon the
receipt by the lenders of not less than $15,000 from the sale or other
disposition of the Toledo facility. The Company is required to use the Toledo
fixed asset proceeds to prepay remaining installments, 50% in direct order and
50% in inverse order of their maturities.
The term of the amended DIP Facility is the earlier of (i) May 8, 1999
or (ii) the date the line of credit is terminated or (iii) the earlier of the
effective date a Plan of Reorganization is confirmed by an order of the
bankruptcy court or (iv) the date on which any distributions are made under a
Plan of Reorganization that is confirmed by order of a bankruptcy court.
The Amended DIP Financing Agreement provides that any asset sale
proceeds (other than Toledo proceeds) are to be used to pay pre-petition and
revolving loans indebtedness so that after giving effect thereto the aggregate
net availability is restored to its status immediately prior to the transaction
giving rise to the proceeds; and then to prepay remaining installments in the
order described above.
The lenders have consented to certain minimum realizations from future
asset sales, as follows: not less than $2,000 with respect to the sale of
Harman Automotive, not less than $15,000 with respect to the sale or
disposition of Toledo, and not less than $2,000 with respect to the sale of
Harvard Interiors, all with prepayments of indebtedness to be effected in the
manner set forth above. There is no assurance that such minimum realizations
will be obtained.
The Company entered into Amendment No. 3 to the Post-Petition Loan and
Security Agreement, dated as of April 30, 1998, extending to May 31, 1998 the
date upon which an agreement with Ford regarding the winddown of the Toledo
facility is required to be approved by the Court.
The Company entered into Amendment No. 4 to the Post-Petition Loan and
Security Agreement, dated as of April 30, 1998, extending to June 30, 1998 the
date upon which an agreement with Ford regarding the winddown of the Toledo
facility is required to be approved by the Court. An agreement with Ford was
signed on May 18, 1998 and approved by the Court on June 22, 1998.
NOTE 5
During the nine months ended June 30, 1998, the Company recorded a
$5,000 restructuring charge representing estimated shutdown costs, of which
$2,500 related primarily to severance and moving costs associated with the move
of the corporate headquarters from Tampa, Florida to Lebanon, New Jersey and
approximately $2,500 was accrued for two senior executive officers to induce
them to stay until the earlier of (i) the date of consummation of the plan of
reorganization, plus, if requested by the Board, up to an additional 60 days
beyond such date, (ii) the date of termination by the executive for good
reason, death, disability or retirement or (iii) the termination by the Company
of the executive's employment for any reason.
During the nine months ended June 30, 1998, the Company recorded a
charge of $5,842 consisting of the impairment of the property, plant and
equipment of the Tiffin plant, which is being considered for sale or wind down,
and the equipment and tooling for a platform that is being discontinued earlier
than planned.
NOTE 6
The Company entered into a Term Loan Agreement dated as of January 16,
1998 for a $25,000 post-petition term loan facility which is subordinated to
the security interests under the existing DIP loans. The loan is payable on the
earlier of May 8, 1999 or the date the existing DIP loan is terminated and
bears
<PAGE>
interest at a rate per annum equal to the greater of (i) the highest per annum
interest rate for term loans and revolving credit loans under the existing DIP
loans plus 3% or (ii) 13%. The net proceeds of $22,500 from the loan were used
to reduce the current balance of the revolver portion of the DIP loans. The
financing costs of $2,500 were charged to interest expense. On July 31, 1998,
the Company executed a commitment letter with Lehman Brothers Inc. and Lehman
Commercial Paper Inc. (collectively "Lehman") for a credit facility to be
provided by Lehman to the Company in an amount up to $165,000, which will be
effective following confirmation and upon consummation of the Company's plan of
reorganization.
NOTE 7
Basic and diluted loss per share are computed by dividing net loss
after deducting accrued dividends and accretion related to PIK Preferred Stock
by the weighted average number of common shares outstanding. Options to
purchase 836,571 shares of common stock are outstanding at June 30, 1998. No
consideration was given in either period to equivalent shares related to stock
options since such assumed exercise would be anti-dilutive.
NOTE 8
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 will not have a material
adverse effect on the financial position or results of operations of the
Company.
NOTE 9
Income taxes result principally from having operating profit in
Canada, and thus being subject to Canadian taxes, and an operating loss in the
U.S. for which benefit was not recognized.
NOTE 10
Both the 12% Notes and the 11 1/8% Notes are guaranteed on a senior
unsecured basis, pursuant to guarantees (the "Guarantees") by all of the
Company's wholly-owned direct and certain of its wholly-owned indirect domestic
subsidiaries (the "Guarantors"). Both Notes are unconditionally guaranteed,
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 to an amount not to exceed the maximum amount that can be guaranteed 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.
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
indenture 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, 1998 and September 30, 1997
and condensed statements of operations and cash flows for the nine months ended
June 30, 1998 and 1997.
<PAGE>
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. Reorganization items have been included under the Parent Company in
the accompanying condensed consolidating statements of operations and cash
flows.
5. 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, 1998 and 1997.
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
because it was deemed that such financial statements would not provide the
investor with any material additional information.
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS )
<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 ........................ $ 7,215 $ 9,333 $ 1,320 $ -- $ 17,868
Accounts receivable, net ......................... 184 71,096 4,392 -- 75,672
Inventories ...................................... 413 30,339 721 -- 31,473
Prepaid expenses and other current assets ........ 2,248 3,654 6 -- 5,908
--------- --------- --------- --------- ---------
Total current assets ........................... 10,060 114,422 6,439 -- 130,921
Investment in subsidiaries ......................... (57,414) 11,847 -- 45,567 --
Property, plant and equipment, net ................. 2,847 105,239 7,829 -- 115,915
Intangible assets, net ............................. -- 3,229 -- -- 3,229
Intercompany receivables ( payables) ............... (27,555) 26,153 1,402 -- --
Other assets, net .................................. 21,153 955 -- -- 22,108
--------- ---------
========= ========= ========= ========= =========
$ (50,909) $ 261,845 $ 15,670 $ 45,567 $ 272,173
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Current portion of DIP loans ..................... $ -- $ 45,696 $ -- $ -- $ 45,696
Creditors Subordinated Term Loan ................. 25,000 -- -- -- 25,000
Accounts payable ................................. (36) 18,904 2,240 -- 21,108
Accrued expenses ................................. 23,179 67,606 (169) -- 90,616
Income taxes payable ............................. 1,083 1,453 1,414 -- 3,950
--------- --------- --------- --------- ---------
Total current liabilities .................... 49,226 133,659 3,485 -- 186,370
Liabilities subject to compromise ( a ) ........... 336,418 64,831 -- -- 401,249
Postretirement benefits other than pensions ........ -- 99,752 -- -- 99,752
Other liabilities .................................. 2,565 21,017 338 -- 23,920
--------- --------- --------- --------- ---------
Total liabilities ........................... 388,209 319,259 3,823 -- 711,291
--------- --------- --------- --------- ---------
PIK Preferred Stock ................................ 124,637 -- -- -- 124,637
--------- --------- --------- --------- ---------
Shareholders' equity (deficiency):
Common stock and additional
paid-in-capital ................................ 32,204 73,054 10 (73,064) 32,204
Additional minimum pension liability ............. (3,665) (3,659) -- 3,659 (3,665)
Foreign currency translation adjustment .......... (2,644) (2,644) (2,644) 5,288 (2,644)
Retained earnings (deficiency) ................... (589,650) (124,165) 14,481 109,684 (589,650)
--------- --------- --------- --------- ---------
Total shareholders' equity (deficiency) ........ (563,755) (57,414) 11,847 45,567 (563,755)
========= ========= ========= ========= =========
$ (50,909) $ 261,845 $ 15,670 $ 45,567 $ 272,173
========= ========= ========= ========= =========
</TABLE>
(a) Includes $309,728 senior notes payable and accrued interest which are
subject to the guaranty of the combined guarantor subsidiaries.
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<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 ............... $ 3,324 $ 5,376 $ 512 $ -- $ 9,212
Accounts receivable, net ................ 2,795 71,355 2,040 -- 76,190
Inventories ............................. 2,475 50,662 1,081 -- 54,218
Prepaid expenses and other current assets 1,698 5,904 -- -- 7,602
--------- --------- --------- --------- ---------
Total current assets .................. 10,292 133,297 3,633 -- 147,222
Investment in Subsidiaries ................ (48,751) 12,138 -- 36,613 0
Property, plant and equipment, net ........ 3,878 119,164 9,224 -- 132,266
Intangible assets, net .................... -- 4,417 -- -- 4,417
Intercompany receivables ( payable) ....... (71,413) 66,140 5,273 0 0
Other assets .............................. 20,164 3,425 -- 23,589
--------- --------- --------- --------- ---------
$ (85,830) $ 338,581 $ 18,130 $ 36,613 $ 307,494
========= ========= ========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (DEFICIENCY)
Current liabilities:
Current portion of DIP loans ............ $ 867 $ 35,569 $ -- $ -- $ 36,436
Current portion of long-term debt ....... -- 1,748 -- -- 1,748
Accounts payable ........................ 228 30,214 1,825 -- 32,267
Accrued expenses ........................ 16,088 55,959 188 -- 72,235
Income taxes payable .................... (1,751) 1,246 2,945 -- 2,440
--------- --------- --------- --------- ---------
Total current liabilities ........... 15,432 124,736 4,958 -- 145,126
Liabilities subject to compromise(a) ...... 317,508 79,742 69 -- 397,319
DIP loans ................................. 705 50,330 51,035
Long-term debt ............................ 12,339 12,339
Postretirement benefits other than pensions -- 96,929 -- -- 96,929
Other ..................................... 3,016 23,256 965 -- 27,237
--------- --------- --------- --------- ---------
Total liabilities .................. 336,661 387,332 5,992 0 729,985
--------- --------- --------- --------- ---------
PIK Preferred ............................. 124,637 -- -- -- 124,637
--------- --------- --------- --------- ---------
Shareholders' equity (deficiency):
Common stock and additional
paid-in-capital ....................... 32,204 73,054 10 (73,064) 32,204
Additional minimum pension liability .... (3,665) (3,659) -- 3,659 (3,665)
Foreign currency translation adjustment . (1,930) (1,930) (1,930) 3,860 (1,930)
Retained earnings (deficiency) .......... (573,737) (116,216) 14,058 102,158 (573,737)
--------- --------- --------- --------- ---------
Total shareholders' equity (deficiency) (547,128) (48,751) 12,138 36,613 (547,128)
--------- --------- --------- --------- ---------
$ (85,830) $ 338,581 $ 18,130 $ 36,613 $ 307,494
========= ========= ========= ========= =========
</TABLE>
(a) Includes $309,728 senior notes payable and accrued interest which are
subject to the guaranty of the combined guarantor subsidiaries.
F-37
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1998
(Unaudited)
(In thousands )
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales ............................... $ 8,148 $ 550,039 $ 14,438 $ -- $ 572,625
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ..................... 7,962 521,660 12,552 -- 542,174
Selling, general and adminstrative 6,016 33,809 917 -- 40,742
Interest expense .................. 5,843 5,687 18 -- 11,548
Impairment of long-lived assets and
restructuring costs ............. 5,000 5,842 -- -- 10,842
Gain on sale of operations ........ (1,208) (25,353) -- -- (26,561)
Amortization of goodwill .......... -- 1,188 -- -- 1,188
Other (income) expense, net ....... -- 1,054 (10) -- 1,044
Equity in (income) loss of
subsidiaries .................... 4,061 (686) -- (3,375) --
Allocated expenses ................ (10,752) 10,477 275 -- --
--------- --------- --------- --------- ---------
Total costs and expenses ...... 16,922 553,678 13,752 (3,375) 580,977
--------- --------- --------- --------- ---------
Income (loss) before reorganization
items and income taxes ......... (8,774) (3,639) 686 3,375 (8,352)
Reorganization items ................ 7,139 (94) -- -- 7,045
--------- --------- --------- --------- ---------
Income (loss) before income taxes ... (15,913) (3,545) 686 3,375 (15,397)
Provision for income taxes .......... -- 516 -- -- 516
--------- --------- --------- --------- ---------
Net Income (loss) ................ $ (15,913) $ (4,061) $ 686 $ 3,375 $ (15,913)
========= ========= ========= ========= =========
</TABLE>
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997
( Unaudited )
(In thousands )
<TABLE>
<CAPTION>
Combined Combined
Parent Guarantor Non-Guarantor
Company Subsidiaries Subsidiaries Elimination Consolidated
--------- ------------ ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Sales ............................... $ 15,528 $ 574,526 $ 24,347 $ -- $ 614,401
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales ..................... 16,543 573,230 22,270 -- 612,043
Selling, general and administrative 11,528 23,894 -- -- 35,422
Interest expense .................. 27,110 5,877 167 -- 33,154
Amortization of goodwill .......... -- 8,052 -- -- 8,052
Other (income) expense, net ....... 805 1,924 15 -- 2,744
Impairment of long-lived assets ... -- 134,987 -- -- 134,987
Equity in (income) loss of
subsidiaries .................... 189,086 (49) -- (189,037) --
Allocated expenses ................ (16,163) 14,864 1,299 -- --
--------- --------- --------- --------- ---------
Total costs and expenses ...... 228,909 762,779 23,751 (189,037) 826,402
--------- --------- --------- --------- ---------
Income (loss) before income taxes and
reorganization items ........... (213,381) (188,253) 596 189,037 (212,001)
Reorganization items ................ (13,232) -- -- -- (13,232)
--------- --------- --------- --------- ---------
Income (loss) before income taxes ... (226,613) (188,253) 596 189,037 (225,233)
Provision for income taxes .......... -- 833 547 -- 1,380
--------- --------- --------- --------- ---------
Net income (loss) ................ $(226,613) $(189,086) $ 49 $ 189,037 $(226,613)
========= ========= ========= ========= =========
</TABLE>
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
(IN THOUSANDS )
<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:
Loss from continuing operations before reorganization items $ (8,774) $ (4,155) $ 686 $ 3,375 $ (8,868)
Add back (deduct) items not affecting
cash and cash equivalents:
Equity in (income) loss of subsidiaries ................. 4,061 (686) -- (3,375) --
Depreciation and amortization ........................... 1,291 20,207 934 -- 22,432
Impairment of long-lived assets and restructuring costs . 5,000 5,842 -- -- 10,842
Gain on sale of operations .............................. (1,208) (25,353) -- -- (26,561)
Loss on disposition of property, plant and
equipment .............................................. 283 355 201 -- 839
Postretirement benefits ................................. -- 2,823 -- -- 2,823
Changes in operating assets and liabilities,net of effects
from reorganization items:
Accounts receivable ..................................... 2,611 (3,086) (2,352) -- (2,827)
Inventories ............................................. 1,295 18,953 360 -- 20,608
Other current assets .................................... (550) 2,250 (6) -- 1,694
Accounts payable ........................................ (264) (12,004) 415 -- (11,853)
Accrued expenses and income taxes payable ............... 4,184 9,409 (1,888) -- 11,705
Other, net .............................................. 16,756 (11,870) (1,410) -- 3,476
-------- -------- -------- -------- --------
Net cash provided by (used in) continuing operations before
reorganization items ................................... 24,685 2,685 (3,060) -- 24,310
Net cash provided by (used in) reorganization items ......... (6,668) -- -- -- (6,668)
-------- -------- -------- -------- --------
Net cash provided by (used in) continuing operations ....... 18,017 2,685 (3,060) -- 17,642
-------- -------- -------- -------- --------
Cash flows related to investing activities:
Acquisition of property, plant and equipment .............. (69) (12,300) (174) -- (12,543)
Net proceeds from sale of operations ...................... 4,084 16,391 -- -- 20,475
-------- -------- -------- -------- --------
Net cash provided by (used in) investing activities ........ 4,015 4,091 (174) -- 7,932
-------- -------- -------- -------- --------
Cash flows related to financing activities:
Net borrowings (repayments) under DIP financing agreement . (1,572) (37,703) -- -- (39,275)
Proceeds of Creditors Subordinated Term Loan, net of
financing costs of $2,500 ................................. 22,500 -- -- -- 22,500
Repayments of long-term debt .............................. -- (88) -- -- (88)
Payment of EPA settlements ................................ -- (55) -- -- (55)
Net changes in intercompany balances ...................... (39,069) 35,027 4,042 -- --
-------- -------- -------- -------- --------
Net cash provided by (used in) financing activities ......... (18,141) (2,819) 4,042 -- (16,918)
-------- -------- -------- -------- --------
Net increase (decrease) in cash and cash equivalents ........ 3,891 3,957 808 -- 8,656
Cash and cash equivalents :
Beginning of period ....................................... 3,324 5,376 512 -- 9,212
-------- -------- -------- -------- --------
End of period ............................................. $ 7,215 $ 9,333 $ 1,320 $ -- $ 17,868
======== ======== ======== ======== ========
</TABLE>
<PAGE>
HARVARD INDUSTRIES, INC.
(DEBTOR-IN-POSSESSION)
CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1997
( UNAUDITED )
(IN THOUSANDS )
<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:
Loss from continuing operations before reorganization items . $(213,381) $(189,086) $ 49 $ 189,037 $(213,381)
Add back (deduct) items not affecting
cash and cash equivalents:
Equity in (income) loss of subsidiaries ................... 189,086 (49) -- (189,037) --
Depreciation and amortization ............................. 2,034 45,097 866 -- 47,997
Impairment of long-lived assets ........................... -- 134,987 -- -- 134,987
Loss on Disposition of property, plant and
equipment and property held for sale ..................... -- 1,759 -- -- 1,759
Postretirement benefits ................................... -- 5,145 -- -- 5,145
Write-off of deferred debt expense ........................ 1,792
Senior notes interest accrued prior to chapter 11, not paid 9,728
Changes in operating assets and liabilities :
Accounts receivable ....................................... 3,172 10,849 (785) -- 13,236
Inventories ............................................... 2,715 (6,586) 2,533 -- (1,338)
Other current assets ...................................... (1,084) (503) -- -- (1,587)
Accounts payable .......................................... (4,139) (56,940) 375 -- (60,704)
Accounts payable prepetition .............................. 3,169 78,905 172 82,246
Accrued expenses and income taxes payable ................. (6,867) (5,236) (889) -- (12,992)
Other, net ................................................ 1,879 4,790 (33) -- 6,636
--------- --------- --------- --------- ---------
Net cash provided by (used in) continuing operations before
reorganization items ..................................... (11,896) 23,132 2,288 -- 13,524
Net cash used by reorganization items ......................... (1,224) (1,224)
--------- --------- --------- --------- ---------
Net cash provided by (used in) continuing operations ......... (13,120) 23,132 2,288 0 12,300
--------- --------- --------- --------- ---------
Cash flows related to investing activities:
Acquisition of property, plant and equipment ................ (94) (29,084) (1,362) -- (30,540)
Cash flows related to net assets of discountinued operations 212 -- -- -- 212
Proceeds from disposition of property,
plant and equipment ....................................... -- 622 -- -- 622
--------- --------- --------- --------- ---------
Net cash used in investing activities ......................... 118 (28,462) (1,362) -- (29,706)
--------- --------- --------- --------- ---------
Cash flows related to financing activities:
Net payments under financing / credit agreement ............. (445) (38,389) -- -- (38,834)
Net borrowings under DIP financing agreement ................ 1,278 67,653 68,931
Deferred DIP financing costs ................................ (2,200) (2,200)
Proceeds from sale of stock / exercise of stock options ..... 32 -- -- -- 32
Repayments of long-term debt ................................ -- (1,099) -- -- (1,099)
Pension fund payment pursuant to PBGC settlement agreement .. (4,500) -- -- -- (4,500)
Payment of EPA settlements .................................. (1,074) (649) -- -- (1,723)
Net changes in intercompany balances ........................ 21,718 (22,397) 679 -- 0
--------- --------- --------- --------- ---------
Net cash provided by financing activities ..................... 14,809 5,119 679 -- 20,607
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents .......... 1,807 (211) 1,605 -- 3,201
Cash and cash equivalents :
Beginning of period ......................................... (1,655) 4,367 (1,605) -- 1,107
--------- --------- --------- --------- ---------
End of period ............................................... $ 152 $ 4,156 $ -- $ -- $ 4,308
========= ========= ========= ========= =========
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
(In Thousands)
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, covenants provided for
in the DIP financing agreements, capital expenditures, plans for future
operations, financing needs or plans, plans relating to products or services of
the Company, as well as assumptions relating to the foregoing. In addition,
when used in this discussion, the words "anticipates," "believes," "estimates,"
"expects," "intends," "plans" and similar expressions are intended to identify
forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, including, but not limited to, product demand, pricing, market
acceptance, risk of dependence on third party suppliers, intellectual property
rights and litigation, risks in product and technology development and other
risk factors detailed in the Company's Securities and Exchange Commission
filings, some of which cannot be predicted or quantified based on current
expectations. Consequently, 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
in 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, labor disputes,
capital requirements, adverse weather conditions, the inability to consummate
successfully negotiations looking towards defraying certain costs in connection
with the wind-down of the Toledo, Ohio facility, unanticipated developments in
the bankruptcy proceedings and the impact thereof, as well as other pending
litigation, and increases in borrowing costs.
Readers are cautioned not to place undue reliance on any
forward-looking statements contained herein, which speak only as of the date
hereof. The Company undertakes no obligation to publicly release the result of
any revisions to these forward-looking statements that may be made to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1998 Compared to Three Months Ended June 30,1997
The General Motors strike at the Flint Metal Center and Delphi East
Parts Complex lasted for 54 days, ending on or about July 31, 1998. The
strike's effect on Harvard Industries, Inc. and its subsidiaries is still being
calculated as GM returns to work, but the loss should not exceed $30,000 in
sales and $8,000 in income before taxes. The Company estimates that
approximately $7,400 of sales and $1,700 of income before taxes were incurred
in June, with the remainder estimated to occur in the fourth fiscal quarter.
Sales. Sales decreased $48,680 from $217,914 to $169,234, or 22.3%.
Aggregate sales for operations
<PAGE>
designated for sale or wind-down decreased $38,638 from $80,801 to $42,163,
primarily due to the wind down. The remaining operations' sales decreased
$10,042 from $137,113 to $127,071 primarily due to the GM strike.
Gross Profit. The gross margin increased from 2.9% to 7.6%, or $6,568.
The gross profit for operations designated for sale or wind-down amounted to
$2,835 and $(3,136) in 1998 and 1997, respectively. The improvement was due
mainly to a decrease of approximately $3,900 in depreciation resulting from the
write-down of certain property, plant and equipment in the fourth quarter of
1997 and the favorable effect of the wind down agreements with Ford and GM. The
increase in gross profit for the remaining operations was mainly due to
improved operating efficiencies and approximately $1,500 from decreases in
depreciation resulting from the write-down of certain property, plant and
equipment in the fourth quarter of 1997 at the continuing operations of
Doehler-Jarvis partially offset by the lower volumes at GM due to the strike.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $10,832 to $15,389. The increase
reflects a $4,500 charge for the purchase and implementation of year 2000
compliant software.
Interest Expense. Interest expense decreased from $8,822 to $2,616.
However, but for giving effect to the discontinuance of accruing interest on
the senior notes of $8,905 in 1998 and $5,102 in 1997 from the date of filing
chapter 11, interest expense would have decreased by $2,405. This decrease
resulted from lower borrowing levels.
Gain on Sale of Operations. This includes an adjustment to the gain on
the sale of the land, building and certain other assets of the Harvard
Interiors' St. Louis facility.
Other (Income) Expense, Net. The decrease of $874 was mainly due to a
decrease in loss on disposal of machinery and equipment.
Reorganization Items. These costs represent mainly professional fees
incurred in connection with the bankruptcy proceedings.
Provision for Income Taxes. The decrease in the provision for income
taxes resulted from a decrease in operating profit in Canada.
Net Loss. The net loss decreased from $28,291 to $7,313 for the
reasons described above.
Nine Months Ended June 30, 1998 Compared to Nine Months Ended June 30,1997
The General Motors strike at the Flint Metal Center and Delphi East
Parts Complex lasted for 54 days, ending on or about July 31, 1998. The
strike's effect on Harvard Industries, Inc. and its subsidiaries is still being
calculated as GM returns to work, but the loss should not exceed $30,000 in
sales and $8,000 in income before taxes. The Company estimates that
approximately $7,400 of sales and $1,700 of income before taxes were incurred
in June, with the remainder estimated to occur in the fourth fiscal quarter.
Sales. Sales decreased $41,776 from $614,401 to $572,625, or 6.8%.
Aggregate sales for the operations designated for sale or wind-down decreased
approximately $42,302 from $238,611 to $196,309. The remaining operations'
sales increased $526 from $375,790 to $376,316 as higher volumes to
Caterpillar, Ford and other industrial customers offset the impact of the GM
strike.
Gross Profit. The gross margin increased from 0.4% to 5.3%, or
$28,093. The gross profit (loss) for Operations designated for sale or
wind-down amounted to $11,501 and $(12,843) in 1998 and 1997, respectively. The
improvement was due mainly to a decrease of approximately $12,800 in
depreciation resulting from the write-down of certain property, plant and
equipment in the fourth quarter of 1997 and favorable impact of the winddown
agreements with Ford and GM. The increase in gross profit for the remaining
operations was mainly due to improved operating efficiencies and approximately
$4,600 from
<PAGE>
decreases in depreciation resulting from the write-down of certain property,
plant and equipment in the fourth quarter of 1997 at the continuing operations
of Doehler-Jarvis partially offset by the impact of the GM strike.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from $35,422 to $40,742. The increase
reflects a $9,500 charge for the purchase and implementation of information
systems and technology which, upon completion, is expected to make the
Company's systems year 2000 compliant, offset by the prior period's charge of
$4,000 relating to the termination and consulting and release agreement of a
former executive.
Interest Expense. Interest expense decreased from $33,154 to $11,548.
However, but for giving effect to the discontinuance of accruing interest on
the senior notes of $26,714 in 1998 and $5,102 in 1997 from the date of filing
chapter 11, interest expense would have remained unchanged as financing fees of
$2,500 relating to the post-petition term loan facility were offset by lower
borrowing levels.
Amortization of Goodwill. The decrease of $6,864 in goodwill
amortization occurred because goodwill related to the acquisition of
Doehler-Jarvis ceased March 31, 1997, when such goodwill was written-off as
impaired.
Impairment of Long-Lived Assets and Restructuring Costs. During the
period, the Company recorded $5,000 in restructuring charges representing
estimated shutdown and relocation costs of $2,500, relating primarily to
severance and moving costs associated with the move of the corporate
headquarters from Tampa, Florida to Lebanon, New Jersey, and approximately
$2,500 for two senior executive officers to induce them to stay until the
earliest of (i) the date of consummation of the plan of reorganization, plus,
if requested by the Board, up to an additional 60 days beyond such date, (ii)
the date of termination by the executive for good reason, death, disability or
retirement or (iii) the termination by the Company of the executive's
employment for any reason. In addition, the Company wrote-off as impaired
substantially all the property, plant and equipment at Hayes-Albion's Tiffin,
Ohio facility and the equipment and tooling for a platform that is being
discontinued earlier than planned. During the nine months ended June 30, 1997,
a charge of $134,987 was recorded for the impairment of long-lived assets at
several subsidiaries.
Gain on Sale of Operations. This includes the gain of $11,354 on the
sale of the Material Handling division of the Company's Kingston-Warren
subsidiary, the gain of $1,208 on the sale of the land, building and certain
other assets of the Harvard Interiors' St. Louis facility and the gain of
$13,999 on the transfer of certain assets at the Toledo facility and their
related lease obligations to a third party.
Other (Income) Expense, Net. The decrease of $1,700 was mainly due to
a decrease in loss on disposal of machinery and equipment.
Reorganization Items. These costs represent mainly professional fees
incurred in connection with the bankruptcy proceedings.
Provision for Income Taxes. The decrease in the provision for income
taxes resulted from a decrease in operating profit in Canada.
Net Loss. The net loss decreased from $226,613 to $15,913 for the
reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended June 30, 1998, the Company had cash flow
from operations of $17,642 as compared with a cash flow from operations of
$12,300 for the nine months ended June 30, 1997. The 1998 cash flows improved
due to increased profit margins, lower inventory levels and the timing of
payments, but were negatively affected by payments of reorganization items and
advance and accelerated payments to post-petition suppliers. The cash flow from
operations in 1998, together with the proceeds of $20,475 from
<PAGE>
the sale of operations and the $22,500 proceeds from the creditors subordinated
term loan was used primarily to fund capital expenditures of $12,543 and to
repay DIP financing activities amounting to $39,275.
Projected cash flows for the year ending September 30, 1998
contemplate spending $14,000 in reorganization items, $10,000 in restructuring
charges and approximately $9,500 for new systems that are anticipated to make
the Company's systems year 2000 compliant prior to the year 2000, resulting in
negative cash flow from continuing operations. Additionally, capital
expenditures of approximately $25,000 are contemplated for the year ending
September 30, 1998. The Company, therefore, entered into a Term Loan Agreement,
dated as of January 16, 1998, for a $25,000 post-petition term loan facility to
allow greater borrowing availability for its ongoing operations. This facility
is subordinated to the security interests under the existing DIP loans, is
payable the earlier of May 8, 1999 or the date the existing DIP loan is
terminated and bears interest at a rate per annum equal to the greater of (i)
the highest per annum interest rate for term loans and revolving credit loans
under the existing DIP loans plus 3% or (ii) 13%. The Company was required to
pay facility and funding fees aggregating $2,500. The net proceeds were used to
reduce the current balance of the revolver portion of the DIP loans.
The Company did not meet the fixed charge ratio financial covenant of
its DIP Facility during the months of October and November 1997. On December
29, 1997, the Company entered into Amendment No. 1 Waiver and Consent (the
"Amendment") to Post-Petition Loan and Security Agreement with its lenders
whereby the lenders from December 29, 1997 waived all defaults or events of
default which have occurred prior to such date from the failure to comply with
the above financial covenant. The lenders also entered into the Amendment to
replace the fixed charge ratio covenant with monthly consolidated EBITDA and
consolidated tangible net worth covenants commencing calculations at December
31, 1997. The Amendment requires the lenders' consent for capital expenditures
in excess of $30,000 for the year ending September 30, 1998. The Company was in
compliance with the EBITDA and consolidated tangible net worth covenants at
June 30, 1998.
The Company also entered into Amendment No. 2 and Consent to the
Post-Petition Loan and Security Agreement, dated as of January 27, 1998,
pursuant to which the lenders consented to the term loan, discussed above, the
creation of subordinated liens thereunder and to certain asset sales. In
addition, the Amended DIP Financing Agreement presently provides for an
availability reserve of $5,000 and will be eliminated upon the receipt by the
lenders of not less than $15,000 from the sale or other disposition of the
Toledo facility. The Company is to use the Toledo proceeds to prepay remaining
installments, 50% in direct order and 50% in inverse order of their maturities.
As of August 7, 1998, the Company had availability to borrow funds in
the amount of approximately $30,000 pursuant to the DIP revolving credit
facility; at June 30, 1998 and August 7, 1998, the revolving credit facility
had less than $100 outstanding.
The Company is not permitted to borrow any money for funding any costs
or expenses incurred in connection with the closing of the Doehler-Jarvis
Toledo facility under both the DIP loan agreement and the subordinated loan
agreement unless reimbursed or anticipated to be reimbursed. It is contemplated
that the costs and expenses of the wind-down of the Doehler-Jarvis Toledo
facility will be borne by two major customers, with whom definitive agreements
have been reached.
Year 2000 Compliance. Certain of the Company's information systems are
not presently compliant with the requirements of the year 2000. The Company has
committed the resources necessary to ensure that its critical information
systems and technology infrastructure are "Year 2000 Compliant" before
transactions for the year 2000 are expected. Certain of the Company's systems
will be replaced with an "Enterprise Resource Planning" (ERP) solution, which
the Company intends to implement shortly, and will be Year 2000 compliant and
provide the Company with significantly enhanced manufacturing and business
systems capability.
<PAGE>
PART II. OTHER INFORMATION
ITEM 5. OTHER INFORMATION
A. THE GENERAL MOTORS STRIKE
The General Motors strike at the Flint Metal Center and Delphi East
Parts Complex lasted for 54 days, ending on or about July 31, 1998. The
strike's effect on Harvard Industries, Inc. and its subsidiaries is still being
calculated as GM returns to work, but the loss should not exceed $30 million in
sales and $8 million in income before taxes. The Company estimates that
approximately $7.4 million of sales and $1.7 million of income before taxes
were incurred in June, with the remainder estimated to occur in the fourth
fiscal quarter.
B. EXIT FINANCING
On July 31, 1998, the Company executed a commitment letter with Lehman
Brothers Inc. and Lehman Commercial Paper Inc. (collectively "Lehman") for a
credit facility to be provided by Lehman to the Company in an amount up to
$165,000,000, which will be effective following confirmation and upon
consummation of the Company's Plan of Reorganization.
C. FACILITY CLOSURES
On July 30, 1998, the Company filed a motion in Bankruptcy Court for
authority to sell substantially all of the assets of Doehler-Jarvis
Greeneville, Inc. to Tennessee Aluminum Casting, L.L.C. ("TAC"). Pursuant to
the terms of the Asset Purchase Agreement, TAC will pay $10,907,000 in cash to
the Company, subject to certain adjustments. The sale to TAC is subject to the
submission of higher and better offers.
D. MANAGEMENT CHANGES
The Company announced on July 16, 1998 that James B. Gray had been
appointed President of Harvard Industries, Inc. Effective July 31, 1998, Roger
L. Burtraw resigned his employment and officer position with the Company.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
2. Financial Data Schedule (for SEC use only).
<PAGE>
A Plan of Reorganization and related Disclosure Statement, filed with
the U. S. Bankruptcy Court for the District of Delaware on July 10, 1998 was
reported on Form 8-K filed with the Commission on July 24, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HARVARD INDUSTRIES, INC.
_____ By:___________________________________________
Date Roger G. Pollazzi, Chief Operating Officer,
_____ By:_____________________________________________________
Date Joseph J. Gagliardi, Senior Vice President Finance and
Chief Financial Officer (Principal Financial Officer),
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule (for SEC use only).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 17,868
<SECURITIES> 0
<RECEIVABLES> 75,672
<ALLOWANCES> 0
<INVENTORY> 31,473
<CURRENT-ASSETS> 130,921
<PP&E> 235,846
<DEPRECIATION> 119,931
<TOTAL-ASSETS> 272,173
<CURRENT-LIABILITIES> 186,370
<BONDS> 0
124,637
0
<COMMON> 70
<OTHER-SE> (563,825)
<TOTAL-LIABILITY-AND-EQUITY> 272,173
<SALES> 572,625
<TOTAL-REVENUES> 572,625
<CGS> 542,174
<TOTAL-COSTS> 542,174
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,548
<INCOME-PRETAX> (15,397)
<INCOME-TAX> 516
<INCOME-CONTINUING> (15,913)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,913)
<EPS-PRIMARY> (2.26)<F1>
<EPS-DILUTED> (2.26)
<FN>
<F1> AMOUNT REPRESENTS BASIC EARNINGS PER SHARE.
</FN>
</TABLE>
