-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FRVwPcIqp+zPuCGAd6CaV254LZrWyOkVa2KwkSJl/LAyY9yGAi/Amvr+v0Py5xdz fP7NtZL5nhY8r3++nRffeA== 0000950144-96-005243.txt : 19960814 0000950144-96-005243.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950144-96-005243 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HARVARD INDUSTRIES INC CENTRAL INDEX KEY: 0000046012 STANDARD INDUSTRIAL CLASSIFICATION: FABRICATED RUBBER PRODUCTS, NEC [3060] IRS NUMBER: 210715310 STATE OF INCORPORATION: FL FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-01044 FILM NUMBER: 96609393 BUSINESS ADDRESS: STREET 1: 2502 N ROCKY POINT DR STE 960 CITY: TAMPA STATE: FL ZIP: 33607 BUSINESS PHONE: 8132885000 MAIL ADDRESS: STREET 1: 2502 N ROCKY POINT DRIVE STREET 2: SUITE 960 CITY: TAMPA STATE: FL ZIP: 33607 FORMER COMPANY: FORMER CONFORMED NAME: HARVARD BREWING CO DATE OF NAME CHANGE: 19710315 10-Q 1 HARVARD INDUSTRIES, INC. FORM 10-Q 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. ================================================================================ 2
HARVARD INDUSTRIES, INC. INDEX 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
- 1 - 3 HARVARD INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS JUNE 30, 1996 AND SEPTEMBER 30, 1995 (In thousands of dollars)
June 30, September 30, 1996 1995 --------- ------------ ASSETS (Unaudited) (Audited) 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 =========== =============
See accompanying Notes to Consolidated Financial Statements (Unaudited). 2 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)
Three months ended Nine months ended ----------------------------- ----------------------------- June 30, June 30, June 30, June 30, 1996 1995 1996 1995 ------------- ------------- ------------- ------------- 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 ============== ============= ============= =============
(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 5 HARVARD INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 1996 AND 1995 (Unaudited) (In thousands of dollars)
Nine months ended ----------------------- June 30, June 30, 1996 1995 ---------- ---------- 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 ========== ==========
See accompanying Notes to Consolidated Financial Statements (Unaudited). 4 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 - 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:
Decrease In Beginning Reduction Increase Increase Accumulated In Cost Net In Income Deficit Of Sales Income Per Share --------------- --------------- ------------ ------------- 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
- 6 - 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: Sales $670,001 Net income $ 5,251 Net loss attributable to common stockholders $ (6,300) Net loss per share $ ( .90)
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 - 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 - 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 - 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 - 12 HARVARD INDUSTRIES, INC. CONSOLIDATING BALANCE SHEET JUNE 30, 1996 (In thousands of dollars)
Combined Combined Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------- -------------- -------------- ------------- 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 ========= ============= ============== ============== =============
11 13 HARVARD INDUSTRIES, INC. CONSOLIDATING BALANCE SHEET SEPTEMBER 30, 1995 (In thousands of dollars)
Combined Combined Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Eliminations Consolidated --------- ------------- -------------- ------------- ------------- 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 ========= ============= ============== ============= =============
12 14 HARVARD INDUSTRIES, INC. CONSOLIDATING INCOME STATEMENTS OF OPERATIONS NINE MONTHS ENDED JUNE 30, 1996 (In thousand of dollars)
Combined Combined Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Elimination Consolidated ---------- -------------- -------------- ------------- -------------- 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) ========== ============== ============== ============= ==============
13 15 HARVARD INDUSTRIES, INC. CONSOLIDATING INCOME STATEMENTS OF OPERATIONS NINE MONTHS ENDED JUNE 30, 1995 (In thousand of dollars)
Combined Combined Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Elimination Consolidated ---------- ------------- -------------- ------------ ------------- 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 ========== ============= ============== ============ =============
14 16 HARVARD INDUSTRIES, INC. CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 1996 (In thousands of dollars)
Combined Combined Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Elimination Consolidated ---------- ------------ ------------ ----------- ------------ 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 ========== ========= ============== ============ =============
15 17 HARVARD INDUSTRIES, INC. CONSOLIDATING STATEMENT OF CASH FLOWS NINE MONTHS ENDED JUNE 30, 1995 (In thousands of dollars)
Combined Combined Parent Guarantor Non-Guarantor Company Subsidiaries Subsidiaries Elimination Consolidated ------- ------------ ------------ ----------- ------------ 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 ======= ========= ======== ======== =========
16 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 - 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- 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 - 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 - 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 - 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 - 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- 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) EX-10.1 2 WAIVER, AMENDMENT AND AGREEMENT 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 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 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 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 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 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 EX-10.2 3 AMENDMENT NO. 3 WAIVER AND AGREEMENT 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 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 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 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)". 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, 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. 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: 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: 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 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 EX-12.1 4 COMPUTATION OF RATIO EARNINGS 1 EXHIBIT 12.1 HARVARD INDUSTRIES INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES AND DIVIDENDS ON PREFERRED STOCK (In thousands of dollars)
Three months ended Nine months ended June 30, June 30, ---------------------- ---------------------- 1996 1995 1996 1995 ---------- ---------- ---------- ---------- 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) ========== ==========
EX-27 5 FINANCIAL DATA SCHEDULE (FOR SEC USE ONLY)
5 1,000 9-MOS SEP-30-1996 OCT-01-1995 JUN-30-1996 1,108 0 118,738 0 60,134 181,771 416,183 111,316 650,691 197,061 320,734 110,784 0 70 (107,346) 650,691 633,657 633,657 593,051 593,051 0 0 31,279 (31,582) 2,201 (33,783) 0 0 0 (33,783) (6.42) (6.42)
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