-----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, ILNi+yH0cht/5cVDW3IXWO/A5hRVeJb6B3z4xv+0EgCOAD36j0C09bDc7XEkXDt3 blC32TnqsrjhA+jgnchz6w== 0000912057-95-009761.txt : 19951119 0000912057-95-009761.hdr.sgml : 19951119 ACCESSION NUMBER: 0000912057-95-009761 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951113 SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HEXCEL CORP /DE/ CENTRAL INDEX KEY: 0000717605 STANDARD INDUSTRIAL CLASSIFICATION: METAL FORGING & STAMPINGS [3460] IRS NUMBER: 941109521 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08472 FILM NUMBER: 95590478 BUSINESS ADDRESS: STREET 1: 5794 W LAS POSITAS BLVD CITY: PLEASANTON STATE: CA ZIP: 94588 BUSINESS PHONE: 5108479500 MAIL ADDRESS: STREET 1: 5794 W LAS POSITAS BLVD CITY: PLEASANTON STATE: CA ZIP: 945888781 10-Q 1 FORM 10-Q - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 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 Quarter Ended October 1, 1995 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 Number 1-8472 -------------------- HEXCEL CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 94-1109521 (STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.) 5794 W. Las Positas Boulevard Pleasanton, California 94588-8781 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE) Registrant's telephone number, including area code: (510) 847-9500 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --------- --------- Indicate by check mark 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 of reorganization confirmed by a U.S. Bankruptcy Court. Yes X No ------- ------ The number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at November 3, 1995 ------------ ------------------------------- COMMON STOCK 18,093,903 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- HEXCEL CORPORATION AND SUBSIDIARIES INDEX PAGE PART I. FINANCIAL INFORMATION - Condensed Consolidated Statements of Operations -- The Quarter and Year-to-Date Ended October 1, 1995 and October 2, 1994 2 - Condensed Consolidated Balance Sheets -- October 1, 1995 and December 31, 1994 3 - Condensed Consolidated Statements of Cash Flows -- The Year-to-Date Ended October 1, 1995 and October 2, 1994 4 - Notes to Condensed Consolidated Financial Statements 5 - Management Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION 17 SIGNATURES 18 EXHIBIT 19 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------- UNAUDITED - ---------------------------------------------------------------------------------------------------- THE QUARTER ENDED THE YEAR-TO-DATE ENDED ------------------------- ------------------------- OCTOBER 1, October 2, OCTOBER 1, October 2, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1995 1994 - ---------------------------------------------------------------------------------------------------- Net sales $ 81,366 $ 74,434 $ 257,544 $ 237,080 Cost of sales (65,478) (62,833) (208,806) (199,631) - ---------------------------------------------------------------------------------------------------- Gross margin 15,888 11,601 48,738 37,449 Marketing, general and administrative expenses (11,358) (10,850) (35,630) (34,441) Other income (expenses) 600 (8,033) 600 (8,146) - ---------------------------------------------------------------------------------------------------- Operating income (loss) 5,130 (7,282) 13,708 (5,138) Interest expenses (2,260) (2,336) (6,702) (7,086) Bankruptcy reorganization expenses (410) (5,036) (3,361) (11,945) - ---------------------------------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes 2,460 (14,654) 3,645 (24,169) Provision for income taxes (899) (665) (2,503) (1,369) - ---------------------------------------------------------------------------------------------------- Income (loss) from continuing operations 1,561 (15,319) 1,142 (25,538) Discontinued operations: Income from operations, net of provision for income taxes of $126 and $441 for the quarter and year-to-date ended October 2, 1994, respectively - 216 - 989 Losses during phase-out period (171) (2,836) (468) (2,836) - ---------------------------------------------------------------------------------------------------- Net income (loss) $ 1,390 $ (17,939) $ 674 $ (27,385) - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Net income (loss) per share and equivalent share: Primary and fully diluted: Continuing operations $ 0.09 $ (2.09) $ 0.08 $ (3.50) Discontinued operations (0.01) (0.36) (0.03) (0.25) - ---------------------------------------------------------------------------------------------------- Net income (loss) $ 0.08 $ (2.45) $ 0.05 $ (3.75) - ---------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------- Weighted average shares and equivalent shares 18,094 7,310 14,958 7,310 - ---------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 2 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
- -------------------------------------------------------------------------------- UNAUDITED ------------------------- OCTOBER 1, December 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 - -------------------------------------------------------------------------------- ASSETS Current assets: Cash and equivalents $ - $ 931 Receivables from asset sales - 29,340 Accounts receivable 66,207 64,136 Inventories 55,155 47,364 Prepaid expenses 2,725 3,581 Net assets of discontinued operations 1,984 3,000 - -------------------------------------------------------------------------------- Total current assets 126,071 148,352 - -------------------------------------------------------------------------------- Property, plant and equipment 198,414 186,328 Less accumulated depreciation 114,888 103,215 - -------------------------------------------------------------------------------- Net property, plant and equipment 83,526 83,113 - -------------------------------------------------------------------------------- Investments and other assets 15,462 11,992 - -------------------------------------------------------------------------------- Total assets $ 225,059 $ 243,457 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT) Current liabilities: Notes payable and current maturities of long-term liabilities $ 45,532 $ 12,720 Accounts payable 22,303 18,163 Accrued liabilities 42,339 43,399 Liabilities subject to disposition in bankruptcy reorganization - 97,025 - -------------------------------------------------------------------------------- Total current liabilities 110,174 171,307 - -------------------------------------------------------------------------------- Long-term liabilities, less current maturities 68,226 37,283 Liabilities subject to disposition in bankruptcy reorganization - 40,752 - -------------------------------------------------------------------------------- Shareholders' equity (deficit): Common stock, $0.01 par value, authorized 40,000 shares, shares issued and outstanding of 18,094 in 1995 and 7,301 in 1994 181 73 Additional paid-in capital 111,257 62,626 Accumulated deficit (72,040) (72,714) Minimum pension obligation adjustment (137) (137) Cumulative currency translation adjustment 7,398 4,267 - -------------------------------------------------------------------------------- Total shareholders' equity (deficit) 46,659 (5,885) - -------------------------------------------------------------------------------- Total liabilities and shareholders' equity (deficit) $ 225,059 $ 243,457 - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 3 HEXCEL CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------- UNAUDITED ---------------------------- OCTOBER 1, October 2, THE YEAR-TO-DATE ENDED (IN THOUSANDS) 1995 1994 - --------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations $ 1,142 $ (25,538) Reconciliation to net cash used by continuing operations: Depreciation and amortization 8,691 10,522 Cash used in restructuring activities (6,593) (7,672) Working capital changes and other (12,363) 17,883 - --------------------------------------------------------------------------------------------------------- Net cash used by continuing operations (9,123) (4,805) Net cash provided (used) by discontinued operations 548 (2,436) - --------------------------------------------------------------------------------------------------------- Net cash used by operating activities (8,575) (7,241) - --------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Capital expenditures (6,836) (3,057) Proceeds from equipment sold 17 41 Proceeds from sale of Chandler, Arizona manufacturing facility and certain related assets and technology 26,694 - Proceeds from sale of discontinued European resins business 2,602 - - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by investing activities 22,477 (3,016) - --------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Proceeds from issuance of long-term debt 4,117 - Payments of long-term debt (7,507) (7,832) Proceeds (payments) of short-term debt, net 18,612 8,039 Proceeds from issuance of common stock 48,739 - Payments of allowed claims pursuant to the Reorganization Plan (78,144) - - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (14,183) 207 - --------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash and equivalents (650) (199) - --------------------------------------------------------------------------------------------------------- Net decrease in cash and equivalents (931) (10,249) Cash and equivalents at beginning of year 931 11,348 - --------------------------------------------------------------------------------------------------------- Cash and equivalents at end of period $ - $ 1,099 - ---------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. 4 HEXCEL CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) NOTE 1 - BASIS OF ACCOUNTING The accompanying condensed consolidated financial statements have been prepared from the unaudited records of Hexcel Corporation and subsidiaries (the "Company") in accordance with generally accepted accounting principles, and, in the opinion of management, include all adjustments necessary to present fairly the balance sheet of the Company as of October 1, 1995, and the results of operations for the quarters and year-to-date periods ended October 1, 1995 and October 2, 1994, and the cash flows for the year-to-date periods ended October 1, 1995 and October 2, 1994. The condensed consolidated balance sheet of the Company as of December 31, 1994 was derived from the audited 1994 consolidated balance sheet. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the Securities and Exchange Commission. Certain prior quarter amounts in the condensed consolidated financial statements have been reclassified to conform to the 1995 presentation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's 1994 Annual Report on Form 10-K. See Management Discussion and Analysis of Financial Condition and Results of Operations beginning on page 11. As discussed in Note 5, Hexcel Corporation (a Delaware corporation, "Hexcel") operated as a debtor-in-possession under the provisions of Chapter 11 of the federal bankruptcy laws from December 6, 1993 until February 9, 1995, when the First Amended Plan of Reorganization (the "Reorganization Plan") proposed by Hexcel and the Official Committee of Equity Security Holders (the "Equity Committee") became effective. Consequently, the condensed consolidated balance sheet as of December 31, 1994 has been prepared in accordance with Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code," issued by the American Institute of Certified Public Accountants in November 1990 ("SOP 90-7"). Hexcel did not meet the criteria set forth in SOP 90-7 for "fresh-start reporting" upon emerging from bankruptcy reorganization proceedings. NOTE 2 - PROPOSED ACQUISITION OF THE CIBA COMPOSITES BUSINESS On September 29, 1995, the Company entered into a definitive agreement (the "Strategic Alliance Agreement") with Ciba-Geigy Limited, a Swiss corporation ("Ciba"), and Ciba-Geigy Corporation, a New York corporation ("CGC"), to acquire Ciba's global Composites Division (the "Ciba Composites Business"). The Ciba Composites Business includes Ciba's composites, structures and interiors, fabrics, laminates, prepregs, adhesive films, honeycomb core, sandwich panels and fabricated components businesses. The terms of the Strategic Alliance Agreement are consistent with the previously announced Letter of Intent entered into on July 11, 1995 between the Company and Ciba. Pursuant to the Strategic Alliance Agreement, the Company will acquire the assets (including the stock of certain of Ciba's non-U.S. subsidiaries) and assume the liabilities of the Ciba Composites Business (other than certain excluded assets and liabilities), in 5 exchange for which Ciba and CGC will receive, in the aggregate: (a) newly issued shares of the Company's common stock representing 49.9% of its outstanding common stock after giving effect to such issuance; (b) $25,000 in cash; and (c) senior subordinated debt in an aggregate principal amount to be determined after closing (the amount of which is currently estimated to be approximately $45,000 to $50,000, subject to adjustment based on certain non- operating liabilities of the Company in excess of such amounts carried on the balance sheet of the Ciba Composites Business, changes in the working capital of the Company and the Ciba Composites Business prior to closing, and certain other valuation factors). Consummation of the transaction is subject to significant conditions, including, among others: (a) certain antitrust and security clearance approvals; (b) approval by the Company's stockholders of the issuance of the Company's common stock to Ciba and an amendment to the Company's certificate of incorporation increasing the number of authorized shares of common stock from 40,000 to 100,000; (c) listing of the shares of the Company's common stock to be issued to Ciba on the New York Stock Exchange; (d) the Company's receipt of adequate financing on commercially reasonable terms; (e) the absence of any material adverse change in the business or financial condition of the Company or the Ciba Composites Business; and (f) the execution and delivery of certain ancillary agreements. The waiting period under the Hart-Scott-Rodino Act with respect to the transaction expired on September 25, 1995. The Strategic Alliance Agreement contemplates that the Company and Ciba will enter into a governance agreement (the "Governance Agreement") at closing. The Governance Agreement will contain certain standstill and governance provisions designed to restrict Ciba's ability to control the Company and to protect the Company's public stockholders. Pursuant to such provisions, the Company's Board of Directors will consist of 10 directors, initially including four directors designated by Ciba ("Ciba Directors"), John J. Lee (the Company's current Chief Executive Officer, who will become Chairman of the Board), Juergen Habermeier (the current President of the Ciba Composites Business, who will become the Company's President and Chief Operating Officer) and four additional directors who are independent of Ciba. Such provisions also: (a) require the approval of at least one non-Ciba director for the taking of any action by the Board of Directors; (b) limit Ciba's ability to dispose of or acquire additional shares of the Company's common stock; and (c) provide certain protections to the Company's public stockholders in connection with any future acquisition of the Company. The Governance Agreement also provides initially that: (a) the approval of at least one Ciba Director is required for the Company's Board of Directors to take any action; and (b) the approval of a majority of the Ciba Directors is required for the taking of certain significant actions. The Governance Agreement further provides Ciba with certain preemptive rights upon certain issuances of equity securities by the Company. NOTE 3 - PROCEEDS FROM THE CHANDLER TRANSACTION The Company sold its Chandler, Arizona manufacturing facility and certain related assets and technology to Northrop Grumman Corporation ("Northrop") in the fourth quarter of 1994. The transaction generated net cash proceeds of $28,988, of which $2,294 was received in 1994 and $26,694 was received in the first quarter of 1995. The net proceeds received in the first quarter 6 of 1995 have been reflected in "receivables from asset sales" in the condensed consolidated balance sheet as of December 31, 1994. Under the terms of the Chandler transaction, the Company retained a royalty-free, non-exclusive license to use the technology sold in non-military applications and will receive royalties from Northrop on certain applications of that technology. In addition, the Company may receive up to an additional $2,300 pursuant to the terms of the transaction, when certain conditions are satisfied. Of this amount, $600 was received in the third quarter of 1995 and has been reflected in "other income" in the accompanying condensed consolidated statements of operations for the quarter and year-to-date periods ended October 1, 1995. The payment of all or a portion of the remaining $1,700 will result in the recognition of additional income, when such amount is received. NOTE 4 - DIVESTITURE OF THE RESINS BUSINESS The Company intensified its efforts to sell the resins business, comprised of operations in Europe and the U.S., during 1994. As a result of those efforts, the Company sold its European resins operations to Axson S.A., a French corporation, in the fourth quarter of 1994. The sale and related settlement transactions generated net cash proceeds of $8,727, of which $6,125 was received in the fourth quarter of 1994 and $2,602 was received in the first quarter of 1995. The net proceeds received in the first quarter of 1995 have been reflected in "receivables from asset sales" in the condensed consolidated balance sheet as of December 31, 1994. The Company sold its U.S. resins operations to Fiber-Resin Corporation, a wholly owned subsidiary of H.B. Fuller Company, on October 30, 1995. The estimated net proceeds from the sale are expected to approximate the net book value of the assets sold. The sale of the Company's U.S. resins operations completes the divestiture of the resins business, which has been accounted for as a discontinued operation in the accompanying condensed consolidated financial statements for all periods presented. Net sales of the discontinued resins business were $2,100 and $7,684 for the third quarters of 1995 and 1994, respectively, and $6,275 and $23,843 for the year-to-date periods ended October 1, 1995 and October 2, 1994, respectively. Net assets of the discontinued resins business as of October 1, 1995 and December 31, 1994 were: - -------------------------------------------------------------------------------
10/1/95 12/31/94 - ------------------------------------------------------------------------------- Current assets $ 3,110 $ 3,970 Current liabilities (4,577) (4,591) Non-current assets 3,451 3,621 Long-term liabilities -- -- - ------------------------------------------------------------------------------- Net assets $ 1,984 $ 3,000 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
7 NOTE 5 - BANKRUPTCY REORGANIZATION BANKRUPTCY REORGANIZATION PROCEEDINGS On January 12, 1995, the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court") entered an order dated January 10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity Committee. On February 9, 1995, the Reorganization Plan became effective and Hexcel emerged from bankruptcy reorganization proceedings. Those proceedings had begun on December 6, 1993, when Hexcel filed a voluntary petition for relief under the provisions of Chapter 11 of the federal bankruptcy laws. Hexcel operated as a debtor-in-possession under the supervision of the Bankruptcy Court for the duration of those proceedings and, as such, was prohibited from paying prepetition liabilities or engaging in transactions outside of the ordinary course of business without the approval of the Bankruptcy Court. The joint ventures and European subsidiaries of Hexcel were not included in the bankruptcy proceedings and were not subject to the provisions of the federal bankruptcy laws or the supervision of the Bankruptcy Court. THE REORGANIZATION PLAN The Reorganization Plan which became effective on February 9, 1995 provided for: (a) the replacement of a debtor-in-possession credit facility with a new revolving credit facility (the "Revolving Credit Facility") of up to $45,000; (b) the creation of an amended reimbursement agreement with respect to the letters of credit which support certain industrial development revenue bonds; (c) the completion of the first closing under a standby purchase commitment whereby Mutual Series Fund Inc. ("Mutual Series") purchased 1,946 shares of new common stock for $9,000 and loaned the Company $41,000 as an advance against the proceeds of a subscription rights offering for additional shares of new common stock; and (d) the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. The Revolving Credit Facility is a three-year facility which is available to fund distributions to creditors under the Reorganization Plan as well as related transaction costs, and to provide for the ongoing working capital needs of the Company and other general corporate purposes. The amount available for borrowing is based primarily on eligible U.S. assets, as defined in the agreement, and is secured by substantially all of the U.S. assets of Hexcel, as well as the majority of its shares in the capital stock of the Company's European subsidiaries. In addition, the Revolving Credit Facility is subject to a number of financial covenants and other restrictions. The letters of credit which guarantee certain industrial development revenue bonds were reinstated, in accordance with the terms of an amended reimbursement agreement with the issuing bank, and extended until December 31, 1998. The amended reimbursement agreement is subject to certain industrial development revenue bond redemption requirements, as well as a number of financial covenants and other restrictions which are similar, although less restrictive, to those of the Revolving Credit Facility. The subscription rights offering concluded on March 27, 1995, with the issuance of an additional 7,156 shares of new common stock. The resulting cash proceeds of $33,098 were used to reduce the outstanding balance of the loan from Mutual Series. The second closing under the standby purchase agreement was completed on April 6, 1995, with the issuance of an 8 additional 1,590 shares of new common stock to Mutual Series, the issuance of an additional 108 shares of new common stock to John J. Lee, the Company's Chief Executive Officer, and the retirement of the remaining balance of the Mutual Series loan. Following the second closing under the standby purchase agreement on April 6, 1995, the Company had a total of 18,101 shares of common stock issued and outstanding. The Reorganization Plan also provided for the settlement of certain claims by the issuance of an additional $200 of new common stock, valued at a price equal to the average of the daily average prices of the Company's common stock for the 20 trading days beginning April 26, 1995. The issuance of these 40 shares had not yet occurred as of October 1, 1995. On February 9, 1995, the Company paid $78,144 in prepetition claims and interest, and reinstated another $60,575 in prepetition liabilities. Reinstated liabilities have been reclassified from "liabilities subject to disposition in bankruptcy reorganization" to the appropriate liability captions of the condensed consolidated balance sheet as of October 1, 1995. The payment of claims and interest on February 9, 1995 was financed with: (a) cash proceeds of $26,694 received in the first quarter of 1995 from the sale of the Company's Chandler, Arizona manufacturing facility and certain related assets and technology; (b) cash proceeds of $2,602 received in the first quarter of 1995 from the sale of the Company's European resins business; (c) the $50,000 in cash received from Mutual Series in connection with the standby purchase commitment; and (d) borrowings under the Revolving Credit Facility. BANKRUPTCY REORGANIZATION EXPENSES Professional fees and other costs directly related to bankruptcy proceedings were expensed as incurred, and have been reflected in the condensed consolidated statements of operations as "bankruptcy reorganization expenses." Bankruptcy reorganization expenses have consisted primarily of professional fees paid to legal and financial advisors of the Company, the Equity Committee and the Official Committee of Unsecured Creditors. In addition, these expenses have included incentives for employees to remain with the Company for the duration of bankruptcy proceedings and the write-off of previously capitalized costs related to the issuance of prepetition debt, as required by SOP 90-7. The resolution of certain bankruptcy-related issues, including the final settlement of disputed claims and professional fees, resulted in expenses being incurred after the effective date of the Reorganization Plan. The Company does not expect to incur any bankruptcy-related expenses subsequent to October 1, 1995. NOTE 6 - INVENTORIES Inventories as of October 1, 1995 and December 31, 1994 were:
- ------------------------------------------------------------------------------- 10/1/95 12/31/94 - ------------------------------------------------------------------------------- Raw materials $ 21,754 $ 18,846 Work in progress 13,981 11,182 Finished goods 17,870 16,270 Supplies 1,550 1,066 - ------------------------------------------------------------------------------- Total inventories $ 55,155 $ 47,364 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
9 NOTE 7 - NOTES PAYABLE Notes payable and capital lease obligations as of October 1, 1995 and December 31, 1994 were:
- ------------------------------------------------------------------------------- 10/1/95 12/31/94 - ------------------------------------------------------------------------------- Revolving Credit Facility (see Note 5) $ 26,085 -- Debtor-in-possession credit facility -- $ 4,189 Prepetition revolving credit agreement -- 12,000 10.12% senior notes originally due 1998 -- 30,000 7% convertible subordinated debentures due 2011 25,625 25,625 Obligations under IDRB variable rate demand notes due through 2024, net 11,810 13,310 Various U.S. notes payable and capital lease obligations 2,895 4,296 Various notes payable and capital lease obligations of European subsidiaries 19,107 20,119 - ------------------------------------------------------------------------------- Total notes payable and capital lease obligations 85,522 109,539 Less amount subject to disposition in bankruptcy reorganization -- (80,815) - ------------------------------------------------------------------------------- Total notes payable and capital lease obligations, net $ 85,522 $ 28,724 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 10/1/95 12/31/94 - ------------------------------------------------------------------------------- Notes payable and current maturities of long-term liabilities, net $ 45,532 $ 12,720 Long-term notes payable and capital lease obligations, net 39,990 16,004 - ------------------------------------------------------------------------------- Total notes payable and capital lease obligations, net $ 85,522 $ 28,724 - ------------------------------------------------------------------------------- - -------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES During late 1993, substantial uncertainty developed as to the realization of the Company's deferred income tax assets. Consequently, those assets were fully reserved as of December 31, 1993. The Company continued to reserve for the deferred income tax assets generated by the pre-tax losses incurred during 1994 and 1995. Primarily as a result of state income taxes and taxable income for certain European entities, the Company recorded provisions for income taxes of $899 and $665 for the third quarters of 1995 and 1994, respectively, and $2,503 and $1,369 for the year-to-date periods ended October 1, 1995 and October 2, 1994, respectively. 10 ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THIRD QUARTER Net income for the third quarter of 1995 was $1.4 million or $0.08 per share. This compares with a net loss for the third quarter of 1994 of $17.9 million or $2.45 per share. The net loss for the third quarter of 1994 includes other expenses of $8.0 million related to the Company's joint venture in Japan, bankruptcy reorganization expenses of $5.0 million, and a loss from discontinued operations of $2.6 million. There were approximately 18.1 million shares outstanding during the third quarter of 1995, versus 7.3 million shares in the third quarter of 1994. Net sales were $81.4 million for the third quarter of 1995, a 9% increase over net sales of $74.4 million for the third quarter of 1994. Gross margin was $15.9 million for the 1995 quarter, or 19.5% of sales, compared with $11.6 million for the 1994 quarter, or 15.6% of sales. The increase in third quarter sales and gross margin follows similar increases in the first and second quarters of the year. Sales of advanced composites and reinforcement fabrics remained above 1994 levels, with much of the improvement coming from the recreation and general industrial markets in both the U.S. and Europe. Honeycomb sales were down slightly, reflecting the sale of the Chandler, Arizona manufacturing facility in the fourth quarter of 1994. Changes in currency exchange rates also contributed to higher sales, as over 40% of the Company's sales are to international markets. The increase in gross margin is the result of both higher sales and reduced costs. Gross margin improved in each of the Company's businesses, although the gross margin of the honeycomb business did not improve as much as anticipated. Operating income was $5.1 million for the 1995 quarter compared with an operating loss of $7.3 million for the same period of 1994. The difference is primarily attributable to the $8.0 million joint venture provision recorded in the third quarter of 1994, and to higher sales and gross margin in the third quarter of 1995. In addition, the 1995 quarter includes $0.6 million of other income received in connection with last year's sale of the Chandler, Arizona manufacturing facility. Income from continuing operations for the third quarter of 1995 was $1.6 million or $0.09 per share, including $2.3 million of interest expenses, $0.4 million of bankruptcy reorganization expenses, and a $0.9 million provision for income taxes. The loss from continuing operations for the third quarter of 1994 was $15.3 million or $2.09 per share, including interest expenses of $2.3 million and a provision for income taxes of $0.7 million, as well as the expenses of bankruptcy proceedings. Hexcel emerged from bankruptcy reorganization proceedings on February 9, 1995, and the Company does not expect to incur any further bankruptcy-related expenses. The 1995 and 1994 quarterly tax provisions are primarily the result of taxable income for certain European entities and state income taxes. 11 YEAR-TO-DATE Net income for the year-to-date ended October 1, 1995 was $0.7 million or $0.05 per share, including other income of $0.6 million, bankruptcy reorganization expenses of $3.4 million, and a loss from discontinued operations of $0.5 million. The net loss for the comparable period of 1994 was $27.4 million or $3.75 per share, including other expenses of $8.1 million, bankruptcy reorganization expenses of $11.9 million, and a loss from discontinued operations of $1.8 million. There were 15.0 million weighted average shares and equivalent shares during the 1995 period, compared with 7.3 million during the 1994 period. For the first three quarters of 1995, net sales were $257.5 million, compared with $237.1 million for the first three quarters of 1994. The 1995 year-to-date gross margin was $48.7 million, or 18.9% of sales. Gross margin for the same period of 1994 was $37.4 million, or 15.8% of sales. The year-to- date increases in sales and gross margin reflect improvements in each of the first three quarters of 1995 over the same quarters of 1994, and are attributable to the same factors noted above. Operating income was $13.7 million for the year-to-date ended October 1, 1995, versus an operating loss of $5.1 million for the same period of 1994. The 1994 loss includes the $8.0 million provision related to the Company's Japanese joint venture. Income from continuing operations was $1.1 million or $0.08 per share for the 1995 period, compared with a loss from continuing operations of $25.5 million or $3.50 per share for the comparable period of 1994. The improvement from 1994 to 1995 is largely due to higher operating income and a substantial reduction in bankruptcy reorganization expenses. In connection with the subscription rights offering pursuant to Hexcel's Reorganization Plan, the Company disseminated an information statement (the "Information Statement") dated February 15, 1995 to stockholders of record as of February 9, 1995. The Information Statement contained certain projected financial information with respect to the Company, including projected net income for the year ending December 31, 1995 of approximately $4.6 million. This projection of 1995 net income reflected numerous assumptions which the Company considered reasonable in light of the circumstances at that time. As a result of slower than anticipated improvement in the operating results of the Company's honeycomb business, lower than expected income in connection with the sale of the Company's Chandler, Arizona manufacturing facility, and higher than expected bankruptcy reorganization costs, the Company does not expect to earn the $4.6 million in net income that had been projected back in February. The Company currently anticipates 1995 net income to be approximately $2.5 million, excluding any impact of the Company's proposed acquisition of the Ciba Composites Business. PROPOSED ACQUISITION OF THE CIBA COMPOSITES BUSINESS On September 29, 1995, the Company entered into the Strategic Alliance Agreement with Ciba and CGC, to acquire the Ciba Composites Business. The Ciba Composites Business includes Ciba's composites, structures and interiors, fabrics, laminates, prepregs, adhesive films, honeycomb core, sandwich panels and fabricated components businesses. The terms of the Strategic Alliance Agreement are consistent with the previously announced Letter of Intent entered into on July 11, 1995 between the Company and Ciba. Pursuant to the Strategic Alliance 12 Agreement, the Company will acquire the assets (including the stock of certain of Ciba's non-U.S. subsidiaries) and assume the liabilities of the Ciba Composites Business (other than certain excluded assets and liabilities), in exchange for which Ciba and CGC will receive, in the aggregate: (a) newly issued shares of the Company's common stock representing 49.9% of its outstanding common stock after giving effect to such issuance; (b) $25.0 million in cash; and (c) senior subordinated debt in an aggregate principal amount to be determined after closing (the amount of which is currently estimated to be approximately $45.0 to $50.0 million, subject to adjustment based on certain non-operating liabilities of the Company in excess of such amounts carried on the balance sheet of the Ciba Composites Business, changes in the working capital of the Company and the Ciba Composites Business prior to closing, and certain other valuation factors). Consummation of the transaction is subject to significant conditions, including, among others: (a) certain antitrust and security clearance approvals; (b) approval by the Company's stockholders of the issuance of the Company's common stock to Ciba and an amendment to the Company's certificate of incorporation increasing the number of authorized shares of Hexcel common stock from 40.0 million to 100.0 million; (c) listing of the shares of the Company's common stock to be issued to Ciba on the New York Stock Exchange; (d) the Company's receipt of adequate financing on commercially reasonable terms; (e) the absence of any material adverse change in the business or financial condition of the Company or the Ciba Composites Business; and (f) the execution and delivery of certain ancillary agreements. The waiting period under the Hart-Scott-Rodino Act with respect to the transaction expired on September 25, 1995. The Strategic Alliance Agreement contemplates that the Company and Ciba will enter into the Governance Agreement at closing. The Governance Agreement will contain certain standstill and governance provisions designed to restrict Ciba's ability to control the Company and to protect the Company's public stockholders. Pursuant to such provisions, the Company's Board of Directors will consists of 10 directors, initially including four Ciba Directors, John J. Lee (the Company's current Chief Executive Officer, who will become Chairman of the Board), Juergen Habermeier (the current President of the Ciba Composites Business, who will become the Company's President and Chief Operating Officer) and four additional directors who are independent of Ciba. Such provisions also: (a) require the approval of at least one non-Ciba director for the taking of any action by the Board of Directors; (b) limit Ciba's ability to dispose of or acquire additional shares of the Company's common stock; and (c) provide certain protections to the Company's public stockholders in connection with any future acquisition of the Company. The Governance Agreement also provides initially that: (a) the approval of at least one Ciba Director is required for the Company's Board of Directors to take any action; and (b) the approval of a majority of the Ciba Directors is required for the taking of certain significant actions. The Governance Agreement further provides Ciba with certain preemptive rights upon certain issuances of equity securities by the Company. The Ciba Composites Business supplies lightweight, high-strength materials and structures to the aerospace and other industries. The Ciba Composites Business, which operates in more than 20 countries, had 1994 worldwide sales of approximately $293.0 million. The acquisition of the Ciba Composites Business, if consummated, would expand the Company's range of product lines and increase its presence in international markets. 13 The Company has fixed November 27, 1995 as the record date for determining stockholders entitled to notice of and to vote at an annual meeting of stockholders for purposes of electing directors and approving, among other things, certain matters relating to the Company's proposed acquisition of the Ciba Composites Business. While a meeting date has not yet been set, the Company intends to hold the meeting during the last week of December 1995, subject to the completion by the Securities and Exchange Commission of its review of the proxy materials to be used by the Company in connection with the meeting. BANKRUPTCY REORGANIZATION On February 9, 1995, the Company's Reorganization Plan became effective and Hexcel emerged from bankruptcy reorganization proceedings. The Reorganization Plan provided for: (a) the replacement of a debtor-in-possession credit facility with a new revolving credit facility of up to $45.0 million; (b) the creation of an amended reimbursement agreement with respect to the letters of credit which support certain industrial development revenue bonds; (c) the completion of the first closing under a standby purchase commitment whereby Mutual Series purchased 1.9 million shares of new common stock for $9.0 million and loaned the Company $41.0 million as an advance against the proceeds of a subscription rights offering for additional shares of new common stock; and (d) the reinstatement or payment in full, with interest, of all allowed claims, including prepetition accounts payable and notes payable. The subscription rights offering concluded on March 27, 1995, with the issuance of an additional 7.2 million shares of new common stock. The resulting cash proceeds of $33.1 million were used to reduce the outstanding balance of the loan from Mutual Series. The second closing under the standby purchase agreement was completed on April 6, 1995, with the issuance of an additional 1.6 million shares of new common stock to Mutual Series, the issuance of an additional 0.1 million shares of new common stock to John J. Lee, and the retirement of the remaining balance of the Mutual Series loan. Following the second closing under the standby purchase agreement on April 6, 1995, the Company had a total of 18.1 million shares of common stock issued and outstanding. CAPITAL RESOURCES AND LIQUIDITY FINANCIAL RESOURCES In connection with the Reorganization Plan which became effective on February 9, 1995, the Company obtained a new revolving credit facility of up to $45.0 million. The Revolving Credit Facility is a three-year facility which is available to provide for the ongoing working capital needs of the Company and other general corporate purposes, including restructuring activities. The amount available for borrowing is based primarily on eligible U.S. assets, as defined in the agreement, and is secured by substantially all of the U.S. assets of Hexcel, as well as the majority of its shares in the capital stock of the Company's European subsidiaries. In addition, the Revolving Credit Facility is subject to a number of financial covenants and other restrictions. As of October 1, 1995, the amount available for borrowing was $45.0 million, and the amount utilized totaled $27.7 million. 14 The Company's European subsidiaries also possess various credit facilities which are available to finance the activities of those subsidiaries but are generally unavailable to finance the Company's U.S. operations. These credit facilities totaled $30.6 million as of October 1, 1995, and outstanding borrowings under these facilities totaled $19.1 million at that date. The proceeds from the subscription rights offering and standby purchase agreement with Mutual Series, the Chandler and European resins transactions, and the Revolving Credit Facility were utilized to fund distributions to creditors under the Reorganization Plan during the first quarter of 1995. Management expects that the financial resources of the Company, including the Revolving Credit Facility and credit facilities available to European subsidiaries, will be sufficient to finance the Company's present operations and restructuring activities. However, in order to comply with certain financial ratio covenants of the Revolving Credit Facility the Company is required to achieve certain higher levels of financial performance. The Company has been in compliance with the terms of the Revolving Credit Facility through the third quarter of 1995, and management believes that continued compliance will be achieved. The proposed acquisition of the Ciba Composites Business will require additional funding and is contingent upon, among other things, the Company's receipt of adequate financing on commercially reasonable terms. This is expected to involve the replacement of certain of the Company's existing credit facilities, including the Revolving Credit Facility, with new financing sufficient to fund the cash consideration to be paid to Ciba, the expanded working capital requirements of the combined company, and the expected costs of consolidating the Ciba Composites Business into the Company's existing operations. CASH FLOWS AND WORKING CAPITAL During the first three quarters of 1995, the Company's continuing operating activities used $9.1 million of cash. Earnings before interest, taxes, depreciation and amortization were $22.4 million, but the Company incurred $6.7 million in interest expenses and $3.4 million of bankruptcy reorganization expenses. In addition, the Company paid $6.6 million in restructuring costs and experienced a net increase in accounts receivable and inventories totaling $9.9 million, largely as a result of higher sales levels. The primary restructuring activities during the period were the consolidation of certain honeycomb manufacturing operations at the Company's Casa Grande, Arizona facility, which is now largely complete, and continued implementation of a new management information system in the U.S. The Company's continuing operating activities used $4.8 million of cash in the first three quarters of 1994. Earnings before interest, taxes, depreciation and amortization were $5.4 million, but cash payments for restructuring costs and bankruptcy reorganization expenses, along with interest expenses and working capital changes, resulted in a net use of cash. Working capital was $15.9 million as of October 1, 1995, compared with an excess of current liabilities over current assets of $23.0 million at December 31, 1994. The change reflects the payment of allowed claims pursuant to the Reorganization Plan and increases in accounts receivable and inventories, partially offset by the collection of receivables arising from the Chandler and European resins transactions. The cash generated by these transactions was used to fund distributions to creditors under the Reorganization Plan. 15 CAPITAL EXPENDITURES Capital expenditures were $6.8 million for the first three quarters of 1995, compared with $3.1 million for the same period of 1994. The increase is due to purchases of equipment necessary to improve manufacturing processes, and to the deferral of expenditures during 1994 in connection with bankruptcy reorganization proceedings. The Company expects that capital expenditures will continue to increase above 1994 levels. 16 PART II. OTHER INFORMATION HEXCEL CORPORATION AND SUBSIDIARIES ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 11. Statement Regarding Computation of Per Share Earnings 27. Financial Data Schedules (electronic filing only) (b) Reports on Form 8-K: Current report on Form 8-K dated July 14, 1995 relating to the Company's proposed acquisition of the Ciba Composites Business. Current report on Form 8-K dated October 13, 1995 relating to the Company's proposed acquisition of the Ciba Composites Business. 17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized, and in the capacity indicated. HEXCEL CORPORATION (Registrant) November 13, 1995 /s/ Wayne C. Pensky ----------------------- ---------------------- (Date) Wayne C. Pensky, Controller Chief Accounting Officer Authorized Officer 18 EX-11 2 EXHIBIT 11 EXHIBIT 11 STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED The Company reports net income (loss) per share data on primary and fully diluted bases. Primary net income (loss) per share is based upon the weighted average number of outstanding common shares and common equivalent shares from stock options. Fully diluted net income (loss) per share is based upon (a) the weighted average number of outstanding common shares and common equivalent shares from stock options and adjusted for the assumed conversion of the 7% convertible subordinated debentures and (b) net income (loss) increased by the expenses on the debentures. Computations of net income (loss) per share on the primary and fully diluted bases for the third quarter and first three quarters of 1995 and 1994 were:
THE QUARTER ENDED THE YEAR-TO-DATE ENDED ---------------------------- ---------------------------- OCTOBER 1, OCTOBER 2, OCTOBER 1, OCTOBER 2, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1995 1994 - ----------------------------------------------------------------------------------------------------------------------------------- PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations $ 1,561 $ (15,319) $ 1,142 $ (25,538) Loss from discontinued operations (171) (2,620) (468) (1,847) - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) $ 1,390 $ (17,939) $ 674 $ (27,385) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 18,094 7,310 14,958 7,310 Weighted average common equivalent shares from stock options - - - - - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 18,094 7,310 14,958 7,310 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Primary net income (loss) per share and equivalent share from (1): Continuing operations $ 0.09 $ (2.09) $ 0.08 $ (3.50) Discontinued operations (0.01) (0.36) (0.03) (0.25) - ----------------------------------------------------------------------------------------------------------------------------------- Primary net income (loss) per share and equivalent share (1) $ 0.08 $ (2.45) $ 0.05 $ (3.75) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE - ----------------------------------------------------------------------------------------------------------------------------------- Income (loss) from continuing operations $ 1,561 $ (15,319) $ 1,142 $ (25,538) Loss from discontinued operations (171) (2,620) (468) (1,847) - ----------------------------------------------------------------------------------------------------------------------------------- Net income (loss) 1,390 (17,939) 674 (27,385) Debenture interest and issuance costs 295 300 889 904 - ----------------------------------------------------------------------------------------------------------------------------------- Adjusted net income (loss) $ 1,685 $ (17,639) $ 1,563 $ (26,481) - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares outstanding 18,094 7,310 14,958 7,310 Weighted average common equivalent shares Stock options - - - - 7% convertible debentures 834 804 834 804 - ----------------------------------------------------------------------------------------------------------------------------------- Weighted average common shares and equivalent shares 18,928 8,114 15,792 8,114 - ----------------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------------- Fully diluted net income (loss) per share and equivalent share from (1): Continuing operations $ 0.09 $ (2.09) $ 0.08 $ (3.50) Discontinued operations (0.01) (0.36) (0.03) (0.25) - ----------------------------------------------------------------------------------------------------------------------------------- Fully diluted net income (loss) per share and equivalent share (1) $ 0.08 $ (2.45) $ 0.05 $ (3.75) - ----------------------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------------------
(1) For the third quarter and first three quarters of 1995 and 1994, the primary and fully diluted net income (loss) per share were the same because the fully diluted computation was antidilutive. 19 EX-27 3 EXHIBIT 27
5 1,000 9-MOS DEC-31-1995 JAN-01-1995 OCT-01-1995 0 0 68,554 2,347 55,155 126,071 198,414 114,888 225,059 110,174 39,990 181 0 0 46,478 225,059 257,544 257,544 208,806 208,806 0 0 6,702 3,645 2,503 1,142 (468) 0 0 674 0.05 0.05
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