<PAGE>
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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 April 3, 1994
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 1-8472
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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
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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 (Note: To date, no plan confirmed, no
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securities distributed)
The number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Class Outstanding at May 11, 1994
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COMMON STOCK 7,309,827
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<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Condensed Consolidated Statements of
Operations - The Quarter Ended
April 3, 1994 and March 31, 1993 2
Condensed Consolidated Balance
Sheets - April 3, 1994 and
December 31, 1993 3
Condensed Consolidated Statements of
Cash Flows - The Quarter Ended
April 3, 1994 and March 31, 1993 4
Notes to Condensed Consolidated
Financial Statements 5
Management Discussion and Analysis
of Financial Condition and Results
of Operations 10
PART II. OTHER INFORMATION 14
SIGNATURES 15
EXHIBIT INDEX 16
EXHIBIT 17
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
UNAUDITED
--------------------------------
APRIL 3, MARCH 31,
THE QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 85,413 $ 89,291
Cost of sales (71,059) (75,162)
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Gross margin 14,354 14,129
Other operating costs and expenses:
Marketing, general and administrative expenses (14,059) (16,847)
Other income - 534
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Operating income (loss) 295 (2,184)
Interest expenses (2,551) (2,360)
Bankruptcy reorganization expenses (2,344) -
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Loss from continuing operations before income taxes (4,600) (4,544)
Benefit (provision) for income taxes (424) 1,418
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Loss from continuing operations (5,024) (3,126)
Discontinued operations:
Losses during phase-out period, net of benefit for income taxes
of $89 in 1993 - (178)
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Loss before cumulative effect of accounting change (5,024) (3,304)
Cumulative effect of change in accounting for income taxes - 4,500
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Net income (loss) $ (5,024) $ 1,196
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Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations $ (0.69) $ (0.43)
Discontinued operations - (0.02)
Cumulative effect of change in accounting for income taxes - 0.61
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Net income (loss) $ (0.69) $ 0.16
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Weighted average shares and equivalent shares 7,310 7,314
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<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
2
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
UNAUDITED
------------------------------
APRIL 3, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ 4,512 $ 12,877
Accounts receivable 76,128 67,595
Inventories 51,809 47,284
Prepaid expenses 4,029 4,562
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Total current assets 136,478 132,318
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Property, plant and equipment 228,245 234,482
Less accumulated depreciation 117,318 119,814
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Net property, plant and equipment 110,927 114,668
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Investments and other assets 21,327 21,375
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Total assets $ 268,732 $ 268,361
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 22,036 $ 24,632
Accounts payable 17,971 12,816
Accrued liabilities 39,829 40,212
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Total current liabilities 79,836 77,660
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Long-term liabilities, less current maturities 49,200 50,016
Liabilities subject to disposition in bankruptcy reorganization 122,413 119,932
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Shareholders' equity:
Common stock, $0.01 par value, authorized 20,000 shares,
shares issued and outstanding of 7,310 in 1994 and 1993 73 73
Additional paid-in capital 62,562 62,562
Retained earnings (accumulated deficit) (47,768) (42,744)
Minimum pension obligation adjustment (646) (646)
Cumulative currency translation adjustment 3,062 1,508
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Total shareholders' equity 17,283 20,753
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Total liabilities and shareholders' equity $ 268,732 $ 268,361
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<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
3
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
UNAUDITED
------------------------------
APRIL 3, MARCH 31,
THE QUARTER ENDED (IN THOUSANDS) 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss from continuing operations $ (5,024) $ (3,126)
Reconciliation to net cash provided by continuing operations:
Depreciation and amortization 3,858 3,918
Working capital changes and other (2,378) 787
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Net cash provided (used) by continuing operations (3,544) 1,579
Net cash provided by discontinued operations - 115
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Net cash provided (used) by operating activities (3,544) 1,694
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Cash flows from investing activities:
Capital expenditures (439) (1,328)
Proceeds from equipment sold 11 86
Investments in joint ventures - (250)
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Net cash used by investing activities (428) (1,492)
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Cash flows from financing activities:
Payments of long-term debt, including current maturities (610) (628)
Proceeds (payments) of short-term debt, net (3,531) 7,094
Principal payments of capital lease obligations (104) (139)
Proceeds from issuance of common stock for employee and
shareholder stock plans - 95
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Net cash provided (used) by financing activities (4,245) 6,422
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Effect of exchange rate changes on cash and equivalents (148) 88
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Net increase (decrease) in cash and equivalents (8,365) 6,712
Cash and equivalents at beginning of year 12,877 2,449
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Cash and equivalents at end of period $ 4,512 $ 9,161
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<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
</TABLE>
4
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 April 3, 1994, and the results of
operations and cash flows for the quarters ended April 3, 1994 and March 31,
1993. The balance sheet of the Company as of December 31, 1993 was derived from
the audited 1993 consolidated financial statements. The Company adopted 13-week
fiscal quarters for financial reporting purposes beginning in 1994.
Consequently, the first quarter of 1994 consists of the period January 1, 1994
through April 3, 1994. 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 1994 presentation. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes thereto included in the latest Annual Report on
Form 10-K. See Management Discussion and Analysis of Financial Condition and
Results of Operations beginning on page 10.
On December 6, 1993, Hexcel Corporation (a Delaware corporation, the
"Parent Company" or "Parent") filed a voluntary petition for relief under the
provisions of Chapter 11 of the federal bankruptcy laws (see Note 2). The
accompanying condensed consolidated financial statements do not purport to
reflect or provide for the potential consequences of the bankruptcy
proceedings of Hexcel Corporation. In particular, the condensed consolidated
financial statements do not purport to show (a) as to assets, their realizable
value on a liquidation basis or their availability to satisfy liabilities; (b)
as to prepetition liabilities, the amounts that may be allowed for claims or
contingencies or the status and priority thereof; (c) as to shareholder
accounts, the effect of any changes that may be made to the capitalization of
Hexcel Corporation; or (d) as to operations, the effect of any changes that may
be made in its business. The outcome of these matters is not presently
determinable. Accordingly, the condensed consolidated financial statements do
not include adjustments that might result from the ultimate outcome of these
uncertainties.
The accompanying condensed consolidated financial statements have been
prepared on a going concern basis, which contemplates the realization of assets
and the satisfaction of liabilities in the normal course of business. Hexcel
Corporation has been operating as a debtor-in-possession since filing for
bankruptcy protection. While the Company believes it has adequate financing to
operate in bankruptcy for a reasonable period of time, its ability to
successfully continue operations is dependent upon, among other things,
confirmation of a plan of reorganization that will enable Hexcel Corporation to
emerge from bankruptcy proceedings, obtaining adequate postconfirmation
financing to fund restructuring and working capital requirements, successfully
implementing the restructuring program, and generating sufficient cash from
operations and financing sources to meet obligations. Management believes that
the Company should be able to restructure its existing debt and obtain
adequate postconfirmation
5
<PAGE>
financing in connection with the confirmation of a plan of reorganization, but
there is no assurance that such restructuring or financing will occur. These
factors among others may indicate that the Company will be unable to continue as
a going concern for a reasonable period of time.
The accompanying condensed consolidated financial statements do not include
any adjustments relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
NOTE 2 - BANKRUPTCY REORGANIZATION
On December 6, 1993, Hexcel Corporation filed a voluntary petition for
relief under the provisions of Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the Northern District of California (the
"Bankruptcy Court"). Since that date, Hexcel Corporation has continued business
operations as debtor-in-possession under the supervision of the Bankruptcy
Court. Substantially all of the U.S. assets and operations of the Company are
directly owned and operated by the Parent, and are subject to bankruptcy
protection. The joint ventures and European subsidiaries of Hexcel Corporation
are not included in the bankruptcy proceedings and, as such, are not subject to
the provisions of the federal bankruptcy laws or the supervision of the
Bankruptcy Court. However, the Parent Company is generally unable to provide
direct financial support outside of the normal course of business to its joint
ventures and subsidiaries without Bankruptcy Court approval.
For additional information regarding the bankruptcy proceedings of Hexcel
Corporation, refer to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.
The following condensed financial information for Hexcel
Corporation, the debtor-in-possession, as of April 3, 1994 and
December 31, 1993 and for the quarter ended April 3, 1994, has
been prepared using the equity method to account for investments
in subsidiaries:
<TABLE>
<CAPTION>
CONDENSED BALANCE SHEETS FOR
THE PARENT COMPANY
- - ---------------------------------------------------------------------------------------------
4/3/94 12/31/93
- - ---------------------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 77,710 $ 70,449
Property, plant and equipment, net 76,612 80,389
Investments and other assets 50,891 56,386
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Total assets $205,213 $207,224
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Current liabilities $ 22,824 $ 22,938
Long-term notes payable and deferred liabilities 40,193 41,101
Liabilities subject to disposition in bankruptcy reorganization 124,913 122,432
Shareholders' equity 17,283 20,753
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Total liabilities and shareholders' equity $205,213 $207,224
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</TABLE>
6
<PAGE>
Liabilities subject to disposition in bankruptcy reorganization includes
$2,500 payable to a European subsidiary.
<TABLE>
<CAPTION>
CONDENSED OPERATING INFORMATION FOR
THE PARENT COMPANY
- - -------------------------------------------------------------------------------------
THE QUARTER ENDED APRIL 3,
1994
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<S> <C>
Net sales $ 51,602
Operating loss (1,228)
Loss from continuing operations and net loss (5,024)
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<CAPTION>
CONDENSED STATEMENT OF CASH FLOWS FOR
THE PARENT COMPANY
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THE QUARTER ENDED APRIL 3,
1994
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<S> <C>
Net cash used by operating activities $ (7,384)
Net cash used by investing activities (181)
Net cash provided (used) by financing activities --
- - -------------------------------------------------------------------------------------
Net decrease in cash and equivalents (7,565)
Cash and equivalents at beginning of period 7,886
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Cash and equivalents at end of period $ 321
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</TABLE>
NOTE 3 - INVENTORIES
Inventories at April 3, 1994 and December 31, 1993 were:
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------
4/3/94 12/31/93
- - -------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 18,441 $ 14,717
Work in progress 13,783 11,570
Finished goods 18,610 20,056
Supplies 975 941
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Total inventories $ 51,809 $ 47,284
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</TABLE>
During the fourth quarter of 1993, the Company changed to the first-in,
first-out ("FIFO") method of accounting for substantially all inventories.
Previously, domestic honeycomb and fabric inventories were valued using the
last-in, first-out method and all other inventories were valued at the lower of
average cost or market. The change to the FIFO method conforms substantially all
inventories of the Company to the same accounting method.
7
<PAGE>
NOTE 4 - LIABILITIES SUBJECT TO DISPOSITION IN BANKRUPTCY
REORGANIZATION
Liabilities subject to disposition in bankruptcy reorganization
as of April 3, 1994 and December 31, 1993 were:
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------
4/3/94 12/31/93
- - -----------------------------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $ 22,549 $ 21,676
Accrued liabilities, including prepetition interest 9,057 9,057
U.S. revolving credit agreement 12,000 12,000
10.12% senior notes originally due 1998 30,000 30,000
7% convertible subordinated debentures originally due 2011 25,625 25,625
Obligations under IDB variable rate demand notes originally
due through 2024 15,890 15,890
Various U.S. notes payable and capital lease oblications 3,860 3,860
Accrued postpetition interest on prepetition debt 3,432 1,824
- - -----------------------------------------------------------------------------------------------
Total liabilities subject to disposition in bankruptcy reorganization $122,413 $119,932
- - -----------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------
</TABLE>
Liabilities subject to disposition in bankruptcy reorganization consists
of the estimated prepetition claims of Hexcel Corporation creditors. The
Parent Company is in the process of confirming the nature and amount of existing
claims. Until the Parent Company receives and completes a reconciliation of all
proofs of claim submitted by creditors, the recorded liability is subject to
revision. Furthermore, the recorded liability does not include any amounts for
claims that may arise from the rejection of executory contracts, including
leases, or other claims that may arise as a result of the bankruptcy
reorganization process.
The industrial development bonds are guaranteed by irrevocable bank
letters of credit. The bondholders have the right to draw upon the letters of
credit, at which time the issuing bank would then become an unsecured creditor
of the Parent Company.
The satisfaction of liabilities subject to disposition in bankruptcy
reorganization is subject to confirmation of a plan of reorganization by the
Bankruptcy Court. Such liabilities may be settled for amounts other than those
reflected in the condensed consolidated financial statements.
NOTE 5 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109
("SFAS 109"), "Accounting for Income Taxes," effective January 1, 1993. The
cumulative effect of adopting SFAS 109 was the recognition of $4,500 of income,
which was recorded in the first quarter of 1993.
During 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. In the first quarter of 1994, the Company
recorded an additional reserve for the deferred income tax assets generated by
the Company's pre-tax loss for the quarter. This additional reserve, along with
taxable income for certain European entities, resulted in a provision for income
taxes of $424 on a pre-tax loss of $4,600.
8
<PAGE>
NOTE 6 - HEXCEL S.A.
The condensed consolidated financial statements include the accounts of
Hexcel S.A., the Company's wholly-owned Belgian subsidiary, after elimination of
intercompany transactions and accounts. As of April 3, 1994, Hexcel S.A. had
total assets of $32,337 and total liabilities of $39,120. For the quarter ended
April 3, 1994, Hexcel S.A. generated net sales of $10,010 and a net loss of
$651.
Due to depressed European business conditions, particularly in the
aerospace industry, Hexcel S.A. has been operating at a loss since the end of
1992. Furthermore, interest costs and restructuring activities are consuming
cash, and Hexcel S.A. is investigating alleged product claims which could
require additional cash outlays. This subsidiary is currently in negotiations
with its lenders regarding the commitment of credit facilities which expired
beginning on March 16, 1994. These negotiations have been predicated on the
Company making satisfactory progress toward obtaining authorization from the
Bankruptcy Court to invest additional cash and take other measures to improve
the financial position of Hexcel S.A. The Company has requested such
authorization and the Bankruptcy Court has scheduled a hearing on the matter for
May 18, 1994. There is no assurance this authorization will be received or that
all such lenders will extend their short-term credit agreements for any
specified length of time. Furthermore, Hexcel Corporation is unable to provide
direct financial support outside of the normal course of business to this
subsidiary without Bankruptcy Court approval.
Hexcel S.A.'s ability to continue as a going concern is subject to its
obtaining needed financing, as well as resolving alleged product claims and
successfully implementing required restructuring initiatives. The condensed
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should Hexcel S.A. be
unable to continue as a going concern.
9
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
BANKRUPTCY
On December 6, 1993, Hexcel Corporation (a Delaware corporation, the
"Parent Company" or "Parent") filed a voluntary petition for relief under the
provisions of Chapter 11 of the federal bankruptcy laws in the United States
Bankruptcy Court for the Northern District of California (the "Bankruptcy
Court"). Since that date, Hexcel Corporation has continued business operations
as debtor-in-possession under the supervision of the Bankruptcy Court.
Substantially all of the U.S. assets and operations of the Company are directly
owned and operated by the Parent, and are subject to bankruptcy protection. The
joint ventures and European subsidiaries of Hexcel Corporation are not included
in the bankruptcy proceedings and, as such, are not subject to the provisions of
the federal bankruptcy laws or the supervision of the Bankruptcy Court. However,
the Parent Company is generally unable to provide direct financial support
outside of the normal course of business to its joint ventures and subsidiaries
without Bankruptcy Court approval.
For additional information regarding the bankruptcy proceedings of Hexcel
Corporation, refer to the notes to the condensed consolidated financial
statements included in this Quarterly Report on Form 10-Q and to the Company's
Annual Report on Form 10- K for the year ended December 31, 1993.
HEXCEL S.A.
The restructuring program initiated by the Company in 1992 and expanded in
1993 includes certain actions at Hexcel S.A., a wholly-owned Belgian subsidiary.
Due to depressed European business conditions, particularly in the aerospace
industry, Hexcel S.A. has been operating at a loss. Furthermore, interest costs
are consuming cash as are the restructuring activities necessary to return the
subsidiary to profitability. Hexcel S.A. is also investigating alleged product
claims which could require additional cash outlays.
Hexcel S.A. is currently negotiating with its existing lenders terms for
the renewal of the commitment of credit facilities which expired beginning on
March 16, 1994. In connection with these negotiations, the Company has requested
the Bankruptcy Court to approve the investment of additional cash and other
measures to improve the financial position of Hexcel S.A. The Company expects
the Bankruptcy Court to rule on this request in the near future, but there is no
assurance that the Company will obtain the necessary approval or that the
commitment of credit facilities will be renewed. As a result, Hexcel S.A.'s
ability to continue as a going concern is subject to its obtaining needed
financing, as well as resolving alleged product claims and successfully
implementing required restructuring initiatives.
Hexcel S.A. is an integral component of the Company's worldwide competitive
position, particularly in commercial aerospace. If Hexcel S.A. is unable to
continue as a going concern,
10
<PAGE>
management believes that this would have a material adverse effect on the
Company's U.S. and international operations.
RESULTS OF OPERATIONS
Net sales were $85.4 million for the first quarter of 1994, down 4.3% from
net sales of $89.3 million for the first quarter of 1993. The decline is
attributable to the transfer of the Knytex business to a joint venture with
Owens-Corning Fiberglas in June of 1993, as well as continued weakness in
commercial and military aerospace markets.
Operating income was $0.3 million for the 1994 quarter compared with an
operating loss of $2.2 million for the 1993 quarter. The $2.5 million
improvement reflects the impact of the restructuring program initiated in 1992
and expanded in 1993. Since the end of 1992, the Company has reduced its
worldwide workforce by almost 25%, to 2,329 employees, as part of a strategy to
eliminate excess manufacturing capacity and to reorganize sales, marketing and
administration on a global basis.
Net loss for the first quarter of 1994 was $5.0 million or $0.69 per share
compared with net income of $1.2 million or $0.16 per share for the first
quarter of 1993. The 1994 quarter was adversely impacted by bankruptcy
reorganization expenses of $2.3 million while the 1993 quarter benefited from a
$1.4 million benefit for income taxes and a $4.5 million gain for the cumulative
effect of adopting a new accounting standard for income taxes.
Results for the first quarter of 1994 reflect the initial benefits of the
Company's ongoing restructuring program offset by the costs of bankruptcy
reorganization. Gross margin percentage rose to 16.8% from 15.8% a year earlier,
as the Company began to reduce manufacturing overhead. First quarter marketing,
general and administrative expenses decreased by $2.8 million, or 16.5%, from
1993 to 1994, reflecting the significant reduction in employment levels as well
as the implementation of spending controls. Bankruptcy reorganization expenses
of $2.3 million during the first quarter of 1994 largely offset the improvement
in operating income over the first quarter of last year. Legal and professional
fees to be incurred as a result of the bankruptcy proceedings are expected to
continue to be significant in the near term.
During 1993, substantial uncertainty developed as to the realization of the
Company's deferred tax assets. Consequently, those assets were fully reserved as
of December 31, 1993. In the first quarter of 1994, the Company recorded an
additional reserve for the deferred income tax assets generated by the Company's
pre-tax loss for the quarter. This additional reserve, along with taxable
income for certain European entities, resulted in a tax provision of $0.4
million on a pre-tax loss of $4.6 million.
REVENUE TRENDS
Sales to commercial and military aerospace markets remain depressed. In the
near term, the Company expects further deterioration in sales to aerospace
customers before there is a rebound. Based on current projections of aircraft
build rates, the Company believes that the commercial
11
<PAGE>
aerospace market will likely continue to decline at least until 1995, and
military procurement is expected to fall through 1994 and beyond.
In response to the decline in commercial and military aerospace, the
Company is reducing costs, developing process improvements, and revising its
market focus. Management believes that there are opportunities for Hexcel
materials and technology within and outside of the traditional markets served by
the Company. Sales to recreational markets and the electronics industry have
been improving, and the Company is pursuing opportunities in the automotive
industry as well.
The backlog of orders for aerospace materials as of April 3, 1994 was
comparable to the backlog at the end of 1993, which was down considerably from
the prior year. This reflects the continuation of the slump in the aerospace
industry, as well as the industry's efforts to reduce inventory levels. The
backlog of orders for non-aerospace materials increased in the recent quarter.
These increases are primarily for honeycomb and composite materials for
recreational customers and woven fabrics for the electronics industry.
CAPITAL RESOURCES AND LIQUIDITY
Prior to the Chapter 11 filing, Hexcel Corporation arranged for a
debtor-in-possession revolving credit line from The CIT Group / Business Credit,
Inc. On January 28, 1994, the Bankruptcy Court granted final approval for the
use of this credit facility, which is available to finance the normal business
operations and restructuring activities of Hexcel Corporation. This debtor-in-
possession credit line cannot be used to finance joint ventures, European
subsidiaries, or any transaction outside of the ordinary course of business
without the prior consent of the Bankruptcy Court. The amount available for
borrowing is based on the outstanding balance of eligible U.S. receivables and
inventories, as defined in the credit agreement, up to a maximum of $35.0
million. This credit line is secured by substantially all of the Company's U.S.
assets, enjoys superpriority over virtually all other claims, and is subject to
a number of financial covenants and restrictions.
Hexcel Corporation began borrowing under this credit facility beginning in
April 1994. As of May 6, 1994, outstanding borrowings totaled $0.8 million and
approximately $26.0 million of additional credit was available. While the
Company believes it has adequate financing to operate in bankruptcy for a
reasonable period of time, its ability to successfully continue operations is
dependent upon, among other things, confirmation of a plan of reorganization
that will enable Hexcel Corporation to emerge from bankruptcy proceedings,
obtaining adequate postconfirmation financing to fund restructuring and working
capital requirements, successfully implementing the restructuring program, and
generating sufficient cash from operations and financing sources to meet
obligations. Management believes that the Company should be able to restructure
its existing debt and obtain postconfirmation financing in connection with
the confirmation of a plan of reorganization, but there is no assurance such
restructuring or financing will occur. The debtor-in-possession credit facility
expires in December 1995 or upon confirmation of a plan of reorganization, at
which time all outstanding borrowings become immediately due and payable.
Consequently, in connection with the reorganization of Hexcel
12
<PAGE>
Corporation, the Company will need to secure long-term postconfirmation
financing to replace debtor-in-possession financing.
Earnings before interest, taxes, depreciation and amortization were $4.2
million for the first quarter of 1994. However, cash payments for restructuring
costs and bankruptcy reorganization expenses, along with working capital
changes, resulted in the consumption of $3.5 million in cash from operating
activities. Operating activities generated $1.7 million of cash for the first
quarter of 1993, which benefited from the absence of bankruptcy costs as well as
a reduction in working capital.
Working capital was $56.6 million at April 3, 1994, $54.7 million at
December 31, 1993 and, excluding assets held for sale, $56.0 million at March
31, 1993. The increase in working capital during the first quarter of 1994 is
largely attributable to an $8.5 million increase in accounts receivable, which
resulted from higher sales during the second half of the quarter, and a $4.5
million increase in inventories. These increases were largely offset by higher
levels of accounts payable and a reduction in U.S. cash balances. U.S. cash
totaled more than $7 million at December 31, 1993, as a result of prepetition
obligations being stayed by the Bankruptcy Court and strong receivables
collections at the end of the year. U.S. cash declined to less than $1 million
at April 3, 1994 because of the use of cash to pay for bankruptcy costs and
fund increases in receivables and inventories.
Capital expenditures were just $0.4 million in the first quarter of 1994,
compared with $1.3 million in same quarter of 1993. Capital spending is being
held to minimal levels as part of the ongoing effort to consolidate facilities
and improve cash flows. Until Hexcel Corporation emerges from bankruptcy
proceedings and adequate long-term financing is in place, the Company does not
expect capital expenditures to significantly increase above 1993 spending
levels.
Cash restructuring costs were $2.6 million in the first quarter of 1994.
Significant expenditures remain in 1994 and beyond. Funding of these costs will
come from the debtor-in-possession revolving line of credit while the Parent
Company remains in bankruptcy proceedings. Funding after bankruptcy proceedings
will need to be provided as part of the reorganization plan.
13
<PAGE>
PART II. OTHER INFORMATION
HEXCEL CORPORATION AND SUBSIDIARIES
ITEM 3. Defaults Upon Senior Securities
(a) The Company is in default of certain financial and other
covenants and pursuant to certain cross-default provisions
under its financing agreements with its U.S. banks and certain
other lenders. These consist of substantially all U.S. debt
listed in Note 4 to the condensed consolidated financial
statements. Payment and enforcement of most of these
obligations is stayed by federal bankruptcy laws for the
duration of Hexcel Corporation's bankruptcy proceedings.
ITEM 6. Exhibits
(a) Exhibits:
11. Statement Regarding Computation of Per Share Earnings.
27.1 Financial Data Schedule
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, and in the capacity indicated.
HEXCEL CORPORATION
(Registrant)
May 13, 1994 /s/ Wayne C. Pensky
------------------- ---------------------------
(Date) Wayne C. Pensky, Controller
Chief Accounting Officer
Authorized Officer
15
<PAGE>
EXHIBIT INDEX
-------------
PAGE NO.
--------
11. Statement Regarding Computation of Per Share Earnings 17
27.1 Financial Data Schedule 18
16
<PAGE>
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 first quarters of 1994 and 1993 were:
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------
APRIL 3, MARCH 31,
THE QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss from continuing operations $ (5,024) $ (3,126)
Loss from discontinued operations - (178)
Cumulative effect of change in accounting for income taxes - 4,500
- - ---------------------------------------------------------------------------------------------------------
Net income (loss) $ (5,024) $ 1,196
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,310 7,313
Weighted average common equivalent shares from stock options - 1
- - ---------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 7,310 7,314
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share from (1):
Continuing operations $ (0.69) $ (0.43)
Discontinued operations - (0.02)
Cumulative effect of change in accounting for income taxes - 0.61
- - ---------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share (1) $ (0.69) $ 0.16
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- - ---------------------------------------------------------------------------------------------------------
Loss from continuing operations $ (5,024) $ (3,126)
Loss from discontinued operations - (178)
Cumulative effect of change in accounting for income taxes - 4,500
- - ---------------------------------------------------------------------------------------------------------
Net income (loss) (5,024) 1,196
Debenture interest and issuance costs 299 299
- - ---------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ (4,725) $ 1,495
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,310 7,313
Weighted average common equivalent shares
Stock options - 1
7% convertible debentures 804 804
- - ---------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 8,114 8,118
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share from (1):
Continuing operations $ (0.69) $ (0.43)
Discontinued operations - (0.02)
Cumulative effect of change in accounting for income taxes - 0.61
- - ---------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share(1) $ (0.69) $ 0.16
- - ---------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------
<FN>
(1) For the first quarters of 1994 and 1993, the primary and fully diluted net income (loss) per share were the
same because the fully diluted computation was antidilutive.
</TABLE>
17
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
condensed consolidated statements of income and condensed consolidated balance
sheets on pages 2 and 3 of the Company's Form 10-Q for the quarterly period
ending April 3, 1994, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> APR-3-1994
<CASH> 4,512
<SECURITIES> 0
<RECEIVABLES> 76,128
<ALLOWANCES> 0
<INVENTORY> 51,809
<CURRENT-ASSETS> 136,478
<PP&E> 228,245
<DEPRECIATION> (117,318)
<TOTAL-ASSETS> 268,732
<CURRENT-LIABILITIES> 79,836
<BONDS> 26,760
<COMMON> 73
0
0
<OTHER-SE> 17,210
<TOTAL-LIABILITY-AND-EQUITY> 268,732
<SALES> 85,413
<TOTAL-REVENUES> 85,413
<CGS> (71,059)
<TOTAL-COSTS> (85,118)
<OTHER-EXPENSES> (2,344)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (2,551)
<INCOME-PRETAX> (4,600)
<INCOME-TAX> (424)
<INCOME-CONTINUING> (5,024)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,024)
<EPS-PRIMARY> (0.69)
<EPS-DILUTED> (0.69)
</TABLE>
