<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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 July 2, 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 August 4, 1995
----- -----------------------------
COMMON STOCK 18,093,903
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
* Condensed Consolidated Statements of
Operations -- The Quarter and Year-to-Date
Ended July 2, 1995 and July 3, 1994 2
* Condensed Consolidated Balance Sheets --
July 2, 1995 and December 31, 1994 3
* Condensed Consolidated Statements of
Cash Flows -- The Year-to-Date
Ended July 2, 1995 and July 3, 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 15
SIGNATURES 16
EXHIBIT 17
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------
UNAUDITED
-------------------------------------------------
THE QUARTER ENDED THE YEAR-TO-DATE ENDED
---------------------- ----------------------
JULY 2, July 3, JULY 2, July 3,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1995 1994
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 91,023 $ 84,964 $ 176,178 $ 162,646
Cost of sales (72,968) (70,799) (143,328) (136,798)
---------------------------------------------------------------------------------------------------------------
Gross margin 18,055 14,165 32,850 25,848
Marketing, general and administrative expenses (12,106) (11,813) (24,272) (23,704)
---------------------------------------------------------------------------------------------------------------
Operating income 5,949 2,352 8,578 2,144
Interest expenses (2,079) (2,255) (4,442) (4,750)
Bankruptcy reorganization expenses (826) (4,565) (2,951) (6,909)
---------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
income taxes 3,044 (4,468) 1,185 (9,515)
Provision for income taxes (1,094) (426) (1,604) (704)
---------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 1,950 (4,894) (419) (10,219)
Discontinued operations:
Income from operations, net of provision for income
taxes of $169 and $315 for the quarter and
year-to-date ended July 3, 1994, respectively -- 472 -- 773
Losses during phase-out period (185) -- (297) --
---------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,765 $ (4,422) $ (716) $ (9,446)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations $ 0.11 $ (0.67) $ (0.03) $ (1.40)
Discontinued operations (0.01) 0.07 (0.02) 0.11
---------------------------------------------------------------------------------------------------------------
Net income (loss) $ 0.10 $ (0.60) $ (0.05) $ (1.29)
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
Weighted average shares and equivalent shares 18,007 7,310 13,391 7,310
---------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------
UNAUDITED
----------------------------
JULY 2, December 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and equivalents $ -- $ 931
Receivables from asset sales -- 29,340
Accounts receivable 75,817 64,136
Inventories 53,234 47,364
Prepaid expenses 3,051 3,581
Net assets of discontinued operations 2,155 3,000
---------------------------------------------------------------------------------------------------
Total current assets 134,257 148,352
---------------------------------------------------------------------------------------------------
Property, plant and equipment 197,910 186,328
Less accumulated depreciation 113,091 103,215
---------------------------------------------------------------------------------------------------
Net property, plant and equipment 84,819 83,113
---------------------------------------------------------------------------------------------------
Investments and other assets 14,093 11,992
---------------------------------------------------------------------------------------------------
Total assets $ 233,169 $ 243,457
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 45,000 $ 12,720
Accounts payable 24,350 18,163
Accrued liabilities 46,889 43,399
Liabilities subject to disposition in bankruptcy reorganization -- 97,025
---------------------------------------------------------------------------------------------------
Total current liabilities 116,239 171,307
---------------------------------------------------------------------------------------------------
Long-term liabilities, less current maturities 71,082 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 18,101 in 1995 and 7,301 in 1994 181 73
Additional paid-in capital 111,257 62,626
Accumulated deficit (73,430) (72,714)
Minimum pension obligation adjustment (137) (137)
Cumulative currency translation adjustment 7,977 4,267
---------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 45,848 (5,885)
---------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $ 233,169 $ 243,457
---------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------
UNAUDITED
-------------------------
JULY 2, July 3,
THE YEAR-TO-DATE ENDED (IN THOUSANDS) 1995 1994
-----------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss from continuing operations $ (419) $ (10,219)
Reconciliation to net cash used by continuing operations:
Depreciation and amortization 5,855 7,338
Working capital changes and other (17,390) (7,139)
-----------------------------------------------------------------------------------------------------
Net cash used by continuing operations (11,954) (10,020)
Net cash provided (used) by discontinued operations 548 (1,270)
-----------------------------------------------------------------------------------------------------
Net cash used by operating activities (11,406) (11,290)
-----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (4,585) (1,134)
Proceeds from equipment sold 17 8
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 24,728 (1,126)
-----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 3,891 --
Payments of long-term debt (5,939) (1,518)
Proceeds (payments) of short-term debt, net 17,678 2,977
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 (13,775) 1,459
-----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (478) (391)
-----------------------------------------------------------------------------------------------------
Net decrease in cash and equivalents (931) (11,348)
Cash and equivalents at beginning of year 931 11,348
-----------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ -- $ --
-----------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
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 July 2, 1995, and the results of
operations for the quarters and year-to-date periods ended July 2, 1995 and July
3, 1994, and the cash flows for the year-to-date periods ended July 2, 1995 and
July 3, 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 3, 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
On July 11, 1995, the Company entered into a non-binding letter of intent
with Ciba-Geigy Limited, a Swiss corporation ("Ciba"). Pursuant to the terms
of the letter of intent, the Company proposes to acquire Ciba's worldwide
honeycomb, composites, fabrics, structures and interiors businesses
(collectively, Ciba's "Composites Division") in exchange for: (a) newly issued
shares of the Company's common stock such that Ciba's percentage ownership of
the Company's outstanding common stock will be approximately 49.9% after giving
effect to the transaction; and (b) additional consideration consisting of cash
and other Company securities to compensate for Company debt and certain other
liabilities in excess of such amounts carried by Ciba's Composites Division.
The total value of such consideration is currently estimated at approximately
$80,000, but is subject to various adjustments. The letter of intent also
5
<PAGE>
contemplates certain standstill and governance provisions relating to Ciba's
ownership of the Company's common stock.
The proposed transaction is subject to significant conditions, including,
among others: (a) the negotiation and execution of definitive agreements; (b)
Hart-Scott-Rodino, European antitrust, security clearance and other material
governmental, regulatory and/or third party approvals; (c) approval by the
Company's shareholders; and (d) the Company's receipt of adequate financing on
commercially reasonable terms. There can be no assurance that the Company and
Ciba will enter into definitive agreements with respect to the proposed
acquisition or, if definitive agreements are entered into, that the transactions
contemplated thereby will be consummated. A copy of the letter of intent was
filed as an exhibit to the Company's current report on Form 8-K dated July 14,
1995.
NOTE 3 - 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
6
<PAGE>
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 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 July 2, 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 July 2, 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
are 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 remaining bankruptcy-related issues, including the final settlement of
disputed claims and professional fees, has resulted in the generation of
expenses after the effective date of the Reorganization Plan.
7
<PAGE>
NOTE 4 - ASSET SALES PROCEEDS
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 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. The payment of all or a portion of this amount will result in the
recognition of additional income, when such amount is received.
The Company sold its European resins business 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.
NOTE 5 - INVENTORIES
Inventories as of July 2, 1995 and December 31, 1994 were:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
7/2/95 12/31/94
-------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 20,371 $ 18,846
Work in progress 13,704 11,182
Finished goods 17,726 16,270
Supplies 1,433 1,066
-------------------------------------------------------------------------------
Total inventories $ 53,234 $ 47,364
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
NOTE 6 - NOTES PAYABLE
Notes payable and capital lease obligations as of July 2, 1995 and December
31, 1994 were:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
7/2/95 12/31/94
-------------------------------------------------------------------------------
<S> <C> <C>
Revolving Credit Facility (see Note 3) $ 24,413 --
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 12,010 13,310
Various U.S. notes payable and capital lease
obligations 2,957 4,296
Various notes payable and capital lease obligations
of European subsidiaries 20,847 20,119
-------------------------------------------------------------------------------
Total notes payable and capital lease obligations 85,852 109,539
Less amount subject to disposition in bankruptcy
reorganization -- (80,815)
-------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 85,852 $ 28,724
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
7/2/95 12/31/94
-------------------------------------------------------------------------------
Notes payable and current maturities of long-term
liabilities, net $ 45,000 $ 12,720
Long-term notes payable and capital lease
obligations, net 40,852 16,004
-------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 85,852 $ 28,724
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
NOTE 7 - 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
$1,094 and $426 for the second quarters of 1995 and 1994, respectively, and
$1,604 and $704 for the year-to-date periods ended July 2, 1995 and July 3,
1994, respectively.
NOTE 8 - DISCONTINUED OPERATIONS
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 completed the sale of its European resins business on December 29,
1994 (see Note 4), and believes that the sale of its U.S. resins business will
be arranged on acceptable terms. Accordingly, the resins business is accounted
for as a discontinued operation in the accompanying condensed consolidated
financial statements for all periods presented.
9
<PAGE>
Net sales of the discontinued resins business were $2,107 and $8,428 for the
second quarters of 1995 and 1994, respectively, and $4,175 and $16,159 for the
year-to-date periods ended July 2, 1995 and July 3, 1994, respectively.
Net assets of the discontinued resins business as of July 2, 1995 and
December 31, 1994 were:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------
7/2/95 12/31/94
-------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 3,381 $ 3,970
Current liabilities (4,732) (4,591)
Non-current assets 3,506 3,621
Long-term liabilities -- --
-------------------------------------------------------------------------------
Net assets $ 2,155 $ 3,000
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
SECOND QUARTER
Net income for the second quarter of 1995 was $1.8 million or $0.10 per
share, including bankruptcy reorganization expenses of $0.8 million. This
compares with a net loss for the second quarter of 1994 of $4.4 million or $0.60
per share, including bankruptcy reorganization expenses of $4.6 million. There
were approximately 18.0 million shares outstanding during the second quarter of
1995, reflecting the results of the Company's recently completed equity
offering, versus 7.3 million shares in the second quarter of 1994.
Net sales were $91.0 million for the second quarter of 1995, a 7% increase
over net sales of $85.0 million for the second quarter of 1994. Gross margin
was $18.1 million for the 1995 quarter, or 19.8% of sales, compared with $14.2
million for the 1994 quarter, or 16.7% of sales. The increase in second quarter
sales and gross margin reflects improvements in several of the Company's
markets, especially in Europe, as well as the beneficial impact of the Company's
restructuring activities. The sales increase is also attributable to the
decline in the U.S. dollar relative to other major currencies; over 40% of the
Company's sales are to international markets. Sales and gross margin were
higher for the Company's composites and fabrics businesses. Honeycomb sales
were slightly lower, reflecting the sale of the Chandler, Arizona manufacturing
facility in the fourth quarter of 1994, but gross margin improved.
Operating income was $5.9 million for the 1995 quarter and $2.4 million for
the same period of 1994. The improvement in operating income is the result of
higher sales and improved gross margin. Marketing, general and administrative
expenses were nearly unchanged.
Income from continuing operations for the second quarter of 1995 was $2.0
million or $0.11 per share, including $2.1 million of interest expenses and a
$1.1 million provision for income taxes, as well as bankruptcy reorganization
expenses. The loss from continuing operations for the second quarter of 1994
was $4.9 million or $0.67 per share, including interest expenses of $2.3
million, a provision for income taxes of $0.4 million, and the expenses of
bankruptcy proceedings. The 1995 and 1994 quarterly tax provisions are
primarily the result of taxable income for certain European entities and state
income taxes.
YEAR-TO-DATE
The net loss for the first half of 1995 was $0.7 million or $0.05 per share,
including bankruptcy reorganization expenses of $3.0 million. The net loss for
the comparable period of 1994 was $9.4 million or $1.29 per share, including
bankruptcy reorganization expenses of $6.9 million. There were 13.4 million
weighted average shares and equivalent shares during the 1995 period, compared
with 7.3 million during the 1994 period.
For the first half of 1995, net sales were $176.2 million, compared with
$162.6 million for the first half of 1994. The 1995 year-to-date gross margin
was $32.9 million, or 18.6% of sales. Gross margin for the same period of 1994
was $25.8 million, or 15.9% of sales. The year-to-date
11
<PAGE>
increases in sales and gross margin reflect improvements in each of the first
two quarters of 1995 over the same quarters of 1994, and are attributable to the
same factors noted above.
Operating income was $8.6 million for the year-to-date ended July 2, 1995 and
$2.1 million for the same period of 1994. The loss from continuing operations
was $0.4 million or $0.03 per share for the 1995 period, versus $10.2 million or
$1.40 per share for the comparable period of 1994. The reduction in the 1995
loss from continuing operations is attributable to lower bankruptcy
reorganization expenses as well as the improvement in operating income. As
previously reported, Hexcel emerged from bankruptcy reorganization proceedings
on February 9, 1995.
PROPOSED ACQUISITION
On July 11, 1995, the Company entered into a non-binding letter of intent
with Ciba-Geigy Limited. Pursuant to the terms of the letter of intent, the
Company proposes to acquire Ciba's Composites Division in exchange for: (a)
newly issued shares of the Company's common stock such that Ciba's percentage
ownership of the Company's outstanding common stock will be approximately 49.9%
after giving effect to the transaction; and (b) additional consideration
consisting of cash and other Company securities to compensate for debt and
certain other liabilities in excess of such amounts carried by Ciba's Composites
Division. The total value of such consideration is currently estimated at
approximately $80.0 million, but is subject to various adjustments. The letter
of intent also contemplates certain standstill and governance provisions
relating to Ciba's ownership of the Company's stock.
Ciba's Composites Division supplies lightweight, high-strength materials and
structures to the aerospace and other industries. The Composites Division,
which operates in more than 20 countries, had 1994 worldwide sales of
approximately $293.0 million. The proposed acquisition of Ciba's Composites
Division, if consummated, would expand the Company's range of product lines and
increase its presence in international markets.
The proposed transaction is subject to significant conditions, including,
among others: (a) the negotiation and execution of definitive agreements; (b)
Hart-Scott-Rodino, European antitrust, security clearance and other material
governmental, regulatory and/or third party approvals; (c) approval by the
Company's shareholders; and (d) the Company's receipt of adequate financing on
commercially reasonable terms. There can be no assurance that the Company and
Ciba will enter into definitive agreements with respect to the proposed
acquisition or, if definitive agreements are entered into, that the transactions
contemplated thereby will be consummated. A copy of the letter of intent was
filed as an exhibit to the Company's current report on Form 8-K dated July 14,
1995.
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
12
<PAGE>
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
The Reorganization Plan which became effective on February 9, 1995 provided
for a new revolving credit facility of up to $45.0 million. 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, 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 July 2, 1995, the amount available for borrowing was $45.0 million, and
the amount utilized totaled $26.4 million.
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 $33.7 million as of July 2, 1995, and outstanding borrowings
under these facilities totaled $20.8 million at that date.
The proceeds from the subscription rights offering and standby purchase
agreement with Mutual Series, as well as proceeds from the Chandler and European
resins transactions, 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 operations and restructuring activities through the end of
1995. 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.
13
<PAGE>
The Company has been in compliance with the terms of the Revolving Credit
Facility through the second quarter of 1995, and management believes that
continued compliance will be achieved.
The proposed acquisition of Ciba's Composites Division will require
additional funding and is contingent upon, among other things, the Company's
receipt of adequate financing on commercially reasonable terms. This could
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
Ciba's Composites Division into the Company's existing business.
CASH FLOWS AND WORKING CAPITAL
During the first half of 1995, the Company's continuing operating activities
used $12.0 million of cash. Earnings before interest, taxes, depreciation and
amortization were $14.4 million, but the Company incurred $4.4 million in
interest expenses and $3.0 million of bankruptcy reorganization expenses. In
addition, the Company paid $4.6 million in restructuring costs and experienced a
net increase in accounts receivable and inventories, 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 to meet the
needs of the restructured Company.
The Company's continuing operating activities used $10.0 million of cash in
the first half of 1994. Earnings before interest, taxes, depreciation and
amortization were $9.5 million, while interest and bankruptcy reorganization
expenses totaled $11.7 million. Cash restructuring costs of $5.4 million and
other working capital changes accounted for the remaining net cash usage.
Working capital was $18.0 million as of July 2, 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.
CAPITAL EXPENDITURES
Capital expenditures were $4.6 million for the first half of 1995, compared
with $1.1 million for the same period of 1994. The increase is due to the
requirement to purchase certain equipment in connection with the consolidation
of certain honeycomb manufacturing operations, noted above, as well as other
manufacturing expenditures which had been deferred as a result of bankruptcy
reorganization proceedings. The Company expects capital expenditures to be
higher throughout 1995 than in 1994.
14
<PAGE>
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 Composites Division of
Ciba-Geigy Limited.
15
<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)
August 7, 1995 /s/ Wayne C. Pensky
------------------------ -----------------------------
(Date) Wayne C. Pensky, Controller
Chief Accounting Officer
Authorized Officer
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 second quarter and first half of 1995
and 1994 were:
<TABLE>
<CAPTION>
THE QUARTER ENDED THE YEAR-TO-DATE ENDED
-------------------- ----------------------
JULY 2, July 3, JULY 2, July 3,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1995 1994
--------------------------------------------------------------------------------------------------------------------------
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations $ 1,950 $ (4,894) $ (419) $ (10,219)
Income (loss) from discontinued operations (185) 472 (297) 773
--------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,765 $ (4,422) $ (716) $ (9,446)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 18,007 7,310 13,391 7,310
Weighted average common equivalent shares from stock options -- -- -- --
--------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 18,007 7,310 13,391 7,310
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share from (1):
Continuing operations $ 0.11 $ (0.67) $ (0.03) $ (1.40)
Discontinued operations (0.01) 0.07 (0.02) 0.11
--------------------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share (1) $ 0.10 $ (0.60) $ (0.05) $ (1.29)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
--------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ 1,950 $ (4,894) $ (419) $ (10,219)
Income (loss) from discontinued operations (185) 472 (297) 773
--------------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,765 (4,422) (716) (9,446)
Debenture interest and issuance costs 295 303 594 604
--------------------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $ 2,060 $ (4,119) $ (122) $ (8,842)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 18,007 7,310 13,391 7,310
Weighted average common equivalent shares
Stock options -- -- -- --
7% convertible debentures 804 804 804 804
--------------------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 18,811 8,114 14,195 8,114
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share
from (1):
Continuing operations $ 0.11 $ (0.67) $ (0.03) $ (1.40)
Discontinued operations (0.01) 0.07 (0.02) 0.11
--------------------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share (1) $ 0.10 $ (0.60) $ (0.05) $ (1.29)
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
<FN>
(1) For the second quarter and first half of 1995 and 1994, 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
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-1-1995
<PERIOD-END> JUL-02-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 77,645
<ALLOWANCES> 1,828
<INVENTORY> 53,234
<CURRENT-ASSETS> 134,257
<PP&E> 197,910
<DEPRECIATION> 113,091
<TOTAL-ASSETS> 233,169
<CURRENT-LIABILITIES> 116,239
<BONDS> 40,852
<COMMON> 181
0
0
<OTHER-SE> 45,667
<TOTAL-LIABILITY-AND-EQUITY> 233,169
<SALES> 176,178
<TOTAL-REVENUES> 176,178
<CGS> 143,328
<TOTAL-COSTS> 167,600
<OTHER-EXPENSES> 2,951
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,442
<INCOME-PRETAX> 1,185
<INCOME-TAX> 1,604
<INCOME-CONTINUING> (419)
<DISCONTINUED> (297)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (716)
<EPS-PRIMARY> (0.05)
<EPS-DILUTED> (0.05)
</TABLE>
