<PAGE>
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGES 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 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 May 12, 1995
----- ---------------------------
COMMON STOCK 18,101,029
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<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
- Condensed Consolidated Statements of
Operations -- The Quarter Ended
April 2, 1995 and April 3, 1994 2
- Condensed Consolidated Balance Sheets --
April 2, 1995 and December 31, 1994 3
- Condensed Consolidated Statements of
Cash Flows -- The Quarter Ended
April 2, 1995 and April 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 14
SIGNATURES 16
EXHIBIT 17
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
UNAUDITED
-------------------------
APRIL 2, April 3,
THE QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 85,155 $ 77,682
Cost of sales (70,360) (65,999)
- -----------------------------------------------------------------------------------------------
Gross margin 14,795 11,683
Marketing, general and administrative expenses (12,166) (11,891)
- -----------------------------------------------------------------------------------------------
Operating income (loss) 2,629 (208)
Interest expenses (2,363) (2,495)
Bankruptcy reorganization expenses (2,125) (2,344)
- -----------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes (1,859) (5,047)
Provision for income taxes (510) (278)
- -----------------------------------------------------------------------------------------------
Loss from continuing operations (2,369) (5,325)
Discontinued operations:
Income from operations, net of provision for income taxes
of $146 in 1994 - 301
Losses during phase-out period (112) -
- -----------------------------------------------------------------------------------------------
Net loss $ (2,481) $ (5,024)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations $ (0.27) $ (0.73)
Discontinued operations (0.01) 0.04
- -----------------------------------------------------------------------------------------------
Net loss $ (0.28) $ (0.69)
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Weighted average shares and equivalent shares 8,773 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
--------------------------
APRIL 2, December 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS (SEE NOTE 3)
Current assets:
Cash and equivalents $ - $ 931
Receivables from asset sales - 29,340
Accounts receivable 76,399 64,136
Inventories 51,682 47,364
Prepaid expenses 1,610 3,581
Net assets of discontinued operations 2,452 3,000
- ----------------------------------------------------------------------------------------------------
Total current assets 132,143 148,352
- ----------------------------------------------------------------------------------------------------
Property, plant and equipment 197,218 186,328
Less accumulated depreciation 111,557 103,215
- ----------------------------------------------------------------------------------------------------
Net property, plant and equipment 85,661 83,113
- ----------------------------------------------------------------------------------------------------
Investments and other assets 13,822 11,992
- ----------------------------------------------------------------------------------------------------
Total assets $231,626 $243,457
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 33,616 $ 12,720
Accounts payable 22,845 18,163
Accrued liabilities 53,055 43,399
Liabilities subject to disposition in bankruptcy reorganization - 97,025
- ----------------------------------------------------------------------------------------------------
Total current liabilities 109,516 171,307
- ----------------------------------------------------------------------------------------------------
Long-term liabilities, less current maturities 85,254 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 16,403 in 1995 and 7,301 in 1994 164 73
Additional paid-in capital 103,690 62,626
Accumulated deficit (75,195) (72,714)
Minimum pension obligation adjustment (137) (137)
Cumulative currency translation adjustment 8,334 4,267
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 36,856 (5,885)
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $231,626 $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
-------------------------
APRIL 2, April 3,
THE QUARTER ENDED (IN THOUSANDS) 1995 1994
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Loss from continuing operations $ (2,369) $ (5,325)
Reconciliation to net cash used by continuing operations:
Depreciation and amortization 2,808 3,627
Working capital changes and other (9,299) (549)
- ---------------------------------------------------------------------------------------------------------
Net cash used by continuing operations (8,860) (2,247)
Net cash provided (used) by discontinued operations 436 (966)
- ---------------------------------------------------------------------------------------------------------
Net cash used by operating activities (8,424) (3,213)
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (2,090) (351)
Proceeds from equipment sold 14 11
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 27,220 (340)
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 3,891 -
Payments of long-term debt (3,993) (610)
Proceeds (payments) of short-term debt, net 18,039 (3,805)
Proceeds from issuance of common stock 41,155 -
Payments of allowed claims pursuant to the Reorganization Plan (78,144) -
- ---------------------------------------------------------------------------------------------------------
Net cash used by financing activities (19,052) (4,415)
- ---------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (675) (147)
- ---------------------------------------------------------------------------------------------------------
Net decrease in cash and equivalents (931) (8,115)
Cash and equivalents at beginning of year 931 11,348
- ---------------------------------------------------------------------------------------------------------
Cash and equivalents at end of period $ - $ 3,233
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</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 April 2, 1995, and the results of
operations and cash flows for the quarters ended April 2, 1995 and April 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 2, 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 and the condensed consolidated statements
of operations and cash flows for the quarters ended April 2, 1995 and April 3,
1994 and have 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 - 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
5
<PAGE>
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 the debtor-in-possession credit facility with a new
revolving credit facility (the "Revolving Credit Facility") of up to $45,000;
(b) the creation of an amended reimbursement agreement with respect to the
letters of credit which support certain industrial development revenue bonds;
(c) the completion of the first closing under a standby purchase commitment
whereby Mutual Series Fund Inc. ("Mutual Series") purchased 1,946 shares of new
common stock for $9,000 and loaned the Company $41,000 as an advance against the
proceeds of a subscription rights offering for additional shares of new common
stock; and (d) the reinstatement or payment in full, with interest, of all
allowed claims, including prepetition accounts payable and notes payable.
The Revolving Credit Facility is a three-year facility which is available
to fund distributions to creditors under the Reorganization Plan as well as
related transaction costs, and to provide for the ongoing working capital needs
of the Company and other general corporate purposes. The amount available for
borrowing is based primarily on eligible U.S. assets, as defined in the
agreement, and is secured by substantially all of the U.S. assets of Hexcel, as
well as the majority of its shares in the capital stock of the Company's
European subsidiaries. In addition, the Revolving Credit Facility is subject to
a number of financial covenants and other restrictions.
The letters of credit which guarantee certain industrial development
revenue bonds were reinstated, in accordance with the terms of an amended
reimbursement agreement with the issuing bank, and extended until December 31,
1998. The amended reimbursement agreement is subject to certain industrial
development revenue bond redemption requirements, as well as a number of
financial covenants and other restrictions which are similar, although less
restrictive, to those of the Revolving Credit Facility.
The subscription rights offering concluded on March 27, 1995, with the
issuance of an additional 7,156 shares of new common stock. The resulting cash
proceeds of $33,098 were used to reduce the outstanding balance of the loan from
Mutual Series. The second closing under the standby purchase agreement was
completed on April 6, 1995, with the issuance of an 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 (see
Note 3).
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 aggregate total number of
such shares cannot be determined at this time.
6
<PAGE>
On February 9, 1995, the Company paid $78,144 in prepetition claims and
interest, and reinstated another $60,575 million 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 April 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 subscription rights offering
and 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, will generate additional expenses in
1995.
7
<PAGE>
NOTE 3 - PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated balance sheet as of
April 2, 1995 sets forth the condensed consolidated financial position of the
Company as if the second closing under the standby purchase commitment with
Mutual Series had been completed on such date (see Note 2).
Hexcel Corporation and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
As of April 2, 1995
(Unaudited)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Reported Pro Forma Pro Forma
Balances Adjustments Balances
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets $ 132,143 -- $ 132,143
Property, plant and equipment, net 85,661 -- 85,661
Investments and other assets 13,822 -- 13,822
- --------------------------------------------------------------------------------
Total assets $ 231,626 -- $ 231,626
- --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 109,516 $ (7,552) $ 101,964
Long-term liabilities 85,254 -- 85,254
Shareholders' equity 36,856 7,552 44,408
- --------------------------------------------------------------------------------
Total liabilities and
shareholders' equity $ 231,626 $ -- $ 231,626
- --------------------------------------------------------------------------------
Shares outstanding at April 2, 1995 16,403 1,698 18,101
- --------------------------------------------------------------------------------
</TABLE>
The pro forma adjustments consist of: (a) the issuance of 1,590 shares of
new common stock to Mutual Series for proceeds of $7,352; (b) the issuance of
108 shares of new common stock to John J. Lee for proceeds of $500; (c) the use
of the combined proceeds from the issuance of new common stock of $7,852 to
retire the loan payable to Mutual Series; and (d) the payment of $300 in legal
and administrative fees in connection with the subscription rights offering and
the standby purchase agreement with Mutual Series.
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.
8
<PAGE>
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 April 2, 1995 and December 31, 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
4/2/95 12/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 18,585 $ 18,846
Work in progress 13,544 11,182
Finished goods 18,081 16,270
Supplies 1,472 1,066
- --------------------------------------------------------------------------------
Total inventories $ 51,682 $ 47,364
- --------------------------------------------------------------------------------
</TABLE>
NOTE 6 - NOTES PAYABLE
Notes payable and capital lease obligations as of April 2, 1995 and
December 31, 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
4/2/95 12/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Revolving Credit Facility (see Note 2) $ 17,382 --
Loan payable to Mutual Series (see
Notes 2 and 3) 7,852 --
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 13,210 13,310
Various U.S. notes payable and capital
lease obligations 3,345 4,296
Various notes payable and capital lease
obligations of European subsidiaries 21,043 20,119
- --------------------------------------------------------------------------------
Total notes payable and capital lease
obligations 88,457 109,539
Less amount subject to disposition in
bankruptcy reorganization -- (80,815)
- --------------------------------------------------------------------------------
Total notes payable and capital lease
obligations, net $ 88,457 $ 28,724
- --------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
4/2/95 12/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Notes payable and current maturities of
long-term liabilities, net $ 33,616 $ 12,720
Long-term notes payable and capital
lease obligations, net 54,841 16,004
- --------------------------------------------------------------------------------
Total notes payable and capital lease
obligations, net $ 88,457 $ 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 has continued to reserve
for the deferred income tax assets generated by the pre-tax losses incurred
since December 31, 1993. As a result of state income taxes and taxable income
for certain European entities, the Company recorded a provision for income taxes
of $510 for the first quarter of 1995 and $278 for the first quarter of 1994.
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 now believes that the sale of its U.S.
resins business on acceptable terms can be arranged. Accordingly, the resins
business is accounted for as a discontinued operation in the accompanying
condensed consolidated financial statements for all periods presented.
Net sales of the discontinued resins business were $2,068 for the first
quarter of 1995 and $7,731 for the first quarter of 1994.
Net assets of the discontinued resins business as of April 2, 1995 and
December 31, 1994 were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
4/2/95 12/31/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 3,654 $ 3,970
Current liabilities (4,761) (4,591)
Non-current assets 3,559 3,621
Long-term liabilities -- --
- --------------------------------------------------------------------------------
Net assets $ 2,452 $ 3,000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BANKRUPTCY REORGANIZATION
On January 12, 1995, the Bankruptcy Court entered an order dated January
10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity
Committee. The Reorganization Plan, which became effective on February 9, 1995,
provided for (a) the replacement of the debtor-in-possession credit facility
with a new revolving credit facility of up to $45.0 million; (b) the creation of
an amended reimbursement agreement with respect to the letters of credit which
support certain industrial development revenue bonds; (c) the completion of the
first closing under a standby purchase commitment whereby Mutual Series
purchased 1.9 million shares of new common stock for $9.0 million and loaned the
Company $41.0 million as an advance against the proceeds of a subscription
rights offering for additional shares of new common stock; and (d) the
reinstatement or payment in full, with interest, of all allowed claims,
including prepetition accounts payable and notes payable.
The subscription rights offering concluded on March 27, 1995, with the
issuance of an additional 7.2 million shares of new common stock. The resulting
cash proceeds of $33.1 million were used to reduce the outstanding balance of
the loan from Mutual Series. The second closing under the standby purchase
agreement was completed on April 6, 1995, with the issuance of an additional 1.6
million shares of new common stock to Mutual Series, the issuance of an
additional 0.1 million shares of new common stock to John J. Lee, and the
retirement of the remaining balance of the Mutual Series loan. Following the
second closing under the standby purchase agreement on April 6, 1995, the
Company had a total of 18.1 million shares of common stock issued and
outstanding.
On February 9, 1995, the Company paid approximately $78.1 million in
prepetition claims and interest, and reinstated another $60.6 million 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
April 2, 1995. The payment of claims and interest on February 9, 1995 was
financed with: (a) cash proceeds of $26.7 million 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 $2.6 million
received in the first quarter of 1995 from the sale of the Company's European
resins business; (c) the $50.0 million in cash received from Mutual Series in
connection with the subscription rights offering and standby purchase
commitment; and (d) borrowings under the Revolving Credit Facility.
RESULTS OF OPERATIONS
The net loss for the first quarter of 1995 was $2.5 million or $0.28 per
share, including bankruptcy reorganization expenses of $2.1 million and losses
from discontinued operations of $0.1 million. This compares with a net loss for
the first quarter of 1994 of $5.0 million or $0.69
11
<PAGE>
per share, including bankruptcy reorganization expenses of $2.3 million and
income from discontinued operations of $0.3 million.
Net sales were $85.2 million for the first quarter of 1995, a 10% increase
over net sales of $77.7 million for the first quarter of 1994. Gross margin was
17.4% of sales for the 1995 quarter compared with 15.0% for the 1994 quarter.
The increase in first quarter sales and gross margin is primarily attributable
to improvements in the Company's worldwide composites business and to increased
demand for the Company's reinforcement fabrics in certain European markets. The
sales increase is also attributable to the recent decline in the U.S. dollar
relative to other major currencies; over 40% of the Company's sales are to
international markets. However, aggregate honeycomb sales were slightly lower,
primarily reflecting the sale of the Chandler, Arizona manufacturing facility in
the fourth quarter of 1994.
Operating income was $2.6 million for the 1995 quarter versus an operating
loss of $0.2 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.
The 1995 first quarter loss from continuing operations was $2.4 million or
$0.27 per share, including $2.4 million of interest expenses and a $0.5 million
provision for income taxes, as well as bankruptcy reorganization expenses. The
loss from continuing operations for the first quarter of 1994 was $5.3 million
or $0.73 per share, including interest expenses of $2.5 million, a provision for
income taxes of $0.3 million, and the expenses of bankruptcy proceedings. The
Company continued to accrue interest on Hexcel's prepetition indebtedness
throughout the Chapter 11 process, and the Reorganization Plan provided for the
payment of such interest. The 1995 and 1994 quarterly tax provisions are the
result of taxable income for certain European entities and state income taxes.
The Company fully reserved the deferred income tax assets generated by the pre-
tax losses incurred during the first quarters of 1995 and 1994, due to
uncertainty as to the realization of those assets.
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL RESOURCES
The Reorganization Plan provided for the replacement of the debtor-in-
possession credit facility with the Revolving Credit Facility. 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 April 2, 1995, the amount available for borrowing was $45.0 million, and
the amount utilized totaled $19.6 million.
12
<PAGE>
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 $32.7 million as of April 2, 1995, and outstanding borrowings
under these facilities totaled $21.0 million at that date.
As noted above, 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, the proceeds from the offering of additional shares
of common stock, and credit facilities available to European subsidiaries, will
be sufficient to fund distributions under the Reorganization Plan and 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. Management believes that such compliance will
be achieved.
CASH FLOWS AND WORKING CAPITAL
During the first quarter of 1995, the Company's continuing operating
activities used $8.9 million of cash. Earnings before interest, taxes,
depreciation and amortization were $5.4 million, but the Company incurred $2.4
million in interest expenses and $2.1 million of bankruptcy reorganization
expenses. In addition, the Company paid $2.3 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
quarter were the consolidation of certain honeycomb manufacturing operations at
the Company's Casa Grande, Arizona facility, which is expected to be completed
by the middle of 1995, and continued implementation of a new management
information system to meet the needs of the restructured Company.
The Company's continuing operating activities used $2.2 million of cash in
the first quarter of 1994. Earnings before interest, taxes, depreciation and
amortization were $3.4 million, while interest and bankruptcy reorganization
expenses totaled $4.8 million. Cash restructuring costs of $2.6 million and
other working capital changes accounted for the remaining net cash usage.
Working capital was $22.6 million as of April 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 $2.1 million for the first quarter of 1995,
compared with $0.4 million for the same period of 1994. The increase is due to
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.
13
<PAGE>
PART II. OTHER INFORMATION
HEXCEL CORPORATION AND SUBSIDIARIES
ITEM 2. CHANGES IN SECURITIES
The Reorganization Plan temporarily modifies the rights of the
holders of the Common Stock, $.01 par value, as follows: The
Restated Bylaws of Hexcel Corporation, which were adopted on
February 9, 1995, pursuant to the Reorganization Plan, provide
that annual meetings of stockholders shall be held on such date
and at such time as shall be designated from time to time by the
Board of Directors and stated in notice of the meeting; provided,
however, that the first annual meeting of stockholders following
adoption of the bylaws shall be held not earlier than nine months
after the effective date of the Reorganization Plan, unless
otherwise determined by certain members of the Board of
Directors. In addition, the bylaws provide that no special
meeting of the stockholders may be held for the purpose of
election or removal without cause of directors earlier than the
expiration of the nine month period after the effective date
unless otherwise determined by certain members of the Board of
Directors. Consequently, a meeting (annual or special) of
stockholders for the purpose of election or removal without cause
of directors may not be held earlier than November 1995, unless
otherwise determined by certain members of the Board of
Directors.
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 December 29, 1994 relating
to the sale of the Company's European resins business to
Axson S.A., a French corporation, through the sale of all of
the Company's shares in the capital stock of its European
resins subsidiaries.
Current report on Form 8-K dated January 6, 1995 relating to
(a) the sale of the Company's Chandler, Arizona
manufacturing facility and certain related assets and
technology to Northrop Grumman Corporation, and (b) the
confirmation of Hexcel's First Amended Plan of
Reorganization, dated as of November 7, 1994, by order
entered by the Bankruptcy Court, dated as of January 10,
1995.
14
<PAGE>
Current report on Form 8-K dated February 9, 1995 relating to the
effective date of Hexcel's First Amended Plan of Reorganization.
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)
May 15, 1995 /s/ Wayne C. Pensky
- ---------------------- -----------------------------------
(Date) Wayne C. Pensky, Controller
Chief Accounting Officer
Authorized Officer
16
<PAGE>
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 1995 and 1994 were:
<TABLE>
<CAPTION>
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
APRIL 2, April 3,
THE QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994
- ----------------------------------------------------------------------------------------------------------
Loss from continuing operations $(2,369) $(5,325)
Income (loss) from discontinued operations (112) 301
- ----------------------------------------------------------------------------------------------------------
Net loss $(2,481) $(5,024)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 8,773 7,310
Weighted average common equivalent shares from stock options - -
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 8,773 7,310
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share from (1):
Continuing operations $(0.27) $(0.73)
Discontinued operations (0.01) 0.04
- ----------------------------------------------------------------------------------------------------------
Primary net loss per share and equivalent share (1) $(0.28) $(0.69)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ----------------------------------------------------------------------------------------------------------
Loss from continuing operations $(2,369) $(5,325)
Income (loss) from discontinued operations (112) 301
- ----------------------------------------------------------------------------------------------------------
Net loss (2,481) (5,024)
Debenture interest and issuance costs 298 299
- ----------------------------------------------------------------------------------------------------------
Adjusted net loss $(2,183) $(4,725)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 8,773 7,310
Weighted average common equivalent shares
Stock options - -
7% convertible debentures 804 804
- ----------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 9,577 8,114
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share from (1):
Continuing operations $(0.27) $(0.73)
Discontinued operations (0.01) 0.04
- ----------------------------------------------------------------------------------------------------------
Fully diluted net loss per share and equivalent share (1) $(0.28) $(0.69)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<FN>
(1) For the first quarters of 1995 and 1994, the primary and fully diluted net
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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> APR-02-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 77,826
<ALLOWANCES> 1,427
<INVENTORY> 51,682
<CURRENT-ASSETS> 132,143
<PP&E> 197,218
<DEPRECIATION> 111,557
<TOTAL-ASSETS> 231,626
<CURRENT-LIABILITIES> 109,516
<BONDS> 54,841
<COMMON> 164
0
0
<OTHER-SE> 36,692
<TOTAL-LIABILITY-AND-EQUITY> 231,626
<SALES> 85,155
<TOTAL-REVENUES> 85,155
<CGS> 70,360
<TOTAL-COSTS> 82,526
<OTHER-EXPENSES> 2,125
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,363
<INCOME-PRETAX> (1,859)
<INCOME-TAX> 510
<INCOME-CONTINUING> (2,369)
<DISCONTINUED> (112)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,481)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
