<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________________
FORM 8-K/A
AMENDMENT
NO. 1 TO
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
__________________________
Date of Report (Date of earliest event reported) July 26, 1996 (June 27, 1996)
-----------------------------
HEXCEL CORPORATION
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 94-1109521
- --------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1-8472
------------------------
(Commission File Number)
Two Stamford Plaza
281 Tresser Blvd., 16th Floor
Stamford, CT 06901-3238
- ----------------------------- ----------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code (203) 969-0666
--------------
5794 West Las Positas Boulevard, Pleasanton, CA 94588-8781
-------------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On June 27, 1996, Hexcel Corporation, a Delaware corporation ("Hexcel",
the "Company" or the "Registrant"), consummated its acquisition (the
"Hercules Acquisition") of the Composite Products Division (the "Hercules
Composites Business") of Hercules Incorporated, a Delaware corporation
("Hercules"). Pursuant to the Sale and Purchase Agreement, dated as of April
15, 1996 (as amended through June 27, 1996, the "Purchase Agreement"), among
Hexcel, Hercules, Hercules Nederland BV, a Netherlands company ("HNBV"), and
HISPAN Corporation, a Delaware corporation (together with Hercules and HNBV,
the "Sellers"), Hexcel acquired the assets and liabilities (other than
certain excluded assets and liabilities) of the Hercules Composites Business,
including all of the outstanding capital stock of HNBV's wholly-owned Spanish
subsidiary, Hercules Aerospace Espana, S.A. ("HAESA"), for cash consideration
of $135 million, subject to certain post-closing adjustments. The amount of
consideration paid by Hexcel was determined through arm's length negotiations
between Hexcel and the Sellers. Hexcel financed payment of the consideration
for the Hercules Acquisition with borrowings under a new $310 million credit
facility (the "Credit Facility") with a group of bank lenders led by Credit
Suisse. Pursuant to a letter agreement, dated as of June 27, 1996, among
Hexcel and the Sellers, Hexcel and Hercules have agreed that in the event
applicable Spanish antitrust authorities were to take certain adverse actions
in respect of Hexcel's acquisition of HAESA, Hexcel would have the option to
sell its interest in HAESA (which had sales representing approximately 19% of
the total sales of the Hercules Composites Business in 1995) back to Hercules
for the allocated purchase price Hexcel paid for HAESA on June 27, 1996. A
copy of the Registrant's press release, dated June 27, 1996, describing the
Hercules Acquisition and the Credit Facility is included as Exhibit 99.1 to
this Current Report on Form 8-K, and is incorporated herein by this reference.
The Hercules Composites Business, with facilities in Utah, Alabama and
Spain, develops, manufactures and markets prepregs and carbon fiber for
aerospace and other markets. Hexcel intends generally to continue such uses
of the plant, equipment and other physical property included in the acquired
assets. However, Hexcel also expects to eliminate excess capacity and
consolidate redundant activities in connection with the integration of the
Hercules Composites Business and the business Hexcel acquired from Ciba-Geigy
Limited ("Ciba") earlier this year with Hexcel's other businesses.
The foregoing descriptions of the Hercules Acquisition and the Credit
Facility are qualified in their entirety by reference to (a) the Purchase
Agreement, which is Exhibit 2.1 to this Current Report on Form 8-K
(incorporated by reference to Exhibit 2.2 to Hexcel's Quarterly Report on
Form 10-Q for the quarterly period ended March 31, 1996), (b) Amendment
Number One to the Purchase Agreement, dated as of June 27, 1996, which is
included as Exhibit 2.2 to this Current Report on Form 8-K, (c) Letter
Agreement, dated as of June 27, 1996, among the Registrant and the Sellers,
which is included as Exhibit 2.3 to this Current Report on Form 8-K, and (d)
the Credit Agreement, dated as of June 27, 1996, among the Registrant,
certain of its subsidiaries, the institutions from time to time party thereto
as Lenders, the institutions from time to time party thereto as Issuing Banks
and Credit Suisse, as administrative agent for the Lenders, which is included
as Exhibit 99.2 to this Current Report on Form 8-K.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
INDEX TO FINANCIAL STATEMENTS Page No.
OF THE HERCULES COMPOSITES BUSINESS --------
Report of Independent Accountants 4
Statement of Operations - For the years ended
December 31, 1995, 1994 and 1993 5
Balance Sheet - December 31, 1995 and 1994 6
Statement of Cash Flows - For the years ended
December 31, 1995, 1994 and 1993 7
Statement of Changes in Division Equity - For the years
ended December 31, 1995, 1994 and 1993 8
Notes to Financial Statements - December 31, 1995, 1994
and 1993 9
Statement of Operations (unaudited) - For the three months
ended March 31, 1996 15
Balance Sheet (unaudited) - March 31, 1996 16
Statement of Cash Flows (unaudited) - For the three months
ended March 31, 1996 17
Statement of Changes in Division Equity (unaudited) - For
the three months ended March 31, 1996 18
Notes to Unaudited Financial Statements (unaudited) 19
3
<PAGE>
[Coopers & Lybrand Letterhead]
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and the Board of Directors of
Hercules Incorporated:
We have audited the accompanying balance sheets of the Composite Products
Division of Hercules Incorporated as of December 31, 1995 and 1994 and the
related statements of operations, division equity, and cash flow for each of
the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe our audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Composite Products
Division of Hercules Incorporated as of December 31, 1995 and 1994 and the
results of its operations and its cash flow for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Notes 6 and 9 to the financial statements, in 1993, the
Company changed its methods of accounting for postretirement and
postemployment benefits other than pensions.
/s/ Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania 19103
February 26, 1996
4
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Net sales.................................................................. $ 100,449 $ 100,113 $ 101,448
Cost of sales.............................................................. 83,748 94,786 92,298
----------- ----------- -----------
Gross profit............................................................... 16,701 5,327 9,150
Selling, general, and administrative expenses.............................. 2,266 2,888 3,229
Allocated selling, general, and administrative expenses.................... 7,086 6,047 6,336
Research and development................................................... 2,184 2,481 2,815
Other operating (income) expenses, net..................................... (391) 1,670 1,755
----------- ----------- -----------
Income (loss) before taxes and effect of changes in accounting
principles................................................................ 5,556 (7,759) (4,985)
Provision for taxes on income.............................................. -- -- --
----------- ----------- -----------
Income (loss) before effect of changes in accounting principles............ 5,556 (7,759) (4,985)
Effect of changes in accounting principles................................. -- -- (3,916)
----------- ----------- -----------
Net income (loss).......................................................... $ 5,556 $ (7,759) $ (8,901)
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------
1995 1994
----------- -----------
<S> <C> <C>
Current Assets
Cash................................................................................. $ 2,126 $ 4,905
Trade accounts receivable............................................................ 17,510 14,923
Less allowance for doubtful accounts................................................. (401) (390)
----------- -----------
Net Accounts Receivable............................................................ 17,109 14,533
Inventories
Finished products.................................................................. 11,813 13,740
Materials, supplies, and work in process........................................... 13,485 27,225
----------- -----------
Total Inventories................................................................ 25,298 40,965
----------- -----------
Total Current Assets................................................................. 44,533 60,403
Property, plant, and equipment
Land............................................................................... 1,514 1,514
Buildings and equipment............................................................ 187,185 182,494
Construction in progress........................................................... 6,772 2,231
Accumulated depreciation........................................................... (100,456) (89,459)
----------- -----------
Net Property, Plant and Equipment.................................................. 95,015 96,780
Deferred charges and other assets.................................................... 1,036 1,135
----------- -----------
TOTAL ASSETS..................................................................... $ 140,584 $ 158,318
----------- -----------
----------- -----------
<CAPTION>
LIABILITIES AND DIVISION EQUITY
<S> <C> <C>
Current liabilities
Accounts payable..................................................................... $ 2,379 $ 2,915
Accrued expenses
Payroll and employee benefits...................................................... 5,996 5,177
Other.............................................................................. 3,132 4,631
----------- -----------
Total Current Liabilities........................................................ 11,507 12,723
Other liabilities.................................................................... 1,048 1,276
Minority interest.................................................................... -- 12,000
Division Equity...................................................................... 128,029 132,319
----------- -----------
TOTAL LIABILITIES AND DIVISION EQUITY............................................ $ 140,584 $ 158,318
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
STATEMENT OF CASH FLOW
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
---------------------------------
1995 1994 1993
---------- --------- ----------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss)............................................................ $ 5,556 $ (7,759) $ (8,901)
Adjustments to reconcile net income(loss) to cash provided from operations:
Depreciation and amortization.............................................. 9,395 9,452 9,522
Gain on settlement......................................................... (1,100) -- --
Loss on disposal of property, plant, and equipment......................... 65 43 (34)
Provision for inventory loss............................................... 1,300 1,561 2,642
Accruals and deferrals of cash receipts and payments:
Accounts receivable, net................................................... (2,576) (2,862) (1,594)
Inventories................................................................ 12,029 11,020 8,281
Accounts payable and accrued expenses...................................... (1,216) 156 3,622
Deferred charges and other assets.......................................... 99 (77) 113
Other liabilities.......................................................... (228) (33) 103
---------- --------- ----------
Net cash provided by operations............................................ 23,324 11,501 13,754
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures....................................................... (8,543) (1,871) (1,740)
---------- --------- ----------
Net cash used for investing activities..................................... (8,543) (1,871) (1,740)
CASH FLOW FROM FINANCING ACTIVITIES
Net Parent company capital withdrawals..................................... (17,560) (7,351) (9,540)
---------- --------- ----------
Net cash used for financing activities..................................... (17,560) (7,351) (9,540)
Increase (Decrease) in Cash................................................ (2,779) 2,279 2,474
Cash, beginning of year.................................................... 4,905 2,626 152
---------- --------- ----------
Cash, end of year.......................................................... $ 2,126 $ 4,905 $ 2,626
---------- --------- ----------
---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
STATEMENT OF CHANGES IN DIVISION EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<S> <C>
BALANCE AT JANUARY 1, 1993........................................................ $ 163,220
Net loss.......................................................................... (8,901)
Net Capital withdrawal............................................................ (11,766)
---------
BALANCE AT DECEMBER 31, 1993...................................................... $ 142,553
Net loss.......................................................................... (7,759)
Net Capital withdrawal............................................................ (2,475)
---------
BALANCE AT DECEMBER 31, 1994...................................................... $ 132,319
Net income........................................................................ 5,556
Net Capital withdrawal............................................................ (9,846)
---------
BALANCE AT DECEMBER 31, 1995...................................................... $ 128,029
---------
---------
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The Composite Products Division (CPD) is a division of Hercules Incorporated
(the Parent). CPD serves worldwide markets for carbon fiber materials (fiber and
prepregs). These materials are used to make structural products. The division
has three major operating units which include Bacchus (Magna, UT), HISPAN
(Decatur, AL) and HAESA (Madrid, Spain). Currently, the division's geographic
scope is primarily North America, where its largest facilities are located. CPD
serves a diverse customer base which operate in several market segments. CPD
sales to the U.S. Government represented approximately 22%, 41%, and 49% of
total net sales during 1995, 1994, and 1993, respectively. CPD sales to
Construcciones Aeronauticas S.A. (Government of Spain) represented approximately
14%, 12%, and 9% of total net sales during 1995, 1994, and 1993 respectively.
CPD performs ongoing evaluations of its customers but generally does not require
collateral to support customer receivables.
The financial statements reflect the results of operations and financial
position of CPD, including certain allocations by the parent company. All
material intercompany transactions and balances have been eliminated.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
ENVIRONMENTAL EXPENDITURES
Environmental expenditures that pertain to current operations or relate to
future revenues are expensed or capitalized consistent with the Parent's
capitalization policy. Expenditures that result from the remediation of an
existing condition caused by past operations, that do not contribute to current
or future revenues, are expensed. Liabilities are recognized for remedial
activities when the cleanup is probable and the cost can be reasonably
estimated.
INVENTORIES
Inventories are stated at the lower of cost or market. Domestic inventories
are valued predominantly on the last-in, first-out (LIFO) method. Spare parts,
supplies and foreign inventories, representing approximately $6,130, and $6,270
in 1995 and 1994, respectively, are valued on the average cost method.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. HISPAN and HAESA use the
straight-line method, while Bacchus uses an accelerated depreciation method.
Effective January 1, 1993, CPD changed its estimate of the useful lives for all
processing equipment. CPD believes these new depreciation lives provide for a
better matching of costs and revenues over the life of the assets. For income
tax purposes, accelerated depreciation methods are used.
Maintenance, repairs, and minor renewals are charged to income; major
renewals and betterments are capitalized. Upon normal retirement or replacement,
the cost of property (less proceeds of sale or salvage) is charged to income.
9
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
1. SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
INCOME TAXES
CPD is not a separate tax paying entity. Accordingly, its results of
operations have been included in tax returns filed by Hercules. The accompanying
financial statements include tax computations assuming CPD filed separate
returns and reflecting the application of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" for all periods presented.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities of HASEA are translated at current exchange rates,
and related revenues and expenses are translated at average exchange rates in
effect during the period. Resulting translation adjustments are recorded as a
component of division equity.
2. SUPPLEMENTAL CASH FLOW INFORMATION:
During 1995, CPD was involved in the following non-cash activities with the
Parent:
- $7,538 of assets relating to claims were withdrawn by the Parent
- $2,000 of fixed assets were contributed by the Parent and
- $10,900 of equity was contributed by the Parent pursuant to the Parent's
buy out of the minority interest
During 1994, $4,437 of equity was contributed by the Parent through a
dividend payment to the minority shareholder.
3. INVENTORIES:
If the cost of all inventories had been valued on the average cost method,
which approximates current cost, inventories would have been $460 and $691
higher than as reported on the LIFO method at December 31, 1995, and 1994,
respectively.
During 1995 and 1994, inventory quantities were reduced, which resulted in a
liquidation of LIFO inventory layers carried at higher costs which prevailed in
prior years. The effect of the liquidations was to increase cost of goods sold
and decrease net income (increase net loss) by approximately $6,880 and $2,570
in 1995 and 1994, respectively.
4. PENSIONS:
CPD participates in various Hercules-defined benefit pension plans covering
substantially all employees. Benefits are based on average final pay and years
of service. CPD's allocation of amounts credited directly to Allocated Selling,
General and Administrative expense, based on the relationship of CPD's total
payroll to Hercules' payroll, was $1,034, $215, and $260 in 1995, 1994 and 1993,
respectively. Information on the actuarial present value of benefit obligation,
fair value of plan assets, and pension costs is not provided as such information
is not maintained separately for employees of CPD.
5. EMPLOYEE BENEFIT PLAN:
An operating unit of CPD has a noncontributory defined contribution pension
plan covering substantially all employees. This operating unit contributes
amounts equal to 6% of covered employee compensation up to the Social Security
Wage Base and amounts equal to 5% in excess of the Social Security Wage Base.
Pension expense for the years ended December 31, 1995, 1994, and 1993 was $133,
$130 and $150, respectively.
10
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
6. OTHER POSTRETIREMENT BENEFITS:
CPD participates in certain defined benefit postretirement health care and
life insurance programs provided to retired Hercules employees. Substantially
all employees are covered and become eligible for these benefits upon satisfying
the appropriate age and service requirements necessary for receipt of these
benefits.
Effective January 1, 1993, Hercules adopted Statement of Financial
Accounting Standards (SFAS) No. 106 "Employers' Accounting for Postretirement
Benefits Other than Pensions." SFAS No. 106 requires the recognition of these
benefit costs on an accrual basis. Prior to January 1, 1993, the costs of
retiree health care and life insurance were expensed as paid. The effect of
adopting this accounting standard has been recognized immediately as the effect
of a change in accounting principle and has resulted in a charge of $3,122. (No
tax benefit was realized). This represents the accumulated postretirement
benefit obligation existing at January 1, 1993. CPD's allocated portion of the
net periodic postretirement cost was $456, $556 and $746 in 1995, 1994, and
1993, respectively. The accumulated postretirement benefit expense and the
annual postretirement benefit expense were allocated based on the relationship
between CPD's number of active employees to Hercules' number of active
employees. The liability for such costs has not been reflected in these
financial statements.
7. PURCHASE OF MINORITY INTEREST:
As disclosed in Note 2, the Parent bought out the minority interest holder
in HISPAN for $10,900 in 1995. In addition, included in other (income) expense
in 1995 is a $1,100 gain related to the settlement of CPD's claim against the
minority holder.
8. CLAIMS:
During 1995, $6,840 of assets relating to a claim due to a termination for
convenience by the U.S. Government were withdrawn from CPD by the Parent, who is
entitled to the cash receipt of the claim value. The estimated profit relating
to these claims of $1,500 is included in CPD sales in 1995. In addition, $698 of
assets relating to a damaged inventory claim were withdrawn from CPD by the
Parent.
9. POSTEMPLOYMENT BENEFITS:
CPD participates in certain disability and workers' compensation benefits,
including medical benefits, provided to former or inactive Hercules employees.
Substantially all employees are covered and become eligible for these benefits
upon satisfying the appropriate age and service requirements necessary for
receipt of these benefits.
Effective January 1, 1993, Hercules adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement requires recognition of
these benefit costs on an accrual basis. Prior to January 1, 1993, disability
benefits and workers' compensation benefits were expensed as claims were
reported. The effect of adopting SFAS No. 112 has been recognized immediately as
the effect of a change in accounting principle and has resulted in a charge of
$794. (No tax benefit was realized). The income statement impact of this
accumulated postemployment benefit expense was allocated based on the
relationship between CPD's total number of employees and Hercules' total number
of employees. The periodic postemployment benefit costs, which are included in
the corporate cost allocation, are impracticable to determine. The liability for
such costs has not been reflected in these financial statements.
11
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
10. RELATED PARTY TRANSACTIONS:
The financial statements include allocations by Hercules for certain
corporate administrative and benefit costs incurred for the benefit of all
operating divisions. These costs are allocated to operating divisions on a
variety of methodologies as follows:
a. Specific identification -- based on estimates of time and services
provided.
b. Relative identification -- based on relevant criteria that establishes
the division's relationship to the entire pool of beneficiaries.
c. Formula driven -- nonidentifiable to division but incurred for the
benefit of all.
Corporate costs include executive, legal, accounting, tax, auditing, cash
management, purchasing, safety, human resources, health and environmental,
international, and employee benefits.
Allocated costs included in selling, general, and administrative costs were
$7,086, $6,047, and $6,336 during 1995, 1994, and 1993, respectively. These
allocations, while reasonable under the circumstances, may not represent the
cost of similar activities on a separate entity basis.
11. CASH AND CAPITAL REQUIREMENTS:
Certain operating units of CPD participated in Hercules' centralized cash
management system. Accordingly, cash received from CPD operations was
administered centrally while Hercules financed operational and working capital
requirements as well as capital expenditures. These operating units had no
external sources of financing, such as available lines of credit, as may be
necessary to operate as a separate entity. The statement of cash flow is
prepared as though the cash received and disbursed on behalf of these CPD
operating units by Hercules was transacted through CPD. The cash balance
represents amounts directly held by two operating units of CPD.
12. CAPITALIZED INTEREST:
As a result of cash management and funding practices within Hercules, CPD
records capitalized interest on construction projects. These amounts are based
on Hercules' weighted average interest rate on borrowings outstanding during the
construction periods. The amortization of capitalized interest, included in
other operating income and expense for 1995, 1994, and 1993, was $650, $650, and
$650 while the unamortized balance included as a cost of facilities at December
31, 1995 and 1994 was $4,551 and $5,201, respectively.
13. TAXES ON INCOME:
The domestic and foreign components of income (loss) before taxes on income
are presented below.
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Domestic............................................................... $ 4,604 $ (7,023) $ (4,401)
Foreign................................................................ 952 (736) (584)
--------- --------- ---------
$ 5,556 $ (7,759) $ (4,985)
--------- --------- ---------
--------- --------- ---------
</TABLE>
12
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
13. TAXES ON INCOME: (CONTINUED)
Deferred tax liabilities (assets) at December 31, 1995 and 1994 consist of:
<TABLE>
<CAPTION>
1995 1994
--------- ---------
<S> <C> <C>
Depreciation..................................................................... $ 20,689 $ 21,415
--------- ---------
--------- ---------
Gross deferred tax liabilities................................................... 20,689 21,415
Net Operating Losses............................................................. (21,440) (22,598)
Accrued expenses................................................................. (24) (24)
Inventory........................................................................ (3,302) (4,792)
Accounts receivable.............................................................. (153) (149)
Deferred Assets.................................................................. 0 (176)
--------- ---------
Gross deferred tax assets........................................................ (24,919) (27,739)
Valuation allowance.............................................................. 4,230 6,324
--------- ---------
Net deferred tax liability....................................................... $ 0 $ 0
--------- ---------
--------- ---------
</TABLE>
A reconciliation of income taxes at the U.S. statutory rate with the income
taxes recorded follows:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Computed at statutory income tax rate.................................. $ 1,941 $ (2,716) $ (1,745)
State taxes, net of federal benefit.................................... 150 (228) (142)
Valuation Allowance.................................................... (2,094) 2,942 1,886
Other.................................................................. 3 2 1
--------- --------- ---------
Provision for income taxes............................................. $ 0 $ 0 $ 0
--------- --------- ---------
--------- --------- ---------
</TABLE>
14. COMMITMENTS AND CONTINGENCIES:
OPERATING LEASES
CPD leases buildings, vehicles, and equipment under various operating leases
with third parties.
Rent expense under operating leases for the years ended December 31, 1995,
1994, and 1993 was $603, $547, and $540, respectively.
SUPPLIER AGREEMENT
CPD entered into an agreement with a customer to supply carbon fiber at a
fixed price. The price is adjusted annually based on inflation and the agreement
expires on March 15, 2000.
13
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
15. OPERATIONS BY GEOGRAPHIC AREA:
The following table represents operating results and other financial data by
geographic area:
<TABLE>
<CAPTION>
UNITED
STATES OTHER TOTAL
------------ --------- -----------
<S> <C> <C> <C>
1995
Net sales........................................................ $ 81,447 $ 19,002 $ 100,449
Profit from operations........................................... 3,587 1,969 5,556
Identifiable assets.............................................. 118,219 19,203 137,422
1994
Net sales........................................................ 84,161 15,952 100,113
Loss from operations............................................. (9,456) 1,697 (7,759)
Identifiable assets.............................................. 133,744 18,534 152,278
1993
Net sales........................................................ 88,894 12,554 101,448
Loss from operations............................................. (5,891) 906 (4,985)
Identifiable assets.............................................. 150,302 16,701 167,003
</TABLE>
The company's foreign operations are primarily in Spain. Identifiable assets
include net trade accounts receivable, inventories, and net property, plant and
equipment.
16. PENDING SALE:
On December 20, 1995, a letter of intent was signed by the company's Parent
with a third party for the pending sale of substantially all the assets and
liabilities of the company.
14
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
MARCH 31, 1996
---------------------
<S> <C>
Net sales.................................................................................. $ 22,342
Cost of sales.............................................................................. 17,303
--------
Gross profit............................................................................... 5,039
Selling, general, and administrative expenses.............................................. 296
Allocated selling, general, and administrative expenses.................................... 1,611
Research and development................................................................... 518
Other operating (income) expenses, net..................................................... 220
--------
Income (loss) before taxes................................................................. 2,394
Provision for taxes on income.............................................................. --
--------
Net income (loss).......................................................................... $ 2,394
--------
--------
</TABLE>
The accompanying notes are an integral part of the Financial Statements
15
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
MARCH 31, 1996
--------------
<S> <C>
ASSETS
Current Assets....................................................................................
Cash.............................................................................................. $ 603
Trade accounts receivable......................................................................... 16,451
Less allowance for doubtful accounts.............................................................. (390)
--------------
Net Accounts Receivable......................................................................... 16,061
Inventories
Finished products............................................................................... 13,824
Materials, supplies, and work in process........................................................ 14,790
--------------
Total Inventories............................................................................. 28,614
--------------
Total Current Assets.............................................................................. 45,278
Property, plant, and equipment
Land............................................................................................ 1,514
Buildings and equipment......................................................................... 188,120
Construction in progress........................................................................ 6,194
Accumulated depreciation........................................................................ (102,767)
--------------
Net Property, Plant and Equipment............................................................... 93,061
Deferred charges and other assets................................................................. 1,027
--------------
TOTAL ASSETS.................................................................................. $ 139,366
--------------
--------------
LIABILITIES AND DIVISION EQUITY
Current liabilities...............................................................................
Accounts payable.................................................................................. $ 3,979
Accrued expenses
Payroll and employee benefits................................................................... 3,581
Other........................................................................................... 2,688
--------------
Total Current Liabilities..................................................................... 10,248
Other liabilities................................................................................. 1,113
Division Equity................................................................................... 128,005
--------------
TOTAL LIABILITIES AND DIVISION EQUITY......................................................... $ 139,366
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the Financial Statements
16
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
STATEMENT OF CASH FLOW
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
THREE MONTHS ENDED
MARCH 31, 1996
-------------------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES
Net income (loss)............................................................................ $ 2,394
Adjustments to reconcile net income(loss) to cash provided from operations:
Depreciation and amortization.............................................................. 2,495
Accruals and deferrals of cash receipts and payments:
Accounts receivable, net................................................................... 1,048
Inventories................................................................................ (3,316)
Accounts payable and accrued expenses...................................................... (1,259)
Deferred charges and other assets.......................................................... 9
Other liabilities.......................................................................... 65
-------
Net cash provided by operations............................................................ 1,436
CASH FLOW FROM INVESTING ACTIVITIES
Capital expenditures....................................................................... (782)
-------
Net cash used for investing activities..................................................... (782)
CASH FLOW FROM FINANCING ACTIVITIES
Net Parent company capital withdrawals..................................................... (2,177)
-------
Net cash used for financing activities..................................................... (2,177)
Increase (Decrease) in Cash................................................................ $ 1,523
Cash, beginning of year.................................................................... 2,126
-------
Cash, end of year.......................................................................... $ 603
-------
-------
</TABLE>
The accompanying notes are an integral part of the Financial Statements
17
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
STATEMENT OF CHANGES IN DIVISION EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
UNAUDITED
----------
<S> <C>
BALANCE AT JANUARY 1, 1996............................................................................ $ 128,029
Net Income............................................................................................ 2,394
Net Capital withdrawal................................................................................ (2,418)
----------
BALANCE AT MARCH 31, 1996............................................................................. $ 128,005
----------
----------
</TABLE>
The accompanying notes are an integral part of the Financial Statements
18
<PAGE>
COMPOSITE PRODUCTS DIVISION
HERCULES INCORPORATED
NOTES TO UNAUDITED FINANCIAL STATEMENTS
1. THE COMPOSITE PRODUCTS DIVISION (CPD) IS A DIVISION OF HERCULES INCORPORATED
(THE PARENT).
The accompanying statements are unaudited and have been prepared by CPD. The
financial statements reflect the results of operations and financial position of
CPD, including certain allocations by the parent company. All material
intercompany transactions have been eliminated. In the opinion of management
such financial statements contain all adjustments, consisting of only normal
recurring adjustments, necessary to present fairly the financial position,
results of operations and cash flows for the interim periods presented. The
aforementioned financial statements have been prepared substantially in
conformity with the accounting principles reflected in the CPD financial
statements for the year ended December 31, 1995.
19
<PAGE>
(b) PRO FORMA FINANCIAL INFORMATION.
The following unaudited pro forma combined balance sheet for the
quarter ended March 31, 1996 was prepared to illustrate the effects of (i)
the Hercules Acquisition, (ii) the acquisition of Danutec Werkstoff AG
("Danutec"), a subsidiary of Ciba by Hexcel on May 30, 1996 (the
"Danutec Closing") as part of Hexcel's acquisition (the "Ciba
Acquisition") of the composites business of Ciba (the "Ciba Composites
Business"), (iii) the initial borrowings under the Credit Facility, and
(iv) Hexcel's anticipated offering (the "Offering") of $100 million of
convertible subordinated notes (the "Notes"), pursuant to a Registration
Statement on Form S-3 (Registration No. 333-05821), as amended by
Amendment No. 1 to the Registration Statement and as such Registration
Statement may subsequently be amended, and the use of net proceeds
therefrom to repay borrowings under the Credit Facility (collectively,
the "Pro Forma Transactions"), as if the Pro Forma Transactions had
occurred on March 31, 1996. The following unaudited pro forma combined
statements of operations for the quarter ended March 31, 1996 and the year
ended December 31, 1995 were prepared to illustrate the estimated effects
of the Pro Forma Transactions as if they had occurred at the beginning of
the periods presented.
The unaudited pro forma financial information presented below is
derived from the audited financial statements of the Company, the Ciba
Composites Business and the Hercules Composites Business as of and for the
year ended December 31, 1995 and the unaudited financial statements of the
Company, the Ciba Composites Business, Danutec and the Hercules
Composites Business as of and for the quarter ended March 31, 1996. The
Ciba Acquisition (including Danutec) and the Hercules Acquisition are
accounted for using the purchase method of accounting. Accordingly, the
total purchase price for each such acquisition has been allocated to the
assets acquired and the liabilities assumed based upon their estimated
relative fair market values, subject to revision when additional
information concerning asset and liability valuations is obtained.
The unaudited pro forma financial information is not necessarily
indicative of the results of operations or financial condition that would
have been reported had the events assumed therein occurred on the dates
indicated, nor is it necessarily indicative of results of operations or
financial position that may be achieved in the future.
On May 9, 1996, Hexcel announced that its Board of Directors had
approved a plan for consolidating the Company's operations following the
Ciba Acquisition. Management currently estimates that the business
consolidation program will result in an increase in "excess of purchase
price over net assets acquired" by approximately $11 million. The
following unaudited pro forma financial information does not give effect to
any of the charges or expenses expected to be incurred in the future in
connection with the business consolidation program or to the operating,
financial and other benefits that may be realized from the business
consolidation program.
20
<PAGE>
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF MARCH 31, 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
OFFERING, THE
PRO FORMA FOR THE DANUTEC CREDIT
HISTORICAL CLOSING HISTORICAL FACILITY AND
--------------------- ------------------------- HERCULES THE HERCULES
DANUTEC ADJUSTMENTS COMPOSITES ACQUISITION PRO FORMA
HEXCEL (NOTE 1) (NOTE 2) COMBINED BUSINESS (NOTE 3) COMBINED
---------- --------- ------------- ---------- ----------- -------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents......... $ 4,675 $ 3,426 $ (196)(d) $ 7,905 $ 603 $ (603)(g) $ 7,905
Accounts receivable, net..... 132,076 6,504 -- 138,580 16,061 (613)(h) 154,028
Inventories.................. 111,123 6,225 300(a) 117,648 28,614 1,425(i) 147,687
Prepaid expenses and other
assets...................... 1,656 51 -- 1,707 -- -- 1,707
---------- --------- ------------- ---------- ----------- -------------- ----------
Total current assets....... 249,530 16,206 104 265,840 45,278 209 311,327
---------- --------- ------------- ---------- ----------- -------------- ----------
Net property, plant and
equipment..................... 192,229 12,919 (314)(b) 204,834 93,061 7,173(j) 305,068
Excess of purchase price over
net assets acquired........... 29,230 -- 270 29,500 -- -- 29,500
Investments and other assets... 14,736 1,071 (4,533)(c) 11,274 1,027 4,100(m) 16,401
---------- --------- ------------- ---------- ----------- -------------- ----------
Total assets............... $ 485,725 $ 30,196 $ (4,473) $ 511,448 $ 139,366 $ 11,482 $ 662,296
---------- --------- ------------- ---------- ----------- -------------- ----------
---------- --------- ------------- ---------- ----------- -------------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current
maturities of long-term
liabilities................. $ 6,809 $ 1,689 $ 3,230(d) $ 11,728 $ -- $ -- $ 11,728
Accounts payable............. 50,385 3,473 -- 53,858 3,979 (613)(h) 57,224
Accrued liabilities.......... 54,737 5,848 -- 60,585 6,269 -- 66,854
---------- --------- ------------- ---------- ----------- -------------- ----------
Total current liabilities.. 111,931 11,010 3,230 126,171 10,248 (613) 135,806
---------- --------- ------------- ---------- ----------- -------------- ----------
Credit facility................ 69,836 -- -- 69,836 -- 41,900(l) 111,736
% Convertible Subordinated
Notes Due 2003................ -- -- -- -- -- 100,000(l) 100,000
Other long-term debt, less
current maturities............ 68,445 4,628 4,781(e) 77,854 -- -- 77,854
Deferred liabilities........... 40,097 2,074 -- 42,171 1,113 -- 43,284
---------- --------- ------------- ---------- ----------- -------------- ----------
Shareholders' equity:
Common stock & paid-in
capital..................... 257,563 12,484 (12,484)(f) 257,563 -- -- 257,563
Accumulated deficit.......... (68,133) -- -- (68,133) -- (1,800)(m) (69,933)
Minimum pension obligation
adjustment.................. (535) -- -- (535) -- -- (535)
Cumulative currency
translation adjustment...... 6,521 -- -- 6,521 -- -- 6,521
Invested capital............. -- -- -- -- 128,005 (128,005)(k) --
---------- --------- ------------- ---------- ----------- -------------- ----------
Total shareholders'
equity.................... 195,416 12,484 (12,484) 195,416 128,005 (129,805) 193,616
---------- --------- ------------- ---------- ----------- -------------- ----------
Total liabilities and
shareholders' equity...... $ 485,725 $ 30,196 $ (4,473) $ 511,448 $ 139,366 $ 11,482 $ 662,296
---------- --------- ------------- ---------- ----------- -------------- ----------
---------- --------- ------------- ---------- ----------- -------------- ----------
</TABLE>
21
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET
NOTE 1 -- DANUTEC CLOSING
The historical unaudited condensed consolidated balance sheet of the Company
excludes Danutec as of March 31, 1996 because the Danutec Closing did not occur
until May 30, 1996.
NOTE 2 -- DANUTEC PRO FORMA ADJUSTMENTS
(a) Adjustment to record acquired inventories at estimated fair value.
(b) Adjustment to record acquired property, plant and equipment at estimated
fair value.
(c) As of March 31, 1996, the Company recorded as an investment an advance of
approximately $4.5 million towards the purchase price of Danutec. This
adjustment is to eliminate the advance.
(d) Adjustment to reflect the issuance of the senior demand notes payable to
Ciba in an amount equal to the cash and equivalents on hand at Danutec on
the date of the Danutec Closing.
(e) Adjustment to reflect the issuance of the Ciba Notes attributable to the
Danutec Closing, the amount of which is subject to post-closing adjustments.
(f) Adjustment to eliminate Danutec's equity.
NOTE 3 -- PRO FORMA ADJUSTMENTS
PURCHASE PRICE ALLOCATION
The total purchase price for the Hercules Composites Business is comprised
of the purchase price of $135 million plus an estimated $1.0 million for related
transaction costs, subject to post-closing adjustments. The purchase price for
the Hercules Acquisition was financed with borrowings under the Credit Facility.
The preliminary allocation of the total purchase price to the net assets of
the Hercules Composites Business is based upon the estimated fair values of the
net assets acquired, and is summarized as follows:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Accounts receivable (1).................................................................. $ 15,448
Inventories (2).......................................................................... 30,039
Net property, plant and equipment (3).................................................... 100,234
Investments and other assets (1)......................................................... 1,027
Accounts payable (4)..................................................................... (3,366)
Accrued liabilities (4).................................................................. (6,269)
Deferred liabilities (4)................................................................. (1,113)
-------------
Total purchase price................................................................... $ 136,000
-------------
-------------
</TABLE>
(1) The fair value of accounts receivable, investments and other assets is
estimated to equal respective net book value.
(2) The fair value of inventory is estimated to equal aggregate current sales
value less estimated selling costs.
(3) The Company's current estimate is that the fair value of the property, plant
and equipment is greater than the net book value. Accordingly, the excess of
purchase price over all other net assets (estimated at $7.2 million) has
been allocated to property, plant and equipment. The Company's estimate is
subject to modification based on further analysis.
(4) The fair value of the current and long-term liabilities is estimated to
equal net book value.
22
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
NOTE 3 -- PRO FORMA ADJUSTMENTS (CONTINUED)
HERCULES COMPOSITES BUSINESS PRO FORMA ADJUSTMENTS
(g) Adjustment to eliminate cash and equivalents held by the Hercules Composites
Business, which were not acquired in the Hercules Acquisition.
(h) Adjustment to eliminate the trade accounts receivable and payable balances
between the Hercules Composites Business and Hexcel.
(i) Adjustment to record acquired inventories of the Hercules Composites
Business at estimated fair value.
(j) Adjustment to record acquired property, plant and equipment at estimated
fair value.
(k) Adjustment to eliminate Hercules Composites Business' equity.
OFFERING AND CREDIT FACILITY PRO FORMA ADJUSTMENTS
(l) Adjustment to reflect the following:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Credit Facility Borrowings:
Purchase price for Hercules Composites Business........................................ $ 135,000
Hercules Acquisition transaction costs................................................. 1,000
Credit Facility issuance costs......................................................... 2,500
Notes issuance costs................................................................... 3,400
Less: Gross proceeds from issuance of the Notes........................................ (100,000)
-------------
$ 41,900
-------------
-------------
Issuance of the Notes.................................................................... $ 100,000
-------------
-------------
</TABLE>
(m) Adjustment to reflect the capitalization and write-off of issuance costs:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Notes issuance costs................................................................... $ 3,400
Credit Facility issuance costs......................................................... 2,500
Less: Write-off of capitalized debt issuance costs
related to the old credit facility................................................ (1,800)
-------------
$ 4,100
-------------
-------------
</TABLE>
23
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE QUARTER ENDED MARCH 31, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL OFFERING, THE
(NOTE 1) PRO FORMA FOR THE CIBA CREDIT
----------------------- ACQUISITION HISTORICAL FACILITY AND
CIBA -------------------------- HERCULES THE HERCULES
COMPOSITES ADJUSTMENTS COMPOSITES ACQUISITION PRO FORMA
HEXCEL BUSINESS (NOTE 2) COMBINED BUSINESS (NOTE 2) COMBINED
---------- ----------- ------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 126,418 $ 51,668 $ (75)(a) $ 178,011 $ 22,342 $ (1,430)(i) $ 198,923
Cost of sales.............. (99,635) (42,587) 529(b) (141,693) (17,303) 802(j) (158,194)
---------- ----------- ------------- ----------- ----------- ------- -----------
Gross margin............... 26,783 9,081 454 36,318 5,039 (628) 40,729
Selling, general and
administrative expenses... (17,093) (7,735) -- (24,828) (2,425) 1,351(k) (25,902)
Amortization of intangible
assets.................... (389) (572) 441(c) (520) -- -- (520)
Business acquisition and
consolidation expenses.... (5,211) -- -- (5,211) -- -- (5,211)
Other income (expense),
net....................... 2,697 (1,404) 500(d) 1,793 (220) -- 1,573
---------- ----------- ------------- ----------- ----------- ------- -----------
Operating income (loss).... 6,787 (630) 1,395 7,552 2,394 723 10,669
Interest expense........... (3,633) (154) (228)(e) (4,015) -- (2,653)(l) (6,668)
Minority interest.......... -- (147) 147(f) -- -- -- --
---------- ----------- ------------- ----------- ----------- ------- -----------
Income (loss) from
continuing operations
before income taxes....... 3,154 (931) 1,314 3,537 2,394 (1,930) 4,001
Provision for income
taxes..................... (1,306) (473) -- (g) (1,779) -- -- (g) (1,779)
---------- ----------- ------------- ----------- ----------- ------- -----------
Net income (loss)........ $ 1,848 $ (1,404) $ 1,314 $ 1,758 $ 2,394 $ (1,930) $ 2,222
---------- ----------- ------------- ----------- ----------- ------- -----------
---------- ----------- ------------- ----------- ----------- ------- -----------
Net income per share and
equivalent share (Note
3)........................ $ 0.07 $ 0.05 $ 0.06
---------- ----------- -----------
---------- ----------- -----------
Weighted average shares and
equivalent shares......... 24,685 36,493 36,493
---------- ----------- -----------
---------- ----------- -----------
Ratio of earnings to fixed
charges (Note 4).......... 1.56x
EBITDA (A)................. $ 20,470
-----------
-----------
Adjusted EBITDA (A)........ $ 24,108
-----------
-----------
</TABLE>
- --------------------------
(A) "EBITDA" is defined as income from continuing operations before interest,
taxes and depreciation and amortization. "Adjusted EBITDA" is defined as
EBITDA plus business acquisition and consolidation expenses, other income
(expense) and bankruptcy reorganization expenses. Hexcel believes that
EBITDA and Adjusted EBITDA provide useful information regarding Hexcel's
ability to service its indebtedness, but it should not be considered in
isolation or as a substitute for operating income or cash flow from
operations (in each case as determined in accordance with generally
accepted accounting principles) as an indicator of Hexcel's operating
performance or as a measure of Hexcel's liquidity.
24
<PAGE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ADJUSTMENTS
FOR THE
HISTORICAL OFFERING, THE
(NOTE 1) PRO FORMA FOR THE CREDIT FACILITY
--------------------------- CIBA ACQUISITION HISTORICAL AND THE
CIBA ---------------------------- HERCULES HERCULES
COMPOSITES ADJUSTMENTS COMPOSITES ACQUISITION PRO FORMA
HEXCEL BUSINESS (NOTE 2) COMBINED BUSINESS (NOTE 2) COMBINED
------------ ------------- -------------- ------------ ------------ --------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.................. $ 350,238 $ 331,073 $ (3,207)(a) $ 678,104 $ 100,449 $ (7,228)(i) $ 771,325
Cost of sales.............. (283,148) (273,997) 5,502(b) (551,643) (83,748) 5,593(j) (629,798)
------------ ------------- -------------- ------------ ------------ --------------- -----------
Gross margin............... 67,090 57,076 2,295 126,461 16,701 (1,635) 141,527
Selling, general and
administrative expenses... (49,324) (57,966) -- (107,290) (11,536) 5,727(k) (113,099)
Amortization and write-
downs of intangible
assets.................... -- (6,930) 5,455(c) (1,475) -- -- (1,475)
Business acquisition and
consolidation expenses.... -- (2,362) -- (2,362) -- -- (2,362)
Other income (expense),
net....................... 791 (1,102) -- (311) 391 -- 80
------------ ------------- -------------- ------------ ------------ --------------- -----------
Operating income (loss).... 18,557 (11,284) 7,750 15,023 5,556 4,092 24,671
Interest expense........... (8,682) (668) (1,367) (e) (10,717) -- (10,503)(l) (21,220)
Bankruptcy reorganization
expenses.................. (3,361)(h) -- -- (3,361) -- -- (3,361)
Minority interest.......... -- (1,506) 1,506(f) -- -- -- --
------------ ------------- -------------- ------------ ------------ --------------- -----------
Income (loss) from
continuing operations
before income taxes....... 6,514 (13,458) 7,889 945 5,556 (6,411) 90
Provision for income
taxes..................... (3,313) (5,085) -- (g) (8,398) -- -- (g) (8,398)
------------ ------------- -------------- ------------ ------------ --------------- -----------
Income (loss) from
continuing
operations.......... 3,201 (18,543) 7,889 (7,453) 5,556 (6,411) (8,308)
Loss from discontinued
operations................ (468) -- -- (468) -- -- (468)
------------ ------------- -------------- ------------ ------------ --------------- -----------
Net income (loss).... $ 2,733 $ (18,543) $ 7,889 $ (7,921) $ 5,556 $ (6,411) $ (8,776)
------------ ------------- -------------- ------------ ------------ --------------- -----------
------------ ------------- -------------- ------------ ------------ --------------- -----------
Net income (loss) per
share and equivalent
share (Note 3):
Continuing
operations............ $ 0.20 $ (0.22 ) $ (0.25 )
Discontinued
operations............ (0.03 ) (0.01 ) (0.01 )
------------ ------------ -----------
Net income (loss)...... $ 0.17 $ (0.23 ) $ (0.26 )
------------ ------------ -----------
------------ ------------ -----------
Weighted average shares and
equivalent shares......... 15,742 33,764 33,764
------------ ------------ -----------
------------ ------------ -----------
Ratio of earnings to fixed
charges (Note 4).......... 1.00 x
EBITDA .................... $ 56,257
-----------
-----------
Adjusted EBITDA ........... $ 61,900
-----------
-----------
</TABLE>
25
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS
NOTE 1 -- PRESENTATION OF HISTORICAL AMOUNTS
The condensed consolidated financial statements of Hexcel for the quarter
ended March 31, 1996 include the results of operations of the acquired portion
of the Ciba Composites Business from March 1, 1996, to March 31, 1996, and
exclude Danutec for the period then ended. The condensed combined financial
statements of Ciba Composites Business for the quarter ended March 31, 1996
include the results of operations of Danutec for the quarter and the results of
operations of the acquired portion of the Ciba Composites Business from January
1, 1996 to February 29, 1996 (the date of the Ciba Acquisition), which include
sales to Ciba Composites international distribution operations as if such sales
were third-party sales. Such international distribution operations may be
transferred to the Company at the Company's option by February 28, 1997.
The condensed combined financial statements of the Ciba Composites Business
for the year ended December 31, 1995 include the results of operations of the
Ciba Composites Business, including Danutec.
NOTE 2 -- PRO FORMA ADJUSTMENTS
CIBA COMPOSITES BUSINESS PRO FORMA ADJUSTMENTS
<TABLE>
<CAPTION>
THE THE
YEAR QUARTER
ENDED ENDED
12/31/95 3/31/96
--------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
(a) Adjustment to eliminate net sales between the Ciba Composites Business and Hexcel....... $ (3,207) $ (75)
--------- -----------
--------- -----------
(b) Adjustment to reflect the following:
Elimination of cost of sales between the Ciba Composites Business and Hexcel............ $ 2,708 $ 63
Reduction in depreciation costs resulting from the restatement at fair value of the net
property, plant and equipment of the Ciba Composites Business.......................... 2,794 466
--------- -----------
Net adjustment.......................................................................... $ 5,502 $ 529
--------- -----------
--------- -----------
(c) Adjustment to reflect the following:
Reduction in amortization expense and write-downs of intangible assets resulting from
the elimination of the intangible assets of the Ciba Composites Business in connection
with the purchase price allocation..................................................... $ 6,930 $ 687
Amortization of the excess of purchase price over net assets acquired (20 year
amortization period)................................................................... (1,475) (246)
--------- -----------
Net adjustment.......................................................................... $ 5,455 $ 441
--------- -----------
--------- -----------
(d) Adjustment to eliminate acquisition related costs that were reimbursed by Ciba and not
part of the ongoing Ciba Composites Business........................................... $ 500
-----------
-----------
(e) Adjustment to reflect the following:
Elimination of interest expense on liabilities of the Ciba Composites Business which are
not assumed by Hexcel.................................................................. $ 1,032 $ 172
Net reduction in interest expense resulting from the refinancing of certain credit
facilities with the Old Credit Facility................................................ 992 165
Estimated interest expense on the Ciba Notes............................................ (3,391) (565)
--------- -----------
Net adjustment.......................................................................... $ (1,367) $ (228)
--------- -----------
--------- -----------
(f) Adjustment to eliminate the minority interest in the operating results of the Ciba Composites Business.
</TABLE>
26
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
STATEMENTS OF OPERATIONS (CONTINUED)
NOTE 2 -- PRO FORMA ADJUSTMENTS (CONTINUED)
(g) The income tax consequences of the cumulative pro forma adjustments
are estimated to be zero. This is due to the fact that the
Company has sufficient net operating loss carryforwards and other
deductions for income tax purposes to substantially eliminate any
tax liabilities arising from pro forma adjustments.
(h) On February 9, 1995, Hexcel emerged from bankruptcy reorganization
proceedings which had begun on December 6, 1993. In connection
with those proceedings, Hexcel incurred bankruptcy reorganization
expenses of approximately $3.4 million during the year ended
December 31, 1995. Although the resolution of certain
bankruptcy-related issues, including the final settlement of
disputed claims and professional fees, resulted in expenses being
incurred after February 9, 1995, Hexcel has not incurred any
significant bankruptcy-related expenses since October 1, 1995.
HERCULES COMPOSITES BUSINESS PRO FORMA ADJUSTMENTS
(i) Adjustment to eliminate net sales between the Hercules Composites
Business and Hexcel.
(j) Adjustment to reflect the following:
<TABLE>
<CAPTION>
THE THE
YEAR QUARTER
ENDED ENDED
12/31/95 3/31/96
--------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Change in accounting from LIFO to FIFO................................................ $ (231) $ (460)
Elimination of cost of sales between the Hercules Composites Business and Hexcel...... 6,283 1,411
Increase in depreciation costs resulting from the restatement at fair value of the net
property, plant and equipment of the Hercules Composites Business.................... (459) (149)
--------- ---------
Net adjustment........................................................................ $ 5,593 $ 802
--------- ---------
--------- ---------
(k) Adjustment to eliminate Hercules' allocations to the Hercules Composites Business that management believes
are not part of the ongoing business.
(l) Adjustment to reflect the following:
Interest expense on $41.9 million of borrowings under the Credit Facility at an
assumed rate of 6.0% per annum....................................................... $ (2,514) $ (629)
Interest expense on the Notes......................................................... (7,000) (1,750)
Amortization of debt issuance costs related to the Credit Facility.................... (833) (208)
Amortization of debt issuance costs related to the Notes.............................. (486) (122)
Elimination of amortization of prior debt issuance costs.............................. 330 56
--------- ---------
Net adjustment........................................................................ $ (10,503) $ (2,653)
--------- ---------
--------- ---------
</TABLE>
NOTE 3 -- PER SHARE AMOUNTS
Primary and fully diluted net income (loss) per share for all periods
presented were the same because the fully diluted computation was antidilutive.
If the Notes were converted, pro forma income (loss) from continuing operations
per share would be $0.09 for the quarter ended March 31, 1996 and ($0.03) for
the year ended December 31, 1995.
NOTE 4 -- RATIO OF EARNINGS TO FIXED CHARGES
If pro forma earnings for the quarter ended March 31, 1996 were adjusted to
exclude business consolidation and acquisition expenses, other income (expense)
and bankruptcy reorganization expenses, the ratio of earnings to fixed charges
for such period would be 2.07x. If pro forma earnings for the year ended
December 31, 1995 were adjusted to exclude these nonrecurring items, the ratio
of earnings to fixed charges for such period would be 1.25x.
27
<PAGE>
(c) EXHIBITS.
EXHIBIT NO. DESCRIPTION
---------------- -------------------------------------------------------
2.1 Sale and Purchase Agreement, dated as of April 15,
1996, among the Registrant and the Sellers
(incorporated by reference to Exhibit 2.2 to the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1996).
2.2 * Amendment Number One to the Sale and Purchase
Agreement, dated as of June 27, 1996, among the
Registrant and the Sellers.
2.3 * Letter Agreement, dated as of June 27, 1996, among the
Registrant and the Sellers.
99.1* Press Release dated June 27, 1996.
99.2* Credit Agreement, dated as of June 27, 1996, among the
Registrant, certain of its subsidiaries, the
institutions from time to time party thereto as
Lenders, the institutions from time to time party
thereto as Issuing Banks and Credit Suisse, as
administrative agent for the Lenders.
28
_____________
* Previously filed.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
Date: July 26, 1996
HEXCEL CORPORATION
(Registrant)
By:/s/ Wayne C. Pensky
----------------------
Wayne C. Pensky
Chief Accounting Officer
29
