SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
April 1, 1996 (February 29, 1996)
________________________________________________
Date of report (Date of earliest event reported)
Hexcel Corporation
______________________________________________________
(Exact Name of Registrant as Specified in Charter)
Delaware 1-8472 94-1109521
______________ _____________________ __________________
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
5794 West Las Positas Boulevard
Pleasanton, California 94588-8781
____________________________________________________________
(Address of Principal Executive Offices and Zip Code)
(510) 847-9500
____________________________________________________
(Registrant's telephone number, including area code)
N/A
_____________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
Paragraphs (a) and (b) of Item 7 of the Registrant's
Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 15, 1996 are hereby amended to read in their
entirety as set forth below. Accordingly, Item 7 of such Current
Report on Form 8-K, as amended, now reads in its entirety as
follows:
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
The following audited historical financial statements
of the Ciba Composites Business are provided in Annex A hereto:
Combined Balance Sheets -- December 31, 1995 and 1994
Combined Statements of Operations -- For the years
ended December 31, 1995, 1994 and 1993
Combined Statements of Owner's Equity -- For the years
ended December 31, 1995, 1994 and 1993
Combined Statements of Cash Flows -- For the years
ended December 31, 1995, 1994 and 1993
Notes to Combined Financial Statements, December 31,
1995, 1994 and 1993
(b) Pro Forma Financial Information.
The following unaudited pro forma financial information
is provided in Annex B hereto:
Unaudited Pro Forma Condensed Combined Balance Sheet --
December 31, 1995
Unaudited Pro Forma Condensed Combined Statement of
Operations -- For the year ended December 31, 1995
Notes to Unaudited Pro Forma Condensed Combined Financial
Statements
(c) Exhibits.
Exhibit No. Description
2.1 Strategic Alliance Agreement dated as of
September 29, 1995 among Ciba, CGC and Hexcel
(filed as Exhibit 10.1 to Hexcel's Current
Report on Form 8-K dated October 12, 1995 and
incorporated herein by reference).
2.1(a) Amendment dated as of December 12, 1995 to the
Strategic Alliance Agreement dated as of September
29, 1995 among Ciba, CGC and Hexcel.*
2.1(b) Letter Agreement dated as of February 28, 1996
among Ciba, CGC and Hexcel.*
2.1(c) Distribution Agreement dated as of February 29,
1996 among Hexcel, Brochier S.A., Composite
Materials Limited, Salver S.r.l. and Ciba.*
4.1 Indenture dated as of February 29, 1996
between Hexcel and First Trust of California,
National Association, as trustee.*
99.1 Credit Agreement dated as of February 29,
1996 among Hexcel and certain subsidiaries of
Hexcel, as borrowers, the lending
institutions and issuing banks party thereto,
Citibank, N.A., as administrative agent, and
Credit Suisse, as syndication agent.*
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 hereunto duly authorized.
Dated: April 1, 1996
HEXCEL CORPORATION
By: /s/ Wayne C. Pensky
Wayne C. Pensky
Chief Accounting Officer
ANNEX A
CIBA COMPOSITES
(a division of Ciba-Geigy Limited)
FINANCIAL STATEMENTS
For the years ended December 31, 1995, 1994 and 1993
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
Ciba-Geigy Limited
We have audited the accompanying combined balance sheets
of Ciba Composites (a division of Ciba-Geigy Limited) as
of December 31, 1995 and 1994, and the related combined
statements of operations, owner's equity, and cash flows
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.
__________________
* Previously filed with Hexcel's Current Report on Form 8-K
dated as of March 15, 1996.
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 that 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
combined financial position of Ciba Composites as of
December 31, 1995 and 1994, and the combined results of
its operations and its cash flows for each of the three
years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
As discussed in Note 10 to the combined financial
statements, in 1993, the U.S. Group Company changed its
methods of accounting for postretirement benefits other
than pensions and for postemployment benefits.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Stamford, Connecticut
February 29, 1996
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
Combined Balance Sheets
(in thousands of dollars)
December 31,
ASSETS: 1995 1994
Current assets:
Cash $ 8,412 $ 7,990
Accounts receivable, net of allowance
for doubtful accounts of $2,291 and
$3,378 in 1995 and 1994, respectively 58,799 53,024
Inventories 60,337 66,672
Prepaid expenses and other current assets 9,957 9,327
Total current assets 137,505 137,013
Property, plant and equipment, net 156,364 161,153
Intangibles, net 42,211 49,143
Other assets 4,214 5,111
Total assets $ 340,294 $ 352,420
LIABILITIES AND OWNER'S EQUITY:
Current liabilities:
Accounts payable $ 29,611 $ 29,249
Accrued liabilities 20,259 17,346
Accrued compensation 7,315 7,704
Short-term debt 720 2,730
Short-term debt due to affiliates 9,052 5,302
Current portion of long-term debt 256 487
Current portion of obligations under
capital leases 441 348
Total current liabilities 67,654 63,166
Long-term debt 1,305 1,775
Long-term debt due to affiliates 9,502 37,493
Long-term capital lease obligations 4,290 4,372
Other long-term liabilities 13,626 14,430
Total liabilities 96,377 121,236
Commitments and contingencies
Minority interest 6,968 5,048
Owner's equity:
Invested capital 236,949 226,136
Total liabilities and owner's equity $ 340,294 $ 352,420
The accompanying notes are an integral part of these
combined financial statements.
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
Combined Statements of Operations
(in thousands of dollars)
Years Ended December 31,
1995 1994 1993
Net sales $ 331,073 $ 292,611 $ 271,258
Cost of sales 273,997 249,717 244,247
Gross profit 57,076 42,894 27,011
Operating (income) expenses:
Selling, general and administrative
expenses 47,540 45,515 47,804
Research and development expense 10,426 7,902 5,909
Amortization and write-downs of
purchased intangibles 6,930 10,219 5,734
Restructuring expense 2,362 1,600 7,722
Gain on sale of facility - (2,700) -
Other, net 1,102 (279) 241
Total operating expenses 68,360 62,257 67,410
Operating loss 11,284 19,363 40,399
Other expense:
Interest expense 668 1,193 2,236
Minority interest 1,506 891 245
Loss before income taxes and
cumulative effect of
accounting changes 13,458 21,447 42,880
Provision (benefit) for income taxes 5,085 2,843 (962)
Loss before cumulative effect
of accounting changes 18,543 24,290 41,918
Cumulative effect of accounting changes - - 7,077
Net loss $ 18,543 $ 24,290 $ 48,995
The accompanying notes are an integral part of these
combined financial statements.
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
Combined Statement of Owner's Equity
Years ended December 31, 1995, 1994 and 1993
(in thousands of dollars)
Balance, December 31, 1992 $ 294,364
Capital distributions, net (1,547)
Translation adjustments (2,731)
Net loss (48,995)
Balance, December 31, 1993 241,091
Capital contributions, net 4,676
Translation adjustments 4,659
Net loss (24,290)
Balance, December 31, 1994 226,136
Capital contributions, net 26,927
Translation adjustments 2,429
Net loss (18,543)
Balance, December 31, 1995 $ 236,949
The accompanying notes are an integral part of these
combined financial statements.
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
Combined Statements of Cash Flows
(in thousands of dollars)
Years Ended December 31,
1995 1994 1993
Net loss $ (18,543) $ (24,290) $ (48,995)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Cumulative effect of accounting
changes - - 7,077
Depreciation 14,725 15,868 19,964
Amortization and write-downs of
purchased intangibles 6,930 10,219 5,734
Minority interest 1,506 891 245
Restructuring provisions and
write-downs of property, plant
and equipment 2,328 3,924 604
Gain on sale of facility - (2,700) -
Changes in assets and
liabilities, net of effects from
acquisition:
(Increase) decrease in trade
receivables (3,787) (6,009) 16,128
Decrease in inventories 8,223 1,272 10,025
Decrease in prepaid expenses
and other current assets 2,116 1,451 3,197
Decrease in other long-term
assets 714 3,739 3,585
Increase (decrease) in
accounts payable (832) 3,820 178
Increase in accrued
liabilities and accrued
compensation 1,340 4,248 1,061
Increase (decrease) in other
long-term liabilities 13 1,265 (3,450)
Net cash provided by
operating activities 14,733 13,698 15,353
Cash flows from investing
activities:
Proceeds from sale of property,
plant and equipment 417 8,518 576
Purchases of property, plant and
equipment (13,214) (7,685) (12,280)
Acquisition of business - (4,680) -
Other (3,049) (2,227) -
Net cash used in investing
activities (15,846) (6,074) (11,704)
Cash flows from financing
activities:
Proceeds from borrowings 7,800 56 4,288
Payments on borrowing (36,619) (10,415) (3,636)
Equity contributions
(distributions) 29,822 4,676 (1,547)
Net cash provided by (used
in) financing activities 1,003 (5,683) (895)
Effect of exchange rate changes on
cash 532 582 (263)
Net change in cash 422 2,523 2,491
Cash at beginning of period 7,990 5,467 2,976
Cash at end of period $ 8,412 $ 7,990 $ 5,467
Cash paid (received) during the year
for:
Income taxes $ 219 $ (69) $ 517
Interest 1,514 1,595 2,289
The accompanying notes are an integral part of these
combined financial statements.
CIBA COMPOSITES
(A DIVISION OF CIBA-GEIGY LIMITED)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS OF DOLLARS)
1. BASIS OF PRESENTATION
The accompanying financial statements include the
combined worldwide accounts of the Ciba Composites
Division (the "Division") of Ciba-Geigy Limited (the
"Parent" or "Owner"), a publicly-traded company
based in Switzerland. The financial statements
include the accounts of (1) corporate entities
wholly or majority-owned indirectly by the Parent
(principally in the United Kingdom, France, Austria
and Italy) and (2) divisional accounts which have
historically operated as business units of wholly-
owned, multi-product line subsidiaries of the
Parent, (the "Group Companies"), principally in the
United States, South Africa and Germany. The United
Kingdom operation became a corporate entity wholly-
owned by the Parent effective July 1995. The
minority interest represents a third party's 49.0%
ownership of the Austrian corporate entity.
The Division's primary business is manufacturing,
marketing, and distributing composite materials,
including prepregs, fabrics, adhesives, honeycomb
core and fabricated structural interiors, panels,
and parts for the commercial aerospace industry.
Market segments served by the Division include
aerospace, sports and leisure, marine, surface
transportation, energy and a variety of other
industrial applications. Approximately two-thirds
of the Division's net sales are to the aerospace
market.
The Division's financial statements include the
assets, liabilities, revenues and expenses which are
specifically identifiable with the Division, as well
as certain allocated expenses for services that have
historically been performed by the corporate
headquarters of the Group Companies. These expenses
are allocated using various methods dependent upon
the nature of the service. The Division's
management believes that these allocations are based
on assumptions that are reasonable under the
circumstances; however, these allocations are not
necessarily indicative of the costs and expenses
that would have resulted if the Division had been
operated as a separate entity.
The net cash position of certain of the Group
Companies has been managed through a centralized
treasury system. Accordingly, transfers of cash
within the treasury system are recorded through
intercompany accounts, which are reflected as a
component of Owner's equity in the accompanying
Combined Balance Sheets. In addition, intercompany
balances arising from purchase and sale transactions
with other Parent affiliates and allocated charges
for services have been treated as the equivalent of
cash transactions in the accompanying financial
statements and are included as a component of
Owner's equity. There is no direct interest cost
allocation to the Division with respect to Group
Company borrowings, and accordingly, the Combined
Statements of Operations do not include any
allocated financing costs. Debt payable to third
parties and affiliates outside of the Division, and
related interest expense, is reflected in accordance
with their terms.
All significant transactions within the combined
Division have been eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR:
The U.S. Group Company's fiscal years consist of a
fifty-two or fifty-three week period, ending the
last Friday of December. The 1995 and 1994 fiscal
years consisted of fifty-two week periods and 1993
consisted of a fifty-three week period for the U.S.
Group Company. The remaining Division entities have
fiscal years ending December 31. For purposes of
financial statement presentation, all fiscal year-
ends are referred to as December 31.
INVENTORIES:
Inventories are stated at the lower of cost or
market. Cost is determined using various methods
including average cost and the first-in, first-out
(FIFO) basis.
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment are stated at cost.
Depreciation is determined using the straight-line
method applied over the estimated useful lives of
the respective assets, which range from 3 to 50
years. It is the Division's policy to periodically
review the estimated lives of assets and, where
appropriate, revise the estimated lives to reflect
technological changes in the industry.
Upon sale or retirement of depreciable assets, the
cost and related accumulated depreciation are
removed from the accounts and any resultant gain or
loss is included in operations.
INTANGIBLES:
The excess of cost over the fair value of net assets
(goodwill) and identifiable intangible assets of
acquired companies are capitalized at acquisition
and are amortized on a straight-line basis over
their estimated useful lives, ranging from twelve to
forty years. The Division evaluates the
realizability of intangibles based upon the
projected, undiscounted net cash flows related to
the intangibles. The Division recorded impairment
losses of $2,809 and $5,097 in 1995 and 1994,
respectively, for certain identifiable intangibles
which consisted of contracted manufacturing
programs. The loss was measured using projected
discounted cash flows and is included in
"Amortization and write-downs of purchased
intangibles" in the Combined Statements of
Operations.
REVENUE RECOGNITION:
Revenue is recognized at the time products are
shipped.
TRANSLATION OF FOREIGN CURRENCIES:
The functional currency in all significant foreign
locations is considered to be the local currency.
The translation of the applicable foreign currencies
into U.S. dollars is performed for balance sheet
accounts using exchange rates in effect at the
balance sheet date and for revenue and expense
accounts using an average exchange rate for the
year. Gains or losses resulting from translation
are reflected in Owner's equity. Aggregate foreign
currency transaction gains and losses are included
in determining results from operations.
USE OF ESTIMATES:
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 at the dates of the financial
statements and the reported amounts of revenues and
expenses during the reporting periods.
RECLASSIFICATIONS:
Certain amounts in the 1994 Combined Statement of
Cash Flows have been reclassified to conform to the
1995 presentation.
3. RESTRUCTURING EXPENSE AND GAIN ON SALE OF FACILITY
In 1995, 1994 and 1993, the Division incurred
approximately $2,400, $1,600 and $7,700,
respectively, in restructuring charges. These
charges are primarily due to the consolidation and
downsizing of certain facilities and consisted
principally of personnel related expenses and the
costs of consolidating these facilities.
In December 1994, the Division sold its Miami,
Florida facility for $8,000 in cash resulting in a
net gain of approximately $2,700 which is included
as such in the accompanying Combined Statements of
Operations.
4. ACQUISITIONS
In August 1994, the Division acquired certain assets
and customer contracts from a British Petroleum
Chemicals Division for total consideration of
approximately $4,700. The revenues and results of
operations of the acquired business are not
significant and are included in the Combined
Statements of Operations from the date of acquisition.
5. INVENTORIES
The components of inventories are as follows:
December 31,
1995 1994
Raw materials $ 22,261 $ 20,523
Work in process 33,317 41,492
Finished goods 4,759 4,657
Total $ 60,337 $ 66,672
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the
following:
December 31,
1995 1994
Land $ 15,436 $ 15,150
Buildings and improvements 91,872 93,020
Buildings and equipment under
capital leases 6,251 5,776
Machinery and equipment 161,047 154,940
Construction in progress 3,582 1,210
278,188 270,096
Less, Accumulated depreciation
and amortization (121,824) (108,943)
$156,364 $161,153
7. INTANGIBLES
Intangibles consist of the following:
December 31,
1995 1994
Contracted manufacturing programs $ 11,588 $ 20,779
Customer relationships 25,237 25,237
Goodwill 19,005 19,005
55,830 65,021
Less, Accumulated amortization (13,619) (15,878)
$ 42,211 $ 49,143
Intangible assets arose principally from the
acquisition of Reliable Manufacturing Co. in 1979
(goodwill of $3,285) and Heath Tecna Aerospace Co.
in 1988. Changes in contracted manufacturing
programs in 1995 resulted from an impairment write-
down of $2,809 due to reductions in aircraft build
rates and a corresponding adjustment of cost and
accumulated amortization of $6,382.
8. DEBT
Short-term debt includes commercial paper, bank
overdrafts, loans and other short-term debt
outstanding in Europe with maturities of one year or
less. Interest rates for this debt ranged from
approximately 5.8% - 11.5% in 1995 and 5.7% - 8.6%
in 1994.
Short-term debt due to affiliates consists of an
overdraft facility at one of the Division's
operating units of $2,419 and $5,302 in 1995 and
1994, respectively, bearing interest from July 1995
at the U.K. Bank Base Rate (6.5% at December 31,
1995) plus 1% and a short-term borrowing by another
of the Division's operating units of $6,633 in 1995
bearing interest at Italian LIBOR (11.2% at December
31, 1995). Through June 1995, the overdraft
facility was noninterest bearing.
Long-term debt consists of the following:
December 31,
1995 1994
Mortgage payable in equal
quarterly installments through
1999 at an interest rate of 6.5% $ 548 $ 684
Other 1,013 1,578
1,561 2,262
Less, Current portion 256 487
Long-term debt $ 1,305 $ 1,775
Long-term debt to affiliates consists of the
following:
December 31,
1995 1994
Loans payable, due in 1998, at
floating interest rates based
on the six-month French LIBOR
rate $ 9,502 $ 8,697
Loan payable, with no stated
maturity date or interest rate - 4,317
Loan payable, with no stated
maturity date, at a floating
interest rate based on the
three-month Italian LIBOR rate - 2,175
Advances from affiliate, with no
stated maturity date or
interest rate - 22,304
Long-term debt to affiliates $ 9,502 $37,493
The six-month French LIBOR rate at December 31,
1995 was 6.3%.
Aggregate maturities of Long-term debt at December
31, 1995 are as follows:
Affiliates Other
1996 $ - $ 256
1997 - 546
1998 9,502 367
1999 - 310
2000 - 82
$ 9,502 $ 1,561
9. EMPLOYEE BENEFITS
Approximately 20 percent of the United States
employees participate in a separate trusteed pension
plan (the "U.S. Plan"). The U.S. Plan is a
noncontributory defined benefit pension plan
covering certain salaried employees. Benefits are
based on employees' years of service and average of
the highest consecutive five years' compensation in
the ten years before retirement. The U.S. Group
Company's funding policy is to make the minimum
annual contribution required by applicable
regulators.
Net periodic pension cost for 1995, 1994 and 1993,
for the U.S. Plan described above, includes the
following:
1995 1994 1993
Service cost - benefits earned
during the period $ 503 $ 706 $ 518
Interest cost on projected
benefit obligation 621 561 547
Actual return on plan assets (1,931) (5) (1,022)
Net amortization and deferral 1,238 (639) 445
Net periodic pension cost $ 431 $ 623 $ 488
The actuarial present value of benefit obligations
and funded status of the U.S. Plan as of December
31, 1995 and 1994 are as follows:
1995 1994
Benefit obligations:
Vested benefits $ 6,744 $ 4,956
Nonvested benefits 394 288
7,138 5,244
Projected compensation increases 2,324 2,002
Projected benefit obligation 9,462 7,246
Plan assets at fair value 8,773 7,332
Plan assets in excess of
(less than) projected
benefit obligations (689) 86
Unrecognized prior service cost 186 200
Unrecognized net loss (366) (724)
Pension liability $ (869) $ (438)
Assumptions used in developing the projected benefit
obligation were as follows:
1995 1994
Discount rate 7.50% 8.50%
Rate of increase in compensation 4.50% 5.50%
Expected long-term rate of return on
plan assets 10.00% 9.00%
The majority of the remaining employees participate
in various multi-employer pension plans. These
plans include various pension plans sponsored by
Group Companies and accounted for as multi-employer
plans. Accordingly, the Combined Statements of
Operations include an allocation of $3,516, $2,502
and $3,414 in 1995, 1994 and 1993, respectively,
for the costs associated with the employees who
participate in such plans. Included in the costs
for 1995 is a curtailment gain of $650 related to
certain personnel reductions. Included in the costs
for 1994 is a curtailment gain of $600 related to
the sale of the Miami facility.
Additionally, no assets and liabilities have been
reflected in the Combined Balance Sheets related to
the various multi-employer pension plans since it is
not practicable to segregate these amounts.
The Division also has an Investment Savings Plan for
U.S. employees. Division contributions to the plan
were approximately $374, $450 and $477 during 1995,
1994 and 1993, respectively.
10. POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER
THAN PENSIONS
The Division has various postretirement plans that
provide healthcare benefits to retired salaried and
hourly employees and their dependents. Certain of
these plans require employee contributions at
varying rates. Not all employees are eligible to
receive benefits, with eligibility depending on the
plan in effect at a particular location.
Total postretirement benefit expense of $628, $164
and $813 is included in the Combined Statements of
Operations for 1995, 1994 and 1993, respectively.
Included in the expense for 1994 is a curtailment
gain of $318 related to the sale of the Miami
facility. Assets and liabilities have not been
reflected in the Combined Balance Sheets relating to
Group Company plans, as it is not practical to
segregate these amounts.
Effective January 1, 1993, the U.S. Group Company
changed its method of accounting for postretirement
benefits other than pensions from the pay-as-you-go
method to the accrual method as required by
Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS No. 106"). This
standard requires the accrual of the expected costs
of postretirement medical and other nonpension
benefits during an employee's period of service.
Similar accounting methods were adopted by other
Division entities prior to 1993.
The cumulative effect of adopting SFAS No. 106 as of
January 1, 1993, resulted in a charge of $6,006 to
1993 earnings, with no related income tax benefit.
The effect of the change on the 1993 loss before
income taxes was additional expense of approximately
$422.
Effective January 1, 1993, the U.S. Group Company
also elected to adopt Statement of Financial
Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" ("SFAS No. 112"). SFAS
No. 112 establishes accounting standards for
employers who provide certain benefits to former or
inactive employees after employment but before
retirement.
Previously, postemployment benefits, for the U.S.
Group Company, were recognized on the pay-as-you-go
method. The cumulative effect of the change in
accounting for postemployment benefits was $1,071,
which represented the unfunded accumulated
postemployment benefit obligations as of January 1,
1993. There was no related income tax benefit in
connection with the election. The effect of the
change on the 1993 loss before income taxes was
additional expense of approximately $33. Similar
accounting methods were adopted by other Division
entities prior to 1993. Total postemployment
benefit expense was $305, $778 and $154 for 1995,
1994 and 1993, respectively. Assets and liabilities
have not been reflected in the Combined Balance
Sheets relating to Group Company plans, as it is not
practical to segregate these amounts.
11. INCOME TAXES
For purposes of the Combined Statements of
Operations, income taxes have been provided on a
stand-alone basis, as if the Division was a separate
taxable entity.
The components of loss before income taxes and
cumulative effect of accounting changes and
provision (benefit) for income taxes were:
For the Years Ended
December 31,
1995 1994 1993
Income (loss before) income
taxes and cumulative effect
of accounting changes:
United States $(19,469) $(26,215) $(32,965)
International 6,011 4,768 (9,915)
$(13,458) $(21,447) $(42,880)
Provision (benefit) for income
taxes:
Current:
United States $ - $ - $ -
International 4,529 1,383 (1,282)
Total current 4,529 1,383 (1,282)
Deferred:
United States - - -
International 556 1,460 320
Total deferred 556 1,460 320
Total provision (benefit) for
income taxes $ 5,085 $ 2,843 $ (962)
The current provision for income taxes for 1995 includes a
benefit recognized from utilization of operating loss
carryforwards of $302.
The effective income tax provision (benefit) rate on the loss
before income taxes differed from the United States federal
statutory rate for the following:
For the Years Ended
December 31,
1995 1994 1993
Benefit at the U.S. federal
statutory rate $ (4,710) $ (7,506) $ (15,008)
Tax effect of net operating losses
not recognized 4,225 7,016 14,546
Foreign tax (benefit) 5,085 2,843 (962)
Goodwill amortization 442 442 442
Other 43 48 20
Provision (benefit) for income
taxes $ 5,085 $ 2,843 $ (962)
The tax effects of temporary differences which gave rise to
deferred income tax assets and liabilities consisted of the
following:
December 31,
1995 1994
Deferred income tax assets:
Postretirement/postemployment benefits $ 3,648 $ 3,023
Environmental reserve 1,651 1,746
Intangibles 1,845 679
Restructuring reserve 592 625
Inventory reserve 518 621
Other reserves 1,793 2,207
Net operating losses 87,847 87,163
Total deferred income tax assets 97,894 96,064
Deferred income tax liabilities:
Depreciation (11,368) (11,560)
Revenue recognition (3,153) (5,106)
Total deferred income tax liabilities (14,521) (16,666)
Subtotal 83,373 79,398
Valuation allowance (84,072) (79,541)
Net deferred income tax liabilities $ (699) $ (143)
Deferred income tax assets of $1,161 and $1,391 at December
31, 1995 and 1994, respectively, are included in other
assets in the Combined Balance Sheets.
Deferred income tax liabilities of $1,860 and $1,534 at
December 31, 1995 and 1994, respectively, are included in
other long-term liabilities in the Combined Balance Sheets.
Operating loss carryforwards of non-corporate Divisional
entities (principally the United States of approximately
$219 million) have generally been utilized to offset Group
Company taxable income in the year incurred. However, for
purposes of these combined financial statements, the tax
effect of such operating loss carryforwards have been
reflected as deferred tax assets with related valuation
allowances, based upon management's assessment of the
Division's likelihood of realizing the benefit of such
operating loss carryforwards through future stand-alone
taxable income.
The Division has net operating loss carryforwards of which
approximately $6,200 and $600 are available to offset
certain future taxable income in Italy and France,
respectively.
These operating loss carryforwards expire as follows:
1996 $ 159
1997 1,556
1998 2,359
1999 1,097
2000 1,629
12. COMMITMENTS AND CONTINGENCIES
SELF-INSURANCE:
The Division is partially self-insured for workers'
compensation, general liability and property insurance
risks, subject to specific retention levels. Self-insurance
costs are accrued based upon the aggregate of the estimated
liability for reported claims and estimated liabilities for
claims incurred but not reported.
LITIGATION:
The Division is involved in legal proceedings which are in
various stages of development and involve various
uncertainties which can affect the eventual outcome of the
issues. While it is difficult to predict what the eventual
resolution of these issues will be, the Division believes,
on the basis of the facts presently known, that these
actions will not have a material adverse effect on the
Division's financial condition or results of operations.
ENVIRONMENTAL COSTS:
In connection with an acquisition of one of the Division's
operating facilities, the Division entered into an agreement
with the previous owner whereby the Division agreed to share
in the operating cost for groundwater treatment and
monitoring facilities which had been ordered by regulatory
authorities prior to the date of acquisition. The
Division's share of annual cost sharing is estimated at
$250. While the ultimate period of treatment and monitoring
required by regulatory authorities is not determinable, the
Division estimated the minimum period at twenty years. The
Combined Balance Sheets include reserves of approximately
$4,200 and $4,500 as of December 31, 1995 and 1994,
respectively, related to these costs. Charges against these
reserves totaled approximately $300 and $200 in 1995 and
1994, respectively.
In the normal course of its business, the Division is
subject to environmental regulations in jurisdictions in
which the Division has facilities and, accordingly, the
Division may be required to incur either remediation or
capital improvement costs in the future. Management of the
Division believes that the amounts of such costs, if any,
will not have a material adverse effect on the Division's
financial condition or results of operations.
LEASE OBLIGATIONS:
The Division leases certain equipment and facilities under
capital leases and noncancelable operating leases expiring
at various dates through 2012.
Future minimum annual lease payments under such leases are
as follows:
Capital Operating
Leases Leases
1996 $ 725 $ 1,818
1997 725 1,097
1998 333 710
1999 333 548
2000 333 274
Thereafter 5,863 -
8,312 $ 4,447
Amounts representing interest 3,581
Present value of net minimum lease
payments 4,731
Less, Current portion 441
Long-term portion $ 4,290
Lease expense was $2,080, $1,883 and $1,724 in 1995, 1994
and 1993, respectively.
GUARANTEES:
The Italian corporate entity has guaranteed $650 of certain
obligations of an unrelated third party as sole guarantor.
Additionally, the entity has guaranteed $824 of obligations
of the third party on a joint and several basis with sixteen
other unrelated co-guarantors.
CONCENTRATION OF CREDIT RISK:
The Division operates in one principal industry segment.
In 1995, 1994 and 1993, one customer accounted for 18%, 20%
and 29%, respectively, of the net sales of the Division.
EXCHANGE RATES:
Certain items included on the Division's Combined Balance
Sheets originating from non-U.S. transactions are subject to
fluctuations in the applicable exchange rates between the
transaction and settlement dates.
13. SEGMENT INFORMATION
1995 1994 1993
Net sales:
United States $ 148,919 $ 139,831 $ 136,141
Europe 171,235 143,071 127,469
Other geographic regions 10,919 9,709 7,648
Total net sales $ 331,073 $ 292,611 $ 271,258
Intra-division transfers/sales
between geographic areas
(eliminated in combination):
United States $ 4,360 $ 3,702 $ 2,077
Europe 9,748 9,702 7,782
Total intra-divisional
transfers/sales $ 14,108 $ 13,404 $ 9,859
Operating loss (income):
United States $ 19,469 $ 26,215 $ 32,966
Europe (6,057) (4,238) 8,523
Other geographic regions (2,128) (2,614) (1,090)
Total operating loss $ 11,284 $ 19,363 $ 40,399
Identifiable assets:
United States $ 179,662 $ 199,470 $ 222,874
Europe 156,182 148,476 135,658
Other geographic regions 4,450 4,474 3,752
Total identifiable assets $ 340,294 $ 352,420 $ 362,284
Transfers between geographic areas are recorded at amounts
generally above cost. Operating (income) loss consists of
total net sales less cost of sales and operating expenses.
The United States' operating loss and identifiable assets
include certain amounts related to the administration of
worldwide Division operations.
Export sales to unaffiliated customers by geographic area
are as follows:
1995 1994 1993
Europe $ 18,881 $ 15,639 $ 14,225
North America 11,824 9,946 7,461
Other 8,582 6,746 6,123
$ 39,287 $ 32,331 $ 27,809
14. RELATED PARTY TRANSACTIONS
Certain expenses reflected in the Combined Statements of
Operations include allocated amounts of $2,719, $2,836 and
$2,048 in 1995, 1994 and 1993, respectively. These charges
are principally for legal, human resource, accounting and
treasury functions performed for the Division.
Through the normal course of business, the Division conducts
transactions with affiliates. Such transactions in 1995,
1994 and 1993 are summarized as follows:
1995 1994 1993
Purchases of products $ 11,759 $ 12,212 $ 10,816
Interest expense, net 1,032 810 1,471
Other expense (income) 968 541 (147)
The Division purchases certain raw materials from affiliates
at cost. For purposes of the accompanying financial
statements, a mark-up above cost was added to such purchases
which adjustment increased the loss from operations in 1995,
1994 and 1993 by $4,192, $4,355 and $3,573, respectively.
Accounts payable in the Combined Balance Sheets includes
amounts due to affiliates of $2,849 and $343 in 1995 and
1994, respectively.
As discussed in Note 1, in July 1995, the Parent contributed
the net assets of its United Kingdom Composites Division to
a new wholly-owned corporate entity in the United Kingdom.
As part of this transaction, debt of the Division owed to
affiliates amounting to approximately $22,000 was repaid and
approximately $3,900 of fixed assets previously carried on
the Division's accounts were transferred to an affiliate of
the Division.
During 1995, long-term debt due to affiliates approximating
$6,500 was repaid with a similar amount being borrowed from
an affiliate on a short-term basis.
The Division has various financing arrangements with
affiliates as discussed in Note 8.
15. SUBSEQUENT EVENT
On February 21, 1996, the stockholders of Hexcel Corporation
approved a transaction to combine with the Division. On
February 29, 1996, the transaction was consummated.
According to the terms of the agreement, the Parent will
receive 49.9% of the combined entity in exchange for the
Division. The Parent will also receive additional
consideration as part of the transaction.
ANNEX B
ACQUISITION OF THE
CIBA COMPOSITES BUSINESS:
PRO FORMA FINANCIAL INFORMATION (UNAUDITED),
(in thousands, except per share data)
ACQUISITION OF THE CIBA COMPOSITES BUSINESS: PRO FORMA
FINANCIAL INFORMATION (UNAUDITED) (IN THOUSANDS, EXCEPT PER
SHARE DATA)
The following unaudited pro forma financial information
combines the condensed balance sheets and statements of
operations of Hexcel and the Ciba Composites Business after
giving effect to the acquisition of the Ciba Composites
Business by the Company. The unaudited pro forma condensed
combined balance sheet as of December 31, 1995 gives effect
to the acquisition as if it had occurred on December 31,
1995. The unaudited pro forma condensed combined statement
of operations for the year ended December 31, 1995 gives
effect to the acquisition as if it had occurred on January
1, 1995. The pro forma adjustments account for the
acquisition as a purchase of the Ciba Composites Business by
the Company, and are based upon the assumptions set forth in
the accompanying disclosures. The following unaudited pro
forma financial information has been prepared from, and
should be read in conjunction with, the historical financial
statements and the related notes thereto for the applicable
periods of Hexcel (included in Hexcel's 1995 Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)
and of the Ciba Composites Business (included as Annex A to
this Current Report on Form 8-K/A).
The following unaudited pro forma financial information
is not necessarily indicative of the financial position or
operating results that would have occurred had the
acquisition of the Ciba Composites Business been consummated
on the dates indicated, nor is it necessarily indicative of
future operating results or financial position. Management
expects that significant costs will be incurred in
connection with combining the operations of Hexcel and the
Ciba Composites Business, including costs of eliminating
excess manufacturing capacity and redundant administrative
and research and development activities, as well as the
various costs of consolidating the information systems and
other business activities of the two companies. Some of the
costs associated with combining the two businesses,
including certain costs to eliminate redundant
administrative and research and development activities, will
be incurred during 1996. The anticipated resulting benefits
are expected to be realized shortly thereafter. However,
other costs, including many of the costs to eliminate excess
manufacturing capacity, are expected to be incurred over a
period of as much as three years. This is attributable, in
part, to aerospace industry requirements to "qualify"
specific equipment and manufacturing facilities for the
manufacture of certain products. Based on the Company's
experience with previous plant consolidations, these
qualification requirements necessitate an approach to the
consolidation of manufacturing facilities that will require
two to three years to complete. Accordingly, the costs and
anticipated future benefits of eliminating excess
manufacturing capacity are long-term in nature.
The Board of Directors of Hexcel has not yet approved the
plan for combining the operations of Hexcel and the Ciba
Composites Business, but is expected to do so in the second
quarter of 1996. Subject to the approval of the
consolidation plan by the Board of Directors, management
currently estimates that the cash costs of combining the two
businesses could range from $35,000 to $45,000, net of
expected proceeds from asset sales which are expected to be
received at the end of the consolidation process. (This
range includes the estimated net cash cost to close the
Anaheim manufacturing facility of the Ciba Composites
Business. The decision to close this facility was announced
in the first quarter of 1996.) Management notes, however,
that the actual cash costs of combining the two businesses
could vary from current estimates due to the fact that the
nature, timing and extent of certain consolidation
activities is dependent on numerous factors.
Management expects to record one or more charges to
earnings for the estimated costs of certain business
consolidation activities. The estimated costs of specific
consolidation activities will be accrued in accordance with
generally accepted accounting principles as those activities
are determined and announced. Although the aggregate amount
of the resulting charges to earnings has not yet been
determined, management currently estimates that the amount
could range from $40,000 to $50,000, including noncash
charges. However, the actual aggregate amount of such
charges could vary from current estimates.
The cash expenditures necessary to combine the Ciba
Composites Business with Hexcel are expected to occur over a
period of as much as three years. The nature, timing and
extent of these expenditures will be determined, in part, by
management's evaluation of the probable economic and
competitive benefits to be gained from specific
consolidation activities. Management anticipates that the
benefits to be realized from planned consolidation
activities will be sufficient to justify the level of
associated costs. However, some of the anticipated benefits
are long-term in nature, and there can be no assurance that
such benefits will actually be realized. Accordingly, no
effect has been given to the costs of combining the two
businesses, or to the operating, financial and other
benefits that may be realized from the combination, in the
accompanying pro forma financial information.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
DECEMBER 31, 1995
Historical Pro Forma
Ciba
Com- Adjust-
Hexcel posites ments Combined
Assets
Current assets:
Cash and equivalents $ 3,829 $ 8,412 $ (8,412)(a) $ 3,829
Accounts receivable 65,888 58,799 (5,805)(b) 118,882
Inventories 55,475 60,337 (1,545)(c) 114,267
Prepaid expenses and
other assets 2,863 9,957 (6,019)(d) 6,801
Total current assets 128,055 137,505 (21,781) 243,779
Net property, plant and
equipment 85,955 156,364 (45,487)(e) 196,832
Excess of purchase price
over net assets
acquired 44,300(f) 44,300
Investments and other
assets 16,592 46,425 (47,069)(g) 15,948
Total assets $230,602 $340,294 $(70,037) $500,859
Liabilities and Shareholders' Equity
Current liabilities:
Notes payable and
current maturities of
long-term liabilities $ 1,802 $ 10,469 $ (9,052)(h) $ 3,219
Accounts payable 22,904 29,611 (1,208)(i) 51,307
Accrued liabilities 41,779 27,574 69,353
Total current
liabilities 66,485 67,654 (10,260) 123,879
Senior subordinated notes,
payable to Ciba-Geigy 26,300(j) 26,300
Other long-term
liabilities, less
current maturities 115,743 28,723 18,898(k) 163,364
Minority interest 6,968 (6,968)(l)
Shareholders' equity:
Common stock &
additional paid-in
capital 111,440 140,600(m) 252,040
Accumulated deficit (69,981) (1,658)(n) (71,639)
Minimum pension
obligation adjustment (535) (535)
Cumulative currency
translation adjustment 7,450 7,450
Invested capital 236,949 (236,949)(o)
Total shareholders'
equity 48,374 236,949 (98,007) 187,316
Total liabilities and
shareholders'
equity $230,602 $ 340,294 $ (70,037) $ 500,859
The accompanying notes are an integral part of these Unaudited
Pro Forma Condensed Combined Financial Statements.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
The Year Ended December 31, 1995
Historical Pro Forma
Ciba
Com- Adjust-
Hexcel posites ments Combined
Net Sales $350,238 $ 331,073 $ (3,207)(p) $ 678,104
Cost of sales (283,148) (273,997) 6,860(q) (550,285)
Gross margin 67,090 57,076 3,653 127,819
Marketing, general and
administrative expenses (49,324) (57,966) (107,290)
Amortization and write-
downs of intangible assets (6,930) 4,385(r) (2,545)
Other income (expenses), net 791 (1,102) (311)
Restructuring expenses (2,362) (2,362)
Operating income (loss) 18,557 (11,284) 8,038 15,311
Interest expense (8,682) (668) (869)(s) (10,219)
Bankruptcy reorganization
expenses (3,361)(t) (3,361)(t)
Minority interest (1,506) 1,506(u)
Income (loss) from
continuing operations
before income taxes 6,514 (13,458) 8,675 1,731
Provision for income taxes (3,313) (5,085) (v) (8,398)
Income (loss) from
continuing operations 3,201 (18,543) 8,675 (6,667)
Loss from discontinued
operations (468) (468)
Net income (loss) $ 2,733 $ (18,543) $ 8,675 $ (7,135)
Net income (loss) per share
and equivalent share:
Primary and fully diluted:
Continuing operations $ 0.20 $ (0.20)
Discontinued operations (0.03) (0.01)
Net income (loss) $ 0.17 $ (0.21)
Weighted average shares
and equivalent shares 15,742 33,764
The 1995 net loss for the Ciba Composites Business of $18,543
includes a fourth quarter net loss of $9,537. The fourth quarter
net loss includes approximately $6,340 of costs attributable to
write-downs of certain fixed and intangible assets, severance
expenses, reserves for uncollectible receivables, and
acquisition-related expenses.
The accompanying notes are an integral part of these Unaudited
Pro Forma Condensed Combined Financial Statements.
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
STATEMENTS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Purchase Price Summary and Related Allocation
The purchase price paid by Hexcel for the Ciba Composites
Business is comprised of the following components:
18,022 shares of Hexcel common stock, valued
at $8.00 per share (1) $ 144,200
Senior Subordinated Notes payable to Ciba in 2003 (2) 26,300
Cash paid to Ciba (3) 25,000
Estimated fees and expenses in connection with
the acquisition (3) 7,600
Total purchase price $ 203,100
The allocation of the total purchase price to the net assets
of the Ciba Composites Business is based upon the estimated fair
values of the net assets acquired, and is summarized as follows:
Cash and equivalents (4) --
Accounts receivable (5) $ 53,285
Inventories (6) 58,792
Prepaid expenses (5) 3,938
Net property, plant & equipment (7) 110,877
Other assets, net (8) 1,000
Investments and other assets (5) 4,214
Current liabilities (9) (57,685)
Other long-term liabilities, less current maturities (9) (19,221)
Minority interest (10) --
Shareholders' equity (11) 3,600
Excess of purchase price over net assets acquired (12) 44,300
Total purchase price $ 203,100
(1) The aggregate value of the Hexcel common stock issued to
Ciba is determined by multiplying the discounted market price per
share by the number of shares issued. The market price per share
is determined by reference to the prices at which Hexcel common
stock was trading on the New York Stock Exchange during a
reasonable period before and after December 12, 1995, the date
upon which Hexcel and Ciba amended the aggregate amount of
consideration to be paid by Hexcel for the Ciba Composites
Business by agreeing to reduce the initial aggregate principal
amount of the senior subordinated notes by $5,000. The market
price is then discounted to reflect the illiquidity of the Hexcel
common stock issued to Ciba caused by the size of Ciba's holding,
the contractual restrictions on transferring such shares and,
accordingly, limitations on the price Ciba could realize, the
contractual limitation on the price per share Ciba could realize
in certain types of transactions, the fact that such shares are
"restricted securities" within the meaning of the Securities Act
of 1933, and various other factors.
For purposes of valuing the Hexcel common stock issued to
Ciba, a discounted market price of $8.00 per share is used. The
discounted market price is based on a market price of $10.00 per
share during a reasonable period before and after December 12,
1995, and a discount rate of 20%. The discounted market price of
the shares issued is used in determining the total purchase price
because the discounted market price of Hexcel common stock is
more reliably measurable than the fair value of the assets
acquired and the liabilities assumed.
(2) Based on the formula included in the Strategic Alliance
Agreement, the pro forma aggregate principal amount of the Senior
Subordinated Notes as of December 31, 1995 is approximately
$27,400. (Such amount is estimated as follows: $43,029 (a)
increased by $9,000 for the price of acquiring a minority
interest in an Austrian subsidiary of the Ciba Composites
Business; (b) increased by $6,126 for the decline in the adjusted
net working capital of Hexcel from July 2, 1995 to December 31,
1995; (c) decreased by $25,378 for the decline in the adjusted
net working capital of the Ciba Composites Business from July 2,
1995 to December 31, 1995; and (d) decreased by $5,377 for
certain net assets of the Ciba Composites Business retained by
Ciba and other adjustments.) However, the actual aggregate
principal amount of the Senior Subordinated Notes to be issued
may be higher or lower, because the adjustments required under
the Strategic Alliance Agreement to reflect changes in working
capital and certain other items as of February 29, 1996 have not
yet been determined.
The fair value of the Senior Subordinated Notes as of
December 31, 1995 is estimated to be $26,300, which is $1,100
lower than the pro forma aggregate principal amount. The $1,100
discount reflects the absence of certain call protection
provisions from the terms of the Senior Subordinated Notes and
the difference between the stated interest rate on the Senior
Subordinated Notes and the estimated market rate for debt
obligations of comparable quality and maturity.
(3) The cash paid to Ciba and certain estimated fees and
expenses in connection with the acquisition of the Ciba
Composites Business have been financed with the proceeds from the
Senior Secured Credit Facility.
(4) Under the terms of the Strategic Alliance Agreement, the
cash and cash equivalents of the Ciba Composites Business, except
for cash on hand at certain of Ciba's non-U.S. subsidiaries, are
retained by Ciba. The cash on hand at certain of Ciba's non-U.S.
subsidiaries was acquired in exchange for the Senior Demand
Notes. The amount of acquired cash and the corresponding
principal amount of the Senior Demand Notes, which Hexcel expects
will be presented for payment shortly after issuance, are equal
and offset each other. Accordingly, the acquisition of such cash
and the issuance of the Senior Demand Notes has not been
reflected in the unaudited pro forma condensed combined balance
sheet.
(5) The fair values of accounts receivable, prepaid expenses and
investments and other assets acquired in the purchase of the Ciba
Composites Business are estimated to equal respective net book
values. Under the terms of the Strategic Alliance Agreement, a
portion of the Ciba Composites Business' accounts receivable and
prepaid expenses are retained by Ciba.
(6) The fair value of inventories acquired in the purchase of
the Ciba Composites Business is estimated to equal aggregate
current sales value less estimated selling costs. Under the
terms of the Strategic Alliance Agreement, a portion of the Ciba
Composites Business' inventories is retained by Ciba.
(7) The fair value of the property, plant and equipment acquired
in the purchase of the Ciba Composites Business is estimated to
be $45,000 lower than the respective net book value. The
estimated fair value, which is based on a preliminary review of
the production facilities and equipment of the Ciba Composites
Business, reflects the fact that certain of these assets are
expected to: (a) duplicate capabilities or productive capacities
already possessed by Hexcel; or (b) be in excess of the combined
company's needs. This estimate is subject to modification in
connection with further analysis. In addition, under the terms
of the Strategic Alliance Agreement, a portion of the Ciba
Composites Business' property, plant and equipment is retained by
Ciba.
(8) The fair value assigned to other assets reflects the
capitalization of estimated fees and expenses incurred to secure
the Senior Secured Credit Facility in connection with the
acquisition of the Ciba Composites Business.
(9) The fair values of the current and long-term liabilities
assumed by Hexcel in connection with the purchase of the Ciba
Composites Business are estimated to equal the respective net
book values. Under the terms of the Strategic Alliance
Agreement, certain of the liabilities of the Ciba Composites
Business are not assumed by Hexcel.
(10) Prior to Hexcel's acquisition of the Ciba Composites
Business, Ciba eliminated the minority interest in an Austrian
subsidiary of the Ciba Composites Business ("Danutec") by
purchasing that interest, subject to certain governmental
approvals which were subsequently obtained. Accordingly, the
estimated pro forma purchase price and purchase price allocation
reflect the transfer of 100% of the capital stock of Danutec to
the Company, and the minority interest in Danutec has been
eliminated on a pro forma basis.
(11) The estimated fees and expenses incurred in connection with
issuing the Hexcel common stock to Ciba are deducted from
shareholders' equity.
(12) The excess of purchase price over net tangible assets
acquired will be allocated to identifiable intangible assets and
goodwill pursuant to an analysis and valuation of those assets in
accordance with the provisions of Accounting Principles Board
Opinion No. 16. Such analysis and valuation has not yet been
performed. Accordingly, for purposes of the unaudited pro forma
financial information, the excess of purchase price over net
tangible assets acquired has been treated as a single intangible
asset, with a 20-year life. While the values and estimated lives
of various intangible assets resulting from the final purchase
allocation will vary from these pro forma assumptions, management
does not expect these variances to be material to the unaudited
pro forma financial information contained herein.
The purchase price allocation does not reflect any liabilities
for the costs of consolidating the business operations of the
Ciba Composites Business and Hexcel. Those costs, as discussed
above, are expected to be significant (see pages B-1 and B-2.)
Pro Forma Adjustments -- Unaudited Pro Forma Condensed Combined
Balance Sheet
(a) Adjustment to eliminate the cash and cash equivalents
of the Ciba Composites Business which are retained
by Ciba $ (8,412)
(b) Adjustment to eliminate accounts receivable of the
Ciba Composites Business which are retained by
Ciba, as well as trade account balances between
the Ciba Composites Business and Hexcel $ (5,805)
(c) Adjustment to eliminate inventories of the Ciba
Composites Business which are retained by Ciba,
and to record acquired inventories at
estimated fair value $ (1,545)
(d) Adjustment to eliminate prepaid expenses and other
assets of the Ciba Composites Business which are
retained by Ciba $ (6,019)
(e) Adjustment to eliminate property, plant and
equipment of the Ciba Composites Business which is
retained by Ciba, and to record acquired property,
plant and equipment at estimated fair value $ (45,487)
(f) Adjustment to record the excess of purchase price
over net assets acquired $ 44,300
(g) Adjustment to reflect the following:
Elimination of the intangible assets of the
Ciba Composites Business $ (42,211)
Capitalization and reclassification of certain
fees and expenses incurred in connection with
the acquisition (3,200)
Write-off of capitalized debt issuance costs in
connection with the extinguishment of certain
existing debt obligations with proceeds from
the Senior Secured Credit Facility (1,658)
Net adjustment $ (47,069)
(h) Adjustment to eliminate notes payable of the Ciba
Composites Business which are not assumed by Hexcel $ (9,052)
(i) Adjustment to eliminate current liabilities of the Ciba
Composites Business which are not assumed by Hexcel,
as well as trade balances between the the Ciba
Composites Business and Hexcel $ (1,208)
(j) Adjustment to reflect the issuance of the Senior
Subordinated Notes payable to Ciba $ 26,300
(k) Adjustment to reflect the following:
Elimination of long-term liabilities of the Ciba
Composites Business which are not assumed
by Hexcel $ (9,502)
Net borrowings under the Senior Secured Credit
Facility to finance the cash payment to Ciba
and certain fees and expenses incurred
in connection with the acquisition 28,400
Net adjustment $ 18,898
(l) Adjustment to reflect the elimination of the
minority interest in Danutec $ (6,968)
(m) Adjustment to reflect the issuance of Hexcel
common stock to Ciba, net of certain fees and
expenses incurred in connection with
issuing such stock $ 140,600
(n) Adjustment to reflect the write-off of capitalized
debt issuance costs in connection with the
extinguishment of certain existing debt obligations
with proceeds from the Senior Secured Credit Facility $ (1,658)
(o) Adjustment to eliminate Ciba's investment in the
Ciba Composites Business $(236,949)
Pro Forma Adjustments -- Unaudited Pro Forma Condensed Combined
Statement of Operations
(p) Adjustment to eliminate sales between the Ciba
Composites Business and Hexcel $ (3,207)
(q) Adjustment to reflect the following:
Elimination of cost of sales between the Ciba
Composites Business and Hexcel $ 2,708
Reduction in depreciation costs resulting from
the purchase price adjustment to the net
property, plant and equipment of the Ciba
Composites Business 4,152
Net adjustment $ 6,860
(r) 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
Amortization of the excess of purchase price over net
assets acquired (20 year amortization period) (2,215)
Amortization of capitalized fees and expenses
incurred in connection with securing the
Senior Secured Credit Facility (3 year
amortization period) (330)
Net adjustment $ 4,385
(s) Adjustment to reflect the following:
Elimination of interest expense on liabilities of
the Ciba Composites Business which are not
assumed by Hexcel $ 1,032
Net reduction in interest expense resulting from the
refinancing of certain credit facilities with the
Senior Secured Credit Facility 992
Estimated interest expense on the Senior Subordinated
Notes payable to Ciba (2,893)
Net adjustment $ (869)
(t) 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 $3,361 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.
(u) Adjustment to eliminate the minority interest in
the operating results of the Ciba Composites
Business $ 1,506
(v) The income tax consequences of the cumulative pro forma adjustments
are estimated to be zero. This is due to the fact that the pro
forma combined company incurred losses from continuing operations
before income taxes for the year ended December 31, 1995, and no
income tax benefits relating to these losses have been
recognized. Furthermore, the pro forma combined company has
sufficient net operating loss carryforwards for income tax
purposes to substantially eliminate any tax liabilities arising
from pro forma adjustments.
