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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
__________________________
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1993
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ____________ to __________
Commission File Number 1-8472
__________________________
HEXCEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-1109521
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
5794 W. Las Positas Boulevard
Pleasanton, California 94588-8781
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number, including area code: (510) 847-9500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
COMMON STOCK NEW YORK STOCK EXCHANGE
COMMON STOCK PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value as of April 8, 1994 of voting stock held by
nonaffiliates of the registrant: $27,411,851.
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
of reorganization confirmed by a U.S. Bankruptcy Court.
Yes X No (Note: To date, no plan confirmed, no securities distributed)
----- -----
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at April 8, 1994
----- ----------------------------
COMMON STOCK 7,309,827
DOCUMENTS INCORPORATED BY REFERENCE:
PROXY STATEMENT FOR THE ANNUAL MEETING OF SHAREHOLDERS (TO THE EXTENT SPECIFIED
HEREIN) - PART III.
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Hexcel Corporation (herein referred to as the "Parent Company" or the
"Parent"), founded in 1946, was initially incorporated in California in 1948,
and reincorporated in Delaware in 1983. Hexcel Corporation and subsidiaries
(herein referred to as "Hexcel" or the "Company") is an international developer
and manufacturer of honeycomb, advanced composites, reinforcement fabrics and
resins. Hexcel materials are used in commercial aerospace, space and defense,
general industrial and other markets.
RESTRUCTURING AND BANKRUPTCY REORGANIZATION
In December 1992, the Company initiated a worldwide restructuring program
designed to improve facility utilization and determine the proper workforce
requirements to support future business levels. The Company recorded a $23.5
million charge for this program in the fourth quarter of 1992. The
restructuring was necessary due to anticipated protracted weakness in the
aerospace industry and the need to make aggressive cost reductions to operate
profitably at lower sales levels. Restructuring actions began in 1993 and
included commencement of the closure of the Graham, Texas plant, personnel
reductions at all remaining manufacturing facilities, and a worldwide
reorganization of sales, marketing and administration.
During the third quarter of 1993, Hexcel conducted a further evaluation of
the adequacy of the restructuring program and existing reserves in light of
declining business conditions in the Company's primary markets, including
commercial aerospace. As a result of this evaluation and the continuing decline
in aerospace sales, the Company significantly expanded the original
restructuring program and recorded an additional restructuring charge of $50.0
million in the third quarter of 1993. The expanded restructuring is a response
to deeper than anticipated declines in the aerospace market, and includes
additional staff reductions, further consolidation of facilities and write-downs
of impaired assets. The Company recorded another $2.6 million charge in the
fourth quarter in connection with the expanded restructuring program.
In order to fund the restructuring program and improve its capital
structure, the Company needed substantial additional financing and a
restructuring of its U.S. and European debt. Negotiations with existing senior
U.S. lenders to obtain this financing and restructure the Company's domestic
obligations were undertaken early in 1993 and continued throughout most of the
year. Alternative sources of debt and equity financing were also pursued. The
Company did secure the commitment of credit facilities for its Belgian
subsidiary through March 16, 1994. However, the Company was unable to obtain a
consensus among the senior U.S. lenders on a debt restructuring plan for its
U.S. operations.
With the Parent Company operating at critically low levels of cash, without
any remaining credit availability, having extended payments to trade vendors,
and needing additional financing to meet operating requirements and fund the
restructuring program, Hexcel Corporation filed a voluntary petition for relief
under the provisions of Chapter 11 of the federal bankruptcy laws on December 6,
1993. The Chapter 11 filing allows the Parent Company to prepare and present to
the U.S. Bankruptcy Court (or "Bankruptcy Court") a plan to reorganize its
operations and financial obligations while under bankruptcy protection.
Bankruptcy proceedings are limited solely to Hexcel Corporation (a Delaware
corporation, the "Parent Company" or "Parent"), which directly owns and operates
substantially all of the Company's U.S. assets and operations. The Company's
joint ventures and European subsidiaries are not included in the
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bankruptcy proceedings and, as such, are not subject to the provisions of the
federal bankruptcy laws or the supervision of the Bankruptcy Court. However,
the Parent Company is generally unable to provide direct financial support
outside of the normal course of business to joint ventures and subsidiaries
without Bankruptcy Court approval. Hexcel Corporation has obtained a debtor-in-
possession revolving line of credit of up to $35.0 million to finance operations
and restructuring activities during bankruptcy reorganization. This credit
facility is expected to provide the Parent Company with adequate financing while
it remains under bankruptcy protection.
Further discussion of the restructuring program and bankruptcy
reorganization is included in this Form 10-K in "Management Discussion and
Analysis," which begins on page 28, and in Notes 2, 3 and 6 to the Consolidated
Financial Statements, which begin on page 43.
HEXCEL S.A.
The downturn in the worldwide aerospace business and difficult economic
conditions in Europe have resulted in poor financial performance by Hexcel S.A.,
the Company's wholly-owned Belgian subsidiary. This subsidiary has experienced
a 40% sales decline and significant operating losses over the past two years.
Sales are not expected to improve in 1994, and interest costs and restructuring
actions continue to consume cash. Hexcel S.A. is also investigating alleged
product claims which could require additional cash outlays.
Hexcel S.A. is currently in negotiations with its existing lenders
regarding the commitment of credit facilities which expired beginning on March
16, 1994. Four of the five existing lenders have agreed to a stand still until
April 30, 1994, subject to the Parent Company making satisfactory progress
toward obtaining authorization from the Bankruptcy Court to invest additional
funds and recapitalize Hexcel S.A. Discussions with the fifth lender are
continuing. There is no assurance that the Bankruptcy Court will authorize the
investment of additional funds or the recapitalization of Hexcel S.A., or that
the existing lenders will continue to extend their short-term credit agreements
for any specified length of time. As a result, Hexcel S.A.'s ability to
continue as a going concern is subject to its obtaining the needed financing, as
well as resolving alleged product claims and successfully implementing required
restructuring initiatives.
Hexcel S.A. is an integral component of the Company's worldwide
competitiveness, particularly in commercial aerospace. If Hexcel S.A. is unable
to continue as a going concern, management believes that this would have a
material adverse effect on the Company's U.S. and international operations.
INDUSTRY SEGMENT
Hexcel operates within a single industry segment, structural materials.
The Company sells these materials in the United States and international
markets. The net sales, income (loss) before income taxes, identifiable assets,
capital expenditures, and depreciation and amortization for each geographic area
for the past three years are shown in Note 17 to the Consolidated Financial
Statements included in this Form 10-K.
BUSINESS
HONEYCOMB
Hexcel has been the world leader in developing and manufacturing honeycomb
for over 45 years. Honeycomb is a unique, lightweight, cellular structure
composed generally of hexagonal cells nested together, similar in appearance to
a cross-sectional slice of a beehive. The hexagonal shape of the cells gives
honeycomb a high strength-to-weight ratio when used in "sandwich" form, and a
uniform resistance to
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crushing under pressure. These characteristics are combined with the physical
properties of the material from which the honeycomb is made to meet various
engineering requirements.
The Company produces honeycomb from a number of metallic and non-metallic
materials. Most metallic honeycomb is made of aluminum and is available in a
selection of alloys, cell sizes and thicknesses. Non-metallic honeycomb
materials include fiberglass; graphite; thermoplastic; Nomex-R-, a non-flammable
aramid fiber paper; Kevlar-R-, an aramid fiber; and several other specialty
materials.
Hexcel sells honeycomb in standard blocks and sheets of honeycomb core.
The Company adds value to standard honeycomb core by contouring and machining it
into complex shapes to meet customer specifications. In addition, honeycomb is
fabricated into bonded panels and final bonded assemblies. In bonded sandwich
panel construction, sheets of aluminum, stainless steel, resin-impregnated
reinforcement fiber "skins" or other laminates are bonded with adhesives to each
side of a honeycomb core. Bonded panels are many times stronger and stiffer
than solid or laminated structures of equivalent weight. Use of an autoclave
allows Hexcel to manufacture parts requiring the high temperature and pressure
necessary to produce complex bonded assemblies.
The largest markets for Hexcel honeycomb are the commercial and military
aerospace markets. Advanced processing is used in the production of aircraft
components such as wing flaps, ailerons and helicopter rotor blades. Specific
applications include control surfaces (movable parts such as rudders, flaps,
spoilers and speed brakes that control the direction or speed of an airplane);
engine nacelles, cowlings, pylons and nozzles; fairings (flap track and
wing-to-body); interiors (walls, floors, partitions and luggage bins); landing
gear doors and access doors; wings, wing tips, wing leading edge and trailing
edge panels; horizontal stabilizers; radomes; electromagnetic shielding and
absorption; and satellite components.
Non-aerospace general industrial honeycomb applications include high-speed
trains and mass transit vehicles (doors, walls, ceilings, floors and external
structures); energy absorption products; athletic shoe components; clean room
facilities (walls and ceilings); automotive components (air flow controllers in
fuel injection systems, protective head and knee restraints); portable military
shelters and military support equipment; naval vessel compartments (bulkheads,
water closets, doors, floor panels, partitions and bunks) and business machine
cabinets.
The Company operates seven honeycomb manufacturing and advanced processing
facilities worldwide, including the Graham, Texas facility which is scheduled to
be closed by the end of 1994.
ADVANCED COMPOSITES
Advanced composites combine high performance reinforcement fibers with
resins to form a composite material with exceptional structural properties not
found in the fibers or resins alone. Hexcel impregnates reinforcement fabrics,
and fibers aligned into unidirectional tapes, with resins. The Company then
partially cures the material under heat and pressure to produce a "prepreg."
In addition to standard S-2-R- and E- type fiberglass, Hexcel produces
advanced composite materials from a variety of commercially available fibers.
Graphite fiber exhibits high strength and stiffness relative to weight and is
sold principally for aerospace and recreational uses. Kevlar is exceptionally
resistant to impact and is used extensively in new generation aircraft and in
various armor and protection applications. Quartz and ceramic fibers are
resistant to extremely high temperatures and are used in various aerospace and
general industrial applications. Electrically and thermally conductive
Thorstrand-R- is used mainly by the aerospace industry. Resin systems include
epoxy, polyester, bismaleimide, phenolic, cyanates and polyimide.
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Advanced composites are sold to several markets including transportation
(commercial and private aircraft, mass transit, freight and passenger vehicles);
space and defense (military aircraft, naval vessels, space vehicles, defense
systems and military support equipment); recreation (athletic shoes, fishing
rods, bicycles, tennis rackets, baseball bats, golf clubs, surfboards, snow skis
and racing cars); general industrial (utility surge arrestors, antennae and
insulative rods for electrical repairs); and medical (orthotics and
prosthetics).
Net sales of honeycomb and advanced composites, sold separately and
together as bonded structures, were $217.7 million in 1993, $253.9 million in
1992, and $263.2 million in 1991. The decline in 1993 was due mainly to a
significant drop in commercial and military aerospace business.
REINFORCEMENT FABRICS
Hexcel produces woven fabrics without resin impregnation from the same
fibers the Company uses to make advanced composites. These fibers include S-2
and E- type fiberglass, high strength carbon fibers, impact resistant Kevlar,
electrically conductive Thorstrand, temperature resistant ceramic and quartz
fibers, and a variety of other specialty fibers.
The Company sells reinforcement fabrics for use in numerous applications.
These include aerospace, marine (commercial and pleasure boats), printed circuit
boards, metal and fume filtration systems, ballistics protection, decorative
window coverings, automotive, insulation, recreation, civil engineering
(architectural wraps), and other general and industrial applications.
The Company entered into a strategic alliance with Owens-Corning Fiberglas
Corporation in July 1993. The joint venture combined the weaving and
stitchbonding technology of Hexcel Knytex with the worldwide reinforcement glass
fiber manufacturing, marketing and distribution capabilities of Owens-Corning.
The Knytex joint venture is a global market leader in the design and manufacture
of stitchbonded, multi-layer reinforcement fabrics. The stitchbonded materials
may be multiple layers of fabrics or fibers with varying orientations.
The Company entered into a joint venture with Fyfe Associates Corporation
in October 1992. Hexcel-Fyfe will sell and apply high-strength architectural
wrap for the seismic retrofitting and strengthening of bridges and other
structures.
Net sales of reinforcement fabrics were $93.0 million in 1993, $99.2
million in 1992 and $92.4 million in 1991. As a result of the joint venture
with Owens-Corning that started July 1, 1993, the Company's 1993 sales only
reflect Hexcel Knytex sales for six months of $7.0 million.
RESINS
Resins consist of formulated epoxy and polyurethane products used in
aerospace, electronics, automotive, medical devices and other general industrial
applications. Applications for resin products include machinable tooling
boards, fastcast resins, laminating resins for wet lay-up of boats,
encapsulating materials for electronic circuits, adhesives and surface coatings.
The Company has commenced discussions with interested parties for the sale of
the Resins business, although no agreement has yet been reached.
Net sales of resins were $27.9 million in 1993, $33.2 million in 1992 and
$31.0 million in 1991.
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PRODUCTS AND PROCESSES, RESEARCH AND DEVELOPMENT
Hexcel spent $8.7 million in 1993, $10.5 million in 1992 and $10.6 million
in 1991 for research and development of products and markets. This represented
2.6% of net sales in 1993, and 2.7% of sales in each of 1992 and 1991. These
expenditures were expensed as incurred. Hexcel materials rely primarily upon
technology derived from the field of polymer chemistry.
RAW MATERIALS
The Company purchases all raw materials used in production. Aluminum and
several other key raw materials are available from relatively few sources. If
these materials were no longer available, which Hexcel does not anticipate, such
an occurrence could have a material adverse effect on operations.
ENVIRONMENTAL MATTERS
Environmental control regulations have not had a significant adverse effect
on overall operations. A discussion of environmental matters is included in
"Item 3. Legal Proceedings" beginning on page 10 of this Form 10-K.
MARKETS AND CUSTOMERS
Hexcel materials are sold for a broad range of uses. The table on page 37
of this Form 10-K entitled "Market Summary" displays the percentage distribution
of net sales by market since 1989.
The Boeing Company and Boeing subcontractors accounted for approximately
19% of 1993 sales. The loss of this business, which the Company does not
anticipate, could have a material adverse effect on sales and earnings. Sales
to U.S. government programs, including some of the sales to The Boeing Company
and Boeing subcontractors noted above, were 16% of sales in 1993.
Hexcel commercial aerospace and space and defense sales are substantially
dependent upon the level of activity within each industry as well as the
acceptance by each industry of the Company's aerospace materials and services.
Considerations of aircraft performance have led to the increased use of
honeycomb and advanced composite materials in aircraft manufacture, particularly
in newer models and development programs. However, the Company must
continuously demonstrate the cost benefits of its products for aerospace
applications.
Commercial aerospace activity fluctuates in relation to two principal
factors. First, the number of revenue passenger miles flown by the airlines
affects the size of the airline fleets and generally follows the level of
overall economic activity. The second factor, which is less sensitive to the
general economy, is the replacement and retrofit rates for existing aircraft.
These rates, resulting mainly from obsolescence, are determined in part by
Federal Aviation Administration regulations as well as public concern regarding
aircraft age, safety and noise. Also, these rates may by affected by the desire
of airlines for higher payloads and more fuel efficient aircraft, which in turn
is influenced by the price of fuel.
Commercial aircraft build rates, based on the number of aircraft delivered,
declined by more than 20% from 1992 to 1993. Major aircraft builders have
announced significant personnel reductions which began
5
in 1993 and are expected to continue through 1994 into 1995. Based on current
projections of aircraft build rates, the commercial aerospace market will likely
continue to decline at least until 1995.
The Company believes activity within the military aerospace industry
fluctuates in relation to world tensions and the attitudes of the current
Administration and Congress toward defense spending. Since 1987, the aircraft
procurement budget of the U.S. Department of Defense has declined by more than
40%. Political changes in Eastern Europe, the former Soviet Union, and the
Middle East, combined with strong U.S. political sentiment toward reduced
defense spending indicate that military procurement will continue to decline
through 1994 and beyond.
Company sales to space and defense markets, particularly military
aerospace, continue to decline. In 1993, space and defense sales decreased to
$55.8 million from $59.4 million in 1992 and $67.3 million in 1991. Hexcel
believes the space and defense markets for its products will continue to shrink
and is currently evaluating the Company's future involvement in these markets.
Further discussion of the military aerospace business is included in this Form
10-K under "Management Discussion and Analysis."
The B-2 program, which began in the mid - 1980s, has accounted for a
significant portion of the Company's recent space and defense sales. Program
delays and scheduling changes began in 1989, and orders stabilized in 1992 and
1993 far below the level anticipated when the program began. Production volumes
under the program are expected to decline in 1994, and the outlook beyond 1994
is extremely uncertain. Originally, the Company expected to generate
approximately $500 million in revenues over the life of the B-2 program. As a
result of substantially lower orders, revenues are now expected to total
approximately $100 million, most of which has already been earned.
B-2 program reductions have resulted in substantial underutilized capacity
at the Chandler, Arizona plant. For 1993, the Company negotiated to bill the
current unabsorbed fixed costs to the prime contractor contingent upon
government acceptance of this billing practice. In 1992 and 1991, the Company
deferred unabsorbed fixed costs of $2.0 million and $2.4 million, respectively.
Hexcel filed a claim for equitable relief associated with this program in
connection with the underutilized capacity at the Chandler and other plants.
Management believes, based upon advice of counsel, that the Company will realize
at least the cumulative amount deferred.
Hexcel contracts to supply materials for military and some commercial
projects contain provisions for termination at the convenience of the U.S.
government or the buyer. The Company is subject to U.S. government cost
accounting standards, which are applicable to companies with more than $25
million (increased from $10 million in November 1993) of government contract or
subcontract awards each year.
The Company, as a defense subcontractor, is subject to U.S. government
audits and reviews of negotiations, performance, cost classifications,
accounting and general practices relating to government contracts. The Defense
Contract Audit Agency reviews cost accounting and business practices of
government contractors and subcontractors including Hexcel. The Company has
been engaged in discussions of a number of cost accounting issues which could
result in claims by the government. Some of these issues have already been
resolved and management believes, based on available information and the
Company's assertion of a right of offset among individual issues, that it is
unlikely the remaining items in the aggregate will have a material adverse
effect on the earnings or financial position of the Company. Further discussion
of government contract matters is included in "Item 3. Legal Proceedings" of
this Form 10-K.
The Company has a facility security clearance from the United States
Department of Defense. A portion of the Company's sales and other revenues in
1993 was derived from work requiring this clearance.
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Continuation of this clearance requires that the Company remains free from
foreign ownership, control or influence (or "FOCI"). Management does not
believe there is presently any substantial risk of FOCI that will cause the
facility security clearance to be revoked.
MARKETING
A staff of salaried market managers, product managers and salespeople
market Hexcel products directly to customers. The Company also uses independent
distributors and/or manufacturer representatives for certain products and
markets, including reinforcement fabrics and resins.
BACKLOG
The backlog of orders for aerospace materials to be filled within 12 months
was $61.6 million at December 31, 1993, $100.5 million at December 31, 1992 and
$118.8 million at December 31, 1991. A major portion of the backlog is
cancelable without penalty. Aerospace backlog continued to decline for a number
of reasons, primarily the shrinking commercial and military aerospace market.
In addition, the aerospace industry is gradually moving toward "just-in-time"
inventory delivery and shorter lead time requirements to reduce investment in
inventory and the effect of order cancellations.
Orders for aerospace materials generally lag behind the award of orders for
new aircraft by a considerable period. Thus, the level of new aircraft
procurement normally will not have an impact on aerospace orders received by
Hexcel for about one to three years, depending on the nature of the product,
manufacturer and delivery schedules.
Backlog for non-aerospace materials amounted to $29.1 million at December
31, 1993 compared with $16.8 million at December 31, 1992 and $20.2 million at
December 31, 1991. Most of the Company's backlog is expected to be filled
within six months. Markets for the Company's products outside aerospace are
generally highly competitive requiring stock for immediate sale or shorter lead
times for delivery. The backlog for non-aerospace markets increased as the
Company developed new applications for existing products and the economy in the
U.S. began to recover in the second half of 1993.
INTERNATIONAL OPERATIONS
In addition to exporting from the United States, Hexcel serves
international markets through four European operating subsidiaries located in
Belgium, France and the United Kingdom. Each of these subsidiaries maintains
manufacturing and marketing facilities. Hexcel also maintains sales offices in
Australia, Brazil, Germany, Italy, Japan and Spain. Hexcel is a 50% partner in
a joint venture formed in 1990 with Dainippon Ink and Chemicals (or "DIC") for
the production and sale of Nomex honeycomb, advanced composites and decorative
laminates for the Japanese market. All Hexcel materials, with the exception of
classified U.S. military materials, are marketed throughout the world.
The table on page 37 of this Form 10-K entitled "Market Summary" displays
the amount of international net sales and the percentage of international sales
to total net sales since 1989. Note 17 to the Consolidated Financial Statements
included in this Form 10-K shows various financial data for international
operations since 1991.
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JOINT VENTURES
The Company has entered into three joint ventures since 1990, including the
one with DIC discussed above. These joint ventures are discussed in "Management
Discussion and Analysis" in this Form 10-K.
DISCONTINUED OPERATIONS
In November 1990, the Company announced plans to sell the fine chemicals
business with operations in Zeeland, Michigan and Teesside, England. On March
31, 1992, the Company sold the Zeeland, Michigan fine chemicals business. On
January 31, 1994, the Company sold its Teesside, England business. See Note 14
to the Consolidated Financial Statements included in this Form 10-K for further
discussion.
The fine chemicals business is accounted for as discontinued operations.
Financial data, employees and properties related to the business have been
segregated, and the information in this report reflects continuing operations
only.
COMPETITION
In the production and sale of its materials, the Company competes with
numerous U.S. and international companies on a worldwide basis, many of which
are considerably larger than Hexcel in size and financial resources. For
example, the Company competes with one major international manufacturer of
honeycomb, advanced composites, reinforcement fabrics and resins, as well as
several other major companies on specific products. The Company also competes
with many smaller U.S. and international manufacturers.
The broad markets for Hexcel products are highly competitive. The Company
has focused on both specific markets and specialty products within markets to
gain market share. Hexcel materials compete with substitute structural
materials, including building materials such as structural foam, metal, wood and
other engineered material. Depending upon the material and markets, relevant
competitive factors include price, delivery, service, quality and product
performance.
Although the markets for Hexcel honeycomb materials are highly competitive,
management knows of no other manufacturer that has produced and sold as much
non-paper honeycomb as Hexcel during the last five years. While industry
statistics are not available, management believes on the basis of market
research that Hexcel currently produces and sells the largest share of metallic
and non-metallic honeycomb used in the world. Hexcel continues to maintain this
competitive edge through the development of new honeycomb materials for the
markets it serves.
PATENTS AND KNOW-HOW
Management believes the ability to develop and manufacture materials is
dependent upon the know-how and special skills within the Company. In addition,
the Company has obtained and presently owns a number of patents, patent
applications, and patent and technology licenses. It is Hexcel policy to
enforce the proprietary rights of the Company. To that end, the Company has
several patent infringement lawsuits pending. In 1992, the Company received a
favorable judgment for patent infringement and misappropriation of trade secrets
which resulted in a gain of $3.0 million. Management believes the
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patents and know-how rights currently owned are adequate for the conduct of
business. In the opinion of management, however, no individual patent or
license is of material importance.
EMPLOYEES
At February 28, 1994, Hexcel employed 2,340 full-time employees compared
with 3,050 at December 31, 1992. Of these employees, 1,830 were in
manufacturing and the remainder were administrative, sales, engineering,
marketing, research and clerical personnel. 77 employees at one domestic plant
have union affiliations. Management believes that labor relations in the
Company are generally satisfactory.
ITEM 2. PROPERTIES.
Hexcel owns manufacturing plants and sales offices located throughout the
United States and in several other countries as noted below. The corporate
offices and principal corporate support activities for the Company are located
in leased facilities in Pleasanton, California. The central research and
development laboratories for the Company are located in Dublin, California.
The following table lists the manufacturing plants by geographic location,
approximate square footage and principal products.
MANUFACTURING PLANTS
Approximate
Plant Location Square Footage Principal Products
- -------------- -------------- ------------------
United States:
Casa Grande, Arizona 210,000 Non-metallic honeycomb, advanced honeycomb processing, advanced composites
Chandler, Arizona 158,000 Non-metallic honeycomb, advanced honeycomb processing, advanced composites
Chatsworth, California 42,000 Resins, tooling systems
Livermore, California 150,000 Advanced composites
Lancaster, Ohio 42,000 Advanced composites
Pottsville, Pennsylvania 100,000 Advanced honeycomb processing
Graham, Texas 250,000 Metallic honeycomb
Seguin, Texas 170,000 Woven reinforcement fabrics
Burlington, Washington 50,000 Advanced honeycomb processing
International:
Welkenraedt, Belgium 205,000 Metallic and non-metallic honeycomb, advanced composites
Swindon, England 20,000 Non-metallic honeycomb processing
Les Avenieres, France 373,000 Woven reinforcement fabrics, advanced composites
St. Ouen l'Aumone, France 100,000 Resins, tooling systems
The Company leases the land on which the Burlington, Washington plant is
located; the 20,000 square foot Swindon, England plant; and 18,000 square feet
of the Les Avenieres, France plant.
In April 1993, the Company announced the closing of the Graham, Texas
facility and the consolidation of the Graham operations into other plants. Even
after the Graham closure, management believes the
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Company has more facilities and production capacity than required by either
current or projected sales levels. See "Management Discussion and Analysis"
in this Form 10-K for further discussion.
The above table does not include the 145,000 square foot plant at Teesside,
England, which was sold on January 31, 1994. This plant was used for the
production of fine chemicals.
Certain of the properties secure loans made to the Company. In addition,
substantially all U.S. equipment and fixtures, along with other business
property, secure the debtor-in-possession financing (see Note 6 to the
Consolidated Financial Statements included in this Form 10-K).
ITEM 3. LEGAL PROCEEDINGS.
On December 6, 1993, the Parent Company filed for protection under the
provisions of Chapter 11 of the federal bankruptcy laws. For further
discussion, see Items 1, "Business," and 7, "Management Discussion and Analysis
of Financial Condition and Results of Operations," and Note 2 to the
Consolidated Financial Statements included in this Form 10-K.
Hexcel Corporation is involved in other court proceedings and claims
incidental to Company business. As a result of the Chapter 11 filing, lawsuits
in which Hexcel Corporation is named as a defendant are stayed as to the
Company.
In December 1988, employees of Lockheed Corporation working with epoxy
resins and composites on classified programs filed suit against Lockheed and its
suppliers (including Hexcel Corporation) claiming various injuries as a result
of exposure to these products. Plaintiffs have filed for punitive damages which
are uninsured. The first trial of the cases of 15 plaintiffs resulted in a
mistrial and a retrial commenced in February 1994. However, Hexcel Corporation
will not participate due to the bankruptcy stay.
During December 1992, four shareholders commenced three actions against
Hexcel Corporation and certain of its officers in the U.S. District Court for
the Northern District of California. These three cases, MARTIN WEBER AND LEO
BRANDSTATTER V. ROBERT L. WITT, DAVID M. WONG AND HEXCEL CORPORATION; GRETCHEN
DOUGLAS V. ROBERT L. WITT ET AL; and ANN TAXIER V. ROBERT L. WITT, DAVID G.
SCHMIDT AND HEXCEL CORPORATION, allege that the defendants violated sections
10(b) and 20(a) of the Securities and Exchange Act of 1934 and related Rule 10b-
5 by allegedly issuing false public disclosures regarding the business of the
Company. These three suits purport to be class actions; two are on behalf of
purchasers of Hexcel common stock between October 19 and December 11, 1992, and
the third is on behalf of those who acquired stock between February 4 and
December 11, 1992. The actions seek unspecified damages, rescission,
unspecified injunctive relief and reimbursement of costs and attorneys fees. On
February 5, 1993, the Court consolidated the three lawsuits into one action, IN
RE HEXCEL CORPORATION SECURITIES LITIGATION. While management believes there
are meritorious defenses to the claims, a tentative settlement was reached among
all parties prior to the Chapter 11 filing which would avoid costly and
unproductive litigation. This matter, including the tentative settlement, has
been stayed by bankruptcy proceedings.
In July 1992, Hexcel Corporation was joined in a lawsuit initiated in
October 1990 in Alameda County Superior Court concerning a dispute over a real
estate transaction between F&P Properties and Donald and Suzanne Smith (F&P
PROPERTIES V. SMITH, ET AL). This action concerns, in part, responsibility for
clean-up and investigation costs associated with an abandoned waste disposal
site located near Company manufacturing facilities in Livermore, California.
The Parent Company sold this property to the Smiths in 1979, and the Smiths, in
turn, sold it to F&P Properties in 1985. A global settlement has been
negotiated
10
but was not signed by the Parent Company prior to the Chapter 11 filing. This
matter, including the negotiated settlement, has been stayed by bankruptcy
proceedings.
Hexcel Corporation has been named as a potentially responsible party with
respect to several disposal sites that it does not own or possess and are
included on the Environmental Protection Agency's Superfund National Priority
List ("NPL"). Also, pursuant to the New Jersey Environmental Responsibility and
Clean-Up Act, Hexcel Corporation signed an administrative consent order to pay
for clean-up of a manufacturing facility it formerly operated in Lodi,
New Jersey. Hexcel Corporation is the account party on a $4.0 million letter of
credit issued in relation to that facility in favor of the State of New Jersey,
and believes that the ultimate allowed claim against it for such clean-up and
for reimbursement with respect to the amount that may be paid under such letter
of credit, should not exceed $4.0 million, however the ultimate cost of
remediation at the Lodi site will depend on developing circumstances.
The Livermore, California plant has been delisted from the NPL, however
Hexcel must comply with a state clean-up order which will cause it to incur
environmental costs.
Contingent and unliquidated claims may be asserted against Hexcel
Corporation for unexpended clean-up costs that may hereafter be expended by
third parties. Such claims may be direct claims asserting joint and several
liability against Hexcel Corporation for the entire future clean-up cost
associated with certain Superfund and other sites that may hereafter be expended
by others. Contingent claims for reimbursement or contribution may also be
asserted against Hexcel Corporation by other potentially responsible parties for
future clean-up costs for Superfund and other sites that may hereafter be
expended by others.
Hexcel cannot estimate, with any degree of confidence, the costs associated
with these sites due to uncertainties relating to: (1) the nature and extent of
the remediation necessary at these sites; (2) the allocation of liability among
responsible parties associated with these sites; (3) the opportunities for cost
recovery from other parties and insurance companies; and (4) whether the
bankruptcy proceedings will act to limit the Company's liability associated with
these sites.
Further, Hexcel Corporation is unable to determine at this time the amount
of these potential claims, including environmental claims, because an order
entered in Hexcel Corporation's Chapter 11 case permits proofs of claim to be
filed on or before April 28, 1994. Nor is Hexcel Corporation able to determine
at this time the amount of claims that will be allowed for costs already
expended by others including costs for clean-up work, although it believes that
its liability is not material in amount.
Under the federal bankruptcy laws, contingent or unliquidated clean-up
claims may be estimated in Hexcel Corporation's Chapter 11 case for the purpose
of confirming a plan of reorganization. The amount of liability of Hexcel
Corporation with respect to a particular claim of that character, as estimated
by the Bankruptcy Court, may, by virtue of the federal bankruptcy laws, be the
maximum amount of the allowed claim of such a claimant even if such contingent
or unliquidated claim later becomes fixed and liquidated. Contingent claims for
reimbursement or contribution that may be filed against Hexcel Corporation may
be disallowed under the federal bankruptcy laws if it is determined by the
Bankruptcy Court that the claimant and Hexcel Corporation are both liable on the
claim of a creditor.
The last day for the filing of claims in Hexcel Corporation's Chapter 11
case is April 28, 1994, although it is possible that the Bankruptcy Court could
permit the late filing of a proof of claim by a creditor that establishes
excusable neglect for not filing a timely proof of claim. The maximum liability
on all contingent and unliquidated claims, and the outcome of proceedings under
the federal bankruptcy laws or estimation and disallowance of contingent or
unliquidated claims, cannot be predicted at this time.
11
In 1993, the Company became aware of an aluminum honeycomb sandwich panel
delamination problem with panels produced by its wholly-owned Belgian
subsidiary, Hexcel S.A., and installed in rail cars in France and Spain.
Certain customers have alleged that Hexcel S.A. is responsible for the problem
but the subsidiary has not been named in any lawsuits at this time. Hexcel S.A.
is investigating these claims and the availability of any insurance coverage.
Cost accounting issues and a voluntary disclosure regarding charging
practices could result in future claims under U.S. government contracts. A
discussion of U.S. government contracts is included in "Markets and Customers"
on page 5 of this Form 10-K. The Company is cooperating with the U.S.
government in all investigations of which the Company has knowledge; however,
management is unable to predict whether legal proceedings will result.
Management believes, based on available information, that it is unlikely
any of these items will have a material adverse effect on the earnings or
financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Listed below are the executive officers of the Company as of April 11, 1994,
the positions held by them and a brief description of their business experience.
There are no family relationships among any of the Company's executive officers:
OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
John J. Lee 57 1993 Chairman of the Board of Directors and
Chief Executive Officer since January
1994; Chairman and Co-Chief Executive
Officer from July to December 1993;
Director since May 1993. Mr. Lee has
been the Chairman of the Executive
Committee of XTRA Corporation, a
transportation equipment leasing
company, since 1990, and the Chairman
of the Board, President and Chief
Executive Officer of Lee Development
Corporation, a merchant banking
company, since 1987. Mr. Lee has also
been a Trustee of Yale University
since 1993. From July 1989 through
April 1993, Mr. Lee served as Chairman
of the Board and Chief Executive
Officer of Seminole Corporation, a
manufacturer and distributor of
fertilizer. From April 1988 through
April 1993, Mr. Lee served as a
Director of Tosco Corporation, a
national refiner and marketer of
petroleum products. Mr. Lee also
served as President and Chief
Operating Officer of Tosco from 1990
through April 1993.
12
OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
Donald J. O'Mara 56 1991 Director since January 1994; President
and Chief Operating Officer since
March 1993; Vice President - Honeycomb
and Advanced Products from 1991 to
1993. From 1987 to 1991, Mr. O'Mara
served as managing director of
Sprague-Brooks Associates. He was
Vice President and Chief Operating
Officer of Gates Learjet Corporation
from 1984 to 1987.
Robert D. Krumme 56 1993 Director and Vice Chairman since January
1994; Vice President, General Counsel
and Secretary from September 1993 to
January 1994. Mr. Krumme has been
President of The Corporate Management
Group since 1989 and, prior to joining
the Company in 1993, was a senior
corporate executive officer and
general counsel of three public
companies. Mr. Krumme served as
General Counsel of The Gillette
Company from 1990 - 1991, as Vice
President and General Counsel of
Ingersoll-Rand Company from 1986 -
1988 and, prior to 1986, as Senior
Vice President and General Counsel and
in other executive positions of
Cluett, Peabody & Co, Inc. for more
than 15 years.
Rodney P. Jenks, Jr. 43 1994 Vice President, General Counsel and
Secretary of the Company since March
1994. Prior to joining the Company in
1994, Mr. Jenks was a partner in the
law firm of Wendel, Rosen, Black, Dean
& Levitan, from 1985.
Thomas J. Lahey 53 1989 Vice President - Worldwide Sales since
April 1993; Vice President - Advanced
Composites from 1992 to 1993; General
Manager of Advanced Composites from
1991 to 1992; General Manager of
Advanced Products from 1989 to 1991.
Prior to joining the company in 1989,
Mr. Lahey held the position of
Executive Assistant to the President
of Kaman Aerospace Corporation in 1987
and 1988, and was a Vice President of
Grumman Corporation from 1985 to 1987.
13
OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
William P. Meehan 58 1993 Vice President - Finance and Chief
Financial Officer of the Company since
September 1993, and Treasurer of the
Company since April, 1994. Prior to
joining the Company in 1993, Mr.
Meehan served as President and Chief
Executive Officer of Thousands Trails
and NACO, a membership campground and
resort business, from 1990 through
1992. From 1986 through 1989, Mr.
Meehan served as Vice President-
Finance and Chief Financial Officer of
Hadco Corporation.
Robert A. Penezic 56 1979 Vice President - Administrative
Operations since 1986; Vice President
of Human Resources from 1979 to 1986.
Mr. Penezic joined the Company in
1979.
Robert A. Petrisko 39 1993 Vice President - Technology since
September 1993. Mr. Petrisko joined
the Company in 1989, after serving as
a Research Specialist with Dow Corning
Corporation from 1985 to 1989.
Gary L. Sandercock 52 1989 Vice President - Manufacturing since
April 1993; Vice President -
Reinforcement Fabrics from 1989 to
1993; General Manager of the Trevarno
Division from 1985 to 1989; other
manufacturing and general management
positions from 1967 to 1985. Mr.
Sandercock joined the Company in 1967.
William K. Woodrow 46 1993 Vice President - Marketing and Business
Development since March 1993. Prior
to joining the Company in 1993, Mr.
Woodrow served as Director of
Corporate Marketing of Raychem
Corporation from 1990 to 1992, and was
Division Manager of Chemelex-
Industrial Division from 1988 to 1990.
Wayne C. Pensky 38 1993 Controller since July 1993. Prior to
joining the Company in 1993, Mr.
Pensky served as Service Line Director
at Arthur Andersen & Co., where he was
employed from 1979.
14
PART II
ITEM 5. MARKET FOR COMMON STOCK OF REGISTRANT AND RELATED STOCKHOLDER MATTERS.
Hexcel common stock is traded on the New York and Pacific Stock Exchanges.
The range of high and low sales prices of Hexcel common stock on the New York
Stock Exchange Composite Tape is contained in Note 18 to the Consolidated
Financial Statements included in this Form 10-K and is incorporated herein by
reference.
The Company paid a quarterly dividend of 11 cents per share in 1992 and
1991. Payments of future cash dividends were suspended effective with the first
quarter of 1993. The debtor-in-possession credit line prohibits any payment of
dividends. On December 6, 1993, there were 2,294 holders of record of Hexcel
common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is contained on page 27 of this Form 10-
K under "Selected Financial Data" and is incorporated herein by reference.
ITEM 7. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is contained on pages 28 to 36 of this
Form 10-K under "Management Discussion and Analysis" and is incorporated herein
by reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is contained on pages 43 to 72 of this
Form 10-K under "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference. The reports of independent public
accountants for the years ended December 31, 1993, 1992 and 1991 are contained
on pages 40 to 42 of this Form 10-K under "Independent Auditors' Reports" and
"Report of Independent Public Accountants" and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
1. Directors
15
Listed below are the directors of the Company as of April 11, 1994, the
positions with the Company held by them and a brief description of each
director's prior business experience. There are no family relationships among
any of the Company's directors:
DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
Thomas R. Brown 56 1981 Director; Chairman of the Insurance and
Environmental Committee; member of the
Audit Committee. Mr. Brown is
Chairman of the Board and Co-Chief
Executive Officer of California
Casualty Management Co., Vice
President and director of California
Casualty & Life Insurance Co., and
Chairman of the Board of the other
corporations of the California
Casualty Group. Mr. Brown is also a
director of University National Bank
& Trust Co. and CorVel Corporation.
The California Casualty Group
specializes in group sponsored
personal lines, property/casualty
insurance and workers' compensation.
Gary L. Depolo 57 1990 Director; Chairman of the Executive
Compensation and Organization
Committee; member of the Audit
Committee. Mr. Depolo is a retired
Executive Vice President of
Transamerica Corporation and served on
the Board of Directors of several of
Transamerica's subsidiary companies.
Mr. Depolo is also a director of Alta
Bates Corporation and California
Health Systems. Transamerica
Corporation is a financial services
organization which engages primarily
in lending, leasing, real estate
services and insurance.
John L. Doyle 62 1974 Director; Former Co-Chief Executive
Officer and Vice Chairman (July 1993
to December 1993); Chairman of the
Advanced Programs and Technology
Committee; member of the Nominating
Committee. Mr. Doyle is a retired
Executive Vice President of Hewlett-
Packard Co. Mr. Doyle is also a
director of Analog Devices, Inc. and
Tab Products. Hewlett-Packard Co.
manufactures electronic computation
equipment and measuring instruments.
16
DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
Cyrus H. Holley 57 1991 Director; member of the Advanced
Programs and Technology Committee;
member of the Executive Compensation
and Organization Committee. Mr.
Holley is a retired Executive Vice
President and Chief Operating Officer
of Engelhard Corporation. Mr. Holley
is also a director of Atlantic Energy,
Inc. and UGI Corporation. Engelhard
Corporation is a provider of specialty
chemical products, engineered
materials and precious metal
management services. Mr. Holley
currently operates Management
Consulting Services which provides
strategic planning services to the
business and education communities. He
also serves as a director of the
National Association of Partners in
Education.
Robert D. Krumme 56 1994 Director and Vice Chairman since January
1994; Vice President, General Counsel
and Secretary from September 1993 to
January 1994. Mr. Krumme has been
President of The Corporate Management
Group since 1989 and, prior to joining
the Company in 1993, was a senior
corporate executive officer and
general counsel of three public
companies. Mr. Krumme served as
General Counsel of The Gillette
Company from 1990 - 1991, as Vice
President and General Counsel of
Ingersoll-Rand Company from 1986 -
1988 and, prior to 1986, as Senior
Vice President and General Counsel and
in other executive positions of
Cluett, Peabody & Co, Inc. for more
than 15 years.
17
DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
John J. Lee 57 1993 Chairman of the Board of Directors and
Chief Executive Officer since January
1994; Chairman and Co-Chief Executive
Officer from July to December 1993;
Director since May 1993. Mr. Lee has
been the Chairman of the Executive
Committee of XTRA Corporation, a
transportation equipment leasing
company, since 1990, and the Chairman
of the Board, President and Chief
Executive Officer of Lee Development
Corporation, a merchant banking
company, since 1987. Mr. Lee has also
been a Trustee of Yale University
since 1993. From July 1989 through
April 1993, Mr. Lee served as Chairman
of the Board and Chief Executive
Officer of Seminole Corporation, a
manufacturer and distributor of
fertilizer. From April 1988 through
April 1993, Mr. Lee served as a
Director of Tosco Corporation, a
national refiner and marketer of
petroleum products. Mr. Lee also
served as President and Chief
Operating Officer of Tosco from 1990
through April 1993.
Charles A. Lynch 66 1994 Director; Chairman of the Restructuring
Committee. Chairman of Greyhound
Lines, Inc., since 1991, and since
1989, Chairman of Market Value
Partners Company, a firm that invests
in and manages developing and
underperforming companies. Mr. Lynch
also serves on the board of directors
of Pacific Mutual Life Insurance,
Nordstrom, Inc., Syntex Corporation,
Mid-Peninsula Bank and Fresh Choice,
Inc. From 1988 through 1989 Mr. Lynch
served as President and Chief
Executive Officer of Levolor
Corporation. From 1986 through 1988
Mr. Lynch served as Chairman and Chief
Executive Officer of DHL Airways, Inc.
From 1978 through 1986 Mr. Lynch
served as Chairman and Chief Executive
Officer of Saga Corporation.
Donald J. O'Mara 56 1994 Director since January 1994; President
and Chief Operating Officer since
March 1993; Vice President - Honeycomb
and Advanced Products from 1991 to
1993. From 1987 to 1991, Mr. O'Mara
served as managing director of
Sprague-Brooks Associates. He was
Vice President and Chief Operating
Officer of Gates Learjet Corporation
from 1984 to 1987.
18
DIRECTOR POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
Lewis Rubin 56 1993 Director; Chairman of the Audit
Committee; member of the Nominating
Committee. Mr. Rubin has been
President and Chief Executive Officer
of XTRA Corporation, a transportation
equipment leasing company, since 1990.
From February 1988 to March 1990, Mr.
Rubin served as President of Lewis
Rubin Associates, a consulting firm
advising the transportation equipment
industry. Prior to February 1988, Mr.
Rubin served as Chairman, President
and Chief Executive Officer of Gelco
CTI Container Services, a subsidiary
of Gelco Corporation, a diversified
international management services
corporation, and as Executive Vice
President of Gelco Corporation. Mr.
Rubin is also a Director of Oneita
Industries, Inc.
George S. Springer 60 1993 Director; member of the Advanced
Programs and Technology Committee;
member of the Nominating Committee.
Dr. Springer is Professor and Chairman
of the Department of Aeronautics and
Astronautics and, by courtesy,
Professor of Mechanical Engineering
and Professor of Civil Engineering at
Stanford University. Dr. Springer
joined Stanford's faculty in 1983.
(a) EXECUTIVE OFFICERS
Information concerning the executive officers of the registrant is
contained in "Item 4A. Executive Officers of the Registrant" beginning on page
12 of this Form 10K and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required in Item 11 will be contained in the definitive
Proxy Statement of the Company. Such information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required in Item 12 will be contained in the definitive
Proxy Statement of the Company. Such information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On March 11, 1994, Mr. Rodney P. Jenks, Jr. became Vice President, General
Counsel and Secretary of the Company. Prior to becoming an officer of the
Company, Mr. Jenks was a partner in the law firm of Wendel, Rosen, Black, Dean &
Levitan which, during 1993 and to date in 1994, provided legal services to
19
the Company for which it was invoiced $92,011. Upon becoming an officer of the
Company, Mr. Jenks resigned as a partner and currently serves as counsel to the
law firm. Although the law firm continues to provide limited legal services to
the Company (none of which are performed by Mr. Jenks), it is anticipated that
these services will be less extensive during 1994 than during 1993. There are
no currently proposed related transactions or any other related transactions
during the prior fiscal year that require disclosure in this Form 10-K report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
a. FINANCIAL STATEMENTS
The consolidated financial statements of the Company, notes thereto,
financial statement schedules, independent auditors' report, and report of
independent public accountants are listed on page 38 of this Form 10-K and are
incorporated herein by reference.
b. REPORTS ON FORM 8-K
Current Report on Form 8-K dated December 9, 1993 related to the Registrant
filing a voluntary petition for relief under the provisions of Chapter 11 of the
federal bankruptcy laws in the United States Bankruptcy Court for the Northern
District of California, Oakland Division on December 6, 1993.
c. EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
3. 1. Restated Certificate of Incorporation of Hexcel Corporation(6)
2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock(6)
3. Certificate of Increase of Authorized Number of Shares of Series A
Junior Participating Preferred Stock(7)
4. Amended and Restated Bylaws of Hexcel Corporation dated as of
August 30, 1993
4. 1. Certificate of Incorporation of Hexcel Corporation, Articles 5
through 10 (See Exhibit 3-1)
2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (Exhibit 3-2)
3. Certificate of Increase of Authorized Number of Shares of Series A
Junior Participating Preferred Stock (See Exhibit 3-3)
4. Amended and Restated Bylaws of Hexcel Corporation, Sections 3
through 11, 13 through 16, and 46 (See Exhibit 3-4)
20
EXHIBIT NO. DESCRIPTION
- ----------- -----------
5. Amendment to Bylaws of Hexcel Corporation (See Exhibit 3-4)
6. Rights Agreement dated as of August 14, 1986, between Hexcel
Corporation and Manufacturers Hanover Trust Company, as Successor
Rights Agent(6)
7. Amendment No. 1 dated October 18, 1988 to Rights Agreement between
Hexcel Corporation and the Bank of California, N.A.
8. Amendment No. 2 dated November 19, 1990 between Hexcel Corporation
and Manufacturers Hanover Company, as successor Rights Agent(4)
9. Amendment No. 3 dated December 18, 1990 between Hexcel Corporation
and Manufacturers Hanover Company, as successor Rights Agent(5)
10. Exemplar of Indenture between Hexcel Corporation and The Bank of
California, N.A., Trustee, dated October 1, 1988
11. Loan Agreement and Indentures-Industrial Development Bonds. These
instruments are not filed herewith; the registrant agrees to
furnish a copy of such instruments to the Commission upon request
10. Material Contracts:
1. A. Note Agreement, as amended, dated December 9, 1977, $8,000,000
8-3/4% Notes
B. Amendments dated April 25, 1978, April 30, 1980, January 6,
1981, April 12, 1981, May 13, 1981, August 21, 1981, March 15,
1982 and September 1, 1982, December 31, 1983, July 24, 1986 and
August 25, 1986, to Note Agreement dated December 9, 1977,
$8,000,000 8-3/4% Notes
2. Consent Agreement dated March 31, 1993, relating to Amended and
Restated Credit Agreement dated March 31, 1993, among Hexcel
Corporation and the Banks named therein and Wells Fargo Bank, N.A.,
as Agent(7)
3. Amended and Restated Credit Agreement dated March 31, 1993, among
Hexcel Corporation and the Banks named therein and Wells Fargo
Bank, N.A., as Agent(7)
4. Letter of Credit and Reimbursement Agreement dated March 1, 1988,
between Hexcel Corporation and Banque Nationale de Paris(7)
5. Letter of Credit and Reimbursement Agreement dated December 1,
1989, between Hexcel Corporation and Banque Nationale de Paris(3)
A. Amendment No. 1 to Letter of Credit and Reimbursement Agreement
dated October 12, 1988, between Hexcel Corporation and Banque
Nationale de Paris
21
EXHIBIT NO. DESCRIPTION
- ----------- -----------
B. Amendment No. 2 to Letter of Credit and Reimbursement Agreement
dated July 1, 1992, between Hexcel Corporation and Banque
Nationale de Paris
C. Amendment No. 3 to Letter of Credit and Reimbursement Agreement
dated April 15, 1993, between Hexcel Corporation and Banque
Nationale de Paris
6. Note Agreement dated as of October 1, 1988, between Hexcel
Corporation and Principal Mutual Life Insurance Company,
$30,000,000 10.12% Senior Notes Due October 1, 1998
7. Letter of Credit Reimbursement Agreement dated as of November 1,
1991, among Hexcel Corporation and Barclays Bank PLC
8. Letter of Credit Reimbursement Agreement dated as of April 28,
1992, among Hexcel Corporation and Barclays Bank PLC as amended
March 31, 1993
9. Debtor in Possession Credit Agreement dated as of December 8, 1993,
and amended January 3, 1994 and March 25, 1994, and amended
April 11, 1994 by and between Hexcel Corporation and The CIT
Group/Business Credit, Inc.
10. Executive Compensation Plans and Arrangements
A. Stock Option Plans
(1) 1988 Management Stock Program(1)
(2) Amendments to 1988 Management Stock Program(1)
(3) 1988 Restricted Stock Agreement - Sample Agreement(1)
(4) 1988 Directors' Discounted Stock Option Agreement - Sample
Agreement(1)
(5) 1988 Discounted Stock Option Agreement - Sample Agreement(1)
(6) 1988 Employees Nonqualified Stock Option Agreement - Sample
Agreement(2)
(7) 1988 Officers' Nonqualified Stock Option Agreement - Sample
Agreement(1)
B. Exemplar of Executive Deferred Compensation Agreement
C. Exemplars of Incentive Plans(6)
D. Exemplars of Contingency Employment Agreement
E. Directors' Retirement Plan(7)
22
EXHIBIT NO. DESCRIPTION
- ----------- -----------
F. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John J. Lee
G. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John L. Doyle
11. Statement Regarding Computation of Per Share Earnings
18. Preferability letter regarding change in accounting for inventories -
Deloitte & Touche
21. Subsidiaries of Registrant
23. Consents of Experts and Counsel
1. Independent Auditors' Consent - Deloitte & Touche
2. Consent of Independent Public Accountants - Arthur Andersen & Co.
_______________
(1) Incorporated by reference to the Registration Statement of registrant on
Post-Effective Amendment No. 1 to Form S-8 filed on May 11, 1988, No. 33-
17025, pursuant to the Securities Act of 1933
(2) Incorporated by reference to the Registration Statement of registrant on
Form S-8 filed on May 2, 1989, No. 33-28445, pursuant to the Securities Act
of 1933
(3) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1989, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.
(4) Incorporated by reference to the Current Report of registrant on Form 8-K
dated November 19, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.
(5) Incorporated by reference to the Current Report of registrant on Form 8-K
dated December 18, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.
(6) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1991, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.
(7) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1992, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.
23
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
PLEASANTON, STATE OF CALIFORNIA.
HEXCEL CORPORATION
APRIL 11, 1994 By: /s/ JOHN J. LEE
___________________________________
John J. Lee, Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
--------- ----- ----
JOHN J. LEE Chairman of the Board of April 11, 1994
______________________ Directors and Chief Executive
(John J. Lee) Officer
(PRINCIPAL EXECUTIVE OFFICER)
WILLIAM P. MEEHAN Vice President and Chief Financial April 11, 1994
______________________ Officer
(William P. Meehan) (PRINCIPAL FINANCIAL OFFICER)
WAYNE C. PENSKY Controller April 11, 1994
______________________ (CONTROLLER AND PRINCIPAL
(Wayne C. Pensky) ACCOUNTING OFFICER)
THOMAS R. BROWN Director April 11, 1994
______________________
(Thomas R. Brown)
GARY L. DEPOLO Director April 11, 1994
______________________
(Gary L. Depolo)
JOHN L. DOYLE Director April 11, 1994
______________________
(John L. Doyle)
CYRUS H. HOLLEY Director April 11, 1994
______________________
(Cyrus H. Holley)
ROBERT D. KRUMME Director April 11, 1994
______________________
(Robert D. Krumme)
CHARLES A. LYNCH Director April 11, 1994
______________________
(Charles A. Lynch)
24
SIGNATURE TITLE DATE
--------- ----- ----
DONALD J. O'MARA Director April 11, 1994
______________________
(Donald J. O'Mara)
LEWIS RUBIN Director April 11, 1994
______________________
(Lewis Rubin)
GEORGE S. SPRINGER Director April 11, 1994
______________________
(George S. Springer)
25
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated April 11,
1994 (which report contains explanatory paragraphs regarding the uncertainties
of Hexcel Corporation's bankruptcy proceedings, substantial doubt about Hexcel
Corporation's ability to continue as a going concern, uncertainties regarding
the future operations of Hexcel Corporation's wholly-owned Belgian subsidiary,
Hexcel S.A., a change in accounting for postretirement benefits other than
pensions, a change in accounting for income taxes and a change in accounting for
domestic honeycomb and fabric inventories) appearing in this Annual Report on
Form 10-K for the year ended December 31, 1993, in the following Registration
Statements of Hexcel Corporation:
- - No. 33-9763 on Form S-3 for the Dividend Reinvestment Plan,
- - No. 33-49478 on Form S-8 for the 1988 Management Stock Program.
DELOITTE & TOUCHE
Oakland, California
April 11, 1994
______________________________
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion of
our report dated February 4, 1992, in this Annual Report on Form 10-K for the
year ended December 31, 1993 of Hexcel Corporation and the incorporation by
reference of our report in the Registration Statement on Form S-3 for the
Dividend Reinvestment Plan, filed on October 28, 1986, No. 33-9763 and in the
Registration Statement on Form S-8 for the 1988 Management Stock Program, filed
on July 10, 1992, No. 33-49478.
ARTHUR ANDERSEN & CO.
San Francisco, California
April 11, 1994
26
SELECTED FINANCIAL DATA
The following table summarizes selected financial data for continuing
operations(a) as of, and for, the five years ended December 31.
(IN THOUSANDS, EXCEPT PER SHARE DATA AND RATIOS)
- ----------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------
Net sales $ 338,568 $ 386,289 $ 386,584 $ 382,743 $ 373,540
Gross margin 56,452 76,954 81,220 78,078 77,546
Restructuring expenses 52,600 23,500 -- -- --
Depreciation and amortization 15,840 15,734 15,421 13,305 16,342
Interest 9,135 8,695 11,433 10,712 8,501
Benefit (provision) for
income taxes (6,201) 6,349 174 (1,580) (1,073)
Income (loss) from
continuing operations (86,456) (17,706) 4,771 2,856 2,104
- ----------------------------------------------------------------------------------------------------------------
Working capital(b) $ 54,658 $ 69,337 $ 105,744 $ 105,701 $ 102,348
Total assets(b) 268,361 310,850 343,306 341,938 318,777
Long-term liabilities(c) 169,948 125,630 140,317 131,543 112,531
Shareholders' equity 20,753 106,149 144,323 143,178 134,943
Capital expenditures 6,542 17,093 14,728 23,800 22,507
- ----------------------------------------------------------------------------------------------------------------
Amounts per share:
Income (loss) from
continuing operations(d) $ (11.79) $ (2.43) $ 0.67 $ 0.41 $ 0.30
Cash dividends paid -- 0.44 0.44 0.44 0.44
Shareholders' equity 2.84 14.55 20.16 20.29 19.35
- ----------------------------------------------------------------------------------------------------------------
Weighted average shares
and equivalent shares 7,330 7,272 7,146 7,010 6,958
Shares outstanding at
year-end 7,310 7,296 7,158 7,057 6,975
- ----------------------------------------------------------------------------------------------------------------
Ratios:
Gross margin 16.7% 19.9% 21.0% 20.4% 20.8%
Long-term liabilities to
total capital 89.1% 54.2% 49.3% 47.9% 45.5%
Return on average assets (29.9)% (5.4)% 1.4% 0.9% 0.7%
Return on beginning equity (81.4)% (12.3)% 3.3% 2.1% 1.6%
Interest coverage(e) N/A N/A 1.4 1.4 1.4
- ----------------------------------------------------------------------------------------------------------------
(a) THE DATA EXCLUDE DISCONTINUED OPERATIONS, THE EXTRAORDINARY ITEM AND THE
CUMULATIVE EFFECTS OF ACCOUNTING CHANGES. SEE THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES FOR FINANCIAL INFORMATION RELATED TO THESE ITEMS.
(b) THE DATA EXCLUDE NET ASSETS OF DISCONTINUED OPERATIONS.
(c) LONG-TERM LIABILITIES AS OF DECEMBER 31, 1993 INCLUDE LIABILITIES SUBJECT TO
DISPOSITION IN BANKRUPTCY REORGANIZATION.
(d) PRIMARY AND FULLY DILUTED NET INCOME (LOSS) PER SHARE FOR ALL FIVE YEARS
WERE THE SAME BECAUSE THE FULLY DILUTED COMPUTATION WAS ANTIDILUTIVE.
(e) INTEREST COVERAGE RATIO IS COMPUTED BY DIVIDING INTEREST INTO INCOME (LOSS)
BEFORE BENEFIT (PROVISION) FOR INCOME TAXES PLUS INTEREST.
27
MANAGEMENT DISCUSSION AND ANALYSIS
RESTRUCTURING AND BANKRUPTCY REORGANIZATION
The Company initiated a worldwide restructuring program in December 1992
and, accordingly, recorded a restructuring charge of $23.5 million. The
restructuring was necessary due to several factors including a precipitous drop
in aerospace build rates during the fourth quarter of 1992, anticipation of
protracted weakness in the aerospace industry and the need to make aggressive
cost reductions to operate profitably at lower sales levels. The initial
restructuring program included reductions in excess manufacturing capacity and
personnel, and a worldwide reorganization of sales, marketing and
administration. In addition to the realignment and reduction of personnel in
the U.S. and Europe, this program provided for the closure of the Graham, Texas
honeycomb plant, which was announced in April 1993. The Company began moving
manufacturing processes shortly thereafter, and expects the Graham facility to
be closed completely during the second half of 1994.
During the third quarter of 1993, Hexcel conducted a further evaluation of
the adequacy of the restructuring program and existing reserves in light of
declining business conditions in the Company's primary markets, including
commercial aerospace. As a result of this evaluation and the continuing decline
in aerospace sales, the Company significantly expanded the original
restructuring program and recorded an additional restructuring charge of $50.0
million in the third quarter of 1993. The expanded restructuring is a response
to deeper than anticipated declines in the aerospace market, and includes
additional staff reductions, further consolidation of facilities in the U.S. and
Europe, and write-downs of impaired assets. During the fourth quarter of 1993,
an additional charge of $2.6 million was recorded in connection with the
expanded restructuring program.
Even after the Graham closure is complete, the Company has more production
capacity than required for either current or projected sales levels, and needs
to close additional facilities. The 1993 restructuring charges include the
estimated costs of such closures, and the Company is currently evaluating which
facilities to close. This process is complicated by the uncertain outlook for
several product lines as well as aerospace industry requirements to "qualify"
specific equipment and locations for the manufacture of certain products. These
qualification procedures increase the complexity, cost and time of moving
equipment while continuing to serve existing customers.
Of the total of $76.1 million in 1993 and 1992 restructuring charges,
approximately $40 million relates to noncash asset write-downs. These write-
downs reflect expected losses on the disposition of facilities as well as the
impairment of assets caused by the changed business environment. Based on
current restructuring plans, estimated cash outlays for remaining restructuring
activities as of December 31, 1993 are approximately $18 million. See Note 3 to
the Consolidated Financial Statements for additional discussion.
In order to fund the restructuring program and improve its capital
structure, the Company needed substantial additional financing and a
restructuring of its U.S. and European debt. Negotiations with existing senior
U.S. lenders to obtain this financing and restructure the Company's domestic
obligations were undertaken early in 1993 and continued throughout most of the
year. Alternative sources of debt and equity financing were also pursued. The
Company did secure commitments of credit facilities for its Belgian subsidiary
through March 16, 1994, but was unable to obtain a consensus among the senior
U.S. lenders on a debt restructuring plan for U.S. operations.
28
The failure of these negotiations left the Company with insufficient cash
availability to meet operating requirements and continue the restructuring
program, as discussed further under "Financial Condition and Liquidity" below.
As a result, on December 6, 1993, Hexcel Corporation filed a voluntary petition
for relief under the provisions of Chapter 11 of the federal bankruptcy laws.
The bankruptcy proceedings are limited to the U.S. parent company, Hexcel
Corporation, which directly owns and operates substantially all U.S. assets and
operations. The bankruptcy proceedings limit Hexcel Corporation's ability to
provide direct financial support outside of the normal course of business to its
joint ventures and international subsidiaries without the approval of the U.S.
Bankruptcy Court. Furthermore, certain actions, including actions outside of
the normal course of business, must be approved by the Bankruptcy Court. For a
further discussion of the effect of bankruptcy on the Company and its rights and
obligations under Chapter 11, see Note 2 to the Consolidated Financial
Statements included in this Form 10-K.
The Company incurred $0.6 million in costs associated with bankruptcy
proceedings in December of 1993. Legal and professional fees to be incurred as
a result of bankruptcy proceedings are expected to be significant.
RESULTS OF OPERATIONS
The 1993 loss from continuing operations was $86.5 million or $11.79 per
share. This compares with a loss from continuing operations of $17.7 million in
1992 and income from continuing operations of $4.8 million in 1991. The net
loss for 1993, including discontinued operations and the cumulative effects of
accounting changes, was $86.0 million or $11.73 per share. The net loss was
$29.3 million in 1992 and net income was $4.3 million in 1991.
The 1993 loss from continuing operations includes additional restructuring
charges of $52.6 million for a major expansion of the restructuring program
begun in December 1992. The loss also includes other expenses of $12.8 million
for the write-down of certain assets and increases in reserves for warranties
and environmental matters on property previously owned. The impairment of
assets was due primarily to the bankruptcy proceedings, continued changes in
business conditions and depressed real estate prices on property held for sale.
In addition, the Company recorded a $10.9 million reserve in 1993 to reflect the
adverse impact of the bankruptcy proceeding of Hexcel Corporation and ongoing
operating losses on the potential realization of deferred income tax benefits.
The 1992 results include a $23.5 million restructuring charge and other income
of $3.0 million from the settlement of a patent infringement case, as well as a
$1.4 million gain from the settlement of interest rate swap agreements.
During the fourth quarter of 1993, the Company changed to the first-in,
first-out ("FIFO") method of accounting for substantially all inventories. The
FIFO method provides a more meaningful presentation of the Company's financial
position by reflecting inventories at more recent costs, which provides more
relevant information about the Company's business condition. The effect of this
change on domestic honeycomb and fabric inventories, which were previously
valued using the last-in, first-out method, has been applied to prior years by
retroactively restating the consolidated financial statements as required by
generally accepted accounting principles. In 1993, the Company recorded a one-
time, cumulative benefit of $4.5 million from the adoption of a new accounting
standard for income taxes. In 1992, the Company recorded a one-time charge of
$8.1 million to reflect the adoption of a new accounting standard for
postretirement benefits. 1992 results also include an extraordinary gain of
$1.0 million on the redemption of $7.3 million of convertible subordinated
debentures at a discount. Losses from discontinued operations, which have now
been sold, totaled $4.0 million, $4.5 million and $0.5 million in 1993, 1992 and
1991, respectively.
29
The downturn in the worldwide commercial aerospace business, which
accelerated in the fourth quarter of 1992, continued throughout 1993. This
downturn, which is not expected to reverse in 1994, has been a major factor in
the declining sales and substantial operating losses experienced by the Company
since the end of 1992. The ongoing decline in military procurement, including
military aerospace orders, has also contributed to the deterioration in the
Company's operating results. Furthermore, while non-aerospace markets in the
U.S. stabilized during 1993, general economic conditions in Europe did not
improve. Many of the markets the Company serves within Europe remain depressed,
although some markets such as electrical products strengthened during the year.
Headcount reductions from December 31, 1992 to February 28, 1994, have
totaled 710 people, to 2,340 employees at February 28, 1994.
SALES
Sales from continuing operations were $338.6 million in 1993, compared
with $386.3 million in 1992 and $386.6 million in 1991. The 12% decline from
1992 to 1993 is primarily attributable to the downturn in the worldwide
commercial aerospace market, which accelerated during the fourth quarter of
1992. Sales in the fourth quarter of 1993 of $80.3 million were down 9% from
the fourth quarter of 1992, and were 17% less than fourth quarter sales two
years ago. Customers within the aerospace market have responded to lower build
rates for commercial aircraft by canceling orders, delaying shipments and
reducing inventories to match future operating levels. The military aerospace
market has also been in decline, reflecting Administration and Congressional
pressure to reduce military spending. The Company continued to pursue other
markets for its products during the year.
Sales in the U.S. were $193.6 million in 1993, down 10% from $216.2
million in 1992. The decline in U.S. sales was attributable to the decline in
the commercial and military aerospace markets. Sales to the U.S. recreation
market increased, but fabrics sales were lower due to the transfer of the
Company's Knytex operations to a corporate joint venture with Owens-Corning on
June 30, 1993. Knytex sales of $7.0 million during the first half of the year
are included in the consolidated sales total, while second half sales are not.
International sales were $144.9 million for 1993 compared with $170.1
million in 1992. Decreased aerospace sales were only partially offset by
improved sales to the recreation and electrical markets. In addition, sales to
the European architectural market were weak as the construction industry,
especially in Germany, remained in a deep recession. Part of the international
sales decline is due to currency exchange rates. The Belgian and French francs
declined approximately 7% against the dollar from 1992 to 1993; accordingly,
sales from the Company's primary international subsidiaries were reduced when
translated into U.S. dollars.
Sales in 1992 were essentially unchanged from 1991. U.S. sales increased
by $5.7 million which neutralized a corresponding international sales decrease.
The U.S. sales increase was due mainly to graphite honeycomb shipments in early
1992. The international sales decline was attributable to depressed aerospace
sales in Europe.
COMMERCIAL AEROSPACE SALES
Worldwide sales of $132.6 million in 1993 were down 20% from sales of
$166.4 million in 1992. The commercial aerospace market began to deteriorate in
1992 and the slow-down continued throughout 1993.
30
Reacting to order cancellations from many airlines, major aircraft manufacturers
announced a series of build rate reductions worldwide. Additionally, most of
these manufacturers announced significant personnel reductions and initiated
ongoing efforts to reduce inventories and shorten production lead times. These
actions indicate that this is not a temporary decline in the commercial
aerospace market.
Declining build rates and associated inventory reductions have resulted in
the cancellation and delay of orders for several of the Company's aerospace
products. While sales of individual products, such as graphite honeycomb and
certain composites products, have increased in response to the production of new
wide-bodied aircraft, the majority of products sold to the commercial aerospace
market declined. The shrinking commercial aerospace market has intensified
competition among suppliers for remaining business. This has resulted in price
pressure and margin declines on competitive products which the Company provides
to this market.
SPACE AND DEFENSE SALES
Worldwide sales in 1993 decreased to $55.8 million from $59.4 million in
1992. This decline continues a trend which began in 1988 when sales to the
space and defense market exceeded $100.0 million. The Company expects this
trend to continue and is currently evaluating its future involvement in these
markets. The disposition of the current Administration and Congress is toward a
general reduction in military spending, and several of the military aerospace
programs in which the Company has participated in the past, including the B-2
program, are being reduced or eliminated. For further discussion of the
Company's space and defense business, see "Markets and Customers" in this Form
10-K.
GENERAL INDUSTRIAL AND OTHER SALES
Worldwide sales were $150.1 million in 1993 compared with $160.5 million
in 1992. For the first time in recent Company history, sales to general
industrial markets exceeded sales to the commercial aerospace market. Products
provided to non-aerospace customers included honeycomb, advanced composites,
reinforcement fabrics and resins. Sales of new products introduced within the
last three years continued to grow, as did sales to Reebok for use in athletic
shoes. The sale of honeycomb panels for trains built for the Channel Tunnel
peaked in 1993 following project delays in 1992. Demand for graphite composite
tape used in golf club shafts rose as manufacturers pursued improved
performance, and fabric sales to the electrical market increased as demand for
circuit boards grew. Sales of material for ballistic purposes, such as
bulletproof vests, increased as a result of the receipt of three large
contracts.
The formation of the corporate joint venture with Owens-Corning reduced
sales of stitchbonded fabrics in the U.S. as sales during the second half of the
year went to the joint venture. Decorative fabric sales declined, primarily in
Europe, because of the slump in the construction industry. Hexcel's penetration
of the U.S. decorative market is still in the embryonic stage. Resin product
sales declined nearly 16% to $27.9 million in 1993. Approximately two-thirds of
resin product sales are in Europe, and most of the sales decline was due to
currency exchange rates. U.S. resin sales also declined due to general
aerospace and other industry trends. The Company has commenced discussions with
interested parties for the sale of the Resins business, although no agreement
has yet been reached.
The Company continues to focus on the development of products for the
general industrial, recreation, transportation, and other non-aerospace markets.
Increased sales to these markets are needed to lessen the Company's dependence
on commercial aerospace and space and defense markets.
31
GROSS MARGIN
Gross margin for 1993 declined to 16.7% from 19.9% in 1992 and 21.0% in
1991. The gross margin decline resulted primarily from lower sales volumes and
continued pricing pressures due to industry overcapacity in aerospace markets.
The 12% sales decline in 1993 created additional excess capacity for the
Company. Although the closure of the Company's Graham, Texas plant began in
April 1993, the impact of reduced manufacturing overhead costs did not begin to
materialize until the fourth quarter. The Graham closure will not be completed
until the second half of 1994. For a period of time, the Company was required
to maintain overlapping overhead while manufacturing processes were being
transferred to other plants. In addition, many of the new products developed
for non-aerospace markets have not commanded premium prices due to strong
competition. At the same time, shrinking aerospace markets have generated
increased competition for remaining business which has created pricing pressures
on competitive products.
MARKETING, GENERAL AND ADMINISTRATIVE (M,G&A) EXPENSES
M,G&A expenses decreased $10.3 million from 1992 to 1993, a decline of
14%. M,G&A expenses were 18.2% of sales in 1993, 18.6% in 1992 and 16.9% in
1991. The decrease in 1993 was a result of significant headcount reductions
made during the year in an effort to mitigate the effects of declining sales.
These headcount reductions were achieved through a reorganization of sales and
administrative functions to reduce redundancies and inefficiencies. In
addition, the Company restricted spending due to its tight cash position,
particularly in the second half of the year.
M,G&A expenses increased by $6.6 million from 1991 to 1992 because of
several significant expenses, including bad debt write-offs and legal and
environmental reserves.
M,G&A expenses include research and development expenses which were $8.7
million in 1993 or 2.6% of sales, approximately the same level as in 1992 and
1991. Successful research and development activities are critical to the
Company's future, and the need to invest in effective research and development
must be balanced against the need to reduce expenditures.
INTEREST
1993 interest expenses were $9.1 million, 5% higher than in 1992.
Excluding a $1.4 million gain in 1992 from the settlement of interest rate swap
agreements, interest expenses actually declined by 9% from 1992 to 1993. This
decline is attributable to lower average interest rates on variable rate debt,
as well as the full-year benefit from the repurchase of $7.3 million of
convertible subordinated debentures during the second quarter of 1992. In
addition, borrowings under the U.S. revolving credit agreement were limited to
$12.0 million throughout the year. Interest reductions were partially offset by
additional borrowings by Hexcel S.A., the Company's Belgian subsidiary, to
finance losses and restructuring activities.
1992 interest expenses of $8.7 million were 24% lower than in 1991. In
addition to the $1.4 million gain noted above, 1992 expenses benefited from
declining interest rates and the reduction of $19.3 million in debt from the
cash proceeds from the sale of the U.S. fine chemicals business in 1991.
32
Capitalized interest was $0.2 million in 1993, $0.3 million in 1992, and
$1.1 million in 1991. The decline in interest capitalization reflects the
reduction in long-term capital projects undertaken by the Company.
INCOME TAXES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes." The
cumulative effect of adopting this standard was the recognition of a deferred
income tax benefit of $4.5 million, which was recorded in the first quarter of
1993. During 1993, substantial uncertainty developed as to the realization of
the deferred income tax benefits recognized in connection with SFAS 109. As a
result, the Company recorded a $10.9 million adjustment to the valuation
allowance to reduce the recorded value of these benefits to zero as of December
31, 1993. The adjusted valuation allowance reflects the Company's assessment
that the bankruptcy proceedings of Hexcel Corporation and ongoing operating
losses have impaired the realization of deferred income tax benefits. See Note
13 to the Consolidated Financial Statements for additional discussion.
The 1993 tax provision was computed in accordance with SFAS 109. The
recognition of a $6.2 million provision on an $80.3 million loss from continuing
operations before taxes reflects the valuation allowance noted above. The 1992
and 1991 tax benefits of $6.3 million and $0.2 million, respectively, were
computed in accordance with Accounting Principles Board Opinion No. 11 ("APB
11"), which was superseded by SFAS 109. The effective rate of these tax
benefits were 26% and 4%, respectively, and reflect the impact of 1992 operating
losses and international tax incentives and credits, to the extent allowable by
APB 11.
HEXCEL S.A. (BELGIUM)
The restructuring program initiated by the Company in 1992 and expanded in
1993 includes certain actions at Hexcel S.A., a wholly-owned Belgian subsidiary.
Due to depressed European business conditions, particularly in the aerospace
industry, Hexcel S.A. has been operating at a loss. Furthermore, interest costs
are consuming cash as are the restructuring activities necessary to return the
subsidiary to profitability. Hexcel S.A. is also investigating alleged product
claims which could require additional cash outlays.
Hexcel S.A. is currently in negotiations with its existing lenders
regarding the commitment of credit facilities which expired beginning on March
16, 1994. Four of the five existing lenders have agreed to a stand still until
April 30, 1994, subject to the Parent Company making satisfactory progress
toward obtaining authorization from the Bankruptcy Court to invest additional
funds and recapitalize Hexcel S.A. Discussions with the fifth lender are
continuing. There is no assurance that the Bankruptcy Court will authorize the
investment of additional funds or the recapitalization of Hexcel S.A., or that
the existing lenders will continue to extend their short-term credit agreements
for any specified length of time. As a result, Hexcel S.A.'s ability to
continue as a going concern is subject to its obtaining needed financing, as
well as resolving alleged product claims and successfully implementing required
restructuring initiatives.
Hexcel S.A. is an integral component of the Company's worldwide
competitiveness, particularly in commercial aerospace. If Hexcel S.A. is unable
to continue as a going concern, management believes that this would have a
material adverse effect on the Company's U.S. and international operations.
33
JOINT VENTURES AND DIVESTITURES
The Company entered into a joint venture with Owens-Corning in June 1993.
The venture is a strategic alliance which combines the stitchbonding capability
of Hexcel with the reinforcement glass manufacturing, marketing and distribution
expertise of Owens-Corning to produce and market stitchbonded fabrics worldwide.
The venture began operations in July 1993 after the Company sold 50% of the
Knytex business to Owens-Corning and contributed the remaining 50% to the
venture. The Company received proceeds of $4.5 million and recorded a gain of
approximately $1.5 million related to the sale. The Company owns 50% of the
Knytex venture, which had revenues during the six months ended December 31, 1993
of $6.8 million.
The Company entered into a joint venture with Fyfe Associates in October
1992. Hexcel-Fyfe will sell and apply high strength architectural wrap for the
seismic retrofitting and strengthening of bridges and other structures. The
major January 17, 1994 earthquake in Los Angeles demonstrated the capability of
the product, as certain test sites near the epicenter survived with no damage.
The Company owns 40% of the venture, and Fyfe Associates owns the remainder.
Revenues of the venture were not significant in 1993 or 1992.
In 1990, the Company entered into a joint venture with Dainippon Ink and
Chemicals for the production and sale of Nomex honeycomb, advanced composites
and decorative laminates for the Japanese market. Construction of a
manufacturing facility in Komatsu, Japan began in 1992. The facility began
production of material for qualification in 1993 with the qualification process
expected to run through 1994. The Company owns 50% of this venture.
In March 1992, the Company sold the fine chemicals business located in
Zeeland, Michigan. In January 1994, the Company sold the fine chemicals
business located in Teesside, England, which completes the divestiture of
discontinued operations. See Note 14 to the Consolidated Financial Statements
for additional discussion.
FINANCIAL CONDITION AND LIQUIDITY
EVENTS LEADING TO BANKRUPTCY REORGANIZATION
As a result of the $30.6 million loss from continuing operations before
income taxes in the fourth quarter of 1992, which included a $23.5 million
restructuring charge, the Company was not in compliance with certain financial
covenants of its U.S. revolving bank credit and other U.S. financing agreements.
In March 1993, the Company entered into a new revolving credit agreement which
reduced the amount available for borrowing from $35.0 million to the amount then
borrowed of $12.0 million; shortened the maturity of the facility by two years
to March 15, 1994; required the Company to provide by July 31, 1993 collateral
consisting of substantially all U.S. assets; and revised certain financial
covenants. Due to operating losses incurred during the first half of 1993, and
the inability to proceed with a planned acquisition, the Company was not in
compliance as of June 30, 1993 with the revised financial covenants which had
included the benefits of this acquisition. Waivers for noncompliance of a
financial covenant and the covenant to provide collateral were obtained from the
U.S. lenders through September 15, 1993.
Operating losses continued during the third quarter of 1993 and, as a
result of no additional borrowing capacity under existing U.S. credit
agreements, the Company was required to extend U.S. trade payables from $9.5
million at December 31, 1992 to $23.9 million as of August 31, 1993. Ongoing
negotiations with the existing senior U.S. lenders failed to produce an
agreement, and the September 15, 1993 waiver
34
deadline expired with the Company in noncompliance. No additional waivers were
granted although negotiations continued. The Company was able to finance its
activities during September and October primarily as a result of receiving
approximately $9.6 million from the accelerated collection of amounts due under
long-term contracts and the settlement of a terminated contract.
Restructuring costs and operating losses continued in the fourth quarter
and the Company was required to reduce its accounts payable as a result of more
restrictive credit terms imposed by many suppliers. The resulting consumption
of cash was partially offset by efforts to control spending, reduce accounts
receivable and inventory levels, limit restructuring actions to those items
already in progress and limit capital expenditures to minimum levels. The
Company's trade vendors were becoming increasingly concerned over the protracted
extension of their payments and reports of the Company's financial distress, as
well as the lack of an agreement with the senior U.S. lenders to restructure
outstanding debt and obtain additional financing.
By mid-November, the Parent Company was operating at critically low levels
of cash without any remaining credit availability, having extended payments to
trade vendors. As discussed on page 28, negotiations with existing senior U.S.
lenders and other potential investors ultimately failed, and the Parent Company
filed a voluntary petition for relief under the provisions of Chapter 11 of the
federal bankruptcy laws on December 6, 1993.
Federal bankruptcy laws prohibit Hexcel Corporation from paying almost all
prepetition liabilities without the approval of the Bankruptcy Court. The
effect of this prohibition was to increase the amount of available cash between
December 6 and the end of the year, as Hexcel Corporation continued to generate
cash proceeds from product sales without satisfying prepetition debts. This was
partially offset by many vendors requiring cash in advance for purchases. As of
December 31, 1993, the Company had cash and equivalents of approximately $12.9
million, including $7.9 million in the U.S.
Prior to the Chapter 11 filing, Hexcel Corporation arranged for a debtor-
in-possession revolving credit line from The CIT Group / Business Credit, Inc.
On January 28, 1994, the Bankruptcy Court granted final approval for the use of
this credit facility. The amount available for borrowing is based on the
outstanding balance of eligible U.S. receivables and inventories, up to a
maximum of $35.0 million. This credit line is secured by substantially all of
the Company's U.S. assets, enjoys superpriority over virtually all other claims,
and is subject to a number of financial covenants and restrictions. As of
December 31, 1993, the Company had not borrowed against this credit line. The
Company believes it will begin to borrow against this facility during the second
quarter of 1994.
The Company expects that the debtor-in-possession revolving line of credit
will be sufficient to finance the Parent Company's operations and restructuring
activities while it remains under bankruptcy protection. This credit facility
expires in two years or upon confirmation of a plan of reorganization, at which
time all outstanding borrowings become immediately due and payable.
Consequently, the Company must secure long-term postconfirmation financing in
connection with the reorganization of Hexcel Corporation.
HEXCEL S.A..
As noted under "Hexcel S.A. (Belgium)" above, the Company's Belgian
subsidiary is currently in negotiations with existing lenders regarding the
commitment of credit facilities which expired beginning on March 16, 1994. If
Hexcel S.A. is unable to obtain needed financing, it may be unable to continue
as a going concern for a reasonable period of time.
35
CURRENT FINANCIAL CONDITION AND LIQUIDITY
Total credit lines, excluding U.S. credit lines subject to bankruptcy
reorganization, were approximately $63.8 million at December 31, 1993. $35.0
million of this total was the debtor-in-possession revolving line of credit, and
the remaining $28.8 million was comprised of various credit lines extended to
the Company's European subsidiaries, including Hexcel S.A., of which $7.2
million was available for borrowing by those subsidiaries for their activities.
The debtor-in-possession credit line cannot be used to provide direct financial
support outside of the normal course of business to joint ventures or European
subsidiaries without the prior consent of the Bankruptcy Court.
Operating activities including capital expenditures and restructuring
charges, but before working capital changes, consumed $23.5 million of cash in
1993, $11.0 million in 1992, and $1.7 million in 1991. The consumption of cash
in 1993 and 1992 was offset by working capital improvements of $28.1 million in
1993 and $25.0 million in 1992. Much of the net increase in cash in 1993
occurred shortly after the bankruptcy filing, as prepetition obligations were
stayed by the Bankruptcy Court, while December 1993 accounts receivable
collections were strong. The working capital improvements in 1993 were due to
lower accounts receivable and inventory levels from declining sales and improved
working capital controls, as well as the deferral of payments on U.S. accounts
payable during the year. The Company also obtained cash from additional
borrowings on European credit lines and from the proceeds from the sale of 50%
of the Knytex operation to Owens-Corning. In 1992, the Company used the
proceeds from the sale of the U.S. fine chemicals business of $19.3 million to
pay down debt.
Working capital from continuing operations decreased to $54.7 million at
the end of 1993 from $69.3 million at the end of 1992 and $105.7 million at the
end of 1991. The 1993 reduction is primarily attributable to continuing sales
declines, working capital controls and asset write-downs, partially offset by
the increase in cash and the reclassification of short-term prepetition
obligations to non-current liabilities subject to disposition in bankruptcy
reorganization. The 1992 working capital reduction was largely due to the
sudden sales decline in the fourth quarter and the implementation of working
capital controls throughout the year. Most of the reduction occurred in
accounts receivable and inventory.
Capital expenditures were $6.5 million in 1993 compared with $17.1 million
in 1992 and $14.7 million in 1991. The substantial decline in capital spending
during 1993 reflects the ongoing effort to conserve cash which began early in
the year. The Company has limited capital spending to outlays required by
regulatory requirements and the replacement and upgrade of essential existing
equipment. Until Hexcel Corporation emerges from bankruptcy proceedings and
adequate long-term financing is in place, the Company does not expect capital
expenditures to significantly increase above 1993 spending levels.
Cash requirements to complete the current restructuring program are
expected to total approximately $18 million. Funding for these costs will come
from the debtor-in-possession revolving line of credit while in bankruptcy
proceedings, and funding after bankruptcy proceedings will be provided as part
of the reorganization plan.
36
MARKET SUMMARY
The following tables summarize net sales by market and by international
operations for continuing operations(a) for the five years ended December 31.
Net Sales by Market
- ------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------
Commercial aerospace 39% 43% 44% 44% 41%
General industrial and
other 45% 42% 39% 38% 35%
Space and defense 16% 15% 17% 18% 24%
- ------------------------------------------------------------------------------------------
100% 100% 100% 100% 100%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
International Operations
- ------------------------------------------------------------------------------------------
International net sales(b) $ 144,927 $ 170,118 $ 176,094 $ 174,636 $ 151,839
Percentage of net sales 43% 44% 46% 46% 41%
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
(a) THE DATA EXCLUDE DISCONTINUED OPERATIONS. SEE THE CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES FOR FINANCIAL INFORMATION ON DISCONTINUED OPERATIONS.
(b) NET SALES OF INTERNATIONAL SUBSIDIARIES AND U.S. EXPORTS, IN THOUSANDS.
37
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page
- --------------------------------------------------------------------------------
Management Responsibility for Financial Statements 39
Independent Auditors' Report 40 - 41
Report of Independent Public Accountants 42
Consolidated Financial Statements:
Consolidated Statements of Operations:
Three years ended December 31, 1993 43
Consolidated Balance Sheets: December 31, 1993 and 1992 44
Consolidated Statements of Shareholders' Equity:
Three years ended December 31, 1993 45
Consolidated Statements of Cash Flows:
Three years ended December 31, 1993 46
Notes to the Consolidated Financial Statements 47 - 68
Financial Statement Schedules for the three years ended
December 31, 1993:
V. Property, Plant and Equipment 69
VI. Accumulated Depreciation and Amortization of Property,
Plant and Equipment 70
IX. Short-Term Borrowings 71
X. Supplementary Income Statement Information 72
Exhibit 11. Statement Regarding Computation of Per Share
Earnings (Unaudited) 73
Financial statement schedules other than those listed above have been
omitted because they are not applicable, not required, or the required
information is included in the consolidated financial statements or notes
thereto.
38
MANAGEMENT RESPONSIBILITY FOR FINANCIAL STATEMENTS
Hexcel management has prepared and is responsible for the consolidated
financial statements and the related financial data contained in this report.
These financial statements were prepared in accordance with generally accepted
accounting principles. Management uses its best judgment to ensure that such
statements reflect fairly the consolidated financial position, results of
operations and cash flows of the Company.
The Company maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
purposes of preparing financial statements and that assets are safeguarded and
accounted for properly. Underlying this concept of reasonable assurance is the
premise that the cost of control should not exceed benefits derived from
control.
The Audit Committee of the Board of Directors reviews and monitors the
financial reports and accounting practices of the Company. These reports and
practices are reviewed regularly by management and by the independent auditors,
Deloitte & Touche, in connection with the audit of the Company's financial
statements. The Audit Committee, composed solely of outside directors, meets
periodically, separately and jointly, with management and the independent
auditors.
JOHN J. LEE
- -------------------------------
(John J. Lee)
CHIEF EXECUTIVE OFFICER
WILLIAM P. MEEHAN
- -------------------------------
(William P. Meehan)
CHIEF FINANCIAL OFFICER
39
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Hexcel Corporation:
We have audited the accompanying consolidated balance sheets of Hexcel
Corporation (Debtor-in-Possession) and subsidiaries (collectively the "Company")
as of December 31, 1993 and 1992, and the related consolidated statements of
operations, shareholders' equity and cash flows for the years then ended. Our
audits also included the financial statement schedules for the years ended
December 31, 1993 and 1992 listed in the index on page 38. These financial
statements and financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules 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 that our audits provide a reasonable basis for our opinion.
In our opinion, such 1993 and 1992 consolidated financial statements
present fairly, in all material respects, the financial position of Hexcel
Corporation and subsidiaries at December 31, 1993 and 1992, and the results of
their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles. Also, in our opinion, such 1993
and 1992 financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly in all
material respects the information shown therein.
We also audited the adjustments described in Note 4 that were applied to
restate the 1991 financial statements to give retroactive effect to the change
in the method of accounting for domestic honeycomb and fabric inventories to the
first-in, first-out method from the last-in, first-out method. In our opinion,
such adjustments are appropriate and have been properly applied.
As discussed in Notes 1 and 2, Hexcel Corporation has filed for
reorganization under Chapter 11 of the Federal Bankruptcy Code. The
accompanying consolidated financial statements do not purport to reflect or
provide for the consequences of the bankruptcy proceedings. In particular, such
consolidated financial statements do not purport to show (a) as to assets, their
realizable value on a liquidation basis or their availability to satisfy
liabilities; (b) as to prepetition liabilities, the amounts that may be allowed
for claims or contingencies, or the status and priority thereof; (c) as to
shareholder accounts, the effect of any changes that may be made in the
capitalization of the Company; or (d) as to operations, the effect of any
changes that may be made in its business. The outcome of these matters is not
presently determinable. Accordingly, the consolidated financial statements do
not include adjustments that might result from the ultimate outcome of these
uncertainties.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1,2,3 and 6,
the Company's recurring losses from operations and future need for new financing
raise substantial doubt about its ability to continue as a going concern. The
Company's ability to continue as a going concern is dependent upon its ability
to (a) return to profitability based on a successful implementation of its plan
for restructuring operations and (b) obtain new financing when needed to repay
anticipated borrowings against the U.S. debtor-in-possession line of
40
credit, which are necessary to pay for restructuring activities. Any
borrowings against the U.S. debtor-in-possession line of credit are due upon
the earlier of December 1995 or confirmation by the U.S. Bankruptcy Court of
a plan of reorganization. Management's plans concerning these matters are also
discussed in Note 1. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that might be
necessary should the Company be unable to continue as a going concern.
As discussed in Note 16 to the consolidated financial statements, Hexcel
S.A. (a Belgium company), a wholly-owned subsidiary of Hexcel Corporation, is
experiencing substantial operating and financial difficulties. Additionally,
Hexcel Corporation is unable to provide direct financial support outside of the
normal course of business to this subsidiary without U.S. Bankruptcy Court
approval, which raises substantial doubt about Hexcel S.A.'s ability to continue
as a going concern. The ultimate outcome of these uncertainties is not
presently determinable. Accordingly, the consolidated financial statements do
not include adjustments that might result from the ultimate outcome of these
uncertainties.
As discussed in Note 1 to the consolidated financial statements, the
Company (1) in 1992 changed its method of accounting for postretirement benefits
other than pensions to conform with Statement of Financial Accounting Standards
No. 106, (2) in 1993 changed its method of accounting for domestic honeycomb and
fabric inventories from the last-in, first-out method to the first-in, first-out
method, and (3) changed its method of accounting for income taxes effective
January 1, 1993 to conform with Statement of Financial Accounting Standards No.
109. The 1992 and 1991 consolidated financial statements have been
retroactively restated for the change in accounting for domestic honeycomb and
fabric inventories.
DELOITTE & TOUCHE
Oakland, California
April 11, 1994
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders and Board of Directors of Hexcel Corporation:
We have audited the consolidated statement of operations, shareholders'
equity, and cash flows of Hexcel Corporation and subsidiaries for the year ended
December 31, 1991 prior to the restatement (and, therefore, are not presented
herein) for the change in accounting for certain inventories from the last-in,
first-out ("LIFO") to the first-in, first-out ("FIFO") method as described in
Note 4 to the restated consolidated financial statements. These consolidated
financial statements and the schedules referred to below are the responsibility
of Hexcel's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules based on our audit.
We conducted our audit 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
misstatements. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Hexcel Corporation and subsidiaries for the year ended December 31,
1991 in conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in the index on
page 38 are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic financial statements. The
schedules for the year ended December 31, 1991 have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN & CO.
San Francisco, California
February 4, 1992
42
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands, except per share data) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Net sales $ 338,568 $ 386,289 $ 386,584
Cost of sales (282,116) (309,335) (305,364)
- ------------------------------------------------------------------------------------------------------------------------------------
Gross margin 56,452 76,954 81,220
Other operating costs and expenses:
Marketing, general and administrative expenses (61,551) (71,806) (65,190)
Restructuring expenses (52,600) (23,500) --
Other income (expenses) (12,780) 2,992 --
- ------------------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (70,479) (15,360) 16,030
Interest expenses (9,135) (8,695) (11,433)
Bankruptcy reorganization expenses (641) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income taxes (80,255) (24,055) 4,597
Benefit (provision) for income taxes (6,201) 6,349 174
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (86,456) (17,706) 4,771
Discontinued operations:
Losses during phase-out period, net of benefit for income taxes
of $383 in 1993, $1,139 in 1992 and $546 in 1991 (4,039) (4,472) (508)
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item and cumulative effects
of accounting changes (90,495) (22,178) 4,263
Extraordinary item:
Gain on redemption of convertible subordinated debentures,
net of provision for income taxes of $492 in 1992 -- 956 --
- ------------------------------------------------------------------------------------------------------------------------------------
Income (loss) before cumulative effects of accounting changes (90,495) (21,222) 4,263
Cumulative effects of accounting changes:
Postretirement benefits other than pensions, net of
benefit for income taxes of $4,148 in 1992 -- (8,052) --
Income taxes 4,500 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (85,995) $ (29,274) $ 4,263
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations $ (11.79) $ (2.43) $ 0.67
Discontinued operations (0.55) (0.62) (0.07)
Extraordinary item -- 0.13 --
Cumulative effects of accounting changes 0.61 (1.11) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (11.73) $ (4.03) $ 0.60
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Weighted average shares and equivalent shares 7,330 7,272 7,146
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
43
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ----------------------------------------------------------------------------------------------------
BALANCES AT DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1993 1992
- ----------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 12,877 $ 2,449
Accounts receivable 67,595 78,803
Inventories 47,284 61,074
Prepaid expenses 4,562 9,623
Net assets of discontinued operations -- 3,541
- ----------------------------------------------------------------------------------------------------
Total current assets 132,318 155,490
- ----------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land 4,660 6,223
Buildings 62,020 67,806
Equipment 167,802 179,912
- ----------------------------------------------------------------------------------------------------
234,482 253,941
Less accumulated depreciation 119,814 115,670
- ----------------------------------------------------------------------------------------------------
Net property, plant and equipment 114,668 138,271
- ----------------------------------------------------------------------------------------------------
Investments and other assets 21,375 20,630
- ----------------------------------------------------------------------------------------------------
Total assets $ 268,361 $ 314,391
- ----------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 24,632 $ 21,925
Accounts payable 12,816 20,587
Accrued liabilities 40,212 40,100
- ----------------------------------------------------------------------------------------------------
Total current liabilities 77,660 82,612
- ----------------------------------------------------------------------------------------------------
Long-term notes payable and capital lease obligations 5,168 95,569
Deferred liabilities 44,848 30,061
Liabilities subject to disposition in bankruptcy reorganization 119,932 --
- ----------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $0.01 par value, authorized 20,000 shares,
shares issued and outstanding of 7,310 in 1993 and 7,296 in 1992 73 73
Additional paid-in capital 62,562 62,292
Retained earnings (accumulated deficit) (42,744) 43,251
Minimum pension obligation adjustment (646) --
Cumulative currency translation adjustment 1,508 533
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 20,753 106,149
- ----------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 268,361 $ 314,391
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
44
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED COMMON STOCK RETAINED MINIMUM CUMULATIVE
DECEMBER 31, ---------------------- ADDITIONAL EARNINGS PENSION CURRENCY
1993, 1992 AND 1991 OUTSTANDING PAID-IN (ACCUMULATED OBLIGATION TRANSLATION
(IN THOUSANDS) SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT ADJUSTMENT
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1991 7,057 $ 71 $ 59,968 $ 74,519 -- $ 8,620
Net income -- -- -- 4,263 -- --
Common stock issued for employee and
shareholder stock plans 101 1 964 -- -- --
Cash dividends on common stock -- -- -- (3,102) -- --
Currency translation adjustment -- -- -- -- -- (981)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1991 7,158 72 60,932 75,680 -- 7,639
Net loss -- -- -- (29,274) -- --
Common stock issued for employee and
shareholder stock plans 138 1 1,360 -- -- --
Cash dividends on common stock -- -- -- (3,155) -- --
Currency translation adjustment -- -- -- -- -- (7,106)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 7,296 73 62,292 43,251 -- 533
Net loss -- -- -- (85,995) -- --
Common stock issued for employee and
shareholder stock plans 14 -- 270 -- -- --
Minimum pension obligation adjustment -- -- -- -- $ (646)
Currency translation adjustment -- -- -- -- -- 975
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 7,310 $ 73 $ 62,562 $ (42,744) $ (646) $ 1,508
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
45
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------------------
Years Ended December 31, (In thousands) 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Cash flows from continuing operations:
Income (loss) from continuing operations $(86,456) $(17,706) $4,771
Reconciliation to net cash provided by continuing operations:
Depreciation and amortization 15,840 15,734 15,421
Provision for deferred taxes 5,127 (6,265) 2,234
Restructuring and other expenses 65,380 23,500 --
Gain from settlement of interest rate swap -- (1,361) --
Changes in assets and liabilities:
Decrease in accounts receivable 7,865 19,191 56
(Increase) decrease in inventories 5,014 15,772 (83)
(Increase) decrease in prepaid expenses (1,990) 2,045 1,105
(Increase) decrease in other long-term assets 40 (2,076) (5,147)
Increase (decrease) in accounts payable and accrued liabilities 16,892 (12,009) (1,983)
Decrease in other long-term liabilities (1,468) (5,043) (4,247)
Decrease in restructuring accrual (15,438) (665) --
Increase in accrued bankruptcy reorganization expenses 366 -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 11,172 31,117 12,127
Net cash used by discontinued operations (498) (2,986) (5,505)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 10,674 28,131 6,622
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (6,542) (17,093) (14,728)
Proceeds from equipment sold 764 752 220
Investments in joint ventures (1,750) (500) (450)
Proceeds from sale of business 4,500 -- --
Proceeds from disposal of discontinued operations 500 19,262 --
Proceeds from settlement of interest rate swap agreements -- 1,818 --
Other -- -- 156
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (2,528) 4,239 (14,802)
- ------------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt -- 21,904 54,346
Payments of long-term debt, including current maturities (4,375) (43,801) (43,327)
Repurchase of convertible subordinated debentures -- (5,487) --
Proceeds (payments) of short-term debt, net 7,229 (3,135) (2,996)
Principal payments of capital lease obligations (494) (510) (598)
Proceeds from issuance of common stock for employee and
shareholder stock plans 270 1,361 965
Cash dividends paid -- (3,155) (3,102)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 2,630 (32,823) 5,288
- ------------------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (348) 982 130
- ------------------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 10,428 529 (2,762)
Cash and equivalents at beginning of year 2,449 1,920 4,682
- ------------------------------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 12,877 $ 2,449 $ 1,920
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
46
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The consolidated financial statements include the accounts of Hexcel
Corporation and subsidiaries (the "Company"), after elimination of intercompany
transactions and accounts. On December 6, 1993, Hexcel Corporation (a Delaware
corporation, the "Parent Company" or "Parent") filed a voluntary petition for
relief under the provisions of Chapter 11 of the federal bankruptcy laws (see
Note 2). Consequently, the consolidated financial statements have been prepared
in accordance with Statement of Position 90-7, "Financial Reporting by Entities
in Reorganization Under the Bankruptcy Code," issued by the American Institute
of Certified Public Accountants in November 1990.
The consolidated financial statements do not purport to reflect or provide
for the potential consequences of the bankruptcy proceedings of Hexcel
Corporation. In particular, the consolidated financial statements do not
purport to show (a) as to assets, their realizable value on a liquidation basis
or their availability to satisfy liabilities; (b) as to prepetition liabilities,
the amounts that may be allowed for claims or contingencies or the status and
priority thereof; (c) as to shareholder accounts, the effect of any changes that
may be made to the capitalization of Hexcel Corporation; or (d) as to
operations, the effect of any changes that may be made in its business. The
outcome of these matters is not presently determinable. Accordingly, the
consolidated financial statements do not include adjustments that might result
from the ultimate outcome of these uncertainties.
The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. As shown in the consolidated
financial statements, during the years ended December 31, 1993 and 1992, the
Company incurred losses from continuing operations of $86,456 and $17,706,
respectively. These losses include accrued expenses of $52,600 and $23,500,
respectively, for a major restructuring of the Company's operations, which has
not yet been completed (see Note 3). In addition, Hexcel Corporation filed a
voluntary petition for relief under the provisions of Chapter 11 of the federal
bankruptcy laws on December 6, 1993, and has been operating as a debtor-in-
possession since that date. While the Company believes it has adequate
financing to operate in bankruptcy for a reasonable period of time (see Note 6),
its ability to successfully continue operations is dependent upon, among other
things, confirmation of a plan of reorganization that will enable Hexcel
Corporation to emerge from bankruptcy proceedings, obtaining adequate
postconfirmation financing to fund restructuring and working capital
requirements, successfully implementing the restructuring program, and
generating sufficient cash from operations and financing sources to meet
obligations. Management believes that the Company should be able to
restructure its existing debt and obtain adequate postconfirmation financing
in connection with the confirmation of a plan of reorganization, but there is
no assurance that such restructuring or financing will occur. These factors
among others may indicate that the Company will be unable to continue as a
going concern for a reasonable period of time.
The consolidated financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts or
the amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
CASH AND EQUIVALENTS
The Company invests excess cash in investments with original maturities of
less than three months. The investments consist of Eurodollar time deposits and
are stated at cost, which approximates market
47
value. The Company considers such investments to be cash equivalents for
purposes of the statements of cash flows.
ACCOUNTS RECEIVABLE
Accounts receivable were net of reserves for doubtful accounts of $1,490 at
December 31, 1993 and 1992.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and
maintenance are charged to expense as incurred; replacements and betterments are
capitalized. Interest expense associated with major long-term construction
projects is capitalized. Capitalized interest was $227 in 1993, $298 in 1992
and $1,083 in 1991.
The Company depreciates property, plant and equipment over estimated useful
lives. Accelerated and straight-line methods are used for financial statement
purposes. The estimated useful lives range from 10 to 40 years for buildings
and improvements and 3 to 20 years for machinery and equipment.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs of $8,745 in 1993, $10,457 in 1992 and
$10,614 in 1991 were expensed as incurred, and are included in marketing,
general and administrative ("M,G&A") expenses in the consolidated statements of
operations.
CURRENCY TRANSLATION
The assets and liabilities of European subsidiaries are translated into
U.S. dollars at year-end exchange rates, and revenues and expenses are
translated at average exchange rates during the year. Cumulative currency
translation adjustments are included in shareholders' equity. Realized gains
and losses are reflected in net income.
EARNINGS PER SHARE
Net income (loss) per share is computed by dividing net income (loss) by
the weighted average number of common shares and dilutive common share
equivalents (stock options) outstanding during each year. The computation on
the fully diluted basis, which considers the exercise of stock options and the
conversion of the convertible subordinated debentures, was antidilutive in 1993,
1992 and 1991.
ACCOUNTING CHANGES
During the fourth quarter of 1993, the Company changed to the first-in,
first-out ("FIFO") method of accounting for substantially all inventories (see
Note 4). The effect of this change on domestic honeycomb and fabric
inventories, which were previously valued using the last-in, first-out ("LIFO")
method, has been applied to prior years by retroactively restating the
consolidated financial statements as required by generally accepted accounting
principles.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes" (see
Note 13). The cumulative effect of this accounting change has been reflected in
the consolidated statement of operations for the year ended December 31, 1993.
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), "Employers' Accounting for
Postretirement Benefits Other than Pensions" (see Note 12). The cumulative
effect of this accounting change has been reflected in the consolidated
statement of
48
operations for the year ended December 31, 1992.
RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements and
notes have been reclassified to conform to the 1993 presentation.
NOTE 2 - BANKRUPTCY REORGANIZATION
On December 6, 1993, Hexcel Corporation filed a voluntary petition for
relief under the provisions of Chapter 11 of the federal bankruptcy laws in the
United States Bankruptcy Court for the Northern District of California (the
"Bankruptcy Court"). Since that date, Hexcel Corporation has continued business
operations as debtor-in-possession under the supervision of the Bankruptcy
Court. Substantially all of the U.S. assets and operations of the Company are
directly owned and operated by the Parent, and are subject to bankruptcy
protection. The joint ventures and European subsidiaries of Hexcel Corporation
are not included in the bankruptcy proceedings and, as such, are not subject to
the provisions of the federal bankruptcy laws or the supervision of the
Bankruptcy Court. However, the Parent Company is generally unable to provide
direct financial support outside of the normal course of business to its joint
ventures and subsidiaries without Bankruptcy Court approval.
All transactions outside of the Parent Company's ordinary course of
business are subject to the approval of the Bankruptcy Court. A committee of
unsecured creditors and a committee of equity security holders have been
appointed and these committees will participate in the bankruptcy process,
including the confirmation of a plan of reorganization.
Federal bankruptcy laws prohibit Hexcel Corporation from paying almost all
prepetition liabilities without the approval of the Bankruptcy Court. The
Parent Company has received approval to pay or otherwise honor certain
prepetition obligations, including employee wages and benefits. Accordingly,
these obligations have been included in the appropriate liability captions of
the consolidated balance sheet as of December 31, 1993. Most other prepetition
liabilities, including trade accounts and notes payable, have been reflected as
"liabilities subject to disposition in bankruptcy reorganization" on the basis
of the expected amount of allowed claims. Additional prepetition claims may
arise from the rejection of executory contracts, including leases, and from the
determination by the Bankruptcy Court (or agreed to by parties in interest) of
allowed claims for contingencies and other disputed amounts.
Under Chapter 11, the Parent Company is prohibited from paying interest on
most prepetition debt. However, the Parent Company continues to record interest
expense on all interest-bearing obligations, and the resulting liability is
included in liabilities subject to disposition in bankruptcy reorganization.
Professional fees and other costs directly related to bankruptcy proceedings are
expensed as incurred, and reflected in the consolidated statement of operations
for the year ended December 31, 1993 as "bankruptcy reorganization expenses."
Interest income earned by the Parent Company subsequent to the Chapter 11 filing
is reported as a reduction of bankruptcy reorganization expenses.
Liabilities incurred in the normal course of business after the petition
date are not subject to bankruptcy protection or disposition and have been
reflected accordingly in the consolidated financial statements. These
postpetition liabilities are generally paid in accordance with contract terms,
and the Parent Company has obtained debtor-in-possession financing to facilitate
such payments (see Note 6).
49
Substantially all of the Parent Company's liabilities as of the petition
date are subject to settlement under a plan of reorganization to be voted upon
by creditors and equity security holders and confirmed by the Bankruptcy Court.
In the event a plan of reorganization is approved by the Bankruptcy Court,
continuation of the business after reorganization is dependent upon the success
of future operations and the ability to meet obligations as they become due. As
a result of the reorganization proceedings, the Parent Company may have to sell
or otherwise dispose of assets and liquidate or settle liabilities for amounts
other than those reflected in the consolidated financial statements. Further, a
plan of reorganization could materially change the amounts currently recorded in
the consolidated financial statements. The consolidated financial statements do
not give effect to all adjustments to the carrying value of assets, or amounts
and classification of liabilities, that might be necessary as a consequence of
these bankruptcy proceedings.
The following condensed financial statements for Hexcel Corporation, the
debtor-in-possession, as of December 31, 1993 and 1992 and for the years ended
December 31, 1993, 1992 and 1991, have been prepared using the equity method to
account for investments in subsidiaries:
CONDENSED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
Current assets $ 70,449 $ 88,856
Property, plant and equipment, net 80,389 94,595
Investments in and advances to subsidiaries 35,466 48,196
Investments and other assets 20,920 18,923
- -----------------------------------------------------------------------------------------------
Total assets $ 207,224 $ 250,570
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Current liabilities $ 22,938 $ 33,118
Long-term notes payable and deferred liabilities 41,101 111,303
Liabilities subject to disposition in bankruptcy reorganization 122,432
Shareholders' equity 20,753 106,149
- -----------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 207,224 $ 250,570
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Investments in and advances to subsidiaries includes intercompany
investments, loans, and trade balances. As of December 31, 1993, $1,828 of the
total represents investments in and advances to Hexcel S.A., the Company's
wholly-owned Belgian subsidiary (see Note 16).
Liabilities subject to disposition in bankruptcy reorganization includes
$2,500 payable to a European subsidiary.
CONDENSED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Net sales $ 215,871 $ 248,790 $ 245,445
Cost of sales and MG&A expenses (226,679) (245,590) (241,754)
Restructuring charges and other expenses (49,124) (14,978) --
- --------------------------------------------------------------------------------------------------------------
Operating income (loss) (59,932) (11,778) 3,691
Equity in earnings (losses) of subsidiaries (14,057) (8,341) 5,310
Interest and bankruptcy reorganization expenses (4,745) (2,849) (5,545)
Benefit (provision) for income taxes (7,722) 5,262 1,315
- --------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations (86,456) (17,706) 4,771
Discontinued operations (4,039) (4,472) (508)
Extraordinary item -- 956 --
Cumulative effects of accounting changes 4,500 (8,052) --
- --------------------------------------------------------------------------------------------------------------
Net income (loss) $ (85,995) $ (29,274) $ 4,263
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
50
Net sales include sales to subsidiaries for the years ended December 31,
1993, 1992 and 1991 of $10,061, $12,359 and $19,601, respectively.
Equity in earnings (losses) of subsidiaries include restructuring charges
and other expenses of $16,256 and $5,530 in 1993 and 1992, respectively.
CONDENSED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $ (86,456) $ (17,706) $ 4,771
Depreciation and amortization 10,118 10,774 10,529
Restructuring and other expenses 49,124 19,805 --
Equity in (earnings) losses of subsidiaries 14,057 8,341 (5,310)
Changes in assets and liabilities 14,025 12,587 527
Other 8,799 (10,384) (2,964)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 9,667 23,417 7,553
Net cash used by discontinued operations (498) (2,986) (5,505)
- --------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,169 20,431 2,048
- --------------------------------------------------------------------------------------------------------------
Capital expenditures (4,694) (11,051) (9,966)
Proceeds from disposal of discontinued operations 500 19,262 --
Other 3,484 1,508 (135)
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities (710) 9,719 (10,101)
- --------------------------------------------------------------------------------------------------------------
Issuance of long-term debt -- 21,000 54,346
Payments of long-term debt (1,457) (46,980) (43,327)
Other 884 (4,170) (5,302)
- --------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (573) (30,150) 5,717
- --------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents 7,886 -- (2,336)
Cash and equivalents at beginning of year -- -- 2,336
- --------------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 7,886 $ -- $ --
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
NOTE 3 - RESTRUCTURING AND OTHER EXPENSES
RESTRUCTURING
In December 1992, the Company initiated a worldwide restructuring program
designed to improve facility utilization and determine the proper workforce
requirements to support projected reduced levels of business in 1993 and beyond.
The Company recorded a charge for this program of $23,500 in the fourth quarter
of 1992.
In April 1993, the Company announced the closing of the Graham, Texas
facility and the consolidation of Graham operations into other plants. The
estimated costs of this closure were included in the 1992 restructuring charge.
The Graham closure is expected to be completed in the second half of 1994.
In September 1993, the Company announced plans to significantly expand the
restructuring program in response to the expected further decline in the
Company's principal markets, commercial and military aerospace. Accordingly,
the Company recorded a charge of $50,000 in the third quarter of 1993. This
expansion includes deeper cuts in overhead and further consolidation of
facilities in the United States and Europe. During the fourth quarter of 1993,
an additional charge of $2.6 million was recorded in connection with the
expanded restructuring program. The 1993 and 1992 restructuring charges
included
51
approximately $40,000 of non-cash write-downs related to facility closures and
the impairment of certain assets due to declining sales and the changed business
environment.
Even after the Graham closure is complete, the Company has more production
capacity than required for either current or projected sales levels, and needs
to close additional facilities. The 1993 restructuring charges include the
estimated costs of such closures, and the Company is currently evaluating which
facilities to close. This process is complicated by the uncertain outlook for
several product lines as well as aerospace industry requirements to "qualify"
specific equipment and locations for the manufacture of certain products. These
qualification procedures increase the complexity, cost and time of moving
equipment while continuing to serve existing customers.
The total of $76,100 in restructuring charges taken in 1992 and 1993 and
the remaining balance of accrued restructuring charges at December 31, 1993
consist of:
- --------------------------------------------------------------------------------------------------
Accrued
Total Restructuring
Restructuring Liabilities at
Expenses 12/31/93
- --------------------------------------------------------------------------------------------------
Estimated costs to close and relocate facilities:
Asset write-downs $ 25,200 $ 21,600
Cash costs, net of expected sales proceeds 11,800 7,300
Estimated employee severance costs (excluding severance
related to the closure of facilities) 15,900 5,700
Asset write-downs due to changed business conditions 14,700 3,700
Estimated cash costs of various other restructuring actions 8,500 5,300
- -----------------------------------------------------------------------------------------------
$ 76,100 $ 43,600
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Accrued restructuring liabilities include $20,910 and $14,835 in accrued
liabilities at December 31, 1993 and 1992, respectively, and $22,690 and $8,000
in deferred liabilities at December 31, 1993 and 1992, respectively.
OTHER EXPENSES
In addition to the above restructuring charges, the Company recorded
$12,780 ($12,638 in the fourth quarter) of other expenses in 1993. The $12,638
includes write-downs of certain assets and increases in reserves for warranties
and environmental matters on property previously owned. The impairment of
assets was due primarily to bankruptcy proceedings, continued changes in
business conditions and depressed real estate prices on property held for sale.
Other expenses in 1993 also include approximately $4,000 of costs in the
first nine months of 1993 offset by a similar amount of gains. The costs were
associated primarily with the terminated negotiations for the acquisition of a
business, securities litigation costs, the settlement of a threatened proxy
contest, and a reserve for anticipated loss on the disposition of property. The
mitigating gains include a $1,541 gain from the sale of 50% of the Knytex
stitchbonded business to Owens-Corning to form a new joint venture, and
approximately $2,000 in gains from the settlement of insurance claims and a
terminated contract.
Other income in 1992 consisted of $2,992 from the final settlement of a
patent infringement lawsuit.
52
NOTE 4 - INVENTORIES
Inventories at December 31, 1993 and 1992 were:
- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
Raw materials $ 14,717 $ 17,299
Work in progress 11,570 16,881
Finished goods 20,056 24,933
Supplies 941 1,961
- ---------------------------------------------------------------------------
Total inventories $ 47,284 $ 61,074
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Inventories are valued at the lower of cost or market. During the fourth
quarter of 1993, the Company changed to the first-in, first-out method of
accounting for substantially all inventories. Previously, domestic honeycomb
and fabric inventories were valued using the last-in, first-out method and all
other inventories were valued at the lower of average cost or market. The FIFO
method provides a more meaningful presentation of the Company's financial
position by reflecting inventories at more recent costs. The Company believes
that the disclosure of inventories at recent costs provides more relevant
information about the Company's current business condition. The change to the
FIFO method conforms substantially all inventories of the Company to the same
accounting method.
The effect of the change in accounting method from LIFO to FIFO was to
increase the loss from continuing operations and net loss for the year ended
December 31, 1993 by $233 or $0.03 per share. This change has been applied to
prior years by retroactively restating the consolidated financial statements as
required by generally accepted accounting principles. The effect of this
restatement was to increase retained earnings as of January 1, 1991 by $3,526.
The restatement increased the 1992 loss from continuing operations and net loss
by $440 or $0.06 per share, and increased the 1991 income from continuing
operations and net income by $130 or $0.02 per share. The cumulative and
current-year effects of changing from the average cost method to the FIFO method
are not material and are included in the 1993 results.
NOTE 5 - INVESTMENTS AND OTHER ASSETS
Investments and other assets as of December 31, 1993 and 1992 were:
- ---------------------------------------------------------------------------
1993 1992
- ---------------------------------------------------------------------------
Investments in joint ventures $ 5,950 $ 900
Long-term notes receivable, net of reserves 1,665 2,708
Intangibles, net of accumulated amortization 5,156 8,098
Other assets 8,604 8,924
- ---------------------------------------------------------------------------
Total investments and other assets $ 21,375 $ 20,630
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Investments in joint ventures consist of a 50% interest in Knytex Company,
L.L.C., which is jointly owned and operated with Owens-Corning Fiberglas
Corporation; a 50% interest in DIC-Hexcel Limited, which is jointly owned and
operated with Dainippon Ink and Chemicals, Inc.; and a 40% interest in Hexcel-
Fyfe, L.L.C., which is jointly owned and operated with Fyfe Associates
Corporation. These investments are accounted for by the equity method. Equity
in earnings for the years ended December 31, 1993 and 1992 were not material to
the consolidated financial statements.
53
Knytex Company, L.L.C. was formed on June 30, 1993 when the Company sold
50% of the Hexcel Knytex business to Owens-Corning and contributed the remaining
50% to the joint venture. The Company received proceeds of $4,500 and
recognized a gain of $1,541 from the sale.
Reserves for long-term notes receivable totaled $3,400 as of December 31,
1993. There were no reserves as of December 31, 1992.
NOTE 6 - DEBTOR-IN-POSSESSION FINANCING
Prior to the Chapter 11 filing, Hexcel Corporation arranged for a debtor-
in-possession revolving line of credit of up to $35,000 from The CIT Group /
Business Credit, Inc. On January 28, 1994, the Bankruptcy Court granted final
approval for use of this credit facility. As of December 31, 1993, Hexcel
Corporation had not borrowed under this revolving line of credit.
The debtor-in-possession credit line is available to finance the normal
business operations and restructuring activities of Hexcel Corporation. This
credit facility cannot be used to finance joint ventures, European subsidiaries,
or any transaction outside of the ordinary course of business without the prior
consent of the Bankruptcy Court. The amount available for borrowing is based on
the outstanding balance of eligible U.S. receivables and inventories, as defined
in the credit agreement, up to a maximum of $35,000. Any borrowings against the
U.S. debtor-in-possession line of credit are due upon the earlier of December
1995 or confirmation by the Bankruptcy Court of a plan of reorganization.
Interest on outstanding borrowings is computed at an annual rate of 1% in
excess of the prime rate of the Bank of America. In addition, a commitment fee
of 0.5% per annum is charged on the unused portion of the facility.
The debtor-in-possession credit line is secured by substantially all of the
U.S. assets of Hexcel Corporation, as well as 65% of the shares of stock of
substantially all European subsidiaries. Under the terms of the facility and
the provisions of federal bankruptcy laws, the security interest of The CIT
Group / Business Credit, Inc. has superpriority over virtually all prepetition
claims and most Chapter 11 administrative expense claims.
The revolving line of credit is subject to a number of financial covenants
and other restrictions. Hexcel Corporation must maintain minimum levels of
cumulative earnings before interest, taxes, depreciation, and amortization. In
addition, the Parent Company is subject to limitations in permitting the
creation of liens, incurring lease obligations, extending trade credit to
European subsidiaries, and incurring capital expenditures. Certain business
activities, investments and guarantees are also restricted, and the payment of
dividends is prohibited.
NOTE 7 - NOTES PAYABLE
Since September 15, 1993, Hexcel Corporation has been out of compliance
with substantially all of its prepetition debt obligations. Payment and
enforcement of most of these obligations is stayed by federal bankruptcy laws
for the duration of bankruptcy proceedings. Furthermore, the ultimate
disposition of these debts is subject to confirmation of a plan of
reorganization by the Bankruptcy Court. Accordingly, the outstanding principal
and accrued interest on all prepetition debt obligations has been included in
liabilities
54
subject to disposition in bankruptcy reorganization in the consolidated balance
sheet as of December 31, 1993.
The debt obligations of Hexcel Corporation's European subsidiaries are not
subject to the provisions of the federal bankruptcy laws and have not been
stayed. However, $15,574 of the outstanding debt of Hexcel S.A., a Belgian
subsidiary, as of December 31, 1993 is pursuant to credit facilities with
European banks, commitments for which expired on March 16, 1994. Hexcel S.A. is
currently in negotiations with these banks to extend these credit facilities
(see Note 16). The debt of Hexcel S.A. is secured by substantially all of that
subsidiary's assets, which totaled $32,340 at December 31, 1993.
Total credit lines, excluding U.S. credit lines subject to disposition in
bankruptcy reorganization, were $63,792 at December 31, 1993. $35,000 of this
total was a debtor-in-possession revolving line of credit from The CIT Group /
Business Credit, Inc. (see Note 6). The remaining $28,792 was comprised of
various credit lines extended to the Parent Company's European subsidiaries,
$7,168 of which was available for borrowing by those subsidiaries. The debtor-
in-possession credit line cannot be used to provide direct financial support
outside of the normal course of business to joint ventures or European
subsidiaries without the prior consent of the Bankruptcy Court, and the credit
lines of European subsidiaries are unavailable to finance the activities of the
Parent Company.
Notes payable and capital lease obligations at December 31, 1993 and 1992
were:
- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
U.S.:
U.S. revolving credit agreement $ 12,000 $ 12,000
Note payable originally due 1994 750 --
10.12% senior notes originally due 1998 30,000 30,000
7% convertible subordinated debentures originally due 2011 25,625 25,625
Obligations under IDB variable rate demand notes
originally due through 2024 15,890 15,944
Various notes payable originally due through 2007 2,181 2,825
Capital lease obligations (see Note 8) 929 1,068
- -----------------------------------------------------------------------------------------------
Total U.S. notes payable and capital lease obligations 87,375 87,462
- -----------------------------------------------------------------------------------------------
International:
Various short-term notes payable of Hexcel S.A. (see Note 16) 15,574 14,374
Various other short-term notes payable 5,905 2,608
Various notes payable due through 1997 6,296 10,519
Capital lease obligations (see Note 8) 2,025 2,531
- -----------------------------------------------------------------------------------------------
Total international notes payable and capital lease obligations 29,800 30,032
- -----------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations 117,175 117,494
Less amount subject to disposition in bankruptcy
reorganization (see Note 9) (87,375) --
- -----------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 29,800 $ 117,494
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Notes payable and current maturities of long-term liabilities, net $ 24,632 $ 21,925
Long-term notes payable and capital lease obligations, net 5,168 95,569
- -----------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $ 29,800 $ 117,494
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
55
The 7% convertible subordinated debentures are subject to disposition in
bankruptcy reorganization (see Note 9). Prior to the commencement of bankruptcy
proceedings, these debentures were redeemable by the Company under certain
provisions, with mandatory redemption scheduled to begin August 1, 1997 through
annual sinking fund requirements. The debentures were convertible prior to
maturity into common stock of the Company at $31.87 per share, subject to
adjustment under certain conditions. During the second quarter of 1992, the
Company repurchased $7,315 of the subordinated debentures on the open market.
The repurchase resulted in an extraordinary gain of $956 after taxes.
The Company has various industrial development bonds ("IDB") outstanding,
guaranteed by bank letters of credit for fees of 0.375% to 0.50%. These
obligations are subject to disposition in bankruptcy reorganization (see Note
9). The interest rates on the bonds are variable and averaged 2.5% in 1993,
2.9% in 1992 and 4.8% in 1991.
Excluding obligations subject to disposition in bankruptcy reorganization,
installments due on long-term notes payable for the years 1994 through 1997 are
$2,774, $2,337, $962 and $223, respectively. There are no installments due
after 1997.
Interest payments were $9,529 in 1993, $11,689 in 1992 and $12,449 in 1991.
The fair value of the Company's long-term debt is not presently
determinable due to Hexcel Corporation's bankruptcy proceedings (see Note 2) and
the uncertainties surrounding Hexcel S.A., a wholly-owned subsidiary (see Note
16).
NOTE 8 - LEASING ARRANGEMENTS
Assets, accumulated depreciation and related liability balances under
capital leasing arrangements as of December 31, 1993 and 1992 were:
- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
Property, plant and equipment $ 6,640 $ 6,958
Less accumulated depreciation (2,710) (2,583)
- -----------------------------------------------------------------------------------------------
Net property, plant and equipment $ 3,930 $ 4,375
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Capital lease obligations $ 2,954 $ 3,599
Less current maturities (527) (504)
- -----------------------------------------------------------------------------------------------
Long-term capital lease obligations 2,427 3,095
Less amount subject to disposition in bankruptcy
reorganization (see Note 9) (781) --
- -----------------------------------------------------------------------------------------------
Long-term capital lease obligations, net $ 1,646 $ 3,095
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Certain sales and administrative offices, data processing equipment and
manufacturing facilities are leased under operating leases. Federal bankruptcy
laws allow Hexcel Corporation to affirm or reject prepetition leases on a lease-
by-lease basis. The Parent Company is currently evaluating prepetition lease
obligations to determine which obligations to affirm and which to reject. The
rejection of one or more
56
leases may give rise to additional claims against the Parent Company which are
not currently reflected in the accompanying consolidated financial statements.
Rental expenses under operating leases were $3,541 in 1993, $5,053 in 1992
and $4,410 in 1991.
Future minimum lease payments as of December 31, 1993 were:
- -----------------------------------------------------------------------------------------------
Type of Lease
-----------------------
Payable during years ending December 31: Capital Operating
- -----------------------------------------------------------------------------------------------
1994 $ 840 $ 3,467
1995 613 2,760
1996 458 2,249
1997 458 1,670
1998 458 910
1999 and thereafter 1,649 1,733
- -----------------------------------------------------------------------------------------------
Total minimum lease payments 4,476 12,789
Less amount subject to potential rejection under
the federal bankruptcy laws (see Note 9) (1,629) (9,494)
- -----------------------------------------------------------------------------------------------
Total minimum lease payments not subject to potential rejection $ 2,847 $ 3,295
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Total minimum capital lease payments include $823 of imputed interest.
NOTE 9 - LIABILITIES SUBJECT TO DISPOSITION IN BANKRUPTCY REORGANIZATION
Liabilities subject to disposition in bankruptcy reorganization as of
December 31, 1993 were:
- -----------------------------------------------------------------------------------------------
1993
- -----------------------------------------------------------------------------------------------
Accounts payable $ 21,676
Accrued liabilities, including prepetition interest 9,057
U.S. revolving credit agreement 12,000
10.12% senior notes originally due 1998 30,000
7% convertible subordinated debentures originally due 2011 25,625
Obligations under IDB variable rate demand notes originally due through 2024 15,890
Various U.S. notes payable and capital lease obligations 3,860
Accrued postpetition interest on prepetition debt 1,824
- -----------------------------------------------------------------------------------------------
Total liabilities subject to disposition in bankruptcy reorganization $ 119,932
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Liabilities subject to disposition in bankruptcy reorganization consisted
of the estimated prepetition claims of Hexcel Corporation creditors as of
December 31, 1993. The Parent Company is in the process of confirming the
nature and amount of existing claims, and the bar date for the filing of
additional claims is April 28, 1994. Until the Parent Company receives and
completes a reconciliation of all proofs of claim submitted by creditors, the
recorded liability is subject to revision. Furthermore, the recorded liability
does not include any amounts for claims that may arise from the rejection of
executory contracts, including leases.
57
The industrial development bonds are guaranteed by irrevocable bank letters
of credit (see Note 7). The bondholders have the right to draw upon the letters
of credit, at which time the issuing bank would then become an unsecured
creditor of the Parent Company.
The satisfaction of liabilities subject to disposition in bankruptcy
reorganization is subject to confirmation of a plan of reorganization by the
Bankruptcy Court. Such liabilities may be settled for amounts other than those
reflected in the consolidated financial statements.
NOTE 10 - SHAREHOLDERS' EQUITY AND STOCK OPTION AND PURCHASE PLANS
SHAREHOLDERS' EQUITY
A shareholder rights plan was adopted, effective September 1986 and amended
in October 1988, November 1990 and December 1990, that provides for the issuance
of two-thirds of one right for each outstanding share of common stock and
equivalent. The rights become exercisable if a person or a group acquires 25%
or more of the outstanding shares of the Company. The rights also become
exercisable, at the option of the Board of Directors, if a person or group
acquires 10% or more of the outstanding shares and is designated as an "adverse
party" by the Board of Directors. The rights expire on September 19, 1996.
Each right allows the purchase, for $180 (adjustable), of one one-hundredth of a
share of Series A Junior Participating Preferred Stock or, in certain events
involving an acquisition or change in control of the Company, stock or assets
worth twice the exercise price. The Company reserves 200,000 preferred shares
for the plan. The Company has authorized preferred stock of 450,000 shares.
None was outstanding as of December 31, 1993 and 1992.
Cash dividends declared and paid per common share were $0.44 in 1992 and
1991. The Board of Directors suspended dividend payments beginning in 1993.
Dividend payments are currently precluded by bankruptcy proceedings and the
debtor-in-possession credit line.
STOCK OPTION AND PURCHASE PLANS
Stock option data for the two years ended December 31, 1993 were:
- -------------------------------------------------------------------------------------------------------------------------
NUMBER OPTION PRICE EXPIRATION
OF SHARES PER SHARE DATES
- -------------------------------------------------------------------------------------------------------------------------
Options outstanding at January 1, 1992 601,777 $ 7.56 - 32.06 1992 - 2001
Options granted 156,400 12.13 2002
Options exercised (55,438) 10.44 2001
Options expired or canceled (68,565) 10.44 - 29.38 1992 - 2002
- -------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1992 634,174 7.56 - 32.06 1997 - 2002
Options granted 275,200 9.13 - 12.31 2003
Options exercised -- -- --
Options expired or canceled (375,899) 10.44 - 32.06 1997 - 2003
- -------------------------------------------------------------------------------------------------------------------------
Options outstanding at December 31, 1993 533,475 $ 7.56 - 32.06 1998 - 2003
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1993 359,725 $ 7.56 - 32.06 1998 - 2002
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
At December 31, 1993 and 1992, the total number of shares reserved for
issuance under stock option plans including shares granted and shares available
for grant was 955,662 and 908,771, respectively. Options vest one year from the
date of grant and expire 10 years after such grant date.
58
Prior to the Chapter 11 filing, employees meeting certain criteria could
purchase common stock of the Company under a non-qualified employee stock
purchase plan. The subscription price of the stock was 83.33% of the average of
the high and low sales prices on the New York Stock Exchange on the quarterly
purchase dates. The Board of Directors canceled this plan effective December 5,
1993.
Under a restricted stock plan implemented in 1988, the Company may grant
shares of restricted common stock to senior executives in amounts and with
restrictions as the Company may determine. The restricted shares vest in three
to seven years from date of grant. Holders of the restricted stock are entitled
to vote and receive all dividends. Effective December 5, 1993, the Board of
Directors suspended future grants under this plan indefinitely. As of December
31, 1993 and 1992, the Company had outstanding a total of 44,939 and 65,494
shares of restricted stock, respectively.
Under a discounted stock option plan implemented in 1988, officers may
exchange all or a portion of incentive bonuses for common stock options. The
Company granted no discounted stock options in 1993 and 1992.
NOTE 11 - RETIREMENT PLANS
The Company has various retirement and profit sharing plans covering
substantially all employees. The net cost of these plans was $2,330 in 1993,
$2,880 in 1992, and $2,481 in 1991.
In the United States, the Company maintains a defined contribution plan
comprised of a 401(k) plan covering essentially all domestic employees and a
profit sharing plan covering all domestic salaried employees. The Company also
has defined benefit pension plans for substantially all U.S. hourly employees
and U.K. employees, which have not been affected by the bankruptcy proceedings
of the Parent Company. The Company also has defined benefit retirement plans
for senior executives and directors. The European subsidiaries, except for
those in the United Kingdom, participate in government retirement plans which
cover all employees of those subsidiaries.
Under the 401(k) plan, the Company makes matching contributions equal to
50% of the contributions of the employees, not to exceed 3% of base wages.
Contributions to the salaried profit sharing plan are based on a formula which
approximates 12% of consolidated income before provision for income taxes less
certain adjustments as defined. Contributions to the 401(k) plan were $1,130
for 1993, $1,593 for 1992, and $1,637 for 1991. There were no contributions to
the salaried profit sharing plan for 1993, 1992 and 1991.
The defined benefit pension plans are career average pension plans.
Benefits are based on years of service and the annual compensation of the
employee. The funding policy for the pension plans is to contribute the minimum
amount required by applicable regulations. Benefits for the executive and
director retirement plans are based on years of service and annual compensation,
and the Company does not fund these plans.
Net cost for the defined benefit pension and retirement plans for the years
ended December 31, 1993, 1992 and 1991 consisted of:
59
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 749 $ 832 $ 794
Interest cost on projected benefit obligation 713 803 693
Return on assets - actual (1,385) (157) (1,576)
Net amortization and deferral 1,123 (191) 933
- --------------------------------------------------------------------------------------------------------------
Net cost $ 1,200 $ 1,287 $ 844
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Assumptions used in the accounting were:
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Discount rates 7.00% 8.25% 8.25%
Rates of increase in compensation 4.00% 4.50% 4.50%
Expected long-term return on assets 9.50% 9.50% 9.50%
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
The funded status and amounts recognized for the defined benefit pension
and retirement plans at December 31, 1993 and 1992 were:
- --------------------------------------------------------------------------------------------------------------
1993 1992
- --------------------------------------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 8,480 $ 7,203
Non-vested benefits 1,530 1,123
- --------------------------------------------------------------------------------------------------------------
Accumulated benefit obligations $ 10,010 $ 8,326
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $ 11,056 $ 9,512
Less plan assets at fair value, primarily listed stocks (5,358) (5,526)
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Projected benefit obligations in excess of plan assets 5,698 3,986
Unrecognized net loss (1,693) (485)
Unrecognized prior service costs (339) (395)
Unrecognized net transition obligation being recognized
over 15 years (352) (398)
Adjustment required to recognize minimum pension obligation 1,337 --
- --------------------------------------------------------------------------------------------------------------
Defined benefit liability $ 4,651 $ 2,708
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Statement of Financial Accounting Standards No. 87, "Employers' Accounting
for Pensions," requires the recognition of a minimum pension obligation on the
balance sheet. The minimum pension obligation adjustment of $646 included in
shareholders' equity at December 31, 1993 is necessary to reflect the minimum
obligation for the Company's pensions plans and results primarily from lowering
the assumed discount rates to 7% in 1993.
NOTE 12 - POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company has various postretirement benefit plans covering substantially
all U.S. employees retiring on or after age 58 who have rendered at least 15
years of service. The plans include health care and life insurance coverage for
retirees and their dependents. The Company continues to fund benefit costs on a
pay-as-you-go basis and, for 1993, 1992 and 1991, made benefit payments of $576,
$352 and $604, respectively. On an interim basis, the Bankruptcy Court has
approved the continued funding of postretirement benefits up to approximately
$50 per month. Accordingly, the liability for accrued
60
postretirement benefits other than pensions has been included in deferred
liabilities in the consolidated balance sheet as of December 31, 1993.
Under the health care plan, annual coverage is provided up to a maximum of
50% of plan costs for each retiree and covered dependent. Under the life
insurance plan, annual coverage is provided equal to 65% of the final base pay
of the retiree until the age of 70. Upon reaching 70 years of age, life
insurance coverage is reduced.
Effective January 1, 1992, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions." This statement requires the Company to accrue the
expected cost of postretirement benefits as employees render service. This is a
significant change from prior policy of recognizing these costs on the cash
basis. The cumulative effect, as of January 1, 1992, of changing to the accrual
basis was a noncash charge of $8,052 after taxes. In addition, the Company
recorded noncash expenses of $924 and $997 in 1993 and 1992, respectively.
The defined postretirement benefit obligations included in deferred
liabilities at December 31, 1993 and 1992 were:
- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 7,946 $ 7,288
Fully eligible active plan participants 1,573 1,336
Other active plan participants 6,471 4,573
- -----------------------------------------------------------------------------------------------
15,990 13,197
Unrecognized net loss (2,046) --
- -----------------------------------------------------------------------------------------------
Defined postretirement benefit liability $ 13,944 $ 13,197
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Net defined postretirement benefit costs for the years ended December 31,
1993 and 1992 were:
- -----------------------------------------------------------------------------------------------
1993 1992
- -----------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 400 $ 367
Interest cost on accumulated postretirement benefit obligation 1,100 982
- -----------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 1,500 $ 1,349
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
Two health care cost trend rates were used in measuring the accumulated
postretirement benefit obligation. The assumed indemnity health care cost trend
in 1994 was 13.0% for participants less than 65 years of age and 9.0% for
participants 65 years of age and older, gradually declining to 6.0% for both age
groups in the year 2001. The assumed HMO health care cost trend in 1994 was
10.0% for participants less than 65 years of age and 7.0% for participants 65
years of age and older, gradually declining to 6.0% and 5.0%, respectively, in
the year 2001.
The weighted average discount rate used in determining the accumulated
postretirement benefit obligation was 7% in 1993 and 8.25% in 1992.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1993 would be
increased by 6.3%. The effect of this change on the sum of the service cost
and interest cost would be an increase of 4.9%.
61
NOTE 13 - INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," effective January 1, 1993. The cumulative effect
of adopting SFAS 109 was the recognition of $4,500 of income, which was recorded
in the first quarter of 1993. In connection with the adoption of SFAS 109, the
Company established a valuation allowance of $4,693 against its deferred income
tax assets.
During 1993, substantial uncertainty developed as to the realization of the
Company's deferred income tax assets. As a result, the Company increased the
valuation allowance against those assets to $41,313 as of December 31, 1993,
which reduced the net deferred income tax assets to zero. The increase to the
valuation allowance reflects the Company's assessment that the bankruptcy
proceedings of Hexcel Corporation and ongoing operating losses have jeopardized
the realization of deferred income tax assets.
Income (loss) before income taxes and the tax benefit (provision) for
income taxes from continuing operations for the years ended December 31, 1993,
1992 and 1991 were:
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes:
United States $ (64,717) $ (14,179) $ (655)
International (15,538) (9,876) 5,252
- --------------------------------------------------------------------------------------------------------------
Total income (loss) before income taxes $ (80,255) $ (24,055) $ 4,597
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Benefit (provision) for income taxes:
Current:
U.S. $ (234) $ (64) $ 2,804
International (177) 375 (463)
- --------------------------------------------------------------------------------------------------------------
Total current (411) 311 2,341
- --------------------------------------------------------------------------------------------------------------
Deferred:
U.S. (6,598) 5,233 (1,632)
International 808 805 (535)
- --------------------------------------------------------------------------------------------------------------
Total deferred (5,790) 6,038 (2,167)
- --------------------------------------------------------------------------------------------------------------
Total benefit (provision) for income taxes $ (6,201) $ 6,349 $ 174
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
A reconciliation of the tax benefit (provision) to the U.S. federal
statutory income tax rate of 34% for the years ended December 31, 1993, 1992 and
1991 was:
- --------------------------------------------------------------------------------------------------------------
1993 1992 1991
- --------------------------------------------------------------------------------------------------------------
Benefit (provision) at U.S. federal statutory rate $ 27,287 $ 8,179 $ (1,563)
U.S. state taxes, less federal tax benefit (104) (130) (117)
Impact on tax rates of international tax structure -- 1,154 950
Impact of different international tax rates,
adjustments to income tax accruals and other 3,236 2,292 904
Limitation on recognition of tax benefits
for operating losses -- (5,146) --
Valuation allowance (36,620) -- --
- --------------------------------------------------------------------------------------------------------------
Total benefit (provision) $ (6,201) $ 6,349 $ 174
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
62
The Company paid income taxes of $203 in 1993, $468 in 1992, and $434 in
1991. The Company has made no U.S. income tax provision for $12,390 of
undistributed earnings of international subsidiaries as of December 31, 1993.
Such earnings are considered to be permanently reinvested. The additional U.S.
income tax on these earnings, if repatriated, would be offset in part by foreign
tax credits.
Deferred income taxes result from temporary differences between the
recognition of items for income tax purposes and financial reporting purposes.
Principal temporary differences as of December 31, 1993 and January 1, 1993
were:
- -----------------------------------------------------------------------------------------------
12/31/93 1/1/93
- -----------------------------------------------------------------------------------------------
Accelerated depreciation and amortization $ (15,115) $ (14,969)
Accrued restructuring charges 20,080 8,463
Net operating loss carryforwards 9,520 1,700
Reserves and other, net 24,360 10,071
Valuation allowance (41,313) (4,693)
- -----------------------------------------------------------------------------------------------
Total deferred tax assets (liabilities) $ (2,468) $ 572
- -----------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------
As of December 31, 1993, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $20,000 and net operating loss
carryforwards for international income tax purposes of approximately $8,000.
The federal tax carryforwards, which are available to offset future taxable
income, expire at various dates through the year 2008. However, the Company's
net operating loss carryforwards may be reduced or subject to annual limitations
if Hexcel Corporation experiences an "ownership change" as defined by federal
income tax laws. Such a change might occur as a result of market activity in
the Parent Company's equity securities or in connection with a plan of
reorganization involving the issuance or exchange of equity securities.
NOTE 14 - DISCONTINUED OPERATIONS
In November 1990, the Company announced plans to sell the fine chemicals
business. On March 31, 1992, the Company sold the U.S. fine chemicals business
located in Zeeland, Michigan. The divestiture resulted in a loss of $798 after
taxes. The Company used the proceeds of $19,262 from the sale to repay debt.
On January 31, 1994, the Company sold the European fine chemicals business
located in Teesside, England, completing the divestiture of discontinued
operations. The sale generated net cash proceeds of approximately $500, which
was received in 1993.
The 1993 loss from discontinued operations included a $2,800 write-down of
European assets recorded in the third quarter, while the 1992 loss included an
accrual of $2,300 for estimated future losses.
NOTE 15 - SIGNIFICANT CUSTOMERS
The Boeing Company and Boeing subcontractors accounted for approximately
19% of 1993 sales, 15% of 1992 sales and 18% of 1991 sales. Sales to U.S.
government programs, including some of the sales to The Boeing Company and
Boeing subcontractors noted above, were 16% of sales in 1993, 15% of sales in
1992 and 17% of sales in 1991.
63
NOTE 16 - CONTINGENCIES
HEXCEL S.A. (BELGIUM)
The consolidated financial statements include the accounts of Hexcel S.A.,
the Company's wholly-owned Belgian subsidiary, after elimination of intercompany
transactions and accounts. As of December 31, 1993, Hexcel S.A. had total
assets of $32,340 and total liabilities of $38,711. For the year ended December
31, 1993, Hexcel S.A. generated net sales of approximately $38,000 and a net
loss of approximately $13,000.
Due to depressed European business conditions, particularly in the
aerospace industry, Hexcel S.A. has been operating at a loss. Furthermore,
interest costs and restructuring activities are consuming cash, and Hexcel S.A.
is investigating alleged product claims which could require additional cash
outlays. The subsidiary is currently in negotiations with it lenders regarding
the commitment of credit facilities which expired beginning on March 16, 1994.
Four of the five existing lenders have agreed to a stand still until April 30,
1994, subject to the Parent Company making satisfactory progress toward
obtaining authorization from the Bankruptcy Court to invest additional funds and
recapitalize Hexcel S.A. Discussions with the fifth lender are continuing.
There is no assurance that the Bankruptcy Court will authorize the investment of
additional funds or the recapitalization of Hexcel S.A., or that the existing
lenders will continue to extend their short-term credit agreements for any
specified length of time. Without such additional investment, Hexcel S.A. may
be in violation of statutory minimum capital requirements.
Hexcel S.A.'s ability to continue as a going concern is subject to its
obtaining needed financing, as well as resolving alleged product claims and
successfully implementing required restructuring initiatives. The above factors
among others may indicate that Hexcel S.A. will be unable to continue as a going
concern for a reasonable period of time. The consolidated financial statements
do not include any adjustments relating to the recoverability and classification
of recorded asset amounts or the amounts and classification of liabilities that
might be necessary should Hexcel S.A. be unable to continue as a going concern.
LITIGATION AND OTHER CONTINGENCIES
The Company is involved in litigation arising from business activities. In
addition, the Company is subject to certain Government inquiries, including
reviews of business practices and cost classifications and a civil suit. The
Company is cooperating with the Government in all such inquiries of which the
Company has knowledge. However, management is unable to predict the legal
proceedings that could result from these inquiries.
During December 1992, three lawsuits alleging violations of federal
securities laws by the Company and certain officers were filed. The Court
consolidated the three lawsuits into one action. Although management believes
there were meritorious defenses to the claims, Hexcel Corporation negotiated a
tentative settlement with the plaintiffs prior to the Chapter 11 filing to avoid
costly and unproductive litigation. This matter, including the tentative
settlement, has been stayed by bankruptcy proceedings.
In July 1992, the Company was joined in a lawsuit concerning a dispute over
a real estate transaction. This action concerned, in part, cleanup and costs
associated with an abandoned waste disposal site which the Company sold in 1979.
Hexcel Corporation negotiated a global settlement, which was not signed prior to
the Chapter 11 filing. This matter, including the negotiated settlement, has
been stayed by bankruptcy proceedings.
Hexcel Corporation has provided a $4,000 back-up letter of credit in
connection with environmental claims on property previously owned. As a result
of the Chapter 11 filing, this letter of credit may be
64
invoked, in which case the issuing bank would become an unsecured creditor of
Hexcel Corporation pending resolution of the dispute.
The Company is self-insured against claims associated with sudden and
accidental environmental damage and environmental impairment damage. Certain
current and former facilities are the subjects of environmental investigations
or claims. In addition, the Company has been named as a potentially responsible
party in several superfund sites.
Management believes, based on available information, that it is unlikely
any of these items will have a material adverse effect on the earnings or
financial position of the Company.
The Company has filed a claim for equitable relief with a major military
customer in connection with underutilized capacity at the Chandler, Arizona
plant. A deferral of unabsorbed fixed costs increased profits before taxes by
$2,000 in 1992 and $2,428 in 1991 and was recorded as a long-term asset at
December 31, 1993 and 1992. Management believes, based upon the advice of
counsel, the Company ultimately will realize the cumulative amount deferred. In
1993, the customer agreed to pay for a portion of the unabsorbed fixed costs
incurred during the year, contingent upon government acceptance of this billing
practice. Accordingly, no additional costs were deferred in 1993.
NOTE 17 - BUSINESS SEGMENT REPORTING
The Company operates within a single business segment, structural
materials. The following table summarizes certain financial data for continuing
operations by geographic area as of December 31, 1993, 1992, and 1991 and for
the years then ended:
- ---------------------------------------------------------------------------
1993 1992 1991
- ---------------------------------------------------------------------------
Net sales:
United States $ 193,641 $ 216,171 $ 210,490
International 144,927 170,118 176,094
- ---------------------------------------------------------------------------
Consolidated $ 338,568 $ 386,289 $ 386,584
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Income (loss) before income taxes:
United States $ (61,818) $ (10,743) $ 2,725
International (18,437) (13,312) 1,872
- ---------------------------------------------------------------------------
Consolidated $ (80,255) $ (24,055) $ 4,597
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Identifiable assets:
United States $ 169,621 $ 194,925 $ 199,569
International 98,740 115,925 143,737
- ---------------------------------------------------------------------------
Consolidated $ 268,361 $ 310,850 $ 343,306
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Capital expenditures:
United States $ 4,694 $ 11,044 $ 9,966
International 1,848 6,049 4,762
- ---------------------------------------------------------------------------
Consolidated $ 6,542 $ 17,093 $ 14,728
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Depreciation and amortization:
United States $ 10,118 $ 10,774 $ 10,530
International 5,722 4,960 4,891
- ---------------------------------------------------------------------------
Consolidated $ 15,840 $ 15,734 $ 15,421
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
65
The above data exclude discontinued operations, the extraordinary gain and
the cumulative effects of accounting changes.
International net sales consist of the net sales of international
subsidiaries, sold primarily in Europe, and U.S. exports.
To compute income (loss) before income taxes, the Company allocated
administrative expenses to International of $2,899 in 1993, $3,436 in 1992 and
$3,380 in 1991.
66
NOTE 18 - QUARTERLY DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1993 and 1992 were:
- -----------------------------------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- -----------------------------------------------------------------------------------------------------------------------------
1993
Net sales $ 89,291 $ 92,839 $ 76,179 $ 80,259
Gross margin 14,129 16,858 12,468 12,997
Loss from continuing operations (3,126) (2,303) (51,596) (29,431)
Loss from discontinued operations (178) (186) (3,675) --
Cumulative effect of accounting
change 4,500 -- -- --
Net income (loss) 1,196 (2,489) (55,271) (29,431)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share and
equivalent share:
Primary and fully diluted:
Continuing operations $ (0.43) $ (0.31) $ (7.02) $ (4.03)
Discontinued operations (0.02) (0.03) (0.50) --
Cumulative effect of accounting
change 0.61 -- -- --
Net income (loss) 0.16 (0.34) (7.52) (4.03)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends per share -- -- -- --
Market price:
High $ 9.75 $ 11.25 $ 10.75 $ 8.25
Low 7.75 9.25 5.50 2.13
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
1992
Net sales $ 100,600 $ 102,756 $ 94,405 $ 88,528
Gross margin 20,410 22,669 20,193 13,682
Income (loss) from continuing
operations 1,849 1,086 2,086 (22,727)
Loss from discontinued operations (1,889) (263) (298) (2,022)
Extraordinary gain -- 956 -- --
Cumulative effect of accounting
change (8,052) -- -- --
Net income (loss) (8,092) 1,779 1,788 (24,749)
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) per share and
equivalent share:
Primary and fully diluted:
Continuing operations $ 0.25 $0.15 $ 0.29 $ (3.12)
Discontinued operations (0.26) (0.04) (0.04) (0.28)
Extraordinary gain -- 0.13 -- --
Cumulative effect of accounting
change (1.11) -- -- --
Net income (loss) (1.12) 0.24 0.25 (3.40)
- -----------------------------------------------------------------------------------------------------------------------------
Dividends per share $ 0.11 $ 0.11 $ 0.11 $ 0.11
Market price:
High 14.50 14.13 13.00 12.38
Low 10.50 10.50 10.50 7.50
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
67
Results for each quarter of 1993 and 1992 were restated to reflect the
change in accounting for domestic honeycomb and fabric inventories from the
last-in, first-out method to the first-in, first-out method. The retroactive
application of this accounting change to prior periods is required by generally
accepted accounting principles.
The Company adopted SFAS 109, "Accounting for Income Taxes," effective
January 1, 1993 (see Note 13). The cumulative effect of adopting SFAS 109 was
the recognition of income of $4,500 in the first quarter of 1993.
Results for the second quarter of 1993 include approximately $4,000 of
other expenses offset by a similar amount of gains (see Note 3).
In the third quarter of 1993, the Company recorded a $50,000 restructuring
charge for the additional costs of the expanded restructuring program (see Note
3).
During the fourth quarter of 1993, the Company recorded an additional
restructuring charge of $2,600 and other expenses of $12,638 (see Note 3).
The Company adopted SFAS 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions," effective January 1, 1992 (see Note 12). The
cumulative effect of adopting SFAS 106 was a noncash charge of $8,052 after
taxes in the first quarter of 1992.
Results for the first quarter of 1992 also include a litigation gain of
$2,288. The Company recognized an additional gain of $704 in the second quarter
of 1992 from this suit.
In the second quarter of 1992, the Company repurchased convertible
subordinated debentures which resulted in an extraordinary gain of $956 after
taxes (see Note 7).
In the third quarter of 1992, the Company agreed to terminate interest rate
swap contracts which resulted in a gain of $1,361.
In December 1992, the Company initiated a restructuring program which
resulted in a charge of $23,500 (see Note 3).
Quarterly data for 1993 and 1992 reflect certain reclassifications made in
1993.
68
HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(In thousands)
OTHER*
BALANCE AT CHANGES -
BEGINNING ADDITIONS SALES AND ADD BALANCE AT
CLASSIFICATION OF YEAR AT COST RETIREMENTS (DEDUCT) END OF YEAR
-------------- ----------- --------- ----------- --------- -----------
Year ended December 31,
1993:
Land . . . . . . . . . . . . . $ 6,223 $ -- $ (7) $ (1,556) $ 4,660
Buildings. . . . . . . . . . . 64,465 1,441 (179) (6,725) 59,002
Machinery and
equipment. . . . . . . . . . 154,753 4,111 (4,081) (10,733) 144,050
Office equipment . . . . . . . 24,022 529 (1,842) 51 22,760
Vehicles . . . . . . . . . . . 1,137 24 (80) (89) 992
Leasehold
improvements . . . . . . . . 3,341 437 (660) (100) 3,018
---------- ---------- ---------- ---------- ----------
$ 253,941 $ 6,542 $ (6,849) $ (19,152) $ 234,482
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Year ended December 31,
1992:
Land . . . . . . . . . . . . . $ 6,087 $ 85 $ -- $ 51 $ 6,223
Buildings. . . . . . . . . . . 61,668 3,602 (39) (766) 64,465
Machinery and
equipment. . . . . . . . . . 152,411 10,141 (4,905) (2,894) 154,753
Office equipment . . . . . . . 22,193 2,706 (730) (147) 24,022
Vehicles . . . . . . . . . . . 1,144 86 (160) 67 1,137
Leasehold
improvements . . . . . . . . 3,159 473 (117) (174) 3,341
---------- ---------- ---------- ---------- ----------
$ 246,662 $ 17,093 $ (5,951) $ (3,863) $ 253,941
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Year ended December 31,
1991:
Land . . . . . . . . . . . . . $ 5,889 $ 83 $ -- $ 115 $ 6,087
Buildings. . . . . . . . . . . 60,028 3,366 (767) (959) 61,668
Machinery and
equipment. . . . . . . . . . 152,558 9,386 (7,194) (2,339) 152,411
Office equipment . . . . . . . 21,636 1,702 (975) (170) 22,193
Vehicles . . . . . . . . . . . 1,336 76 (265) (3) 1,144
Leasehold
improvements . . . . . . . . 3,039 115 -- 5 3,159
---------- ---------- ---------- ---------- ----------
$ 244,486 $ 14,728 $ (9,201) $ (3,351) $ 246,662
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
* Consist principally of the revaluation of certain foreign assets to reflect
current exchange rates under SFAS No. 52 and certain transfers between
categories, as well as asset write-downs in connection with 1993 restructuring
charges and other expenses.
69
HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
(In thousands)
OTHER*
BALANCE AT CHANGES -
BEGINNING ADDITIONS SALES AND ADD BALANCE AT
CLASSIFICATION OF YEAR AT COST RETIREMENTS (DEDUCT) END OF YEAR
-------------- ---------- --------- ----------- --------- -----------
Year ended December 31,
1993:
Buildings. . . . . . . . . . . $ 19,281 $ 2,858 $ (152) $ (2,443) $ 19,544
Machinery and
equipment. . . . . . . . . . 77,463 9,677 (2,869) (3,115) 81,156
Office equipment . . . . . . . 15,448 2,277 (1,401) (124) 16,200
Vehicles . . . . . . . . . . . 803 116 (35) (72) 812
Leasehold
improvements . . . . . . . . 2,675 307 (667) (213) 2,102
--------- --------- --------- --------- ---------
$ 115,670 $ 15,235 $ (5,124) $ (5,967) $ 119,814
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Year ended December 31,
1992:
Buildings. . . . . . . . . . . $ 17,505 $ 2,348 $ (89) $ (483) $ 19,281
Machinery and
equipment. . . . . . . . . . 73,273 9,643 (2,723) (2,730) 77,463
Office equipment . . . . . . . 13,760 2,497 (604) (205) 15,448
Vehicles . . . . . . . . . . . 744 136 (89) 12 803
Leasehold
improvements . . . . . . . . 2,352 461 (115) (23) 2,675
--------- --------- --------- --------- ---------
$ 107,634 $ 15,085 $ (3,620) $ (3,429) $ 115,670
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Year ended December 31,
1991:
Buildings. . . . . . . . . . . $ 15,388 $ 2,697 $ (621) $ 41 $ 17,505
Machinery and
equipment. . . . . . . . . . 71,811 9,037 (5,372) (2,203) 73,273
Office equipment . . . . . . . 11,892 2,764 (733) (163) 13,760
Vehicles . . . . . . . . . . . 818 141 (205) (10) 744
Leasehold
improvements . . . . . . . . 1,942 391 -- 19 2,352
--------- --------- --------- --------- ---------
$ 101,851 $ 15,030 $ (6,931) $ (2,316) $ 107,634
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
* Consist principally of the revaluation of certain foreign assets to reflect
current exchange rates under SFAS No. 52 and certain transfers between
categories, as well as asset write-downs in connection with 1993 restructuring
charges and other expenses.
70
HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM NOTES PAYABLE
(IN THOUSANDS)
WEIGHTED MAXIMUM AVERAGE WEIGHTED
AVERAGE AMOUNT AMOUNT AVERAGE
BALANCE AT INTEREST RATE OUTSTANDING OUTSTANDING INTEREST RATE
END OF AT END OF DURING THE DURING THE DURING THE
PERIOD PERIOD PERIOD PERIOD PERIOD
---------- ------------- ----------- ----------- -------------
Year ended December 31,
1993:
Notes Payable $ 21,479 6.6% $ 37,493 $ 30,832 8.8%
Year ended December 31,
1992:
Notes Payable $ 16,982 10.1% $ 52,333 $ 22,980 9.9%
Year ended December 31,
1991:
Notes Payable $ 17,318 9.8% $ 32,062 $ 17,638 9.1%
71
HEXCEL CORPORATION AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
(In thousands)
YEARS ENDED DECEMBER 31,
---------------------------
1993 1992 1991
------- ------- -------
Maintenance and repairs. . . . . . . . . . . . $13,498 $10,778 $9,547
Taxes, other than payroll and income taxes . . 3,805 3,628 4,170
72
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED
The Company reports net income (loss) per share data on primary and fully
diluted bases. Primary net income (loss) per share is based upon the weighted
average number of outstanding common shares and common equivalent shares from
stock options. Fully diluted net income (loss) per share is based upon (a) the
weighted average number of outstanding common shares and common equivalent
shares from stock options and adjusted for the assumed conversion of the 7%
convertible subordinated debentures and (b) net income (loss) increased by the
expenses on the debentures. Computations of net income (loss) per share on the
primary and fully diluted bases for 1993, 1992, and 1991 were:
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $(86,456) $(17,706) $ 4,771
Loss from discontinued operations (4,039) (4,472) (508)
Extraordinary gain -- 956 --
Cumulative effects of accounting changes 4,500 (8,052) --
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) $(85,995) $(29,274) $ 4,263
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,330 7,254 7,113
Weighted average common equivalent shares from stock options -- 18 33
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 7,330 7,272 7,146
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share from (1):
Continuing operations $ (11.79) $ (2.43) $ 0.67
Discontinued operations (0.55) (0.62) (0.07)
Extraordinary gain -- 0.13 --
Cumulative effects of accounting changes 0.61 (1.11) --
- ---------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share (1) $ (11.73) $ (4.03) $0.60
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ---------------------------------------------------------------------------------------------------------------
(IN THOUSANDS EXCEPT PER SHARE DATA) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations $(86,456) $(17,706) $ 4,771
Loss from discontinued operations (4,039) (4,472) (508)
Extraordinary gain -- 956 --
Cumulative effects of accounting changes 4,500 (8,052) --
- ---------------------------------------------------------------------------------------------------------------
Net income (loss) (85,995) (29,274) 4,263
Debenture interest and issuance costs 1,213 1,330 1,364
- ---------------------------------------------------------------------------------------------------------------
Adjusted net income (loss) $(84,782) $(27,944) $ 5,627
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,330 7,254 7,113
Weighted average common equivalent shares
Stock options -- 18 33
7% convertible debentures 804 881 1,034
- ---------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 8,134 8,153 8,180
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share from (1):
Continuing operations $ (11.79) $ (2.43) $ 0.67
Discontinued operations (0.55) (0.62) (0.07)
Extraordinary gain -- 0.13 --
Cumulative effects of accounting changes 0.61 (1.11) --
- ---------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share (1) $ (11.73) $ (4.03) $ 0.60
- ---------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------
(1) For 1993, 1992 and 1991, the primary and fully diluted net income (loss)
per share were the same because the fully diluted computation was
antidilutive.
73
C. EXHIBITS
EXHIBIT NO. DESCRIPTION
3. 1. Restated Certificate of Incorporation of Hexcel Corporation(6)
2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock(6)
3. Certificate of Increase of Authorized Number of Shares of Series
A Junior Participating Preferred Stock(7)
4. Amended and Restated Bylaws of Hexcel Corporation dated as of
August 30, 1993
4. 1. Certificate of Incorporation of Hexcel Corporation, Articles 5
through 10 (See Exhibit 3-1)
2. Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock (Exhibit 3-2)
3. Certificate of Increase of Authorized Number of Shares of Series
A Junior Participating Preferred Stock (See Exhibit 3-3)
4. Amended and Restated Bylaws of Hexcel Corporation, Sections 3
through 11, 13 through 16, and 46 (See Exhibit 3-4)
5. Amendment to Bylaws of Hexcel Corporation (See Exhibit 3-4)
6. Rights Agreement dated as of August 14, 1986, between Hexcel
Corporation and Manufacturers Hanover Trust Company, as Successor
Rights Agent(6)
7. Amendment No. 1 dated October 18, 1988 to Rights Agreement
between Hexcel Corporation and the Bank of California, N.A.
8. Amendment No. 2 dated November 19, 1990 between Hexcel
Corporation and Manufacturers Hanover Company, as successor
Rights Agent(4)
9. Amendment No. 3 dated December 18, 1990 between Hexcel
Corporation and Manufacturers Hanover Company, as successor
Rights Agent(5)
10. Exemplar of Indenture between Hexcel Corporation and The Bank of
California, N.A., Trustee, dated October 1, 1988
11. Loan Agreement and Indentures-Industrial Development Bonds.
These instruments are not filed herewith; the registrant agrees
to furnish a copy of such instruments to the Commission upon
request
10. Material Contracts:
1. A. Note Agreement, as amended, dated December 9, 1977,
$8,000,000 8-3/4% Notes
B. Amendments dated April 25, 1978, April 30, 1980, January 6,
1981, April 12, 1981, May 13, 1981, August 21, 1981, March
15, 1982 and September 1, 1982, December 31, 1983, July 24,
1986 and August 25, 1986, to Note Agreement dated December
9, 1977, $8,000,000 8-3/4% Notes
2. Consent Agreement dated March 31, 1993, relating to Amended and
Restated Credit Agreement dated March 31, 1993, among Hexcel
Corporation and the Banks named therein and Wells Fargo Bank,
N.A., as Agent(7)
3. Amended and Restated Credit Agreement dated March 31, 1993,
among Hexcel Corporation and the Banks named therein and Wells
Fargo Bank, N.A., as Agent(7)
4. Letter of Credit and Reimbursement Agreement dated March 1, 1988,
between Hexcel Corporation and Banque Nationale de Paris(7)
5. Letter of Credit and Reimbursement Agreement dated December 1,
1989, between Hexcel Corporation and Banque Nationale de Paris(3)
A. Amendment No. 1 to Letter of Credit and Reimbursement
Agreement dated October 12, 1988, between Hexcel Corporation
and Banque Nationale de Paris
B. Amendment No. 2 to Letter of Credit and Reimbursement
Agreement dated July 1, 1992, between Hexcel Corporation and
Banque Nationale de Paris
C. Amendment No. 3 to Letter of Credit and Reimbursement
Agreement dated April 15, 1993, between Hexcel Corporation
and Banque Nationale de Paris
6. Note Agreement dated as of October 1, 1988, between Hexcel
Corporation and Principal Mutual Life Insurance Company,
$30,000,000 10.12% Senior Notes Due October 1, 1998
7. Letter of Credit Reimbursement Agreement dated as of November 1,
1991, among Hexcel Corporation and Barclays Bank PLC
8. Letter of Credit Reimbursement Agreement dated as of April 28,
1992, among Hexcel Corporation and Barclays Bank PLC as amended
March 31, 1993
9. Debtor in Possession Credit Agreement dated as of December 8,
1993, and amended January 3, 1994 and March 25, 1994, and amended
April 11, 1994 by and between Hexcel Corporation and The CIT
Group/Business Credit, Inc.
10. Executive Compensation Plans and Arrangements
A. Stock Option Plans
(1) 1988 Management Stock Program(1)
(2) Amendments to 1988 Management Stock Program(1)
(3) 1988 Restricted Stock Agreement - Sample Agreement(1)
(4) 1988 Directors' Discounted Stock Option Agreement -
Sample Agreement(1)
(5) 1988 Discounted Stock Option Agreement - Sample
Agreement(1)
(6) 1988 Employees Nonqualified Stock Option Agreement -
Sample Agreement(2)
(7) 1988 Officers' Nonqualified Stock Option Agreement -
Sample Agreement(1)
B. Exemplar of Executive Deferred Compensation Agreement
C. Exemplars of Incentive Plans(6)
D. Exemplars of Contingency Employment Agreement
E. Directors' Retirement Plan(7)
F. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John J. Lee
G. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John L. Doyle
11. Statement Regarding Computation of Per Share Earnings
18. Preferability letter regarding change in accounting for inventories -
Deloitte & Touche
21. Subsidiaries of Registrant
23. Consents of Experts and Counsel
1. Independent Auditors' Consent - Deloitte & Touche
2. Consent of Independent Public Accountants - Arthur Andersen & Co.
- ---------------
(1) Incorporated by reference to the Registration Statement of registrant on
Post-Effective Amendment No. 1 to Form S-8 filed on May 11, 1988, No. 33-
17025, pursuant to the Securities Act of 1933
(2) Incorporated by reference to the Registration Statement of registrant on
Form S-8 filed on May 2, 1989, No. 33-28445, pursuant to the Securities Act
of 1933
(3) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1989, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.
(4) Incorporated by reference to the Current Report of registrant on Form 8-K
dated November 19, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.
(5) Incorporated by reference to the Current Report of registrant on Form 8-K
dated December 18, 1990, filed pursuant to Section 13 of the Securities
Exchange Act of 1934.
(6) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1991, filed pursuant to Section 13 of the
Securities Exchange Act of 1934.
(7) Incorporated by reference to the Annual Report of registrant on Form 10-K
for the year ended December 31, 1992, filed pursuant to Section 13 o