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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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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, 1994
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from to
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Commission File Number 1-8472
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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
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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
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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 March 17, 1995 of voting stock held by
nonaffiliates of the registrant: $30,073,961.
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
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The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MARCH 17, 1995
COMMON STOCK 9,246,947
Documents Incorporated by Reference: None
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Hexcel Corporation (herein referred to as "Hexcel"), founded in 1946, was
initially incorporated in California in 1948, and reincorporated in Delaware in
1983. Hexcel Corporation and subsidiaries (herein referred to as the "Company")
is an international developer and manufacturer of honeycomb, advanced composites
and reinforcement fabrics. Hexcel materials are used in commercial aerospace,
space and defense, general industrial and other markets.
BANKRUPTCY REORGANIZATION PROCEEDINGS
On February 9, 1995, the First Amended Plan of Reorganization (the
"Reorganization Plan") proposed by Hexcel and the Official Committee of Equity
Security Holders (the "Equity Committee") became effective, and Hexcel emerged
from bankruptcy reorganization proceedings. Those proceedings had begun on
December 6, 1993, when Hexcel filed a voluntary petition for relief under the
provisions of Chapter 11 of the federal bankruptcy laws. The commencement of
bankruptcy reorganization proceedings followed a series of events, including a
general deterioration of aerospace markets and a deep economic recession in
Europe, which adversely impacted the Company, depleted its sources of cash and
left Hexcel without adequate financing to fund its operations and restructuring
program.
Further discussion of bankruptcy reorganization proceedings is included in
"Management Discussion and Analysis" and in Note 2 to the Consolidated Financial
Statements included in this Form 10-K.
THE REORGANIZATION PLAN
The Reorganization Plan which became effective on February 9, 1995 provided
for (a) the replacement of the debtor-in-possession credit facility with a new
revolving credit facility of up to $45.0 million; (b) the creation of an amended
reimbursement agreement with respect to the letters of credit which support
certain industrial development revenue bonds; and (c) the completion of the
first closing under a standby purchase commitment whereby Mutual Series Fund,
Inc. ("Mutual Series") purchased approximately 1.9 million shares of new common
stock for $9.0 million and loaned the Company $41.0 million as an advance
against the proceeds of a subscription rights offering for an additional 8.9
million shares of new common stock. The subscription rights became exercisable
on February 24, 1995 and will expire on March 27, 1995.
The Reorganization Plan also provided for the reinstatement or payment in
full, with interest, of all allowed claims, including prepetition accounts
payable and notes payable. The payment of claims and interest on February 9,
1995 was funded with the cash proceeds from certain asset sales discussed below,
the $50.0 million in cash received from Mutual Series, and borrowings under the
new revolving credit facility. Information as to the sources and uses of cash
pursuant to the Reorganization Plan is included in Note 3 to the Consolidated
Financial Statements included in this Form 10-K, which also sets forth the pro
forma condensed consolidated financial position of the Company as of December
31, 1994 as if the consummation of the Reorganization Plan occurred on such
date.
Further discussion of the Reorganization Plan and Hexcel's emergence from
bankruptcy reorganization proceedings is included in "Management Discussion and
Analysis" and in the Notes to the Consolidated Financial Statements included in
this Form 10-K.
1
ASSET SALES
Hexcel sold its Chandler, Arizona manufacturing facility and certain related
assets and technology to Northrop Grumman Corporation. During the fourth
quarter of 1994, the Company recognized other income of $15.9 million relating
to the sale. The transaction generated net cash proceeds of approximately $29.0
million, of which $2.3 million was received in 1994 and $26.7 million was
received in the first quarter of 1995. The net cash proceeds were utilized to
pay off the remaining balance of the debtor-in-possession credit facility and to
partially fund distributions to creditors made on the effective date of the
Reorganization Plan. Together with the closure of the Graham, Texas facility,
the sale of the Chandler facility largely completes the reduction in the
Company's honeycomb production capacity contemplated by the Company's
restructuring program.
During the fourth quarter of 1994, the Company sold its European resins
business to Axson S.A., a French corporation. The sale and related settlement
transactions generated net cash proceeds of approximately $8.7 million, of which
$6.1 million was received in the fourth quarter of 1994 and $2.6 million was
received in the first quarter of 1995. The net cash proceeds were utilized
primarily to pay down borrowings under the debtor-in-possession credit facility.
The European resins business was a substantial component of the Company's
worldwide resins business, comprised of operations in Europe and the U.S. The
Company is continuing discussions for the sale of its U.S. resins business, and
believes that such a sale on acceptable terms can be arranged. Accordingly, the
resins business is accounted for as a discontinued operation in the Consolidated
Financial Statements included in this Form 10-K.
Further discussion of the Chandler and European resins transactions is
included in Note 4 to the Consolidated Financial Statements included in this
Form 10-K.
INDUSTRY SEGMENT
Hexcel operates within a single industry segment, structural materials. The
Company sells these materials throughout the world. 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 20 to the Consolidated Financial Statements included in this
Form 10-K.
BUSINESS
HONEYCOMB
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 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; thermoplastics; Nomex[REGISTERED
TRADEMARK], a non-flammable aramid fiber paper; Kevlar[REGISTERED TRADEMARK], an
aramid fiber; and several other specialty materials.
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The Company 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 bonded 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. Use of an autoclave allows the Company to manufacture
parts requiring the high temperature and pressure necessary to produce complex
engineered bonded assemblies. In addition, the Company fabricates complex
engineered panels containing honeycomb.
The largest markets for the Company's 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; and satellite components.
Non-aerospace general industrial honeycomb applications include high-speed
trains and mass transit vehicles (doors, partitions, ceilings, floors and
external structures); energy absorption products; athletic shoe components;
automotive components (screens for mass air flow controllers in fuel injection
systems, protective head and knee restraints); portable military shelters and
military support equipment; marine vessel compartments (bulkheads, water
closets, doors, floor panels, partitions, furniture and bunks); business machine
cabinets; exterior building cladding and air conditioning systems.
Hexcel has been the world leader in developing and manufacturing honeycomb
for almost 50 years. Although the markets for honeycomb materials are highly
competitive, management knows of no other manufacturer that has produced and
sold as much structural grade honeycomb as the Company during the last five
years. While industry statistics are not available, management believes on the
basis of market research that the Company currently produces and sells the
largest share of metallic and non-metallic honeycomb used in the world. In
addition, the Company continues to develop new honeycomb materials for the
markets it serves.
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 to produce a "prepreg."
In addition to standard S-2[REGISTERED TRADEMARK] 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. Aramid
fiber is exceptionally resistant to impact and is used in 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[REGISTERED TRADEMARK] is used mainly by the aerospace industry.
Resin systems include epoxy, polyester, bismaleimide, phenolic, cyanates and
polyimide.
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
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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 complex bonded structures, were $219.0 million in 1994, $217.6 million in
1993 and $253.8 million in 1992. The decline since 1992 has been 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 Knytex joint venture combined the weaving and
stitchbonding technology of Hexcel with the worldwide reinforcement glass fiber
manufacturing, marketing and distribution capabilities of Owens-Corning. Knytex
is a market leader in the design and manufacture of stitchbonded, multi-layer
reinforcement fabrics which are stronger in all directions and generally lower
cost than traditional woven 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 sells and applies high-strength architectural wrap
for the seismic retrofitting and strengthening of bridges, columns and other
structures.
Net sales of reinforcement fabrics were $94.8 million in 1994, $93.0 million
in 1993 and $99.2 million in 1992. Sales of reinforcement fabrics were reduced
by the transfer of the Company's stitchbonded business to a joint venture on
June 30, 1993. The stitchbonded business accounted for sales of $7.0 million in
the first six months of 1993 and $11.3 million in all of 1992.
PRODUCTS AND PROCESSES, RESEARCH AND DEVELOPMENT
The Company spent $8.2 million in 1994, $8.0 million in 1993 and $9.5 million
in 1992 for research and development of products and markets. This represented
2.6% of net sales in each of 1994 and 1993, and 2.7% of sales in 1992. These
expenditures were expensed as incurred. The Company's materials rely primarily
upon technology derived from the field of polymer chemistry, as well as advanced
engineering and assembly of composite structures and textiles.
RAW MATERIALS
The Company purchases all raw materials used in production. Several key raw
materials are available from relatively few sources. If these materials were no
longer available, which the Company does not anticipate, such an occurrence
could have a material adverse effect on operations.
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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 9 of this Form 10-K.
MARKETS AND CUSTOMERS
The Company's materials are sold for a broad range of uses. The table on
page 44 of this Form 10-K entitled "Market Summary" displays the percentage
distribution of net sales by market since 1990.
The Boeing Company and Boeing subcontractors accounted for approximately 22%
of 1994 sales. The loss of this business, which the Company does not
anticipate, could have a material adverse effect on sales and earnings. Sales
to various U.S. government programs, including some of the sales to The Boeing
Company and Boeing subcontractors noted above, were approximately 10% of sales
in 1994.
The Company's 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. Demands for improved 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 be 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 estimated number of aircraft
delivered, declined by more than 30% from 1992 to 1994. Major aircraft builders
have announced significant personnel reductions which began in 1993 and are
expected to continue at least through 1995. Based on current projections of
aircraft build rates, the commercial aerospace market will likely show little
improvement at least until 1996.
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 1995 and beyond.
Company sales to space and defense markets, particularly military aerospace,
continue to decline. In 1994, space and defense sales decreased to $34.9
million from $55.3 million in 1993 and $57.8 million in 1992. The Company
believes that its participation in space and defense markets will continue to
shrink. The B-2 aircraft program, which began in the mid - 1980s, has accounted
for a significant portion of the
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Company's recent space and defense sales, and the Company's involvement in this
program is declining. During the fourth quarter of 1994, the Company sold its
Chandler, Arizona facility, which was constructed in 1988 primarily to
manufacture materials for the B-2 program, along with certain related assets and
technology.
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 of government contract or subcontract awards each year.
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
1994 was derived from work requiring this clearance. Continuation of this
clearance requires that the Company remain 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.
SALES AND MARKETING
A staff of salaried market managers, product managers and salespeople market
the Company's products directly to customers worldwide. The Company also uses
independent distributors and/or manufacturer representatives for certain
products and markets, including reinforcement fabrics.
BACKLOG
The backlog of orders for aerospace materials to be filled within 12 months
was $65.6 million at December 31, 1994, $61.6 million at December 31, 1993 and
$100.5 million at December 31, 1992. A major portion of the backlog is
cancelable without penalty. The decline in aerospace backlog from 1992 levels
is attributable to 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, shorter lead time requirements
and reduced manufacturing cycle times to reduce investments in inventory.
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 the
Company for about one to three years, depending on the nature of the product,
manufacturer and delivery schedules.
Backlog for non-aerospace materials amounted to $40.7 million at December 31,
1994, compared with $29.1 million at December 31, 1993 and $16.8 million at
December 31, 1992. Most of the Company's backlog is expected to be filled
within six months. Markets for the Company's products outside of the aerospace
industry are generally highly competitive requiring shorter lead times for
delivery or stock for immediate sale. The backlog for non-aerospace orders
increased as the Company developed new applications for existing products and
the economies in both the U.S. and Europe continued to improve in 1994.
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INTERNATIONAL OPERATIONS
In addition to exporting from the United States, the Company serves
international markets through three European operating subsidiaries located in
Belgium, France and the United Kingdom. Each of these subsidiaries maintains
manufacturing and marketing facilities. The Company also maintains sales
offices in Australia, Brazil and Japan. Hexcel is a partner in a joint venture
formed in 1990 with Dainippon Ink & Chemicals ("DIC") for the production and
sale of Nomex honeycomb, advanced composites and decorative laminates for the
Japanese market. (See Note 5 to the Consolidated Financial Statements included
in this Form 10-K for additional information on this joint venture.) All Hexcel
materials, with the exception of classified U.S. military materials, are
marketed throughout the world.
The table on page 44 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 1990. Note 20 to the Consolidated Financial Statements
included in this Form 10-K shows various financial data for international
operations since 1992.
JOINT VENTURES
The Company has entered into three joint ventures since 1990, including the
one with DIC discussed above. Further discussion of these joint ventures is
included in "Management Discussion and Analysis" and in Notes 5 and 8 to the
Consolidated Financial Statements included in this Form 10-K.
DISCONTINUED OPERATIONS
Following a strategic review of its products and markets, the Company
concluded that there is little interrelationship between its resins business and
its core businesses of honeycomb, advanced composites and reinforcement fabrics.
Consequently, the Company intensified its efforts to sell its resins business,
comprised of operations in Europe and the U.S., during 1994. As a result of
those efforts, the Company completed the sale of its European resins business on
December 29, 1994, and now believes that the sale of its U.S. resins business on
acceptable terms can be arranged. Accordingly, the resins business is accounted
for as a discontinued operation. Financial data, employees and properties
related to this business have been segregated, and the information in this
report reflects continuing operations only.
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. The fine
chemicals business is accounted for as a discontinued operation. Financial
data, employees and properties related to this business have been segregated,
and the information in this report reflects continuing operations only.
See Notes 4 and 17 to the Consolidated Financial Statements included in this
Form 10-K for additional information on the Company's discontinued operations.
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
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and financial resources. For example, the Company competes with one major
international manufacturer of honeycomb, advanced composites and reinforcement
fabrics, 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.
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. 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 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 December 31, 1994, the Company employed 2,189 full-time employees in its
continuing operations, compared with 2,221 and 2,852 at December 31, 1993 and
1992, respectively. Of these employees, 1,712 were in manufacturing and the
remainder were administrative, sales, engineering, marketing, research and
clerical personnel. Approximately 160 employees at one European facility and 86
employees at one domestic facility have union affiliations. Management believes
that labor relations in the Company are generally satisfactory.
ITEM 2. PROPERTIES.
Hexcel owns manufacturing facilities and sales offices located throughout the
United States and in 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.
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The following table lists the manufacturing facilities by geographic
location, approximate square footage and principal products. These facilities
have sufficient production capacity to meet the Company's current manufacturing
requirements.
MANUFACTURING FACILITIES
Approximate
Facility Location Square Footage Principal Products
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United States:
Casa Grande, Arizona 301,000 Metallic and non-metallic honeycomb,
advanced honeycomb processing
Pottsville, Pennsylvania 100,000 Advanced honeycomb processing
Burlington, Washington 50,000 Advanced honeycomb processing
Livermore, California 150,000 Advanced composites
Lancaster, Ohio 42,000 Advanced composites
Seguin, Texas 170,000 Woven reinforcement fabrics
International:
Welkenraedt, Belgium 223,000 Metallic and non-metallic honeycomb, advanced
honeycomb processing, advanced composites
Swindon, England 20,000 Non-metallic honeycomb processing
Les Avenieres, France 373,000 Woven reinforcement fabrics, advanced composites
The Company leases the land on which the Burlington, Washington facility is
located as well as the Swindon, England plant. The Company also leases portions
of the Casa Grande, Arizona; Welkenraedt, Belgium; and Les Avenieres, France
facilities.
Certain of the properties secure loans made to the Company. In addition,
substantially all U.S. properties, equipment and fixtures, along with other
business property, secure the new U.S. revolving credit facility (see Note 9 to
the Consolidated Financial Statements included in this Form 10-K).
ITEM 3. LEGAL PROCEEDINGS.
On January 10, 1995, the Bankruptcy Court for the Northern District of
California, Oakland Division (the "Bankruptcy Court"), confirmed the First
Amended Plan of Reorganization proposed by Hexcel and the Official Committee of
Equity Security Holders dated as of November 7, 1994. The effective date of the
Reorganization Plan was February 9, 1995. For further discussion, see "Item 1.
Business." and "Management Discussion and Analysis" and Note 2 to the
Consolidated Financial Statements included in this Form 10-K.
In December 1988, Lockheed employees working with epoxy resins and composites
on classified programs filed suit against Lockheed and its suppliers (including
Hexcel) 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 pilot plaintiffs resulted in a mistrial and a retrial
commenced in February 1994. Hexcel did not participate in the retrial due to
the automatic stay resulting from the Chapter 11 filing. Some of these claims
were discharged as a result of the plaintiffs' failure to file claims in
Hexcel's Chapter 11 case. As to the claims which have not been discharged, the
Company has objected to them and intends to proceed with those objections within
the Bankruptcy Court.
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In July 1992, the Company 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 the Company manufacturing facilities in Livermore, California. The Company
sold this property to the Smiths in 1979, and the Smiths, in turn, sold it to
F&P in 1985. A global settlement was negotiated during the Company's
reorganization but has not been executed by the parties. The Company has
objected to the claims filed in the Chapter 11 case and the matter is proceeding
in the Bankruptcy Court.
Hexcel / MCI, a business unit divested in 1991, performed brazing services in
the manufacture of flexures under subcontract from Ormond which supplied the
flexures to Thiokol. The flexures are used to support a rocket motor housing in
a test stand during actual firing of the rocket. Several flexures cracked under
the dead weight of a rocket motor prior to actual test firing, and Thiokol has
sued Ormond and Hexcel for the costs of replacing all of the flexures purchased
($0.9 million) (THIOKOL CORPORATION V. ORMOND, HEXCEL, ET AL.). The automatic
stay in bankruptcy will be lifted in April 1995 and the case will then resume in
the state court in Utah. There is no insurance coverage available for an
adverse court ruling or negotiated settlement.
Hexcel Corporation has been named as a potentially responsible party ("PRP")
with respect to several disposal sites that it does not own or possess and which
are included on the Environmental Protection Agency's Superfund National
Priority List ("NPL"). A total of 249 claims were filed in the Chapter 11 case
with a face value of over $6.7 billion. These claims were, for the most part,
duplicative as a result of the joint and several liability provisions of the
applicable laws, and have been categorized into claims involving 12 sites.
Claims involving 7 of the sites have been settled within the Chapter 11 case
and the Company expects to settle claims with respect to one additional site.
With respect to the claims relating to the remainder of these sites, Hexcel
believes its responsibility to be de minimis and is negotiating to settle these
claims; should no settlement be reached, the claims against Hexcel will be
allowed to continue without the protection of the Chapter 11 case. The Company
has been named a PRP with respect to 8 additional sites, for which no claims
were filed in the Chapter 11 case; as a result, the Company believes any further
claims to be barred.
Also, pursuant to the New Jersey Environmental Responsibility and Clean-Up
Act, Hexcel signed an administrative consent order to pay for clean-up of a
manufacturing facility it formerly operated in Lodi, New Jersey. Hexcel has
reserved $4.0 million to cover such remaining costs and believes that actual
costs should not exceed the amount which has been reserved. Fine Organics
Corporation, the current owner of the Lodi site and Hexcel's former chemicals
business operated on that site, has asserted that the clean-up costs will be
significantly in excess of that amount. The ultimate cost of remediation at the
Lodi site will depend on developing circumstances.
Fine Organics Corporation filed a proof of claim and an adversary proceeding
in the Bankruptcy Court. The court has disallowed a significant portion of the
claim by denying Fine Organics claim for treble damages and certain contingent
claims. The remaining claims are for prior clean-up costs incurred by Fine
Organics and alleged contractual and tort damages relating to the original sale
of the business and site to Fine Organics totaling approximately $3.2 million.
This matter is proceeding in the Bankruptcy Court.
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
10
of these issues have already been resolved and management believes, based on
available information and the Company's assertion of estoppel and 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 financial position of the
Company.
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.
Management believes, based on available information, that it is unlikely any
of these items will have a material adverse effect on the consolidated operating
results or financial position of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
11
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT.
Listed below are the executive officers of the Company as of March 22,
1995, 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 58 1993 Chief Executive Officer since January 1994;
Chairman of the Board of Directors and
Chief Executive Officer from January 1994
to February 1995; Chairman and Co-Chief
Executive Officer from July to December
1993; Director since May 1993, and
currently a member of the Executive
Compensation and Nominating Committees of
the Board of Directors. Mr. Lee has
served as 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
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, and as President and Chief
Operating Officer of Tosco from 1990
through April 1993. Mr. Lee is also a
director of Playtex Products, Inc. and
Aviva Petroleum Corporation.
Donald J. O'Mara 57 1991 President and Chief Operating Officer since
March 1993; Vice President - Honeycomb a
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.
Stephen C. Forsyth 39 1994 Vice President, International Operations
since October 1994; General Manager of
Resins Business and Export Marketing from
1989 to 1994; other general management
positions from 1980 to 1989. Mr. Forsyth
joined the Company in 1980.
12
OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
Rodney P. Jenks, Jr. 44 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 54 1991 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.
William P. Meehan 59 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 Thousand 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. Petrisko 40 1993 Vice President - Technology since
Ph.D. September 1993. From 1989 to 1993 he
was manager of the signature technology
group at the Chandler facility, then
director of aerospace technology. Dr.
Petrisko joined the Company in 1989,
after serving as a Research Specialist
with Dow Corning Corporation from 1985
to 1989.
Gary L. Sandercock 53 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.
13
OFFICER POSITIONS WITH COMPANY AND
NAME AGE SINCE BUSINESS EXPERIENCE
- ---- --- ----- -------------------
William K. Woodrow 47 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 39 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.
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 21 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.
Payments of future cash dividends were suspended effective with the first
quarter of 1993, and are now prohibited by Hexcel's revolving credit agreements.
On February 9, 1995, there were 2,448 holders of record of Hexcel common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is contained on page 32 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 33 to 43 of this
Form 10-K under "Management Discussion and Analysis" and is incorporated herein
by reference.
14
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by Item 8 is contained on pages 48 to 76 of this
Form 10-K under "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference. The report of independent public
accountants for the years ended December 31, 1994, 1993 and 1992 is contained on
page 47 of this Form 10-K under "Independent Auditors' Report" and is
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.
The Company's Board of Directors was reconstituted as of February 9, 1995,
the effective date under the Reorganization Plan, and consists of the following
eight persons, all of whom were designated in accordance with the terms of the
Reorganization Plan: John J. Lee and Peter A. Langerman, who were designated by
Mutual Series Fund, Inc., Joseph L. Harrosh, Robert L. Witt and Peter D.
Wolfson, who were designated by the Equity Committee, and Dr. George S.
Springer, Franklin S. Wimer and Marshall S. Geller, who were designated by joint
selection of the Equity Committee and Mutual Series. A ninth seat on the Board
is reserved for the new Chief Executive Officer, who will join the Board
immediately upon commencement of his or her employment. In addition, if upon
the consummation of the rights offering pursuant to the Reorganization Plan,
Mutual Series owns more than 50% of the shares of the common stock, Mutual
Series will designate one additional director; if upon the consummation of the
rights offering Mutual Series owns less than 25% of the shares of common stock,
then one additional director will be designated by mutual agreement of those
directors previously designated by the Equity Committee, on the one hand, and
those directors previously designated by mutual agreement of the Equity
Committee and Mutual Series, on the other hand.
There are no family relationships among the Company's Board of Directors.
The following biographies of the directors are based on information
provided by them.
John J. Lee, age 58, has been a director of the Company since May of 1993,
Chairman of the Board and Co-Chief Executive Officer of the Company from July
1993 to December 1993, Chairman of the Board and Chief Executive Officer of the
Company from January 1994 to February 9, 1995, and Chief Executive Officer since
February 9, 1995. Mr. Lee has served as Chairman of the Executive Committee of
XTRA Corporation, a transportation equipment leasing company, since 1990, and
Chairman of the Board, President and Chief Executive Officer of Lee Development
Corporation, a merchant banking company, since 1987. Mr. Lee has been a Trustee
of Yale University since 1993. From July 1989
15
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 and as
President and Chief Operating Officer of Tosco from 1990 through April 1993.
Mr. Lee is also a director of Playtex Products, Inc. and Aviva Petroleum Corp.
Dr. George S. Springer, age 60, has been a director of the Company since
January 1993. 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 University's faculty in 1983.
Peter A. Langerman, age 39, became a director on February 9, 1995. He is
also a director and the Executive Vice President of Mutual Series Fund, Inc., a
diversified open-end management investment company registered under the
Investment Company Act of 1940 and a research analyst with Heine Securities
Corporation, an investment advisor. Mr. Langerman has been the Executive Vice
President of Mutual Series since March 1988 and has been a research analyst at
Heine Securities since 1986. Mr. Langerman has also been a director of Zenith
Laboratories since 1989, and President and a director of S-O Equities Holding
Company since 1993.
Franklin S. Wimer, age 58, became a director on February 9, 1995. He is
also the President and principal of UniRock Management Corporation ("UniRock"),
a private merchant banking firm based in Denver, Colorado. Mr. Wimer has been
with UniRock since January of 1987. UniRock has acted as the Company's
strategic consultant since December 27, 1993. Mr. Wimer is currently Chairman
of the Board of Vista Restaurants, Inc., a 12-unit Perkins Family Restaurant
franchisee, and a director of RAMI, Inc., Denver Paralegal Institute, Stainless
Fabrication Company, Inc., and Western Filter Company.
Marshall S. Geller, age 56, has been a director of the Company since August
of 1994. Mr. Geller is a Senior Managing Partner of Golenberg & Geller, Inc., a
merchant banking firm. From 1988 to 1990, he was Vice Chairman of Gruntal &
Company, an investment banking firm. From 1967 until 1988, he was a Senior
Managing Director of Bear, Stearns & Co., Inc., an investment banking firm. Mr.
Geller is currently Interim President and Chief Executive Officer and a director
of Lottery Enterprises, and is a director of Players International, Sports-Tech,
Inc., Amerihost Properties, Inc., Value Vision International, Inc., Las Vegas
Major League Sports, Inc., and various privately-held corporations and
charitable organizations.
Joseph L. Harrosh, age 54, became a director on February 9, 1995. He is
also a private investor. He has been the Chairman of the Equity Committee since
its inception in December of 1993. He has also been the Chairman of the Board
of Tri-City Sporting Goods Inc. since 1971.
Robert L. Witt, age 54, became a director on February 9, 1995. He is a
private investor and consultant. Mr. Witt is also a member of the Equity
Committee. From 1985 to 1993, he served as a director of the Company, and from
1988 to 1993 he served as the Chairman of the Board of Directors. From 1986 to
1993, he was the Chief Executive Officer of the Company and held other offices
with the Company dating back to 1969. He is a director of Bay View Federal
Bank, World Air Holdings, Inc. and The Dentists Company.
16
Peter D. Wolfson, age 42, became a director on February 9, 1995. He is
also an attorney and member of the firm of Marcus Montgomery Wolfson P.C., which
was founded in 1993. From 1989 through 1993, Mr. Wolfson was a member of the
law firm of Milgrim Thomajan & Lee P.C., which in 1992 changed its name to Varet
Marcus & Fink P.C. Mr. Wolfson's law firm is counsel to the Equity Committee.
Mr. Geller and Mr. Langerman have been elected Interim Co-Chairmen of the
Board of Directors. The terms of the Co-Chairman expire on the later of the
completion of the subscription rights offering pursuant to the Reorganization
Plan or the appointment of a new chief executive officer of the Company. The
following directors are members of the Standing Committees of the Board of
Directors: Executive Compensation Committee -- Messrs. Langerman and Harrosh
(Co-Chairmen) and Messrs. Lee and Witt; Audit Committee -- Mr. Wimer (Chairman)
and Messrs. Geller, Langerman and Witt; Nominating Committee -- Messrs.
Langerman and Wolfson (Co-Chairmen) and Messrs. Lee and Harrosh; and Advanced
Programs Committee -- Mr. Springer (Chairman) and Mr. Witt.
(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 10-K and is incorporated herein by
reference.
17
ITEM 11. EXECUTIVE COMPENSATION.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
(1) (2)
---------------------- --------------------------------------
Securities
Restricted Underlying
Stock Options / All Other
Name & Principal Salary Bonuses Awards SARS Compensation
Position Year ($) ($)(7) ($)(8) (#)(9) ($)(10)
- ------------------------------------------------------------------------------------
J. J. Lee (3) 1994 453,333 350,000 -- -- 4,500
Chief Executive 1993 160,005 -- -- -- 51,675
Officer 1992 -- -- -- -- --
R. D. Krumme (4) 1994 240,000 125,000 -- -- 4,500
Vice Chairman 1993 100,000 -- -- -- --
1992 -- -- -- -- --
W. P. Meehan (5) 1994 240,000 125,000 -- -- 3,000
VP - Chief 1993 86,461 -- -- -- --
Financial Officer 1992 -- -- -- -- --
D. J. O'Mara 1994 207,000 100,000 -- -- 4,500
President & Chief 1993 191,250 -- 49,619 33,500 6,000
Operating Officer 1992 163,731 -- 33,713 15,000 4,364
R. P. Jenks, Jr. (6) 1994 159,252 41,440 -- -- 3,877
VP - General 1993 -- -- -- -- --
Counsel & 1992 -- -- -- -- --
Corporate
Secretary
(1) Annual Compensation includes amounts earned in the fiscal year,
whether or not deferred.
(2) Aggregate perquisite values do not exceed the lesser of $50,000 or 10%
of reported salary and bonuses for each year.
(3) Mr. Lee served as a consultant in July and August 1993 and as an
employee commencing September 1, 1993. Mr. Lee is also provided an
office and administrative assistance in the New York metropolitan area.
(4) Mr. Krumme's employment date was August 2, 1993.
(5) Mr. Meehan's employment date was August 23, 1993.
18
(6) Mr. Jenks' employment date was February 2, 1994.
(7) Bonuses includes consummation and employee retention bonuses earned during
Hexcel's Chapter 11 case and approved by the Bankruptcy Court, and
paid in 1995.
(8) Restricted stock is subject to certain restrictions requiring that the
executive remain in the Company's employ for a period of five years before
being entitled to receive all of the shares issued. The executive does not
pay cash for the shares issued. The shares are non-transferable while
restricted; however, the holder is entitled to vote the shares and receive,
without restrictions, all dividends and distributions, except dividends or
distributions in stock or other shares which then become restricted stock.
The restrictions all terminate upon the executive's retirement, death or
disability. If employment terminates otherwise during the term of
restrictions, the unvested shares are forfeited to the Company without
payment of any consideration. The restrictions on the restricted stock
will lapse in varying percentages between three and five years following
issuance. In the above table, the restricted stock is valued as of the
date of grant. The total number of restricted shares and the aggregate
value at December 31, 1994 were as follows: Messrs. Lee, Krumme, Meehan
and Jenks held no restricted shares; Mr. O'Mara held 7,836 shares valued at
$34,322. Aggregate market value is based on December 30, 1994's closing
price of $4.38 per share.
(9) As of December 31, 1994, all options were at an exercise price above the
fair market value of the common stock. No options were granted during
1994.
(10) All Other Compensation consists of (i) contributions by the Company to the
Salaried Employees' Retirement Plan, and (ii) in the case of Mr. Lee,
director's fees of $8,175 for services as a director in 1993 prior to his
employment and consulting fees of $43,500 during July and August 1993 prior
to his employment. The Three-year Performance Incentive Plan was
terminated in 1993.
AGGREGATED OPTION / SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION/SAR VALUES
Number of Value of
Securities Unexercised
Underlying In the Money
Unexercised Options/SARS
Options/SARS at Fiscal
at Fiscal YEAR END ($)
Year End (#) Exercisable /
------------- --------------
Shares Acquired Value Realized Exercisable / Unexercisable
Name on Exercise(#) ($)(1)(2) Unexercisable (1)(2)
- ----------- ---------------- --------------- ------------- ---------------
J. J. Lee -- -- --/-- --/--
R. D. Krumme -- -- --/-- --/--
W. P. Meehan -- -- --/-- --/--
D. J. O'Mara -- -- 68,500/-- --/--
R. P. Jenks -- -- --/-- --/--
(1) Market value of underlying securities at December 30, 1994 close minus the
exercise or base price.
(2) All options are at an exercise price above the fair market value of the
common stock.
19
EXECUTIVE DEFERRED COMPENSATION PLAN (a)
ANNUAL RETIREMENT INCOME
REMUNERATION YEARS OF SERVICE (b)(c)
--------------------------------------------------------
10 15 20 25
- ----------------------------------------------------------------------
$125,000 $18,750 $28,125 $37,500 $46,875
150,000 22,500 33,750 45,000 56,250
175,000 26,250 39,375 52,500 65,625
200,000 30,000 45,000 60,000 75,000
250,000 37,500 56,250 75,000 93,750
300,000 45,000 67,500 90,000 112,500
350,000 52,500 78,750 105,000 131,250
400,000 60,000 90,000 120,000 150,000
450,000 67,500 101,250 135,000 168,750
500,000 75,000 112,500 150,000 187,500
(a) Executive Deferred Compensation Plan: This retirement plan consists of
individual agreements between the Company and certain key executive
employees designated by the Board of Directors. The agreements provide an
annual retirement income to these key employees of 1.5% of their salary and
bonuses for each year they are covered under the plan.
(b) Benefits are payable annually for 10 years, beginning at age 65. At the
end of 10 years, a residual amount is paid. This amount is equal to the
present value of a 10-year certain and life annuity commencing at age 65
less the total annual payments paid through that date.
(c) Estimated credited years of service are as follows: Mr. Lee -- 1/3 year;
Mr. Krumme -- 1 year; Mr. Meehan -- 1 year; and Mr. O'Mara -- 3 years. Mr.
Jenks does not participate in the plan.
EMPLOYMENT AND OTHER AGREEMENTS
1. EMPLOYMENT AGREEMENT WITH MR. LEE
As of August 1, 1993, Mr. Lee was engaged to act as Co-Chief Executive
Officer ("Co-CEO") of the Company. Mr. Lee's primary responsibility was
managing and restructuring the Company's finances and capital structure. Mr.
Lee was expected to expend at least 50% of his time in his role as the Co-CEO.
During July and August, 1993, Mr. Lee was compensated in his capacity as a
director and received consulting fees as noted above; he became an employee as
of September 1, 1993. Mr. Lee became the sole Chief Executive Officer on
January 1, 1994.
The employment agreement for Mr. Lee (the "Old Employment Agreement")
provided that he earn a base salary of $480,000 for services performed on behalf
of Hexcel during the annual period September 1, 1993 through August 31, 1994
(the "Old Employment Term").
To conserve cash and facilitate the Company's reorganization, Mr. Lee
offered to accept $200,000 under the Old Employment Agreement in cash, payable
on the regular compensation schedule for Hexcel's other executives, and the
balance of the base salary of $280,000 in deferred compensation. Under the Old
Employment Agreement, the deferred compensation was payable in one lump sum at
the
20
end of the Old Employment Term. Mr. Lee was also reimbursed expenses incurred
on behalf of the Company, including expenses associated with maintaining an
office in Stamford, Connecticut. To provide additional incentives to
restructure Hexcel in the short term, certain substitute or additional
incentives were provided, which are discussed below.
Mr. Lee earned a PRO RATA portion of deferred and cash compensation for his
four months of service as an employee during 1993. The amount of the deferred
compensation earned prior to the filing of the Chapter 11 case ($73,644) was a
pre-petition claim against the Company which was paid upon completion of the
case.
The Old Employment Agreement provided for the following additional
incentives, none of which was awarded:
* Had Hexcel completed a restructuring of its debt outside Chapter 11,
Mr. Lee would have been eligible for a grant of 70,000 option shares
in lieu of his deferred compensation.
* If Hexcel completed a merger or sale during the Employment Term, Mr.
Lee would be paid 1/2 of 1% of the value of the transaction in lieu of
the deferred compensation.
* If there occurred an equity investment in Hexcel, Mr. Lee would
receive a cash bonus equal to 1% of such investment, in addition to
the deferred compensation.
During the Old Employment Term, Mr. Lee was not entitled to receive any
Board of Director fees, but he remained eligible to participate in, and have his
service during the Old Employment Term credited towards, Hexcel's Directors'
Retirement Plan. Mr. Lee became a participant in Hexcel's Salaried Employee's
Retirement Plan during 1994.
2. INTERIM EMPLOYMENT AGREEMENT AND CONSULTING AGREEMENT WITH MR. LEE
By Stipulation and Order dated September 21, 1994, Hexcel was authorized to
enter into an employment agreement with Mr. Lee dated as of September 1, 1994
providing for his continued employment as Chairman and Chief Executive Officer
of the Company at an annual salary of $400,000. Mr. Lee also participates in
certain specified benefit programs and is entitled to expense reimbursement,
including a monthly stipend of $5,000 for office space. In addition, pursuant
to the Stipulation and Order, the Company was authorized and directed to pay Mr.
Lee's claim for deferred compensation under his Old Employment Agreement to the
extent such deferred compensation accrued following Hexcel's Chapter 11 filing,
or $206,356, as an administrative expense. The prepetition portion of Mr. Lee's
claim for deferred compensation, or $73,644, was paid with other creditors'
claims. During the term of the interim agreement, Mr. Lee is not entitled to
receive any Board of Directors fees, but remains eligible to participate in, and
have his service during the term credited towards, the Company's Directors'
Retirement Plan.
Following the selection of a new Chief Executive Officer, Mr. Lee will
resign as an officer of the Company and be retained as a consultant to the
Company for strategic planning pursuant to certain pre-negotiated terms for a
period of two years. The consulting agreement will be subject to termination at
the end of the first year by resolution of the Board of Directors of the Company
delivered to Mr. Lee not earlier than 60 days and not later than 30 days prior
to the end of the first year.
21
The compensation provided to Mr. Lee as a consultant will be as follows:
base compensation (salary and fees) of $180,000 per year during the first year,
and $230,000 during the second year, plus the same benefits provided to him in
his interim employment agreement. In addition, there will be a bonus
opportunity determined by the Board of Directors of the Company.
Mr. Lee will receive stock options for approximately 0.625% of the
Company's fully diluted common stock (without giving effect to the conversion of
the Company's 7% Convertible Subordinated Debentures due 2011) at a price equal
to the average of the daily average prices of common stock for the 20 trading
days beginning 30 calendar days following expiration of the rights offering
provided by the Company's Plan of Reorganization. Such options will vest in
equal monthly installments over the two-year term of the consulting agreement,
subject to being fully vested upon an early termination thereof (other than for
cause or voluntary resignation) and will be exercisable until the later of three
years following the date of grant or one year after expiration of the consulting
agreement.
3. CONSULTING SERVICES AGREEMENT WITH MR. KRUMME
As of February 9, 1995, Mr. Krumme resigned as Vice Chairman of the Company
and his Consulting Services Agreement with the Company became effective. The
Agreement provides that Mr. Krumme will perform such consulting services as are
specified by the General Counsel or other senior officers of the Company until
July 31, 1995. Services are compensated on an hourly basis, with reasonable
expenses reimbursed. The Company also provides certain life and health
insurance benefits during the term. The Agreement also provides for payment of
$125,000 as a consummation bonus, which was paid on the effective date of the
Reorganization Plan.
4. INTERIM EMPLOYMENT AGREEMENT WITH MR. MEEHAN
The Company has entered into an Interim Employment Agreement with Mr.
Meehan for the term commencing on February 9, 1995 and ending June 30, 1995.
Mr. Meehan will receive compensation during the term based on an annual salary
of $200,000, along with a consummation bonus of $125,000 which was paid on the
effective date of the Reorganization Plan. Mr. Meehan also participates in the
benefit plans available to other employees of the Company.
5. INTERIM EMPLOYMENT AND SEVERANCE AGREEMENT WITH MR. O'MARA
Commencing on February 6, 1995, the Company agreed to employ Mr. O'Mara
through June 30, 1995 subject to earlier termination by the Board of Directors.
Mr. O'Mara is paid at an annual salary of $207,000, plus customary executive
benefits. In addition, for a period of one year following the termination of
his employment, Mr. O'Mara shall continue to be paid his salary and provided his
benefits, provided that he may elect to receive his salary in one lump sum,
discounted by the then prevailing prime interest rate, and upon payment of the
lump sum, benefits will no longer be provided. Mr. O'Mara also shall receive
additional compensation of $100,000, $50,000 of which was paid on the effective
date of the Reorganization Plan and $50,000 of which will be paid upon the
termination of the term of his agreement; included in the additional
compensation is Mr. O'Mara's employee retention bonus, approved in the Chapter
11 case, of $27,600.
22
6. EXECUTIVE DEFERRED COMPENSATION AND CONSULTING AGREEMENTS
This program consists of individual agreements between the Company and
certain key executives designated by the Board. Messrs. Lee, Krumme, Meehan and
O'Mara participate in this program. The agreements provide an annual retirement
income to these key executives generally of 1.5% of their salary and bonuses for
each year they are covered under the program. The retirement benefits are
payable monthly, as a life annuity (with a minimum of 120 monthly payments);
however, the Company has the right to consent to the executive's request for a
different form of benefit payment including a lump sum payment. Each agreement
also requires the Company to continue to cover the key executive under Hexcel's
group medical and dental insurance plans and to provide life insurance for so
long as the executive is receiving payments under the agreement and has not
attained the age of 75. The retirement benefits generally commence upon the
later of the executive's attainment of age 65 or retirement. Additional
information about these agreements is contained in the Executive Deferred
Compensation Plan table above.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following current or former directors were members of the Executive
Compensation Committee of the Board of Directors during 1994: Gary Depolo
(Chairman), Cyrus Holley and Marshall Geller (member from August 18, 1994).
During 1994, Mr. Lee was also a member of the compensation committee of
XTRA Corporation. Mr. Lewis Rubin, a director of the Company until February 9,
1995, also served as President and Chief Executive Officer of XTRA Corporation.
Mr. Rubin has not served on the Executive Compensation Committee of the Company.
COMPENSATION OF DIRECTORS
Except for Mr. Lee, the only director who is a salaried employee of the
Company, directors are compensated for services as directors in the amount of
$13,500 per year ($14,500 per year for Committee chairmen). Directors are also
paid $800 for each Board and Committee meeting they attend. The Company is
currently reviewing its policies with respect to the compensation of directors.
Mr. Lee, who was employed by the Company for a portion of 1993 and all of 1994,
received the annual and meeting compensation for directors for the period during
1993 that he was a director but not an employee.
In addition, directors may participate in the Directors' Retirement Plan. A
director who has served as a director for at least 5 years, and during which
period does not accrue other Company retirement benefits, is entitled, on
retirement, to a total retirement benefit equal to 50% of his or her annual
compensation as a director, averaged for the three years prior to retirement,
multiplied by the number of years he or she served on the Board while not
accruing other Company retirement benefits, payable over a period not to exceed
10 years. The amount and term of payment is subject to adjustment in certain
events. None of the current directors are currently entitled to receive
benefits under the Plan.
Mr. Lee became Co-Chief Executive Officer on August 1, 1993 and an employee
on September 1, 1993. During July and August, 1993, he was paid $43,500 in
consulting fees by the Company, which amount is set forth in a footnote to the
Summary Compensation Table. As an employee, he received
23
compensation in amounts set forth in the Summary Compensation Table, in
accordance with the provisions of his Employment Agreement described above.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
PRINCIPAL STOCKHOLDERS
As of March 17, the Company knows of no person (or "group" as contemplated by
Section 13(d)(3) of the Securities Exchange Act of 1934) who beneficially owns
more than 5% of the outstanding shares of any class of the Company's voting
securities, except as follows:
CLASS ADDRESS NUMBER OF PERCENT OF OUTSTANDING
SHARES (1) SHARES OF CLASS (1)
- --------------------------------------------------------------------------------
Common Stock Mutual Series Fund, Inc.(2) 1,945,946 21.0%
Heine Securities
Corporation
Michael Price
51 John F. Kennedy Parkway
Short Hills, NJ 070708
Common Stock State of Wisconsin 708,000 7.7%
Investment Board (3)
Lake Terrace
121 East Wilson Street
Madison, WI 53703
Common Stock Joseph L. Harrosh (4) 523,400 5.7%
40900 Grimmer Boulevard
Fremont, CA 94538
(1) All information is presented before giving effect to and disregarding the
impact of the Company's presently effective rights offering covering
approximately 8.9 million shares of new common stock of the Company, the
impact of which will not be ascertainable until after March 31, 1995. The
number and percentage of outstanding shares after the rights offering may
be materially different.
(2) Information with respect to Mutual Series Fund, Inc., Heine Securities
Corporation and Michael Price is based on information provided to the
Company by Peter A. Langerman, a director of the Company and an affiliate
of such persons.
(3) All information with respect to the State of Wisconsin Investment Board is
based on its Schedule 13G filed with the SEC on February 13, 1995.
(4) Information with respect to Joseph L. Harrosh is based on information
provided to the Company in his capacity as a director.
24
STOCK BENEFICIALLY OWNED
Based on information supplied by those persons, beneficial ownership of
shares of the Company's Common Stock by the individually named directors and
executive officers, and by all directors and executive officers as a group, as
of March 17, 1995, is as follows:
COMMON STOCK PERCENT OF
NAME SHARES OWNED (1) CLASS (1)
- -------------------------------------------------------------------------
Marshall S. Geller 48,500 (2)
Joseph L. Harrosh 523,400 5.7%
Peter A. Langerman (3) 1,945,946 21.0%
John J. Lee (4) 162,308 1.7%
George S. Springer 500 (2)
Franklin S. Wimer 10,000 (2)
Robert L. Witt (5) 20,597 (2)
Peter D. Wolfson 400 (2)
Robert D. Krumme -- (2)
William P. Meehan -- (2)
Donald J. O'Mara (6) 80,792 (2)
Rodney P. Jenks, Jr. -- (2)
All Officers and Directors
as a group (17 persons) (6) 2,922,088 31.0%
(1) All information is presented before giving effect to and disregarding the
impact of the Company's presently effective rights offering and the standby
purchase commitment of Mutual Series Fund, Inc. covering approximately 8.9
million shares of new common stock of the Company, the impact of which will
not be ascertainable until after March 31, 1995. . The number and
percentage of outstanding shares after the rights offering may be
materially different.
(2) Less than 1%
(3) All of the shares shown as owned by Mr. Langerman are owned by Mutual
Series Fund, Inc., of which Mr. Langerman is an Executive Vice President.
(4) Mr. Lee will acquire 108,108 shares on the final closing of the offering of
rights to purchase common stock pursuant to the Company's Reorganization
Plan. Those shares are included in the above table as shares owned.
(5) Mr. Witt has the right to acquire 1,619 shares of the Company's common
stock within 60 days after March 17, 1995, by exercise of discounted stock
options acquired by him while he was an employee of the Company. Those
shares are included in the above table as shares owned.
(6) Mr. O'Mara has the right to acquire 68,500 shares of the Company's common
stock within 60 days after March 17, 1995, by exercise of stock options
under one of the Company's stock option plans. Mr. O'Mara and all
directors and executive officers as a group have the right to acquire
177,619 shares of the Company's common stock within 60 days after March 17,
1995, by exercise of stock options under one of the Company's stock option
plans. Those shares are included in the above table as shares owned.
25
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On February 2, 1994, Mr. Rodney P. Jenks, Jr. became an employee of the
Company and on March 11, 1994 he became Vice President, General Counsel and
Secretary of the Company. Prior to becoming an employee of the Company, Mr.
Jenks was a partner in the law firm of Wendel, Rosen, Black, Dean & Levitan
which, during 1993 and through January 1994, provided legal services to the
Company for which the Company was invoiced $92,011. Upon becoming an employee
of the Company, Mr. Jenks resigned as a partner and currently serves as counsel
to the law firm. The law firm continues to provide limited legal services to
the Company.
UniRock Management Corporation ("UniRock") is a strategic planning
consultant to the Company. Franklin S. Wimer, a director of the Company and
chairman of the Audit Committee, is a principal of UniRock. During 1994 and to
date, UniRock invoiced the Company $541,553 for services rendered. The Company
has an agreement with UniRock for consulting services to be provided through
March 31, 1995, for $93,214. In addition, UniRock has applied to the Bankruptcy
Court for $941,553, including a performance bonus of $400,000 for its services
performed during the Chapter 11 case.
Marcus Montgomery Wolfson P.C. ("MMW") is counsel to the Equity Committee.
Peter D. Wolfson is a member of MMW. Pursuant to the federal bankruptcy laws
and by order of the Bankruptcy Court, the Company was invoiced $1,535,330 in
1994 and through the effective date of the Reorganization Plan, and has paid MMW
$1,300,383 to date; the unpaid amount is retained by the Company, pursuant to a
Bankruptcy Court order, pending the hearing on MMW's application for fees. MMW
has filed an application with the Bankruptcy Court to be paid for legal services
totaling $1,607,301, including amounts previously invoiced. The Company expects
to be invoiced by MMW for certain services incurred after the effective date of
the Reorganization Plan and through the completion of the subscription rights
offering.
There are no currently proposed related party transactions or any other
related party 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, and
independent auditors' report are listed on page 45 of this Form 10-K and are
incorporated herein by reference.
26
B. REPORTS ON FORM 8-K
Current report on Form 8-K dated December 29, 1994 relating to the sale of
the Company's European resins business to Axson S.A., a French corporation,
through the sale of all of the Company's shares in the capital stock of its
European resins subsidiaries.
Current report on Form 8-K dated January 6, 1995 relating to (a) the sale
of the Company's Chandler, Arizona manufacturing facility and certain
related assets and technology to Northrop Grumman Corporation, and (b) the
confirmation of Hexcel's First Amended Plan of Reorganization, dated as of
November 7, 1994, by order entered by the Bankruptcy Court, dated as of
January 10, 1995.
Current report on Form 8-K dated February 9, 1995 relating to the effective
date of Hexcel's First Amended Plan of Reorganization.
C. EXHIBITS
EXHIBIT NO. DESCRIPTION
3. 1. Certificate of Incorporation of Hexcel Corporation
2. Bylaws of Hexcel Corporation
3. First Amended Plan of Reorganization Proposed by the Debtor and
the Official Committee of Equity Security Holders, dated as of
November 7, 1994 (4)
4. Order Confirming First Amended Plan of Reorganization Proposed by
the Debtor and the Official Committee of Equity Security Holders
dated as of November 7, 1994 and entered on January 12, 1995 by
the United States Bankruptcy Court for the Northern District of
California (5)
5. Subscription Rights Plan (6)
4. 1. Certificate of Incorporation of Hexcel Corporation (See Exhibit
3-1)
2. Bylaws of Hexcel Corporation (See Exhibit 3-2)
3. First Amended Plan of Reorganization Proposed by the Debtor and
the Official Committee of Equity Security Holders, dated as of
November 7, 1994 (See Exhibit 3-3)
4. Order Confirming First Amended Plan of Reorganization Proposed by
the Debtor and the Official Committee of Equity Security Holders
dated as of November 7, 1994 and entered on January 12, 1995 by
the United States Bankruptcy Court for the Northern District of
California (See Exhibit 3-4)
5. Subscription Rights Plan (See Exhibit 3-5)
6. Exemplar of Indenture between Hexcel Corporation and The Bank of
California, N.A., Trustee, dated October 1, 1988 (3)
27
EXHIBIT NO. DESCRIPTION
- ----------- -----------
7. 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. Credit Agreement, dated as of February 9, 1995, among the
Registrant, Citicorp USA, Inc., Heller Financial, Inc.,
Transamerica Business Credit Corporation and Citibank N.A. (6)
2. Restated and Amended Reimbursement Agreement, dated as of
February 1, 1995, between the Registrant and Banque Nationale de
Paris (6)
3. Asset Purchase Agreement between Hexcel Corporation and Northrop
Grumman Corporation (4)
4. Executive Compensation Plans and Arrangements
A. Stock 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 Discounted Stock Option Agreement - Sample
Agreement (1)
(5) 1988 Officers' Nonqualified Stock Option Agreement -
Sample Agreement (1)
(6) Long-Term Incentive Plan (5)
B. Exemplar of Executive Deferred Compensation Agreement (3)
C. Directors' Retirement Plan (2)
D. Employment Agreement dated September 28, 1993 between Hexcel
Corporation and John J. Lee (3)
E. Interim Employment Agreement and Consulting Agreement
between Registrant and John J. Lee
F. Consulting Services Agreement between Registrant and Robert
D. Krumme
G. Interim Employment Agreement between Registrant and William
P. Meehan
28
EXHIBIT No. DESCRIPTION
- ----------- -----------
H. Interim Employment and Severance Agreement between
Registrant and Donald J. O'Mara
I. Agreement between Registrant and Gary L. Sandercock
J. Agreement between Registrant and Thomas J. Lahey
K. Agreement between Registrant and William K. Woodrow
L. Agreement between Registrant and Stephen C. Forsyth
M. Agreement between Registrant and Robert A. Petrisko
5. Letter Agreement between Registrant and UniRock Management
Corporation
11. Statement Regarding Computation of Per Share Earnings
21. Subsidiaries of Registrant
23. Independent Auditors' Consent - Deloitte & Touche LLP
27. Financial Data Schedules (electronic filing only)
- ----------------------
(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 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
(3) Incorporated by reference to the Annual Report of registrant on Form
10-K for the year ended December 31, 1993, filed pursuant to Section
13 of the Securities Exchange Act of 1934
(4) Incorporated by reference to the Quarterly Report on Form 10-Q for the
quarter ended October 2, 1994, filed pursuant to Section 13 of the
Securities Exchange Act of 1934
(5) Incorporated by reference to the Current Report on Form 8-K filed on
January 23, 1995 pursuant to Section 13 of the Securities Exchange Act
of 1934
(6) Incorporated by reference to the Current Report on Form 8-K filed on
February 22, 1995 pursuant to Section 13 of the Securities Exchange
Act of 1934
29
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
MARCH 23, 1995 By: 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 Chief Executive Officer March 23, 1995
- ---------------------- (PRINCIPAL EXECUTIVE OFFICER)
(John J. Lee)
WILLIAM P. MEEHAN Vice President and Chief March 23, 1995
- ---------------------- Financial Officer
(William P. Meehan) (PRINCIPAL FINANCIAL OFFICER)
WAYNE C. PENSKY Controller March 23, 1995
- ---------------------- (CONTROLLER AND PRINCIPAL
(Wayne C. Pensky) ACCOUNTING OFFICER)
MARSHALL S. GELLER Director March 23, 1995
- ----------------------
(Marshall S. Geller)
JOSEPH L. HARROSH Director March 23, 1995
- ----------------------
(Joseph L. Harrosh)
PETER A. LANGERMAN Director March 20, 1995
- ----------------------
(Peter A. Langerman)
GEORGE S. SPRINGER Director March 23, 1995
- ----------------------
(George S. Springer)
FRANKLIN S. WIMER Director March 23, 1995
- ----------------------
(Franklin S. Wimer)
ROBERT L. WITT Director March 23, 1995
- ----------------------
(Robert L. Witt)
PETER D. WOLFSON Director March 23, 1995
- ----------------------
(Peter D. Wolfson)
30
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference of our report dated February
24, 1995 (which report contains explanatory paragraphs regarding the
confirmation of Hexcel Corporation's plan of reorganization, future compliance
with certain financial ratio covenants of the revolving credit facility, and a
change in accounting for postretirement benefits other than pensions and a
change in accounting for income taxes) appearing in this Annual Report on Form
10-K for the year ended December 31, 1994, in Registration Statement No. 33-
49478 on Form S-8 regarding the 1988 Management Stock Program.
DELOITTE & TOUCHE LLP
Oakland, California
March 24, 1995
31
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)
- ------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA:
Net sales $ 313,795 $ 310,635 $ 352,987 $ 355,601 $ 350,493
Cost of sales (265,367) (263,090) (285,088) (284,875) (284,346)
-------------------------------------------------------------------
Gross margin 48,428 47,545 67,899 70,726 66,147
Marketing, general &
administrative expenses (45,785) (52,510) (62,053) (54,797) (55,444)
Other income (expenses) 4,861 (12,780) 2,992 -- 2,317
Restructuring expenses -- (46,600) (23,000) -- --
-------------------------------------------------------------------
Operating income (loss) 7,504 (64,345) (14,162) 15,929 13,020
Interest expenses (11,846) (8,862) (8,196) (10,870) (9,779)
Bankruptcy reorganization
expenses (20,152) (641) -- -- --
-------------------------------------------------------------------
Income (loss) from
continuing operations
before income taxes (24,494) (73,848) (22,358) 5,059 3,241
Benefit (provision) for
income taxes (3,586) (6,024) 6,375 54 (1,321)
-------------------------------------------------------------------
Income (loss) from
continuing operations $ (28,080) $ (79,872) $ (15,983) $ 5,113 $ 1,920
-------------------------------------------------------------------
-------------------------------------------------------------------
Income (loss) per share from
continuing operations(b) $ (3.84) $ (10.89) $ (2.20) $ 0.72 $ 0.27
-------------------------------------------------------------------
-------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Current assets $ 148,352 $ 134,710 $ 160,001 $ 213,699 $ 209,519
Non-current assets 95,105 128,532 150,659 146,275 142,745
-------------------------------------------------------------------
Total assets $ 243,457 $ 263,242 $ 310,660 $ 359,974 $ 352,264
-------------------------------------------------------------------
-------------------------------------------------------------------
Current liabilities $ 171,307 $ 72,965 $ 79,305 $ 78,545 $ 80,632
Long-term liabilities 78,035 169,524 125,206 137,106 128,454
Shareholders' equity (deficit) (5,885) 20,753 106,149 144,323 143,178
-------------------------------------------------------------------
Total liabilities and share-
holders' equity (deficit) $ 243,457 $ 263,242 $ 310,660 $ 359,974 $ 352,264
-------------------------------------------------------------------
-------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
OTHER DATA:
Cash dividends per share -- -- 0.44 0.44 0.44
Shares outstanding at
year-end 7,301 7,310 7,296 7,158 7,057
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
(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) PRIMARY AND FULLY DILUTED NET INCOME (LOSS) PER SHARE FOR ALL FIVE YEARS
WERE THE SAME BECAUSE THE FULLY DILUTED COMPUTATION WAS ANTIDILUTIVE.
32
MANAGEMENT DISCUSSION AND ANALYSIS
BANKRUPTCY REORGANIZATION
BANKRUPTCY REORGANIZATION PROCEEDINGS
On February 9, 1995, the Reorganization Plan proposed by Hexcel and the
Equity Committee became effective, and Hexcel emerged from bankruptcy
reorganization proceedings. Those proceedings had begun on December 6, 1993,
when Hexcel filed a voluntary petition for relief under the provisions of
Chapter 11 of the federal bankruptcy laws. Hexcel operated as a debtor-in-
possession under the supervision of the Bankruptcy Court for the duration of
those proceedings, utilizing a debtor-in-possession credit facility of up to
$35.0 million to finance its operations over the course of the reorganization
process. The joint ventures and European subsidiaries of Hexcel were not
included in the bankruptcy proceedings and, as such, were not subject to the
provisions of the federal bankruptcy laws or the supervision of the Bankruptcy
Court.
Beginning in 1992 and continuing through 1993, the Company experienced
significant declines in sales and gross margins. These declines were primarily
a result of the general deterioration in the aerospace industry, as well as the
deep economic recession in Europe. In December 1992, the Company initiated a
restructuring program in response to anticipated protracted weakness in the
aerospace industry and the need to make aggressive cost reductions to operate
profitably at lower sales levels, and recorded a $23.0 million charge. The
restructuring program was designed to improve facility utilization and determine
the proper workforce requirements to support expected levels of future business.
Restructuring actions began in 1993 and included the 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 an evaluation of the
adequacy of the restructuring program and existing reserves in light of further
deterioration in the business conditions of 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 $44.0 million in the third quarter of 1993. The expanded restructuring
program was a response to deeper than anticipated declines in the aerospace
market, and included 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 of 1993 in connection with the
expanded restructuring program.
In order to finance its operations, fund the restructuring program and
improve its capital structure, the Company needed substantial additional
financing and a restructuring of its debt. Negotiations with 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, and
the Company began to renegotiate certain European credit facilities which were
scheduled to expire in the first quarter of 1994. By the second quarter of
1993, the Company had become noncompliant with certain U.S. debt covenants, and
was required to obtain a series of waivers from senior U.S. lenders while
negotiations continued. However, efforts to persuade these lenders to consent
to a restructuring of U.S. debt obligations, along with a proposed infusion of
new equity, failed to produce an agreement.
33
During the second half of 1993, the Company's cash resources were nearly
exhausted. Hexcel struggled to accelerate cash collections and extend payment
terms to vendors, as overdue trade payables reached precarious levels.
Suppliers became very anxious about Hexcel's financial condition, and a number
of key suppliers began to demand cash on delivery or a reduction in outstanding
account balances. At the same time, Hexcel attempted to reduce spending by
cutting inventory levels, deferring certain restructuring actions and limiting
capital expenditures to minimal levels. In spite of these efforts, the failure
to obtain additional financing left Hexcel with almost no cash and no remaining
credit availability, so that it was unable to finance its operations and fund
the restructuring program.
On December 6, 1993, Hexcel filed a voluntary petition for relief under the
provisions of Chapter 11 of the federal bankruptcy laws. Substantially all of
the U.S. assets and operations of the Company are directly owned and operated by
Hexcel, and became subject to bankruptcy protection. However, the joint
ventures and European subsidiaries of Hexcel were not included in the bankruptcy
proceedings and, as such, were not subject to the provisions of the federal
bankruptcy laws or the supervision of the Bankruptcy Court. Hexcel obtained a
debtor-in-possession revolving line of credit of up to $35.0 million to finance
operations and restructuring activities during bankruptcy reorganization, and
this facility remained available for the duration of the reorganization process.
Further discussion of the Company's restructuring program and bankruptcy
reorganization proceedings is included in Notes 2 and 6 to the Consolidated
Financial Statements included in this Form 10-K.
THE REORGANIZATION PLAN
On January 12, 1995, the Bankruptcy Court entered an order dated January
10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity
Committee. The Reorganization Plan, which became effective on February 9, 1995,
provided for (a) the replacement of the debtor-in-possession credit facility
with a new revolving credit facility of up to $45.0 million; (b) the creation of
an amended reimbursement agreement with respect to the letters of credit which
support certain industrial development revenue bonds ("IDRBs"); (c) the
completion of the first closing under a standby purchase commitment whereby
Mutual Series purchased approximately 1.9 million shares of new common stock for
$9.0 million and loaned the Company $41.0 million as an advance against the
proceeds of a subscription rights offering for an additional 8.9 million shares
of new common stock; and (d) the reinstatement or payment in full, with
interest, of all allowed claims, including prepetition accounts payable and
notes payable.
The new revolving credit facility is a three-year facility which is
available to fund distributions to creditors under the Reorganization Plan as
well as related transaction costs, and to provide for the ongoing working
capital needs of the Company and other general corporate purposes. The amount
available for borrowing is based primarily on eligible U.S. assets, as defined
in the agreement, and is secured by substantially all of the U.S. assets of
Hexcel, as well as the majority of its shares in the capital stock of the
Company's European subsidiaries. In addition, the credit facility is subject to
a number of financial covenants and other restrictions.
The letters of credit which guarantee certain IDRBs were reinstated, in
accordance with the terms of an amended reimbursement agreement with the issuing
bank, and extended until December 31, 1998. The amended reimbursement agreement
is subject to certain IDRB redemption requirements, as well as a number of
financial covenants and other restrictions which are similar, although less
restrictive, to those of the new revolving credit facility.
34
The sale of new common stock pursuant to the standby purchase commitment
and the subscription rights offering will increase the number of outstanding
common shares from approximately 7.3 million as of December 31, 1994 to
approximately 18.2 million on or about March 27, 1995, when the subscription
rights offering concludes. The proceeds from the standby purchase commitment
and the subscription rights offering will be used to repay the $41.0 million
advance from Mutual Series.
The payment of claims and interest on February 9, 1995 was funded with the
cash proceeds from certain asset sales discussed below, the $50.0 million in
cash received from Mutual Series, and borrowings under the new revolving credit
facility. Information as to the sources and uses of cash pursuant to the
Reorganization Plan is included in Note 3 to the Consolidated Financial
Statements included in this Form 10-K, which also sets forth the pro forma
condensed consolidated financial position of the Company as of December 31, 1994
as if the consummation of the Reorganization Plan occurred on such date.
Further discussion of the Reorganization Plan and Hexcel's emergence from
bankruptcy reorganization proceedings is included in the Notes to the
Consolidated Financial Statements included in this Form 10-K.
ASSET SALES
Hexcel sold its Chandler, Arizona manufacturing facility and certain
related assets and technology to Northrop Grumman Corporation. During the
fourth quarter of 1994, the Company recognized other income of $15.9 million
relating to the sale. The transaction generated net cash proceeds of
approximately $29.0 million, of which $2.3 million was received in 1994 and
$26.7 million was received in the first quarter of 1995. The net cash proceeds
were utilized to pay off the remaining balance of the debtor-in-possession
credit facility and to partially fund distributions to creditors made on the
effective date of the Reorganization Plan.
During the fourth quarter of 1994, the Company sold its European resins
business to Axson S.A., a French corporation. The sale and related settlement
transactions generated net cash proceeds of approximately $8.7 million, of which
$6.1 million was received in the fourth quarter of 1994 and $2.6 million was
received in the first quarter of 1995. The net cash proceeds were utilized
primarily to pay down borrowings under the debtor-in-possession credit facility.
The European resins business was a substantial component of the Company's
worldwide resins business, comprised of operations in Europe and the U.S. The
Company is continuing discussions for the sale of its U.S. resins business, and
believes that such a sale on acceptable terms can be arranged. Accordingly, the
resins business is accounted for as a discontinued operation in the Consolidated
Financial Statements included in this Form 10-K, and the discussion below refers
only to the continuing operations of the Company unless otherwise indicated.
Further discussion of the Chandler and European resins transactions is
included in Note 4 to the Consolidated Financial Statements included in this
Form 10-K.
35
RESULTS OF OPERATIONS
The 1994 loss from continuing operations was $28.1 million or $3.84 per
share. This compares with a loss from continuing operations of $79.9 million in
1993 and $16.0 million in 1992. The net loss for 1994, including discontinued
operations, was $30.0 million or $4.10 per share. The net losses for 1993 and
1992 were $86.0 million and $29.3 million, respectively.
The 1994 loss from continuing operations is net of $4.9 million in other
income, which is largely comprised of the $15.9 million of income related to the
sale of the Chandler, Arizona manufacturing facility and certain related assets
and technology, less an $8.0 million provision to reflect the estimated cost of
restructuring a joint venture and a $2.9 million provision for bankruptcy claim
adjustments. The 1994 loss from continuing operations also includes bankruptcy
reorganization expenses of $20.2 million, as well as interest expenses for
bankruptcy claims and exit financing of $2.5 million and a provision for the
settlement of various tax audits of $1.8 million. Bankruptcy reorganization
expenses consist primarily of professional fees paid to legal and financial
advisors of the Company, the Equity Committee and the Official Committee of
Unsecured Creditors. In addition, these expenses include incentives for
employees to remain with the Company for the duration of bankruptcy proceedings
and the write-off of previously capitalized costs related to the issuance of
prepetition debt.
The 1993 loss from continuing operations includes restructuring charges of
$46.6 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 provision in 1993 to reflect the
adverse impact of the bankruptcy proceedings of Hexcel Corporation and ongoing
operating losses on the potential realization of deferred income tax benefits.
The 1992 loss from continuing operations includes a $23.0 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.
Losses from discontinued operations totaled $1.9 million, $10.6 million and
$6.2 million in 1994, 1993 and 1992, respectively. These losses reflect the
results of the Company's resins business for all three years, including
provisions to write-down the net assets of this business by $2.8 million in
1994, $6.0 million in 1993 and $0.5 million in 1992. These losses also reflect
the results of the Company's discontinued fine chemicals business for 1993 and
1992. The divestiture of the fine chemicals business has been completed.
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. The 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.
SALES
Sales from continuing operations were $313.8 million in 1994, compared with
$310.6 million in 1993 and $353.0 million in 1992. The halt in the sales
declines experienced in 1993 and 1992 reflects
36
improved sales to general industrial and other markets offset by further
declines in commercial and military aerospace business. Increased sales of
general industrial and other products are largely attributable to the end of a
deep economic recession in Europe and continued improvement in the U.S. economy,
as well as the Company's pursuit of additional business from customers in
recreation, electrical and general manufacturing industries. The continuing
decline in aerospace sales is due, in part, to lower build rates for commercial
aircraft. The Company's commercial aerospace customers have responded to
reduced build rates by canceling orders, delaying shipments and reducing
inventories to match future operating levels. At the same time, sales to
military aerospace customers continue to fall in response to the general
reduction in military spending and the Company's declining involvement in the B-
2 aircraft program.
U.S. sales were $171.5 million in 1994, compared with $185.3 million in
1993 and $204.1 million in 1992. The declines are mainly attributable to
reduced sales of honeycomb and advanced composites to commercial and military
aerospace markets, partially negated by improved sales of advanced composites to
general industrial and other non-aerospace markets. Sales of reinforcement
fabrics were reduced by the transfer of the Company's stitchbonded business to a
joint venture on June 30, 1993. The stitchbonded business accounted for U.S.
sales of $7.0 million in the first six months of 1993 and $11.3 million in all
of 1992.
International sales were $142.3 million in 1994, compared with $125.4
million in 1993 and $148.9 million in 1992. The 1994 increase is due to higher
sales of advanced composites and reinforcement fabrics to general industrial and
other markets, as well as increased sales of advanced composites to certain
European aerospace customers. In addition, some of the sales increase is
attributable to changes in currency exchange rates. During 1994, the U.S.
dollar declined relative to the Belgian and French francs; accordingly, sales
from the Company's primary international subsidiaries were increased when
translated into U.S. dollars. Currency exchange rates moved in the opposite
direction in 1993, which contributed to the decline in international sales
during that year. An economic recession in Europe and the contraction of
aerospace markets were the other major factors in the 1993 sales decline.
COMMERCIAL AEROSPACE SALES
Worldwide sales of $147.5 million in 1994 were up from 1993 sales of $131.4
million, but down from the 1992 total of $163.4 million. The improvement over
1993 is attributable to the improved economic environment in Europe as well as
increased sales of selected products. Nonetheless, the overall downturn in the
commercial aerospace market which began in 1992 continued in 1993 and 1994.
Reacting to order cancellations from many airlines, major aircraft manufacturers
have announced a series of build rate reductions worldwide. Additionally, most
of these manufacturers have announced significant personnel reductions and
initiated ongoing efforts to reduce inventories and shorten production lead
times.
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 have 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.
37
SPACE AND DEFENSE SALES
Worldwide sales in 1994 decreased to $34.9 million from $55.3 million in
1993 and $57.8 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, due to the general decline in military
spending and the sale of the Company's Chandler, Arizona manufacturing facility
and certain related assets and technology. The Chandler facility was originally
constructed by the Company in 1988, primarily to manufacture materials for the
B-2 aircraft program. Under the terms of the sale, the Company retained a
royalty-free, non-exclusive license to use the technology sold in non-military
applications and will receive royalties from Northrop on certain applications of
that technology.
GENERAL INDUSTRIAL AND OTHER SALES
Worldwide sales were $131.4 million in 1994, compared with $123.9 million
in 1993 and $131.8 million in 1992. Products provided to non-aerospace
customers included honeycomb, advanced composites and reinforcement fabrics.
Sales of new products introduced within the last few years continued to grow,
and the Company benefited from the economic recovery in Europe and continued
economic growth in the U.S. Much of that benefit was comprised of increased
demand for products used in the recreation and electrical industries, as well as
increased sales to ballistics customers.
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.
GROSS MARGIN
Gross margin was $48.4 million, or 15.4% of sales, in 1994. This compares
with gross margin of $47.5 million, or 15.3% of sales, in 1993 and $67.9
million, or 19.2% of sales, in 1992. The decrease in gross margin experienced
in 1993 was halted during 1994, but the Company was unable to reverse the
decline. Although the Company has reduced manufacturing overhead costs by
closing the Graham, Texas plant and selling the Chandler, Arizona facility, the
transfer of production processes to other plants has not been completed. Moving
production processes is complicated by aerospace and other industry requirements
to "qualify" specific equipment at specific locations for the manufacture of
certain products. These qualification procedures increase the complexity, cost
and time required to move equipment while continuing to serve existing
customers. Consequently, the impact of facility reductions will not be fully
realized until mid-1995, when the consolidation of honeycomb production
activities is expected to be complete.
In addition, many of the 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. The
Company expects that these pricing pressures will continue during 1995.
The gross margin decline experienced in 1993 was attributable to the sales
decrease from the prior year, as well as the pricing pressures noted above.
38
MARKETING, GENERAL AND ADMINISTRATIVE (M,G&A) EXPENSES
M,G&A expenses decreased to $45.8 million in 1994, from $52.5 million in
1993 and $62.1 million in 1992. M,G&A expenses as a percentage of sales were
14.6% in 1994, 16.9% in 1993 and 17.6% in 1992. The two-year decline in MG&A
expenses is the result of significant headcount reductions made during 1993 and
the first quarter of 1994, in an effort to mitigate the effects of lower sales
levels. These headcount reductions were achieved through a reorganization of
sales, marketing and administrative functions to reduce redundancies and
inefficiencies.
M,G&A expenses include research and development expenses which were $8.2
million in 1994 or 2.6% of sales, approximately the same level as in 1993 and
1992. 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 control expenditures.
INTEREST
Interest expenses were $11.8 million in 1994, compared with $8.9 million in
1993 and $8.2 million in 1992. The 1994 total includes accrued interest on
prepetition accounts payable as well as notes payable. It also includes
interest on the debtor-in-possession credit facility. Part of the increase in
interest expenses during 1994 is also attributable to higher interest rates on
variable rate obligations, partially offset by reduced levels of borrowing by
the Company's European subsidiaries.
Excluding a $1.4 million gain in 1992 from the settlement of interest rate
swap agreements, interest expenses declined 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 rate reductions were partially offset by
additional borrowings by the Company's European subsidiaries.
Capitalized interest was $0.2 million in 1993 and $0.3 million in 1992.
The Company did not capitalize any interest in 1994, as there were no long-term
capital projects undertaken by the Company during the year.
INCOME TAXES
As of December 31, 1994, the Company had net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $26.0 million and
net operating loss carryforwards for international income tax purposes of
approximately $6.0 million. The federal NOL carryforwards, which are available
to offset future taxable income, expire at various dates through the year 2009.
However, because of the ownership change which is expected to occur as a result
of the Reorganization Plan, the utilization of NOL carryforwards in the U.S.
after February 9, 1995 will be affected. It is expected that the Company will
make use of Section 382(l)(6) of the Internal Revenue Code, whereby the annual
allowable NOL deduction will be limited to an amount equal to the product of the
fair market value of the Hexcel stock immediately following the ownership change
caused by the Reorganization Plan and the long-term federal tax-exempt rate
(6.83% as of February 9, 1995). This deduction limitation is estimated to be
approximately $5.0 million per year. The Company will not qualify for other
rules permitting unlimited use of NOLs due to the makeup of the post-
reorganization equity ownership.
39
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 reorganization proceedings of Hexcel and ongoing operating
losses have jeopardized the realization of deferred income tax benefits.
In 1994, the Company continued to reserve for the income tax assets
generated by Hexcel's pre-tax losses. The Company also recorded a provision for
the settlement of various tax audits of $1.8 million.
The 1994 and 1993 tax provisions were computed in accordance with SFAS 109.
The recognition of a $3.6 million provision in 1994 on a $24.5 million loss from
continuing operations before taxes, and a $6.0 million provision in 1993 on a
$73.8 million loss from continuing operations before taxes, reflects the
valuation allowances noted above, as well as the 1994 provision for tax audits.
The 1992 tax benefit of $6.4 million was computed in accordance with Accounting
Principles Board Opinion No. 11 ("APB 11"), which was superseded by SFAS 109.
The effective rate of this tax benefit was 29% and reflects the impact of 1992
operating losses and international tax incentives and credits, to the extent
allowable by APB 11.
JOINT VENTURES
The Company owns an equity interest in DIC-Hexcel Limited, a joint venture
with DIC. The joint venture was formed in 1990 for the production and sale of
Nomex honeycomb, advanced composites and decorative laminates for the Japanese
market. The joint venture owns and operates a manufacturing facility in
Komatsu, Japan which has begun to manufacture decorative laminates for sale and
is now performing pre-qualification manufacturing trials of honeycomb and
advanced composites.
Under the terms of the original joint venture agreement, DIC agreed to
guarantee all bank debt incurred by this joint venture. In turn, the Company
provided an undertaking that in the event the venture went into liquidation the
Company would reimburse DIC for 50% of all guaranteed bank loans, net of any
proceeds from the sale of the venture's assets. As of December 31, 1994, the
guaranteed bank debt of the venture totaled approximately $19.4 million.
Due to the significant reduction in demand for commercial aircraft and
other adverse changes in the competitive environment, the economic viability of
this joint venture has become questionable. In addition, the cost of pre-
qualification trials and the attendant lack of revenues has resulted in negative
cash flows which are expected to continue for several years. During the third
quarter of 1994, DIC proposed to liquidate the venture. The Company responded
with a proposal to restructure the venture, subject to various conditions, which
DIC agreed to consider. Under either proposal, the Company would retain
responsibility for a portion of the venture's guaranteed bank debt. Accordingly,
the Company recorded an $8.0 million provision in the third quarter of 1994 to
reflect the estimated cost of restructuring or liquidating DIC-Hexcel Limited.
On February 20, 1995, the Company and DIC signed an amendment to the
original joint venture agreement which restructures DIC-Hexcel Limited and
limits the Company's potential liability for the
40
venture's guaranteed bank debt to $9.0 million. Under the terms of the
amendment, the Company is required to contribute $4.5 million in cash to the
venture, payable in installments of approximately $1.4 million in the first
quarter of 1995 and approximately $0.4 million in each of the next seven
quarters. In addition, the Company may be required to contribute another $4.5
million in cash, under certain conditions, but such payment is not expected to
be required, if at all, prior to January 1997. The amendment also reduces the
Company's equity interest in the joint venture from 50% to approximately 42%,
and provides for a corresponding increase in DIC's equity interest. Management
believes that the $8.0 million provision recorded in 1994 remains the best
estimate of the Company's probable liability under the amended joint venture
agreement, based on the terms of that agreement and the projected future
operating results of DIC-Hexcel Limited.
The Company entered into a joint venture with Owens-Corning in June 1993.
The venture 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 its stitchbonded
business to Owens-Corning and contributed the remaining 50% to the joint
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
venture, which had net revenues of $18.8 million in 1994 and $6.8 million in the
six months ended December 31, 1993.
The Company entered into a joint venture with Fyfe Associates in October
1992. Hexcel-Fyfe sells and applies high strength architectural wrap for the
seismic retrofitting and strengthening of bridges, columns and other structures.
The Company owns 40% of the venture, and Fyfe Associates owns the remainder.
Revenues of the venture were not significant in 1994, 1993 or 1992.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL RESOURCES
The Reorganization Plan which became effective on February 9, 1995 provided
for the replacement of the debtor-in-possession credit facility (the "DIP
Facility") with a new revolving credit facility (the "Revolving Credit
Facility") of up to $45.0 million. The Revolving Credit Facility is a three-
year facility which is available to fund distributions to creditors under the
Reorganization Plan as well as related transaction costs, and to provide for the
ongoing working capital needs of the Company and other general corporate
purposes, including restructuring activities. The amount available for
borrowing is based on the outstanding balance of eligible U.S. receivables and
inventories, as defined in the credit agreement, and on specified values of
certain machinery and equipment, real property, and shares in the capital stock
of one of the Company's European subsidiaries. As of February 9, 1995, the
amount available for borrowing was approximately $38.0 million.
The Revolving Credit Facility is secured by substantially all of the U.S.
assets of Hexcel, as well as the majority of the shares in the capital stock of
the Company's European subsidiaries. In addition, the Revolving Credit Facility
is subject to a number of financial covenants and other restrictions. Further
discussion of the Revolving Credit Facility is included in Note 9 to the
Consolidated Financial Statements included in this Form 10-K.
The Revolving Credit Facility replaces the DIP Facility, which was approved
for use by the Bankruptcy Court on January 28, 1994 and remained available for
borrowing until February 9, 1995. Outstanding borrowings under the DIP Facility
totaled $4.2 million as of December 31, 1994.
41
The Company's European subsidiaries also possess various credit facilities
which are available to finance the activities of those subsidiaries but are
generally not available to finance the Company's U.S. operations. These credit
facilities totaled $28.4 million as of December 31, 1994, and outstanding
borrowings under these facilities totaled $18.3 million at that time.
Approximately $25.6 million of such credit facilities expire on or before June
30, 1996.
Information as to the reinstatement or payment of other debt instruments
pursuant to the Reorganization Plan is included in Notes 3 and 10 to the
Consolidated Financial Statements included in this Form 10-K.
In addition to the Revolving Credit Facility, the Reorganization Plan also
provided for the completion of the first closing under the standby purchase
commitment whereby Mutual Series purchased approximately 1.9 million shares of
new common stock for $9.0 million and loaned the Company $41.0 million as an
advance against the proceeds of a subscription rights offering for an additional
8.9 million shares of new common stock. The $50.0 million in cash provided by
these transactions has been used to pay claims and interest pursuant to the
Reorganization Plan.
Management expects that the financial resources of the Company, including
the Revolving Credit Facility, the proceeds from the offering of additional
shares of common stock, and credit facilities available to European
subsidiaries, will be sufficient to fund distributions under the Reorganization
Plan and finance the Company's operations and restructuring activities through
the end of 1995. However, in order to comply with certain financial ratio
covenants of the Revolving Credit Facility the Company is required to achieve
certain higher levels of financial performance. Management believes that such
compliance will be achieved. In addition, the Revolving Credit Facility
contains a "change in control" provision which enables the lenders to terminate
the facility and accelerate the indebtedness thereunder. Whether or not such a
"change in control" occurs is outside of the Company's control (see Note 9 to
the Consolidated Financial Statements included in this Form 10-K).
CASH FLOWS
Information as to the sources and uses of cash pursuant to the
Reorganization Plan is included in Note 3 to the Consolidated Financial
Statements included in this Form 10-K, which also sets forth the pro forma
condensed consolidated financial position of the Company as of December 31, 1994
as if the consummation of the Reorganization Plan occurred on such date.
Continuing operating activities generated cash of $1.1 million in 1994,
$10.8 million in 1993 and $29.4 million in 1992. The 1994 figure reflects the
Company's loss from continuing operations for the year, including $20.2 million
of bankruptcy reorganization expenses, offset by a comparable increase in
accounts payable and accrued liabilities (including liabilities subject to
disposition in bankruptcy reorganization). The increase in accounts payable and
accrued liabilities is primarily attributable to the accrual of interest on
prepetition obligations, adjustments to allowed claims and a return to payment
terms with some vendors.
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
cash generated from continuing operations in 1992 came primarily from
substantial reductions in accounts receivable and inventories.
42
WORKING CAPITAL
Current liabilities exceeded current assets by $23.0 million as of December
31, 1994, compared with net working capital of $61.7 million at the end of 1993
and $80.7 million at the end of 1992. The change which occurred in 1994 is
attributable to the impact of the Reorganization Plan and the asset sales noted
above. Liabilities subject to disposition in bankruptcy reorganization of $97.0
million were reclassified as current obligations during 1994, in accordance with
the treatment of these obligations under the Reorganization Plan. However, the
Company also recorded $29.3 million in receivables arising from the Chandler and
Europeans resins transactions, which is partially offset by a $9.1 million
reduction in the net assets of discontinued operations.
The 1993 reduction in working capital is primarily attributable to the
sales declines experienced during the year, working capital controls and asset
write-downs. These factors were 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.
CAPITAL EXPENDITURES AND RESTRUCTURING ACTIVITIES
Capital expenditures were $8.4 million in 1994, compared with $6.3 million
in 1993 and $16.2 million in 1992. The substantial decline in capital spending
during 1993 reflects the effort to conserve cash which began early in the year.
The Company limited capital spending to outlays required by regulatory
requirements and the replacement and upgrade of essential existing equipment,
and those limits remained in place during 1994. Now that Hexcel has emerged
from bankruptcy reorganization proceedings and secured new financing, capital
spending will be somewhat less restricted. The Company expects capital
expenditures to be higher in 1995 than in 1994.
Cash expenditures on restructuring activities totaled approximately $10.1
million in 1994, compared with $17.2 million in 1993 and $0.7 million in 1992.
Spending is expected to be somewhat lower in 1995, as the consolidation of
honeycomb manufacturing operations should be completed near the middle of the
year.
43
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
- -------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- -------------------------------------------------------------------------------------------
Commercial aerospace 47% 42% 46% 47% 47%
Space and defense 11% 18% 17% 19% 20%
General industrial and
other 42% 40% 37% 34% 33%
- -------------------------------------------------------------------------------------------
100% 100% 100% 100% 100%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
International Operations
- -------------------------------------------------------------------------------------------
International net sales(b) $ 142.3 $ 125.4 $ 148.9 $ 153.2 $ 154.1
Percentage of net sales 45% 40% 42% 43% 44%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
(A) THE DATE 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.
44
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Description Page
- ----------------------------------------------------------------------------------------------
Management Responsibility for Financial Statements 46
Independent Auditors' Report 47
Consolidated Financial Statements:
Consolidated Statements of Operations: Three years ended December 31, 1994 48
Consolidated Balance Sheets: December 31, 1994 and 1993 49
Consolidated Statements of Shareholders' Equity (Deficit):
Three years ended December 31, 1994 50
Consolidated Statements of Cash Flows: Three years ended December 31, 1994 51
Notes to the Consolidated Financial Statements 52 - 76
Exhibit 11. Statement Regarding Computation of Per Share Earnings (Unaudited) 77
Financial statement schedules have been omitted because they are not
applicable or the required information is included in the consolidated financial
statements or notes thereto.
45
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, which include estimates, 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 LLP, 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
46
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Shareholders of Hexcel Corporation:
We have audited the accompanying consolidated balance sheets of Hexcel
Corporation and subsidiaries as of December 31, 1994 and 1993, and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of Hexcel's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Hexcel Corporation and
subsidiaries at December 31, 1994 and 1993, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1994 in conformity with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, on January
12, 1995, the U.S. Bankruptcy Court entered an order dated January 10, 1995
confirming Hexcel's plan of reorganization which became effective on February 9,
1995. The terms of the plan of reorganization are more fully described in Notes
2 and 3.
As discussed in Note 9 to the consolidated financial statements, in order
to comply with certain financial ratio covenants of the revolving credit
facility Hexcel is required to achieve certain higher levels of financial
performance.
As discussed in Note 1 to the consolidated financial statements, in 1992
Hexcel changed its method of accounting for postretirement benefits other than
pensions to conform with Statement of Financial Accounting Standards No. 106 and
in 1993 changed its method of accounting for income taxes effective January 1,
1993 to conform with Statement of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE LLP
Oakland, California
February 24, 1995
47
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
- ---------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
Net sales $ 313,795 $ 310,635 $ 352,987
Cost of sales (265,367) (263,090) (285,088)
- ---------------------------------------------------------------------------------------------------------
Gross margin 48,428 47,545 67,899
Other operating costs and expenses:
Marketing, general and administrative expenses (45,785) (52,510) (62,053)
Other income (expenses) 4,861 (12,780) 2,992
Restructuring expenses - (46,600) (23,000)
- ---------------------------------------------------------------------------------------------------------
Operating income (loss) 7,504 (64,345) (14,162)
Interest expenses (11,846) (8,862) (8,196)
Bankruptcy reorganization expenses (20,152) (641) -
- ---------------------------------------------------------------------------------------------------------
Loss from continuing operations before income taxes (24,494) (73,848) (22,358)
Benefit (provision) for income taxes (3,586) (6,024) 6,375
- ---------------------------------------------------------------------------------------------------------
Loss from continuing operations (28,080) (79,872) (15,983)
Discontinued operations:
Income (losses) from operations, net of (provision) for
income taxes of ($441) in 1994, ($177) in 1993, and
($26) in 1992 989 (6,584) (1,723)
Losses during phase-out period, net of benefit (provision)
for income taxes of ($136) in 1994, $383 in 1993, and
$1,139 in 1992 (2,879) (4,039) (4,472)
- ---------------------------------------------------------------------------------------------------------
Loss before extraordinary item and cumulative effects
of accounting changes (29,970) (90,495) (22,178)
Extraordinary item:
Gain on redemption of convertible subordinated debentures,
net of (provision) for income taxes of ($492) in 1992 - - 956
- ---------------------------------------------------------------------------------------------------------
Loss before cumulative effects of accounting changes (29,970) (90,495) (21,222)
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 loss $ (29,970) $ (85,995) $ (29,274)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Net income (loss) per share and equivalent share:
Primary and fully diluted:
Continuing operations $ (3.84) $ (10.89) $ (2.20)
Discontinued operations (0.26) (1.45) (0.85)
Extraordinary item - - 0.13
Cumulative effects of accounting changes - 0.61 (1.11)
- ---------------------------------------------------------------------------------------------------------
Net loss $ (4.10) $ (11.73) $ (4.03)
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
Weighted average shares and equivalent shares 7,310 7,330 7,272
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
48
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
- ---------------------------------------------------------------------------------------------------------
1994
UNAUDITED
PRO FORMA
BALANCES AT DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) (SEE NOTE 3) 1994 1993
- ---------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and equivalents $ 4,082 $ 931 $ 11,348
Receivables from asset sales - 29,340 -
Accounts receivable 64,136 64,136 64,847
Inventories 47,364 47,364 42,513
Prepaid expenses 3,581 3,581 3,915
Net assets of discontinued operations 3,000 3,000 12,087
- ---------------------------------------------------------------------------------------------------------
Total current assets 122,163 148,352 134,710
- ---------------------------------------------------------------------------------------------------------
Property, plant and equipment:
Land 2,213 2,213 3,887
Buildings 36,913 36,913 49,341
Equipment 147,202 147,202 167,924
- ---------------------------------------------------------------------------------------------------------
186,328 186,328 221,152
Less accumulated depreciation 103,215 103,215 113,426
- ---------------------------------------------------------------------------------------------------------
Net property, plant and equipment 83,113 83,113 107,726
- ---------------------------------------------------------------------------------------------------------
Investments and other assets 13,642 11,992 20,806
- ---------------------------------------------------------------------------------------------------------
Total assets $218,918 $243,457 $263,242
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 24,672 $ 12,720 $ 24,596
Accounts payable 18,163 18,163 10,975
Accrued liabilities 45,017 32,234 21,384
Accrued restructuring liabilities 11,165 11,165 16,010
Liabilities subject to disposition in bankruptcy reorganization - 97,025 -
- ---------------------------------------------------------------------------------------------------------
Total current liabilities 99,017 171,307 72,965
- ---------------------------------------------------------------------------------------------------------
Long-term notes payable and capital lease obligations 50,292 16,004 5,165
Deferred liabilities 27,743 21,279 44,427
Liabilities subject to disposition in bankruptcy reorganization - 40,752 119,932
- ---------------------------------------------------------------------------------------------------------
Shareholders' equity (deficit):
Common stock, $0.01 par value, authorized 20,000 shares,
shares issued and outstanding of 7,301 in 1994 and 7,310
in 1993 182 73 73
Additional paid-in capital 111,417 62,626 62,562
Accumulated deficit (73,863) (72,714) (42,744)
Minimum pension obligation adjustment (137) (137) (646)
Cumulative currency translation adjustment 4,267 4,267 1,508
- ---------------------------------------------------------------------------------------------------------
Total shareholders' equity (deficit) 41,866 (5,885) 20,753
- ---------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity (deficit) $218,918 $243,457 $263,242
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
49
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
- ------------------------------------------------------------------------------------------------------------------------------------
YEARS ENDED COMMON STOCK RETAINED MINIMUM CUMULATIVE
DECEMBER 31, ---------------------- ADDITIONAL EARNINGS PENSION CURRENCY TOTAL
1994, 1993 AND 1992 OUTSTANDING PAID-IN (ACCUMULATED OBLIGATION TRANSLATION SHAREHOLDERS'
(IN THOUSANDS) SHARES AMOUNT CAPITAL DEFICIT) ADJUSTMENT ADJUSTMENT EQUITY (DEFICIT)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1992 7,158 $ 72 $ 60,932 $ 75,680 - $ 7,639 $144,323
Net loss - - - (29,274) - - (29,274)
Activity under stock plans 138 1 1,360 - - - 1,361
Cash dividends on common stock - - - (3,155) - - (3,155)
Currency translation adjustment - - - - - (7,106) (7,106)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 7,296 73 62,292 43,251 - 533 106,149
Net loss - - - (85,995) - - (85,995)
Activity under stock plans 14 - 270 - - - 270
Pension obligation adjustment - - - - $(646) - (646)
Currency translation adjustment - - - - - 975 975
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 7,310 73 62,562 (42,744) (646) 1,508 20,753
Net loss - - - (29,970) - - (29,970)
Activity under stock plans (9) - 64 - - - 64
Pension obligation adjustment - - - - 509 - 509
Currency translation adjustment - - - - - 2,759 2,759
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 7,301 73 62,626 (72,714) (137) 4,267 (5,885)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAUDITED PRO FORMA INFORMATION:
Interest and other bankruptcy costs - - - (1,149) - - (1,149)
Sale of new common stock under
standby purchase commitment
and subscription rights offering 10,908 109 48,791 - - - 48,900
- ------------------------------------------------------------------------------------------------------------------------------------
UNAUDITED PRO FORMA BALANCE,
DECEMBER 31, 1994 (SEE NOTE 3) 18,209 $182 $111,417 $(73,863) $(137) $ 4,267 $ 41,866
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
50
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, (IN THOUSANDS) 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Cash flows from continuing operations:
Loss from continuing operations $(28,080) $(79,872) $(15,983)
Reconciliation to net cash provided by continuing operations:
Depreciation and amortization 14,230 14,880 14,736
Provision (benefit) for deferred taxes 3,609 4,805 (6,071)
Other income relating to the sale of Chandler, Arizona
manufacturing facility and certain related assets
and technology (15,900) - -
Provision for DIC-Hexcel Limited 8,000 - -
Restructuring expenses - 46,600 23,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (1,168) 9,157 18,422
(Increase) decrease in inventories (6,228) 3,336 12,041
(Increase) decrease in prepaid expenses (454) (1,775) 1,655
Increase (decrease) in accounts payable and
accrued liabilities 33,957 20,828 (12,019)
Decrease in restructuring accrual (10,138) (17,235) (665)
Increase in accrued bankruptcy reorganization expenses 7,147 366 -
Changes in other non-current assets and long-term liabilities (3,876) 9,736 (5,760)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by continuing operations 1,099 10,826 29,356
Net cash provided (used) by discontinued operations (2,206) 624 (4,090)
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (1,107) 11,450 25,266
- ---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital expenditures (8,362) (6,264) (16,220)
Proceeds from property and equipment sold 229 764 733
Proceeds from sale of discontinued European resins business 6,125 - -
Proceeds from sale of Chandler, Arizona manufacturing facility
and certain related assets and technology 2,294 - -
Proceeds from sale of stitchbonded fabrics business to
joint venture - 4,500 -
Investments in joint ventures - (1,750) (500)
Proceeds from sale of discontinued fine chemicals business - 500 19,262
Proceeds from settlement of interest rate swap agreements - - 1,818
- ---------------------------------------------------------------------------------------------------------
Net cash provided (used) by investing activities 286 (2,250) 5,093
- ---------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of long-term debt 171 - 21,954
Payments of long-term debt, including current maturities (11,413) (4,801) (44,311)
Repurchase of convertible subordinated debentures - - (5,487)
Proceeds (payments) of short-term debt, net 1,687 6,847 (1,591)
Proceeds from issuance of common stock for employee and
shareholder stock plans - 270 1,361
Cash dividends paid - - (3,155)
- ----------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (9,555) 2,316 (31,229)
- ---------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and equivalents (41) (535) 928
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and equivalents (10,417) 10,981 58
Cash and equivalents at beginning of year 11,348 367 309
- ---------------------------------------------------------------------------------------------------------
Cash and equivalents at end of year $ 931 $ 11,348 $ 367
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
51
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. As discussed in Note 2, Hexcel Corporation (a
Delaware corporation, "Hexcel") operated as a debtor-in-possession under the
provisions of Chapter 11 of the federal bankruptcy laws from December 6, 1993
until February 9, 1995, when the First Amended Plan of Reorganization (the
"Reorganization Plan") proposed by Hexcel and the Official Committee of Equity
Security Holders (the "Equity Committee") became effective. Consequently, the
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 ("SOP 90-7").
As discussed in Notes 4 and 17, the Company intensified its efforts to sell
its resins business, comprised of operations in Europe and the U.S., during
1994. As a result of those efforts, the Company completed the sale of its
European resins business in December 1994 (see Note 4), and believes that the
sale of its U.S. resins business on acceptable terms can be arranged.
Accordingly, the resins business is accounted for as a discontinued operation in
the accompanying consolidated financial statements for all periods presented.
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 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 $1,249
and $1,490 at December 31, 1994 and 1993, respectively.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
on a first-in, first-out basis.
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 $0 in 1994, $227 in 1993 and
$298 in 1992.
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 $8,201 in 1994, $7,971 in 1993 and $9,543
in 1992 were expensed as incurred, and are included in "marketing, general and
administrative expenses" in the consolidated statements of operations.
52
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 from currency exchange transactions were not material to the
Company's consolidated results of operations in 1994, 1993 or 1992.
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 1994,
1993 and 1992.
ACCOUNTING CHANGES
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("SFAS 109"), "Accounting for Income Taxes" (see
Note 16). 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 15). The cumulative
effect of this accounting change has been reflected in the consolidated
statement of 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 1994 presentation.
NOTE 2 - BANKRUPTCY REORGANIZATION
BANKRUPTCY REORGANIZATION PROCEEDINGS
On January 12, 1995, the United States Bankruptcy Court for the Northern
District of California (the "Bankruptcy Court") entered an order dated January
10, 1995 confirming the Reorganization Plan proposed by Hexcel and the Equity
Committee. On February 9, 1995, the Reorganization Plan became effective and
Hexcel emerged from bankruptcy reorganization proceedings. Those proceedings
had begun on December 6, 1993, when Hexcel filed a voluntary petition for relief
under the provisions of Chapter 11 of the federal bankruptcy laws. Hexcel
operated as a debtor-in-possession under the supervision of the Bankruptcy Court
for the duration of those proceedings and, as such, was prohibited from paying
prepetition liabilities or engaging in transactions outside of the ordinary
course of business without the approval of the Bankruptcy Court. The joint
ventures and European subsidiaries of Hexcel were not included in the bankruptcy
proceedings and were not subject to the provisions of the federal bankruptcy
laws or the supervision of the Bankruptcy Court.
Hexcel received the approval of the Bankruptcy Court to pay or otherwise
honor certain prepetition obligations at various times during the course of
bankruptcy proceedings. Accordingly, these obligations have been included in
the appropriate liability captions of the consolidated balance sheets based on
the dates that such approvals were received. 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 estimated amount of allowed claims. Liabilities arising from the accrual
of interest on prepetition liabilities, the rejection of executory contracts,
and the resolution of contingencies and other
53
disputed amounts have also been included in "liabilities subject to disposition
in bankruptcy reorganization."
Professional fees and other costs directly related to bankruptcy
proceedings are expensed as incurred, and have been reflected in the
consolidated statements of operations as "bankruptcy reorganization expenses."
Bankruptcy reorganization expenses consist primarily of professional fees paid
to legal and financial advisors of the Company, the Equity Committee and the
Official Committee of Unsecured Creditors. In addition, these expenses include
incentives for employees to remain with the Company for the duration of
bankruptcy proceedings and the write-off of previously capitalized costs related
to the issuance of prepetition debt, as required by SOP 90-7.
Interest income earned by Hexcel during bankruptcy proceedings, which was
not material to the Company's consolidated results of operations in 1994 or
1993, has been reported as a reduction of bankruptcy reorganization expenses.
THE REORGANIZATION PLAN
The Reorganization Plan which became effective on February 9, 1995 provided
for (a) the replacement of the debtor-in-possession credit facility with a new
revolving credit facility of up to $45,000 (see Note 9); (b) the creation of an
amended reimbursement agreement with respect to the letters of credit which
support certain industrial development revenue bonds (see Note 10); and (c) the
completion of the first closing under a standby purchase commitment whereby
Mutual Series Fund, Inc. ("Mutual Series") purchased 1,945,946 shares of new
common stock for $9,000 and loaned the Company $41,000 as an advance against the
proceeds of a subscription rights offering for an additional 8,854,143 shares of
new common stock. The subscription rights became exercisable on February 24,
1995 and will expire on March 27, 1995.
The sale of new common stock pursuant to the standby purchase commitment
and the subscription rights offering will increase the number of outstanding
common shares from 7,301,001 as of December 31, 1994 to approximately 18,209,000
on or about March 27, 1995, resulting in a dilution of existing equity
interests. Furthermore, the Reorganization Plan provides for the settlement of
certain claims by the issuance of an additional $200 worth of new common stock,
valued at a price equal to the average of the daily average prices of the
Company's common stock for the 20 trading days beginning April 26, 1995. The
aggregate total number of such shares cannot be determined at this time.
The Reorganization Plan also provided for the reinstatement or payment in
full, with interest, of all allowed claims, including prepetition accounts
payable and notes payable. The total of all claims reinstated or paid, less the
portion representing accrued interest for the period from January 1 to February
9, 1995, has been reflected as "liabilities subject to disposition in bankruptcy
reorganization" in the consolidated balance sheet as of December 31, 1994.
Reinstated liabilities payable after December 31, 1995 have been classified as
long-term.
NOTE 3 - REORGANIZATION PLAN: PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following unaudited pro forma condensed consolidated balance sheet as
of December 31, 1994 sets forth the condensed consolidated financial position of
the Company as if the consummation of the Reorganization Plan occurred on such
date, in accordance with SOP 90-7. Hexcel does not meet the criteria set forth
in SOP 90-7 for "fresh-start reporting" upon emerging from bankruptcy
reorganization proceedings.
54
Hexcel Corporation and Subsidiaries
Pro Forma Condensed Consolidated Balance Sheet
As of December 31, 1994
(Unaudited)
Pre- (a) (b) Post-
Reorganization Asset Sales Reorganization Reorganization
Balances Proceeds Adjustments Balances
----------------------------------------------------------------------------
ASSETS
Cash and equivalents $ 931 $23,651 $(20,500) $ 4,082
Receivables from asset sales 29,340 (27,840) (1,500) --
Accounts receivable 64,136 64,136
Inventories 47,364 47,364
Prepaid expenses and net assets
of discontinued operations 6,581 6,581
----------------------------------------------------------------------------
Total current assets 148,352 (4,189) (22,000) 122,163
Net fixed assets 83,113 81,113
Investments and other assets 11,992 1,650 13,642
----------------------------------------------------------------------------
Total assets $243,457 $(4,189) $(20,350) $218,918
----------------------------------------------------------------------------
----------------------------------------------------------------------------
LIABILITIES & SHAREHOLDERS'
EQUITY (DEFICIT)
Notes payable and current
maturities of long-term liabilities $ 8,531(c) $ 2,663(d) $ 11,194
U.S. revolving debt facility -- 13,478 13,478
Debtor-in-possession financing 4,189 $(4,189) --
Accounts payable and
accrued liabilities 50,397(e) 12,783(e) 63,180
Accrued restructuring liabilities 11,165 11,165
Liabilities subject to disposition
in bankruptcy reorganization 97,025 (97,025) --
----------------------------------------------------------------------------
Total current liabilities 171,307 (4,189) (68,101) 99,017
Long-term notes payable
and capital lease obligations 16,004(c) 34,288(d) 50,292
Deferred liabilities 21,279 6,464(e) 27,743
Liabilities subject to disposition
in bankruptcy reorganization 40,752 (40,752) --
Common stock and additional
paid-in capital 62,699 48,900 111,599
Accumulated deficit and
minimum pension and cumulative
currency translation adjustments (68,584) (1,149) (69,733)
----------------------------------------------------------------------------
Total shareholders'
equity (deficit) (5,885) -- 47,751 41,866
----------------------------------------------------------------------------
Total liabilities and
shareholders' equity (deficit) $243,457 $(4,189) $(20,350) $218,918
----------------------------------------------------------------------------
----------------------------------------------------------------------------
55
NOTES TO PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
The following sets forth the adjustments used in preparing the unaudited
pro forma condensed consolidated balance sheet as if the consummation of the
Reorganization Plan occurred on December 31, 1994. The Company expenses
bankruptcy reorganization costs as incurred. Pro forma amounts do not reflect
bankruptcy reorganization expenses incurred after January 1, 1995 and the
Company anticipates that such expenses will continue after the effective date of
the Reorganization Plan.
(a) Represents proceeds from asset sales that were received after December
31, 1994 but before the effective date of the Reorganization Plan. The receipt
of these proceeds was an integral part of the Reorganization Plan. These
proceeds include $26,546 received in January 1995 from the sale of the Chandler,
Arizona manufacturing facility and certain related assets and technology (see
Note 4). The monies were used to repay the remaining outstanding balance on the
debtor-in-possession credit facility and the rest was held as cash. The
remaining amount includes $936 from the sale of the European resins business
(see Note 4), which was received as repayment of monies previously advanced by
the Company to one of the European resins subsidiaries.
(b) Sources and uses of cash on the effective date of the Reorganization
Plan are as follows:
- ---------------------------------------------------------------------------------------------------------
SOURCES USES
- ---------------------------------------------------------------------------------------------------------
Reinstated debt and other obligations $ 36,951 Reinstated debt and other obligations $ 36,951
U.S. revolving debt facility 13,478 Unsecured claims, including interest 78,554
Equity issued to creditors 200 Claims converted to equity 200
Rights offering and stock purchase, Environmental, legal, and other
net of transaction costs 48,700 contingent claims 19,247
Accrued environmental, legal, Employee and management
and other contingent claims 19,247 incentives 2,825
Escrow proceeds from sale of Liabilities subject to disposition in
European resins business 1,500 bankruptcy reorganization 137,777
Excess domestic cash 20,500 Financing costs of reinstated debt 1,650
Interest and other costs from 1/1/95
to 2/9/95 1,149
- ---------------------------------------------------------------------------------------------------------
Total sources $140,576 Total uses $140,576
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
(c) The $24,535 of long-term debt on the pre-reorganization condensed
consolidated balance sheet, including the current portion of long-term debt,
represents the debt of European subsidiaries and $3,725 of U.S. debt reinstated
prior to the effective date of the Reorganization Plan. The $3,725 of
reinstated U.S. debt includes $4,900 of bond obligations related to the City of
Industry facility less $2,340 of such obligations assumed by the purchaser of
that facility in November 1994 (see Note 4). Such debt was reclassified from
"liabilities subject to disposition in bankruptcy reorganization" prior to
December 31, 1994.
56
(d) The reorganization adjustments to long-term debt (including the
current portion of long-term debt) consist of the following prepetition claims
which are either reinstated debt instruments or new deferred payment
obligations:
- --------------------------------------------------------------------------------
TOTAL CURRENT LONG-TERM
OBLIGATION DEBT PORTION PORTION
- --------------------------------------------------------------------------------
7% convertible subordinated debentures $25,625 -- $25,625
Industrial development revenue
bonds (IDRBs) 10,750 $2,400 8,350
Mortgages 576 263 313
- -------------------------------------------------------------------------------
Total obligations $36,951 $2,663 $34,288
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
The above table does not reflect certain prepetition debt which was
reinstated prior to the effective date of the Reorganization Plan, as discussed
in (c) above.
(e) Pre-reorganization payables and accruals consist of liabilities
incurred by European subsidiaries and U.S. postpetition payables and accruals
incurred during the normal course of business subsequent to December 6, 1993.
Reorganization adjustments of $19,247 ($6,464 of which is in long-term
liabilities) primarily represent the reinstatement of prepetition environmental
and legal reserves, the reserve for the Dainippon Ink & Chemicals, Inc.
contingent claim (see Note 5) and deferred priority tax payments.
NOTE 4 - ASSET SALES
SALE OF CHANDLER, ARIZONA MANUFACTURING FACILITY AND CERTAIN RELATED ASSETS AND
TECHNOLOGY
On November 3, 1994, Hexcel signed a definitive agreement (the "Chandler
Agreement") to sell its Chandler, Arizona manufacturing facility and certain
related assets and technology to Northrop Grumman Corporation ("Northrop"),
subject to the approval of the Bankruptcy Court. The terms and conditions
required to close the Chandler Agreement were substantially satisfied in the
following month, and the Bankruptcy Court approved the sale by order entered on
December 21, 1994. In connection with the disposition of the Chandler facility,
the Company recognized other income of $15,900 which includes the effects of
reversing $10,000 of a previously established restructuring reserve related to
the Chandler facility and $5,900 which represents the excess of the sales price
over the carrying value of the net assets sold. The transaction generated net
cash proceeds of $28,988, of which $2,294 was received in 1994, $26,546 was
received in January 1995 and $148 was received shortly thereafter. The net
proceeds received in the first quarter of 1995 have been reflected in
"receivables from asset sales" in the consolidated balance sheet as of
December 31, 1994.
The Chandler facility was originally constructed by the Company in 1988,
primarily to manufacture materials for the B-2 aircraft program. Under the
terms of the Chandler Agreement, the Company retained a royalty-free,
non-exclusive license to use the technology sold in non-military applications
and will receive royalties from Northrop on certain applications of that
technology. In addition, the Company may receive up to an additional $2,300
pursuant to the Chandler Agreement, when certain conditions are satisfied. The
payment of all or a portion of this amount will result in the recognition of
additional income on the transaction, when such amount is received.
The terms of the Chandler Agreement include the settlement of the Company's
claim for equitable relief in connection with underutilized capacity at the
Chandler facility. Accordingly, $4,428 of the net proceeds were applied to the
long-term receivable which the Company had previously recognized in 1991 and
1992 in connection with that claim.
57
SALE OF EUROPEAN RESINS BUSINESS
On December 29, 1994, the Company sold its European resins business to
Axson S.A., a French corporation, through the sale of all of the Company's
shares in the capital stock of its European resins subsidiaries. The sale and
related settlement transactions generated net cash proceeds of approximately
$8,727, of which $6,125 was received in the fourth quarter of 1994 and $2,602
was received in the first quarter of 1995. The net proceeds received in the
first quarter of 1995 have been reflected in "receivables from asset sales" in
the consolidated balance sheet as of December 31, 1994.
The European resins business was a substantial component of the Company's
worldwide resins business, which is accounted for as a discontinued operation in
the accompanying consolidated financial statements for all periods presented
(see Note 17). The Company recorded a $2,800 provision in the third quarter of
1994 to write down the net assets of the worldwide resins business to expected
realizable value, following a $6,000 charge in the third quarter of 1993 and a
$500 charge in the fourth quarter of 1992. The net proceeds from the sale of
the European resins business approximated the adjusted net book value of the
assets sold. The Company is continuing discussions for the sale of its U.S.
resins business, the net assets of which are reflected as "net assets of
discontinued operations" in the consolidated balance sheet as of December 31,
1994.
SALE OF CITY OF INDUSTRY PROPERTY
On November 1, 1994, Hexcel sold the property it owned in the City of
Industry, California for $2,600, which approximated net book value. Under the
terms of the sales agreement, which was approved by the Bankruptcy Court, the
buyer paid the Company $260 in cash and assumed responsibility for $2,340 of the
outstanding principal of a $4,900 bond obligation related to the property. The
Company's net remaining obligation of $2,560 under the bond is reflected in
"long-term notes payable and capital lease obligations" in the consolidated
balance sheet as of December 31, 1994. The Company is also contingently liable
for that portion of the bond assumed by the buyer, in the event the buyer should
default on assumed payment obligations.
NOTE 5 - DIC-HEXCEL LIMITED
The Company owns an equity interest in DIC-Hexcel Limited, a joint venture
with Dainippon Ink and Chemicals, Inc. ("DIC"). The joint venture was formed in
1990 for the production and sale of Nomex honeycomb, advanced composites and
decorative laminates for the Japanese market. The joint venture owns and
operates a manufacturing facility in Komatsu, Japan which has begun to
manufacture decorative laminates for sale and is now performing pre-
qualification manufacturing trials of honeycomb and advanced composites.
Under the terms of the original joint venture agreement, DIC agreed to
guarantee all bank debt incurred by this joint venture. In turn, the Company
provided an undertaking that in the event the venture went into liquidation the
Company would reimburse DIC for 50% of all guaranteed bank loans, net of any
proceeds from the sale of the venture's assets. As of December 31, 1994, the
guaranteed bank debt of the venture totaled approximately $19,400.
Due to the significant reduction in demand for commercial aircraft and
other adverse changes in the competitive environment, the economic viability of
this joint venture has become questionable. In addition, the cost of pre-
qualification trials and the attendant lack of revenues has resulted in negative
cash flows which are expected to continue for several years. During the third
quarter of 1994, DIC proposed to liquidate the venture. The Company responded
with a proposal to restructure the venture, subject to various conditions, which
DIC agreed to consider. Under either proposal, the Company would retain
responsibility for a portion of the venture's guaranteed bank debt.
Accordingly, the Company recorded an $8,000 provision in the third quarter of
1994 to reflect the estimated cost of restructuring or
58
liquidating DIC-Hexcel Limited. This provision has been included in "other
income (expenses)" in the 1994 consolidated statement of operations.
On February 20, 1995, the Company and DIC signed an amendment to the
original joint venture agreement which restructures DIC-Hexcel Limited and
limits the Company's potential liability for the venture's guaranteed bank debt
to $9,000. Under the terms of the amendment, the Company is required to
contribute $4,500 in cash to the venture, payable in installments of $1,438 in
the first quarter of 1995 and $438 in each of the next seven quarters. In
addition, the Company may be required to pay another $4,500 in cash if there is
a decision to liquidate the joint venture, but such payment is not expected to
be required, if at all, prior to January 1997. Alternatively, if no such
decision is reached and DIC is subsequently required to make payments on account
of guarantees of certain obligations related to the joint venture, the Company
may be required to pay up to 50% of the amount DIC pays on account of its
guarantees, up to a maximum of $4,500. The amendment also reduces the Company's
equity interest in the joint venture from 50% to approximately 42%, and provides
for a corresponding increase in DIC's equity interest.
Management believes that the $8,000 provision recorded in the third quarter
of 1994 remains the best estimate of the Company's probable liability under the
amended joint venture agreement, based on the terms of that agreement and the
projected future operating results of DIC-Hexcel Limited. The terms of the
amended joint venture agreement were approved by the Bankruptcy Court in
connection with the confirmation of Hexcel's Reorganization Plan, and the
associated liability has been included in "liabilities subject to disposition in
bankruptcy reorganization" in the consolidated balance sheet as of December 31,
1994.
NOTE 6 - 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 $23,000 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 was substantially completed in 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 $44,000 in the third quarter of 1993. This
expansion included 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 $2,600 was recorded in connection with the expanded
restructuring program. The 1993 and 1992 restructuring charges included
approximately $34,000 of non-cash write-downs related to facility closures and
the impairment of certain assets due to declining sales and the changed business
environment.
In the fourth quarter of 1994, the Company sold the Chandler, Arizona
manufacturing facility and certain related assets and technology (see Note 4).
Together with the closure of the Graham facility, this will complete the
reduction in honeycomb production capacity contemplated by the expanded
restructuring program. The Company has begun transferring certain assets and
production processes located at the Chandler facility, which were not included
in the sale, to the Company's facility in Casa
59
Grande, Arizona. The estimated costs associated with this transfer, which is
not expected to be complete until the middle of 1995, were included in the
restructuring charge recorded in the third quarter of 1993.
The total of $69,600 in restructuring charges taken in 1992 and 1993 and
the remaining balances of accrued restructuring charges as of December 31, 1994
and 1993 were:
- -------------------------------------------------------------------------------------------------------------
Accrued Accrued
Total Restructuring Restructuring
Restructuring Liabilities at Liabilities at
Expenses 12/31/94 12/31/93
- -------------------------------------------------------------------------------------------------------------
Estimated costs to close and relocate facilities:
Asset write-downs $19,500 $ 2,230 $17,500
Cash costs, net of expected sales proceeds 11,000 2,835 6,500
Estimated employee severance costs (excluding
severance related to the closure of facilities) 15,900 1,100 5,700
Asset write-downs due to changed business conditions 14,700 -- 3,700
Estimated cash costs of various other
restructuring actions 8,500 5,000 5,300
- -------------------------------------------------------------------------------------------------------------
$69,600 $11,165 $38,700
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Accrued restructuring liabilities of $11,165 and $16,010 have been
reflected as "accrued restructuring liabilities" in the consolidated balance
sheets as of December 31, 1994 and 1993, respectively. In addition, accrued
restructuring liabilities of $22,690 have been included in "deferred
liabilities" in the consolidated balance sheet as of December 31, 1993.
The decrease in accrued restructuring liabilities during 1994 is primarily
attributable to the consolidation of honeycomb manufacturing operations in
connection with the closure of the Graham facility and the disposal of the
Chandler facility. In addition, the Company substantially completed personnel
reductions in the U.S. and Europe and began the implementation of a new
management information system to meet the needs of the restructured Company.
The consolidation of honeycomb operations is expected to be completed by the
middle of 1995, while implementation of the information system will continue in
stages throughout the year.
OTHER EXPENSES
The Company recorded a $2,900 provision in the fourth quarter of 1994 for
bankruptcy claim adjustments, which resulted from the reconciliation and
settlement of certain claims as well as changes in the estimate of assumed
liabilities. This provision has been reflected in "other income (expenses)" in
the 1994 consolidated statement of operations, in addition to the $15,900 of
other income related to the Chandler facility (see Note 4), the $8,000 provision
for DIC-Hexcel Limited (see Note 5), and $139 of other expenses.
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 income in 1992 consisted of $2,992 from the final settlement of a
patent infringement lawsuit.
60
NOTE 7 - INVENTORIES
Inventories as of December 31, 1994 and 1993 were:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Raw materials $18,846 $13,187
Work in progress 11,182 10,937
Finished goods 16,270 17,448
Supplies 1,066 941
- -------------------------------------------------------------------------------
Total inventories $47,364 $42,513
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NOTE 8 - INVESTMENTS AND OTHER ASSETS
Investments and other assets as of December 31, 1994 and 1993 were:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Investments in joint ventures $ 6,287 $ 5,950
Long-term notes receivable, net of reserves 1,807 1,665
Intangibles, net of accumulated amortization 3,168 4,587
Other assets 730 8,604
- -------------------------------------------------------------------------------
Total investments and other assets $11,992 $20,806
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Investments in joint ventures consist of a 50% interest in Knytex Company,
L.L.C. ("Knytex"), which is jointly owned and operated with Owens-Corning
Fiberglas Corporation, and a 40% interest in Hexcel-Fyfe, L.L.C. ("Hexcel-
Fyfe"), which is jointly owned and operated with Fyfe Associates Corporation.
The Company's interest in DIC-Hexcel Limited had no recorded asset value as of
December 31, 1994 or 1993 (see Note 5). Investments in joint ventures are
accounted for by the equity method. Equity in the earnings of the Knytex and
Hexcel-Fyfe joint ventures were not material to the Company's consolidated
results of operations in 1994, 1993 or 1992.
Knytex was formed on June 30, 1993 when the Company sold 50% of its
stitchbonded 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.
NOTE 9 - REVOLVING CREDIT FACILITY
The Reorganization Plan which became effective on February 9, 1995 provided
for the replacement of the debtor-in-possession credit facility (the "DIP
Facility") with a new revolving credit facility (the "Revolving Credit
Facility") of up to $45,000. The Revolving Credit Facility is a three-year
facility which is available to fund distributions to creditors under the
Reorganization Plan as well as related transaction costs, and to provide for the
ongoing working capital needs of the Company and other general corporate
purposes. The amount available for borrowing is based on the outstanding
balance of eligible U.S. receivables and inventories, as defined in the credit
agreement, and on specified values of certain machinery and equipment, real
property, and shares in the capital stock of the Company's French subsidiary.
As of February 9, 1995, the amount available for borrowing was approximately
$38,000.
Interest on outstanding borrowings is computed at an annual rate of 1.5% in
excess of the prime rate of the lenders, subject to certain adjustments. At the
Company's option, interest on borrowings in specified increments may be computed
at an annual rate of approximately 2.5% in excess of the
61
applicable LIBOR rate of the lenders. In addition, the Revolving Credit
Facility is subject to a commitment fee of 0.5% per annum on the unused portion
of the facility, a letter of credit fee of 2.5% per annum on the outstanding
face amount of any letters of credit, and an annual administrative fee of $150.
The Company also paid a one-time arrangement and syndication fee of $900, as
well as certain other costs and expenses related to the implementation of the
Revolving Credit Facility.
The Revolving Credit Facility is secured by substantially all of the U.S.
assets of Hexcel, as well as the majority of the shares of the capital stock of
the Company's European subsidiaries. In addition, the Revolving Credit Facility
is subject to a number of financial covenants and other restrictions. Hexcel
must maintain minimum levels of net worth, fixed charge coverage, interest
coverage, and cash flows, all as defined in the credit agreement. In addition,
Hexcel is subject to capital spending limitations, as well as limitations in
incurring debt and lease obligations. Certain business activities, investments,
and guarantees are also restricted, and the payment of dividends is prohibited.
In order to comply with certain financial ratio covenants of the Revolving
Credit Facility the Company is required to achieve certain higher levels of
financial performance. Management believes that such compliance will be
achieved. The terms of the Revolving Credit Facility also provide that a
"change in control" will constitute an event of default, entitling the lenders
to terminate the facility, accelerate the indebtedness thereunder and enforce
their remedies as secured lenders with respect to the collateral. The credit
agreement defines a "change in control" to mean (i) a person or entity or group
of persons or entities (other than Mutual Series) acting in concert shall, as a
result of a tender or exchange offer, open market purchases, privately
negotiated purchases or otherwise, have become the beneficial owner (within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
securities of the Company representing more than the greater of (a) 20% of the
Company's voting stock and (b) the percentage of the Company's voting stock
beneficially owned by Mutual Series after giving effect to such purchases; or
(ii) the Company shall cease to own and control 100% of the outstanding capital
stock of each domestic subsidiary of the Company which guaranteed the Company's
obligations with respect to the Revolving Credit Facility.
Depending on the results of the subscription rights offering, or based upon
an accumulation of common stock through negotiated transactions among
stockholders, open market purchases, a tender offer or some combination of the
foregoing, it is possible that a stockholder could acquire more than 20% of the
outstanding common stock and more shares of common stock than are beneficially
owned by Mutual Series. If that were to occur, there is no assurance that the
lenders under the Revolving Credit Facility would approve such a change in
control or, if they did not, that the Company would be able to obtain a
substitute credit facility before the Revolving Credit Facility became due.
The Revolving Credit Facility replaces the DIP Facility, which was approved
for use by the Bankruptcy Court on January 28, 1994 and remained available for
borrowing until February 9, 1995. Outstanding borrowings under the DIP Facility
totaled $4,189 as of December 31, 1994.
NOTE 10 - NOTES PAYABLE
All of the prepetition notes payable of Hexcel which were not previously
reinstated by order of the Bankruptcy Court, were either reinstated or paid in
full on February 9, 1995, pursuant to the Reorganization Plan. The notes
payable of the Company's European subsidiaries were not subject to bankruptcy
reorganization proceedings and were unaffected by the Reorganization Plan.
62
Notes payable and capital lease obligations as of December 31, 1994 and
1993 were:
- ----------------------------------------------------------------------------------------------------
1994
UNAUDITED
PRO FORMA
(SEE NOTE 3) 1994 1993
- ----------------------------------------------------------------------------------------------------
Hexcel Corporation:
Revolving Credit Facility (see Note 9) $13,478 -- --
DIP Facility -- $ 4,189 --
Prepetition revolving credit agreement -- 12,000 $ 12,000
10.12% senior notes originally due 1998 -- 30,000 30,000
7% convertible subordinated debentures due 2011 25,625 25,625 25,625
Obligations under IDRB variable rate demand notes
due through 2024, net 13,310 13,310 15,650
Various notes payable due through 2007 1,019 2,883 3,171
Capital lease obligations (see Note 11) 1,413 1,413 929
- ----------------------------------------------------------------------------------------------------
54,845 89,420 87,375
- ----------------------------------------------------------------------------------------------------
European subsidiaries:
Various short-term notes payable 7,656 7,656 21,454
Various notes payable due through 1997 10,642 10,642 6,296
Capital lease obligations (see Note 11) 1,821 1,821 2,011
- ----------------------------------------------------------------------------------------------------
20,119 20,119 29,761
- ----------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations 74,964 109,539 117,136
Less amount subject to disposition in bankruptcy
reorganization -- (80,815) (87,375)
- ----------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $74,964 $ 28,724 $ 29,761
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Notes payable and current maturities of long-term
liabilities, net $24,672 $ 12,720 $ 24,596
Long-term notes payable and capital lease
obligations, net 50,292 16,004 5,165
- ----------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations, net $74,964 $ 28,724 $ 29,761
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
The 7% convertible subordinated debentures were subject to disposition in
bankruptcy reorganization, and were reinstated on February 9, 1995, pursuant to
the Reorganization Plan. These debentures are redeemable by the Company under
certain provisions, although such redemption is prohibited for the duration of
the Revolving Credit Facility. Mandatory redemption is scheduled to begin in
2002 through annual sinking fund requirements. The debentures are convertible
prior to maturity into common stock of the Company at $30.72 per share, subject
to adjustment under certain conditions. During 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 revenue bonds ("IDRBs")
outstanding, guaranteed by bank letters of credit for fees of 0.50% to 0.75%.
These IDRBs were subject to disposition in bankruptcy reorganization, and were
reinstated on February 9, 1995, pursuant to the Reorganization Plan. The
letters of credit which guarantee the IDRBs were also reinstated, in accordance
with the terms of an amended reimbursement agreement (the "Reimbursement
Agreement") with the issuing bank, and extended until December 31, 1998. The
Reimbursement Agreement provides that, commencing April 1, 1995 and every three
months thereafter for the duration of the agreement, the Company will either
redeem $600 of the guaranteed IDRBs, obtain a $600 backup letter of credit in
favor of the issuing bank, or deposit $600 into a sinking fund in which the
issuing bank and/or the trustees for the IDRBs will hold
63
a first priority security interest. The Reimbursement Agreement is subject to
a number of financial covenants and other restrictions which are similar,
although less restrictive, to those of the Revolving Credit Facility. The
interest rates on the IDRBs are variable and averaged 3.9% in 1994, 2.5% in 1993
and 2.9% in 1992.
Credit facilities available to the Company's European subsidiaries totaled
$28,358 as of December 31, 1994, and outstanding borrowings under these
facilities totaled $18,298 at that time. These credit facilities are available
to finance the activities of the European subsidiaries, but are generally not
available to finance the Company's U.S. operations. Approximately $25,552 of
such credit facilities expire on or before June 30, 1996.
The interest rates on the various notes payable of the Company's European
subsidiaries ranged from 3.6% to 13.0% in 1994, 3.4% to 12.5% in 1993 and 4.2%
to 14.1% in 1992.
Excluding obligations paid in full on February 9, 1995, pursuant to the
Reorganization Plan, installments due on long-term notes payable for the years
1995 through 1999 are $2,477, $9,978, $327, $53 and $24, respectively, and
$34,609 thereafter.
Interest payments were $3,909 in 1994, $8,802 in 1993 and $11,347 in 1992.
Hexcel was legally prohibited from paying interest on most prepetition debt
obligations in 1994.
Management believes that the aggregate fair value of the Company's long-
term debt, excluding the 7% convertible subordinated debentures, approximates
the aggregate book value, as substantially all such debt is comprised of
variable-rate obligations. However, there can be no assurance that the
aggregate fair value of the Company's long-term debt will not materially vary
from the aggregate book value. The fair value of the 7% convertible
subordinated debentures is estimated on the basis of quoted market prices,
although trading in the debentures is limited and may not reflect fair value.
The estimated fair value of all of the outstanding debentures was $15,888 and
$13,581 as of December 31, 1994 and 1993, respectively.
NOTE 11 - LEASING ARRANGEMENTS
Assets, accumulated depreciation and related liability balances under
capital leasing arrangements as of December 31, 1994 and 1993 were:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Property, plant and equipment $ 6,734 $ 6,640
Less accumulated depreciation (2,246) (2,710)
- -------------------------------------------------------------------------------
Net property, plant and equipment $ 4,488 $ 3,930
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Capital lease obligations $ 3,234 $ 2,940
Less current maturities (410) (516)
- -------------------------------------------------------------------------------
Long-term capital lease obligations 2,824 2,424
Less amount subject to disposition in -- (781)
bankruptcy reorganization
- -------------------------------------------------------------------------------
Long-term capital lease obligations, net $ 2,824 $ 1,643
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Certain sales and administrative offices, data processing equipment and
manufacturing facilities are leased under operating leases.
64
Rental expenses under operating leases were $3,675 in 1994, $3,530 in 1993
and $4,761 in 1992.
Future minimum lease payments as of December 31, 1994, including leases
subject to disposition in bankruptcy reorganization which were assumed by Hexcel
pursuant to the Reorganization Plan, were:
- -------------------------------------------------------------------------------
Type of Lease
----------------------
Payable during years ending December 31: Capital Operating
- -------------------------------------------------------------------------------
1995 $ 666 $2,496
1996 535 2,016
1997 535 1,211
1998 535 543
1999 535 217
2000 and thereafter 3,021 834
- -------------------------------------------------------------------------------
Total minimum lease payments $5,827 $7,317
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Total minimum capital lease payments include $2,593 of imputed interest.
NOTE 12 - LIABILITIES SUBJECT TO DISPOSITION IN BANKRUPTCY REORGANIZATION
Liabilities subject to disposition in bankruptcy reorganization as of
December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------------
Accounts payable $ 23,271 $ 21,676
Accrued liabilities, including interest 33,691 10,881
Notes payable and capital lease obligations
(see Note 10) 80,815 87,375
- ------------------------------------------------------------------------------
Total liabilities subject to disposition in
bankruptcy reorganization $137,777 $119,932
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Current liabilities subject to disposition in
bankruptcy reorganization $ 97,025 --
Long-term liabilities subject to disposition
in bankruptcy reorganization 40,752 $119,932
- ------------------------------------------------------------------------------
Total liabilities subject to disposition in
bankruptcy reorganization $137,777 $119,932
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
The Reorganization Plan provided for the reinstatement or payment in full,
with interest, of all allowed claims, including prepetition accounts payable and
notes payable. The total of all claims reinstated or paid, less the portion
representing accrued interest for the period from January 1 to February 9, 1995,
has been reflected as "liabilities subject to disposition in bankruptcy
reorganization" in the consolidated balance sheet as of December 31, 1994.
The increase in the accrued liabilities component of liabilities subject to
disposition in bankruptcy reorganization during 1994 is primarily attributable
to the accrual of interest on prepetition obligations, an $8,000 provision to
reflect the estimated cost of restructuring or liquidating DIC-Hexcel Limited
(see Note 5), and adjustments to allowed claims. The decline in the notes
payable and capital lease obligations component is attributable to the
reinstatement of various prepetition notes payable and capital leases pursuant
to orders entered by the Bankruptcy Court.
65
NOTE 13 - SHAREHOLDERS' EQUITY AND INCENTIVE STOCK PLANS
SHAREHOLDERS' EQUITY
Hexcel's Certificate of Incorporation and Bylaws were amended and restated
on February 9, 1995, pursuant to the Reorganization Plan. The authorized
capital stock of Hexcel was increased to 40,000,000 shares of common stock and
1,500,000 shares of preferred stock. The number of outstanding common shares,
which was 7,301,001 as of December 31, 1994, will increase substantially as a
result of the Reorganization Plan (see Note 2). There were no outstanding
preferred shares as of December 31, 1994, and no such shares are to be issued in
connection with the Reorganization Plan.
The Company declared and paid cash dividends of $0.44 per common share in
1992. The Board of Directors suspended dividend payments beginning in 1993, and
such payments are prohibited by the Revolving Credit Facility.
INCENTIVE STOCK PLANS
Prior to February 9, 1995, the Company maintained three separate stock
incentive plans: a stock option plan, a discounted stock option plan and a
restricted stock plan. The Reorganization Plan provided for the termination of
all three of these plans, with the holders of all issued and vested options
retaining their options and the restrictions with respect to the outstanding
restricted stock remaining in place. These plans were replaced by a new long-
term incentive plan whereby the Company may grant to eligible individuals stock
options (with or without stock appreciation rights), dividend equivalent rights,
stock awards, restricted share awards, or other awards.
Stock option data for the two years ended December 31, 1994 were:
- -----------------------------------------------------------------------------------------
NUMBER OPTION PRICE EXPIRATION
OF SHARES PER SHARE DATES
- -----------------------------------------------------------------------------------------
Options outstanding at January 1, 1993 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 granted -- -- --
Options exercised -- -- --
Options expired or canceled (65,653) 10.44 - 32.06 1998 - 2003
- -----------------------------------------------------------------------------------------
Options outstanding at December 31, 1994 467,822 $ 7.56 - 32.06 1998 - 2003
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Options exercisable at December 31, 1994 467,822 $ 7.56 - 32.06 1998 - 2003
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Options issued under the terminated stock option plans vested one year from
the date of grant and expire 10 years after such grant date.
Restricted shares issued under the terminated restricted stock plan vest in
three to seven years from date of grant. Holders of the restricted stock are
entitled to vote and receive all dividends. As of December 31, 1994 and 1993,
the Company had outstanding a total of 23,662 and 44,939 shares of restricted
stock, respectively.
NOTE 14 - RETIREMENT PLANS
The Company has various retirement and profit sharing plans covering
substantially all employees. The net cost of these plans was $2,443 in 1994,
$2,330 in 1993 and $2,880 in 1992.
66
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, and 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 401(k) plan were $1,039 for 1994, $1,130 for 1993 and
$1,593 for 1992. There were no contributions to the salaried profit sharing
plan for 1994, 1993 or 1992.
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, 1994, 1993 and 1992 consisted of:
- -------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 753 $ 749 $ 832
Interest cost on projected benefit obligation 706 713 803
Return on assets - actual 33 (1,385) (157)
Net amortization and deferral (88) 1,123 (191)
- -------------------------------------------------------------------------------------------
Net cost $1,404 $1,200 $1,287
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Assumptions used in the accounting were:
- -------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------
Discount rates 8.00% 7.00% 8.25%
Rates of increase in compensation 4.00% 4.00% 4.50%
Expected long-term return on assets 9.50% 9.50% 9.50%
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
67
The funded status and amounts recognized for the defined benefit pension
and retirement plans as of December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------
1994 1993
- ------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 6,688 $ 8,480
Non-vested benefits 1,022 1,530
- ------------------------------------------------------------------------------
Accumulated benefit obligations $ 7,710 $10,010
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
Projected benefit obligation for service rendered
to date $ 8,658 $11,056
Less plan assets at fair value, primarily listed stocks (3,128) (5,358)
- ------------------------------------------------------------------------------
Projected benefit obligations in excess of plan assets 5,530 5,698
Unrecognized net loss (814) (1,693)
Unrecognized prior service costs (285) (339)
Unrecognized net transition obligation being recognized
over 15 years (298) (352)
Adjustment required to recognize minimum
pension obligation 449 1,337
- ------------------------------------------------------------------------------
Defined benefit liability $ 4,582 $ 4,651
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
NOTE 15 - 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 1994, 1993 and 1992, made benefit payments of $423,
$576 and $352, respectively.
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.
The defined postretirement benefit obligations included in deferred
liabilities as of December 31, 1994 and 1993 were:
- -------------------------------------------------------------------------------
1994 1993
- -------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 7,661 $ 7,946
Fully eligible active plan participants 985 1,573
Other active plan participants 3,211 6,471
- -------------------------------------------------------------------------------
11,857 15,990
Unrecognized net gain (loss) 2,402 (2,046)
- -------------------------------------------------------------------------------
Defined postretirement benefit liability $14,259 $13,944
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
68
Net defined postretirement benefit costs for the years ended December 31,
1994, 1993 and 1992 were:
- ------------------------------------------------------------------------------------------
1994 1993 1992
- ------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 389 $ 400 $ 367
Interest cost on accumulated postretirement
benefit obligation 915 1,100 982
- ------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $1,304 $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 1995 was 12.0% for participants less than 65 years of age and 8.0% 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 1995 was
9.0% for participants less than 65 years of age and 6.0% 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 8% in 1994 and 7% in 1993.
If the health care cost trend rate assumptions were increased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1994 would be
increased by 4.7%. The effect of this change on the sum of the service cost and
interest cost would be an increase of 3.8%.
NOTE 16 - INCOME TAXES
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1994, the Company had net operating loss ("NOL")
carryforwards for federal income tax purposes of approximately $26,000 and net
operating loss carryforwards for international income tax purposes of
approximately $6,000. The federal NOL carryforwards, which are available to
offset future taxable income, expire at various dates through the year 2009.
However, because of the ownership change which is expected to occur as a result
of the Reorganization Plan (see Note 2), the utilization of NOL carryforwards in
the U.S. after February 9, 1995 will be affected. It is expected that the
Company will make use of Section 382(l)(6) of the Internal Revenue Code, whereby
the annual allowable NOL deduction will be limited to an amount equal to the
product of the fair market value of the Hexcel stock immediately following the
ownership change caused by the Reorganization Plan and the long-term federal
tax-exempt rate (6.83% as of February 9, 1995). This deduction limitation is
estimated to be approximately $5,000 per year. The Company will not qualify for
other rules permitting unlimited use of NOLs due to the makeup of the post-
reorganization equity ownership.
PROVISION FOR 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
69
reorganization proceedings of Hexcel and ongoing operating losses have
jeopardized the realization of deferred income tax assets.
In 1994, the Company continued to reserve for the income tax assets
generated by Hexcel's pre-tax losses. As a result of settlements of various tax
audits, state income taxes and taxable income for certain European subsidiaries,
the Company recorded a provision for income taxes of $3,586 in 1994.
Loss before income taxes and the tax benefit (provision) for income taxes
from continuing operations for the years ended December 31, 1994, 1993 and 1992
were:
- -------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------
Income (loss) before income taxes:
United States $(24,745) $(58,554) $(12,395)
International 251 (15,294) (9,963)
- -------------------------------------------------------------------------------------------
Total loss before income taxes $(24,494) $(73,848) $(22,358)
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
Benefit (provision) for income taxes:
Current:
U.S. $ (85) $ (243) $ (64)
International 108 (976) 368
- -------------------------------------------------------------------------------------------
Total current 23 (1,219) 304
- -------------------------------------------------------------------------------------------
Deferred:
U.S. (2,226) (6,590) 5,233
International (1,383) 1,785 838
- -------------------------------------------------------------------------------------------
Total deferred (3,609) (4,805) 6,071
- -------------------------------------------------------------------------------------------
Total benefit (provision) for income taxes $ (3,586) $ (6,024) $ 6,375
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
A reconciliation of the tax benefit (provision) to the U.S. federal
statutory income tax rate of 34% for the years ended December 31, 1994, 1993 and
1992 was:
- -------------------------------------------------------------------------------------------
1994 1993 1992
- -------------------------------------------------------------------------------------------
Benefit at U.S. federal statutory rate $ 8,328 $ 25,108 $ 7,602
U.S. state taxes, less federal tax benefit (244) (104) (130)
Impact on tax rates of international tax structure -- -- 1,154
Impact of different international tax rates,
adjustments to income tax accruals and other 2,352 5,471 2,895
Limitation on recognition of tax benefits
for operating losses -- -- (5,146)
Valuation allowance (14,022) (36,499) --
- -------------------------------------------------------------------------------------------
Total benefit (provision) for income taxes $ (3,586) $ (6,024) $ 6,375
- -------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------
The Company paid income taxes of $253 in 1994, $203 in 1993 and $468 in
1992. The Company has made no U.S. income tax provision for $21,500 of
undistributed earnings of international subsidiaries as of December 31, 1994.
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.
70
DEFERRED INCOME TAXES
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, 1994 and 1993 were:
- ----------------------------------------------------------------------------
1994 1993
- ----------------------------------------------------------------------------
Accelerated depreciation and amortization $(15,443) $(15,115)
Accrued restructuring charges 14,382 18,040
Net operating loss carryforwards 10,880 9,520
Reserves and other, net 43,234 26,400
Valuation allowance (55,335) (41,313)
- ----------------------------------------------------------------------------
Total deferred tax assets (liabilities) $ (2,282) $ (2,468)
- ----------------------------------------------------------------------------
- ----------------------------------------------------------------------------
NOTE 17 - DISCONTINUED OPERATIONS
The Company intensified its efforts to sell its resins business, comprised
of operations in Europe and the U.S., during 1994. As a result of those
efforts, the Company completed the sale of its European resins business on
December 29, 1994 (see Note 4), and now believes that the sale of its U.S.
resins business on acceptable terms can be arranged. Accordingly, the resins
business is accounted for as a discontinued operation in the accompanying
consolidated financial statements for all periods presented.
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 Company recorded a $2,800 provision in 1993 to write
down the net assets of the fine chemicals business, and a $2,300 provision in
1992 for estimated future losses.
Net sales of discontinued operations for the years ended December 31, 1994,
1993 and 1992 were:
- ---------------------------------------------------------------------------
1994 1993 1992
- ---------------------------------------------------------------------------
Discontinued resins business $30,691 $27,933 $33,302
Discontinued fine chemicals business -- 5,704 14,608
- ---------------------------------------------------------------------------
Total discontinued operations $30,691 $33,637 $47,910
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
Net assets of the discontinued resins business as of December 31, 1994 and
1993 were:
- ---------------------------------------------------------------------------
1994 1993
- ---------------------------------------------------------------------------
Current assets $ 3,970 $13,438
Current liabilities (4,591) (8,438)
Non-current assets 3,621 7,511
Long-term liabilities -- (424)
- ---------------------------------------------------------------------------
Net assets $ 3,000 $12,087
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
The discontinued fine chemicals business had no remaining net asset value
as of December 31, 1993.
71
NOTE 18 - CONTINGENCIES
The Company is involved in litigation arising from business activities. In
addition, the Company is subject to certain U.S. Government inquiries related to
sales under defense contracts, including reviews of business practices and cost
classifications. The Company is cooperating with the U.S. 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. These three
lawsuits were consolidated into one action. Although management believes there
were meritorious defenses to the claims, Hexcel negotiated a settlement with the
plaintiffs to avoid costly and unproductive litigation. This settlement became
effective on February 9, 1995, pursuant to the Reorganization Plan, and provides
for the issuance of $200 worth of new common stock, valued at a price equal to
the average of the average daily prices of the Company's common stock for the 20
trading days beginning April 26, 1995. The aggregate total number of such
shares cannot be determined at this time.
Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act,
Hexcel signed an administrative consent order to pay for clean-up of a
manufacturing facility it formerly operated in Lodi, New Jersey. Hexcel has
reserved $4,000 to cover such remaining costs and believes that actual costs
should not exceed the amount which has been reserved. Fine Organics
Corporation, the current owner of the Lodi site and Hexcel's former chemicals
business operated on that site, has asserted that the clean-up costs will be
significantly in excess of that amount. The ultimate cost of remediation at the
Lodi site will depend on developing circumstances.
Fine Organics Corporation filed a proof of claim and an adversary
proceeding in the Bankruptcy Court. The court has disallowed a significant
portion of the claim by denying Fine Organics claim for treble damages and
certain contingent claims. The remaining claims are for prior clean-up costs
incurred by Fine Organics and alleged contractual and tort damages relating to
the original sale of the business and site to Fine Organics totaling
approximately $3,200. This matter is proceeding in the Bankruptcy Court.
Various other lawsuits against the Company were also settled in connection
with the Reorganization Plan. The outcome of these settlements was not material
to the Company's consolidated financial position as of December 31, 1994.
The Company is generally self-insured against claims associated with sudden
and accidental environmental damage and environmental impairment damage.
Certain current and former facilities are the subject of environmental
investigations or claims, as well as remediation activities. In addition, the
Company has been named as a potentially responsible party ("PRP") with respect
to several disposal sites that it does not own or possess and which are included
on the Environmental Protection Agency's Superfund National Priority List
("NPL"). A total of 249 claims were filed in Hexcel's Chapter 11 case with a
face value of over $6.7 billion. These claims were, for the most part,
duplicative as a result of the joint and several liability provisions of the
applicable laws, and have been categorized into claims involving 12 sites.
Claims involving 7 of the sites have been settled within the Chapter 11 case and
the Company expects to settle claims with respect to one additional site. With
respect to the claims relating to the remainder of these sites, the Company
believes its responsibility to be de minimis and is negotiating to settle these
claims; should no settlement be reached, the claims against Hexcel will be
allowed to continue without the protection of the Chapter 11 case. The Company
has been named a PRP with respect to 8 additional sites, for which no claims
were filed in the Chapter 11 case; as a result, the Company believes any further
claims with respect to these sites to be barred.
72
The Company estimates its legal and environmental liabilities based on a
variety of factors, including outstanding legal claims and proposed settlements,
assessments by internal and external counsel of pending or threatened
litigation, and assessments by environmental engineers and consultants of
potential PRP liability and environmental remediation costs. Such estimates
incorporate insignificant amounts for probable recoveries under applicable
insurance policies but exclude counterclaims against other third parties. Such
estimates are not discounted to reflect the time value of money due to the
uncertainty in estimating the timing of the expenditures, which may extend over
several years. Although it is impossible to determine the level of future
expenditures for legal and environmental matters with any degree of certainty,
it is management's opinion, based on available information, that it is unlikely
that any of these matters will have a material adverse effect on the
consolidated results of operations or financial position of the Company.
NOTE 19 - SIGNIFICANT CUSTOMERS
The Boeing Company and Boeing subcontractors accounted for approximately
22% of 1994 sales, 21% of 1993 sales and 17% of 1992 sales.
73
NOTE 20 - 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, 1994, 1993, and 1992 and for
the years then ended:
- ---------------------------------------------------------------------------------
1994 1993 1992
- ---------------------------------------------------------------------------------
Net sales:
United States $171,536 $185,261 $204,066
International 142,259 125,374 148,921
- ---------------------------------------------------------------------------------
Consolidated $313,795 $310,635 $352,987
- ---------------------------------------------------------------------------------
Loss before income taxes:
United States $(21,462) $(55,660) $ (8,958)
International (3,032) (18,188) (13,400)
- ---------------------------------------------------------------------------------
Consolidated $(24,494) $(73,848) $(22,358)
- ---------------------------------------------------------------------------------
Identifiable assets:
United States $149,890 $166,201 $190,741
International 90,567 84,954 101,516
- ---------------------------------------------------------------------------------
Consolidated $240,457 $251,155 $292,257
- ---------------------------------------------------------------------------------
Capital expenditures:
United States $ 6,022 $ 4,694 $ 10,651
International 2,340 1,570 5,569
- ---------------------------------------------------------------------------------
Consolidated $ 8,362 $ 6,264 $ 16,220
- ---------------------------------------------------------------------------------
Depreciation and amortization:
United States $ 8,455 $ 9,607 $ 10,236
International 5,775 5,273 4,500
- ---------------------------------------------------------------------------------
Consolidated $ 14,230 $ 14,880 $ 14,736
- ---------------------------------------------------------------------------------
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 $3,283 in 1994, $2,894 in 1993 and
$3,437 in 1992.
74
NOTE 21 - QUARTERLY DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1994 and 1993 were:
- ------------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ------------------------------------------------------------------------------------------------
1994
Net sales $77,682 $84,964 $ 74,434 $ 76,715
Gross margin 11,683 14,165 11,601 10,979
Loss from continuing operations (5,325) (4,894) (15,319) (2,542)
Income (loss) from discontinued
operations 301 472 (2,620) (43)
Net loss (5,024) (4,422) (17,939) (2,585)
- ------------------------------------------------------------------------------------------------
Net income (loss) per share and
equivalent share:
Primary and fully diluted:
Continuing operations $ (0.73) $ (0.67) $ (2.09) $ (0.34)
Discontinued operations 0.04 0.06 (0.36) (0.01)
Net loss (0.69) (0.61) (2.45) (0.35)
- ------------------------------------------------------------------------------------------------
Dividends per share -- -- -- --
Market price:
High $ 4.25 $ 4.00 $ 6.00 $ 5.75
Low 2.75 3.00 3.00 4.00
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
1993
Net sales $81,587 $85,650 $ 69,763 $ 73,635
Gross margin 11,562 14,603 10,523 10,857
Loss from continuing operations (3,031) (2,148) (45,479) (29,214)
Loss from discontinued operations (273) (341) (9,792) (217)
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 $ (0.41) $ (0.29) $ (6.19) $ (4.00)
Discontinued operations (0.04) (0.05) (1.33) (0.03)
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
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
During the third quarter of 1994, the Company recorded an $8,000 provision
to reflect the estimated cost of restructuring or liquidating DIC-Hexcel Limited
(see Note 5), and a $2,800 provision to write down the net assets of the
discontinued resins business to expected net realizable value (see Note 4).
During the fourth quarter of 1994, the Company recognized other income of
$15,900 relating to the sale of the Chandler facility and related assets and
technology (see Note 4). In addition, the Company
75
recorded a total of approximately $10,800 in expenses for bankruptcy claim
adjustments, additional interest on allowed claims, and the settlement of
various tax audits.
The Company adopted SFAS 109, "Accounting for Income Taxes," effective
January 1, 1993 (see Note 16). The cumulative effect of adopting SFAS 109 was
the recognition of income of $4,500 in the first quarter of 1993.
During the third quarter of 1993, the Company recorded a $44,000
restructuring charge for the additional costs of the expanded restructuring
program (see Note 6), a $6,000 charge for the discontinued resins business (see
Note 4) and a $2,800 provision to write down the net assets of the fine
chemicals business (see Note 17).
During the fourth quarter of 1993, the Company recorded an additional
restructuring charge of $2,600 and other expenses of $12,638 (see Note 6).
Quarterly data for 1994 and 1993 reflect certain reclassifications made in
1994.
76
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 1994, 1993 and 1992 were:
PRIMARY NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------
Loss from continuing operations $ (28,080) $ (79,872) $ (15,983)
Loss from discontinued operations (1,890) (10,623) (6,195)
Extraordinary gain - - 956
Cumulative effects of accounting changes - 4,500 (8,052)
- ----------------------------------------------------------------------------------------------------------------------
Net loss $ (29,970) $ (85,995) $ (29,274)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,310 7,330 7,254
Weighted average common equivalent shares from stock options - - 18
- ----------------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 7,310 7,330 7,272
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Primary net income (loss) per share and equivalent share from:
Continuing operations $ (3.84) $ (10.89) $ (2.20)
Discontinued operations (0.26) (1.45) (0.85)
Extraordinary gain - - 0.13
Cumulative effects of accounting changes - 0.61 (1.11)
- ----------------------------------------------------------------------------------------------------------------------
Primary net loss per share and equivalent share (1) $ (4.10) $ (11.73) $ (4.03)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME (LOSS) PER SHARE AND EQUIVALENT SHARE
- ----------------------------------------------------------------------------------------------------------------------
Loss from continuing operations $ (28,080) $ (79,872) $ (15,983)
Loss from discontinued operations (1,890) (10,623) (6,195)
Extraordinary gain - - 956
Cumulative effects of accounting changes - 4,500 (8,052)
- ----------------------------------------------------------------------------------------------------------------------
Net loss (29,970) (85,995) (29,274)
Debenture interest and issuance costs 1,204 1,213 1,330
- ----------------------------------------------------------------------------------------------------------------------
Adjusted net loss $ (28,766) $ (84,782) $ (27,944)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 7,310 7,330 7,254
Weighted average common equivalent shares
Stock options - - 18
7% convertible debentures 804 804 881
- ----------------------------------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 8,114 8,134 8,153
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
Fully diluted net income (loss) per share and equivalent share from:
Continuing operations $ (3.84) $ (10.89) $ (2.20)
Discontinued operations (0.26) (1.45) (0.85)
Extraordinary gain 0.13
Cumulative effects of accounting changes - 0.61 (1.11)
- ----------------------------------------------------------------------------------------------------------------------
Fully diluted net loss per share and equivalent share $ (4.10) $ (11.73) $ (4.03)
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
(1) For 1994, 1993 and 1992 the primary and fully diluted net loss per share
were the same because the fully diluted computation was antidilutive.
77