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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 dec