<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 30, 1997
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.)
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number, including area code: (203) 969-0666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
------- -------
Indicate by check mark 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 US Bankruptcy Court.
Yes X No
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Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 2, 1997
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COMMON STOCK 36,618,734
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<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
- Condensed Consolidated Balance Sheets --
March 30, 1997 and December 31, 1996 2
- Condensed Consolidated Statements of
Operations -- The Quarters Ended
March 30, 1997 and March 31, 1996 3
- Condensed Consolidated Statements of
Cash Flows -- The Quarters Ended
March 30, 1997 and March 31, 1996 4
- Notes to Condensed Consolidated
Financial Statements 5
- Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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UNAUDITED
---------------------------
MARCH 30, December 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
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ASSETS
Current assets:
Cash and equivalents $ 431 $ 7,975
Accounts receivable 166,393 151,263
Inventories 155,138 145,884
Prepaid expenses 6,153 11,809
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Total current assets 328,115 316,931
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Property, plant and equipment 466,191 468,173
Less accumulated depreciation (146,969) (141,390)
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Net property, plant and equipment 319,222 326,783
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Intangibles and other assets 57,527 58,022
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Total assets $ 704,864 $ 701,736
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities
of long-term liabilities $ 18,713 $ 23,835
Accounts payable 74,071 73,117
Accrued liabilities 80,158 91,860
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Total current liabilities 172,942 188,812
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Long-term notes payable and capital lease obligations 271,609 254,919
Indebtedness to related parties 35,092 32,262
Deferred liabilities 41,350 46,414
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Stockholders' equity
Common stock, $0.01 par value, 100,000 shares
authorized, shares issued and outstanding of
36,616 in 1997 and 36,561 in 1996 366 366
Additional paid-in capital 261,237 259,592
Accumulated deficit (80,945) (89,171)
Cumulative currency translation adjustment 3,213 8,542
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Total stockholders' equity 183,871 179,329
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Total liabilities and stockholders' equity $ 704,864 $ 701,736
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THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
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UNAUDITED
------------------------
MARCH 30, March 31,
THE QUARTERS ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
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<S> <C> <C>
Net sales $ 214,009 $ 126,418
Cost of sales (167,120) (99,635)
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Gross margin 46,889 26,783
Selling, general and administrative expenses (27,606) (17,482)
Business acquisition and consolidation expenses (2,899) (5,211)
Other income, net - 2,697
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Operating income 16,384 6,787
Interest expense (5,688) (3,633)
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Income before income taxes 10,696 3,154
Provision for income taxes (2,470) (1,306)
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Net income $ 8,226 $ 1,848
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Primary and fully diluted
net income per share and equivalent share $ 0.22 $ 0.07
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Weighted average shares and equivalent shares 37,789 24,685
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
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UNAUDITED
------------------------
MARCH 30, March 31,
THE QUARTERS ENDED (IN THOUSANDS) 1997 1996
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<S> <C> <C>
Net income $ 8,226 $ 1,848
Reconciliation to net cash provided (used) by continuing operations:
Depreciation and amortization 8,433 4,454
Working capital changes and other (42,957) (6,213)
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Net cash provided (used) by operating activities (26,298) 89
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Cash flows from investing activities:
Capital expenditures (6,877) (2,285)
Proceeds from sale of investment in Knytex joint venture 5,000 -
Cash paid for the Acquired Ciba Business - (25,000)
Proceeds from sale of Chandler, Arizona manufacturing facility and
certain related assets and technology - 1,560
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Net cash used by investing activities (1,877) (25,725)
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Cash flows from financing activities:
Proceeds from issuance of long-term debt 39,530 26,544
Payments of long-term debt (16,615) (1,092)
Proceeds (payments) of short-term debt, net (3,850) 237
Proceeds from issuance of common stock 1,132 765
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Net cash provided by financing activities 20,197 26,454
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Effect of exchange rate changes on cash and equivalents 434 28
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Net increase (decrease) in cash and equivalents (7,544) 846
Cash and equivalents at beginning of year 7,975 3,829
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Cash and equivalents at end of period $431 $ 4,675
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</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NOTE 1 -- BASIS OF ACCOUNTING
The accompanying condensed consolidated financial statements have been
prepared from the unaudited records of Hexcel Corporation and subsidiaries
("Hexcel" or the "company") in accordance with generally accepted accounting
principles, and, in the opinion of management, include all adjustments necessary
to present fairly the balance sheet of the company as of March 30, 1997, and the
results of operations and cash flows for the quarters ended March 30, 1997 and
March 31, 1996. The condensed consolidated balance sheet of the company as of
December 31, 1996 was derived from the audited 1996 consolidated balance sheet.
Certain information and footnote disclosures normally included in financial
statements have been omitted pursuant to rules and regulations of the Securities
and Exchange Commission. Certain prior quarter amounts in the condensed
consolidated financial statements and notes have been reclassified to conform to
the 1997 presentation. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the company's 1996 Annual Report on Form 10-K.
As discussed in Note 2, Hexcel acquired the worldwide composites division
of Ciba-Geigy Limited, a Swiss corporation, and Ciba-Geigy Corporation, a New
York corporation (collectively, "Ciba"), including most of Ciba's composite
materials, parts and structures businesses, on February 29, 1996. The company
subsequently acquired Ciba's Austrian composites business on May 30, 1996, and
various remaining assets of Ciba's worldwide composites division at various
dates through February 28, 1997. Accordingly, the accompanying condensed
consolidated balance sheets, statements of operations and cash flows include the
financial position, results of operations and cash flows, respectively, of the
businesses acquired from Ciba as of such dates and for such periods that these
businesses were owned by the company.
In addition, as discussed in Note 2, Hexcel acquired the composite products
division of Hercules Incorporated ("Hercules") on June 27, 1996. Accordingly,
the accompanying condensed consolidated balance sheets, statements of operations
and cash flows include the financial position, results of operations and cash
flows, respectively, of the businesses acquired from Hercules as of such dates
and for such periods that these businesses were owned by the company.
NOTE 2 - BUSINESS ACQUISITIONS AND CONSOLIDATION
ACQUIRED CIBA BUSINESS
Hexcel acquired most of Ciba's composite materials, parts and structures
businesses on February 29, 1996, Ciba's Austrian composites business on May
30, 1996, and various remaining assets of Ciba's worldwide composites
division (collectively, the "Acquired Ciba Business") at various dates
through February 28, 1997. The company acquired the assets and assumed the
liabilities of the Acquired Ciba Business, other than certain excluded assets
and liabilities, in exchange for: (a) 18,022 newly issued shares of Hexcel
common stock; (b) $25,000 in cash; (c) senior subordinated notes in an
aggregate principal amount of approximately $37,650; and (d) senior demand
notes in an aggregate principal amount of $5,329. The aggregate purchase
price for the net assets acquired was approximately $209,100.
On February 21, 1997, Hexcel consented to an assignment by Ciba of Ciba's
rights and obligations under various agreements with the company. As a
result of the assignment of these rights and obligations, the Hexcel common
stock and the senior subordinated notes previously held by Ciba will be
beneficially held by Ciba Specialty Chemicals Holding Inc., a Swiss
corporation ("CSC").
5
<PAGE>
ACQUIRED HERCULES BUSINESS
Hexcel acquired the assets of the composite products and carbon fibers
businesses of Hercules (the "Acquired Hercules Business") on June 27, 1996.
The Acquired Hercules Business was purchased for $135,000 in cash subject to
certain post-closing adjustments. The adjusted purchase price was
approximately $139,400 as of March 30, 1997, but additional post-closing
purchase price adjustments could arise in 1997.
PRO FORMA FINANCIAL INFORMATION
The pro forma net sales, net income and net income per share of Hexcel for
the quarter ended March 31, 1996, giving effect to the acquisitions of the
Acquired Ciba Business and the Acquired Hercules Business as if they had
occurred on January 1, 1996, were:
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Pro forma net sales $ 198,923
Pro forma net income 2,222
Pro forma net income per share 0.06
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Weighted average shares and equivalent shares
used in computing pro forma net income per share 36,493
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BUSINESS CONSOLIDATION
In May of 1996, Hexcel announced the commencement of a plan to consolidate
the company's operations over a period of three years. In December of 1996, the
company announced the commencement of further consolidation activities
identified during the ongoing integration of the Acquired Ciba Business and the
Acquired Hercules Business. The total expense of the business consolidation
program is estimated to be approximately $58,000, including $42,370 of expenses
incurred in 1996 and $2,899 of expenses incurred in the first quarter of 1997.
The company expects to incur the majority of the remaining expenses of
approximately $13,000 during 1997.
The objective of the business consolidation program is to integrate
acquired assets and operations into Hexcel, and to reorganize the company's
manufacturing and research activities around strategic centers dedicated to
select product technologies. The business consolidation is also intended to
eliminate excess manufacturing capacity and redundant administrative functions.
Specific actions contemplated by the consolidation program include the closure
of the Anaheim, California facility acquired in connection with the purchase of
the Acquired Ciba Business, the closure of a portion of the Welkenraedt, Belgium
facility, the reorganization of the company's manufacturing operations in
France, the consolidation of the company's US special process manufacturing
activities, and the integration of sales, marketing and administrative
resources.
Management expects that the business consolidation program will take up
to three years to complete, in part because of aerospace industry
requirements to "qualify" specific equipment and manufacturing facilities for
the manufacture of certain products. These qualification requirements
increase the complexity, cost and time of moving equipment and rationalizing
manufacturing activities. Based on Hexcel's experience with previous plant
consolidations, compliance with these qualification requirements necessitates
an approach to the consolidation of manufacturing facilities that generally
requires two to three years to complete. Accordingly, the business
consolidation program is not expected to be substantially complete until the
end of 1998.
6
<PAGE>
Accrued business acquisition and consolidation costs for the quarter ended
March 30, 1997 were as follows:
<TABLE>
<CAPTION>
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EMPLOYEE FACILITY
SEVERANCE CLOSURE &
AND EQUIPMENT
RELOCATION RELOCATION OTHER TOTAL
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<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996 $ 19,083 $ 5,198 $ 1,076 $25,357
Business acquisition and
consolidation expenses 119 2,222 558 2,899
Cash expenditures (1,019) (2,458) (437) (3,914)
Non-cash usage, including
asset write-downs and
currency translation effects (212) (278) (202) (692)
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BALANCE AS OF MARCH 30, 1997 $ 17,971 $ 4,684 $ 995 $23,650
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</TABLE>
Approximately 75 positions were eliminated during 1996, and another 30
positions were eliminated during the first quarter of 1997.
The $5,211 of business acquisition and consolidation expenses incurred in
the first quarter of 1996 included $3,635 of compensation expense resulting from
stock options that were granted in 1995 subject to stockholder approval and
stock options which vested in connection with the acquisition of the Acquired
Ciba Business.
NOTE 3 -- PROPOSED BUSINESS ACQUISITION
On April 21, 1997, Hexcel announced that it has entered into an agreement
to acquire selected assets and businesses of Fiberite, Inc. ("Fiberite") for
approximately $300,000 in cash and the assumption of certain operating
liabilities relating to the businesses to be acquired. Fiberite,
headquartered in Tempe, Arizona, is engaged in the manufacture and marketing
of advanced composite materials for commercial aerospace, space and defense,
recreation, and general industrial markets. The lines of business to be
acquired by the company include certain prepreg operations, as well as
Fiberite's ablatives, carbon-carbon, molding compound and engineered
components businesses. The proposed acquisition is expected to be completed
during the third quarter of 1997, subject to customary conditions of closing
and required regulatory approvals.
In connection with this proposed acquisition, Hexcel has obtained a
commitment for a new bank credit facility, the proceeds of which would be
sufficient to fund the proposed acquisition, refinance certain existing
indebtedness including the Revolving Credit Facility (see Note 5), and
provide for the ongoing working capital and other financing requirements of
the company.
7
<PAGE>
NOTE 4 -- INVENTORIES
Inventories as of March 30, 1997 and December 31, 1996 were:
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3/30/97 12/31/96
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Raw materials $ 77,750 $ 66,055
Work in progress 43,291 45,469
Finished goods 34,097 34,360
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Total inventories $ 155,138 $ 145,884
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NOTE 5 -- NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO RELATED
PARTIES
Notes payable, capital lease obligations and indebtedness to related
parties as of March 30, 1997 and December 31, 1996 were:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
<S> <C> <C>
3/30/97 12/31/96
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Revolving credit facility $ 116,143 $ 98,656
European credit and overdraft facilities 18,270 23,405
Convertible subordinated notes, due 2003 114,500 114,500
Convertible subordinated debentures, due 2011 25,625 25,625
Obligations under IDRB variable rate demand notes 8,450 8,450
Various notes payable 1,046 1,212
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Total notes payable 284,034 271,848
Capital lease obligations 6,288 6,906
Senior subordinated notes payable to CSC, net of
unamortized discount of $2,558 and $2,666 as of
March 30, 1997 and December 31, 1996, respectively 35,092 32,262
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Total notes payable, capital lease obligations and
indebtedness to related parties $ 325,414 $ 311,016
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Notes payable and current maturities of long-term liabilities $ 18,713 $ 23,835
Long-term notes payable and capital lease obligations,
less current maturities 271,609 254,919
Indebtedness to related parties 35,092 32,262
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Total notes payable, capital lease obligations and
indebtedness to related parties $ 325,414 $ 311,016
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</TABLE>
REVOLVING CREDIT FACILITY
In connection with the acquisition of the Acquired Hercules Business on
June 27, 1996, Hexcel obtained the Revolving Credit Facility to: (a) refinance
certain outstanding indebtedness; (b) finance the purchase of the Acquired
Hercules Business; and (c) provide for the ongoing working capital and other
financing requirements of the company on a worldwide basis. The Revolving
Credit Facility initially provided for up to $310,000 of borrowing capacity.
However, as a result of the company's issuance of convertible subordinated notes
in July 1996, maximum availability under the Revolving Credit Facility was
reduced from $310,000 to $254,600, in accordance with the terms of that
facility.
As of March 30, 1997, letters of credit with an aggregate face amount of
$12,612 were outstanding under the Revolving Credit Facility.
8
<PAGE>
SENIOR SUBORDINATED NOTES PAYABLE TO CSC
In connection with the purchase of the Acquired Ciba Business, Hexcel has
delivered to Ciba Senior Subordinated Notes in an aggregate principal amount
of $34,928, and has undertaken to deliver additional Senior Subordinated
Notes in an aggregate principal amount of approximately $2,722. On February
21, 1997, the company consented to an assignment by Ciba of Ciba's rights and
obligations under various agreements with Hexcel. As a result of the
assignment of these rights and obligations, the Hexcel common stock and the
senior subordinated notes previously held by Ciba will be beneficially held
by CSC.
NOTE 6 -- OTHER INCOME, NET
Other income of $2,697 in the quarter ended March 31, 1996, was largely
attributable to the receipt of an additional $1,560 of cash in connection with
the disposition of the Chandler, Arizona manufacturing facility and certain
related assets and technology in 1994, and to the receipt of $1,054 in partial
settlement of a claim arising from the sale of certain assets in 1991.
Note 7 -- PROVISION FOR INCOME TAXES
Income tax provisions of $2,470 in the first quarter of 1997 and $1,306 in
the first quarter of 1996 primarily reflect international taxes on certain
European subsidiaries, state taxes, and the settlement of various tax audits.
Hexcel has significant net operating loss carryforwards for US federal and
Belgium income tax purposes, and did not record tax provisions with respect to
earnings in those countries in either the first quarter of 1997 or the first
quarter of 1996.
Note 8 -- EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS 128").
Hexcel is required to adopt SFAS 128 in the fourth quarter of 1997, and will
restate at that time earnings per share ("EPS") data for prior periods to
conform with SFAS 128. Earlier application of the provisions of SFAS 128 is not
permitted.
SFAS 128 replaces current EPS reporting requirements and requires a dual
presentation of basic and diluted EPS. Basic EPS excludes dilution and is
computed by dividing net income by the weighted average shares of common stock
outstanding for the period. Diluted EPS reflects the potential dilution that
could occur if stock options, convertible debt instruments, or other securities
or contracts to issue common stock were exercised or converted into common
stock.
If SFAS 128 had been in effect during the current and prior year periods,
basic EPS would have been $0.22 and $0.08, respectively. Diluted EPS under SFAS
128 would not have been significantly different than primary EPS currently
reported for the periods.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS ACQUISITIONS AND CONSOLIDATION
BUSINESS ACQUISITIONS
Hexcel acquired most of Ciba's composite materials, parts and structures
businesses on February 29, 1996, Ciba's Austrian composites business on May 30,
1996, and various remaining assets of Ciba's worldwide composites division at
various dates through February 28, 1997. The aggregate purchase price for the
net assets acquired was approximately $209.1 million.
Hexcel acquired the assets of the composite products and carbon fibers
businesses of Hercules on June 27, 1996. The Acquired Hercules Business was
purchased for $135.0 million in cash subject to certain post-closing
adjustments. The adjusted purchase price was approximately $139.4 million as
of March 30, 1997, but additional post-closing purchase price adjustments
could arise in 1997.
On April 21, 1997, Hexcel announced that it has entered into an agreement
to acquire selected assets and businesses of Fiberite, Inc. for approximately
$300 million in cash and the assumption of certain operating liabilities
relating to the businesses to be acquired. The lines of business to be
acquired by the company include certain prepreg operations, as well as
Fiberite's ablatives, carbon-carbon, molding compound and engineered
components businesses. The proposed acquisition is expected to be completed
during the third quarter of 1997, subject to customary conditions of closing
and required regulatory approvals.
Further discussion of the acquisitions of the Acquired Ciba Business and
the Acquired Hercules Business is contained in Note 2 to the accompanying
condensed consolidated financial statements. Further discussion of the proposed
acquisition of selected assets and businesses from Fiberite is contained in Note
3 to the accompanying condensed consolidated financial statements.
BUSINESS CONSOLIDATION
In May 1996, Hexcel announced the commencement of a plan to consolidate
the company's operations over a period of three years. In December of 1996, the
company announced the commencement of further consolidation activities
identified during the ongoing integration of the Acquired Ciba Business and the
Acquired Hercules Business. The total expense of the business consolidation
program is estimated to be approximately $58 million, including $42.4 million of
expenses incurred in 1996 and $2.9 million of expenses incurred in the first
quarter of 1997. The company expects to incur the majority of the remaining
expenses of approximately $13 million during 1997.
Further discussion of the business consolidation program is contained in
Note 2 to the accompanying condensed consolidated financial statements.
RESULTS OF OPERATIONS
NET SALES: Net sales for the first quarter of 1997 were $214.0 million,
compared with net sales for the 1996 first quarter of $126.4 million. Results
for the first quarter of 1997 include the results of the Acquired Ciba Business
and the Acquired Hercules Business, while first quarter 1996 results include
only one month of activity for certain business operations acquired from Ciba on
February 29, 1996. Pro forma net sales for the first quarter of 1996, giving
effect to the acquisitions of the Acquired Ciba Business and the Acquired
Hercules Business as if those transactions had occurred at the beginning of the
year, were $198.9 million.
10
<PAGE>
The 7.6% increase in 1997 first quarter sales over pro forma 1996 first
quarter sales was largely attributable to improved sales of composite
materials to commercial aerospace customers, and reflects the initial impact
of recently announced increases in production rates for certain aircraft as
well as the increased utilization of composite materials on new generation
aircraft. In particular, Hexcel benefited from higher sales of carbon
honeycomb core and carbon-fiber based prepregs. The company also benefited
from increased sales of engineered products, largely as a result of the
production of structural and interior components outsourced to Hexcel by The
Boeing Company. These sales gains were partially offset by the translation
impact of a strengthening US dollar on European revenues. Changes in
currency exchange rates reduced 1997 first quarter sales, relative to the
first quarter of 1996, by approximately 4%.
Hexcel believes that the availability of certain carbon fibers, an
important raw material in manufacturing advanced structural materials, is
currently insufficient to satisfy worldwide demand. In the second half of
1996, Hexcel contracted to purchase carbon fiber sufficient to meet its
estimated 1997 aerospace customer requirements. However, should customer
demand grow faster than expected or the mix or timing of customer
requirements change, the company may not be able to satisfy all of its
customers' requirements. Carbon fiber manufacturers, including the company,
have announced plans to increase carbon fiber production capacity. The
company expects to complete previously announced carbon fiber capacity
expansion program in the second half of 1997.
The following table summarizes net sales to third-party customers by
product group and market segment for the quarter ended March 30, 1997:
- --------------------------------------------------------------------------------
COMMERCIAL SPACE & GENERAL
(IN MILLIONS) AEROSPACE DEFENSE RECREATION INDUSTRIAL TOTAL
- --------------------------------------------------------------------------------
Fibers and Fabrics $ 8.8 $ 3.3 $ 1.5 $ 29.8 $ 43.4
Composite Materials 91.6 12.3 15.0 14.1 133.0
Engineered Products 33.2 3.0 -- 1.4 37.6
- --------------------------------------------------------------------------------
Total $133.6 $ 18.6 $ 16.5 $ 45.3 $ 214.0
62% 9% 8% 21% 100%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
BACKLOG: The backlog of orders for commercial and military aerospace
materials to be filled within 12 months increased from $347.5 million as of
December 31, 1996, to $379.2 million as of March 30, 1997. The 9.1%
improvement reflects the impact of increased commercial aircraft build rates.
The order backlog for non-aerospace materials increased from $54.2 million
as of December 31, 1996, to $70.4 million as of March 30, 1997. This
improvement is primarily attributable to increased orders from rail and
energy customers.
The following table summarizes the backlog of orders by product group as of
March 30, 1997:
- --------------------------------------------------------------------------------
NON-
(IN MILLIONS) AEROSPACE AEROSPACE TOTAL
- --------------------------------------------------------------------------------
Fibers and Fabrics $ 24.5 $ 36.2 $ 60.7
Composite Materials 234.1 33.4 267.5
Engineered Products 120.6 0.8 121.4
- --------------------------------------------------------------------------------
Total $ 379.2 $ 70.4 $ 449.6
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GROSS MARGIN: Gross margin for the first quarter of 1997 was $46.9
million, or 21.9% of sales, compared with $26.8 million for the first quarter of
1996, or 21.2% of sales. Aside from the impact of business acquisitions, the
modest improvement in 1997 first quarter gross margin is the result of both
higher sales volume and enhanced manufacturing productivity resulting from
Hexcel's business consolidation program. Due to the highly competitive nature
of most of the markets in which the
11
<PAGE>
company competes, product price changes were not a significant factor in the
1997 gross margin improvement. Management expects gross margin as a
percentage of sales to show continued modest improvement throughout 1997;
subject to continued sales growth and successful progress in completing the
business consolidation program.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses
were $27.6 million in the first quarter of 1997, or 12.9% of sales. This
compares with 1996 first quarter SG&A expenses of $17.5 million, or 13.8% of
sales. The aggregate dollar increase in SG&A expenses from 1996 to 1997 is
attributable to the acquisitions of the Acquired Ciba Business and the
Acquired Hercules Business. The slight decrease in SG&A expenses as a
percentage of sales primarily reflects higher sales levels. Management
expects SG&A expenses to remain at approximately 13% of sales for the
remainder of 1997.
OPERATING INCOME: Operating income was $16.4 million in the first quarter
of 1997, or 7.7% of sales, compared with $6.8 million in the first quarter of
1996, or 5.4% if sales. The improvement in operating income as a percentage of
sales reflects both improved gross margin and lower SG&A expenditures
relative to sales.
INTEREST EXPENSE: Interest expense totaled $5.7 million in the first
quarter of 1997 and $3.6 million in the first quarter of 1996. The
quarter-on-quarter increase primarily reflects the cost of financing the
acquisitions of the Acquired Ciba Business and the Acquired Hercules Business.
Hexcel financed approximately $200 million of aggregate purchase price with
various debt and credit facilities. Interest expense for the first quarter of
1996 also includes $1.6 million attributable to the write-off of capitalized
debt financing costs in connection with the purchase of the Acquired Ciba
Business.
PROVISION FOR INCOME TAXES: Income tax provisions of $2.5 million in the
first quarter of 1997 and $1.3 million in the first quarter of 1996 primarily
reflect international taxes on certain European subsidiaries, state taxes,
and the settlement of various tax audits. Hexcel has significant net
operating loss carryforwards for US federal and Belgium income tax purposes,
and did not record tax provisions with respect to earnings in those countries
in either the first quarter of 1997 or the first quarter of 1996.
NET EARNINGS: Net income for the 1997 first quarter was $8.2 million, or
$0.22 per share, compared with net income for the 1996 quarter of $1.8
million, or $0.07 per share. The results include business acquisition and
consolidation expenses of $2.9 million, or $0.07 per share after income
taxes, for the 1997 quarter, and $5.2 million, or $0.21 per share after
income taxes, for the 1996 quarter. Information regarding the impact of
SFAS 128 on earnings per share is contained in Note 8 to the accompanying
condensed consolidated financial statements.
There were 37.8 million weighted average shares and equivalent shares
outstanding during the first quarter of 1997, versus 24.7 million during the
first quarter of 1996. The quarter-on-quarter increase in the number of
weighted average shares and equivalent shares is primarily attributable to the
delivery of 18.0 million newly issued shares of Hexcel common stock to Ciba on
February 29, 1996, in connection with the purchase of the Acquired Ciba
Business.
CAPITAL RESOURCES AND LIQUIDITY
FINANCIAL RESOURCES
In connection with the purchase of the Acquired Ciba Business, Hexcel
obtained a three-year senior secured credit facility of up to $175.0 million to:
(a) fund the cash component of the purchase price; (b) refinance outstanding
indebtedness under certain US and European credit facilities; and (c) provide
for the ongoing working capital and other financing requirements of the company
on a worldwide basis. This senior secured credit facility was subsequently
replaced with the Revolving Credit Facility in connection with the purchase of
the Acquired Hercules Business in June 1996.
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<PAGE>
The Revolving Credit Facility was obtained to: (a) refinance outstanding
indebtedness under a senior secured credit facility obtained in connection
with the purchase of the Acquired Ciba Business; (b) finance the purchase of
the Acquired Hercules Business; and (c) provide for the ongoing working
capital and other financing requirements of the company on a worldwide basis.
The Revolving Credit Facility initially provided for up to $310.0 million of
borrowing capacity. However, as a result of the company's issuance of $114.5
million in convertible subordinated notes in July 1996, maximum availability
under the Revolving Credit Facility was reduced from $310.0 million to $254.6
million, in accordance with the terms of that facility. As of March 30,
1997, outstanding borrowings and letter of credit commitments under the
Revolving Credit Facility totaled $128.8 million. The Revolving Credit
Facility expires in February 1999.
In connection with the proposed acquisition of selected Fiberite assets
and businesses, Hexcel has obtained a commitment for a new bank credit
facility, the proceeds of which would be sufficient to fund the proposed
acquisition, refinance certain existing indebtedness including the Revolving
Credit Facility, and provide for the ongoing working capital and other
financing requirements of the company.
Management expects that the financial resources of Hexcel will be
sufficient to fund the company's worldwide operations. Further discussion of
the company's financial resources is contained in Note 5 to the accompanying
condensed consolidated financial statements.
EBITDA AND CASH FLOWS
FIRST QUARTER, 1997: Earnings before business acquisition and
consolidation expenses, other income, interest, taxes, depreciation and
amortization ("Adjusted EBITDA") were $27.7 million. Net cash used by operating
activities was $26.3 million, as increased working capital attributable to
higher sales volumes more than offset $8.2 million of net income and $8.4
million of non-cash depreciation and amortization. The substantial increase
in working capital reflects higher levels of accounts receivable and
inventory resulting from increased sales and production volumes. The working
capital increase also reflects reductions in accrued liabilities from peak
year-end levels, primarily due to the payment of obligations incurred during
1996 for capital projects and employee incentive and benefit programs.
Net cash used for investing activities was $1.9 million, reflecting $6.9
million of capital expenditures and the receipt of $5.0 million in connection
with the sale of a 50% equity interest in a joint venture. Net cash provided
from financing activities, including borrowings under the Revolving Credit
Facility, totaled $20.2 million.
FIRST QUARTER, 1996: Adjusted EBITDA was $13.8 million, and net cash
provided by operating activities was $0.1 million. Net cash used for investing
activities, including the $25.0 million cash payment in connection with the
purchase of the Acquired Ciba Business, totaled $25.7 million. As noted above,
a substantial portion of the consideration paid for the Acquired Ciba Business
was comprised of Hexcel common stock, senior subordinated notes and senior
demand notes. Net cash provided by financing activities was $26.5 million.
Adjusted EBITDA has been presented to provide a measure of Hexcel's
operating performance that is commonly used by investors and financial analysts
to analyze and compare companies. Adjusted EBITDA does not represent an
alternative measure of the company's cash flows or operating income, and should
not be considered in isolation or as a substitute for measures of performance
presented in accordance with generally accepted accounting principles.
CAPITAL EXPENDITURES
Capital expenditures increased to $6.9 million in the first quarter of
1997, from $2.3 million in the first quarter of 1996. This increase is
attributable to capital expenditures incurred in connection with the business
consolidation program as well as expenditures to improve manufacturing processes
and to
13
<PAGE>
expand production capacity for select product lines that are in very high
demand. Management expects capital spending for all of 1997 to approximate
$60 million.
RISKS, UNCERTAINTIES AND OTHER FACTORS WITH RESPECT TO "FORWARD-LOOKING
STATEMENTS"
Certain statements contained in this Quarterly Report on Form 10-Q
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors that may
cause the actual results, performance or achievements of Hexcel, or industry
results, to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among others, the following: General economic and business
conditions; changes in political, social and economic conditions and local
regulations, particularly in Europe and Asia; changes in, or failure to
comply with, government regulations; demographic changes; changes in customer
preferences; the loss of any significant customers; changes in methods of
distribution and technology; industry capacity; competition; the assimilation
of the Acquired Ciba Business; the assimilation of the Acquired Hercules
Business; changes in business strategy or development plans; indebtedness of
the company; the availability, terms and deployment of capital; quality of
management, and business abilities and judgment of the company's personnel;
availability of qualified personnel; and various other factors referenced in
this Quarterly Report on Form 10-Q. The company assumes no obligation to
update the forward-looking information to reflect actual results or changes
in the factors affecting such forward-looking information.
The forward-looking information referred to above includes, but is not
limited to: (a) order backlog information; (b) expectations regarding sales
growth, manufacturing productivity, and selling, general and administrative
expenses; (c) the availability and utilization of net operating loss
carryforwards for income tax purposes; (d) expectations regarding Hexcel's
financial condition and liquidity, as well as future cash flows;
(e) expectations regarding capital expenditures, and (f) the estimated total
cost of the company's business consolidation program.
In addition to the risks, uncertainties and other factors referred to
above which may cause the actual costs of the business consolidation program
to differ materially from estimated amounts, such estimated amounts are based
on various factors and were derived utilizing numerous important assumptions,
including: (a) achieving estimated reductions in the number of total
employees within anticipated time frames and at currently projected severance
costs levels, while maintaining work flow in the business areas affected; (b)
the ability to maintain manufacturing know-how with respect to production
processes conducted at facilities that will be closed or at which the number
of employees will be reduced, including cooperation by employees who will be
terminated; (c) the assimilation and integration of the Acquired Ciba
Business and the Acquired Hercules Business with the company's operations
without disruption to manufacturing, marketing and distribution activities;
(d) the assimilation of the production process at closed facilities with
production at other company facilities without undue disruption to the
manufacturing, marketing and distribution functions, including the
cooperation of customers in connection with requalifying the subject products
for various customer and government programs; (e) selling vacated facilities
within anticipated time frames at anticipated selling prices; and (f) the
absence of changes in business conditions that would require significant
modifications to the current program. The failure of these assumptions to be
realized may cause the actual total cost of the consolidation program to
differ materially from the estimates.
14
<PAGE>
PART II. OTHER INFORMATION
HEXCEL CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
11. Statement Regarding Computation of Per Share Earnings.
27. Financial Data Schedule (electronic filing only).
(b) Reports on Form 8-K:
Current Report on Form 8-K dated as of April 29, 1997, relating to
Hexcel's proposed acquisition of selected assets and businesses of
Fiberite, Inc.
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized, and in the capacity indicated.
HEXCEL CORPORATION
(Registrant)
May 13, 1997 /s/ Wayne C. Pensky
----------------- ------------------------
(Date) Wayne C. Pensky,
Corporate Controller and
Chief Accounting Officer
16
<PAGE>
EXHIBIT 11
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS - UNAUDITED
The Company reports net income per share data on primary and fully diluted
bases. Primary net income per share is based upon the weighted average number
of outstanding common shares and common equivalent shares from stock options.
Fully diluted net income per share is based upon (a) the weighted average number
of outstanding common shares and common equivalent shares from stock options and
adjusted for the assumed conversion of the 7% convertible subordinated notes
and the 7% convertible subordinated debentures and (b) net income increased
by the expenses on the notes and debentures. Computations of net income per
share on the primary and fully diluted bases for the first quarters of 1997
and 1996 were:
<TABLE>
<CAPTION>
PRIMARY NET INCOME PER SHARE AND EQUIVALENT SHARE
- ------------------------------------------------------------------------------------------
MARCH 30, MARCH 31,
THE QUARTER ENDED (IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Net income $ 8,226 $ 1,848
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Weighted average common shares outstanding 36,582 24,308
Weighted average common equivalent shares from stock options 1,207 377
- ------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 37,789 24,685
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Primary net income per share and equivalent share (1) 0.22 0.07
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
FULLY DILUTED NET INCOME PER SHARE AND EQUIVALENT SHARE
- ------------------------------------------------------------------------------------------
Net income $ 8,226 $ 1,848
Notes and debentures interest and issuance costs 2,392 295
- ------------------------------------------------------------------------------------------
Adjusted net income $ 10,618 $ 2,143
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Weighted average common shares outstanding 36,582 24,308
Weighted average common equivalent shares
Stock options 1,209 380
7% convertible notes, due 2003 7,242 -
7% convertible debentures, due 2011 834 834
- ------------------------------------------------------------------------------------------
Weighted average common shares and equivalent shares 45,867 25,522
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Fully diluted net income per share and equivalent share (1) 0.22 0.07
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
</TABLE>
(1) For the first quarters of 1997 and 1996, the primary and fully diluted net
income (loss) per share were the same because the fully diluted computation
was antidilutive.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-30-1997
<CASH> 431
<SECURITIES> 0
<RECEIVABLES> 173,013
<ALLOWANCES> 6,620
<INVENTORY> 155,138
<CURRENT-ASSETS> 328,115
<PP&E> 466,191
<DEPRECIATION> 146,969
<TOTAL-ASSETS> 704,864
<CURRENT-LIABILITIES> 172,942
<BONDS> 306,701
0
0
<COMMON> 366
<OTHER-SE> 183,505
<TOTAL-LIABILITY-AND-EQUITY> 704,864
<SALES> 214,009
<TOTAL-REVENUES> 214,009
<CGS> 167,120
<TOTAL-COSTS> 167,120
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,688
<INCOME-PRETAX> 10,696
<INCOME-TAX> 2,470
<INCOME-CONTINUING> 8,226
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,226
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
