SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 22, 1998 (October 19, 1998)
________________________________________________
Date of report (Date of earliest event reported)
Hexcel Corporation
______________________________________________________
(Exact Name of Registrant as Specified in Charter)
Delaware 1-8472 94-1109521
______________ _____________________ __________________
(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
____________________________________________________________
(Address of Principal Executive Offices and Zip Code)
(203) 969-0666
____________________________________________________
(Registrant's telephone number, including area code)
N/A
_____________________________________________________________
(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
A copy of the press release issued by Hexcel Corporation, a
Delaware corporation (the "Company") on October 19, 1998 is filed as
Exhibit 99.1 to this Current Report and is incorporated herein by
reference.
Item 7. Financial Statements, Pro Forma
Financial Information and Exhibits.
(c) Exhibits
99.1 Press Release issued by the Company on October 19,
1998.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Dated: October 22, 1998
HEXCEL CORPORATION
By: /s/ Ira J. Krakower
--------------------------
Name: Ira J. Krakower
Title: Senior Vice President,
General Counsel and
Secretary
EXHIBIT INDEX
Exhibit No. Description
99.1 Press Release issued by the Company on October 19,
1998
Exhibit 99.1
[Hexcel Logo]
Contacts: Investors:
Stephen C. Forsyth
203-969-0666 ext. 425
[email protected]
Media:
Ronald S. Ziemba
203-969-0666 ext. 405
[email protected]
HEXCEL REPORTS RECORD THIRD QUARTER
SALES, EBITDA AND ADJUSTED NET INCOME
Net Income is $11.5 Million, or $0.29 per Diluted Share;
Adjusted EPS is $0.32 per Share - 23% Higher than Third Quarter 1997
STAMFORD, CT, October 19, 1998 - Hexcel Corporation (NYSE/PCX: HXL) today
reported net income for the third quarter of 1998 of $11.5 million, or
$0.29 per diluted share, compared with $37.9 million, or $0.87 per diluted
share, for the third quarter of 1997. Excluding acquisition-related charges
and other nonrecurring items, adjusted earnings per share for the third
quarter of 1998 increased 23 percent to $0.32 per diluted share, from $0.26
per share, for the same period in 1997. The improvement in adjusted net
income was primarily due to increasing sales to commercial aerospace and
space and defense customers.
- ----------------------------------------------------------------------------
Quarter Ended Year-to-Date Ended
September 30, September 30,
(In millions, except per
share data) 1998 1997 1998 1997
- ----------------------------------------------------------------------------
Sales $255.3 $226.6 $785.6 $682.2
Gross margin % 24.2% 24.3% 25.4% 23.4%
Adjusted operating income % (a) 11.2% 10.9% 12.8% 10.5%
Adjusted EBITDA (b) $39.4 $34.4 $131.1 $99.4
Net income $11.5 $37.9 $48.5 $61.3
Adjusted net income (c) $12.8 $10.6 $49.5 $32.8
============================================================================
Diluted earnings per share $0.29 $0.87 $1.15 $1.48
Adjusted diluted earnings $0.32 $0.26 $1.18 $0.81
per share (c)
============================================================================
(a) Excludes business acquisition and consolidation expenses
(b) Excludes business acquisition and consolidation expenses and interest,
taxes, depreciation and amortization
(c) Excludes business acquisition and consolidation expenses and other
acquisition related costs and assumes a US tax provision of 36% for 1997
Net sales for the third quarter of 1998 increased 13 percent to $255.3
million, compared with sales of $226.6 million for the third quarter of
1997. As previously announced, the company completed the acquisition of
Clark-Schwebel's industrial fabrics business on September 15, 1998.
Excluding sales attributable to the acquired fabrics business, sales for
the third quarter of 1998 were $248.3 million, or an increase of 10 percent
over the third quarter of 1997. The increase was primarily due to continued
strength in sales of composite materials to commercial aerospace customers,
primarily in Europe, as well as sales to the space and defense markets. On
a constant currency basis, third quarter 1998 sales would have been about
$3 million lower than reported. Hexcel's third quarter 1998 sales also
reflect the traditional European summer plant shutdowns by the company and
its customers, and accordingly, sales were below the $273.5 million
reported for 1998's second quarter, which is the company's seasonally
strongest period.
Adjusted EBITDA (earnings before interest, taxes, depreciation and
amortization) for the third quarter of 1998 increased 15 percent, to $39.4
million, from $34.4 million in the 1997 period. The adjusted operating
income margin improved to 11.2 percent of sales for the third quarter of
1998, from 10.9 percent of sales in 1997's third quarter.
Results for the 1998 third quarter include about $1.3 million of after-tax,
acquisition-related charges, including the write-off of capitalized loan
fees for the company's previous credit facility and transaction costs
related to a proposed acquisition which was not consummated. The 1997 third
quarter results include $15.4 million of business acquisition and
consolidation expenses and a nonrecurring credit resulting from the
reversal of a $39 million deferred tax reserve against the income tax
provision. Excluding these items, and assuming an income tax rate of 36% on
1997 US pretax income, Hexcel's adjusted earnings for the third quarter of
1998 increased 23 percent to $0.32 per diluted share from $0.26 per diluted
share in the 1997 period.
The Clark-Schwebel acquisition was accounted for using the purchase method
of accounting, and accordingly, the results of operations of the acquired
fabrics business since the date of acquisition are included in the
company's 1998 third quarter results. Sales and EBITDA for the acquired
fabrics business for the approximate two week period ended September 30,
1998, were $7.0 million and $1.4 million, respectively.
Management's comments
"Hexcel's performance continues to be very strong, despite investor
concerns about aerospace and international markets," said John J. Lee, the
company's chairman and chief executive officer. "In the third quarter, we
achieved record sales, EBITDA and adjusted net income relative to the same
period in 1997. In fact, operating earnings were a company record for a
third quarter, traditionally our weakest quarter. Year-over-year adjusted
results for the third quarter and nine months were up 23 percent and 46
percent, respectively. Our adjusted net income for the first nine months of
1998 is roughly equal to our results for all of 1997, which itself was a
record year. This continued strong momentum obviously bodes well for
full-year 1998 performance."
"The completion of the Clark-Schwebel acquisition is a significant
strategic transaction for Hexcel," Mr. Lee added. "The acquisition
diversifies Hexcel's business beyond our base in commercial aerospace,
which now represents less than 50 percent of our sales, compared with 65
percent of sales prior to the acquisition. In addition, it establishes
Hexcel as a leading global materials supplier to the electronics and
telecommunications industries, both of which have attractive long-term
growth potential. Despite a world-wide reduction in electronic industry
sales volume experienced earlier this summer, primarily resulting from
inventory adjustments, we have seen a recent increase in sales orders which
is consistent with predictions from industry analysts that the market is
beginning to recover. We expect 1999 revenues in this market to return to
1997 levels."
Mr. Lee added, "While the costs of integrating the acquired fabrics
business with the company's existing fabrics operations will be finalized
in the fourth quarter, it is anticipated that the integration will result
in savings to the company, as well as reduced capital expenditures. We
expect the acquisition to be accretive to the company's earnings beginning
in 1999."
Mr. Lee concluded "Hexcel's focus now is on executing our business plans,
driving our Lean Enterprise initiatives, capitalizing on the benefits of
our vertical integration and generating cash flow to repay debt. Our goal
is to generate more than $100 million of free cash flow in the next fifteen
months."
Backlog
The backlog of orders scheduled for delivery in the next 12 months was
$422.3 million as of September 30, 1998 compared with $502.5 million as of
June 30, 1998. Most of the change occurred in the aerospace market, and
probably reflects a number of factors, including the practice of placing
orders annually for a calendar year, a continuing trend toward shorter lead
times and better supply-chain management by the industry overall. The non-
aerospace backlog as of September 30, 1998 was $37.4 million, compared with
$45.6 million as of June 30, 1998. Customers in the non-aerospace markets
tend to operate with little advance purchasing, making backlog subject to
fluctuation. The acquired fabrics business also operates with nominal
backlog.
Commenting on the commercial aerospace industry backlog, Mr. Lee said,
"Boeing and Airbus, Hexcel's two largest customers, indicate combined
current unfilled orders of more than 3,000 aircraft, which should keep
their production lines quite busy over the next several years. Although
Boeing's build rate is expected to peak in 1999, Hexcel will benefit from
the continued increases in Airbus's build rates, which are not expected to
peak until 2001. Total commercial aircraft demand of about 800 planes per
year appears sustainable for a number of years."
New credit facility
In connection with the acquisition of Clark-Schwebel, the company entered
into a new $910 million global credit facility. The new facility, which
expires in 2004, was used to finance $458 million of the net assets
acquired from Clark-Schwebel as well as to refinance Hexcel's existing
credit facility. Hexcel's acquisition of Clark-Schwebel's 43.6 percent
interest in a European joint venture, C-S Interglas AG, as well as fixed
price options to increase ownership in C-S Interglas to about 84%, is
pending regulatory approval and is expected to close in the fourth quarter
of 1998.
Year-to-date results
Hexcel's net income for the nine months ended September 30, 1998 was $48.5
million, or $1.15 per diluted share. This compares with net income of $61.3
million, or $1.48 per diluted share for the first nine months of 1997. The
nine month 1998 results include about $1.3 million of after-tax,
acquisition related charges. The 1997 results include $21.2 million of
business acquisition and consolidation expenses and a nonrecurring credit
resulting from the reversal of a $39 million deferred tax reserve against
the income tax provision. Excluding these items, and assuming an income tax
rate of 36% on 1997 US pretax income, Hexcel's adjusted earnings for the
first nine months of 1998 increased 46 percent to $1.18 per diluted share
from $0.81 per diluted share in 1997's first nine months.
Net sales for the first nine months of 1998 grew by 15 percent to $785.6
million, compared with $682.2 million for the comparable 1997 period. Gross
margin for the 1998 period increased to 25.4 percent of sales from 23.4
percent of sales for 1997's first nine months. Excluding sales attributable
to the acquired fabrics business, sales for the first nine months of 1998
were $778.6 million, an increase of 14 percent over the comparable 1997
period. On a constant currency basis, sales for the first nine months of
1998 would have been approximately $8 million higher.
* * *
Hexcel Corporation is the world's leading advanced structural materials
company. It manufactures lightweight, high performance carbon fibers,
structural fabrics, composite materials and engineered products for use in
commercial aerospace, space and defense, electronics, recreation and
general industrial applications.
Disclaimer on Forward Looking Statements
This press release contains statements that are forward looking, including
statements relating to market conditions, sales, gross margin percentage,
backlog, currency, income taxes, diluted earnings per share, excess cash
flow, and regulatory approval. These statements are not projections or
assured results. Actual results may differ materially from the results
anticipated in the forward looking statements due to a variety of factors,
including but not limited to, changing market conditions, particularly in
Asia, increased competition, product mix and currency. Additional risk
factors are described in the company's filings with the SEC. The company
does not undertake an obligation to update its forward looking statements
to reflect future events or circumstances.
<TABLE>
<CAPTION>
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
- ----------------------------------------------------------------------------------
Unaudited
-------------------------------------------------
Quarter Ended Year-to-Date Ended
September 30, September 30,
(In thousands, except per
share data) 1998 1997 1998 1997
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $255,303 $ 226,611 $ 785,581 $682,249
Cost of sales 193,456 171,644 586,417 522,577
- ----------------------------------------------------------------------------------
Gross margin 61,847 54,967 199,164 159,672
Selling, general and
administrative expenses 27,733 25,375 82,092 74,769
Research and technology expenses 5,840 4,828 16,906 13,524
Business acquisition and
consolidation expenses 711 15,433 711 21,150
- ----------------------------------------------------------------------------------
Operating income 27,563 9,331 99,455 50,229
Interest expense 9,456 6,771 23,167 18,288
- ----------------------------------------------------------------------------------
Income before income taxes 18,107 2,560 76,288 31,941
Provision for (recovery of)
income taxes 6,609 (35,388) 27,742 (29,366)
- ----------------------------------------------------------------------------------
Net income $ 11,498 $ 37,948 $ 48,546 $ 61,307
==================================================================================
Net income per share:
Basic $ 0.31 $ 1.03 $ 1.32 $ 1.67
Diluted 0.29 0.87 1.15 1.48
Weighted average shares:
Basic 36,671 36,843 36,800 36,711
Diluted 45,424 46,491 46,134 45,474
==================================================================================
</TABLE>
Other Selected Financial Data
- ------------------------------------------------------------------------------
Unaudited
----------------------------------------------------
Year-to-Date Ended Year-to-Date Ended
September 30, December 31,
(In millions) 1998 1997 1997
- ------------------------------------------------------------------------------
Total assets $ 1,391.5 $ 807.6 $ 811.6
Working capital 249.7 214.2 200.7
Long-term debt 856.9 376.4 353.4
Net assets acquired 458.1 29.0(1) 29.0(1)
Capital expenditures 41.7 31.7 57.4
Depreciation and
amortization 30.9 28.0 35.8
==============================================================================
- -----------------
(1) Excludes $8 million of a write-off of purchased in-process research
and technology expenses
<TABLE>
<CAPTION>
Hexcel Corporation and Subsidiaries
Net Sales to Third-Party Customers by Product Group and Market Segment
- -------------------------------------------------------------------------------------------
Unaudited
---------------------------------------------------------------------
Commercial Space & General
(In millions) Aerospace Defense Electronics Industrial Recreation Total
- -------------------------------------------------------------------------------------------
Third Quarter 1998
Net Sales
<S> <C> <C> <C> <C> <C> <C>
Fibers and Fabrics $ 5.7 $ 7.0 $ 14.8 $ 16.3 $ 4.4 $ 48.2
Composite Materials 110.1 22.5 - 13.9 8.5 155.0
Engineered Products 49.5 2.6 - - - 52.1
- -------------------------------------------------------------------------------------------
Total $ 165.3 $ 32.1 $ 14.8 $ 30.2 $ 12.9 $ 255.3
65% 12% 6% 12% 5% 100%
- -------------------------------------------------------------------------------------------
Second Quarter 1998
Net Sales (a)
Fibers and Fabrics $ 5.1 $ 7.4 $ 12.6 $ 17.0 $ 4.2 $ 46.3
Composite Materials 118.9 22.9 - 13.6 12.2 167.6
Engineered Products 57.3 2.3 - - - 59.6
- -------------------------------------------------------------------------------------------
Total $ 181.3 $ 32.6 $ 12.6 $ 30.6 $ 16.4 $ 273.5
66% 12% 5% 11% 6% 100%
- -------------------------------------------------------------------------------------------
Third Quarter 1997
Net Sales (a)
Fibers and Fabrics $ 4.2 $ 4.1 $ 10.0 $ 18.9 $ 3.5 $ 40.7
Composite Materials 96.3 15.5 - 14.1 12.5 138.4
Engineered Products 45.6 1.9 - - - 47.5
- -------------------------------------------------------------------------------------------
Total $ 146.1 $ 21.5 $ 10.0 $ 33.0 $ 16.0 $ 226.6
65% 9% 4% 15% 7% 100%
- -------------------------------------------------------------------------------------------
</TABLE>
(a) Certain amounts have been reclassified from those previously reported
Backlog of Orders by Market Segment(1)
- -----------------------------------------------------------------
Unaudited
---------------------------------------
Non-
(In millions) Aerospace(2) Aerospace(3) Total
- -----------------------------------------------------------------
As of September 30,
1998
Fibers and Fabrics $ 13.2 $ 16.7 $ 29.9
Composite Materials 214.9 20.3 235.2
Engineered Products 156.8 0.4 157.2
- ----------------------------------------------------------------
Total $ 384.9 $ 37.4 $ 422.3
- ----------------------------------------------------------------
As of June 30, 1998
Fibers and Fabrics $ 25.5 $ 23.8 $ 49.3
Composite Materials 263.1 21.2 284.3
Engineered Products 168.3 0.6 168.9
- ----------------------------------------------------------------
Total $ 456.9 $ 45.6 $ 502.5
- ----------------------------------------------------------------
As of September 30, 1997
Fibers and Fabrics $ 45.6 $ 31.0 $ 76.6
Composite Materials 232.5 22.3 254.8
Engineered Products 162.2 - 162.2
- ----------------------------------------------------------------
Total $ 440.3 $ 53.3 $ 493.6
================================================================
- -------------
(1) Backlog consists of orders scheduled for delivery within 12 months
(2) Includes commercial aerospace and space and defense markets
(3) Includes electronics, recreation and general and industrial markets
