<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
--------------------------
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 31, 1998
or
/ / Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from _____________ to _____________
Commission File Number 1-8472
--------------------------
HEXCEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 94-1109521
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
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
------- -------
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 4, 1998
----- --------------------------
COMMON STOCK 36,942,255
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<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
- Condensed Consolidated Balance Sheets --
March 31, 1998 and December 31, 1997 2
- Condensed Consolidated Statements of
Operations -- The Quarters Ended
March 31, 1998 and 1997 3
- Condensed Consolidated Statements of
Cash Flows -- The Quarters Ended
March 31, 1998 and 1997 4
- Notes to Condensed Consolidated
Financial Statements 5
- Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K 16
SIGNATURE 17
1
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
UNAUDITED
-------------------------------
MARCH 31, DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,173 $ 9,033
Accounts receivable 189,126 181,192
Inventories 177,578 165,321
Prepaid expenses and other assets 7,003 6,665
Deferred tax asset 20,246 24,839
- ------------------------------------------------------------------------------------------------
Total current assets 397,126 387,050
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Property, plant and equipment 496,873 488,916
Less accumulated depreciation (164,548) (157,439)
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Net property, plant and equipment 332,325 331,477
Intangibles and other assets 92,467 93,059
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Total assets $ 821,918 $ 811,586
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of long-term liabilities $ 13,217 $ 13,858
Accounts payable 67,230 70,011
Accrued liabilities 89,016 102,487
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Total current liabilities 169,463 186,356
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Long-term notes payable and capital lease obligations 314,874 304,546
Indebtedness to related parties 35,349 34,967
Other non-current liabilities 35,459 35,816
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Total liabilities 555,145 561,685
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Shareholders' equity:
Preferred stock, no par value, 20,000 shares authorized,
no shares issued or outstanding in 1998 and 1997 - -
Common stock, $0.01 par value, 100,000 shares authorized,
shares issued and outstanding of 36,856 in 1998 and 36,856 in 1997 369 369
Additional paid-in capital 267,552 266,177
Retained earnings (accumulated deficit) 1,529 (15,541)
Cumulative currency translation adjustment (2,677) (1,104)
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Total shareholders' equity 266,773 249,901
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Total liabilities and shareholders' equity $ 821,918 $ 811,586
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</TABLE>
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>
UNAUDITED
---------------------------
QUARTER ENDED MARCH 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 256,741 $ 214,009
Cost of sales 190,645 167,120
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Gross margin 66,096 46,889
Selling, general and administrative expenses 27,177 23,804
Research and technology expenses 5,183 3,802
Business acquisition and consolidation expenses - 2,899
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Operating income 33,736 16,384
Interest expense 6,967 5,688
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Income before income taxes 26,769 10,696
Provision for income taxes 9,699 2,470
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Net income $ 17,070 $ 8,226
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Net income per share:
Basic $ 0.46 $ 0.22
Diluted 0.40 0.22
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Weighted average shares:
Basic 36,845 36,582
Diluted 46,346 37,223
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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>
UNAUDITED
-------------------------------
QUARTER ENDED MARCH 31,
(IN THOUSANDS) 1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 17,070 $ 8,226
Reconciliation to net cash provided (used) by operations:
Depreciation and amortization 10,008 8,433
Deferred income taxes (3,720) (1,900)
Business acquisition and consolidation payments (1,783) (3,914)
Accrued business acquisition and consolidation expenses - 2,899
Working capital changes and other (26,676) (40,042)
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Net cash used by operating activities (5,101) (26,298)
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CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (11,546) (6,877)
Proceeds from sale of an interest in a joint venture - 5,000
Other (750) -
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Net cash used by investing activities (12,296) (1,877)
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CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the revolving credit facility and short-term debt, net 10,114 17,019
Proceeds (repayments) from long-term debt (505) 2,046
Activity under stock plans 1,375 1,132
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Net cash provided by financing activities 10,984 20,197
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Effect of exchange rate changes on cash and cash equivalents 553 434
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Net decrease in cash and cash equivalents (5,860) (7,544)
Cash and cash equivalents at beginning of year 9,033 7,975
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Cash and cash equivalents at end of period $ 3,173 $ 431
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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 31, 1998, and the
results of operations and cash flows for the quarters ended March 31, 1998 and
1997. The condensed consolidated balance sheet of the Company as of December
31, 1997 was derived from the audited 1997 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 1998 presentation. These condensed consolidated financial statements should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's 1997 Annual Report on Form 10-K.
NOTE 2 -- INVENTORIES
Inventories as of March 31, 1998 and December 31, 1997 were:
- --------------------------------------------------------------------------------
3/31/98 12/31/97
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Raw materials $ 97,733 $ 90,429
Work in progress 51,573 47,953
Finished goods 28,272 26,939
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Total inventories $177,578 $165,321
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NOTE 3 -- INVESTMENTS IN JOINT VENTURES
In January 1998, the Company reached an agreement in principle with The
Boeing Company ("Boeing") and Aviation Industries of China to form a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior applications on commercial aircraft. This
joint venture will be located in Tianjin, China. In February 1998, the Company
signed an agreement with Boeing, Sime Darby Berhad and Malaysia Helicopter
Services to form another joint venture, Asian Composite Manufacturing Sdn. Bhd.,
to manufacture composite parts for secondary structures for commercial aircraft.
This joint venture will be located in Alor Setar, Malaysia. Products
manufactured by both joint ventures will be shipped to the Company's Kent,
Washington facility for final assembly, inspection and shipment to Boeing as
well as other customers worldwide. It is anticipated that the first parts will
be delivered to customers in 2000.
The Company's total estimated financial commitment to both of these joint
ventures will be approximately $31,000, which is expected to be made in
increments through 2000. However, completion of these projects and related
investments remain subject to certain significant conditions, including U.S. and
foreign government approvals.
5
<PAGE>
NOTE 4 -- ACCRUED BUSINESS CONSOLIDATION COSTS
In 1996, Hexcel announced plans to consolidate the Company's operations
over a period of three years. The objective of the program was 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 program was also
intended to eliminate excess manufacturing capacity and redundant administrative
functions.
As of March 31, 1998, the primary remaining activities of the business
consolidation program relate to the Company's European operations and the
installation and customer qualifications of equipment transferred from the
Anaheim facility to other U.S. locations. These qualification requirements
increase the complexity, cost and time of moving equipment and rationalizing
manufacturing activities. As a result, the Company continues to expect that the
business consolidation program will not be completed until the end of 1998.
Total expenses for the business consolidation program, which remains unchanged
since December 31, 1997, were $54,700. The Company continues to expect that it
will not incur any significant additional expenses in relation to this program.
As of March 31, 1998, accrued business consolidation costs, representing
estimated cash expenditures remaining to complete the program, were as follows:
- -------------------------------------------------------------------------------
EMPLOYEE FACILITY
SEVERANCE CLOSURE &
AND EQUIPMENT
RELOCATION RELOCATION OTHER TOTAL
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BALANCE AS OF DECEMBER 31, 1997 $ 9,655 $ 2,010 $ 508 $ 12,173
Cash expenditures (305) (970) (508) (1,783)
Non-cash usage - (55) - (55)
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BALANCE AS OF MARCH 31, 1998 $ 9,350 $ 985 - $ 10,335
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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 31, 1998 and December 31, 1997 were:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
3/31/98 12/31/97
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<S> <C> <C>
Revolving credit facility $ 167,853 $ 158,267
European credit and overdraft facilities 14,187 13,909
Convertible subordinated notes, due 2003 114,450 114,450
Convertible subordinated debentures, due 2011 25,625 25,625
Various notes payable 547 680
- -----------------------------------------------------------------------------------------------
Total notes payable 322,662 312,931
Capital lease obligations 5,429 5,473
Senior subordinated notes payable,
net of unamortized discount of $2,125 and $2,233
as of March 31, 1998 and December 31, 1997, respectively 35,349 34,967
- -----------------------------------------------------------------------------------------------
Total notes payable, capital lease obligations and
indebtedness to related parties $ 363,440 $ 353,371
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</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
3/31/98 12/31/97
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
Notes payable and current maturities of long-term liabilities $ 13,217 $ 13,858
Long-term notes payable and capital lease obligations,
less current maturities 314,874 304,546
Indebtedness to related parties 35,349 34,967
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Total notes payable, capital lease obligations and
indebtedness to related parties $ 363,440 $ 353,371
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</TABLE>
REVOLVING CREDIT FACILITY
The Company's Revolving Credit Facility, which was amended and restated on
March 5, 1998, provides for borrowing capacity of up to $355,000. Depending on
certain predetermined ratios and other conditions, interest on outstanding
borrowings under the Revolving Credit Facility is computed at an annual rate
ranging from approximately 0.3 to 1.1% in excess of the applicable London
interbank rate or, at the option of Hexcel, at the base rate of the
administrative agent for the lenders. In addition, the Revolving Credit
Facility is subject to a commitment fee ranging from approximately 0.2 to 0.4%
per annum of the total facility.
The Revolving Credit Facility is secured by a pledge of stock of certain of
Hexcel's subsidiaries. In addition, the Company is subject to various financial
covenants and restrictions, and is generally prohibited from paying dividends or
redeeming capital stock. The Revolving Credit Facility expires in March 2003.
Prior to the amendment and restatement, the Revolving Credit Facility
provided up to $254,600 of borrowing capacity. Interest on outstanding
borrowings was computed at an annual rate of 0.4% in excess of the applicable
London interbank rate or, at the option of Hexcel, at the base rate of the
administrative agent for the lenders. In addition, the Revolving Credit
Facility was subject to a commitment fee of approximately 0.2% per annum on the
outstanding face amount of letters of credit and was subject to various
financial covenants and restrictions. The Revolving Credit Facility would have
expired February 1999.
As of March 31, 1998, letters of credit with an aggregate face amount of
$3,700 were outstanding under the Revolving Credit Facility.
NOTE 6 -- PROVISION FOR INCOME TAXES
The income tax provision is determined by the Company's level of
profitability in each jurisdiction in which it is subject to tax. The level of
profitability of the Company by country may vary, which could result in changes
in the effective tax rate and could cause the estimated tax rate in interim
quarters to vary from the actual annual effective tax rate for the year. The
1997 first quarter results benefited from using loss carryforwards to offset
U.S. federal income taxes. The Company had previously provided a valuation
reserve against its U.S. deferred tax assets, which was subsequently reversed in
the third quarter of 1997.
7
<PAGE>
NOTE 7 -- EARNINGS PER SHARE
Computations of basic and diluted earnings per share for the quarters
ended March 31, 1998 and 1997, are as follows:
- --------------------------------------------------------------------------------
1998 1997
- --------------------------------------------------------------------------------
Basic earnings per share:
Net income $ 17,070 $ 8,226
- --------------------------------------------------------------------------------
Weighted average common shares outstanding 36,845 36,582
- --------------------------------------------------------------------------------
Basic earnings per share $ 0.46 $ 0.22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Diluted earnings per share:
Net income $ 17,070 $ 8,226
Effect of dilutive securities -
Senior Subordinated Notes, due 2003 1,264 -
Senior Subordinated Debentures, due 2011 283 -
- --------------------------------------------------------------------------------
Adjusted net income from continuing operations $ 18,617 $ 8,226
- --------------------------------------------------------------------------------
Weighted average common shares outstanding 36,845 36,582
Effect of dilutive securities -
Stock options 1,428 641
Senior Subordinated Notes, due 2003 7,239 -
Senior Subordinated Debentures, due 2011 834 -
- --------------------------------------------------------------------------------
Adjusted weighted average common shares outstanding 46,346 37,223
- --------------------------------------------------------------------------------
Diluted earnings per share $ 0.40 $ 0.22
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
The Convertible Subordinated Notes, due 2003, and the Convertible
Subordinated Debentures, due 2011, were excluded from the 1997 computation of
diluted earnings per share, as they were antidilutive. Substantially all of the
Company's stock options were included in the calculation of diluted earnings per
share for the quarters ended March 31, 1998 and 1997.
NOTE 8 -- COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards Board Statement No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 establishes standards for reporting comprehensive income
and its components, including presentation in an annual financial statement that
is displayed with the same prominence as other annual financial statements.
Various components of comprehensive income may for example, consist of foreign
currency items, minimum pension liability adjustments and unrealized gains and
losses on certain investments classified as available-for-sale.
The Company's total comprehensive income was as follows:
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QUARTER ENDED MARCH 31,
1998 1997
- --------------------------------------------------------------------------------
Net income $ 17,070 $ 8,226
Currency translation adjustment, net of income taxes (1,573) (5,329)
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Total comprehensive income $ 15,497 $ 2,897
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8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
BUSINESS OVERVIEW
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QUARTER ENDED MARCH 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 1998 1997 change
- --------------------------------------------------------------------------------
Sales $256.7 $214.0 20%
Gross margin % 25.7% 21.9% 3.8 PTS
Adjusted operating income % (a) 13.1% 9.0% 4.1 PTS
Adjusted EBITDA (b) $ 43.7 $ 27.7 58%
Net income $ 17.1 $ 8.2 108%
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- --------------------------------------------------------------------------------
Diluted earnings per share $ 0.40 $ 0.22 82%
Pro forma diluted earnings per share (c) $ 0.40 $ 0.22 82%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(a) Excludes business acquisition and consolidation expenses incurred in 1997
(b) Excludes business acquisition and consolidation expenses incurred in 1997,
and interest, taxes, depreciation and amortization
(c) Excludes business acquisition and consolidation expenses incurred in 1997,
and assumes a US tax provision of 36% on a pro forma basis. Diluted and pro
forma earnings per share for 1997 are equal by coincidence
The Company continues to benefit from a strong commercial aerospace market,
advances in manufacturing productivity, improvements from its business
consolidation program and the capacity expansion of its Fibers business.
The Company has now achieved - more than one year ahead of schedule - the
medium term financial goals established a little over a year ago. The goals
which were to be achieved in 1999, were: gross margin and operating income equal
to 25% and 13% of sales, respectively, and return on net assets (operating
income divided by capital employed, "RONA") of 20%. At the time when those
goals were established, gross margins and operating income were 20.5% and 6.7%
of net sales, respectively, and RONA was 11%. The results for the first quarter
of 1998 included gross margin and operating income equal to 25.7% and 13.1% of
net sales, respectively, and RONA of nearly 23%.
RESULTS OF OPERATIONS
NET SALES: The following table summarizes net sales to third-party
customers by product group and market segment for the quarters ended March 31,
1998 and 1997:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
COMMERCIAL SPACE & GENERAL
(IN MILLIONS) AEROSPACE DEFENSE RECREATION INDUSTRIAL TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FIRST QUARTER 1998 NET SALES
Fibers and Fabrics $ 5.7 $ 6.3 $ 8.2 $ 22.7 $ 42.9
Composite Materials 118.1 18.6 10.4 14.7 161.8
Engineered Products 48.4 2.8 - 0.8 52.0
- ------------------------------------------------------------------------------------------------------
Total $ 172.2 $ 27.7 $ 18.6 $ 38.2 $ 256.7
67% 11% 7% 15% 100%
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9
<PAGE>
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FIRST QUARTER 1997 NET SALES
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%
- ------------------------------------------------------------------------------------------------------
</TABLE>
Net sales for the first quarter of 1998 increased by 20% to $256.7 million,
from $214.0 million for the first quarter of 1997. The sales growth was
primarily due to strong sales of composite products to the commercial aerospace
and space and defense markets in both the U.S. and Europe, as well as sales of
engineered products. The increase was partially offset by the translation
effects of a strengthening U.S. dollar on European revenues. On a constant
currency basis, first quarter 1998 sales would have been about $7 million
higher, a 23% increase over the first quarter of 1997.
Commercial aerospace sales increased to $172.2 million for the first
quarter of 1998, from $133.6 million for the first quarter of 1997, an increase
of 29%. Approximately 46% of Hexcel's 1997 net sales were to The Boeing Company
("Boeing"), Airbus Industrie ("Airbus"), and related subcontractors. Based on
announcements made earlier in the year, total estimated Boeing (7-series) and
Airbus production for 1998 is expected to be approximately 56% and 30%,
respectively, greater than that of 1997. Depending on the product, orders
placed with Hexcel are received anywhere between one and eighteen months prior
to delivery of the aircraft to the customer. The Company sells material on
every model of commercial aircraft sold by Boeing and Airbus, with sales per
aircraft ranging from $0.2 million to over $1.0 million per aircraft on the
Boeing 777.
Space and defense net sales for the first quarter of 1998 increased 49% to
$27.7 million, from $18.6 million for the first quarter of 1997. The increase
reflects improved sales of both fibers and composite materials to select
military programs as well as the acquisition of a satellite business from
Fiberite, Inc., on September 30, 1997.
Recreation net sales remained relatively stable for the first quarter 1998
as compared to the first quarter of 1997. The 16% decrease in general
industrial net sales was largely due to the shift in emphasis of production to
the commercial aerospace and space and defense markets as a result of the
increased demand.
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. The Company estimates it
has production capacity and sufficient supplier commitments to purchase carbon
fiber to meet its estimated 1998 and 1999 aerospace customer requirements. In
early 1997, carbon fiber manufacturers, including the Company, announced plans
to increase carbon fiber production capacity. During 1997, the Company
substantially completed a carbon fiber capacity expansion program, with
significant new capacity available for production by the end of 1998. The
expansion program, which cost approximately $16 million, has increased the
Company's capacity by 50%. However, should customer demand grow faster than
expected or the mix or timing of customer requirements change, or if planned
capacity additions are delayed, the Company may not be able to satisfy all of
its customers' requirements.
10
<PAGE>
BACKLOG: The following tables summarize the backlog of orders to be
delivered within twelve months, by product group as of March 31, 1998, December
31, 1997 and March 31, 1997:
- ---------------------------------------------------------------------
RECREATION &
(IN MILLIONS) AEROSPACE 1 INDUSTRIAL TOTAL
- ---------------------------------------------------------------------
AS OF MARCH 31, 1998
fibers and fabrics $ 30.4 $ 28.5 $ 58.9
composite materials 294.5 23.5 318.0
engineered products 168.5 0.5 169.0
- ---------------------------------------------------------------------
total $ 493.4 $ 52.5 $ 545.9
- ---------------------------------------------------------------------
AS OF DECEMBER 31, 1997
fibers and fabrics $ 33.3 $ 24.4 $ 57.7
composite materials 273.2 19.1 292.3
engineered products 170.0 - 170.0
- ---------------------------------------------------------------------
total $ 476.5 $ 43.5 $ 520.0
- ---------------------------------------------------------------------
AS OF MARCH 31, 1997
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
- ---------------------------------------------------------------------
1 Includes both commercial aerospace and space and defense markets
Backlog for aerospace materials was $493.4 million as of March 31, 1998, a
4% increase over backlog as of December 31, 1997 and a 30% increase over backlog
as of March 31, 1997. The increase in backlog is the result of the company
continuing to benefit from a strong commercial aerospace market. The Company
continues to closely watch the economic situation in Asia, along with overall
aircraft orders and production trends, to monitor future growth.
Backlog for the recreation and industrial markets increased 21% to $52.5
million as of March 31, 1998 from $43.5 million as of December 31, 1997. The
backlog was 25% lower than backlog as of March 31, 1997, which is primarily
attributable to a decrease in orders from European rail and energy customers.
Customers in the recreational and industrial markets in general, operate with
little advance purchasing and thus, backlog is subject to certain fluctuations.
The backlog over the next twelve months is therefore, not necessarily a
meaningful indicator of future sales.
GROSS MARGIN: Gross margin for the first quarter of 1998 was $66.1 million,
or 25.7% of net sales, compared with $46.9 million, or 21.9% of net sales, for
the first quarter of 1997. The improvement over the first quarter of 1997
reflects higher sales volume, continued advances in manufacturing productivity,
the benefits from the Company's business consolidation program and the capacity
expansion of its fibers business. Most of the benefits from the business
consolidation program are now in effect, thus the remaining benefits are not
expected to significantly enhance the Company's gross margin. Improvements in
gross margin for the rest of the year are primarily dependent upon sales volume
and mix, manufacturing efficiencies to be gained under the company's new "Lean
Enterprise" initiatives, and to a lesser extent, the successful completion of
the business consolidation program.
OPERATING INCOME: Operating income was $33.7 million in the first quarter
of 1998, or 13.1% of net sales, compared with $16.4 million in the first quarter
of 1997 or 7.7% of net sales. The aggregate increase in operating income
reflects the higher sales volume, improved gross margins and a $2.9 million
decrease in business acquisition and consolidation expenses over the first
quarter 1997. Offsetting the latter, are increases in selling, general and
administrative ("SG&A") and research and technology ("R&T") expenses. SG&A
expenses were $27.2 million, or 10.6% of net sales for the first quarter of 1998
compared with $23.8 million, or 11.1% of net sales for the first quarter of
1997. The increase in SG&A expenses primarily reflects higher sales levels.
R&T expenses were $5.2 million, or 2.0% of net
11
<PAGE>
sales for the first quarter of 1998 compared with $3.8 million, or 1.8% of net
sales for the first quarter of 1997.
PROVISION FOR INCOME TAXES: The effective income tax rate for the first
quarter of 1998 was 36%, compared with 23% for the first quarter of 1997. The
1997 first quarter results benefited from using loss carryforwards to offset
U.S. federal income taxes. The Company had previously provided a reserve for
its U.S. deferred tax assets, which was subsequently reversed in the third
quarter of 1997. Going forward, the Company expects that its effective U.S.
income tax rate will approximate the statutory rate.
The income tax provision is determined by the Company's level of
profitability in each jurisdiction in which it is subject to tax. The level of
profitability of the Company by country may vary, which could result in changes
in the effective tax rate and could cause the estimated tax rate in interim
quarters to vary from the actual annual effective tax rate for the year.
NET INCOME AND NET INCOME PER SHARE: Net income for the first quarter of
1998 was $17.1 million, or $0.40 per diluted share, compared with net income for
the first quarter of 1997 of $8.2 million, or $0.22 per diluted share.
Excluding business acquisition and consolidation expenses of $2.9 million and
assuming an income tax rate of 36% on u.s. pretax income, first quarter 1997 pro
forma earnings would have been $0.22 per diluted share, compared with $0.40 per
diluted share for the first quarter of 1998.
There were 46.3 million weighted-average shares outstanding during the
first quarter of 1998, versus 37.2 million during the first quarter of 1997.
The quarter-over-quarter increase in the number of weighted average shares is
primarily attributable to the inclusion of 8.1 million of potential common
shares relating to the $114.5 million convertible subordinated notes, due 2003
and the $25.6 million convertible subordinated debentures, due 2011, which were
antidilutive in the 1997 period. Refer to note 7 to the accompanying condensed
consolidated financial statements for the calculation and the number of shares
used for diluted earnings per share.
FINANCIAL CONDITION AND LIQUIDITY
REVOLVING CREDIT FACILITY
On March 5, 1998, the Company amended and restated its Revolving Credit
Facility (the "Amended Facility"). The Amended Facility provides for
approximately $100 million in increased borrowing capacity to $355 million, an
extension of the expiration date by four years to March 2003 and more
flexibility as to the use of the borrowings than the Company's prior facility.
The Company continues to be subject to various financial covenants and
restrictions, and is generally prohibited from paying dividends or redeeming
capital stock.
The Company expects that the financial resources of Hexcel, including the
Amended Facility, will be sufficient to fund the Company's worldwide operations
for the foreseeable future. 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, 1998: Adjusted EBITDA was $43.7 million. Net cash used for
operating activities was $5.1 million, as increased working capital of $26.7
million and restructuring payments of $1.8 million more than offset $17.1 of net
income and $6.3 million of non-cash depreciation and amortization and deferred
income taxes. The increase in working capital reflects higher levels of
accounts receivable and inventory, as well as reductions in accrued liabilities
from peak year-end levels, primarily due to the payment of obligations paid in
1998 for capital projects and employee incentive and benefit programs
12
<PAGE>
incurred during 1997. The Company anticipates a decline in its working capital
levels in the second half of the year.
Net cash used for investing activities was $12.3 million, primarily
reflecting $11.5 million of capital expenditures. Net cash provided from
financing activities, which primarily included borrowings under the Revolving
Credit Facility, totaled $11.0 million.
FIRST QUARTER, 1997: Adjusted EBITDA was $27.7 million. Net cash used
by operating activities was $26.3 million, as $40.0 million of increased
working capital attributable to higher sales volumes more than offset $8.2
million of net income and $6.5 million of non-cash depreciation and
amortization and deferred income taxes. 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 seasonally high year-end
levels.
Net cash used for investing activities was $1.9 million, reflecting $6.9
million of capital expenditures partially offset by 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.
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 totaled $11.5 million for the first three months of
1998 compared to $6.9 million in the first three months of 1997. The increase
primarily reflects expenditures on new manufacturing equipment necessary to both
improve manufacturing processes and expand production capacity for select
product lines that are in high demand.
BUSINESS CONSOLIDATION
In 1996, Hexcel announced plans to consolidate the Company's operations
over a period of three years. The objective of the program was 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 program was also
intended to eliminate excess manufacturing capacity and redundant administrative
functions.
As of March 31, 1998, the primary remaining activities of the business
consolidation program relate to the Company's European operations and the
installation and customer qualifications of equipment transferred from the
Anaheim facility to other U.S. locations. These qualification requirements
increase the complexity, cost and time of moving equipment and rationalizing
manufacturing activities. As a result, the Company continues to expect that the
business consolidation program will take to the end of 1998 to complete. Total
expenses for the business consolidation program, which remains unchanged since
December 31, 1997, were $54.7 million. The Company continues to expect to not
incur any significant additional expenses in relation to this program. As of
March 31, 1998, accrued business consolidation costs, representing estimated
cash expenditures remaining to complete the program, were $10.3 million.
13
<PAGE>
JOINT VENTURE ACTIVITIES
In January 1998, the Company reached an agreement in principle with Boeing
and Aviation Industries of China to form a joint venture, BHA Aero Composite
Parts Co., Ltd., to manufacture composite parts for secondary structures and
interior applications on commercial aircraft. This joint venture will be
located in Tianjin, China. In February 1998, the Company signed an agreement
with Boeing, Sime Darby Berhad and Malaysia Helicopter Services to form another
joint venture, Asian Composite Manufacturing Sdn. Bhd., to manufacture composite
parts for secondary structures for commercial aircraft. This joint venture will
be located in Alor Setar, Malaysia. Products manufactured by both joint
ventures will be shipped to the Company's Kent, Washington facility for final
assembly, inspection and shipment to Boeing as well as other customers
worldwide. It is anticipated that the first parts will be delivered to
customers in 2000.
The Company's total estimated financial commitment to both of these joint
ventures will be approximately $31 million, which is expected to be made in
increments through 2000. However, completion of these projects and related
investments remain subject to certain significant conditions, including U.S. and
foreign government approvals.
YEAR 2000
The Company is currently engaged in a comprehensive review to evaluate and
implement its plan to resolve the Year 2000 issue in both existing software and
other systems with embedded microprocessors The Year 2000 issue is the result
of computer programs being written using two digits rather than four to define
the applicable year. Any of the Company's programs that have time-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a major system failure or miscalculations.
The Company presently believes that, with modifications to existing
software and other systems with embedded microprocessors and conversion to
new software and other systems, the Year 2000 issue will not pose significant
operational problems for the Company's computer and other systems as so
modified and converted. However, if such modifications and conversions are
not completed in a timely manner, or the Company's customers and suppliers do
not successfully address their Year 2000 issues, the Year 2000 issue may have
a material impact on the operations of the Company. The Company continues to
evaluate appropriate courses of corrective action, including replacement of
certain systems whose software related costs would be recorded as assets and
amortized. The total cost associated with the required modifications and
conversions is not known at this time, however, it is not expected to be
material to the Company's financial position and is being expensed as
incurred.
RECENTLY ISSUED ACCOUNTING STANDARDS
In March 1998, the American Institute of Certified Public Accountants
issued Statement of Opinion ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This SOP provides guidance
on accounting for the costs of computer software developed or obtained for
internal use. This SOP requires that entities capitalize certain internal-use
software costs once certain criteria are met. The Company is currently
evaluating SOP 98-1, but does not expect it to have a material impact on its
consolidated financial statements. This SOP is effective for financial
statements for fiscal years beginning after December 15, 1998.
14
<PAGE>
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 statements that are not of
historical fact, constitute "forward-looking statements" and accordingly,
involve estimates, assumptions, judgments and uncertainties. There are a number
of factors that could cause actual results or outcomes to differ materially from
those addressed in the forward-looking statements. Such factors are detailed in
the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1997 filed with the Securities and Exchange Commission.
15
<PAGE>
PART II. OTHER INFORMATION
HEXCEL CORPORATION AND SUBSIDIARIES
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits:
4.1 Second Supplemental Indenture dated as of March 5, 1998
between Hexcel and First Trust of California, N.A., as
trustee, to the Indenture dated as of February 29, 1996
between Hexcel and First Trust of California, N.A., as
trustee (Incorporated by reference to Exhibit 4.2(b) to
Hexcel's Annual Report on Form 10-K for the year ended
December 31, 1997).
10.1 Amended and Restated Credit Agreement dated as of March 5,
1998 among Hexcel and certain subsidiaries as borrowers, the
lenders and issuing banks party thereto, Citibank, N.A., as
U.S. administrative agent, Citibank International plc, as
European administrative agent and Credit Suisse, as
syndication agent (Incorporated by reference to Exhibit
10.4(d) to Hexcel's Annual Report on Form 10-K for the year
ended December 31, 1997).
10.2 Form of Performance Accelerated Restricted Stock Unit
Agreement (1998).
27. Financial Data Schedule.
(b) Report:
None.
16
<PAGE>
SIGNATURE
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 6, 1998 /s/ Wayne C. Pensky
--------------- ---------------------------
(Date) Wayne C. Pensky,
Corporate Controller and
Chief Accounting Officer
17
<PAGE>
EXHIBIT 10.2
1998 PERFORMANCE ACCELERATED
RESTRICTED STOCK UNIT AGREEMENT
This Performance Accelerated Restricted Stock Unit Agreement (the
"Agreement"), is entered into as of the Grant Date, by and between Hexcel
Corporation, a Delaware corporation (the "Company"), and the Grantee.
Pursuant to the Hexcel Corporation Incentive Stock Plan (the "Plan"),
the Executive Compensation Committee (the "Committee") of the Board of Directors
of the Company (the "Board") has determined that the Grantee shall be granted
Performance Accelerated Restricted Stock Units ("PARS") upon the terms and
subject to the conditions hereinafter contained. Capitalized terms used but not
defined herein shall have the meanings assigned to them in the Plan.
1. NOTICE OF GRANT; INCORPORATION OF PLAN. A Notice of Grant is
attached hereto as Annex A and incorporated by reference herein. Unless
otherwise provided herein, capitalized terms used in this Agreement and set
forth in the Notice of Grant shall have the meanings ascribed to them in the
Notice of Grant and capitalized terms used in this Agreement and set forth in
the Plan shall have the meanings ascribed to them in the Plan. The Plan is
incorporated by reference and made a part of this Agreement, and this Agreement
shall be subject to the terms of the Plan, as the Plan may be amended from time
to time, provided that any such amendment of the Plan must be made in accordance
with Section X of the Plan. The PARS granted herein constitute an Award within
the meaning of the Plan.
2. TERMS OF RESTRICTED STOCK. The grant of PARS provided in Section
1 hereof shall be subject to the following terms, conditions and restrictions:
(a) The Grantee shall not possess any incidents of ownership
(including, without limitation, dividend and voting rights) in shares of Common
Stock in respect of the PARS until such PARS have vested and been distributed to
the Grantee in the form of shares of Common Stock.
(b) Except as provided in this Section 2 (b), the PARS and any
interest therein may not be sold, assigned, transferred, pledged, hypothecated
or otherwise disposed of, except by will or the laws of descent and
distribution, prior to the distribution of the Common Stock in respect of such
PARS and subject to the conditions set forth in the Plan and this Agreement. Any
attempt to transfer PARS in contravention of this Section is void AB INITIO.
PARS shall not be subject to execution, attachment or other process.
Notwithstanding the foregoing, the Grantee shall be permitted to transfer PARS
to members of this or her immediate family (I.E., children, grandchildren or
spouse), trusts for the benefit of such family members, and partnerships whose
only partners are such family members; provided, however, that no consideration
can be paid for the transfer of the PARS and the transferee of the PARS shall be
subject to all conditions applicable to the PARS (including all of the terms and
conditions of this Agreement) prior to transfer.
<PAGE>
3. VESTING AND CONVERSION OF PARS. The PARS shall vest on (a)
January 1, 2004, or (b) on an earlier date or dates to the extent certain
pre-determined performance criteria (the "PARS Goals") are achieved. The PARS
Goals shall be as follows: if earnings of the Company before taxes (determined
by reference to the Company's audited financial statements) ("EBT") equal or
exceed $110.6 million for any fiscal year of the Company, 33-1/3% (or, if
applicable, an additional 33 1/3%) of the total number of PARS shall become
vested; if EBT for any fiscal year of the Company equals or exceeds $150
million, 66-2/3% (or, if applicable, up to an additional 66 2/3%) of the total
number of PARS shall become vested; and if EBT for any fiscal year of the
Company equals or exceeds $180 million, 100% of the total number of PARS shall
become vested; PROVIDED, HOWEVER, that no more than 100% of the total number of
PARS may become vested. Upon the later to occur of (i) January 1, 2001 or (ii)
the vesting of a certain number of PARS, such vested PARS shall be converted
into an equivalent number of shares of Common Stock that will be immediately
distributed to the Grantee; PROVIDED, HOWEVER, that, to the extent that (and
only to the extent that) the Company would be precluded from deducting the
associated compensation expense because of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"), such PARS shall be converted and
distributed to the Grantee on the first business day of the first year (or
years, if the first deferred distribution shall not include all of such PARS) in
which the Company will not be so precluded; and PROVIDED FURTHER, that no PARS
shall be converted and distributed to the Grantee unless the Grantee is an
employee of the Company (or a Subsidiary) on December 31, 2000. On each
dividend payment date with respect to the Common Stock subsequent to any PARS
becoming fully vested but not yet converted and distributed by virtue of the
immediately preceding proviso, the Company shall credit the Grantee with an
additional number of fully vested whole and partial PARS (assuming each such
PARS unit was a share of Common Stock) equal in value to the amount of dividends
which the Grantee would have received on such dividend payment date if all such
vested PARS (including PARS previously credited to the Grantee pursuant to this
section) which had not yet been converted into shares had been so converted
prior to the record date of such dividend. Such dividends will be credited as
vested PARS as of the payment date of such dividends and such vested PARS shall
thereafter be treated in the same manner as other PARS under this Agreement (the
foregoing method of dividend crediting being referred to herein as being
credited with the "Dividend Equivalent").
Upon the distribution of the shares of Common Stock in respect of the
PARS, the Company shall issue to the Grantee or the Grantee's personal
representative a stock certificate representing such shares of Common Stock,
free of any restrictions.
4. TERMINATION OF EMPLOYMENT; CHANGE OF CONTROL.
(a) For purposes of the grant hereunder, any transfer of employment
by the Grantee among the Company and its Subsidiaries shall not be considered a
termination of employment. Notwithstanding any other provision contained herein
or in the Plan,
<PAGE>
(i) if the Grantee dies or terminates employment due to Disability (as defined
in the last Section hereof), all PARS shall vest, be converted into shares of
Common Stock and be immediately distributed to the Grantee, (ii) if the
Grantee's employment with the Company is involuntarily terminated other than for
Cause (as defined in the last Section hereof), all PARS shall vest, be converted
into shares of Common Stock and be immediately distributed to the Grantee, (iii)
if the Grantee voluntarily terminates employment with the Company, all vested
PARS shall be converted into shares of Common Stock and be immediately
distributed to the Grantee, provided that the Grantee is an employee of the
Company (or a Subsidiary) on December 31, 2000, and (iv) if the Grantee's
employment with the Company terminates due to the Grantee's Retirement (as
defined in the last Section hereof), all PARS shall vest, be converted in shares
of Common Stock and be immediately distributed to the Grantee; PROVIDED,
HOWEVER, that in each case an appropriate number of such PARS shall not be
converted and distributed to the Grantee until the first business day of the
first year in which the Company is not precluded from deducting the associated
compensation expense under Section 162(m) of the Code, but only to the extent
such number of PARS would not be deductible until such time; FURTHER, PROVIDED,
that the Grantee shall, if applicable, be credited with the Dividend Equivalent
with respect to such PARS.
If the Grantee's employment with the Company is involuntarily
terminated for Cause or the Grantee voluntarily terminates his employment with
the Company, the Grantee shall forfeit all PARS which have not yet become vested
as of the date of termination of employment.
(b) In the event of a Change in Control (as defined in the last
Section hereof), all PARS shall vest, be converted into shares of Common Stock
and be immediately distributed to the Grantee.
5. EQUITABLE ADJUSTMENT.
The aggregate number of shares of Common Stock subject to the
PARS shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a subdivision or
consolidation of shares or other capital adjustment, or the payment of a stock
dividend or other increase or decrease in such shares, effected without the
receipt of consideration by the Company, or other change in corporate or capital
structure. The Committee shall also make the foregoing changes and any other
changes, including changes in the classes of securities available, to the extent
reasonably necessary or desirable to preserve the intended benefits under this
Agreement in the event of any other reorganization, recapitalization, merger,
consolidation, spin-off, extraordinary dividend or other distribution or similar
transaction involving the Company.
6. TAXES. The Grantee shall pay to the Company promptly upon
request any taxes the Company reasonably determines it is required to withhold
under applicable tax laws with respect to the PARS. Such payment shall be made
as provided
<PAGE>
in Section IX(f) of the Plan.
7. NO GUARANTEE OF EMPLOYMENT. Nothing set forth herein or in the
Plan shall confer upon the Grantee any right of continued employment for any
period by the Company, or shall interfere in any way with the right of the
Company to terminate such employment.
8. NOTICES. Any notice required or permitted under this Agreement
shall be deemed given when delivered personally, or when deposited in a United
States Post Office, postage prepaid, addressed, as appropriate, to the Grantee
at the last address specified in Grantee's employment records, or such other
address as the Grantee may designate in writing to the Company, or to the
Company, Attention: Corporate Secretary, or such other address as the Company
may designate in writing to the Grantee.
9. FAILURE TO ENFORCE NOT A WAIVER. The failure of either party
hereto to enforce at any time any provision of this Agreement shall in no way be
construed to be a waiver of such provision or of any other provision hereof.
10. GOVERNING LAW. This Agreement shall be governed by and construed
according to the laws of the State of Delaware, without regard to the conflicts
of laws provisions thereof.
11. INCORPORATION OF PLAN. The Plan is hereby incorporated by
reference and made a part of this Agreement, and this Agreement shall be subject
to the terms of the Plan, as the Plan may be amended from time to time, provided
that any such amendment of the Plan must be made in accordance with Section X of
the Plan. The PARS granted herein constitute Awards within the meaning of the
Plan.
12. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together shall
represent one and the same agreement.
13. MISCELLANEOUS. This Agreement cannot be changed or terminated
orally. This Agreement and the Plan contain the entire agreement between the
parties relating to the subject matter hereof. The section headings herein are
intended for reference only and shall not affect the interpretation hereof.
14. DEFINITIONS. For purposes of this Agreement:
(I) the term "Beneficial Owner" (and variants thereof) shall have the
meaning given in Rule 13d-3 promulgated under the Exchange Act;
(II) the term "Cause" shall mean (A) the willful and continued failure by
the Grantee to substantially perform the Grantee's duties with the Company
(other than any such
<PAGE>
failure resulting from the Grantee's incapacity due to physical or mental
illness) after a written demand for substantial performance is delivered to
the Grantee by the Company, which demand specifically identifies the manner
in which the Company believes that the Grantee has not substantially
performed the Grantee's duties, or (B) the willful engaging by the Grantee
in conduct which is demonstrably and materially injurious to the Company or
its subsidiaries, monetarily or otherwise. For purposes of clauses (A) and
(B) of this definition, no act, or failure to act, on the Grantee's part
shall be deemed "willful" unless done, or omitted to be done, by the
Grantee not in good faith and without the reasonable belief that the
Grantee's act, or failure to act, was in the best interest of the Company;
(III) the term "Change in Control" shall mean any of the following events:
(A)(i) any Person (as defined in this Section), is or becomes the
Beneficial Owner of 20% or more of either (x) the then outstanding
Common Stock of the Company (the "Outstanding Common Stock") or (y)
the combined voting power of the then outstanding securities entitled
to vote generally in the election of directors of the Company (the
"Total Voting Power"); excluding, however, the following: (1) any
acquisition by the Company or any of its affiliates or (2) any
acquisition by any employee benefit plan (or related trust) sponsored
or maintained by the Company or any of its affiliates and (ii) Ciba
(as defined in this Section) beneficially owns, in the aggregate, a
lesser percentage of the Total Voting Power than such Person
beneficially owns; or
(B) a change in the composition of the Board such that the
individuals who, as of the effective date of this Agreement,
constitute the Board (such individuals shall be hereinafter referred
to as the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board; PROVIDED, HOWEVER, for purposes of this
definition, that any individual who becomes a director subsequent to
such effective date, whose election, or nomination for election by the
Company's stockholders, was made or approved pursuant to the
Governance Agreement (as defined in this Section) or by a vote of at
least a majority of the Incumbent Directors (or directors whose
election or nomination for election was previously so approved) shall
be considered a member of the Incumbent Board; but, PROVIDED, FURTHER,
that any such individual whose initial assumption of office occurs as
a result of either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or
consents by or on behalf of a person or legal entity other than the
Board shall not be considered a member of the Incumbent Board; or
(C) the approval by the stockholders of the Company of a
reorganization, merger or consolidation or sale or other disposition
of all or sub-
<PAGE>
stantially all of the assets of the Company ("Corporate Transaction");
excluding, however, such a Corporate Transaction (i) pursuant to which
all or substantially all of the individuals and entities who are the
beneficial owners, respectively, of the Outstanding Common Stock and
Total Voting Power immediately prior to such Corporate Transaction
will beneficially own, directly or indirectly, more than 50%,
respectively, of the outstanding common stock and the combined voting
power of the then outstanding securities entitled to vote generally in
the election of directors of the company resulting from such Corporate
Transaction (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries) in substantially the same proportions as their ownership
immediately prior to such Corporate Transaction of the Outstanding
Common Stock and Total Voting Power, as the case may be, or (ii) after
which no Person beneficially owns a greater percentage of the combined
voting power of the then outstanding securities entitled to vote
generally in the election of directors of such corporation than does
Ciba; or
(D) Ciba shall become the Beneficial Owner of more than 57.5% of
the Total Voting Power; or
(E) the approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
(IV) the term "Ciba" shall mean Ciba Specialty Chemicals Holding Inc., a Swiss
corporation, together with its affiliates holding Company voting securities
pursuant to Section 4.01(b) of the Governance Agreement;
(V) the term "Disability" shall mean that, as a result of the Grantee's
incapacity due to physical or mental illness or injury, the Grantee shall not
have performed all or substantially all of the Grantee's usual duties as an
employee of the Company for a period of more than one-hundred-fifty (150) days
in any period of one-hundred-eighty (180) consecutive days;
(VI) the term "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended;
(VII) the term "Governance Agreement" shall have the meaning given in the
Strategic Alliance Agreement (as defined in this Section);
(VIII) the term "Person" shall have the meaning given in Section 3(a)(9) of the
Exchange Act, as modified and used in Sections 13(d) and 14(d) of the Exchange
Act, but excluding Ciba for so long as Ciba is subject to the restrictions
imposed by the Governance Agreement;
<PAGE>
(IX) the term "Retirement" shall mean termination of the Grantee's employment,
other than by reason of death or Cause, either (A) at or after age 65 or (B) at
or after age 55 after five (5) years of employment by the Company (or a
Subsidiary thereof); and
(X) the term "Strategic Alliance Agreement" shall mean the Strategic Alliance
Agreement among the Company, Ciba-Geigy Limited and Ciba-Geigy Corporation,
dated as of September 29, 1995, as amended, and any of their respective
permitted successors or assigns thereunder.
<PAGE>
ANNEX A
NOTICE OF GRANT
PERFORMANCE ACCELERATED RESTRICTED STOCK UNITS
HEXCEL CORPORATION INCENTIVE STOCK PLAN
The following employee of Hexcel Corporation, a Delaware corporation
("Hexcel") or a Subsidiary, has been granted performance accelerated restricted
stock units in accordance with the terms of this Notice of Grant and the
Agreement to which this Notice of Grant is attached.
The terms below shall have the meanings ascribed to them below when used in
the Agreement.
Grantee
Address of Grantee
Employee Number
Employee ID Number
Foreign Sub Plan, if applicable
Grant Date
Aggregate Number of PARS
Granted
IN WITNESS WHEREOF, the parties hereby agree to the terms of this Notice of
Grant and the Agreement to which this Notice of Grant is attached and execute
this Notice of Grant and the Agreement as of the Grant Date.
- ------------------------------ HEXCEL CORPORATION
Grantee
By:
-------------------------
Name:
-----------------------
Title:
------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 3,173
<SECURITIES> 0
<RECEIVABLES> 193,706
<ALLOWANCES> (4,580)
<INVENTORY> 177,578
<CURRENT-ASSETS> 397,126
<PP&E> 496,873
<DEPRECIATION> (164,548)
<TOTAL-ASSETS> 821,918
<CURRENT-LIABILITIES> 169,463
<BONDS> 350,223
0
0
<COMMON> 369
<OTHER-SE> 266,404
<TOTAL-LIABILITY-AND-EQUITY> 821,918
<SALES> 256,741
<TOTAL-REVENUES> 256,741
<CGS> 190,645
<TOTAL-COSTS> 32,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,967
<INCOME-PRETAX> 26,769
<INCOME-TAX> 9,699
<INCOME-CONTINUING> 17,070
<DISCONTINUED> 0
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<CHANGES> 0
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