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
January 25, 1999 (January 20, 1999)
________________________________________________
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 January 20, 1999 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 January 20,
1999.
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: January 25, 1999
HEXCEL CORPORATION
By: /s/ Ira J. Krakower
-----------------------------------
Name: Ira J. Krakower
Title: Senior Vice President,
General Counsel and
Secretary
EXHIBIT INDEX
Exhibit No. Description
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99.1 Press Release issued by the Company on January 20,
1999
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 1998 FOURTH QUARTER AND YEAR-END RESULTS
ADJUSTED EPS FOR FULL YEAR 1998 INCREASES 22% OVER 1997
BUSINESS ACQUISITION AND CONSOLIDATION CHARGE OF $12 MILLION RECORDED IN
FOURTH QUARTER
STAMFORD, CT, January 20, 1999 - Hexcel Corporation (NYSE/PCX: HXL) today
reported net income for the fourth quarter ended December 31, 1998 of $1.9
million, or $0.05 per diluted share, compared with $12.3 million, or $0.30
per diluted share, for the fourth quarter ended December 31, 1997.
Adjusting both periods to exclude business acquisition and consolidation
expenses, diluted earnings per share for the fourth quarter of 1998 were
$0.25 per diluted share compared with $0.36 for the same period in 1997.
For the year, net income was $50.4 million or $1.24 per diluted share.
Adjusted earnings per diluted share for 1998 increased 22 percent to $1.43,
up from $1.17 for 1997 after adjusting both periods to exclude business
acquisition and consolidation expenses and other acquisition related costs
and assuming a US tax rate of 36% for 1997 (third quarter 1997 results
included a nonrecurring credit from reversing a $39 million deferred tax
reserve against the income tax provision).
<TABLE>
<CAPTION>
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Quarter Ended December 31, Year Ended December 31,
(In millions, except per share data) 1998 1997 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales $303.5 $254.6 $1,089.0 $936.9
Gross margin % 23.8% 24.7% 24.9% 23.8%
Adjusted operating income % (a) 9.7% 11.9% 11.9% 10.9%
Adjusted EBITDA (b) $46.1 $38.2 $177.2 $137.6
Business acquisition & $12.0 $4.2 $12.7 $25.3
consolidation expenses
Net income $1.9 $12.3 $50.4 $73.6
Adjusted net income (c) $9.6 $15.0 $59.2 $47.6
- -------------------------------------------------------------------------------------------
Diluted earnings per share $0.05 $0.30 $1.24 $1.74
Adjusted diluted earnings per share (c) $0.25 $0.36 $1.43 $1.17
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</TABLE>
(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 rate of 36% for 1997
FOURTH QUARTER, 1998 RESULTS
Net sales for the fourth quarter of 1998 increased 19 percent to $303.5
million, compared with sales of $254.6 million for the fourth quarter of
1997. The acquisition of the fabrics business of Clark- Schwebel in
September 1998 increased fourth quarter 1998 sales by $51.4 million.
Excluding these sales, fourth quarter 1998 sales were approximately
comparable to the 1997 period. An increase in composite materials sales to
European commercial aerospace customers was offset by lower sales in the
US.
Adjusted EBITDA (earnings before business acquisition and consolidation
expenses, interest, taxes, depreciation and amortization) for the fourth
quarter of 1998 was $46.1 million compared with $38.2 million in the 1997
period. The Clark-Schwebel US operations, before the benefit of their
European and Asian joint ventures, accounted for about $12.0 million of
EBITDA for the quarter. Fourth quarter results were impacted primarily by
carbon fiber inventory corrections, and productivity improvements and
inventory reductions throughout the commercial aerospace supply chain.
BUSINESS IMPROVEMENT PROGRAMS
In the fourth quarter, the company consolidated and integrated its global
fabrics businesses (Hexcel's existing fabrics business and the recently
acquired US operations of Clark-Schwebel) and its global composite
materials businesses (the previously separate US, European and Pacific Rim
operations). By eliminating redundancies, Hexcel expects to achieve
approximately $10 million of annual cash savings beginning in 1999. The
estimated cost of these actions, together with a $6.4 million non-cash
charge for writing down certain assets held for disposition, resulted in
$12 million of business acquisition and consolidation expenses, or $0.20
per diluted share after taxes, in the fourth quarter.
In addition, the company is energetically pursuing its Lean Enterprise
program to eliminate waste, improve productivity and shorten production
cycle times. The program includes supply chain management to drive
inventory reductions, improve yields and reduce overall costs. Further, the
company is taking advantage of its global presence to maximize purchasing
power for its materials procurements. These actions will result in
significant additional on-going savings.
MANAGEMENT'S COMMENTS
Commenting on Hexcel's financial results, John J. Lee, the company's
chairman and chief executive officer said, "For the first time, Hexcel's
annual sales exceeded $1 billion and adjusted EBITDA and adjusted net
income were at record company highs. Adjusted earnings per share for 1998
was the third consecutive year of record performance, up 22 percent from
1997. In addition, our acquisition of the Clark-Schwebel business
accomplished a strategic objective for Hexcel. The acquisition diversifies
Hexcel's business beyond our base in commercial aerospace and establishes
Hexcel as a leading global materials supplier to the electronics industry,
which has attractive long-term growth potential."
Mr. Lee continued, "1999 will be a year of consolidation for Hexcel. Our
focus now is on executing our operating plans, capitalizing on the benefits
of our vertical integration and generating cash flow to repay debt. Our
goal remains to generate $100 million of free cash flow by the end of
1999."
Mr. Lee concluded, "With respect to our outlook on commercial aerospace, we
continue to see this as a robust market on a global basis with the
potential for sustained production levels well above 700 aircraft annually.
Hexcel has a strong and balanced position with both of the primary aircraft
manufacturers. There will be further upside potential at such point as Asia
recovers from its current recession. Nevertheless, the company's business
plans are focused on adjusting our costs and manufacturing capacity to earn
attractive returns."
BACKLOG
The backlog of orders scheduled for delivery in the next 12 months
increased to $493 million as of December 31, 1998 compared with $422
million as of September 30, 1998 and $520 million as of December 31, 1997.
Most of the change occurred in the aerospace market, and reflects a number
of factors including a continuing trend towards shorter lead times and
better supply chain management by the industry overall. The non-aerospace
backlog as of December 31, 1998 was $41 million, compared with $37 million
as of September 30, 1998 and $44 million as of December 31, 1997. Customers
in the non-aerospace markets tend to operate with little advance
purchasing, making backlog for these markets not a material trend
indicator. The Clark-Schwebel Business also operates with nominal backlog.
DEBT REFINANCED
On January 15, 1999, Hexcel entered into an agreement to issue $240 million
of 9 3/4% senior subordinated notes due 2009 ("Notes") pursuant to Rule
144A of the Securities Act of 1933. Hexcel expects that this private
offering will close on January 21, 1999, and net proceeds of this offering
will be used to prepay indebtedness under its bank credit facility. The
Notes issued pursuant to the offering will have registration rights but
will not be initially registered under the Securities Act of 1933, and may
not be offered or sold in the United States without registration or an
applicable exemption from registration requirements. This press release
shall not constitute an offer to sell or the solicitation of an offer to
buy the Notes.
FULL YEAR RESULTS
Hexcel's net income for the year ended December 31, 1998 was $50.4 million,
or $1.24 per diluted share. This compares with net income of $73.6 million,
or $1.74 per diluted share for the year ended December 31, 1997. Excluding
business acquisition and consolidation expenses and other acquisition
related costs and assuming an income tax rate of 36% on 1997 US pretax
income, Hexcel's adjusted earnings for the year ended December 31, 1998
increased 22 percent to $1.43 per diluted share, from $1.17 per diluted
share for the year ended December 31, 1997. The year ended December 31,
1998 results include the US operations of the Clark-Schwebel business since
the September 15, 1998 acquisition date. Sales and EBITDA for the
Clark-Schwebel US operations, before the benefit of their European and
Asian joint ventures, from this date through December 31, 1998, were $58.4
million and $13.4 million, respectively. The unconsolidated revenues in
1998 of Clark-Schwebel's European and Asian joint ventures were in excess
of $300 million.
Net sales for the year ended December 31, 1998 grew by 16 percent to $1,089
million, compared with $937 million for the comparable 1997 period. Gross
margin for 1998 increased to 24.9 percent of sales from 23.8 percent of
sales for 1997.
* * *
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.
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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, diluted earnings per share, excess cash flow, and annual savings
from Lean Enterprise and business acquisition and consolidation programs.
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 Europe and 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.
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<TABLE>
<CAPTION>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Unaudited
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Quarter Ended December 31, Year Ended December 31,
(In thousands, except per share data) 1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Net sales $ 303,463 $ 254,606 $ 1,089,044 $ 936,855
Cost of sales 231,368 191,648 817,785 714,223
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Gross margin 72,095 62,958 271,259 222,632
Selling, general and
administrative expenses 35,793 27,679 117,885 102,449
Research and technology expenses 6,718 4,860 23,624 18,383
Business acquisition and
consolidation expenses 12,000 4,193 12,711 25,343
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Operating income 17,584 26,226 117,039 76,457
Interest expense 15,508 7,417 38,675 25,705
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Income before income taxes 2,076 18,809 78,364 50,752
Provision for (recovery of) income taxes 700 6,488 28,442 (22,878)
Equity in earnings of affiliated companies 517 - 517 -
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Net income $ 1,893 $ 12,321 $ 50,439 $ 73,630
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Net income per share:
Basic $ 0.05 $ 0.33 $ 1.38 $ 2.00
Diluted(1) 0.05 0.30 1.24 1.74
Weighted average shares:
Basic 36,302 36,845 36,675 36,748
Diluted 36,779 46,458 45,671 45,997
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</TABLE>
(1) The Convertible Subordinated Notes, due 2003, and the Convertible
Subordinated Debentures, due 2011, were excluded from the fourth quarter
1998 computation of diluted earnings per share, as they were antidilutive.
OTHER SELECTED FINANCIAL DATA
Unaudited
-----------------------------
Year Ended December 31,
(In millions) 1998 1997
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Total assets $ 1,404.2 $ 811.6
Working capital 225.4 200.7
Cash 7.5 9.0
Total debt 864.9 353.4
Net assets acquired 472.8(2) 29.0(3)
Capital expenditures 66.5 57.4
Depreciation and amortization 47.5 35.8
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(2) Excludes $50 million of leases for property, plant and equipment.
(3) Excludes $8 million of a write-off of purchased in-process research and
technology expenses.
HEXCEL CORPORATION AND SUBSIDIARIES
NET SALES TO THIRD-PARTY CUSTOMERS BY PRODUCT GROUP AND MARKET SEGMENT
<TABLE>
<CAPTION>
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Unaudited
--------------------------------------------------------------------------------
COMMERCIAL SPACE & GENERAL
(In millions) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL RECREATION TOTAL
- -----------------------------------------------------------------------------------------------------------
FOURTH QUARTER 1998 NET SALES
<S> <C> <C> <C> <C> <C> <C>
Fibers and Fabrics $ 10.7 $ 4.8 $ 45.2 $ 23.7 $ 3.0 $ 87.4
Composite Materials 107.8 22.8 - 20.3 7.3 158.2
Engineered Products 54.4 3.5 - - - 57.9
- --------------------- -------------------------------------------------------------------------------------
Total $ 172.9 $ 31.1 $ 45.2 $ 44.0 $ 10.3 $ 303.5
57% 10% 15% 15% 3% 100%
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FOURTH QUARTER 1997 NET SALES
Fibers and Fabrics $ 5.7 $ 3.8 $ 10.7 $ 17.1 $ 5.0 $ 42.3
Composite Materials 114.8 18.4 - 17.2 8.5 158.9
Engineered Products 50.2 3.2 - - - 53.4
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Total $ 170.7 $ 25.4 $ 10.7 $ 34.3 $ 13.5 $ 254.6
67% 10% 4% 14% 5% 100%
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YTD 1998 NET SALES
Fibers and Fabrics $ 24.7 $ 26.4 $ 85.0 $ 71.1 $ 17.6 $ 224.8
Composite Materials 453.3 89.6 - 61.9 38.6 643.4
Engineered Products 209.6 11.2 - - - 220.8
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Total $ 687.6 $ 127.2 $ 85.0 $ 133.0 $ 56.2 $1,089.0
63% 12% 8% 12% 5% 100%
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YTD 1997 NET SALES
Fibers and Fabrics $ 23.7 $ 13.9 $ 48.3 $ 71.2 $ 13.0 $ 170.1
Composite Materials 403.9 64.2 - 63.9 53.4 585.4
Engineered Products 169.8 10.2 - 1.4 - 181.4
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Total $ 597.4 $ 88.3 $ 48.3 $ 136.5 $ 66.4 $ 936.9
64% 9% 5% 15% 7% 100%
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</TABLE>
BACKLOG OF ORDERS BY MARKET SEGMENT1
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Unaudited
-----------------------------------------
NON-
(In millions) AEROSPACE(2) AEROSPACE(3) TOTAL
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AS OF DECEMBER 31, 1998
Fibers and Fabrics $ 12.4 $ 14.1 $ 26.5
Composite Materials 267.0 26.5 293.5
Engineered Products 172.7 0.4 173.1
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Total $ 452.1 $ 41.0 $ 493.1
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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
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Total $ 384.9 $ 37.4 $ 422.3
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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
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Total $ 476.5 $ 43.5 $ 520.0
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(1) Backlog consists of orders scheduled for delivery within 12 months
(2) Includes commercial aerospace and space and defense markets
(3) Includes electronics, general industrial and recreation markets
