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
July 21, 1999 (July 19,1999)
________________________________________________
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.
Copies of the press releases issued by Hexcel Corporation, a
Delaware corporation (the "Company") on July 20, 1999 and July 19, 1999 are
filed as Exhibits 99.1 and 99.2, respectively, to this Current Report and
are 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 July 20, 1999.
99.2 Press Release issued by the Company on July 19, 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: July 21, 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
----------- -----------
99.1 Press Release issued by the Company on July 20, 1999.
99.2 Press Release issued by the Company on July 19, 1999.
EXHIBIT 99.1
NEWS RELEASE
Hexcel Corporation, 281 Tresser Boulevard, Stamford, CT 06901 (203) 969-0666
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 1999 SECOND QUARTER RESULTS
FREE CASH FLOW FOR THE QUARTER REACHES $24 MILLION
STAMFORD, CT, July 20, 1999 - Hexcel Corporation (NYSE/PCX: HXL) today
reported net income for the second quarter of 1999 of $4.3 million, or
$0.12 per diluted share, compared with $20.0 million, or $0.46 per diluted
share, for the second quarter of 1998. Excluding business acquisition and
consolidation expenses of $1.4 million ($0.9 million after tax) incurred in
the second quarter of 1999, diluted earnings per share were $0.14. For the
quarter ended June 30, 1999, Hexcel generated free cash flow (change in
debt net of cash) of $24 million, which exceeded preliminary estimates.
The generation of free cash flow was used to repay Hexcel's debt.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------
Quarter Ended June 30,
Pro Forma
(In millions, except per share data) 1999 1998 (a) 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 292.7 $ 324.8 $ 273.5
Gross margin % 22.6% 25.5% 26.0%
Adjusted operating income % (b) 9.0% 13.7% 13.9%
Adjusted EBITDA (c) $ 42.0 $ 59.2 $ 48.0
Business acquisition and consolidation expenses $ 1.4 $ - $ -
Net income $ 4.3 $ 20.1 $ 20.0
Adjusted net income (b) $ 5.2 $ 20.1 $ 20.0
--------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.12 $ 0.47 $ 0.46
Adjusted diluted earnings per share (b) $ 0.14 $ 0.47 $ 0.46
--------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Pro forma results gives effect to the September 1998 acquisition of
Clark Schwebel, as if the transaction had occurred at the beginning of
1998.
(b) Excludes business acquisition and consolidation expenses and related
income taxes, as applicable.
(c) Excludes business acquisition and consolidation expenses, interest,
taxes, depreciation, amortization, and equity in earnings of
affiliated companies.
Net sales for the second quarter of 1999 increased 7% to $292.7 million,
compared with $273.5 million for the second quarter of 1998. Pro forma
sales for the second quarter of 1998, which gives effect to the September
1998 acquisition of Clark Schwebel as if the transaction had occurred at
the beginning of 1998, were $324.8 million. Changes in foreign exchange
rates did not have any significant effect on these comparisons. Hexcel's
gross margin for the second quarter of 1999 was 22.6% of sales, compared
with 26.0% for the second quarter of 1998. Pro forma second quarter 1998
gross margin was 25.5%.
The decreases in sales and gross margin percentage compared to 1998 pro
forma results reflect reduced sales volume to the commercial aerospace
market as a result of the supply chain impacts of Boeing's planned
reduction in deliveries in 2000, lower prices in the global electronics
market because of intensified competition from Asia, and lower production
and sales of carbon fiber products. These impacts have been partially
offset by various cost savings initiatives. The global electronics market
conditions also affected the performance of the company's joint ventures in
Europe and Japan, reducing the amount of equity income that the company
recognized.
Adjusted EBITDA (earnings before business acquisition and consolidation
expenses, interest, taxes, depreciation, amortization, and equity in
earnings of affiliated companies) for the second quarter of 1999 was $42.0
million, compared with $48.0 million for the comparable 1998 period. Pro
forma second quarter 1998 Adjusted EBITDA was $59.2 million. Second quarter
1999 results were impacted by the factors noted above.
Commenting on Hexcel's second quarter results, John J. Lee, the company's
chairman and chief executive officer said "Compared to the first quarter,
the company's sales of composite materials to the commercial aerospace
market were lower by about $20 million mainly due to efforts by Boeing and
its subcontractors to adjust inventories and procurement in anticipation of
lower aircraft production in 2000. In addition, excess supply in the carbon
fiber industry made it difficult for the company to sell its surplus
capacity. On a positive note, the prices for our electronic products have
been relatively stable during the quarter after the reductions seen in the
first quarter of 1999. Nevertheless, taken together, these factors have
resulted in weaker performance this quarter than we originally estimated."
"In these current market conditions," Mr. Lee continued, "Hexcel remains
committed to improving performance by continuing to reduce costs and
increase productivity through our business consolidation, global
procurement and Lean Enterprise initiatives." In the second quarter, Hexcel
recorded $1.4 million of business acquisition and consolidation expenses,
primarily for employee severance costs for administrative positions. The
company also expects to record a further charge of $1.2 million relating to
the closing of its Cleveland, Georgia plant, which is expected to be
completed in the third quarter of 1999. Benefits from these initiatives are
helping to offset some of the impact of lower prices and sales volumes.
Commenting on Hexcel's progress in repaying debt, Mr. Lee said, "Despite
our current market conditions, we are making good progress in generating
cash to repay debt through better management of working capital and capital
expenditures. Our free cash flow for the quarter enabled us to repay $24
million of debt, or $4 million greater than the high end of our earlier
second quarter estimates. Our primary areas of short term focus continue to
be the reduction of costs and the generation of free cash flow to repay
debt over the balance of 1999."
Commenting on the medium term outlook, Mr. Lee concluded, "While Hexcel
today continues to contend with the cyclical impact of the Asian economic
crisis on its commercial aerospace and electronics businesses, we remain
confident of the longer term potential of these markets. The reported
improvements in the non-Japanese Asian economies establish the foundation
for a future upturn in demand as these global industries return to growth.
Meanwhile, a number of new US and European military aircraft programs
continue to move towards full scale production starting as early as late
2000."
<TABLE>
<CAPTION>
YEAR-TO-DATE RESULTS
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Year-to-Date Ended June 30,
Pro Forma
(In millions, except per share data) 1999 1998 1998
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $ 608.9 $ 642.0 $ 530.3
Gross margin % 22.5% 25.5% 25.9%
Adjusted operating income % 9.2% 13.5% 13.6%
Adjusted EBITDA $ 87.6 $ 116.7 $ 91.8
Business acquisition & consolidation expense $ 4.2 $ - $ -
Net income $ 9.5 $ 38.3 $ 37.0
Adjusted net income $ 12.2 $ 38.3 $ 37.0
--------------------------------------------------------------------------------------------------------------
Diluted earnings per share $ 0.26 $ 0.89 $ 0.86
Adjusted diluted earnings per share $ 0.33 $ 0.89 $ 0.86
--------------------------------------------------------------------------------------------------------------
</TABLE>
Hexcel's net income for the six months ended June 30, 1999 was $9.5
million, or $0.26 per diluted share. This compares with net income of $37.0
million, or $0.86 per diluted share for the first half of 1998. Excluding
business acquisition and consolidation expenses of $4.2 million, net income
for the first half of 1999 was $0.33 per diluted share. Net sales and gross
margin for the first half of 1999 were $608.9 million and 22.5% of sales,
respectively, compared with $530.3 million and 25.9% of sales,
respectively, for the comparable 1998 period. Changes in foreign exchange
rates did not have any significant effect on these comparisons. Adjusted
EBITDA for the first half of 1999 was $87.6 million, compared with $91.8
million for the same period last year. Pro forma net sales and gross margin
for the comparable 1998 period were $642.0 million and 25.5%, respectively,
and pro forma Adjusted EBITDA was $116.7 million. The reduction in 1999
year-to-date results were caused by the same factors as those described
earlier for the second quarter results.
* * *
Hexcel Corporation is the world's leading advanced structural materials
company. It develops, manufactures and markets lightweight,
high-performance reinforcement products, composite materials and engineered
products for use in commercial aerospace, space and defense, electronics,
general industrial and recreational 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,
free cash flow, currency, build rates and government defense procurement
budgets. 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, currency and government procurement. 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 June 30, Year-to-Date Ended June 30,
(In millions, except per share data) 1999 1998 1999 1998
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 292.7 $ 273.5 $ 608.9 $ 530.3
Cost of sales 226.4 202.3 471.8 393.0
- --------------------------------------------------------------------------------------------------------------------
Gross margin 66.3 71.2 137.1 137.3
Selling, general and administrative expenses 33.7 27.2 68.1 54.3
Research and technology expenses 6.3 5.9 12.8 11.1
Business acquisition and consolidation expenses 1.4 - 4.2 -
- --------------------------------------------------------------------------------------------------------------------
Operating income 24.9 38.1 52.0 71.9
Interest expense 18.4 6.7 37.5 13.7
- --------------------------------------------------------------------------------------------------------------------
Income before income taxes 6.5 31.4 14.5 58.2
Provision for income taxes 2.3 11.4 5.1 21.2
Equity in earnings of affiliated companies 0.1 - 0.1 -
- --------------------------------------------------------------------------------------------------------------------
Net income $ 4.3 $ 20.0 $ 9.5 $ 37.0
- --------------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 0.12 $ 0.54 $ 0.26 $ 1.00
Diluted 0.12 0.46 0.26 0.86
Weighted average shares:
Basic 36.5 36.9 36.4 36.9
Diluted 36.6 46.5 36.5 46.4
- --------------------------------------------------------------------------------------------------------------------
The Company's convertible subordinated notes, due 2003, and its convertible
subordinated debentures, due 2011, were excluded from the 1999 computations
of diluted net income per share, as they were antidilutive.
</TABLE>
<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
- --------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 1999 NET SALES
<S> <C> <C> <C> <C> <C> <C>
Reinforcement products $ 13.4 $ 5.5 $ 42.2 $ 20.9 $ 1.2 $ 83.2
Composite materials 101.8 24.4 - 17.7 12.3 156.2
Engineered products 48.6 3.4 - 1.3 - 53.3
- --------------------------------------------------------------------------------------------------------------------
Total $ 163.8 $ 33.3 $ 42.2 $ 39.9 $ 13.5 $ 292.7
56% 11% 14% 14% 5% 100%
- --------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1999 NET SALES
Reinforcement products $ 11.7 $ 5.5 $ 42.3 $ 21.5 $ 4.8 $ 85.8
Composite materials 122.4 27.5 - 18.3 9.0 177.2
Engineered products 48.9 3.3 - 1.0 - 53.2
- --------------------------------------------------------------------------------------------------------------------
Total $ 183.0 $ 36.3 $ 42.3 $ 40.8 $ 13.8 $ 316.2
58% 11% 13% 13% 5% 100%
- --------------------------------------------------------------------------------------------------------------------
PRO FORMA SECOND QUARTER 1998 NET SALES
Reinforcement products $ 13.0 $ 7.4 $ 45.4 $ 27.6 $ 4.2 $ 97.6
Composite Materials 122.9 22.9 - 12.6 12.2 170.6
Engineered Products 53.3 2.3 - 1.0 - 56.6
- --------------------------------------------------------------------------------------------------------------------
Total $ 189.2 $ 32.6 $ 45.4 $ 41.2 $ 16.4 $ 324.8
58% 10% 14% 13% 5% 100%
- --------------------------------------------------------------------------------------------------------------------
SEGMENT DATA
- --------------------------------------------------------------------------------------------------------------------
Unaudited
------------------------------------------------------------------------------
Reinforcement Composite Engineered Corporate
(In Millions) Products Materials Products & Other(1) Total
- --------------------------------------------------------------------------------------------------------------------
Second Quarter 1999
- --------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 83.2 $ 156.2 $ 53.3 $ - $ 292.7
Intersegment sales 31.0 1.8 - - 32.8
- --------------------------------------------------------------------------------------------------------------------
Total sales 114.2 158.0 53.3 - 325.5
Adjusted EBIT(2) 11.2 19.8 3.6 (8.4) 26.2
Depreciation and amortization 8.9 5.0 1.0 0.9 15.8
Capital expenditures 3.2 3.8 1.4 0.1 8.5
- --------------------------------------------------------------------------------------------------------------------
FIRST QUARTER 1999
- --------------------------------------------------------------------------------------------------------------------
Net sales to external customers 85.8 177.2 53.2 - 316.2
Intersegment sales 35.7 2.8 - - 38.5
- --------------------------------------------------------------------------------------------------------------------
Total sales 121.5 180.0 53.2 - 354.7
Adjusted EBIT 10.3 26.4 2.6 (9.3) 30.0
Depreciation and amortization 8.9 5.0 1.0 0.7 15.6
Capital expenditures 4.2 3.5 1.6 0.1 9.4
- --------------------------------------------------------------------------------------------------------------------
PRO FORMA SECOND QUARTER 1998
- --------------------------------------------------------------------------------------------------------------------
Net sales to external customers 97.6 170.6 56.6 - 324.8
Intersegment sales 35.1 3.2 - - 38.3
- --------------------------------------------------------------------------------------------------------------------
Total sales 132.7 173.8 56.6 - 363.1
Adjusted EBIT 22.0 23.1 5.5 (6.2) 44.4
Depreciation and amortization 8.8 4.3 0.9 0.8 14.8
Capital expenditures 5.8 8.8 2.0 1.0 17.6
- --------------------------------------------------------------------------------------------------------------------
- -------------
1 The company does not allocate corporate expenses to its business
segments.
2 Consists of earnings before interest, taxes, and business acquisition and
consolidation expenses.
</TABLE>
<TABLE>
<CAPTION>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------
Unaudited
--------------------------------------------
June 30, December 31,
(In millions, except per share data) 1999 1998
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 5.7 $ 7.5
Accounts receivable 191.5 188.4
Inventories 201.0 213.2
Prepaid expenses and other assets 5.8 10.1
Deferred tax asset 22.0 19.8
- --------------------------------------------------------------------------------------------------------------------
Total current assets 426.0 439.0
Property, plant and equipment 618.0 628.5
Less accumulated depreciation (207.9) (195.9)
- --------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 410.1 432.6
Goodwill and other purchased intangibles, net of accumulated
amortization of $18.2 in 1999 and $11.7 in 1998 417.8 425.4
Investment in affiliated companies and other assets 115.9 107.2
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 1,369.8 $ 1,404.2
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease obligations $ 29.5 $ 26.9
Accounts payable 85.8 81.8
Accrued liabilities 102.9 110.7
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 218.2 219.4
Long-term notes payable and capital lease obligations 784.8 802.4
Indebtedness to related parties 23.9 35.7
Other non-current liabilities 42.7 44.3
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 1,069.6 1,101.8
Stockholders' equity:
Preferred stock, no par value, 20.0 stock authorized,
no stock issued or outstanding in 1999 and 1998 - -
Common stock, $0.01 par value, 100.0 stock authorized,
stock issued and outstanding of 37.2 in 1999 and 1998 0.4 0.4
Additional paid-in capital 272.6 271.5
Retained earnings 44.4 34.9
Accumulated other comprehensive income (loss) (6.5) 6.3
- --------------------------------------------------------------------------------------------------------------------
310.9 313.1
Less- treasury stock, at cost, 0.8 stock in 1999 and 1998 (10.7) (10.7)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 300.2 302.4
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,369.8 $ 1,404.2
- --------------------------------------------------------------------------------------------------------------------
Total debt, net of cash $ 832.5 $ 857.5
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- ---------------------------------------------------------------------------------------------------------------------
Unaudited
--------------------------------------------
Year-to-Date Ended June 30,
(In millions) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 9.5 $ 37.0
Reconciliation to net cash provided (used) by operations:
Depreciation and amortization 31.5 19.9
Deferred income taxes (1.9) 7.3
Accrued business acquisition and consolidation expenses 4.2 -
Business acquisition and consolidation payments (6.6) (3.1)
Working capital changes and other 11.4 (38.2)
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 48.1 22.9
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (18.0) (27.3)
Advances to affiliated companies - (0.8)
- ---------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (18.0) (28.1)
- ---------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of credit facilities, net (247.3) (2.5)
Proceeds from long-term debt and capital lease obligations, net 224.8 2.4
Debt issuance costs (9.5) -
Activity under stock plans 0.7 2.4
- ---------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (31.3) 2.3
- ---------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (0.6) 0.9
- ---------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (1.8) (2.0)
Cash and cash equivalents at beginning of year 7.5 9.0
- ---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 5.7 $ 7.0
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
EXHIBIT 99.2
NEWS RELEASE
Hexcel Corporation, 281 Tresser Boulevard, Stamford, CT 06901 (203) 969-0666
CONTACTS INVESTORS:
STEPHEN C. FORSYTH
203-969-0666 EXT. 425
[email protected]
MEDIA:
RONALD S. ZIEMBA
203-969-0666 EXT. 405
[email protected]
HEXCEL CORPORATION
SUCCESSFULLY COMPLETES EXCHANGE OFFER
STAMFORD, CT, July 19, 1999 - Hexcel Corporation (NYSE/PCX: HXL) announced
today that its offer to exchange its outstanding 9 3/4% Senior Subordinated
Notes due 2009, which were sold under Rule 144A of the Securities Act of
1933, for a like principal amount of new 9 3/4% Senior Subordinated Notes
due 2009, which have been registered under the Securities Act of 1933,
expired at 5:00 p.m. Eastern Daylight Time on July 19, 1999. Hexcel has
accepted for exchange all old notes validly tendered pursuant to that
exchange offer.
According to the exchange agent for the exchange offer, holders tendered
for exchange $240,000,000 in aggregate principal amount of the old notes as
of the expiration of the exchange offer. The old notes tendered for
exchange constitute 100% of the old notes outstanding on the date the
exchange offer was launched.
The new notes are scheduled to be issued July 20, 1999 to holders whose
securities have been validly tendered and accepted for exchange pursuant to
the terms of the exchange offer.
Hexcel Corporation is the world's leading advanced structural materials
company. It develops, manufactures, and markets lightweight,
high-performance reinforcement products, composite materials and engineered
products for use in commercial aerospace, space and defense, electronics,
recreation and general industrial applications.
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