SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
October 21, 1999 (October 19, 1999)
------------------------------------------------
Date of report (Date of earliest event reported)
Hexcel Corporation
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(Exact Name of Registrant as Specified in Charter)
Delaware 1-8472 94-1109521
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(State of (Commission File No.) (IRS Employer
Incorporation) Identification No.)
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
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(Address of Principal Executive Offices and Zip Code)
(203) 969-0666
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(Registrant's telephone number, including area code)
N/A
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
A copy of the press release issued by Hexcel Corporation, a Delaware
corporation (the "Company"), on October 19, 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 October 19, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned hereunto duly authorized.
Dated: October 21, 1999
HEXCEL CORPORATION
By: /s/ Kirk G. Forbeck
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Name: Kirk G. Forbeck
Title: Chief Accounting Officer
EXHIBIT INDEX
Exhibit No. Description
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99.1 Press Release issued by the Company on October 19, 1999
EXHIBIT 99.1
NEWS RELEASE
Hexcel Corporation, 281 Tresser Boulevard, Stamford, CT 06901 (203) 969-0666
CONTACT: STEPHEN C. FORSYTH
203-969-0666 EXT. 425
[email protected]
HEXCEL REPORTS 1999 THIRD QUARTER RESULTS
NET LOSS OF $30.1 MILLION INCLUDES BUSINESS CONSOLIDATION EXPENSES OF
$13.6 MILLION AND A $20 MILLION NON-RECURRING NON-CASH CHARGE TO
WRITE-DOWN A JOINT VENTURE INVESTMENT
$28 MILLION IN FREE CASH FLOW FOR THE QUARTER USED TO REPAY DEBT
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Quarter Ended September 30,
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Pro Forma
(In millions, except per share data) 1999 1998 (a) 1998
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<S> <C> <C> <C>
Net sales $ 274.1 $ 289.3 $ 255.3
Gross margin % 18.8% 23.9% 24.2%
Adjusted operating income % (b) 6.0% 10.7% 11.1%
Adjusted EBITDA (c) $ 32.0 $ 45.6 $ 39.4
Business acquisition and consolidation expenses $ 13.6 $ 0.7 $ 0.7
Net income (loss) $ (30.1) $ 9.3 $ 11.5
Adjusted net income (loss) (d) $ (1.3) $ 9.7 $ 12.8
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Diluted net income (loss) per share $ (0.82) $ 0.24 $ 0.29
Adjusted diluted net income (loss) per share (d) $ (0.04) $ 0.25 $ 0.32
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(a) Pro forma results give 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 ("BA&C") expenses.
(c) Excludes BA&C expenses, interest, taxes, depreciation, amortization, and
equity in income and write-down of an investment in affiliated companies.
(d) Excludes BA&C expenses and other acquisition related costs, net of
applicable tax benefits, and a write-down of an investment in an affiliated
company.
STAMFORD, CT, October 19, 1999 - Hexcel Corporation (NYSE/PCX: HXL) today
reported a net loss for the third quarter of 1999 of $30.1 million, or $0.82 per
diluted share, compared with net income of $11.5 million, or $0.29 per diluted
share, for the third quarter of 1998. Excluding business acquisition and
consolidation expenses of $13.6 million and a non-recurring $20.0 million
non-cash charge to write-down a joint venture investment, the net loss per
diluted share for the third quarter of 1999 was $0.04. This compares to net
income of $0.32 per diluted share for the same period in 1998, excluding
business acquisition and consolidation expenses of $0.7 million and other
acquisition related costs. Adjusted EBITDA for the quarter was $32.0 million
compared with $45.6 million a year ago. For the quarter ended September 30,
1999, Hexcel generated free cash flow (measured as the change in debt net of
cash) of $28.2 million. The outstanding balance of the company's debt has now
been reduced by $52.8 million since the beginning of the year.
BUSINESS TRENDS
Sales for both the 1999 third quarter and 1999 year-to-date have declined by
approximately 5% compared to 1998 pro forma results. The reduction primarily
reflects the impact of excess manufacturing capacity in carbon fiber markets and
declining Boeing build rates, partially offset by emerging growth in electronic
and general industrial markets:
o CARBON FIBER - Sales of carbon fiber have been depressed throughout 1999
due to inventory adjustments in aerospace markets and greater competition
in industrial applications. Significant increases in the installed capacity
of the carbon fiber industry during the past year have made it difficult
for the company to sell its own excess carbon fiber capacity, resulting in
an operating utilization rate for the company that is now less than 60%.
The company anticipates that demand for its carbon fiber products will grow
as new military aircraft programs move into full scale production and the
company develops new applications for its products.
o COMMERCIAL AEROSPACE - The supply chain impacts of Boeing's anticipated
reduction in aircraft deliveries in 2000 accounted for approximately 60% of
the decline in commercial aerospace sales in the quarter. (Hexcel delivers
product into the Boeing supply chain on average about six months prior to
aircraft delivery). The balance of the decline is attributable to inventory
adjustments in excess of build rate changes by aerospace customers in the
US, Europe and certain export markets, in connection with their efforts to
improve working capital and reduce manufacturing cycle times, and to price
reductions for certain commercial aerospace products made at the start of
the year in response to market conditions.
o ELECTRONICS - Sales to the electronics market grew in the quarter due to
increased demand for lightweight fabrics used in the construction of
multi-layer printed circuit boards. Although prices remained depressed, the
increased sales volumes lifted dollar margins to the same level as in the
1998 third quarter. The company continues to believe that the electronics
market offers growth potential, and anticipates that demand for lightweight
glass fabrics will continue to grow, fueled by consumer demand for personal
electronics devices.
o GENERAL INDUSTRIAL - Increased sales to general industrial markets reflect
growing use of Hexcel materials in applications such as wind energy and
automobiles.
THIRD QUARTER GROSS MARGIN AND ADJUSTED EBITDA
Gross margin for the third quarter was $51.5 million, or $17.8 million less than
for the 1998 pro forma quarter. The impact of price reductions, unabsorbed costs
and inventory effects offset the reductions in costs resulting from lower sales
volumes and the company's cost reduction programs. Throughout 1999, the reduced
volume of carbon fiber sales and resulting unabsorbed costs in this high fixed
cost product line has impacted profitability. The impact on gross margin in the
third quarter is estimated to be about $10 million compared to the third quarter
of 1998. Lower prices in electronics (net of raw material cost reductions) and
commercial aerospace markets account for approximately $6 million of the
reduction in gross margin. The margin benefit from the growth in electronics
sales volumes fully offset the impact of lower electronics pricing, resulting in
dollar margins being at the same level as the third quarter of 1998. Reduced
sales volumes from commercial aerospace build rate and inventory reductions,
together with all other changes, account for a further $8 million decline. These
decrements in gross margin were partially offset by realized cost reductions
from the company's previously announced business consolidation initiatives and
other actions of approximately $6 million in the quarter. Such cost savings are
anticipated to grow in subsequent quarters as the company's cost reduction
initiatives are completed.
Adjusted EBITDA for the quarter was $13.6 million lower than for the comparable
pro forma quarter in 1998. The impact of lower gross margins was partially
offset by lower selling, general and administrative expenses resulting from the
company's previously announced cost reduction initiatives.
THE CHALLENGE FOR HEXCEL
Commenting on Hexcel's third quarter results, Mr. John J. Lee, the Chairman and
CEO observed, "As anticipated, commercial aerospace revenues declined in the
quarter as the impact of Boeing's planned lower deliveries for 2000 reduced
demand across their supply chain. In most of its businesses, Hexcel is now
operating in a year 2000 delivery rate environment. However, this reduction was
amplified during the quarter by the efforts of certain customers to lower their
inventory levels and move toward shorter manufacturing cycle times. Such efforts
are clearly gaining momentum in the aerospace industry, as a number of
companies, including Hexcel, accelerate the adoption of lean manufacturing
practices. Taken together, these factors resulted in weaker third quarter
performance than we had originally anticipated."
"Hexcel is responding to these market challenges," noted Mr. Lee, "by reducing
costs, increasing productivity through our business consolidation and Lean
Enterprise initiatives, and by generating cash to repay debt. Actions that we
have taken during the last twelve months have eliminated over 700 positions
(approximately 10% of the total workforce), and reduced the company's annual
operating costs by more than $25 million. In addition, those actions have
significantly reduced inventory and capital expenditures, contributing to our
ability to generate free cash flow and repay debt."
Mr. Lee continued, "Having completed our manufacturing capacity review in
September, we announced a new business consolidation program focused on
manufacturing rationalization. The objectives of this program are to eliminate
excess capacity and overhead, improve manufacturing focus and yields, and create
additional centers of manufacturing excellence. This new program, which is
outlined in more detail in the attached business consolidation fact sheet, is
expected to reduce the company's workforce by an additional 400 people, and
generate additional annual cost savings of more than $23 million by 2001. The
payback on the total program is expected to be achieved in less than eighteen
months. Meanwhile, the previously announced closure of our Cleveland, GA
facility, which was successfully completed on September 3, 1999, is expected to
contribute annual cost savings of another $3.5 million, beginning in the fourth
quarter of this year."
NEW BUSINESS CONSOLIDATION PROGRAM
Results for the third quarter of 1999 include $13.6 million of business
acquisition and consolidation expenses, most of which is attributable to the new
business consolidation program announced on September 27, 1999. The company
anticipates that the new program will take a little more than two years to
complete, and will result in total business acquisition and consolidation
expenses of approximately $30 million, including $12 million of non-cash
write-downs. The total cash cost of the program is estimated at $24 million,
including $6 million in capital expenditures.
The 1999 third quarter results also include a previously announced $20.0
million, non-cash write-down of an investment in a joint venture, which is
included in "Equity in income and write-down of an investment in affiliated
companies" in the accompanying condensed consolidated statement of operations.
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YEAR-TO-DATE RESULTS
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Year-to-Date Ended September 30,
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Pro Forma
(In millions, except per share data) 1999 1998 1998
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<S> <C> <C> <C>
Net sales $ 883.0 $ 931.3 $ 785.6
Gross margin % 21.4% 25.0% 25.4%
Adjusted operating income % 8.2% 12.6% 12.8%
Adjusted EBITDA $ 119.6 $ 162.4 $ 131.1
Business acquisition & consolidation expenses $ 17.8 $ 0.7 $ 0.7
Net income (loss) $ (20.6) $ 47.6 $ 48.5
Adjusted net income $ 10.9 $ 48.0 $ 49.8
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Diluted net income (loss) per share $ (0.56) $ 1.13 $ 1.15
Adjusted diluted net income per share $ 0.30 $ 1.14 $ 1.18
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Hexcel's net loss for the nine months ended September 30, 1999 was $20.6
million, or $0.56 per diluted share. This compares with net income of $48.5
million, or $1.15 per diluted share, for the first nine months of 1998.
Excluding business acquisition and consolidation expenses of $17.8 million and a
$20.0 million non-cash write-down of an investment in a joint venture during the
first nine months of 1999, net income was $0.30 per diluted share. This compares
to net income of $1.18 per diluted share for the same period in 1998, excluding
$1.3 million of business acquisition and consolidation expenses and other
related costs.
CASH GENERATION AND DEBT REDUCTION
Mr. Lee noted, "Hexcel has continued to make progress in generating free cash
flow to repay debt. Since September 30, 1998, the company has generated $77.2
million in cash for debt reduction, prior to paying the final installment on the
Clark-Schwebel transaction in December 1998 ($19.0 million) and the cost of
issuing our senior subordinated notes in January 1999 ($9.5 million). This
compares to our goal of generating $100 million in free cash flow for the five
quarter period ending December 31, 1999. As business conditions have become more
difficult, we have become more aggressive in managing working capital and
capital expenditures, and have successfully reduced both. Inventories have now
been reduced by $41.8 million, or 19%, since September 30, 1998. Capital
expenditures for the first nine months of 1999 were $26.7 million, compared to
$41.7 million for the comparable 1998 period, a reduction of 36%. Although we do
not expect to repeat the strength of performance we have seen in the last two
quarters, we do expect to generate at least $10 million in additional free cash
flow in the fourth quarter, and to continue to reduce the leverage in our
balance sheet."
FULL YEAR OUTLOOK
Commenting on the outlook for the rest of the year, Mr. Lee said, "Hexcel will
continue to confront challenging conditions in its carbon fiber business and in
commercial aerospace markets, as well as ongoing demands from customers in a
variety of markets to reduce costs, shorten lead times and improve service. Not
only are we committed to meeting and exceeding our customers' expectations, but
we are committed to doing so in a manner that will enhance the long-term
profitability of Hexcel. As a result, we are continuously evaluating ways to
deliver our products and services more quickly and more efficiently. However, it
will take some time for our business consolidation and Lean Enterprise
initiatives to generate the full amount of the expected benefits. As we look to
the last quarter of this year, we expect only nominal improvement in our
operating margins as a percentage of sales, and anticipate that net income will
remain close to breakeven before business consolidation expenses."
* * *
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.
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DISCLAIMER ON FORWARD LOOKING STATEMENTS
This press release contains statements that are forward looking, including
statements relating to market conditions (including commercial aircraft build
rates, military aircraft build rates, competition and industry capacity), sales
volumes, sales prices, customer inventory reductions, cost reductions, business
consolidation plans and activities (including estimated cash costs, expenses,
savings, personnel reductions, and program timing), operating margins, net
income, free cash flows and debt reduction. 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, inability to re-qualify manufacturing sites
or products, and currency exchange rate changes. 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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HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
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Unaudited
- -----------------------------------------------------------------------------------------------------------------------------
Quarter Ended September 30, Year-to-Date Ended September 30,
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Pro Forma Pro Forma
(In millions, except per share data) 1999 1998 1998 1999 1998 1998
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<S> <C> <C> <C> <C> <C> <C>
Net sales $ 274.1 $ 289.3 $ 255.3 $ 883.0 $ 931.3 $ 785.6
Cost of sales 222.6 220.0 193.5 694.4 698.1 586.4
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Gross margin 51.5 69.3 61.8 188.6 233.2 199.2
Selling, general and
administrative expenses 29.4 32.1 27.7 97.5 97.0 82.1
Research and technology expenses 5.8 6.4 5.8 18.6 18.6 16.9
Business acquisition and
consolidation expenses 13.6 0.7 0.7 17.8 0.7 0.7
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Operating income 2.7 30.1 27.6 54.7 116.9 99.5
Interest expense 18.4 16.6 9.5 55.9 49.1 23.2
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Income (loss) before income taxes (15.7) 13.5 18.1 (1.2) 67.8 76.3
Recovery of (provision for) income
taxes 5.5 (4.9) (6.6) 0.4 (24.6) (27.8)
Equity in income and write-down of an
investment in affiliated companies (19.9) 0.7 - (19.8) 4.4 -
- -----------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (30.1) $ 9.3 $ 11.5 $ (20.6) $ 47.6 $ 48.5
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Net income (loss) per share:
Basic $ (0.82) $ 0.25 $ 0.31 $ (0.56) $ 1.30 $ 1.32
Diluted (0.82) 0.24 0.29 (0.56) 1.13 1.15
Weighted average shares:
Basic 36.5 36.7 36.7 36.4 36.8 36.8
Diluted 36.5 45.4 45.4 36.4 46.1 46.1
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The Company's convertible subordinated notes, due 2003, and its convertible
subordinated debentures, due 2011, were excluded from the 1999 computations of
net loss per share, as they were antidilutive.
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HEXCEL CORPORATION AND SUBSIDIARIES
NET SALES TO THIRD-PARTY CUSTOMERS BY PRODUCT GROUP AND MARKET SEGMENT
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Unaudited
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COMMERCIAL SPACE & GENERAL
(In millions) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL RECREATION TOTAL
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<S> <C> <C> <C> <C> <C> <C>
THIRD QUARTER 1999 NET SALES
Reinforcement products $ 12.3 $ 4.2 $ 40.6 $ 23.2 $ 1.0 $ 81.3
Composite materials 79.5 26.1 - 16.5 10.5 132.6
Engineered products 54.7 3.5 - 2.0 - 60.2
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Total $ 146.5 $ 33.8 $ 40.6 $ 41.7 $ 11.5 $ 274.1
54% 12% 15% 15% 4% 100%
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PRO FORMA THIRD QUARTER 1998 NET SALES
Reinforcement products $ 11.2 $ 7.0 $ 36.5 $ 23.1 $ 4.4 $ 82.2
Composite materials 113.7 22.5 - 12.6 8.5 157.3
Engineered products 45.9 2.6 - 1.3 - 49.8
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Total $ 170.8 $ 32.1 $ 36.5 $ 37.0 $ 12.9 $ 289.3
59% 11% 13% 13% 4% 100%
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SECOND QUARTER 1999 NET SALES
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
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Total $ 163.8 $ 33.3 $ 42.2 $ 39.9 $ 13.5 $ 292.7
56% 11% 14% 14% 5% 100%
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SEGMENT DATA
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Unaudited
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REINFORCEMENT COMPOSITE ENGINEERED CORPORATE
(In millions) PRODUCTS MATERIALS PRODUCTS & OTHER(1) TOTAL
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<S> <C> <C> <C> <C> <C>
THIRD QUARTER 1999
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Net sales to external customers $ 81.3 $ 132.6 $ 60.2 $ - $ 274.1
Intersegment sales 24.9 2.1 - - 27.0
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Total sales 106.2 134.7 60.2 - 301.1
Adjusted EBIT(2) 6.3 12.6 5.8 (8.4) 16.3
Depreciation and amortization 8.9 5.0 1.0 0.8 15.7
BA&C expenses 3.5 8.2 1.3 0.6 13.6
Write-down of an investment in an
affiliated company 20.0 - - - 20.0
Capital expenditures 3.0 4.2 1.5 - 8.7
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PRO FORMA THIRD QUARTER 1998
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Net sales to external customers $ 82.2 $ 157.3 49.8 $ - $ 289.3
Intersegment sales 30.5 3.1 - - 33.6
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Total sales 112.7 160.4 49.8 - 322.9
Adjusted EBIT 15.8 18.7 3.6 (7.2) 30.9
Depreciation and amortization 8.5 4.5 0.9 0.8 14.7
BA&C expenses - - - 0.7 0.7
Capital expenditures 4.2 8.0 1.7 1.2 15.1
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SECOND QUARTER 1999
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Net sales to external customers $ 83.2 $ 156.2 $ 53.3 $ - $ 292.7
Intersegment sales 31.0 1.8 - - 32.8
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Total sales 114.2 158.0 53.3 - 325.5
Adjusted EBIT 11.2 19.8 3.6 (8.4) 26.2
Depreciation and amortization 8.9 5.0 1.0 0.9 15.8
BA&C expenses 1.4 - - - 1.4
Capital expenditures 3.2 3.8 1.4 0.1 8.5
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- -------------------
(1) The company does not allocate corporate expenses to its business segments.
(2) Consists of earnings before interest, taxes, business acquisition and
consolidation ("BA&C") expenses, and equity in income and write-down of an
investment in affiliated companies.
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HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
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Unaudited
-----------------------------------
SEPTEMBER 30, December 31,
(In millions, except per share data) 1999 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 7.8 $ 7.5
Accounts receivable 172.5 188.4
Inventories 182.9 213.2
Prepaid expenses and other assets 6.1 10.1
Deferred tax asset 24.3 19.8
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Total current assets 393.6 439.0
Property, plant and equipment 618.7 628.5
Less accumulated depreciation (220.4) (195.9)
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Net property, plant and equipment 398.3 432.6
Goodwill and other purchased intangibles, net of accumulated
amortization of $21.7 in 1999 and $11.7 in 1998 414.9 425.4
Investment in affiliated companies and other assets 105.0 107.2
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Total assets $ 1,311.8 $ 1,404.2
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease obligations $ 35.7 $ 26.9
Accounts payable 76.5 81.8
Accrued liabilities 105.4 110.7
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Total current liabilities 217.6 219.4
Long-term notes payable and capital lease obligations 752.5 802.4
Indebtedness to related parties 24.0 35.7
Other non-current liabilities 43.5 44.3
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Total liabilities 1,037.6 1,101.8
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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 273.2 271.5
Retained earnings 14.3 34.9
Accumulated other comprehensive income (loss) (3.0) 6.3
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284.9 313.1
Less- treasury stock, at cost, 0.8 stock in 1999 and 1998 (10.7) (10.7)
- -------------------------------------------------------------------------------------------------------
Total stockholders' equity 274.2 302.4
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Total liabilities and stockholders' equity $ 1,311.8 $ 1,404.2
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Total debt, net of cash $ 804.4 $ 857.5
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HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------------
Unaudited
------------------------------------
Year-to-Date Ended September 30,
(In millions) 1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (20.6) $ 48.5
Reconciliation to net cash provided by operating activities:
Depreciation and amortization 47.1 30.9
Deferred income taxes (10.8) 7.5
Business acquisition and consolidation expenses 17.8 0.7
Business acquisition and consolidation payments (7.8) (6.9)
Equity in income and write-down of an investment in
affiliated companies 19.8 -
Working capital changes and other 43.6 (29.9)
- ------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 89.1 50.8
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (26.7) (41.7)
Cash paid for the Clark-Schwebel Business, net of $5.0 of acquired cash - (453.0)
Advances to affiliated companies (2.0) (1.3)
- ------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (28.7) (496.0)
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds (repayments) of credit facilities, net (273.4) 442.3
Proceeds from long-term debt and capital lease obligations, net 223.6 0.6
Debt issuance costs (10.8) -
Purchase of treasury stock - (10.7)
Activity under stock plans 1.3 2.1
- ------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities (59.3) 434.3
- ------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (0.8) 5.8
- ------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 0.3 (5.1)
Cash and cash equivalents at beginning of year 7.5 9.0
- ------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 7.8 $ 3.9
- ------------------------------------------------------------------------------------------------------------
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HEXCEL CORPORATION AND SUBSIDIARIES
SEPTEMBER 1999 BUSINESS CONSOLIDATION PROGRAM
FACT SHEET
- --------------------------------------------------------------------------------
PROGRAM OBJECTIVES:
Improve both the company's responsiveness to customer needs and its
profitability through rationalization of certain product manufacturing
operations to:
o Eliminate excess manufacturing capacity.
o Continue to focus manufacturing into centers of manufacturing excellence
based on product technologies or specific customers.
o Improve manufacturing quality, productivity & cycle times.
o Reduce manufacturing fixed cost overhead.
PROGRAM DIMENSIONS:
o Total cash cost of $24 million, including capital expenditures of
$6 million.
o Total business consolidation expenses of $30 million, of which $12 million
is for non-cash write-downs of existing assets.
o Annualized operating cost savings of more than $23 million by 2001.
o Net payback on the cash investment in approximately 18 months.
o Total net workforce reduction of 400 people.
o Total reduction in occupied floor space of over 250,000 square feet.
SIGNIFICANT PROGRAM ACTIONS:
The business consolidation program consists of a number of initiatives, the most
significant of which are:
REINFORCEMENT PRODUCTS - The consolidation of the production of US glass
and aramid fabrics used in industrial and recreational applications into
the Anderson, SC facility. Going forward, the Seguin, TX facility will
focus on being the US center of excellence for aerospace and carbon
fabrics.
COMPOSITE MATERIALS - The Livermore, CA facility will be the center of
excellence for prepregs manufactured by the solvent impregnation process.
Production of certain solvent impregnation products at the Lancaster, OH
facility will be transferred to Livermore, and Lancaster will focus on the
production of prepreg substrates used in Hexcel's manufacture of honeycomb
materials and parts.
The Salt Lake City, UT facility will be the center of excellence for
prepregs manufactured by the hot-melt impregnation process. Production of
hot-melt impregnation products at the Livermore facility will be
transferred to Salt Lake City.
US marketing, research and technology, and administrative functions will be
consolidated into one location.
ENGINEERED PRODUCTS - The production of engineered structures and OEM
aircraft interiors will be consolidated into the Kent, WA facilities, and
the Bellingham, WA facility will focus on the design and manufacture of
retrofit components for the aircraft interior aftermarket.
<PAGE>
OTHER BUSINESS CONSOLIDATION PROGRAMS:
During 1999 Hexcel has also been working to complete prior business
consolidation initiatives:
o Completion of the reductions in selling, general and administrative
activities in connection with the globalization of the Composite Materials
business and the consolidation of the Clark-Schwebel acquisition with
Hexcel's existing reinforcement product activities to create a global
business unit.
o Closure of the Cleveland, GA fabrics facility, which was completed on
September 3, 1999 and is anticipated to generate $3.5 million in annualized
savings beginning in the fourth quarter, 1999.
o The sale of a small Italian engineered products business, which was
completed in the second quarter, 1999.
o September 1999 year-to-date cash costs associated with these business
consolidation activities have been $7.8 million. $4.3 million of this
amount ($2.3 million non-cash) has been expensed.
o Personnel reductions associated with these activities have totaled more
than 700 people (about 10% of Hexcel's workforce) since September 1998.
<TABLE>
<CAPTION>
SEPTEMBER 1999 BUSINESS CONSOLIDATION PROGRAM
PROJECTED FINANCIAL SUMMARY - UNAUDITED
- -----------------------------------------------------------------------------------------
(In millions, except for "Other Facts") 1999 2000 2001 2002 TOTAL
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Estimated Cash Costs
Cash expense $ 3 $12 $ 2 $ 1 $18
Capital expenditures - 4 1 1 6
- -----------------------------------------------------------------------------------------
Total $ 3 $16 $ 3 $ 2 $24
- -----------------------------------------------------------------------------------------
Estimated Expenses
Cash expenses (including accruals) $ 5 $11 $ 1 $ 1 $18
Non-cash write downs 11 1 - - 12
- -----------------------------------------------------------------------------------------
Total $16 $12 $ 1 $ 1 $30
- -----------------------------------------------------------------------------------------
Estimated Cash Savings $ 1 $12 $23 $24 $60
- -----------------------------------------------------------------------------------------
OTHER FACTS
- -----------------------------------------------------------------------------------------
Reduction in personnel 400
Reduction in occupied space 250,000 square feet
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
TOTAL ACCRUED BUSINESS ACQUISITION AND CONSOLIDATION EXPENSES - UNAUDITED
- -------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY & NON-CASH
SEVERANCE & EQUIPMENT ASSET
(In millions) RELOCATION RELOCATION WRITE-DOWNS TOTAL
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance as of January 1, 1999 $ 5.9 $ 2.3 $ - $ 8.2
Business acquisition and consolidation expenses 2.1 - 2.1 4.2
Cash expenditures (4.9) (1.7) - (6.6)
Non-cash usage - - (2.1) (2.1)
- -------------------------------------------------------------------------------------------------------------------
Balance as of June 30, 1999 $ 3.1 $ 0.6 $ - $ 3.7
- -------------------------------------------------------------------------------------------------------------------
Business acquisition and consolidation expenses 1.8 0.8 11.0 13.6
Cash expenditures (0.8) (0.4) - (1.2)
Non-cash usage - (0.2) (11.0) (11.2)
- -------------------------------------------------------------------------------------------------------------------
Balance as of September 30, 1999 $ 4.1 $ 0.8 $ - $ 4.9
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
