================================================================================
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, 2000
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
<PAGE>
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 10, 2000
----- ---------------------------
COMMON STOCK 36,650,246
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<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
o Condensed Consolidated Balance Sheets--
March 31, 2000 and December 31, 1999 2
o Condensed Consolidated Statements of
Operations -- The Quarters Ended
March 31, 2000 and 1999 3
o Condensed Consolidated Statements of
Cash Flows -- The Quarters Ended
March 31, 2000 and 1999 4
o Notes to Condensed Consolidated
Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 19
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 19
SIGNATURE 20
<PAGE>
<TABLE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------
UNAUDITED
------------------------------------
<CAPTION>
<S> <C> <C>
MARCH 31, DECEMBER 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 4.8 $ 0.2
Accounts receivable 177.1 158.6
Inventories 164.0 153.7
Prepaid expenses and other assets 3.7 5.1
Deferred tax asset 10.1 10.2
- -----------------------------------------------------------------------------------------------------------------
Total current assets 359.7 327.8
Property, plant and equipment 612.2 614.5
Less accumulated depreciation (230.5) (222.4)
- -----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 381.7 392.1
Goodwill and other purchased intangibles, net of accumulated
amortization of $28.2 in 2000 and $24.9 in 1999 407.6 411.2
Investments in affiliated companies and other assets 141.0 130.8
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 1,290.0 $ 1,261.9
- -----------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease obligations $ 26.4 $ 34.3
Accounts payable 88.7 80.3
Accrued liabilities 94.8 95.9
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 209.9 210.5
Long-term notes payable and capital lease obligations 738.3 712.5
Indebtedness to a related party 24.1 24.1
Other non-current liabilities 47.4 44.7
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 1,019.7 991.8
Stockholders' equity:
Preferred stock, no par value, 20.0 shares authorized,
no shares issued or outstanding in 2000 and 1999 - -
Common stock, $0.01 par value, 100.0 shares authorized, shares
issued and outstanding of 37.5 in 2000 and 37.4 in 1999 0.4 0.4
Additional paid-in capital 274.2 273.6
Retained earnings 14.2 11.6
Accumulated other comprehensive loss (7.8) (4.8)
- -----------------------------------------------------------------------------------------------------------------
281.0 280.8
Less - treasury stock, at cost, 0.8 shares in 2000 and 1999 (10.7) (10.7)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 270.3 270.1
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,290.0 $ 1,261.9
- -----------------------------------------------------------------------------------------------------------------
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- -----------------------------------------------------------------------------------------------------------------
UNAUDITED
----------------------------------
<CAPTION>
<S> <C> <C>
QUARTER ENDED MARCH 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999
- -----------------------------------------------------------------------------------------------------------------
Net sales $ 279.8 $ 316.2
Cost of sales 217.6 245.4
- -----------------------------------------------------------------------------------------------------------------
Gross margin 62.2 70.8
Selling, general and administrative expenses 32.9 34.4
Research and technology expenses 6.3 6.5
Business consolidation expenses 1.2 2.8
- -----------------------------------------------------------------------------------------------------------------
Operating income 21.8 27.1
Interest expense 18.4 19.1
- -----------------------------------------------------------------------------------------------------------------
Income before income taxes 3.4 8.0
Provision for income taxes 1.2 2.8
Equity in income of affiliated companies (0.4) -
- -----------------------------------------------------------------------------------------------------------------
Net income $ 2.6 $ 5.2
- -----------------------------------------------------------------------------------------------------------------
Net income per share:
Basic $ 0.07 $ 0.14
Diluted 0.07 0.14
Weighted average shares:
Basic 36.6 36.4
Diluted 36.8 36.5
- -----------------------------------------------------------------------------------------------------------------
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
UNAUDITED
-------------------------------------
<S> <C> <C>
QUARTER ENDED MARCH 31,
(IN MILLIONS) 2000 1999
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2.6 $ 5.2
Reconciliation to net cash provided by (used for) operations:
Depreciation and amortization 15.0 15.6
Deferred income taxes (4.5) (1.2)
Accrued business consolidation expenses 1.2 2.8
Business consolidation payments (2.0) (2.2)
Equity in income of affiliated companies (0.4) -
Working capital changes and other (18.0) (2.9)
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) operating activities (6.1) 17.3
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (4.4) (9.4)
Investments in affiliated companies (3.4) -
- ----------------------------------------------------------------------------------------------------------------------
Net cash used for investing activities (7.8) (9.4)
- ----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayments of) the senior credit facility, net 26.5 (229.3)
Proceeds from (repayments of) long-term debt and capital lease obligations, net (7.9) 225.7
Debt issuance costs (0.9) (9.0)
Activity under stock plans 0.1 0.2
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities 17.8 (12.4)
- ----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 0.7 (0.5)
- ----------------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents 4.6 (5.0)
Cash and cash equivalents at beginning of year 0.2 7.5
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 4.8 $ 2.5
- ----------------------------------------------------------------------------------------------------------------------
<FN>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
</FN>
</TABLE>
4
<PAGE>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN MILLIONS, 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, 2000, and the
results of operations and cash flows for the quarters ended March 31, 2000 and
1999. The condensed consolidated balance sheet of the Company as of December 31,
1999 was derived from the audited 1999 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 have been reclassified to conform to the 2000 presentation.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's 1999 Annual Report on Form 10-K.
<TABLE>
NOTE 2 -- INVENTORIES
<S> <C> <C>
- --------------------------------------------------------------------------- -------------------- -------------------
3/31/00 12/31/99
- --------------------------------------------------------------------------- -------------------- -------------------
Raw materials $ 73.4 $ 55.5
Work in progress 54.9 47.8
Finished goods 35.7 50.4
- --------------------------------------------------------------------------- ----- -------------- ---- --------------
Total inventories $ 164.0 $ 153.7
- --------------------------------------------------------------------------- ----- -------------- ---- --------------
NOTE 3 -- NOTES PAYABLE, CAPITAL LEASE OBLIGATIONS AND INDEBTEDNESS TO A RELATED PARTY
- --------------------------------------------------------------------------- -------------------- -------------------
3/31/00 12/31/99
- --------------------------------------------------------------------------- -------------------- -------------------
Senior credit facility $ 330.8 $ 303.0
European credit and overdraft facilities 6.4 14.8
Senior subordinated notes, due 2009 240.0 240.0
Convertible subordinated notes, due 2003 114.4 114.4
Convertible subordinated debentures, due 2011 25.6 25.6
Various notes payable 0.4 0.4
- --------------------------------------------------------------------------- ----- -------------- ---- --------------
Total notes payable 717.6 698.2
Capital lease obligations 47.1 48.6
Senior subordinated note payable to a related party,
net of unamortized discount of $0.9 as of March 31, 2000 and
December 31, 1999 24.1 24.1
- --------------------------------------------------------------------------- ----- -------------- ---- --------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 788.8 $ 770.9
- --------------------------------------------------------------------------- ----- -------------- ---- --------------
5
<PAGE>
- --------------------------------------------------------------------------- -------------------- -------------------
3/31/00 12/31/99
- --------------------------------------------------------------------------- -------------------- -------------------
Notes payable and current maturities of long-term liabilities $ 26.4 $ 34.3
Long-term notes payable and capital lease obligations,
less current maturities 738.3 712.5
Indebtedness to a related party 24.1 24.1
- --------------------------------------------------------------------------- ----- -------------- ---- --------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 788.8 $ 770.9
- --------------------------------------------------------------------------- ----- -------------- ---- --------------
</TABLE>
SENIOR CREDIT FACILITY
In connection with the acquisition of the industrial fabrics business of
Clark-Schwebel, Inc. on September 15, 1998, Hexcel obtained a new global credit
facility (the "Senior Credit Facility") to: (a) fund the purchase of the
industrial fabrics business; (b) refinance the Company's existing revolving
credit facility; and (c) provide for ongoing working capital and other financing
requirements of the Company. The Senior Credit Facility was subsequently amended
on January 21, 1999, August 13, 1999 and March 7, 2000, to accommodate among
other things, the issuance of $240.0 of 9.75% senior subordinated notes and the
impact of the decline in the Company's operating results on certain financial
covenants.
Effective with the March 7, 2000, amendment, the Senior Credit Facility
provides Hexcel with approximately $516.5 of borrowing capacity, subject to
certain limitations. Interest on outstanding borrowings ranges from 0.75% to
3.00% in excess of the applicable London interbank rate, or at the option of the
Company, from 0.0% to 2.00% in excess of the base rate of the administrative
agent for the lenders. Prior to March 2000, the upper limits of these interest
ranges were 2.75% and 1.75%, respectively. In addition, the Senior Credit
Facility is subject to a commitment fee that ranges from 0.23% to 0.50% per
annum of the total facility. The Senior Credit Facility is secured by a pledge
of shares of certain of Hexcel's subsidiaries, as well as a security interest in
certain U.S. accounts receivable, inventories, and machinery and equipment.
Further, under certain defined circumstances, the Company has agreed to provide
the lenders with a security interest in certain additional U.S. accounts
receivable, inventories, machinery and equipment, and land and buildings on
September 30, 2000. The Company is subject to various financial covenants and
restrictions under the Senior Credit Facility, including a limitation on the
redemption of capital stock and a general prohibition against the payment of
dividends.
As further discussed in Note 9, Hexcel completed the sale of its Bellingham
aircraft interiors business on April 26, 2000, and used approximately $111.6 of
net proceeds from the sale to repay outstanding term debt under the Senior
Credit Facility. As a result of this repayment, the total borrowing capacity
available to the Company under the Senior Credit Facility was reduced from
approximately $516.5 to approximately $405. Outstanding borrowings under the
Senior Credit Facility totaled $212.8 on April 26, 2000, and unused borrowing
capacity was approximately $182.1 at that date. The Senior Credit Facility is
scheduled to expire in September 2004, except for approximately $59 which is due
for repayment in September 2005.
SENIOR SUBORDINATED NOTES DUE 2009
On January 21, 1999, the Company issued $240.0 of 9.75% senior subordinated
notes due 2009. The senior subordinated notes are general unsecured obligations
of Hexcel.
6
<PAGE>
SENIOR SUBORDINATED NOTE PAYABLE TO A RELATED PARTY
The senior subordinated notes payable to a related party, are payable to a
significant shareholder and subsidiaries of the shareholder, and are general
unsecured obligations of Hexcel. Effective February 2000, these notes bear
interest at a rate of 11.0% per annum, a rate which will increase by 0.5% per
annum each February thereafter until the notes mature in 2003. Prior to February
2000 and February 1999, these notes bore interest at a rate of 10.5% and 7.5%
per annum, respectively.
NOTE 4 -- BUSINESS CONSOLIDATION PROGRAMS
Total accrued business consolidation expenses at December 31, 1999 and
March 31, 2000, activity during the quarter ended March 31, 2000, and a brief
description for each of the Company's business consolidation programs, are as
follows:
<TABLE>
<S> <C> <C> <C>
- --------------------------------------------------------------- -------------------- -------------- ----------------
SEPTEMBER DECEMBER
1999 1998
PROGRAM PROGRAM TOTAL
- --------------------------------------------------------------- -------------------- -------------- ----------------
BALANCE AS OF DECEMBER 31, 1999 $ 3.1 $ 1.0 $ 4.1
Business consolidation expenses 1.2 - 1.2
Cash expenditures (1.6) (0.4) (2.0)
Reclassification to accrued liabilities - (0.6) (0.6)
- --------------------------------------------------------------- -- -------------- ------- --------- ------ ---------
BALANCE AS OF MARCH 31, 2000 $ 2.7 $ - $ 2.7
- --------------------------------------------------------------- -- -------------- ------- --------- ------ ---------
</TABLE>
SEPTEMBER 1999 PROGRAM
On September 27, 1999, Hexcel announced a business consolidation program
that entails a rationalization of manufacturing facilities for certain product
lines. The objectives of this program are to eliminate excess capacity and
overhead, improve manufacturing focus and yields, and create additional centers
of manufacturing excellence. Specific actions contemplated by this program
include consolidating the production of certain product lines, including moving
equipment and requalifying the respective product lines; vacating certain leased
facilities; and consolidating the Company's Composite materials business
segment's U.S. marketing, research and technology, and administrative functions
into one location. The consolidation program calls for the elimination of
approximately 400 positions (primarily manufacturing), and a total reduction in
occupied floor space of over 250,000 square feet. Total expenses and cash
expenditures for this program are expected to approximate $33 and $27
respectively. Expected cash expenditures include $6.0 of capital expenditures.
Accrued business consolidation expenses as of March 31, 2000, and related
activity for this program since December 31, 1999, were as follows:
<TABLE>
- --------------------------------------------------------------- ----------------- ---------------- -----------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
SEPTEMBER 1999 PROGRAM RELOCATION RELOCATION TOTAL
- --------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1999 $ 2.5 $ 0.6 $ 3.1
Business consolidation expenses 0.4 0.8 1.2
Cash expenditures (0.5) (1.1) (1.6)
- --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ----------
BALANCE AS OF MARCH 31, 2000 $ 2.4 $ 0.3 $ 2.7
- --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ----------
</TABLE>
For the quarter ended March 31, 2000, Hexcel recognized $1.2 of business
consolidation expenses for this program. As of December 31, 1999 and March 31,
2000, accrued expenses for this program primarily reflected accrued severance
and costs for early termination of certain leases. The Company's policy is to
pay severance over a period of time rather than in a lump-sum amount.
7
<PAGE>
DECEMBER 1998 PROGRAM
In December 1998, Hexcel announced consolidation actions within its
Reinforcement Products and Composite Materials business segments. These actions
included the integration of the Company's existing fabrics business with the
U.S. operations of the acquired industrial fabrics business, and the combination
of the Company's U.S., European and Pacific Rim composite materials businesses
into a single global business unit. The objectives of these actions were to
eliminate redundancies, improve manufacturing planning, and enhance customer
service. The Company substantially completed these actions in the first quarter
of 1999, which resulted in the elimination of approximately 100 operating,
sales, marketing and administrative positions.
On March 16, 1999, the Company expanded its actions relating to the
integration of the acquired industrial fabrics business with the announcement of
the closure of its Cleveland, Georgia, facility, which at that time employed
approximately 100 manufacturing positions. This facility produced fabrics for
the electronics market, and the majority of its production equipment was
relocated to the Company's Anderson, South Carolina facility. The closure of
this facility, which was completed on September 3, 1999, was the result of
competitive conditions in the global market for electronic fiberglass materials,
and was not expected at the time of the acquisition of the industrial fabrics
business.
Accrued business consolidation expenses at December 31, 1999 and March 31,
2000 for this program were $1.0 and $0.6, respectively, all of which related to
accrued employee severance for terminated employees, and there were no business
consolidation expenses incurred for this program during the first quarter of
2000. As of March 31, 2000, the December 1998 business consolidation program
was substantially completed, except for the accrued severance of $0.6, which
will be paid over the next two years.
NOTE 5 -- NET INCOME PER SHARE
Computations of basic and diluted net income per share for the quarters
ended March 31, 2000 and 1999, are as follows:
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------- ------------------------- ----------------
2000 1999
- ------------------------------------------------------------------------- -------------- ---------- ----- ----------
Basic net income per share:
Net income $ 2.6 $ 5.2
Weighted average common shares outstanding 36.6 36.4
- ------------------------------------------------------------------------- -------------- ---------- ----- ----------
Basic net income per share $ 0.07 $ 0.14
- ------------------------------------------------------------------------- -------------- ---------- ----- ----------
Diluted net income per share:
Net income $ 2.6 $ 5.2
Weighted average common shares outstanding 36.6 36.4
Effect of dilutive securities -
Stock options 0.2 0.1
- ------------------------------------------------------------------------- -------------- ---------- ----- ----------
Diluted weighted average common shares outstanding 36.8 36.5
- ------------------------------------------------------------------------- -------------- ---------- ----- ----------
Diluted net income per share $ 0.07 $ 0.14
- ------------------------------------------------------------------------- -------------- ---------- ----- ----------
</TABLE>
The convertible subordinated notes, due 2003, and the convertible
subordinated debentures, due 2011, were excluded from the 2000 and 1999
computations of diluted net income per share, as they were antidilutive. For the
quarters ended March 31, 2000 and 1999, substantially all of the Company's
outstanding stock options were excluded from the calculation of diluted net
income per share. The exercise price for these stock options ranged from
approximately $5.75 to $30.68, with the weighted average price being
approximately $11.18 in 2000 and $12.55 in 1999.
<TABLE>
NOTE 6 -- COMPREHENSIVE LOSS
<CAPTION>
<S> <C> <C>
- --------------------------------------------------------------------------------- ----------------------------------
QUARTER ENDED MARCH 31,
2000 1999
- --------------------------------------------------------------------------------- ----------------- ----------------
Net income $ 2.6 $ 5.2
Currency translation adjustment (3.0) (7.0)
- --------------------------------------------------------------------------------- ------ ---------- ----- ----------
Total comprehensive income loss $ (0.4) $ (1.8)
- --------------------------------------------------------------------------------- ------ ---------- ----- ----------
</TABLE>
8
<PAGE>
NOTE 7 -- SEGMENT INFORMATION
Hexcel evaluates the performance of its operating segments based on
adjusted income before business consolidation expenses, interest, taxes and
equity in income of affiliated companies ("Adjusted EBIT"), and generally
accounts for intersegment sales based on arm's length prices. Corporate and
certain other expenses are not allocated to the operating segments, except to
the extent that the expense can be directly attributable to the business
segment.
Financial information for the Company's operating segments for the quarters
ended March 31, 2000 and 1999, is as follows:
<TABLE>
- -------------------------------------------- ------------------ ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
REINFORCEMENT COMPOSITE ENGINEERED
PRODUCTS MATERIALS PRODUCTS TOTAL
- -------------------------------------------- ------------------ ----------------- ----------------- ----------------
FIRST QUARTER 2000
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
Net sales to external customers $ 87.1 $ 146.5 $ 46.2 $ 279.8
Intersegment sales 27.2 2.3 - 29.5
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
Total sales 114.3 148.8 46.2 309.3
Adjusted EBIT 10.5 18.5 3.2 32.2
Depreciation and amortization 8.6 4.8 1.0 14.4
Business consolidation expenses 0.7 0.4 0.1 1.2
Capital expenditures 1.0 3.0 0.4 4.4
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
FIRST QUARTER 1999
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
Net sales to external customers 85.8 178.2 52.2 316.2
Intersegment sales 35.7 2.8 - 38.5
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
Total sales 121.5 181.0 52.2 354.7
Adjusted EBIT 10.3 25.1 3.9 39.3
Depreciation and amortization 8.9 5.1 0.9 14.9
Business consolidation expenses 2.6 0.1 0.1 2.8
Capital expenditures $ 4.2 $ 3.6 $ 1.5 $ 9.3
------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
</TABLE>
9
<PAGE>
Reconciliations of the totals reported for the operating segments to
consolidated income before income taxes, are as follows:
<TABLE>
- ---------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C>
QUARTER ENDED MARCH 31,
2000 1999
- ---------------------------------------------------------------------------------- ---------------- -----------------
Total Adjusted EBIT for reportable segments $ 32.2 $ 39.3
Less:
Business consolidation expenses 1.2 2.8
Corporate, other expenses and eliminations 9.2 9.4
Interest expense 18.4 19.1
- --------------------------------------------------------------------------------- ----- ------------ ---- -----------
Consolidated income before income taxes $ 3.4 $ 8.0
- --------------------------------------------------------------------------------- ----- ------------ ---- -----------
</TABLE>
NOTE 8 -- SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the quarters ended March 31, 2000
and 1999, is as follows:
<TABLE>
- --------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C>
QUARTER ENDED MARCH 31,
2000 1999
- --------------------------------------------------------------------------------- ---------------- -----------------
Cash paid for:
Interest $ 25.3 $ 14.8
Taxes $ - $ 1.5
- --------------------------------------------------------------------------------- ---- ----------- ----- -----------
</TABLE>
NOTE 9 -- SUBSEQUENT EVENT
On April 26, 2000, Hexcel completed the sale of its Bellingham aircraft
interiors business to Britax Cabin Interiors, Inc., a wholly owned subsidiary of
Britax International plc, for cash proceeds of $115.4, subject to certain
further post-closing adjustments. Net proceeds from the sale were used to repay
approximately $111.6 of the Company's term debt outstanding under its Senior
Credit Facility. The Company expects to recognize a pre-tax gain from the sale
of the Bellingham business of between $65 and $75 in the second quarter of
2000.
The table below reflects unaudited pro forma consolidated results of
Hexcel for the quarters ended March 31, 2000 and 1999, as if the sale had
occurred at the beginning of the periods presented.
<TABLE>
- --------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C>
QUARTER ENDED MARCH 31,
2000 1999
- --------------------------------------------------------------------------------- ---------------- -----------------
Pro forma net sales $ 263.2 $ 304.7
Pro forma net income 3.4 5.9
Pro forma net income per share $ 0.09 $ 0.16
- --------------------------------------------------------------------------------- ---- ----------- ----- -----------
</TABLE>
10
<PAGE>
Unaudited pro forma financial information for the Company's operating
segments for the quarters ended March 31, 2000 and 1999, is as follows:
<TABLE>
- -------------------------------------------- ------------------ ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
REINFORCEMENT COMPOSITE ENGINEERED
PRODUCTS MATERIALS PRODUCTS TOTAL
- -------------------------------------------- ------------------ ----------------- ----------------- ----------------
PRO FORMA FIRST QUARTER 2000
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
Net sales to external customers $ 87.1 $ 146.5 $ 29.6 $ 263.2
Intersegment sales 27.2 1.8 - 29.0
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
Total sales 114.3 148.3 29.6 292.2
Adjusted EBIT 10.5 18.5 2.1 31.1
Depreciation and amortization 8.6 4.8 0.7 14.1
Business consolidation expenses 0.7 0.4 0.1 1.2
Capital expenditures 1.0 3.0 0.2 4.2
-------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
PRO FORMA FIRST QUARTER 1999
- -------------------------------------------- ------------- -- -------------- --- ------------- -- -------------
Net sales to external customers 85.8 178.2 40.7 304.7
Intersegment sales 35.7 2.4 - 38.1
- -------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
Total sales 121.5 180.6 40.7 342.8
Adjusted EBIT 10.3 25.1 3.0 38.4
Depreciation and amortization 8.9 5.1 0.7 14.7
Business consolidation expenses 2.6 0.1 0.1 2.8
Capital expenditures 4.2 3.6 0.6 8.4
------------------------------------------- ---- ------------- -- -------------- --- ------------- -- -------------
</TABLE>
Unaudited pro forma assets by operating segment and a reconciliation of
these assets to Hexcel's pro forma consolidated assets, as of December 31, 1999,
is as follows:
<TABLE>
- --------------------------------------------------------------------------------- ----------------------------------
<S> <C> <C>
AS OF DECEMBER 31,
PRO FORMA AS REPORTED
1999 1999
- --------------------------------------------------------------------------------- --------------- ------------------
Reinforcement products $ 712.5 $ 712.5
Composite materials 359.3 359.3
Engineered products 71.3 115.4
- --------------------------------------------------------------------------------- ---- ----------- ----- -----------
Total per reportable segments 1,143.1 1,187.2
Corporate assets 58.7 91.3
Eliminations (16.6) (16.6)
- --------------------------------------------------------------------------------- ---- ----------- ----- -----------
Total consolidated assets $ 1,185.2 $ 1,261.9
- --------------------------------------------------------------------------------- ---- ----------- ----- -----------
</TABLE>
11
<PAGE>
<TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FINANCIAL OVERVIEW
<CAPTION>
---------------------------------------------------------------------- ----------------------------------------
UNAUDITED
---------------------------------------------------------------------- ----------------------------------------
<S> <C> <C>
Quarter Ended March 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999
---------------------------------------------------------------------- ------------------- --------------------
---------------------------------------------------------------------- --------- --------- --------- ----------
Net sales $ 279.8 $ 316.2
Gross margin % 22.2% 22.4%
Adjusted operating income % (a) 8.2% 9.5%
Adjusted EBITDA (b) $ 38.0 $ 45.6
Business consolidation expenses $ 1.2 $ 2.8
Net income $ 2.6 $ 5.2
Adjusted net income (a) $ 3.4 $ 7.0
---------------------------------------------------------------------- --------- --------- --------- ----------
Diluted net income per share $ 0.07 $ 0.14
Adjusted diluted net income per share (a) $ 0.09 $ 0.19
---------------------------------------------------------------------- --------- --------- --------- ----------
<FN>
(a) Excludes business consolidation expenses and related income taxes, as
applicable.
(b) Excludes business consolidation expenses, interest, taxes, depreciation,
amortization and equity in income of affiliated companies.
</FN>
</TABLE>
SALE OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, Hexcel completed the sale of its Bellingham aircraft
interiors business to Britax Cabin Interiors, Inc., a wholly owned subsidiary of
Britax International plc, for cash proceeds of $115.4 million, subject to
certain further post-closing adjustments. Net proceeds from the sale were used
to repay approximately $111.6 million of the Company's term debt outstanding
under its senior credit facility. The Company expects to recognize a pre-tax
gain from the sale of the Bellingham business of approximately $65 million to
$75 million in the second quarter of 2000.
Pro forma net sales, net income and net income per share, after giving
effect to the sale of the Bellingham division as if the transaction had occurred
at the beginning of 2000, were $263.2 million, $3.4 million and $0.09 per share,
respectively. Pro forma net sales, net income and net income per share for the
same period in 1999, were $304.7 million, $5.9 million and $0.16 per share,
respectively. All of Bellingham's net sales were made to the commercial
aerospace market. Hexcel continues to evaluate strategic alternatives for its
aircraft structures and interiors businesses in Kent, Washington, which is the
remaining component of the Company's Engineered Products business segment.
RESULTS OF OPERATIONS
NET SALES: Net sales for the first quarter of 2000 decreased 12% to $279.8
million, compared with $316.2 million for the first quarter of 1999, primarily
as a result of lower commercial aerospace sales due to a reduction in The Boeing
Company's ("Boeing") commercial aircraft build rates. First quarter 2000 net
sales were also reduced by certain space and defense contracts which concluded
in the second half of 1999. Further, the strengthening of the U.S. dollar
against the Euro in the last twelve months has reduced revenues in U.S. dollar
terms by approximately $9 million compared to the first quarter of 1999.
12
<PAGE>
The following table summarizes net sales to third-party customers by
product group and market segment for the quarters ended March 31, 2000 and 1999:
<TABLE>
- ---------------------------------------- ----------------------------------------------------------------------------
UNAUDITED
---------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
COMMERCIAL SPACE &
(IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
- ---------------------------------------- ---------------- -------------- ------------- --------------- --------------
FIRST QUARTER 2000 NET SALES
Reinforcement products $ 15.6 $ 4.1 $ 43.6 $ 23.8 $ 87.1
Composite materials 92.6 19.8 - 34.1 146.5
Engineered products 43.7 2.5 - - 46.2
- ---------------------------------------- ----- ---------- --- ---------- -- ---------- ---- ---------- -- -----------
Total $ 151.9 $ 26.4 $ 43.6 $ 57.9 $ 279.8
54% 9% 16% 21% 100%
- ---------------------------------------- ----- ---------- --- ---------- -- ---------- ---- ---------- -- -----------
FIRST QUARTER 1999 NET SALES
Reinforcement products $ 15.3 $ 5.5 $ 42.3 $ 22.7 $ 85.8
Composite materials 119.7 29.6 - 28.9 178.2
Engineered products 48.9 3.3 - - 52.2
- ---------------------------------------- ----- ---------- --- ---------- -- ---------- ---- -------- ---- -----------
Total $ 183.9 $ 38.4 $ 42.3 $ 51.6 $ 316.2
58% 12% 13% 17% 100%
- ---------------------------------------- ----- ---------- --- ---------- -- ---------- ---- -------- ---- -----------
</TABLE>
Commercial aerospace net sales decreased 17% to $151.9 million for the
first quarter of 2000, from $183.9 million for the first quarter of 1999. The
decline in sales primarily reflects the impact of the decrease in aircraft
production rates by Boeing that commenced last year, in anticipation of lower
aircraft deliveries in 2000. Approximately 28% and 10% of Hexcel's 1999 net
sales were identifiable as sales to Boeing and related subcontractors, and
Airbus Industrie ("Airbus") and related subcontractors, respectively. Planned
deliveries of commercial aircraft by Boeing declined from 620 aircraft in 1999,
to 490 aircraft in 2000. Hexcel's first quarter 1999 net sales reflected the
peak of Boeing's commercial aircraft production, as the Company delivers its
products on average six to nine months ahead of the delivery of an aircraft.
Boeing has publicly indicated that it may be able to sustain aircraft
production at the current level of 490 per year, due in part to the continued
economic recovery in Asia, while Airbus is projecting a modest increase in
aircraft deliveries to more than 300 per year. At the same time, independent
forecasts indicate continued growth in the production of regional and business
aircraft.
Space and defense net sales for the first quarter of 2000 decreased 31% to
$26.4 million, from $38.4 million for the first quarter of 1999. This decrease
primarily reflects the conclusion of certain space and defense contracts in the
second half of 1999, as well as the impact of declining demand for satellites
and satellite launch vehicles in response to recent launch failures and concerns
about the financial viability of certain satellite ventures. However, Hexcel is
currently qualified to supply materials to a broad range of military aircraft
and helicopters scheduled to enter full-scale production in the near future.
These programs include the V-22 (Osprey) tilt-rotor, the F/A-18E/F (Hornet), the
F-22 (Raptor), the European Fighter Aircraft (Typhoon), and the RAH-66
(Comanche) and NH90 helicopters.
Electronics net sales increased 3% to $43.6 million for the first quarter
of 2000, from $42.3 million for the first quarter of 1999. The increase in sales
reflects sales volume growth for Hexcel's lightweight fiberglass fabrics used in
electronic applications, partially offset by a decrease in sales of heavyweight
electronic fabrics. The increase in sales of lightweight fiberglass fabrics
reflects both the growing use of electronic devices throughout the world, as
well as the Company's success in securing additional business from a major
producer of high-quality printed circuit board laminates.
13
<PAGE>
Demand for lightweight fiberglass fabrics continues to grow and global
manufacturing capacity appears to be tightening. During the first quarter of
2000, Hexcel started to switch some of its heavyweight fabric production
capacity to meet lightweight fabric demand. In addition, the Company plans to
install additional lightweight fabric looms by the end of the year to meet the
expected continuing growth in demand, and is evaluating how it may further
expand its lightweight fabric manufacturing capacity to support market growth.
Industrial net sales for the first quarter of 2000 increased 12% to $57.9
million, from $51.6 million for the first quarter of 1999, primarily reflecting
growth in sales for wind energy applications and increased sales of composite
materials to the automotive industry.
GROSS MARGIN: Gross margin for the first quarter of 2000 was $62.2 million,
or 22.2% of net sales, compared with $70.8 million, or 22.4% of net sales, for
the first quarter of 1999. The decline in gross margin dollars, relative to the
first quarter of 1999, reflects lower sales levels, while the maintenance of a
comparable gross margin percentage reflects the beneficial impact of the
Company's cost reduction activities.
OPERATING INCOME: Operating income was $21.8 million in the first quarter
of 2000, or 7.8% of net sales, compared with $27.1 million in the first quarter
of 1999, or 8.6% of net sales. Excluding business consolidation expenses,
operating income in the first quarter of 2000 was $23.0 million or 8.2% of net
sales, compared with $29.9 million, or 9.5% of net sales, in the first quarter
of 1999. The aggregate decrease in operating income, excluding business
consolidation expenses, reflects the decrease in net sales, partially offset by
a reduction in selling, general and administrative ("SG&A") expenses over the
first quarter of 1999. SG&A expenses were $32.9 million, or 11.8% of net sales
for the first quarter of 2000 compared with $34.4 million, or 10.9% of net sales
for the first quarter of 1999. Research and technology expenses were $6.3
million, or 2.3% of net sales for the first quarter of 2000 compared with $6.5
million, or 2.1% of net sales for the first quarter of 1999.
<TABLE>
NET INCOME AND NET INCOME PER SHARE:
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Net income $ 2.6 $ 5.2
Diluted net income per share $ 0.07 $ 0.14
Diluted net income per share, excluding goodwill amortization $ 0.13 $ 0.20
Adjusted diluted net income per share, excluding business consolidation expenses $ 0.09 $ 0.19
Diluted weighted average shares outstanding 36.8 36.5
- ---------------------------------------------------------------------------------------------------------------------
<FN>
Refer to Note 5 to the accompanying condensed consolidated financial
statements for the calculation of diluted net income per share.
</FN>
</TABLE>
FINANCIAL CONDITION AND LIQUIDITY
SENIOR CREDIT FACILITY
In connection with the acquisition of the industrial fabrics business of
Clark-Schwebel, Inc. on September 15, 1998, Hexcel obtained a new global credit
facility (the "Senior Credit Facility") to: (a) fund the purchase of the
industrial fabrics business; (b) refinance the Company's existing credit
facility; and (c) provide for ongoing working capital and other financing
requirements of the Company. The Senior Credit Facility was subsequently amended
on January 21, 1999, August 13, 1999 and March 7, 2000, to accommodate, among
other things, the issuance of $240.0 million of 9.75% senior subordinated notes
and the impact of the decline in the Company's operating results on certain
financial covenants.
14
<PAGE>
Effective with the March 7, 2000, amendment, the Senior Credit Facility
provides Hexcel with approximately $516.5 million of borrowing capacity, subject
to certain limitations. Interest on outstanding borrowings ranges from 0.75% to
3.00% in excess of the applicable London interbank rate, or at the option of the
Company, from 0.0% to 2.00% in excess of the base rate of the administrative
agent for the lenders. Prior to March 2000, the upper limits of these interest
ranges were 2.75% and 1.75%, respectively. In addition, the Senior Credit
Facility is subject to a commitment fee that ranges from 0.23% to 0.50% per
annum of the total facility. The Senior Credit Facility is secured by a pledge
of shares of certain of Hexcel's subsidiaries, as well as a security interest in
certain U.S. accounts receivable, inventories, and machinery and equipment.
Further, under certain defined circumstances, the Company has agreed to provide
the lenders with a security interest in certain additional U.S. accounts
receivable, inventories, machinery and equipment, and land and buildings on
September 30, 2000. The Company is subject to various financial covenants and
restrictions under the Senior Credit Facility, including a limitation on the
redemption of capital stock and a general prohibition against the payment of
dividends.
Hexcel completed the sale of its Bellingham aircraft interiors business on
April 26, 2000, and used approximately $111.6 million of net proceeds from the
sale to repay outstanding term debt under the Senior Credit Facility. As a
result of this repayment, the total borrowing capacity available to the Company
under the Senior Credit Facility was reduced from approximately $516.5 million
to approximately $405 million. Outstanding borrowings under the Senior Credit
Facility totaled $212.8 million on April 26, 2000, and unused borrowing
capacity was approximately $182.1 million at that date.
The Company expects that the Senior Credit Facility will be sufficient to
fund its worldwide operations for the foreseeable future. The Senior Credit
Facility is scheduled to expire in September 2004, except for approximately $59
million which is due for repayment in September 2005. Further discussion of the
Company's financial resources is contained in Note 3 to the accompanying
condensed consolidated financial statements.
CAPITAL EXPENDITURES
Capital expenditures totaled $4.4 million for the first three months of
2000 compared to $9.4 million for the first three months of 1999. The Company
expects total capital expenditures for 2000 of approximately $40 million.
ADJUSTED EBITDA, CASH FLOWS AND RATIO OF EARNINGS TO FIXED CHARGES
FIRST QUARTER, 2000: Earnings before business consolidation expenses,
interest, taxes, depreciation, amortization, and equity in income of affiliated
companies ("Adjusted EBITDA") for the first quarter of 2000 was $38.0 million.
Net cash used for operating activities was $6.1 million, as working capital
changes of $18.0 million and deferred income taxes of $4.5 million more than
offset $2.6 million of net income, $15.0 million of depreciation and
amortization and cash provided by all other operating activities.
Net cash used for investing activities was $7.8 million, reflecting the
Company's capital expenditures and investments in affiliated companies for the
quarter. Net cash provided by financing activities was $17.8 million.
FIRST QUARTER, 1999: Adjusted EBITDA for the first quarter of 1999 was
$45.6 million. Net cash provided by operating activities was $17.3 million, as
$5.2 million of net income and $15.6 million of non-cash depreciation and
amortization more than offset cash used by all other operating activities.
Net cash used for investing activities was $9.4 million, reflecting the
Company's capital expenditures for the quarter. Net cash used for financing
activities was $12.4 million, primarily reflecting $9.0 million of debt issuance
costs pertaining to the issuance of the Company's senior subordinated notes.
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 may not be comparable to
similarly titled financial measures of other companies. Adjusted EBITDA does not
represent alternative measures 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.
15
<PAGE>
Reconciliations of net income to EBITDA and Adjusted EBITDA for the
quarters ended March 31, 2000 and 1999, are as follows:
<TABLE>
- ------------------------------------------------------------------------------------ --------------- ----------------
<S> <C> <C>
(IN MILLIONS) 2000 1999
- ------------------------------------------------------------------------------------ ------ -------- ----- ----------
Net income $ 2.6 $ 5.2
Provision for income taxes 1.2 2.8
Interest expense 18.4 19.1
Depreciation and amortization expense 15.0 15.6
Equity in income of affiliated companies (0.4) -
Other - 0.1
- ------------------------------------------------------------------------------------ ------ -------- ----- ----------
EBITDA 36.8 42.8
Business consolidation expenses 1.2 2.8
- ------------------------------------------------------------------------------------ ------ -------- ----- ----------
Adjusted EBITDA $ 38.0 $ 45.6
- ------------------------------------------------------------------------------------ ------ -------- ----- ----------
</TABLE>
The ratio of earnings to fixed charges for the quarters ended March 31,
2000 and 1999, were 1.2x and 1.4x, respectively. The calculation of earnings to
fixed charges assumes that one-third of the Company's rental expense is
attributable to interest expense.
BUSINESS CONSOLIDATION PROGRAMS
Total accrued business consolidation expenses at December 31, 1999 and
March 31, 2000, activity during the quarter ended March 31, 2000, and a brief
description for each of the Company's business consolidation programs is as
follows:
<TABLE>
- --------------------------------------------------------------- -------------------- -------------- ----------------
<S> <C> <C> <C>
SEPTEMBER DECEMBER
1999 1998
(IN MILLIONS) PROGRAM PROGRAM TOTAL
- --------------------------------------------------------------- -------------------- -------------- ----------------
BALANCE AS OF DECEMBER 31, 1999 $ 3.1 $ 1.0 $ 4.1
Business consolidation expenses 1.2 - 1.2
Cash expenditures (1.6) (0.4) (2.0)
Reclassification to accrued liabilities - (0.6) (0.6)
- --------------------------------------------------------------- -- -------------- ------- --------- ------ ---------
BALANCE AS OF MARCH 31, 2000 $ 2.7 $ - $ 2.7
- --------------------------------------------------------------- -- -------------- ------- --------- ------ ---------
</TABLE>
SEPTEMBER 1999 PROGRAM
On September 27, 1999, Hexcel announced a business consolidation program
that entails a rationalization of manufacturing facilities for certain product
lines. The objectives of this program are to eliminate excess capacity and
overhead, improve manufacturing focus and yields, and create additional centers
of manufacturing excellence. Specific actions contemplated by this program
include consolidating the production of certain product lines, including moving
equipment and requalifying the respective product lines; vacating certain leased
facilities; and consolidating the Company's Composite materials business
segment's U.S. marketing, research and technology, and administrative functions
into one location. The consolidation program calls for the elimination of
approximately 400 positions (primarily manufacturing), and a total reduction in
occupied floor space of over 250,000 square feet. Total expenses and cash
expenditures for this program are expected to approximate $33 million and $27
million respectively. Expected cash expenditures include $6.0 million of capital
expenditures.
16
<PAGE>
Accrued business consolidation expenses as of March 31, 2000, and
related activity for this program since December 31, 1999, were as follows:
<TABLE>
- --------------------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
(IN MILLIONS) RELOCATION RELOCATION TOTAL
- --------------------------------------------------------------- ----------------- ---------------- -----------------
BALANCE AS OF DECEMBER 31, 1999 $ 2.5 $ 0.6 $ 3.1
Business consolidation expenses 0.4 0.8 1.2
Cash expenditures (0.5) (1.1) (1.6)
- --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ----------
BALANCE AS OF MARCH 31, 2000 $ 2.4 0.3 2.7
- --------------------------------------------------------------- ---- ------------ ---- ----------- ------ ----------
</TABLE>
For the quarter ended March 31, 2000, Hexcel recognized $1.2 million of
business consolidation expenses for this program. As of December 31, 1999 and
March 31, 2000, accrued expenses for this program primarily reflected accrued
severance and costs for early termination of certain leases. The Company's
policy is to pay severance over a period of time rather than in a lump-sum
amount.
DECEMBER 1998 PROGRAM
In December 1998, Hexcel announced consolidation actions within its
Reinforcement Products and Composite Materials business segments. These actions
included the integration of the Company's existing fabrics business with the
U.S. operations of the acquired industrial fabrics business, and the combination
of the Company's U.S., European and Pacific Rim composite materials businesses
into a single global business unit. The objectives of these actions were to
eliminate redundancies, improve manufacturing planning, and enhance customer
service. The Company substantially completed these actions in the first quarter
of 1999, which resulted in the elimination of approximately 100 operating,
sales, marketing and administrative positions.
On March 16, 1999, the Company expanded its actions relating to the
integration of the acquired industrial fabrics business with the announcement of
the closure of its Cleveland, Georgia, facility, which at that time employed
approximately 100 manufacturing positions. This facility produced fabrics for
the electronics market, and the majority of its production equipment was
relocated to the Company's Anderson, South Carolina facility. The closure of
this facility, which was completed on September 3, 1999, was the result of
competitive conditions in the global market for electronic fiberglass materials,
and was not expected at the time of the acquisition of the industrial fabrics
business.
Accrued business consolidation expenses at December 31, 1999 and March 31,
2000 for this program, were $1.0 million and $0.6 million, respectively, all of
which related to accrued employee severance for terminated employees, and there
were no business consolidation expenses incurred for this program during the
first quarter of 2000. As of March 31, 2000, the December 1998 business
consolidation program was substantially completed, except for the accrued
severance of $0.6 million, which will be paid over the next two years.
17
<PAGE>
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue in
financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue, and provides guidance for
disclosures related to revenue recognition policies. In March 2000, the SEC
issued SAB 101A, "Amendment: Revenue Recognition in Financial Statements," which
extends the effective date of SAB 101 to the second quarter of 2000. At this
time, management is still assessing the impact of SAB 101 on the Company's
financial position and results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). This Statement requires companies to record derivatives on the balance
sheet as assets and liabilities, measured at fair value. Gains or losses
resulting from changes in the values of those derivatives would be accounted for
depending on the use of the derivative and whether it qualifies for hedge
accounting. SFAS 133, which will be adopted on January 1, 2001, is not expected
to have a material impact on Hexcel's consolidated financial statements.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
Certain statements contained in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," that are not of historical fact,
constitute "forward-looking statements." Such forward-looking statements
include, but are not limited to: (a) estimates of commercial aerospace
production and delivery rates, including those of Boeing and Airbus; (b)
expectations regarding the growth in the production of military aircraft and
helicopters; (c) expectations regarding the growth in demand for electronics
fabrics as well as future industry capacity utilization; (d) expectations
regarding sales growth, sales mix, and gross margins; (e) estimates of pro forma
1999 financial data; (f) expectations regarding 2000 capital expenditures,
including the installation of additional fiberglass fabric looms; (g)
expectations regarding Hexcel's financial condition and liquidity; (h) estimated
additional expenses, and related cash costs, to be incurred for business
consolidation programs; and (i) the estimated gain resulting from the sale of
Bellingham.
Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Such factors include, but are not limited to, the following: changes
in general economic and business conditions; changes in current pricing levels;
changes in political, social and economic conditions and local regulations,
particularly in Asia and Europe; foreign currency fluctuations; changes in
aerospace delivery rates; reductions in sales to any significant customers,
particularly Boeing or Airbus; changes in sales mix; changes in government
defense procurement budgets; changes in military aerospace programs technology;
industry capacity; competition; disruptions of established supply channels;
manufacturing capacity constraints; and the availability, terms and deployment
of capital. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause actual results to be materially
different. Additional information regarding these factors is contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
18
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
On April 26, 2000, Hexcel completed the sale of its Bellingham aircraft
interiors business to Britax Cabin Interiors, Inc., a wholly owned subsidiary of
Britax International plc, for cash proceeds of $115.4 million, subject to
certain further post-closing adjustments. Net proceeds from the sale were used
to repay $111.6 million of the Company's term debt outstanding under its
variable rate Senior Credit Facility. Assuming a 10% favorable and unfavorable
change in the underlying weighted average interest rates of the Company's
variable rate debt, the 1999 pro forma net loss would have been as follows:
<TABLE>
- --------------------------------------------------------------------------- ----------------------------------------
<S> <C> <C>
YEAR ENDED DECEMBER 31,
AS REPORTED PRO FORMA
1999 1999
- --------------------------------------------------------------------------- ----------------- ----------------------
Net loss $ 23.3 $ 23.2
10% favorable change 22.0 22.7
10% unfavorable change $ 24.6 $ 23.7
- --------------------------------------------------------------------------- ------- --------- ------- --------------
</TABLE>
PART II. OTHER INFORMATION
HEXCEL CORPORATION AND SUBSIDIARIES
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
2.1 Consent letter dated March 30, 2000 relating to the Third
Amendment dated March 7, 2000 to the Second Amended and
Restated Credit Agreement dated August 13, 1999.
27. Financial Data Schedule (electronic filing only).
(B) REPORTS ON FORM 8-K:
Current Report on Form 8-K dated April 6, 2000 relating to a press
release issued by the Company announcing an agreement to sell its
Bellingham aircraft interiors business to Britax Cabin Interiors, Inc.,
a wholly owned subsidiary of Britax International plc.
Current Report on Form 8-K dated May 10, 2000, relating to the sale of
the Company's Bellingham aircraft interiors business to Britax Cabin
Interiors, Inc. on April 26, 2000, and pro forma financial information
reflecting such sale.
19
<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 15, 2000 /s/ Kirk G. Forbeck
- ---------------------- --------------------
(Date) Kirk G. Forbeck,
Chief Accounting Officer
20
Exhibit 2.1
CONSENT
CONSENT, dated as of March 30, 2000 (this "CONSENT"), pursuant
to the Second Amended and Restated Credit Agreement, dated as of September 15,
1998 (as amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"), among Hexcel Corporation (the "COMPANY") and the Foreign
Borrowers from time to time party thereto (together with the Company, the
"BORROWERS"), the banks and other financial institutions from time to time
parties thereto (the "LENDERS"), Citibank, N.A., as Documentation Agent, and
Credit Suisse First Boston, as Administrative Agent (the "ADMINISTRATIVE
AGENT").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Third Amendment, dated as of March 7,
2000 (the "THIRD AMENDMENT") to the Credit Agreement, the Lenders consented to
the sale by the Company of its Engineered Products Division, and the Company has
requested, and the Lenders have agreed, to make the changes to such consent
described herein.
NOW, THEREFORE, for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and in consideration of the
premises and mutual agreements contained herein, the parties hereto hereby agree
as follows:
1. DEFINED TERMS. Unless otherwise defined herein,
capitalized terms which are defined in the Credit Agreement are used herein as
defined therein.
2. CONSENT. Sections 2.1 and 2.2 of the Third Amendment are
hereby amended to read in their entireties as follows:
2.1 CONSENT. Anything in subsection 14.6 of the Credit
Agreement to the contrary notwithstanding, the Lenders hereby consent
that the Company may sell its Engineered Products Division (the
"DIVISION"); PROVIDED that such sale is effected by either (a) selling
the Division as a whole on or before September 30, 2000 for
consideration which shall include a cash portion in an amount not less
than $150 million of Net Proceeds or (b) selling the Division in two
parts the first of which shall consist of the sale of the Bellingham
business segment, which sale shall be completed on or before September
30, 2000 for consideration which shall include a cash portion in an
amount not less than $110 million of Net Proceeds; and; PROVIDED,
FURTHER, that, anything in subsection 10.5 of the Credit Agreement to
the contrary notwithstanding, (i) on each date upon which the Borrower
receives such Net Proceeds from such sale or sales it shall apply the
first $150 million in aggregate Net Proceeds for all such sales to
prepay the Tranche A Loans and the Tranche B Loans ratably according to
the respective aggregate then outstanding principal amounts thereof,
(ii) if on or before September 30, 2000 the Company shall receive
aggregate Net Proceeds from such sale or sales that are in excess of
$150 million (the "EXCESS NET PROCEEDS"), (x) such Excess Net Proceeds
shall be available to the Company for general corporate purposes,
including Capital Expenditures and, notwithstanding the provisions of
subsection 14.14 of the Credit Agreement, the prepayment, repurchase or
retirement of Permitted Subordinated Indebtedness, (y) no other
prepayment or Commitment reduction under the Credit Agreement shall be
required as a result of the receipt of the Excess Net Proceeds and (z)
with respect to subsection 10.5(g)(x), such Excess Net Proceeds shall
not be considered as part of the first $25,000,000 of Net Proceeds
derived from any Net Proceeds Event, (iii) if the Company shall sell
the Division in two parts and the first of which shall be completed on
or before September 30, 2000 and the second of which shall be completed
subsequent to September 30, 2000 the entire Net Proceeds of both such
sales shall be applied to prepay the Tranche A Loans and the Tranche B.
Loans ratably according to the respective aggregate then outstanding
principal amounts thereof and (iv) for purposes of calculating
compliance with the financial covenants contained in subsection 14.1,
for any period in which such sale or sales are completed, such sale or
sales and the repayment of any Indebtedness in connection therewith
shall be deemed to have been completed on the first day of such period.
21
<PAGE>
2.2 RELEASE. The Lenders and the Borrowers hereby acknowledge
and agree that, notwithstanding anything to the contrary contained in
the Credit Documents, all of the assets of the Division sold in
connection with any sale or sales permitted by Section 2.1 above shall,
effective simultaneously with the closing thereof in accordance with
said Section 2.1, be released from the Liens granted pursuant to the
Credit Documents. Each Lender authorizes and instructs each of the
Administrative Agent and the Documentation Agent to take, and the
Administrative Agent and Documentation Agent shall take, such action as
the Company may reasonably request to evidence such release.
3. CONDITIONS TO EFFECTIVENESS OF CONSENT. This Consent shall
become effective (as of the date first set forth) above on the date (the
"EFFECTIVE DATE") upon the Administrative Agent having received counterparts
hereof, duly executed and delivered by each Borrower, the Documentation Agent,
the Administrative Agent, each Subsidiary Guarantor and the Majority Lenders.
4. REPRESENTATIONS AND WARRANTIES. The Company, as of the date
hereof and after giving effect to the amendments and consent contained herein,
hereby confirms, reaffirms and restates the representations and warranties made
by it and each Foreign Borrower in Section 11 of the Credit Agreement and
otherwise in the Credit Documents to which it is a party; PROVIDED that each
reference to the Credit Agreement therein shall be deemed to be a reference to
the Credit Agreement after giving effect to this Consent.
5. LIMITED EFFECT. The execution, delivery and effectiveness
of this Consent shall not, except as expressly provided herein, operate as a
waiver of any right, power or remedy of any Lender or the Administrative Agent
under any of the Credit Documents, nor constitute a waiver or amendment of any
provisions of any of the Credit Documents. Except as expressly modified herein,
all of the provisions and covenants of the Credit Agreement and the other Credit
Documents are and shall continue to remain in full force and effect in
accordance with the terms thereof and are hereby in all respects ratified and
confirmed.
6. COUNTERPARTS. This Consent may be executed by one or more
of the parties hereto in any number of separate counterparts (which may include
counterparts delivered by facsimile transmission) and all of said counterparts
taken together shall be deemed to constitute one and the same instrument. Any
executed counterpart delivered by facsimile transmission shall be effective as
for all purposes hereof.
7. GOVERNING LAW. THIS CONSENT AND THE RIGHTS AND OBLIGATIONS
OF THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Consent to be duly executed and delivered by their respective proper and duly
authorized officers as of the day and year first above written.
22
<PAGE>
HEXCEL CORPORATION
HEXCEL (U.K.) LIMITED
HEXCEL COMPOSITES LIMITED
HEXCEL S.A. (France)
HEXCEL FABRICS S.A.
HEXCEL COMPOSITES S.A. (Belgium)
HEXCEL COMPOSITES S.A. (France)
HEXCEL COMPOSITES GMBH (Austria)
HEXCEL COMPOSITES S.A. (Spain)
HEXCEL COMPOSITES GMBH (Germany)
By:
Title:
CREDIT SUISSE FIRST BOSTON, as Administrative Agent and Arranger
By:
Title:
By:
Title:
CITIBANK, N.A., as Documentation Agent and as a Lender
By:
Title:
CREDIT SUISSE FIRST BOSTON, as a Lender
By:
Title:
By:
Title:
AERIES FINANCE II LTD.
By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent
By:
Title:
AMARA 2 FINANCE, LTD.
By: INVESCO Senior Secured Managment, Inc., as Sub-Adviser
By:
Title:
23
<PAGE>
ARCHIMEDES FUNDING II, Ltd.
By: ING CAPITAL ADVISORS LLC, as Collateral Manager
By:
Title:
BALANCED HIGH-YIELD FUND I LTD.
By: BHF (USA) CAPITAL CORPORATION, as attorney-in-fact
By:
Title:
By:
Title:
THE BANK OF NEW YORK
By:
Title:
BANK ONE, NA
By:
Title:
BANQUE NATIONALE DE PARIS
By:
Title:
By:
Title:
BANQUE WORMS CAPITAL CORPORATION
By:
Title:
By:
Title:
BATTERSON PARK CBO 1
By: GENERAL RE - NEW ENGLAND ASSET MANAGEMENT, INC., as Collateral Manager
By:
Title:
CAPTIVA FINANCE LTD.
By:
Title:
CAPTIVA II FINANCE LTD
By:
Title:
CERES FINANCE LTD.
By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent
By:
Title
24
<PAGE>
THE CHASE MANHATTAN BANK
By:
Title:
CHAIO TUNG BANK CO., NEW YORK AGENCY
By:
Title:
CREDIT AGRICOLE INDOSUEZ
By:
Title:
By:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
Title:
CYPRESSTREE SENIOR FLOATING RATE FUND
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager
By:
Title:
CYPRESSTREE INVESTMENT FUND, LLC
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., its Managing Member
By:
Title:
CYPRESSTREE INVESTMENT PARTNERS I, LTD.
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager
By:
Title:
CYPRESSTREE INSTITUTIONAL FUND, LLC
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., its Managing Member
By:
Title:
DEUTSCHE BANK AG NEW YORK BRANCH AND/OR CAYMAN ISLANDS BRANCH
By:
Title:
By:
Title:
ERSTE BANK
By:
Title:
By:
Title:
25
<PAGE>
FIRST UNION NATIONAL BANK
By:
Title:
GALAXY CLO 1999-1, LTD.
By:
Title:
GENERAL ELECTRIC CAPITAL CORPORATION
By:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED, NEW YORK BRANCH
By:
Title:
KEYBANK NATIONAL ASSOCIATION
By:
Title:
KZH CYPRESSTREE-1 LLC
By:
Title:
KZH ING-2 LLC
By:
Title:
KZH ING-3 LLC
By:
Title:
KZH SHOSHONE LLC
By:
Title:
KZH WATERSIDE LLC
By:
Title:
MERITA BANK Plc
By:
Title:
By:
Title:
26
<PAGE>
METROPOLITAN LIFE INSURANCE COMPANY
By:
Title:
MORGAN GUARANTY TRUST COMPANY OF NEW YORK
By:
Title:
NORTH AMERICAN SENIOR FLOATING RATE FUND
By: CYPRESSTREE INVESTMENT MANAGEMENT COMPANY, INC., as Portfolio Manager
By:
Title:
OXFORD STRATEGIC INCOME FUND
By: EATON VANCE MANAGEMENT, as Investment Advisor
By:
Title:
SENIOR DEBT PORTFOLIO
By: BOSTON MANAGEMENT AND RESEARCH, as Investment Advisor
By:
Title:
SOCIETE GENERALE
By:
Title:
STRATA FUNDING, LTD.
By: INVESCO Senior Secured Management, Inc., as Sub-Managing Agent
By:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
Title:
VAN KAMPEN SENIOR FLOATING RATE FUND
By: VAN KAMPAN INVESTMENT ADVISORY CORP.
By:
Title:
WACHOVIA BANK, N.A.
By:
Title:
27
<PAGE>
The undersigned Subsidiary Guarantors do hereby consent and agree to
the execution and delivery of this Consent:
HEXCEL INTERNATIONAL
HEXCEL OMEGA CORPORATION
HEXCEL BETA CORP.
CLARK-SCHWEBEL HOLDING CORP.
CLARK-SCHWEBEL CORPORATION
CS TECH-FAB HOLDING, INC.
By:
Title:
28
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
EXHIBIT 27
FINANCIAL DATA SCHEDULE
Q1 - 2000
</LEGEND>
<CIK> 0000717605
<NAME> Hexcel Corp.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,800
<SECURITIES> 0
<RECEIVABLES> 185,500
<ALLOWANCES> 8,400
<INVENTORY> 164,000
<CURRENT-ASSETS> 359,700
<PP&E> 612,200
<DEPRECIATION> 230,500
<TOTAL-ASSETS> 1,290,000
<CURRENT-LIABILITIES> 209,900
<BONDS> 762,400
0
0
<COMMON> 400
<OTHER-SE> 269,900
<TOTAL-LIABILITY-AND-EQUITY> 1,290,000
<SALES> 279,800
<TOTAL-REVENUES> 279,800
<CGS> 217,600
<TOTAL-COSTS> 217,600
<OTHER-EXPENSES> 40,400
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,400
<INCOME-PRETAX> 3,400
<INCOME-TAX> 1,200
<INCOME-CONTINUING> 2,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,600
<EPS-BASIC> 0.07
<EPS-DILUTED> 0.07
</TABLE>
