<Page>
================================================================================
UNITED STATES
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 September 30, 2001
or
|_| Transition Report Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
For the transition period from ________ to ________
Commission File Number 1-8472
---------------------------
HEXCEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Delaware 94-1109521
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
Two Stamford Plaza
281 Tresser Boulevard
Stamford, Connecticut 06901-3238
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number, including area code: (203) 969-0666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes |X| No |_|
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT NOVEMBER 9, 2001
----- -------------------------------
COMMON STOCK 39,226,504
================================================================================
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
INDEX
PAGE
PART I. FINANCIAL INFORMATION
ITEM 1. Condensed Consolidated Financial Statements
o Condensed Consolidated Balance Sheets--
September 30, 2001 and December 31, 2000 2
o Condensed Consolidated Statements of
Operations -- The Quarters and Nine Months Ended
September 30, 2001 and 2000 3
o Condensed Consolidated Statements of
Cash Flows -- The Nine Months Ended
September 30, 2001 and 2000 4
o Notes to Condensed Consolidated
Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 24
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 25
SIGNATURE 26
1
<Page>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<Table>
<Caption>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- -----------------------------------------------------------------------------------------------------------------
UNAUDITED
----------------------------------------
SEPTEMBER 30, December 31,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000
- -----------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 16.5 $ 5.1
Accounts receivable, net 154.5 150.3
Inventories, net 164.0 155.4
Prepaid expenses and other assets 14.2 15.2
- -----------------------------------------------------------------------------------------------------------------
Total current assets 349.2 326.0
Property, plant and equipment 633.5 615.3
Less accumulated depreciation (281.1) (255.6)
- -----------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 352.4 359.7
Goodwill and other purchased intangibles, net of accumulated
amortization of $45.8 in 2001 and $36.1 in 2000 384.6 391.7
Investments in affiliated companies and other assets 132.9 134.0
- -----------------------------------------------------------------------------------------------------------------
Total assets $ 1,219.1 $1,211.4
=================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease obligations $ 19.2 $ 22.1
Accounts payable 88.6 69.4
Accrued liabilities 101.8 106.4
- -----------------------------------------------------------------------------------------------------------------
Total current liabilities 209.6 197.9
Long-term notes payable and capital lease obligations 674.9 651.5
Other non-current liabilities 46.4 46.3
- -----------------------------------------------------------------------------------------------------------------
Total liabilities 930.9 895.7
Stockholders' equity:
Preferred stock, no par value, 20.0 shares of stock authorized,
no shares issued or outstanding in 2001 and 2000 - -
Common stock, $0.01 par value, 100.0 shares of stock authorized,
shares issued and outstanding of 39.2 in 2001 and 38.0 in 2000 0.4 0.4
Additional paid-in capital 287.0 280.7
Retained earnings 45.9 65.8
Accumulated other comprehensive loss (32.2) (20.0)
- -----------------------------------------------------------------------------------------------------------------
301.1 326.9
Less - Treasury stock, at cost, 1.1 shares in 2001 and 0.9 shares 2000 (12.9) (11.2)
- -----------------------------------------------------------------------------------------------------------------
Total stockholders' equity 288.2 315.7
- -----------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,219.1 $1,211.4
=================================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
2
<Page>
<Table>
<Caption>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
- ----------------------------------------------------------------------------------------------------------------------
UNAUDITED
----------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Net sales $ 240.6 $ 247.5 $ 770.3 $ 798.8
Cost of sales 196.8 195.8 614.7 624.4
- ----------------------------------------------------------------------------------------------------------------------
Gross margin 43.8 51.7 155.6 174.4
Selling, general and administrative expenses 27.7 29.8 93.1 93.9
Research and technology expenses 4.5 5.0 14.0 16.6
Business consolidation expenses 4.4 3.3 7.3 4.5
- ----------------------------------------------------------------------------------------------------------------------
Operating income 7.2 13.6 41.2 59.4
Gain on sale of Bellingham business - - - 68.3
Interest expense 16.0 16.0 49.6 51.6
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (8.8) (2.4) (8.4) 76.1
Provision for (benefit from) income taxes 3.0 (0.8) 9.0 26.8
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before equity in earnings (11.8) (1.6) (17.4) 49.3
Equity in earnings (losses) of affiliated
companies (1.0) 1.7 0.6 3.9
- ----------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item (12.8) 0.1 (16.8) 53.2
Extraordinary loss on early retirement of debt - - 3.1 -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (12.8) $ 0.1 $ (19.9) $ 53.2
======================================================================================================================
Net income (loss) per share:
Basic:
Income (loss) before extraordinary item $ (0.34) $ 0.00 $ (0.45) $ 1.45
Extraordinary loss on early retirement of
debt - - (0.08) -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.34) $ 0.00 $ (0.53) $ 1.45
======================================================================================================================
Diluted:
Income (loss) before extraordinary item $ (0.34) $ 0.00 $ (0.45) $ 1.28
Extraordinary loss on early retirement of
debt - - (0.08) -
- ----------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (0.34) $ 0.00 $ (0.53) $ 1.28
======================================================================================================================
Weighted average shares:
Basic 37.5 36.9 37.5 36.7
Diluted 37.5 38.0 37.5 45.3
======================================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
3
<Page>
<Table>
<Caption>
HEXCEL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------------------------------------------
UNAUDITED
---------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
(IN MILLIONS) 2001 2000
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ (19.9) $ 53.2
Reconciliation to net cash provided by operating activities:
Extraordinary loss on early retirement of debt 0.7 -
Depreciation and amortization 46.1 43.9
Deferred income taxes (2.9) 11.8
Gain on sale of Bellingham business - (68.3)
Business consolidation expenses 7.3 4.5
Business consolidation payments (5.4) (8.3)
Equity in earnings of affiliated companies (0.6) (3.9)
Working capital changes and other (0.9) (20.1)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24.4 12.8
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (30.9) (22.2)
Proceeds from sale of Bellingham business - 113.3
Proceeds from sale of other assets - 3.4
Payment for acquisition (0.3) -
Investments in affiliated companies 0.8 (6.0)
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (30.4) 88.5
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowings from credit facilities, net 26.6 30.6
Repayments of long-term debt and capital lease obligations, net (6.2) (118.7)
Debt issuance costs (3.5) (0.9)
Activity under stock plans and other (0.4) 2.2
- --------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 16.5 (86.8)
- --------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents 0.9 (0.9)
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 11.4 13.6
Cash and cash equivalents at beginning of period 5.1 0.2
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 16.5 $ 13.8
====================================================================================================================
SUPPLEMENTAL DATA:
Cash interest paid $ 56.0 $ 56.3
Cash taxes paid $ 12.1 $ 6.2
====================================================================================================================
</Table>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
4
<Page>
HEXCEL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 in the United States of America, and, in the opinion of management,
include all adjustments necessary to present fairly the balance sheet of the
Company as of September 30, 2001 and the results of operations for the quarters
and nine months ended September 30, 2001 and 2000, and the cash flows for the
nine months ended September 30, 2001 and 2000. The condensed consolidated
balance sheet of the Company as of December 31, 2000 was derived from the
audited 2000 consolidated balance sheet. Certain information and footnote
disclosures normally included in financial statements have been condensed or
omitted pursuant to rules and regulations of the Securities and Exchange
Commission. Certain prior period amounts in the condensed consolidated financial
statements and accompanying notes have been reclassified to conform to the 2001
presentation. These condensed consolidated financial statements should be read
in conjunction with the consolidated financial statements and notes thereto
included in the Company's 2000 Annual Report on Form 10-K.
NOTE 2 -- DISPOSITION OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business
("Bellingham") to Britax Cabin Interiors, Inc., a wholly owned subsidiary of
Britax International plc, for cash proceeds of $113.3 million. The sale resulted
in an after-tax gain of approximately $44.0 million or $0.97 per diluted share.
Net proceeds from the sale were used to repay $111.6 million of outstanding term
debt under the Company's Senior Credit Facility. The condensed consolidated
financial statements and accompanying notes reflect Bellingham's operating
results as a continuing operation in the engineered products business segment up
to the date of disposal.
Net sales and operating income for the Bellingham business were as follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(IN MILLIONS) 2001 2000 2001 2000
- ---------------------------------------------------------------------------------------------
Net Sales $ - $ - $ - $ 19.0
Operating income $ - $ - $ - $ 0.6
=============================================================================================
</Table>
NOTE 3 - INVENTORIES
<Table>
<Caption>
- --------------------------------------------------------------------------------------------
(IN MILLIONS) 9/30/01 12/31/00
- --------------------------------------------------------------------------------------------
Raw materials $ 73.7 $ 74.5
Work in progress 44.8 45.2
Finished goods 45.5 35.7
- --------------------------------------------------------------------------------------------
Total inventories $ 164.0 $ 155.4
============================================================================================
</Table>
5
<Page>
NOTE 4 -- NOTES PAYABLE AND CAPITAL LEASE OBLIGATIONS
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 9/30/01 12/31/00
- --------------------------------------------------------------------------------------------------------------------
Senior Credit Facility $ 237.2 $ 211.9
European credit and overdraft facilities 6.3 13.7
9.75% Senior subordinated notes, due 2009 (net of unamortized
discount of $1.4 in 2001) 338.6 240.0
Senior subordinated notes, due 2003 - 24.4
7.0% Convertible subordinated notes, due 2003 46.9 114.4
7.0% Convertible subordinated debentures, due 2011 25.6 25.6
Various notes payable 0.1 0.3
- --------------------------------------------------------------------------------------------------------------------
Total notes payable 654.7 630.3
Capital lease obligations 39.4 43.3
- --------------------------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations $ 694.1 $ 673.6
====================================================================================================================
Notes payable and current maturities of long-term liabilities $ 19.2 $ 22.1
Long-term notes payable and capital lease obligations,
less current maturities 674.9 651.5
- --------------------------------------------------------------------------------------------------------------------
Total notes payable and capital lease obligations $ 694.1 $ 673.6
====================================================================================================================
</Table>
SENIOR CREDIT FACILITY
Hexcel's global credit facility (the "Senior Credit Facility") was amended
on October 26, 2000, March 7, 2000, May 11, 2001 and June 21, 2001 to
accommodate, among other things, the planned sale of assets, the planned
investment in additional manufacturing capacity for selected products, the
impact of the decline in the Company's operating results on certain financial
covenants, the sale by an investor group of approximately 14.5 million shares of
Hexcel common stock held by a significant shareholder of the Company, a
restructuring of the ownership of certain of the Company's European
subsidiaries, the issuance of senior subordinated debt and the early redemption
of certain term debt.
The Senior Credit Facility, as amended, provides Hexcel with approximately
$354.8 million of borrowing capacity, subject to certain limitations. The Senior
Credit Facility is secured by a pledge of shares of certain of the Company's
foreign subsidiaries, as well as security interests in certain U.S. accounts
receivable, inventories, and real property, plant and equipment. The Company is
subject to various financial covenants and restrictions under the Senior Credit
Facility, including limitations on incurring debt, granting liens, selling
assets, redeeming capital stock and paying dividends. As of September 30, 2001,
the Company was in compliance with all covenants.
Interest on outstanding borrowings under the Senior Credit Facility ranges
from 1.00% to 3.25% in excess of the applicable London interbank rate, or at the
option of the Company, from 0.25% to 2.25% in excess of the base rate of the
administrative agent for the lenders. Prior to May 11, 2001, the upper limits of
these interest ranges were 3.00% and 2.00%, respectively. In addition, the
Senior Credit Facility is subject to a commitment fee varying from approximately
0.20% to 0.50% per annum of the total facility. As of September 30, 2001 and
December 31, 2000, Hexcel had an interest rate cap agreement outstanding which
covered a notional amount of $50.0 million of the Senior Credit Facility,
providing a maximum fixed rate of interest of 5.5% on the applicable London
interbank rate.
Unused borrowing capacity under the Senior Credit Facility was
approximately $99.0 million on September 30, 2001. After giving effect to the
most restrictive financial covenant under the Senior Credit Facility, the
maximum amount of additional debt the Company could borrow as of September 30,
2001 was $32.0 million. The Company has outstanding letters of credit of
approximately $18.7 million at September 30, 2001. The Senior Credit Facility is
scheduled to expire in 2004, except for approximately $58 million of term loans
that are due for repayment in 2005.
6
<Page>
9.75% SENIOR SUBORDINATED NOTES DUE 2009 AND REDEMPTION OF CERTAIN NOTES
On June 29, 2001, the Company issued $100.0 million of 9.75% Senior
Subordinated Notes Due 2009 at a price of 98.5% of face value. Net proceeds from
the offering were used to redeem $67.5 million aggregate principal amount of the
Company's outstanding 7% Convertible Subordinated Notes Due 2003 and to pay the
entire principal amount of $25.0 million of the Increasing Rate Senior
Subordinated Note Due 2003. The issuance and early retirement resulted in an
approximate $6.5 million cash expenditure for the period.
NOTE 5 -- EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT
An extraordinary loss of $3.1 million was incurred in the second quarter of
2001 as a result of the early retirement of $67.5 million aggregate principal
amount of the Company's outstanding 7% Convertible Subordinated Notes Due 2003
and the redemption of the entire principal amount of $25.0 million of the
Company's outstanding Increasing Rate Senior Subordinated Note Due 2003. There
was no tax benefit recognized on the extraordinary loss.
NOTE 6 -- NON-RECURRING EXPENSES
In connection with the retirement of John J. Lee, the Company's former
chief executive officer, the Company recorded compensation expenses of $4.7
million in the second quarter of 2001 as a result of the early vesting of
certain deferred compensation and equity compensation awards together with a
contractual termination payment.
In May 2001, the Company obtained an amendment to certain of its financial
covenants under its Senior Credit Facility. As a result of fees and expenses
associated with the amendment, interest expense for the second quarter of 2001
was increased by approximately $1.0 million.
NOTE 7 -- BUSINESS CONSOLIDATION PROGRAMS
Total accrued business consolidation expenses at September 30, 2001 and
December 31, 2000, activity during the nine months ended September 30, 2001, and
a brief description of the Company's business consolidation program follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
(IN MILLIONS) RELOCATION RELOCATION TOTAL
- -------------------------------------------------------------------------------------------------------------------
BALANCE AS OF DECEMBER 31, 2000 $ 2.4 $ 0.3 $ 2.7
Business consolidation expenses 3.6 3.7 7.3
Cash expenditures (1.9) (3.5) (5.4)
Asset write-off - (0.2) (0.2)
- -------------------------------------------------------------------------------------------------------------------
BALANCE AS OF SEPTEMBER 30, 2001 $ 4.1 $ 0.3 $ 4.4
===================================================================================================================
</Table>
As a result of four substantial business acquisitions from 1996 through
1998 and the need to respond to significant changes in commercial aerospace and
space and defense markets, Hexcel initiated three business consolidation
programs in May 1996, December 1998 and September 1999. The primary purpose of
these programs has been to integrate acquired assets and operations into the
Company and to close or restructure insufficiently profitable facilities and
activities.
All of the business consolidation activities initiated in 1996 and 1998
have been completed as of December 31, 2000, although cash expenditures
relating to accrued severance will continue to be paid through 2001. The
Company's policy is to pay severance over a period of time rather than in a
lump-sum amount. As of March 31, 2001, the entire September 1999 program was
completed with the exception of the fourth quarter 2000 amendment, which
includes the closure of two
7
<Page>
manufacturing facilities and the elimination of an additional 60 positions
(primarily manufacturing positions). The business consolidation activities
related to the fourth quarter 2000 amendment are not expected to be completed
until early 2002. Included in business consolidation expenses in the three and
nine months ended September 30, 2001 were $0.4 million and $3.3 million,
respectively, relating to the fourth quarter 2000 amendment.
As a result of the continued weakness in the electronics market, the
Company initiated additional cost reduction actions in July 2001. These actions
built upon earlier steps to furlough employees, idle manufacturing and cut
non-essential expenditures, by effecting a reduction in work force of
approximately 275 employees in the reinforcement products segment and elsewhere
in the Company. These actions resulted in business consolidation expenses of
approximately $4.0 million in the third quarter of 2001 and are estimated to
produce annualized savings of approximately $6.0 million.
For additional actions performed by the Company subsequent to September 30,
2001 refer to Note 13.
NOTE 8 -- NET INCOME (LOSS) PER SHARE
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2001 2000 2001 2000
- --------------------------------------------------------------------------------------------------------------------
Basic net income (loss):
Income (loss) before extraordinary item $ (12.8) $ 0.1 $ (16.8) $ 53.2
Extraordinary loss on early retirement of debt - - 3.1 -
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ (12.8) $ 0.1 $ (19.9) $ 53.2
Weighted average common shares outstanding 37.5 36.9 37.5 36.7
- --------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share:
Income (loss) before extraordinary item $ (0.34) $ 0.00 $ (0.45) $ 1.45
Extraordinary loss on early retirement of debt - - (0.08) -
- --------------------------------------------------------------------------------------------------------------------
Basic net income (loss) per share $ (0.34) $ 0.00 $ (0.53) $ 1.45
====================================================================================================================
Diluted net income (loss):
Income (loss) before extraordinary item $ (12.8) $ 0.1 $ (16.8) $ 53.2
Extraordinary loss on early retirement of debt - - 3.1 -
- --------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) (12.8) 0.1 (19.9) 53.2
Effect of dilutive securities -
Convertible subordinated notes, due 2003 - - - 3.8
Convertible subordinated debentures, due 2011 - - - 0.9
- --------------------------------------------------------------------------------------------------------------------
Adjusted diluted net income (loss) $ (12.8) $ 0.1 $ (19.9) $ 57.9
- --------------------------------------------------------------------------------------------------------------------
Weighted average common shares outstanding 37.5 36.9 37.5 36.7
Effect of dilutive securities -
Stock options - 1.1 - 0.5
Convertible subordinated notes, due 2003 - - - 7.2
Convertible subordinated debentures, due 2011 - - - 0.9
- --------------------------------------------------------------------------------------------------------------------
Diluted weighted average common shares outstanding 37.5 38.0 37.5 45.3
- --------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share:
Income (loss) before extraordinary item $ (0.34) $ 0.00 $ (0.45) $ 1.28
Extraordinary loss on early retirement of debt - - (0.08) -
- --------------------------------------------------------------------------------------------------------------------
Diluted net income (loss) per share $ (0.34) $ 0.00 $ (0.53) $ 1.28
====================================================================================================================
</Table>
The convertible subordinated notes, due 2003, and the convertible
subordinated debentures, due 2011, were excluded from the 2001 computations of
diluted net income per share, as they were antidilutive. For the 2001 and 2000
periods, all and substantially all of the outstanding stock options,
respectively, were excluded from the computation of diluted earnings per share
due to their antidilutive effect.
8
<Page>
NOTE 9 -- COMPREHENSIVE INCOME (LOSS)
<Table>
<Caption>
- ------------------------------------------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(IN MILLIONS) 2001 2000 2001 2000
- ------------------------------------------------------------------------------------------------------
Net income (loss) $ (12.8) $ 0.1 $ (19.9) $ 53.2
Net derivative gain (loss) 4.8 - (3.6) -
Currency translation adjustment 11.0 (8.6) (8.6) (13.4)
- ------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) $ 3.0 $ (8.5) $ (32.1) $ 39.8
======================================================================================================
</Table>
NOTE 10 -- DERIVATIVE FINANCIAL INSTRUMENTS
CASH FLOW HEDGES
FOREIGN CURRENCY - A number of the European subsidiaries of Hexcel are exposed
to the impact of exchange rate volatility between the U.S. dollar and the
subsidiaries' functional currencies, being either the Euro or the British pound
sterling. At September 30, 2001, Hexcel had outstanding foreign exchange
contracts to exchange Euros at fixed rates on specified dates through March
2005. The aggregate notional amount of these contracts is $90.5 million. The
purpose of these contracts is to hedge a portion of the forecasted transactions
of European subsidiaries under long-term sales contracts with certain customers.
The forward exchange contracts are expected to provide the Company with a more
balanced matching of future cash receipts and expenditures by currency, thereby
reducing the Company's exposure to fluctuations in currency exchange rates. For
the quarter and nine months ended September 30, 2001, hedge ineffectiveness was
immaterial and the fair value of the foreign currency cash flow hedges
recognized in other comprehensive income was a gain of $4.8 million and a loss
of $3.6 million, respectively. Over the next twelve-month period, approximately
$1.0 million of the other comprehensive loss is expected to be reclassified into
earnings as the hedged sales are recorded.
INTEREST RATE - Hexcel's results are affected by interest rate changes on its
variable rate debt. In order to partially mitigate this interest rate risk, the
Company entered into a five-year interest rate cap agreement in 1998. This
agreement provides for a maximum fixed interest rate of 5.5% on the applicable
London interbank rate used to determine the interest on $50.0 million of
variable rate debt under the Senior Credit Facility. Hedge ineffectiveness for
the quarter and nine months ended September 30, 2001 and the fair value of the
interest rate cap at September 30, 2001 were not material.
NOTE 11 -- SEGMENT INFORMATION
Hexcel evaluates the performance of its operating segments based on
operating income before business consolidation expenses and compensation
expenses associated with the former CEO's retirement ("Adjusted operating
income"), 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.
9
<Page>
Financial information for the Company's segments for the quarter and nine
month periods ended September 30, 2001 and 2000, is as follows:
<Table>
<Caption>
- -----------------------------------------------------------------------------------------------------------------------
UNAUDITED
- -----------------------------------------------------------------------------------------------------------------------
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE
(IN MILLIONS) PRODUCTS MATERIALS PRODUCTS & OTHER TOTAL
- -----------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2001
- -----------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 62.9 $ 148.0 $ 29.7 $ - $ 240.6
Intersegment sales 26.7 2.0 - - 28.7
- -----------------------------------------------------------------------------------------------------------------------
Total sales 89.6 150.0 29.7 - 269.3
Adjusted operating income 1.6 17.1 0.6 (7.7) 11.6
Depreciation and amortization 8.9 5.2 0.8 0.5 15.4
Business consolidation expenses 3.1 0.8 - 0.5 4.4
Capital expenditures 4.3 4.5 0.1 0.1 9.0
- -----------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2000
- -----------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 88.4 $ 133.1 $ 26.0 $ - $ 247.5
Intersegment sales 20.9 1.8 - - 22.7
- -----------------------------------------------------------------------------------------------------------------------
Total sales 109.3 134.9 26.0 - 270.2
Adjusted operating income 11.4 14.7 0.2 (9.4) 16.9
Depreciation and amortization 8.3 4.5 0.7 0.6 14.1
Business consolidation expenses 0.2 2.7 0.4 - 3.3
Capital expenditures 4.2 4.1 0.4 0.5 9.2
- -----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 2001
- -----------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 213.5 $ 464.4 $ 92.4 $ - $ 770.3
Intersegment sales 84.7 6.1 - - 90.8
- -----------------------------------------------------------------------------------------------------------------------
Total sales 298.2 470.5 92.4 - 861.1
Adjusted operating income 15.4 60.0 2.1 (24.3) 53.2
Depreciation and amortization 27.2 15.0 2.3 1.6 46.1
Business consolidation expenses 3.3 3.5 - 0.5 7.3
Capital expenditures 17.0 12.8 0.3 0.8 30.9
- -----------------------------------------------------------------------------------------------------------------------
NINE MONTHS ENDED
SEPTEMBER 30, 2000
- -----------------------------------------------------------------------------------------------------------------------
Net sales to external customers $ 270.1 $ 426.6 $ 102.1 $ - $ 798.8
Intersegment sales 73.2 5.9 - - 79.1
- -----------------------------------------------------------------------------------------------------------------------
Total sales 343.3 432.5 102.1 - 877.9
Adjusted operating income 34.6 52.2 4.9 (27.8) 63.9
Depreciation and amortization 25.5 14.0 2.5 1.9 43.9
Business consolidation expenses (2.0) 5.1 1.4 - 4.5
Capital expenditures 8.5 11.7 0.9 1.1 22.2
=======================================================================================================================
</Table>
Adjusted operating income 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 operating income may not be
comparable to similarly titled financial measures of other companies. Adjusted
operating income does not represent an alternative measure of the Company's cash
flows or operating income, and should not be considered in isolation or as a
substitute for measures of performance presented in accordance with generally
accepted accounting principles.
10
<Page>
A reconciliation of adjusted operating income to consolidated income (loss)
before income taxes is as follows:
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
(IN MILLIONS) 2001 2000 2001 2000
- ----------------------------------------------------------------------------------------------------------------------
Total adjusted operating income $ 11.6 $ 16.9 $ 53.2 $ 63.9
Business consolidation expenses (4.4) (3.3) (7.3) (4.5)
Compensation expense associate with CEO's retirement - - (4.7) -
Interest expense (16.0) (16.0) (49.6) (51.6)
Gain on sale of Bellingham aircraft interiors business - - - 68.3
- ----------------------------------------------------------------------------------------------------------------------
Consolidated income (loss) before income taxes $ (8.8) $ (2.4) $ (8.4) $ 76.1
======================================================================================================================
</Table>
NOTE 12 -- TAXES
Since 1999, the Company has generated taxable profits in Europe offset by
net operating losses in the United States. During the same period, the Company's
U.S. operations have generated losses, in part, because most of the Company's
interest expense and goodwill amortization are serviced in the United States.
The Company has recognized the benefit of these net operating losses by
increasing the deferred tax asset carried on its balance sheet. The sharp
decline in electronics revenues and the recognition of the non-recurring charges
have significantly increased U.S. net operating losses in 2001 compared to prior
estimates. In light of this change in business outlook, the Company determined,
during the second quarter, to increase its tax provision rate through the
establishment of a non-cash valuation allowance attributable to currently
generated U.S. net operating losses, until such time the U.S. operations return
to consistent profitability. As such, in the third quarter of 2001, the Company
has established a full valuation allowance on its third quarter U.S. operating
losses, and the Company's tax provision of $3.0 million reflects the third
quarter impact of European taxes. The Company's effective tax rate may change
from quarter-to-quarter based on relative U.S. and European profitability. The
amount of net deferred tax asset reflected on the Company's balance sheet could
be reduced further. The Company has not yet determined what impact the
anticipated reductions in commercial aircraft production, the continued
depressed business conditions in the electronics market and the weakness in the
general economy will have on the carrying value of its deferred tax asset, but
anticipates that such a determination will be made in the fourth quarter of
2001. As of September 30, 2001, the deferred tax asset balance was $43.1
million.
The U.S. and European components of income (loss) before income taxes and
the provision for (benefit from) income taxes for the quarter and nine months
ended September 30, 2001 are as follows:
<Table>
<Caption>
- -------------------------------------------------------------------------------------------------------------------------
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30, 2001 SEPTEMBER 30, 2000
-------------------------------------- ------------------------------------
U.S. EUROPE TOTAL U.S. EUROPE TOTAL
---- ------ ----- ---- ------ -----
Income (loss) before income tax $ (18.5) $ 9.7 $ (8.8) $ (45.0) $ 36.6 $ (8.4)
Provision for (benefit from) income
taxes - 3.0 3.0 (3.8) 12.8 9.0
-------------------------------------- ------------------------------------
Income (loss) before equity in
earnings and extraordinary item $ (18.5) $ 6.7 $ (11.8) $ (41.2) $ 23.8 $ (17.4)
====================================== ====================================
- -------------------------------------------------------------------------------------------------------------------------
</Table>
The Company did not recognize any tax benefit on the $3.1 million
extraordinary loss recorded in the second quarter.
11
<Page>
NOTE 13 -- SUBSEQUENT EVENT
On November 7, 2001, the Company announced that it was taking actions to
right-size its business operations to its current business outlook. These
actions are necessary in light of anticipated reductions in commercial
aircraft production in 2002, the continued depressed business conditions in
the electronics market and the weakness in the general economy. The actions
include, along with initiatives of improving operational cash flow, a
reduction of cash fixed overhead costs by 20%, or $60 million, on an
annualized basis compared to 2001 year-to-date spending rates. These
reductions are to be achieved primarily through company wide reductions in
managerial, professional, indirect manufacturing and administrative employees
combined with organizational rationalization. In addition, the Company will
reduce its direct manufacturing costs as customer requirements change in
response to reduced demand. The Company estimates that the cash costs of
these restructuring actions will be in the range of $35-40 million to be
incurred over the next fourteen months. These reductions have already
commenced with plans that the majority of these actions to reduce fixed costs
will be complete by the end of this year. The Company will recognize the
expenses related to these programs in its fiscal fourth quarter.
12
<Page>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL OVERVIEW
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30,
-----------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000
- ----------------------------------------------------------------------------------------------
Net Sales $240.6 $247.5
Gross margin % 18.2% 20.9%
Adjusted operating income (a) $11.6 $16.9
Adjusted operating income % (a) 4.8% 6.8%
Adjusted EBITDA (b) $27.0 $31.0
Provision for (benefit from) income taxes (c) $3.0 $(0.8)
Equity in earnings (losses) of affiliated companies $(1.0) $1.7
Net income (loss) $(12.8) $0.1
Diluted net income (loss) per share $(0.34) $0.00
==============================================================================================
</Table>
(a) Excludes business consolidation expenses.
(b) Excludes business consolidation expenses, interest, taxes, depreciation,
amortization, and equity in earnings (losses) of affiliated companies.
(c) 2001 reflects a tax provision on European earnings with no tax benefit taken
for U.S. operating losses.
Adjusted EBITDA and Adjusted operating income have 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. These
measures may not be comparable to similarly titled financial measures of other
companies. These measures do 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.
RECENT EVENTS
On November 7, 2001, the Company announced the actions it was taking to
right-size its business operations to its current business outlook. These
actions are necessary in light of anticipated reductions in commercial aircraft
production in 2002, the continued depressed business conditions in the
electronics market and the weakness in the general economy. The Company expects
that in addition to the impact of lower aircraft build rates it will also see
the impact of supply chain inventory corrections, which could be particularly
acute towards the end of this quarter and in the first quarter of 2002.
Prior to the tragic events of September 11th, the Company was successfully
capturing growth from expanding markets for its products and technologies. With
production of commercial aircraft now projected to decline, focus has switched
to cost reduction and cash flow. The Company is targeting a reduction of cash
fixed overhead costs by 20%, or $60 million, on an annualized basis compared to
2001 year-to-date spending rates. These reductions are to be achieved primarily
through company wide reductions in managerial, professional, indirect
manufacturing and administrative employees combined with organizational
rationalization. In addition, the Company will reduce its direct manufacturing
costs as customer requirements change in response to reduced demand. The Company
anticipates that by the end of 2002 it will have less than 4,500 employees
worldwide compared to almost 6,000 today. In addition to reducing costs, the
Company is focusing on improving operational cash flow by tightly controlling
capital spending, as capacity expansion plans are deferred and reducing working
capital as revenues decline. Capital expenditures in 2002 will not exceed $25
million compared to approximately $40 million in 2001.
13
<Page>
The Company estimates that the cash costs of both the fixed cost and
direct manufacturing restructuring actions will be in the range of $35-40
million that will be incurred over the next fourteen months. These reductions
have already commenced with plans that the majority of these actions to
reduce fixed costs will be complete by the end of this year. The Company will
record the expenses related to these programs in its fourth quarter 2001
financial results.
In light of the anticipated reductions in commercial airline production and
the continued decline in our electronics markets, the Company continues to
evaluate the impact on future operations. As a result of the adverse business
conditions, it is possible that assets directly associated with these markets
could be impaired. In addition, the continuing decline in U.S. taxable income
could adversely impact the carrying value of the Company's deferred tax asset.
The Company expects to complete its analyses during the fourth quarter of 2001.
RESULTS OF OPERATIONS
NET SALES: Net sales of $240.6 million for the third quarter of 2001 were
3% lower than 2000 third quarter revenue of $247.5 million. Had the same U.S.
dollar, British pound sterling and Euro exchange rates applied in the third
quarter of 2001 as in the third quarter of 2000, net sales for the 2001 quarter
would have been $239.9 million.
Although net sales in the Company's aerospace, space and defense and
industrial markets grew in the aggregate by $23.6 million for the third quarter
of 2001 compared to the third quarter of 2000, this growth could not completely
offset the $30.5 million decline in net sales of the Company's electronics
market, when comparing the same periods. The decline in the Company's electronic
market continued to reflect the impact of a severe industry downturn and
inventory correction working through the global electronics market. Increased
net sales in the commercial aerospace market primarily resulted from higher
build rates for Airbus, Boeing and several regional aircraft manufactures, in
the space and defense market from upward trends associated with military
aircraft and helicopters, and in the industrial market from the continued
strength in the soft body armor market and steady volume increases in wind
energy applications.
14
<Page>
The following table summarizes net sales to third-party customers by
product groups and market segments for the quarters ended September 30, 2001 and
2000, respectively:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------
UNAUDITED
----------------------------------------------------------------------------
COMMERCIAL SPACE &
(IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
- --------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2001 NET SALES
Reinforcement products $ 15.9 $ 3.3 $ 14.2 $ 29.5 $ 62.9
Composite materials 88.4 26.5 - 33.1 148.0
Engineered products 26.1 3.6 - - 29.7
- --------------------------------------------------------------------------------------------------------------------
Total $130.4 $ 33.4 $ 14.2 $ 62.6 $ 240.6
54% 14% 6% 26% 100%
- --------------------------------------------------------------------------------------------------------------------
THIRD QUARTER 2000 NET SALES
Reinforcement products $ 14.3 $ 2.6 $ 44.7 $ 26.8 $ 88.4
Composite materials (a) 77.0 27.2 - 28.9 133.1
Engineered products 23.9 2.1 - - 26.0
- --------------------------------------------------------------------------------------------------------------------
Total $115.2 $ 31.9 $ 44.7 $ 55.7 $ 247.5
47% 13% 18% 22% 100%
- --------------------------------------------------------------------------------------------------------------------
</Table>
(a) 2000 has been reclassified for comparative purposes.
Commercial aerospace net sales increased 13% to $130.4 million for the
third quarter of 2001, as compared to net sales of $115.2 million for the third
quarter of 2000. The increase in comparable third quarter net sales reflects
higher build rates of aircraft produced at Airbus, Boeing and several regional
aircraft manufacturers. Although Boeing expects to deliver over 520 airplanes in
2001, compared to deliveries of 489 in 2000, and Airbus expects to deliver
approximately 330 airplanes in 2001, up from 311 deliveries in 2000, both Boeing
and Airbus have reduced their previously projected deliveries in 2002 due to the
sharp downturn in air travel and the airline industry performance following the
tragic events of September 11th. Boeing estimates deliveries in 2002 to be
between 350 and 400 airplanes, while Airbus anticipates 2002 deliveries to be
slightly lower than in 2001, rather than ramping up production as they had
previously indicated. This guidance suggest that combined Boeing and Airbus
commercial aircraft deliveries in 2002 will be about 16-23% lower than what had
been projected for 2002 before the events of September 11th. There is less
information on anticipated deliveries of regional aircraft, but significant
decreases are also expected. The impact of these changes on the Company will be
influenced by two additional factors: (a) the mix of aircraft that are produced,
as twin aisle aircraft use more of the Company's products than narrow body
aircraft and new designed aircraft use more than older generations, and (b) the
effect of reduced aircraft production on the inventory supply chain, which will
alter the demand for the Company's products. The Company normally supplies its
products on average four to six months before an aircraft is delivered. Only a
small amount of the Company's net sales come from aircraft spares and servicing.
Space and defense net sales for the third quarter of 2001 were $33.4
million which reflects a $1.5 million, or 5%, increase from the third quarter of
2000 net sales of $31.9 million. While sales may vary quarter-to-quarter, sales
associated with military aircraft and helicopters continue to trend upwards as
the new generation of military aircraft in the United States and Europe ramp up
in production. Both the United States and European armed forces continue to
support an outlook of increased procurement of military aircraft and helicopters
and the new generation of military aircraft use more of the Company's products.
The Company is currently qualified to supply materials to a broad range of
military aircraft and helicopters scheduled to enter either full-scale
production in the near future or significantly increase existing production
rates. These programs include the F/A-18E/F (Hornet), the F-22 (Raptor), the
European Fighter Aircraft (Typhoon) as well as the C-17, the V-22 (Osprey) tilt
rotor aircraft, the RAH-66 (Comanche) and the NH90 helicopters. The benefits the
Company obtains from these programs will depend upon which ones are funded and
the extent of such funding.
15
<Page>
Electronics net sales, which are reflected in the Company's reinforcement
products segment, were $14.2 million in the third quarter of 2001, a decrease of
68% from net sales of $44.7 million in the comparable quarter of 2000. This
decline reflects the impact of a severe industry downturn and an inventory
correction in the global electronics industry on the demand for the Company's
woven electronic glass fabrics that are the reinforcement for printed circuit
boards. Lower demand was the net result of finished electronics goods producers
responding to their excess inventories by cutting back on their purchases, which
has impacted the entire supply chain. Customer requirements in the U.S. have
remained at these much reduced levels since the end of the first quarter of
2001. This market decline became evident in the Company's wholly owned
operations in France and at its Asian joint venture during the second quarter of
2001 and has continued into the third quarter of 2001. In addition to continuing
to furlough employees, idle manufacturing and cut non-essential expenditures,
the Company implemented a work force reduction of approximately 275 employees in
the reinforcement products business and elsewhere in the Company. These actions
resulted in business consolidation expenses of approximately $4.0 million for
the quarter and are estimated to produce annualized savings of approximately
$6.0 million. The Company will continue to monitor the situation closely and
make further adjustments if warranted by market developments. While the Company
continues to look for signs of improving demand and an end to the inventory
correction, the Company does not believe that there will be an upturn in demand
in the fourth quarter of 2001.
Industrial net sales increased 12% to $62.6 million for the third quarter
of 2001 from $55.7 million for the same quarter of 2000. The increase reflects
sales growth in reinforcement products as the Company's fabrics are used to
strengthen soft body armor and in composite materials the wind energy
applications. The Company anticipates that demand for renewable energy such as
wind energy will continue to grow and has seen strong growth demand for soft
body armor. The Company has also continued to grow its sales through automotive
applications, driven by new programs that use the Company's honeycomb core to
provide impact protection and light weight in structural products. Sales to
recreational markets will probably track the trends in consumer spending and
travel.
GROSS MARGIN: Gross margin for the third quarter of 2001 was $43.8 million
or 18.2% of net sales, compared to gross margin of $51.7 million or 20.9% of net
sales for the third quarter of 2000. The decrease in gross margin reflects the
impact of the sharp decrease in electronics sales in the Company's reinforcement
products segment. While the Company has taken actions to significantly reduce
costs in the electronics business, it has not to date been able to reduce fixed
costs pro-rata to the change in sales given the magnitude of the shortfall in
revenues. Gross margins earned by the Company's composite materials and
engineered products business segments as a percent of sales were comparable to
those earned in the third quarter of 2000.
OPERATING INCOME: Operating income was $7.2 million, or 3.0%, of net
sales in the third quarter of 2001, compared with $13.6 million, or 5.5%, of
net sales in the third quarter of 2000. Excluding business consolidation
expenses, operating income for the third quarter of 2001 was $11.6 million,
or 4.8% of net sales, compared with $16.9 million or 6.8%, in the same
quarter of 2000. Business consolidation expenses totaled $4.4 million and
$3.3 million for the third quarter of 2001 and 2000, respectively.
The aggregate decrease in operating income, excluding the business
consolidation expenses, reflects decreases in net sales and gross margin
partially offset by reductions in selling, general and administrative
expenses and in research and technology expenses. Operating income in the
reinforcement products segment declined by $13.8 million reflecting the
electronics industry downturn discussed earlier, while the composite
materials segment operating income increased by $2.4 million, excluding
business consolidation expenses, as compared to the third quarter of 2000.
The engineered products segment reported an increase in operating income of
$0.4 million compared to the third quarter of 2000, after adjusting for
business consolidation expenses.
16
<Page>
SELLING, GENERAL AND ADMINISTRATIVE: Selling, general and administrative
expenses were $27.7 million or 11.5% of net sales for the third quarter of 2001,
compared with $29.8 million, or 12.0% of net sales for the third quarter of
2000. This decrease reflects lower corporate expenses combined with the impact
of initiatives to reduce expenses to mitigate the reduction in sales to the
electronics market segment. Research and technology expenses for the third
quarter of 2001 were $4.5 million, or 1.9% of net sales, compared with $5.0
million, or 2.0% of net sales for the third quarter of 2000.
INTEREST EXPENSE: Interest expense was $16.0 million for the third quarter
of 2001 and the comparable third quarter of 2000. Although the Company slightly
increased its average borrowings during the third quarter of 2001 compared to
2000, interest expense remained constant due to lower effective interest rates
on the Company's Senior Credit Facility.
EQUITY IN EARNINGS OF AFFILIATED COMPANIES: Equity losses of affiliated
companies for the third quarter of 2001 was $1.0 million compared to equity
earnings of $1.7 million for the third quarter of 2000. The year over year
decrease reflects the impact of the electronics market decline on the Company's
Asian reinforcement products joint venture and start-up losses associated with
the engineered products joint ventures in China and Malaysia. The Company
anticipates reporting comparable equity in losses in the fourth quarter of 2001.
These losses by our affiliated companies do not affect the Company's cash flows.
TAXES: Due to the sharp decline in electronics revenues and the recognition
of non-recurring charges in the second quarter of 2001, the Company determined
during the second quarter to increase its tax provision rate through the
establishment of a non-cash valuation allowance attributable to currently
generated U.S. net operating losses until such time as the U.S. operations
return to consistent profitability. As such, in the third quarter of 2001, the
Company has established a full valuation allowance on its third quarter U.S.
operating losses, and the Company's tax provision of $3.0 million reflects the
third quarter impact of European taxes. (Refer to Note 12 to the accompanying
condensed consolidated financial statements).
17
<Page>
YEAR-TO-DATE RESULTS
The following discussions use comparisons of the results for the nine
months ended September 30, 2001 to the pro forma results for the nine months
ended September 30, 2000. The pro forma results give effect to the April 26,
2000 sale of the Bellingham aircraft interiors business as if it had occurred on
January 1, 2000.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------
NINE MONTHS ENDED SEPTEMBER 30,
-----------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2001 2000
- ----------------------------------------------------------------------------------------
PRO FORMA: (a)
Net Sales $770.3 $779.8
Gross margin % 20.2% 21.8%
Adjusted operating income (b) $53.2 $63.4
Adjusted operating income % (b) 6.9% 8.1%
Adjusted EBITDA (c) $99.3 $106.9
- ----------------------------------------------------------------------------------------
AS REPORTED:
Net Sales $770.3 $798.8
Gross margin % 20.2% 21.8%
Adjusted operating income (b) $53.2 $63.9
Adjusted operating income % (b) 6.9% 8.0%
Adjusted EBITDA (c) $99.3 $107.8
Provision for income taxes (d) $9.0 $26.8
Equity in earnings of affiliated companies $0.6 $3.9
Extraordinary loss on early retirement of debt $3.1 -
Net income (loss) $(19.9) $53.2
Diluted earnings (loss) per share $(0.53) $1.28
========================================================================================
</Table>
(a) Pro forma results give effect to the April 26, 2000 sale of the
Bellingham aircraft interiors business as if the transaction had
occurred on January 1, 2000.
(b) Excludes business consolidation expenses and compensation expenses
associated with the former CEO's retirement.
(c) Excludes business consolidation expenses, compensation expenses
associated with the former CEO's retirement, the gain from the April
2000 sale of the Bellingham aircraft interiors business, interest,
taxes, depreciation, amortization, equity in earnings (losses) of
affiliated companies and the extraordinary loss on early retirement of
debt.
(d) 2001 reflects the impact of a reduced tax benefit from U.S. operating
losses. 2000 includes approximately $24.0 million of provision for
income taxes on the April 2000 gain from the sale of the Bellingham
aircraft interiors business.
NET SALES: Net sales for the nine months of 2001 were $770.3 million
compared to the nine months of 2000 pro forma net sales of $779.8 million.
Although net sales in the Company's aerospace, space and defense and industrial
markets grew in aggregate by $60.2 million, or 9%, for the nine months ended
September 30, 2001 over pro forma net sales for the nine months ended September
30, 2000, this growth could not completely offset the $69.7 million, or 52%,
decline in net sales of the Company's electronics market for the same periods.
The strengthening of the U.S. dollar against the British pound sterling and the
Euro in the last twelve months has reduced net sales by $11.9 million for the
first nine months of 2001 compared to the same period in 2000. The decline in
the Company's electronic market continued to reflect the impact of a severe
industry downturn and inventory correction working through the global
electronics market in 2001.
GROSS MARGIN: Gross margin for the nine months of 2001 was $155.6 million
or 20.2% versus pro forma gross margin of $169.8 million, or 21.8% of pro forma
net sales for the same period in 2000. The
18
<Page>
decrease primarily reflects the impact of the sharp decline in electronics sales
in the Company's reinforcement products segment. While the Company has taken
actions to significantly reduce costs in the electronics business, it has not to
date been able to reduce fixed costs pro-rata to the change in sales given the
magnitude of the shortfall in revenues. Gross margins earned by the Company's
composite materials and engineered products business segments as a percent of
sales were slightly below those earned in the first nine months of 2000. Utility
costs in the U.S. for the nine-month period increased by approximately $2.9
million compared to the same 2000 period.
The following table summarizes actual and pro forma net sales to
third-party customers by product group and market segment for the nine month
periods ended September 30, 2001 and 2000, respectively:
<Table>
<Caption>
- --------------------------------------------------------------------------------------------------------------------
UNAUDITED
------------------------------------------------------------------------------------
COMMERCIAL SPACE &
(IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
- --------------------------------------------------------------------------------------------------------------------
FIRST NINE MONTHS OF 2001
Reinforcement products $ 50.2 $ 11.9 $ 65.4 $ 86.0 $ 213.5
Composite materials 283.2 78.6 - 102.6 464.4
Engineered products 81.4 11.0 - - 92.4
- --------------------------------------------------------------------------------------------------------------------
Total $414.8 $ 101.5 $ 65.4 $ 188.6 $ 770.3
54% 13% 8% 25% 100%
- --------------------------------------------------------------------------------------------------------------------
PRO FORMA FIRST NINE MONTHS OF 2000
Reinforcement products $ 47.0 $ 10.2 $ 135.1 $ 77.8 $ 270.1
Composite materials (a) 252.7 79.0 - 94.8 426.5
Engineered products 76.5 6.7 - - 83.2
- --------------------------------------------------------------------------------------------------------------------
Total $376.2 $ 95.9 $ 135.1 $ 172.6 $ 779.8
49% 12% 17% 22% 100%
- --------------------------------------------------------------------------------------------------------------------
</Table>
(a) 2000 has been reclassified for comparative purposes.
OPERATING INCOME: Operating income for the first nine months of 2001 was
$41.2 million, compared with pro forma operating income of $58.9 million for the
same period in 2000. Excluding business consolidation expenses of $7.3 million
and $4.5 million incurred during the nine months of 2001 and 2000, respectively,
and excluding $4.7 million of compensation expenses associated with the former
CEO's retirement in the 2001 period, operating income was $53.2 million, or 6.9%
of net sales for 2001 compared with $63.4 million, or 8.1% of net sales for
2000, on a pro forma basis. The aggregate decrease in operating income on a pro
forma basis, excluding business consolidation and former CEO compensation
expenses, is the result of declines in net sales and gross margin, partially
offset by lower SG&A and research and technology expenses. SG&A expenses,
excluding the $4.7 million of compensation expenses associated with the former
CEO's retirement, were $88.4 million, or 11.5%, of net sales for the nine months
ended September 30, 2001, compared to pro forma SG&A of $90.2 million, or 11.6%,
of pro forma net sales for the same period in 2000. Research and technology
expenses were $14.0 million, or 1.8%, of net sales for the nine months of 2001,
compared to $16.2 million, or 2.1%, of net sales for the comparable 2000 period,
on a pro forma basis.
INTEREST EXPENSE: Interest expense for the nine months ended September 30,
2001 was $49.6 million compared to $48.7 million pro forma interest expense for
the nine months ended September 30, 2000. The increase in interest is primarily
due to bank amendment fees of approximately $1.0 million related to the May 2001
amendment of certain financial covenants under the Senior Credit Facility.
(Refer to Note 6 to the accompanying condensed consolidated financial
statements).
EQUITY IN EARNINGS OF AFFILIATED COMPANIES: Equity in earnings of
affiliated companies for the nine month period ended September 30, 2001 was $0.6
million compared to $3.9 million for the same period of 2000, reflecting the
impact of the electronics industry downturn on the operating results of the
19
<Page>
Company's electronics fabrics joint venture in Asia as well as the anticipated
start-up losses associated with the engineered products joint ventures in China
and Malaysia.
TAXES: The Company's tax provision of $9.0 million for the nine months of
2001 reflects the impact of reduced tax benefits recorded for U.S. operating
losses resulting from the change in business outlook for the Company. (Refer to
Note 12 to the accompanying condensed consolidated financial statements.)
EXTRAORDINARY LOSS: An extraordinary loss of $3.1 million was incurred in
the second quarter of 2001 as a result of the early retirement of $67.5 million
aggregate principal amount of the Company's outstanding 7% Convertible
Subordinated Notes Due 2003 and the redemption of the entire principal amount of
$25.0 million of the Company's outstanding Increasing Rate Senior Subordinated
Note due 2003. There was no tax benefit recognized on the extraordinary loss.
(Refer to Note 5 to the accompanying condensed consolidated financial
statements.)
EBITDA AND ADJUSTED EBITDA
Earnings before business consolidation expenses, the 2001 compensation
expenses associated with the former CEO's retirement, the gain from the April
2000 sale of the Bellingham aircraft interiors business, interest, taxes,
depreciation, amortization, equity in earnings (losses) of affiliated companies
and the extraordinary loss on early retirement of debt ("Adjusted EBITDA") for
the third quarter of 2001 was $27.0 million, a decrease of 12.9%, when compared
to Adjusted EBITDA of $31.0 million for the third quarter of 2000. Adjusted
EBITDA for the first nine months of 2001 was $99.3 million, a decrease of 7.1%,
compared to the first nine months of 2000 pro forma Adjusted EBITDA of $106.9
million.
Adjusted EBITDA and pro forma Adjusted EBITDA have 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 and pro forma Adjusted EBITDA may not be comparable to similarly titled
financial measures of other companies. Adjusted EBITDA and pro forma Adjusted
EBITDA do not represent alternative measures of the Company's cash flows or
operating income, and should not be considered in isolation or as substitutes
for measures of performance presented in accordance with generally accepted
accounting principles.
A reconciliation of net income (loss) before extraordinary item to EBITDA
and Adjusted EBITDA for the applicable periods follows:
<Table>
<Caption>
- ---------------------------------------------------------------------------------------------------------------------
QUARTER ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
(IN MILLIONS) 2001 2000 2001 2000 (a)
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) before extraordinary item $ (12.8) $ 0.1 $ (16.8) $ 54.8
Provision for (benefit from) income taxes 3.0 (0.8) 9.0 27.6
Interest expense 16.0 16.0 49.6 48.7
Depreciation and amortization expense 15.4 14.1 46.1 43.5
Equity in (earnings) losses of affiliated companies 1.0 (1.7) (0.6) (3.9)
- ---------------------------------------------------------------------------------------------------------------------
EBITDA 22.6 27.7 87.3 170.7
Business consolidation expenses 4.4 3.3 7.3 4.5
Compensation expenses related to CEO's retirement - - 4.7 -
Gain on sale of Bellingham aircraft interiors business - - - (68.3)
- ---------------------------------------------------------------------------------------------------------------------
Adjusted EBITDA $ 27.0 $ 31.0 $ 99.3 $ 106.9
=====================================================================================================================
</Table>
(a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham
aircraft interiors business as if the transaction had occurred on January
1, 2000.
20
<Page>
FINANCIAL CONDITION
LIQUIDITY: At September 30, 2001, the Company had cash and cash equivalents
of $16.5 million and borrowing capacity of $32.0 million under the most
restrictive terms of the Company's Senior Credit Facility, providing total
available liquidity of $48.5 million.
As of September 30, 2001, the Company's total debt outstanding was $694.1
million, an increase of $20.5 million from the outstanding balance of $673.6 as
of December 31, 2000. The increase in debt reflects (a) the funding of capital
expenditures towards process improvements, capacity additions, and environmental
and safety initiatives; (b) business consolidation payments as the Company
continues to integrate acquired assets and operations while closing
insufficiently profitable facilities and activities; and (c) the costs
associated with the issuance of senior subordinated debt. As of September 30,
2001, current maturities of Notes Payable and Capital Lease Obligations were
$19.2 million with no substantial repayments due until the 7% Convertible
Subordinate Notes mature in 2003. Scheduled amortization under the Company's
Senior Credit Facility remaining to be paid in 2001 is $1.2 million, and
amortization will be $8.2 million in 2002.
On June 29, 2001, the Company issued $100.0 million of 9.75% Senior
Subordinated Notes Due 2009 at a price of 98.5%. Net proceeds from the offering
were used to redeem $67.5 million aggregate principal amount of the Company's
outstanding 7% Convertible Subordinated Notes Due 2003 and to pay the entire
principal amount of $25.0 million of the Increasing Rate Senior Subordinated
Note Due 2003. The refinancing reduced the Company's 2003 debt maturities from
$149.5 million to $57.6 million. The net impact of the offering is estimated to
increase quarterly interest expense by approximately $0.6 million before tax.
The cash costs associated with these financing actions amounted to approximately
$6.5 million.
The Company is subject to various financial covenants and restrictions
under the Senior Credit Facility, including limitations on incurring debt,
granting liens, selling assets, redeeming capital stock and paying dividends. In
May 2001, certain financial covenants under the Senior Credit Facility were
amended to accommodate the impact of the sharp fall-off in electronics sales
volume on the Company.
The announced reductions in production of commercial aircraft in 2002
resulting from the deterioration in the performance of the airline industry
since September 11 will result in a reduction in the Company's sales to
commercial aerospace customers. The Company anticipates this reduction will
first become evident in the fourth quarter, 2001 as its customers start to
adjust inventories ahead of reduced build rates. While the Company's recently
announced restructuring program will mitigate the impact of reduced revenues,
the changes in financial performance will likely impact its performance
against the financial covenants under the Senior Credit Facility as soon as
the fourth quarter. As a result, the Company is approaching its Senior Credit
Facility banks during the fourth quarter 2001 to request further amendments
to these covenants. There can be no assurance such relief, if necessary, will
be obtained or as to the terms under which it may be granted by the senior
lenders, if requested. In addition, the Company's ability to make scheduled
payments of principal, or to pay interest on, or to refinance its
indebtedness, including its public notes, or to fund planned capital
expenditures, will depend on its future performance. The Company's future
performance is subject to economic, financial, competitive, legislative,
regulatory and other factors that are beyond its control. There can be no
assurance that the Company will generate sufficient cash flow from its
operations, or that sufficient future borrowings will be available under its
Senior Credit Facility, to enable the Company to service its indebtedness,
including its public notes, or to fund its other liquidity needs. In
addition, the Company may need to refinance all or a substantial portion of
its indebtedness on or prior to maturity. There can be no assurance that the
Company will be able to effect any such refinancing on commercially
reasonable terms, or at all. For further information regarding the Company's
financial resources, see Note 4 to the accompanying condensed consolidated
financial statements.
OPERATING ACTIVITIES: Net cash flows provided by operating activities was
$24.4 million during the nine months ended September 30, 2001 which represents a
$11.6 million increase compared to net cash provided by operating activities of
$12.8 million for the first nine months of 2000. This increase can be primarily
attributed to improvements in working capital requirements during the first nine
months of 2001. The Company plans to continue to obtain funds through additional
working capital reductions over the next few quarters.
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INVESTING ACTIVITIES: Net cash used in investing activities during the nine
months ended September 30, 2001 was $30.4 million compared with $88.5 million
net cash provided in the prior year period. Cash of $30.9 million was used in
2001 for capital spending, as the Company continued efforts towards process
improvements, capacity additions, and environmental and safety initiatives. The
$88.5 million generated from investing activities in the first nine months of
2000 resulted from the receipt of $113.3 million in proceeds from the sale of
the Bellingham aircraft interiors business offset by capital expenditures of
$22.2 million and investments in joint ventures in China and Malaysia of $6.0
million. As large customers in the aerospace industry have recently changed
their outlooks for 2002 and 2003, the Company expects its capital expenditures
to trend lower over the next few quarters.
FINANCING ACTIVITIES: During the nine months ended September 30, 2001, net
cash of $16.5 million was provided by financing activities compared with net
cash used of $86.8 million in the nine months ended September 30, 2000. The
Company had net borrowings from its Senior Credit Facility of $26.6 million for
the first nine months of 2001, down $4.0 million from net borrowings of $30.6
million for the prior year period. The Company continued to make net repayments
to long-term debt of $6.2 million and $118.7 million during the nine months
ended September 30, 2001 and 2000, respectively. The 2000 period reflects the
repayment of debt from the proceeds received from the sale of the Bellingham
business. The Company used cash to pay debt issuance costs of $3.5 million, and
used $0.4 million in connection with activity under employee equity plans in
2001. The Company received $2.2 million from equity plan participants in the
first nine months of 2000.
RECENTLY ISSUED ACCOUNTING STANDARDS
In July 2001, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 142 ("FAS 142"), "Goodwill and
Other Intangible Assets". FAS 142 changes the accounting for goodwill from an
amortization method to an impairment only approach. Upon adoption of FAS 142,
goodwill will be tested at the reporting unit level annually and whenever events
or circumstances occur indicating that goodwill might be impaired. Amortization
of goodwill, including goodwill recorded in past business combinations, will
cease. The adoption date for the Company will be January 1, 2002. The Company
has not yet determined what the impact of FAS 142 will be on the Company's
results of operations and financial position, but anticipates reaching such a
determination in the fourth quarter of 2001.
In October 2001, FASB issued Statement of Financial Accounting Standards
No. 144 ("FAS 144"), "Accounting for the Impairment or Disposal of Long-Lived
Assets". FAS 144 was issued to establish a single accounting model for
long-lived assets to be disposed of by sale and to resolve significant
implementation issues related to FASB's Statement No. 121 ("FAS 121"),
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of". Although FAS 144 retains the requirements of FAS 121 to
recognize an impairment loss only if the carrying amount of a long-lived asset
is not recoverable from its undiscounted cash flows and to measure an impairment
loss as the difference between the carrying amount and fair value of the asset,
the statement removes goodwill and intangible assets not being amortized from
FAS 121's scope. FAS 144 also requires long-lived assets held for sale to be
measured at the lower of its carrying amount or fair value less cost to sell
with no further depreciation, and broadens the presentation of discontinued
operations in the income statement to a component of an entity rather than a
segment of a business. A component of an entity comprises operations and cash
flows that can be clearly distinguished, operationally and for financial
reporting purposes, from the rest of the entity. FAS 144 is effective for fiscal
years beginning after December 31, 2001, and interim periods within those fiscal
years. The Company does not believe that the adoption of FAS 144 will have a
significant impact on the Company's results of operations and financial
position.
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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 sales and EBITDA; (b)
estimates of commercial aerospace production and delivery rates, including those
of Boeing and Airbus; (c) expectations regarding the growth in the production of
military aircraft and helicopters; (d) expectations regarding the electronics
market and the future demand for electronics fabrics, and related manufacturing
capacity utilization; (e) expectations regarding sales growth, sales mix, and
gross margins; (f) expectations regarding the performance of the Company's joint
venture interests; (g) estimates of the savings from and the cash implementation
costs of its business restructuring program; (h) expectations regarding the
Company's financial condition and liquidity; (i) the requirement to amend
certain covenants under its Senior Credit Facility; and (j) estimated expenses,
cash costs, and savings for business consolidation programs.
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 production or 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
or technology; industry capacity; competition; disruptions of established supply
channels; manufacturing capacity constraints; and the availability, terms and
deployment of capital. Additional information regarding these factors is
contained in the Company's Registration Statement on Form S-4 filed with the SEC
on August 2, 2001 and the Company's Annual Report on Form 10-K for the year
ended December 31, 2000.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a result of the Company's global operating and financing activities,
Hexcel is exposed to various market risks that may affect its operational
results and financial position. These market risks include, but are not limited
to, fluctuations in interest rates, which impact the amount of interest the
Company must pay on certain variable rate debt, and fluctuations in currency
exchange rates, which impact the U.S. dollar value of transactions, assets and
liabilities denominated in foreign currencies. The Company considers its
strategic use of cash flow hedges to be a prudent method of managing interest
rate and foreign currency exchange rate sensitivities.
CASH FLOW HEDGES
FOREIGN CURRENCY - A number of the European subsidiaries of Hexcel are exposed
to the impact of exchange rate volatility between the U.S. dollar and the
subsidiaries' functional currencies, being either the Euro or the British pound
sterling. At September 30, 2001, Hexcel has outstanding foreign exchange
contracts to exchange Euros at fixed rates on specified dates through March
2005. The aggregate notional amount of these contracts is $90.5 million. The
purpose of these contracts is to hedge a portion of the forecasted transactions
of European subsidiaries under long-term sales contracts with certain customers.
The forward exchange contracts are expected to provide the Company with a more
balanced matching of future cash receipts and expenditures by currency, thereby
reducing the Company's exposure to fluctuations in currency exchange rates. For
the quarter and nine months ended September 30, 2001, hedge ineffectiveness was
immaterial and the fair value of the foreign currency cash flow hedges
recognized in other comprehensive income was a gain of $4.8 million and a loss
of $3.6 million, respectively. Over the next twelve-month period, approximately
$1.0 million of the other comprehensive loss is expected to be reclassified into
earnings as the hedged sales are recorded.
INTEREST RATE - Hexcel's results are affected by interest rate changes on its
variable rate debt. In order to partially mitigate this interest rate risk, the
Company entered into a five-year interest rate cap agreement in 1998. This
agreement provides for a maximum fixed interest rate of 5.5% on the applicable
London interbank rate used to determine the interest on $50.0 million of
variable rate debt under the Senior Credit Facility. For the quarter and nine
months ended September 30, 2001, hedge ineffectiveness and the fair value of the
interest rate cap at September 30, 2001 were not material.
UTILITY PRICE RISKS
During the fourth quarter of 2000 and early into 2001, there has been
unprecedented volatility in the cost and supply of energy and in natural gas
prices in the United States, particularly in the western states where the
Company has many of its U.S. manufacturing facilities. In response to this
volatility, the Company has entered into fixed price contracts with energy
suppliers covering a portion of its energy usage over the next three to six
months. Although price volatility has recently diminished, significant future
increase in price would likely have a negative impact on the Company's results
of operations.
Refer to the Company's Registration Statement on Form S-4 filed with the
SEC on August 2, 2001 and the Company's 2000 Annual Report on Form 10-K for
further information on market risks.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
Exhibit No. Description
----------- -----------
10.1 Employment Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges (incorporated by
reference herein to Exhibit 10.37 to Hexcel's
Registration Statement on Form S-4 (No. 333-66582),
filed on August 2, 2001).
10.2 Employee Option Agreement dated as of July 30, 2001
between Hexcel Corporation and David E. Berges
(incorporated by reference herein to Exhibit 10.37(a) to
Hexcel's Registration Statement on Form S-4 (No.
333-66582), filed on August 2, 2001).
10.3 Employment Option Agreement (performance-based option)
dated as of July 30, 2001 between Hexcel Corporation and
David E. Berges (incorporated by reference herein to
Exhibit 10.37(b) to Hexcel's Registration Statement on
Form S-4 (No. 333-66582), filed on August 2, 2001).
10.4 Restricted Stock Agreement dated as of July 30, 2001
between Hexcel Corporation and David E. Berges
(incorporated by reference herein to Exhibit 10.37(c) to
Hexcel's Registration Statement on Form S-4 (No.
333-66582), filed on August 2, 2001).
10.5 Supplemental Executive Retirement Agreement dated as of
July 30, 2001 between Hexcel Corporation and David E.
Berges (incorporated by reference herein to Exhibit
10.37(d) to Hexcel's Registration Statement on Form S-4
(No. 333-66582), filed on August 2, 2001).
10.6 Letter Agreement dated August 1, 2001 between Hexcel
Corporation and David E. Berges (incorporated by
reference herein to Exhibit 10.37(e) to Hexcel's
Registration Statement on Form S-4 (No. 333-66582),
filed on August 2, 2001).
10.7 Letter Agreement dated August 28, 2001 between Hexcel
Corporation and David E. Berges.
(b) REPORTS ON FORM 8-K:
Current Report on Form 8-K dated July 27, 2001, relating to the Company's
second quarter 2001 financial results.
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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 hereunto duly authorized.
Hexcel Corporation
November 14, 2001 /s/ William J. Fazio
- ----------------------------------------- ----------------------------------
(Date) William J. Fazio
Corporate Controller and
Chief Accounting Officer
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Employment Agreement dated as of July 30, 2001 between
Hexcel Corporation and David E. Berges (incorporated by
reference herein to Exhibit 10.37 to Hexcel's
Registration Statement on Form S-4 (No. 333-66582),
filed on August 2, 2001).
10.2 Employee Option Agreement dated as of July 30, 2001
between Hexcel Corporation and David E. Berges
(incorporated by reference herein to Exhibit 10.37(a) to
Hexcel's Registration Statement on Form S-4 (No.
333-66582), filed on August 2, 2001).
10.3 Employment Option Agreement (performance-based option)
dated as of July 30, 2001 between Hexcel Corporation and
David E. Berges (incorporated by reference herein to
Exhibit 10.37(b) to Hexcel's Registration Statement on
Form S-4 (No. 333-66582), filed on August 2, 2001).
10.4 Restricted Stock Agreement dated as of July 30, 2001
between Hexcel Corporation and David E. Berges
(incorporated by reference herein to Exhibit 10.37(c) to
Hexcel's Registration Statement on Form S-4 (No.
333-66582), filed on August 2, 2001).
10.5 Supplemental Executive Retirement Agreement dated as of
July 30, 2001 between Hexcel Corporation and David E.
Berges (incorporated by reference herein to Exhibit
10.37(d) to Hexcel's Registration Statement on Form S-4
(No. 333-66582), filed on August 2, 2001).
10.6 Letter Agreement dated August 1, 2001 between Hexcel
Corporation and David E. Berges (incorporated by
reference herein to Exhibit 10.37(e) to Hexcel's
Registration Statement on Form S-4 (No. 333-66582),
filed on August 2, 2001).
10.7 Letter Agreement dated August 28, 2001 between Hexcel
Corporation and David E. Berges.
27