Exhibit 99.1
Hexcel Reports 2002 Third Quarter Results
STAMFORD, Conn.--Oct. 21, 2002--Hexcel Corporation (NYSE:HXL)
Third Quarter, 2002 Highlights:
-- Debt, net of cash, decreased by $18.2 million to $636.0
million in the quarter with positive cash flows from
operations and asset sales.
-- Adjusted EBITDA of $26.6 million compared to $27.0 million in
the third quarter of 2001 on 16.5% lower revenues.
-- Gross margin improved to 18.6% of sales, compared with 18.2%
of sales in the third quarter of 2001.
-- Year-to-date cash fixed costs now 24% lower than 2001.
Quarter Ended
September 30,
-----------------------------
(In millions, except per share data) 2002 2001
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Net sales $201.0 $240.6
Gross margin % 18.6% 18.2%
Operating income $15.1 $7.2
Adjusted operating income (a) $15.0 $11.6
Adjusted EBITDA (b) $26.6 $27.0
Provision for income taxes (c) $3.2 $3.0
Equity in losses of and write-down of
an investment in affiliated companies $(0.5) $(1.0)
Net income (loss) $(3.6) $(12.8)
Diluted net income (loss) per share $(0.09) $(0.34)
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(a) Excludes business consolidation and restructuring expenses. As
of January 1, 2002, the Company adopted FAS 142 and ceased
amortizing goodwill. Goodwill amortization was $3.3 million in
the third quarter of 2001.
(b) Excludes business consolidation and restructuring expenses,
litigation gain, gain on early retirement of debt, interest,
taxes, depreciation, amortization, and equity in losses of and
a write-down of an investment in affiliated companies.
(c) Reflects the impact of ceasing to record the tax benefits from
U.S. operating losses commencing in the second quarter of
2001.
Hexcel Corporation (NYSE/PCX:HXL) today reported results for the
third quarter of 2002. Net sales for the third quarter of 2002 were
$201.0 million as compared to $240.6 million for the third quarter of
2001.
Adjusted EBITDA for the third quarter of 2002 was $26.6 million
versus $27.0 million for the third quarter of 2001.
Net loss for the third quarter of 2002 was $3.6 million, or $0.09
per diluted share, compared to a net loss of $12.8 million, or $0.34
per diluted share, for the third quarter of 2001. As of January 1,
2002, the Company adopted FAS 142 and ceased amortizing goodwill. The
Company's third quarter of 2001 net loss would have been $9.5 million
had FAS 142 been in effect at that time.
Chief Executive Officer Comments
Mr. David E. Berges, the Chairman, President and CEO of Hexcel
Corporation said, "In the third quarter, we have again demonstrated
that the results of our cost reduction programs can offset most of the
impact of reduced sales. This quarter we achieved an Adjusted EBITDA
within $0.4 million of last year's third quarter despite a $39.6
million reduction in revenues."
Mr. Berges added, "I am particularly pleased to report that our
total debt, net of cash, decreased by an additional $18.2 million
during the quarter to $636.0 million, another four year low. Although
the collection of $10.0 million of cash in the quarter resulting from
the Company's reduced ownership interest in our Asian electronics
joint venture helped contribute to this result, a substantial portion
of the decrease resulted from positive operating cash flows, as the
Company continued to effectively manage its costs and working capital.
Cash interest payments for the quarter were $24.4 million, business
consolidation and restructuring payments were $4.7 million and capital
expenditures were $3.3 million during the quarter. We now anticipate
that capital expenditures in 2002 will be less than $16 million. Net
debt is now $41.6 million lower than a year ago despite significant
cash restructuring costs to right-size our Company. Our next
significant required debt amortization is the payment of $46.9 million
related to the maturity of our 7% convertible subordinated notes due
August 1, 2003. We are actively pursuing several alternatives to deal
with this debt and are considering ways to reduce the leverage of the
Company."
In conclusion, Mr. Berges expressed, "As we now plan for 2003, the
business environment remains challenging for all companies including
Hexcel. We will approach whatever challenges 2003 brings with the same
vigor we have demonstrated in 2002. We will continue to look for
opportunities where we can reduce cost, improve operating
efficiencies, and generate cash to reduce debt. We will continue to
maintain our high standard of customer service and make strategic
investments in research and technology. "
Revenue Trends
Consolidated revenues for the 2002 third quarter of $201.0 million
were 16.5% lower than the 2001 third quarter revenues of $240.6
million, driven overwhelmingly by the sharp reduction in sales to the
commercial aerospace market. Had the same U.S. dollar, British pound
sterling and Euro exchange rates applied in the third quarter of 2002
as in the third quarter of 2001, revenue for the third quarter of 2002
would have been $195.1 million, reflecting the weakening of the U.S.
dollar over the past year.
-- Commercial Aerospace. Sales to aircraft producers and their
subcontractors continued to reflect the sharp impact of
reducing commercial aircraft build rates in 2002 compared to
2001. Revenues for the 2002 third quarter were $89.0 million,
31.1% lower than the 2001 third quarter revenues of $129.2
million. As the Company delivers its products on average four
to six months before our customers deliver their aircraft, it
is now delivering against its customers' aircraft deliveries
in the first half of 2003. Meanwhile, the Company is excited
to now be delivering materials for the manufacture of the
Airbus A380 aircraft.
-- Industrial. Sales for the third quarter of 2002 of $61.5
million were slightly below the $61.9 million earned in the
third quarter of 2001, as the Company saw reduced demand
during the quarter for its reinforcement fabrics used in soft
body armor. While sales of products for civilian soft body
armor applications remained strong, sales to U.S. military
applications declined in the quarter due largely to delays in
funding for military body armor programs and product
transition within the military services. This creates some
uncertainty for soft body armor sales over the next few
quarters until the military services refine their plans and
requirements. In addition to soft body armor applications,
Hexcel's industrial market segment includes the Company's
sales to a range of non-aerospace product applications
including architectural, automotive, marine, rail, recreation
equipment, and wind energy applications.
-- Space & Defense. Revenues for the third quarter of 2002 were
$36.3 million, 2.8% higher than the third quarter of 2001
revenues of $35.3 million. While the Company's space & defense
revenues tend to 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. Many programs
in which the Company participates continue to reflect
year-on-year revenue growth. However, the Company has seen
lower revenues this year from the V-22 program as it undergoes
its redesign program and from the depressed satellite and
launch vehicle markets.
-- Electronics. Revenues for the 2002 third quarter of $14.2
million were the same as those earned in the 2001 third
quarter. Revenues continue to be impacted by the severe
industry downturn in the global electronics market, the
ongoing migration of production to Asia and pricing pressures.
The Company sees no evidence of a substantial near term
recovery in this market. With the benefit of cost control, the
Company again generated a modest Adjusted EBITDA on
electronics sales in the quarter.
Gross Margin & Adjusted Operating Income
Gross margin for the third quarter of 2002 was $37.3 million, or
18.6% of net sales, compared with $43.8 million, or 18.2% of net
sales, for the third quarter of 2001. Reductions in factory fixed
costs as part of the Company's restructuring programs have enabled the
Company to stabilize its gross margin percentage while net sales have
declined by 16.5%.
Adjusted operating income for the third quarter of 2002 was $15.0
million, or 7.5% of net sales, compared to $11.6 million, or 4.8% of
net sales, for the 2001 third quarter. Excluding the $3.3 million
benefit of adopting the new accounting standard for the amortization
of goodwill, selling, general and administrative expenses of $18.5
million in the third quarter of 2002 were $5.9 million lower than the
third quarter of 2001.
Investments in Affiliated Companies
During the third quarter of 2002, the Company reduced its
ownership interest in its Asian Electronics joint venture from 43.3%
to 33.3% and received $10.0 million in cash under the terms of a
previously announced agreement to restructure its minority interest
with its joint venture partner.
Equity in losses of affiliated companies was $0.5 million for the
third quarter of 2002 primarily reflecting losses reported by the
Company's joint ventures in China and Malaysia as they ramp up
production of aerospace composite structures. These losses by
affiliates do not affect the Company's cash flows. Equity in losses of
affiliated companies was $1.0 million for the third quarter of 2001.
Debt
Total debt, net of cash, decreased by $18.2 million to $636.0
million as of September 30, 2002, compared to June 30, 2002. The
Company had undrawn revolver and overdraft revolver availability under
its senior credit facility of $83.5 million as of September 30, 2002.
In January 2002, this facility was amended, relaxing the 2002
quarterly financial covenants to accommodate the Company's revised
business plans and projections for the year. As of September 30, 2002,
the Company was in compliance with its financial covenants. As
previously disclosed, the Company will need to obtain a further
amendment of the facility by the end of the first quarter of 2003 to
accommodate the continuing downturn in the commercial aerospace and
the electronics markets in 2003.
The Company will be holding a conference call at 11:00 A.M.
tomorrow, Tuesday, October 22, 2002 to discuss its third quarter
results. The call will be available in the investor information
section of Hexcel's web site (www.hexcel.com).
Hexcel Corporation is the world's leading advanced structural
materials company. It develops, manufactures and markets lightweight,
high-performance reinforcement products, composite materials and
composite structures for use in commercial aerospace, space and
defense, electronics, and industrial applications.
Disclaimer on Forward Looking Statements
This press release contains statements that are forward looking,
including statements relating to market conditions (including
commercial and military aircraft build rates and demand for
electronics and industrial applications such as soft body armor),
sales volumes, cost reductions from its restructuring programs
together with their associated improvements, manufacturing
productivity, gross margin performance, EBITDA, equity in earnings
(losses) of affiliated companies, working capital management,
amendment of the senior credit facility and the refinancing of the 7%
convertible subordinated notes due August 1, 2003. Actual results may
differ materially from the results anticipated in the forward looking
statements due to a variety of factors, including but not limited to
changing market conditions, increased competition, product mix,
inability to achieve planned manufacturing improvements and cost
reductions, and changes in currency exchange rates. Additional risk
factors are described in the Company's filings with the SEC. The
Company does not undertake an obligation to update its forward-looking
statements to reflect future events.
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statement of Operations
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Unaudited
---------------------------------
Quarter Ended Nine Months Ended
September 30, September 30,
(In millions, except per share data) 2002 2001 2002 2001
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Net sales $ 201.0 $240.6 $ 644.3 $770.3
Cost of sales 163.7 196.8 522.6 614.7
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Gross margin 37.3 43.8 121.7 155.6
Selling, general and administrative
expenses 18.5 27.7 62.1 93.1
Research and technology expenses 3.8 4.5 11.0 14.0
Business consolidation and
restructuring expenses (0.1) 4.4 0.7 7.3
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Operating income 15.1 7.2 47.9 41.2
Litigation gain - - 9.8 -
Interest expense 15.5 16.0 48.4 49.6
Gain (loss) on early retirement of
debt (a) 0.5 - 0.5 (3.1)
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Income (loss) before income taxes 0.1 (8.8) 9.8 (11.5)
Provision for income taxes (b) 3.2 3.0 8.8 9.0
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Income (loss) before equity in
earnings (3.1) (11.8) 1.0 (20.5)
Equity in earnings (losses) of and
write-down of an investment in
affiliated companies (0.5) (1.0) (8.5) 0.6
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Net loss $ (3.6)$(12.8) $ (7.5)$(19.9)
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Net loss per share:
Basic $ (0.09)$(0.34) $ (0.19)$(0.53)
Diluted $ (0.09)$(0.34) $ (0.19)$(0.53)
Weighted average shares (c):
Basic 38.4 37.5 38.4 37.5
Diluted 38.4 37.5 38.4 37.5
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(a) Effective in 2002, the Company adopted FAS 145. In connection
with its adoption, the Company's loss on early retirement of
debt in 2001 has been reclassified from an extraordinary item
to a separate line item below operating income. During the
third quarter of 2002, the Company recognized a gain on the
retirement of convertible subordinated debentures, due 2011,
in accordance with its sinking fund requirements.
(b) Reflects the impact of ceasing to record the tax benefits from
U.S. operating losses commencing in the second quarter of
2001.
(c) The Company's convertible subordinated notes, due 2003,
convertible subordinated debentures, due 2011, and stock
options were excluded from the computations of net loss per
diluted share for the quarters and the nine months ended
September 30, 2002 and 2001, as they were anti-dilutive.
Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
Unaudited
---------
September December
(In millions, except per share data) 30, 31,
2002 2001
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Assets
Current assets:
Cash and cash equivalents $ 16.2 $ 11.6
Accounts receivable, net 126.7 140.5
Inventories 127.1 131.7
Prepaid expenses and other assets 6.5 4.4
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Total current assets 276.5 288.2
Property, plant and equipment 631.4 617.0
Less accumulated depreciation (321.5) (287.8)
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Net property, plant and equipment 309.9 329.2
Goodwill, net 73.6 72.4
Investments in affiliated companies 36.3 56.9
Other assets 40.4 42.7
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Total assets $ 736.7 $ 789.4
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Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current maturities of capital
lease obligations $ 63.3 $ 17.4
Accounts payable 56.0 58.6
Accrued liabilities 103.9 131.7
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Total current liabilities 223.2 207.7
Long-term notes payable and capital lease obligations 588.9 668.5
Other non-current liabilities 47.2 45.8
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Total liabilities 859.3 922.0
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Stockholders' equity:
Preferred stock, no par value, 20.0 shares of stock
authorized, no shares issued or outstanding - -
Common stock, $0.01 par value, 100.0 shares of stock
authorized, shares issued of 39.6 at September 30,
2002 and 39.4 at December 31, 2001 0.4 0.4
Additional paid-in capital 288.0 287.7
Accumulated deficit (375.4) (367.9)
Accumulated other comprehensive loss (22.4) (39.7)
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(109.4) (119.5)
Less - Treasury stock, at cost, 1.2 shares at
September 30, 2002 and December 31, 2001 (13.2) (13.1)
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Total stockholders' equity (122.6) (132.6)
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Total liabilities and stockholders' equity $ 736.7 $ 789.4
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Total debt, net of cash $ 636.0 $ 674.3
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Hexcel Corporation and Subsidiaries
Condensed Consolidated Statement of Cash Flows
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Unaudited
-----------------------------
Quarter Nine Months
Ended Ended
September 30, September 30,
(In millions) 2002 2001 2002 2001
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Cash flows from operating activities
Net loss $ (3.6)$(12.8) $ (7.5)$(19.9)
Reconciliation to net cash provided by
operating activities:
Depreciation and amortization 11.6 15.4 35.1 46.1
Deferred income taxes 1.2 0.4 1.3 (2.9)
Business consolidation and
restructuring expenses (0.1) 4.4 0.7 7.3
Business consolidation and
restructuring payments (4.7) (1.6) (19.5) (5.4)
Equity in (earnings) losses of and
write-down of an investment in
affiliated companies 0.5 1.0 8.5 (0.6)
Loss (gain) on early retirement of
debt (0.5) - (0.5) 0.7
Working capital changes and other 5.3 31.2 17.3 (0.9)
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Net cash provided by operating
activities 9.7 38.0 35.4 24.4
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Cash flows from investing activities
Capital expenditures (3.3) (9.0) (8.5) (30.9)
Sale of an ownership interest in an
affiliated Company 10.0 - 10.0 -
Other 0.7 0.8 1.5 0.5
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Net cash provided by (used for)
investing activities 7.4 (8.2) 3.0 (30.4)
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Cash flows from financing activities
Proceeds (repayments) of credit
facilities, net (2.6) (14.3) (28.6) 26.6
Repayments of long-term debt and capital
lease obligations, net (2.4) (4.0) (6.8) (6.2)
Debt issuance costs - - - (3.5)
Activity under stock plans 0.1 (1.1) 0.2 (0.4)
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Net cash provided by (used for)
financing activities (4.9) (19.4) (35.2) 16.5
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Effect of exchange rate changes on cash
and cash equivalents 0.1 (0.2) 1.4 0.9
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Net increase (decrease) in cash and cash
equivalents 12.3 10.2 4.6 11.4
Cash and cash equivalents at beginning of
period 3.9 6.3 11.6 5.1
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Cash and cash equivalents at end of
period $ 16.2 $ 16.5 $ 16.2 $ 16.5
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Supplemental Data:
Cash interest paid $ 24.4 $ 18.6 $ 54.9 $ 56.0
Cash taxes paid, net of refunds $ 3.8 $ 4.2 $ 3.3 $ 12.1
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The following schedule of adjusted amounts is not based on
accounting principles generally accepted in the United States, but is
provided to explain the impact of certain items and to provide a
measure of Hexcel's operating performance in a way that is commonly
used by investors and financial analysts to analyze and compare
companies. Adjusted EBITDA is used in the computation of certain
financial covenants under the Company's Senior Credit Facility. This
schedule may not be comparable to similarly titled financial measures
of other companies, does not represent alternative measures of
Hexcel'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.
Hexcel Corporation and Subsidiaries
Schedule of Adjusted Amounts
- ----------------------------------------------------------------------
Unaudited
-----------------------------
Quarter Nine Months
Ended Ended
September September
30, 30,
(In millions) 2002 2001 2002 2001
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Net loss $(3.6)$(12.8) $(7.5)$(19.9)
Interest expense 15.5 16.0 48.4 49.6
Provision for income taxes 3.2 3.0 8.8 9.0
Depreciation and amortization expense 11.6 15.4 35.1 46.1
Equity in (earnings) losses of and
write-down of
an investment in affiliated
companies 0.5 1.0 8.5 (0.6)
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EBITDA $27.2 $ 22.6 $93.3 $ 84.2
Business consolidation and restructuring
expenses (0.1) 4.4 0.7 7.3
Litigation gain - - (9.8) -
(Gain) loss on early retirement of debt (0.5) - (0.5) 3.1
Compensation expenses related to former
CEO's retirement - - - 4.7
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Adjusted EBITDA $26.6 $ 27.0 $83.7 $ 99.3
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Operating income $15.1 $ 7.2 $47.9 $ 41.2
Business consolidation and restructuring
expenses (0.1) 4.4 0.7 7.3
Compensation expenses related to former
CEO's retirement - - - 4.7
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Adjusted operating income $15.0 $ 11.6 $48.6 $ 53.2
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Hexcel Corporation and Subsidiaries
Net Sales to Third-Party Customers by Product Group and Market Segment
- ----------------------------------------------------------------------
Unaudited
----------------------------------------------
Commercial Space &
(In millions) Aerospace Industrial Defense Electronics Total
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Third Quarter 2002 Net Sales
Reinforcements $ 11.5 $23.8 $ - $14.2 $49.5
Composites 58.5 37.7 32.3 - 128.5
Structures 19.0 - 4.0 - 23.0
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Total 89.0 61.5 36.3 14.2 201.0
$ 44% $ 31% $ 18% $ 7% $ 100%
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Second Quarter 2002 Net Sales
Reinforcements $ 13.6 $30.5 $ - $14.5 $58.6
Composites 67.9 35.0 34.8 - 137.7
Structures 20.9 - 4.0 - 24.9
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Total 102.4 65.5 $ 38.8 14.5 221.2
$ 46% $ 30% 18% $ 6% $ 100%
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Third Quarter 2001 Net
Sales (a)
Reinforcements $ 13.5 $27.9 $ - $14.2 $ 55.6
Composites 89.6 34.0 31.7 - 155.3
Structures 26.1 - 3.6 - 29.7
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Total 129.2 61.9 35.3 14.2 240.6
$ 53% $ 26% $ 15% $ 6% $ 100%
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(a) As part of a restructuring program, the Company changed the
responsibility and reporting of one of its product lines
effective January 1, 2002. Hexcel's business segment reporting
has therefore been revised beginning with the first quarter of
2002. Coincident with this change, Hexcel revised the names of
its reporting business segments to Reinforcements, Composites
and Structures. The 2001 results have been restated for
comparative purposes.
Hexcel Corporation and Subsidiaries
Segment Data
- ----------------------------------------------------------------------
Unaudited
--------------------------------------------------
Corporate
(In millions) Re- Composites Structures & Other Total
inforcements (b)
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Third Quarter 2002
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Net sales to external
customers $ 49.5 $128.5 $23.0 $ - $201.0
Intersegment sales 16.6 4.2 - - 20.8
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Total sales 66.1 132.7 23.0 - 221.8
Adjusted operating income
(c) 4.6 16.2 (0.6) (5.2) 15.0
Depreciation and
amortization 3.7 7.2 0.6 0.1 11.6
Business consolidation and
restructuring expenses (0.5) 0.2 0.2 - (0.1)
Capital expenditures 0.8 2.4 0.1 - 3.3
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Second Quarter 2002
- ----------------------------------------------------------------------
Net sales to external
customers $ 58.6 $137.7 $24.9 $ - $221.2
Intersegment sales 18.1 4.9 - - 23.0
- ----------------------------------------------------------------------
Total sales 76.7 142.6 24.9 - 244.2
Adjusted operating income
(c) 6.3 19.1 0.4 (6.2) 19.6
Depreciation and
amortization 4.0 7.0 0.7 - 11.7
Business consolidation and
restructuring expenses (0.5) 0.5 0.1 - 0.1
Capital expenditures 1.3 2.0 0.1 - 3.4
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Third Quarter 2001 (a)
- ----------------------------------------------------------------------
Net sales to external
customers $ 55.6 $155.3 $29.7 $ - $240.6
Intersegment sales 23.1 5.7 - - 28.8
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Total sales 78.7 161.0 29.7 - 269.4
Adjusted operating income
(c) (1.1) 19.8 0.3 (7.4) 11.6
Depreciation and
amortization 6.3 7.8 1.1 0.2 15.4
Business consolidation and
restructuring expenses 2.9 1.0 - 0.5 4.4
Capital expenditures 3.7 5.1 0.1 0.1 9.0
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(a) Effective January 1, 2002, the Company changed the
responsibility and reporting of one of its product lines.
Hexcel's business segment reporting has therefore been revised
beginning with the first quarter of 2002. Coincident with this
change, Hexcel has revised the names of its three reporting
business segments to Reinforcements, Composites and
Structures. The 2001 results have been restated for
comparative purposes.
(b) The Company does not allocate corporate expenses to its
business segments.
(c) Consists of earnings before interest, taxes, business
consolidation and restructuring expenses, compensation
expenses associated with the former CEO's retirement,
litigation gain, gain (loss) on early retirement of debt, and
equity in earnings (losses) of and write-down of an investment
in affiliated companies.
Hexcel Corporation and Subsidiaries
Schedule of Net Debt
- ----------------------------------------------------------------------
Unaudited
---------
September December
(In millions) 30, 31,
2002 2001
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Senior Credit Facility $ 207.2 $ 233.9
European credit and overdraft facilities 2.0 3.5
9.75% Senior subordinated notes, due 2009, net of
unamortized discount
of $1.2 as of September 30, 2002, and $1.4 as of
December 31, 2001 338.8 338.6
7.0% Convertible subordinated notes, due 2003 46.9 46.9
7.0% Convertible subordinated debentures, due 2011 22.7 24.5
Various notes payable - 0.1
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Total notes payable 617.6 647.5
Capital lease obligations 34.6 38.4
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Total notes payable and capital lease obligations $ 652.2 $ 685.9
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Cash and cash equivalents 16.2 11.6
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Net Debt $ 636.0 $ 674.3
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CONTACT: Hexcel Corporation, Stamford
Investors: Stephen C. Forsyth, 203/969-0666 ext. 425
stephen.forsyth@hexcel.com
or
Media: Michael Bacal, 203/969-0666 ext. 426
michael.bacal@hexcel.com