Hexcel Third Quarter Sales Down, Earnings Up
STAMFORD, Conn. - Oct. 18, 2000 -
Adjusted EBITDA for the Third Quarter is $31.0
million in 2000, Compared with $30.1 million on a Pro
forma basis for the Same Period in 1999
Quarter Ended September 30,
(In millions, except per share data) 2000 1999
Pro Forma (a):
Sales $247.5 $252.1
Adjusted EBITDA (b) $31.0 $30.1
Adjusted net income (loss) (c) $2.2 $(1.1)
Adjusted diluted earnings
(loss) per share (c) $0.06 $(0.03)
As Reported:
Sales $247.5 $274.1
Gross margin % 20.9% 18.8%
Adjusted operating income % (c) 6.8% 6.0%
Adjusted EBITDA (b) $31.0 $32.0
Net income (loss) $0.1 $(30.1)
Adjusted net income (loss) (c) $2.2 $(1.3)
Diluted earnings (loss) per share $0.00 $(0.82)
Adjusted diluted earnings (loss)
per share (c) $0.06 $(0.04)
(a) Pro forma results give effect to the April 26, 2000 sale of the Bellingham aircraft interiors business as if the transaction had occurred at the beginning of the period.
(b) Excludes business consolidation expenses, interest, taxes, depreciation, amortization, and equity in income and a write-down of an investment in affiliated companies.
(c) Excludes business consolidation expenses and a write-down of an investment in an affiliated company.
Hexcel Corporation (NYSE/PCX: HXL) today reported results for the third quarter of 2000. The third quarter is typically the company's weakest quarter of the year due to the seasonal impact of the European vacation period. Net income for the 2000 third quarter was $0.1 million, compared with a net loss of $30.1 million for the third quarter of 1999. Net income adjusted to exclude business consolidation expenses was $2.2 million for the third quarter of 2000, or $0.06 per diluted share, versus a pro forma adjusted net loss of $1.1 million, or $0.03 per diluted share, for the third quarter of 1999. Adjusted EBITDA for the third quarter of 2000 was $31.0 million, versus pro forma adjusted EBITDA of $30.1 million for the 1999 third quarter. Pro forma results give effect to the sale of the Bellingham aircraft interiors business as if it had occurred at the beginning of the period.
Revenue Trends
Third quarter 2000 revenues of $247.5 million were $4.6 million or 1.8% lower than comparable pro forma revenues for the 1999 third quarter. Had the same US dollar, British pound and Euro exchange rates applied in the third quarter 2000 as in the third quarter 1999, revenues would have been $6.9 million or 2.7% higher than the pro forma total for the third quarter of 1999 of $252.1 million.
Commenting on Hexcel's third quarter 2000 revenues, Mr. John J. Lee, Chairman and CEO said, "The improving trends we have seen in the last two quarters continue to be evident in our results, after adjusting for the seasonal factors that typically cause the third quarter to be the lowest revenue quarter of the year. The growth in sales to electronics and industrial markets has continued, despite a persistent weakening of the European currencies which complicates year-on-year comparisons. With the exception of our Engineered Products business, commercial aerospace revenues either equal or exceed the levels of the prior year, reflecting the fact that this market has stabilized."
- Commercial aerospace revenues for the company's Reinforcement Products and Composite Materials business segments, totaling $94.3 million for the 2000 third quarter, were slightly greater than revenues in the third quarter of 1999, despite weaker European exchange rates. This reflects the stabilization of Boeing build rates and the steadily improving performance of Airbus. Boeing has publicly indicated that it expects to sustain aircraft production at or slightly above the current rate of about 490 per year, while Airbus is reportedly planning to increase aircraft deliveries from about 320 in 2000 to more than 350 in 2001. The benefit Hexcel obtains from future increases in build rates will depend on the mix of aircraft produced, and the impact on the aerospace supply chain of ongoing efforts to improve the efficiency and reduce the cost of aircraft production.
- Commercial aerospace sales by the Engineered Products business were $8.8 million or 27% lower than the third quarter of 1999. The decrease reflects the timing of customer programs and the impact of Boeing's 1999 build rate reductions. This business segment delivers product to customers shortly before aircraft completion and delivery. As a result, unlike Hexcel's other segments, this business did not experience the impact of 1999 build rate reductions until late in the fourth quarter of that year and by the same measure, will take longer to reflect any improvement in commercial aerospace demand.
- Electronics sales of $44.7 million for the 2000 third quarter were $4.1 million or 10.1% higher than the comparable 1999 period. The growth in sales over the third quarter of 1999 reflects a sustained increase in demand for lightweight, high-performance glass fabrics used in electronics applications, driven by improved economic conditions in Asia and Europe and the growing use of electronic devices throughout the world. This sales growth is expected to continue through 2001 and beyond, and Hexcel has made commitments to increase its capacity to manufacture lightweight, high-performance glass fabrics in order to continue to meet customer demand in this attractive market.
- Sales to industrial markets of $55.6 million for the 2000 third quarter were $3.7 million or 7.1% higher than the 1999 third quarter. Soft body armor, wind energy applications and automotive components continue to drive revenue growth. Sales of advanced structural materials to the wind energy and automotive segments are currently growing at annualized rates in excess of 30%, reflecting growing demand for low-cost, renewable energy supplies and improved automobile safety, as well as Hexcel's success in developing a range of new product applications.
Gross Margin and Adjusted Operating Income
Gross margin for the third quarter of 2000 was $51.7 million or 20.9% of sales, compared with $48.1 million or 19.1% of sales on a pro forma basis for the third quarter of 1999. Adjusted operating income for the 2000 third quarter was $16.9 million or 6.8% of sales, versus $14.7 million or 5.8% of sales for the 1999 third quarter on a pro forma basis.
Mr. Lee observed, "The benefits from our cost reduction actions and a return to growth are now being reflected in our operating profitability. Our Reinforcement Products business has increased their operating income by 80% compared to the third quarter of 1999, benefiting from reduced costs, improved product mix and growth in sales of both electronic and ballistic fabrics. Our Composite Materials business has improved their operating profitability by 23% on comparable revenues to the third quarter of 1999, driven by cost reductions and improved productivity. In sharp contrast, our Engineered Products business is not performing in line with expectations. This business has not yet succeeded in aligning its costs and productivity to the lower Boeing build rates, and so shows reduced operating profitability compared to 1999." Equity in Earnings of Affiliated Companies
Equity in earnings of affiliated companies of $1.7 million contributed strongly to third quarter net income in 2000. The primary source of these earnings is Hexcel's electronic fabrics venture in Asia, which is benefiting from the increase in worldwide demand for electronic devices. This compares with a $19.9 million loss from the write-down of an investment in an affiliated company in the third quarter of 1999.
Mr. Lee noted, "As a result of growth in the company's electronics and industrial businesses, we are making selective investments to expand our capacity to manufacture certain products, and anticipate further opportunities to invest in growth in 2001. These investments in growing our business are currently being funded by operating cash flow." Outlook
Mr. Lee concluded, "The growth we have seen from electronic, automotive and wind energy market segments is set to continue in the coming year. At the same time we will start to see the benefit of the ramp up in production of new military aircraft programs. Our operating leverage will enable us to translate increased demand to higher profitability in 2001. In the shorter term, the performance of our Engineered Products business discussed above and the timing of customer requirements towards the end of the year, indicate that fourth quarter revenues will be a little weaker than previously indicated resulting in EBITDA for the quarter in a range of $33 - $35 million. However, as we enter next year we continue to anticipate EBITDA increasing as revenues grow. In addition to the profit contribution from operations, the fourth quarter results will also include a non-recurring credit related to a US benefit plan, that will be offset in part by certain expenses being incurred by the company in connection with the purchase of approximately 14.5 million shares of Hexcel's common stock from Ciba Specialty Chemicals by an investor group affiliated with Goldman Sachs. The net impact of these unusual items will be to increase the reported fourth quarter pre-tax operating income by $1 to 2 million."
Year-to-date Results
Nine Months Ended September 30,
(In millions, except per share data) 2000 1999
Pro Forma:
Sales $779.9 $834.1
Adjusted EBITDA $106.9 $114.9
Adjusted net income $13.8 $12.1
Adjusted diluted earnings per share $0.37 $0.33
As Reported:
Sales $798.8 $882.9
Gross margin % 21.8% 21.4%
Adjusted operating income % 8.0% 8.2%
Adjusted EBITDA $107.8 $119.6
Net income (loss) $53.2 $(20.6)
Adjusted net income $12.2 $11.0
Diluted earnings (loss) per share $1.28 $(0.56)
Adjusted diluted earnings per share $0.33 $0.30
Hexcel Corporation is the world's leading advanced structural materials company. It develops, manufactures and markets lightweight, high-performance reinforcement products, composite materials and engineered products for use in commercial aerospace, space and defense, electronics, 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 aircraft build rates and demand for electronics and industrial products), sales volumes, cost reductions, production efficiencies and improvements, EBITDA, unusual expenses and credits, diluted earnings per share, capital expenditures, and operating cash flows. These statements are not projections or assured results. Actual results may differ materially from the results anticipated in the forward looking statements due to a variety of factors, including but not limited to, changing market conditions, 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 or circumstances.
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
Quarter Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
(In millions, 2000 1999 2000 1999
except per share data)
Net sales $ 247.5 $ 274.1 $ 798.8 $ 882.9
Cost of sales 195.8 222.6 624.4 694.4
Gross margin 51.7 51.5 174.4 188.5
Selling, general and
administrative expenses 29.8 29.4 93.9 97.4
Research and technology
expenses 5.0 5.8 16.6 18.6
Business consolidation
expenses 3.3 13.6 4.5 17.8
Operating income 13.6 2.7 59.4 54.7
Gain on sale of
Bellingham aircraft
interiors business - - 68.3 -
Interest expense 16.0 18.4 51.6 55.9
Income (loss) before
income taxes (2.4) (15.7) 76.1 (1.2)
Provision for (benefit from)
income taxes (0.8) (5.5) 26.8 (0.4)
Income (loss) before
equity in earnings (1.6) (10.2) 49.3 (0.8)
Equity in earnings and
write-down of an investment
in affiliated companies 1.7 (19.9) 3.9 (19.8)
Net income (loss) $ 0.1 $ (30.1) $ 53.2 $ (20.6)
Net income (loss) per share:
Basic $ 0.00 $ (0.82) $ 1.45 $ (0.56)
Diluted 0.00 (0.82) 1.28 (0.56)
Diluted, excluding
goodwill amortization 0.06 (0.77) 1.42 (0.42)
Weighted average shares:
Basic 36.9 36.5 36.7 36.4
Diluted 38.0 36.5 45.3 36.4
The company's convertible subordinated notes, due 2003, and its
convertible subordinated debentures, due 2011, were excluded from the
1999 and third quarter 2000 computations of net income (loss) per
diluted share, as they were antidilutive.
Hexcel Corporation and Subsidiaries
Actual and Pro Forma Net Sales to Third-Party Customers
by Product Group and Market Segment
Unaudited
Commercial Space &
(In millions) Aerospace Defense Electronics Industrial Total
Third Quarter
2000 Net Sales
Reinforcement
products $ 14.3 $ 2.6 $ 44.7 $ 26.8 $ 88.4
Composite
materials 80.0 24.3 - 28.8 133.1
Engineered
products 23.9 2.1 - - 26.0
Total $ 118.2 $ 29.0 $ 44.7 $ 55.6 $ 247.5
48% 12% 18% 22% 100%
Pro Forma Second
Quarter 2000 Net Sales
Reinforcement
products $ 17.1 $ 3.5 $ 46.8 $ 27.2 $ 94.6
Composite
materials 87.5 26.0 - 33.5 147.0
Engineered
products 25.5 2.1 - - 27.6
Total $ 130.1 $ 31.6 $ 46.8 $ 60.7 $ 269.2
48% 12% 17% 23% 100%
Pro Forma Third Quarter
1999 Net Sales
Reinforcement
products $ 12.3 $ 4.2 $ 40.6 $ 24.2 $ 81.3
Composite
materials 81.2 25.7 - 27.7 134.6
Engineered
products 32.7 3.5 - - 36.2
Total $ 126.2 $ 33.4 $ 40.6 $ 51.9 $ 252.1
50% 13% 16% 21% 100%
Actual and Pro Forma Segment Data
Unaudited
Reinforcement Composite Engineered Corporate
(In millions) Products Materials Products & Other(1) Total
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 EBIT(2) 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
Pro Forma Second Quarter 2000
Net sales to
external customers $ 94.6 $ 147.0 $ 27.6 $ - $ 269.2
Intersegment sales 25.1 1.8 - - 26.9
Total sales 119.7 148.8 27.6 - 296.1
Adjusted EBIT 12.7 19.0 2.1 (9.1) 24.7
Depreciation and
amortization 8.6 4.7 0.7 0.6 14.6
Business consolidation
expenses (2.9) 2.0 0.9 - -
Capital expenditures 3.3 4.6 0.1 0.5 8.5
Pro Forma Third Quarter 1999
Net sales to external
customers $ 81.3 $ 134.6 $ 36.2 $ - $ 252.1
Intersegment sales 24.9 1.9 - - 26.8
Total sales 106.2 136.5 36.2 - 278.9
Adjusted EBIT 6.3 12.0 4.8 (8.4) 14.7
Depreciation and
amortization 8.9 5.1 0.7 0.7 15.4
Business consolidation
expenses 3.5 8.1 1.3 0.6 13.5
Write-down of investment in an
affiliated company 20.0 - - - 20.0
Capital expenditures 3.0 4.2 0.2 - 7.4
(1) The company does not allocate corporate expenses to its business
segments.
(2) Consists of earnings before interest, taxes, and business
consolidation expenses.
Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
Unaudited
September 30, December 31,
(In millions, except per share data) 2000 1999
Assets
Current assets:
Cash and cash equivalents $ 13.8 $ 0.2
Accounts receivable 160.6 158.6
Inventories 152.4 153.7
Prepaid expenses and other assets 5.4 5.1
Deferred tax asset 9.9 10.2
Total current assets 342.1 327.8
Property, plant and equipment 591.1 614.5
Less accumulated depreciation (239.6) (222.4)
Net property, plant and equipment 351.5 392.1
Goodwill and other purchased intangibles,
net of accumulated amortization of
$32.8 in 2000 and $24.9 in 1999 394.5 411.2
Investments in affiliated companies
and other assets 128.3 130.8
Total assets $ 1,216.4 $ 1,261.9
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable and current
maturities of capital
lease obligations $ 26.6 $ 34.3
Accounts payable 77.0 80.3
Accrued liabilities 97.5 95.9
Total current liabilities 201.1 210.5
Long-term notes payable and capital
lease obligations 628.9 712.5
Indebtedness to related parties 24.3 24.1
Other non-current liabilities 46.4 44.7
Total liabilities 900.7 991.8
Stockholders' equity:
Preferred stock, no par value,
20.0 shares of stock authorized,
no shares issued or outstanding
in 2000 and 1999 - -
Common stock, $0.01 par value,
100.0 shares of stock authorized,
shares issued and outstanding of
37.8 in 2000 and 37.4 in 1999 0.4 0.4
Additional paid-in capital 279.5 273.6
Retained earnings 64.8 11.6
Accumulated other comprehensive loss (18.2) (4.8)
326.5 280.8
Less - Treasury stock, at cost,
0.9 shares in 2000 and 0.8 in 1999 (10.8) (10.7)
Total stockholders' equity 315.7 270.1
Total liabilities and
stockholders' equity $ 1,216.4 $ 1,261.9
Total debt, net of cash $ 666.0 $ 770.7
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited
Quarter Ended Nine Months Ended
Sept. 30, Sept. 30
30,
(In millions) 2000 1999 1999 2000
Cash flows from
operating activities
Net income (loss) $ 0.1 (30.1) $ 53.2 (20.6)
Reconciliation to
net cash provided
by operating activities:
Depreciation and
amortization 14.1 15.6 43.9 47.1
Deferred income taxes (4.7) (8.9) 11.8 (10.8)
Gain on sale of Bellingham
aircraft interiors business - - (68.3) -
Business consolidation
expenses 3.3 13.6 4.5 17.8
Business consolidation
payments (3.4) (1.2) (8.3) (7.8)
Equity in income and write-down
of an investment in
affiliated companies (1.7) 19.9 (3.9) 19.8
Working capital
changes and other 0.9 32.1 (20.1) 43.6
Net cash provided by
operating activities 8.6 41.0 12.8 89.1
Cash flows from investing activities
Capital expenditures (9.2) (8.7) (22.2) (26.7)
Proceeds from sale of Bellingham
aircraft interiors business - - 113.3 -
Proceeds from sale
of other assets 2.3 - 3.4 -
Investments in
affiliated companies - (2.0) (6.0) (2.0)
Net cash provided by
(used for) investing
activities (6.9) (10.7) 88.5 (28.7)
Cash flows from financing activities
Proceeds (repayments) of
credit facilities, net 5.7 (26.1) 30.6 (273.4)
Proceeds (repayments) of
long-term debt and capital lease
obligations, net (1.5) (1.2) (118.7) 223.6
Debt issuance costs - (1.3) (0.9) (10.8)
Activity under stock plans 1.9 0.6 2.2 1.3
Net cash used for
financing activities 6.1 (28.0) (86.8) (59.3)
Effect of exchange rate
changes on cash and
cash equivalents (1.0) (0.2) (0.9) (0.8)
Net increase in cash
and cash equivalents 6.8 2.1 13.6 0.3
Cash and cash equivalents
at beginning of period 7.0 5.7 0.2 7.5
Cash and cash equivalents
at end of period $13.8 7.8 $13.8 7.8
Cash paid for: Interest $ 23.6 30.8 $56.3 51.5
Taxes 3.3 (2.4) 6.2 7.7
| CONTACT: | Hexcel Corporation |
|---|---|
| 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 | |