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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
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X
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2000
or
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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.)
281 Tresser Boulevard
Stamford, Connecticut 06901
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES AND ZIP CODE)
Registrant's telephone number, including area code: (203) 969-0666
Securities registered pursuant to Section
12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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COMMON STOCK NEW YORK STOCK EXCHANGE
PACIFIC STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act:
7% CONVERTIBLE SUBORDINATED NOTES DUE 2003
7% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011
93/4% SENIOR SUBORDINATED NOTES DUE 2009
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value as of March 23, 2001 of voting stock held by
nonaffiliates of the registrant: $209,668,712
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS OUTSTANDING AS OF MARCH 23, 2001
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COMMON STOCK 37,216,419
DOCUMENTS INCORPORATED BY REFERENCE:
PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS (TO THE EXTENT SPECIFIED
HEREIN) -- PART III.
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PART I
ITEM 1. BUSINESS.
GENERAL DEVELOPMENT OF BUSINESS
Hexcel Corporation, founded in 1946, was incorporated in California in
1948, and reincorporated in Delaware in 1983. Hexcel Corporation, together with
its subsidiaries (herein referred to as "Hexcel" or the "Company"), is a leading
producer of advanced structural materials. The Company develops, manufactures
and markets lightweight, high-performance reinforcement products, composite
materials and engineered products for use in the commercial aerospace, space and
defense, electronics, and industrial markets. The Company's products are used in
a wide variety of end products, such as commercial and military aircraft, space
launch vehicles and satellites, printed wiring boards, computers, cellular
telephones, televisions, soft body armor, high-speed trains and ferries, cars
and trucks, windmill blades, reinforcements for bridges and other structures,
window blinds, skis and snowboards, golf clubs, fishing poles, tennis rackets
and bicycles.
The Company serves international markets through manufacturing facilities
and sales offices located in the United States and Europe, and through sales
offices located in Asia, Australia and South America. The Company is also a
member of six joint ventures, four of which manufacture and market reinforcement
products and composite materials in Europe, Asia and the United States, and two
of which will manufacture composite structures and interiors in Asia.
SIGNIFICANT TRANSACTIONS
PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF HEXCEL COMMON STOCK BY AN
INVESTOR GROUP
On December 19, 2000, an investor group controlled by subsidiaries of The
Goldman Sachs Group, Inc. (the "Investor Group") completed a previously
announced purchase of approximately 14.5 million of the approximately 18 million
shares of Hexcel common stock owned by subsidiaries of Ciba Specialty Chemicals
Holding, Inc. (together with its subsidiaries, "Ciba"). The shares acquired by
the Investor Group represent approximately 39% of the Company's outstanding
common stock. In addition, the Company and the Investor Group entered into a
governance agreement that became effective on December 19, 2000. Under this
governance agreement, the Investor Group has the right to, among other things,
designate three directors to sit on the Company's ten-member board of directors.
As a result of this transaction, Ciba's ownership of Hexcel common stock
was reduced to approximately 3.5 million shares. In addition, the governance
agreement between Ciba and Hexcel, which gave Ciba the right to designate four
directors to sit on the Company's board, terminated. Ciba has stated that its
investment in Hexcel is non-strategic and that it will explore options for the
future disposition of its remaining interest in the Company.
SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business
to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax
International plc, for cash proceeds of $113.3 million, which resulted in an
after-tax gain of approximately $44 million. The Bellingham business generated
net sales of $18.9 million for the period from January 1 through April 26, 2000,
and $70.0 million and $34.3 million for 1999 and 1998, respectively. The
Bellingham business is engaged in the manufacture and sale of airline interior
refurbishment applications and its operating results were reflected as a
component of Hexcel's Engineered Products business segment up to the date of
disposal.
1
ACQUISITION OF THE CLARK-SCHWEBEL INDUSTRIAL FABRICS BUSINESS
Hexcel acquired the industrial fabrics business of Clark-Schwebel, Inc. and
its subsidiaries ("Clark-Schwebel") on September 15, 1998. The business acquired
from Clark-Schwebel is engaged in the manufacture and sale of high-quality
fiberglass fabrics, which are used to make printed wiring boards for electronic
equipment such as computers, cellular telephones, televisions and automobiles.
This business also produces high-performance specialty products for use in
insulation, filtration, wall and facade claddings, soft body armor and
reinforcements for composite materials.
The acquisition of the Clark-Schwebel business was an important strategic
transaction for Hexcel. The acquisition established Hexcel as a leading global
materials supplier to the electronics and telecommunications industries, which
the Company believes have attractive long-term growth potential. Furthermore,
the acquisition added to Hexcel's revenue base and has further diversified the
Company's business beyond the historically cyclical commercial aerospace market.
Further discussion of these significant transactions is contained under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations," and in Notes 1, 2 and 3 to the accompanying consolidated
financial statements in this Annual Report on Form 10-K.
2
BUSINESS SEGMENTS AND OVERVIEW
Hexcel is a vertically integrated manufacturer of products within a single
industry: Advanced Structural Materials. Hexcel's advanced structural materials
business is organized around three strategic business segments: reinforcement
products, composite materials and engineered products. The following table
identifies, by each of these segments, the Company's principal products and
examples of the primary end-uses:
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BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE
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REINFORCEMENT Carbon Fibers o Raw materials for industrial fabrics and prepregs
PRODUCTS o Filament winding for various space, defense and
industrial applications
Industrial Fabrics o Printed circuit boards
o Raw materials for prepregs and honeycomb
o Various marine applications
o Window blinds
o Insulation
o Metal and fume filtration systems
o Soft body armor
o Civil engineering and construction applications
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COMPOSITE MATERIALS Prepregs o Raw materials for composite structures and interiors
o Semi-finished aircraft components
o Munitions and defense systems
o Skis, snowboards, golf club shafts, fishing rods and tennis
rackets
Structural Adhesives o Bonding of structural materials and components, including
composite panels
Honeycomb, o Raw materials for composite structures and interiors
Honeycomb o Semi-finished aircraft components used in:
Parts & Composite Helicopter blades
Panels Aircraft surfaces (flaps, wing tips, elevators and fairings)
High-speed ferries, truck and train components
Automotive components
Space shuttle doors
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ENGINEERED PRODUCTS Composite Structures o Aircraft structures and finished aircraft components, including:
and OEM aircraft Wing-to-body and flap track fairings
interiors Radomes
Engine cowls and inlet ducts
Wing panels
o OEM aircraft interiors, including:
Overhead storage compartments
Flight deck panels
Door liners
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REINFORCEMENT PRODUCTS
The Reinforcement Products business segment manufactures and markets carbon
fibers and industrial fabrics. Hexcel expanded this business segment in 1998
with the acquisition of the Clark-Schwebel business.
CARBON FIBERS: Carbon fibers are manufactured for sale to third party
customers and for use by Hexcel in manufacturing certain industrial fabrics and
composite materials. Carbon fibers are woven into carbon fabrics, used as
reinforcement in conjunction with a resin matrix to produce pre-impregnated
composite materials ("prepregs"), and used in filament winding and advanced
fiber placement to produce various other composite materials. Key product
applications include structural components for commercial and military aircraft
and space launch vehicles, as well as certain other applications such as golf
club shafts and tennis racquets.
3
INDUSTRIAL FABRICS: Industrial fabrics are made from a variety of fibers,
including several types of fiberglass as well as carbon, aramid, quartz, ceramic
and other specialty reinforcements. These fabrics are sold to third-party
customers for use in a wide range of products, including printed wiring boards,
window coverings and other architectural products, soft body armor, and a
variety of structural materials and components used in aerospace, marine and
rail applications. These fabrics are also used internally by Hexcel to
manufacture prepregs and other composite materials.
Hexcel's net sales and pro forma net sales of reinforcement products to
third party customers, after giving effect to the acquisition of the
Clark-Schwebel business as if the transaction had occurred at the beginning of
1998, were as follows:
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(IN MILLIONS) 2000 1999 1998
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Net sales $ 359.2 $ 330.9 $ 224.8
Pro forma net sales 359.2 330.9 370.6
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The increase in net sales from 1999 to 2000 was primarily the result of
increasing demand in 2000 for lightweight fabrics used in multi-layer printed
wiring boards, and higher sales of aramid and other specialty fabrics used in
the manufacture of soft body armor. The decrease in pro forma net sales from
1998 to 1999 was the result of various factors, including a reduction in demand
for printed wiring boards in 1998 due to a change in the electronics industry
inventory cycle, reduced Asian market demand and increased competition from
Asian and other producers in western markets. This resulted in a rapid reduction
in prices for glass fabrics in early 1999. In 1999, sales of reinforcement
fabrics for composite materials also declined as The Boeing Company ("Boeing")
began to reduce aircraft build rates in the second half of the year from the
record levels achieved in 1998.
Approximately 21%, 25% and 37% of the Company's production of
reinforcement products was used internally to manufacture composite materials in
2000, 1999, and 1998, respectively. The percentage of production of
reinforcement products for internal use has decreased over the last two years
due to the acquisition of the Clark-Schwebel business, the growth in sales to
the electronics market and the decline in sales made to the commercial aerospace
market.
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REINFORCEMENT PRODUCTS
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KEY CUSTOMERS MANUFACTURING FACILITIES
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Cytec Fiberite Anderson, SC
Isola Decatur, AL
Nelco Decines, France
Piad Les Avenieres, France
DHB Salt Lake City, UT
Second Chance Seguin, TX
Von Roll Statesville, NC
Washington, GA
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COMPOSITE MATERIALS
The Composite Materials business segment has worldwide responsibility for
manufacturing and marketing prepregs, structural adhesives, honeycomb, specially
machined honeycomb parts and composite panels.
4
PREPREGS AND STRUCTURAL ADHESIVES: Prepregs are manufactured for sale to
third party customers and for use by Hexcel in manufacturing other composite
materials and structures, including finished components for aircraft structures
and interiors. Prepregs are manufactured by combining high performance
reinforcement fabrics or unidirectional fibers with a resin matrix to form a
composite material with exceptional structural properties not present in either
of the constituent materials. Industrial fabrics used in the manufacture of
prepregs include S-2(R) and E-type fiberglass, carbon, aramid, quartz, ceramic,
Thorstrand(R), polyethylENE and other specialty reinforcements. Resin matrices
include bismaleimide, cyanate ester, epoxy, phenolic, polyester, polyimide and
other specialty resins.
Hexcel designs and markets a comprehensive range of Redux(R) film
adhesives. These structural adhesives, which bond a wide range of composite,
metallic and honeycomb surfaces, are used in a variety of product applications.
HONEYCOMB, HONEYCOMB PARTS AND COMPOSITE PANELS: Honeycomb is a unique,
lightweight, cellular structure generally composed of hexagonal nested cells.
The product is similar in appearance to a cross-sectional slice of a beehive.
The hexagonal cell design gives honeycomb a high strength-to-weight ratio and a
uniform resistance to crushing. These basic characteristics are combined with
the physical properties of the material from which the honeycomb is made to meet
various engineering requirements.
Hexcel produces honeycomb from a number of metallic and non-metallic
materials. Most metallic honeycomb is made from aluminum and is available in a
selection of alloys, cell sizes and dimensions. Non-metallic honeycomb materials
include fiberglass, carbon, thermoplastics, non-flammable aramid papers and
other specialty materials.
Hexcel sells honeycomb core material in standard block and sheet form and
in laminated panel form. In the construction of composite panels, sheets of
aluminum, stainless steel, prepreg or other laminates are bonded with adhesives
to each side of a slice of honeycomb core, creating a "sandwich" structure.
Hexcel also possesses advanced processing capabilities that enable the Company
to design and manufacture complex fabricated honeycomb parts and bonded
assemblies to meet customer specifications. Such parts and assemblies are used
as semi-finished components in the manufacture of composite structures.
The largest market for honeycomb products is the aerospace market. Hexcel
also sells honeycomb for non-aerospace applications including high-speed trains
and mass transit vehicles, automotive parts, energy absorption products, marine
vessel compartments, portable shelters, business machine cabinets and other
industrial uses. In addition, the Company produces honeycomb for its Engineered
Products business segment for use in manufacturing finished parts for airframe
manufacturers.
Hexcel's net sales of composite materials to third party customers were
$567.0 million in 2000, $605.9 million in 1999, and $658.0 million in 1998. Net
sales for composite materials are highly dependent upon commercial aircraft
build rates as further discussed under the captions "Markets and Customers"
and "Management's Discussion and Analysis of Financial Condition and Results
of Operations." Approximately 2% of the Company's production of
composite materials are used internally to manufacture OEM composite structures
and interiors.
5
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COMPOSITE MATERIALS
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KEY CUSTOMERS MANUFACTURING FACILITIES
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North America: United States:
Boeing Burlington, WA
Bombardier Casa Grande, AZ
CFAN Gilbert, AZ
Embraer-Empresa Lancaster, OH
Hawker de Havilland Livermore, CA
Lockheed Martin Pottsville, PA
Northrop Grumman Salt Lake City, UT
Rohr Europe:
United Technologies Dagneux, France
Europe: Duxford, England
Alenia Linz, Austria
British Aerospace Parla, Spain
European Aeronautic Welkenraedt, Belgium
Defence and Space
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The Company also operates sales offices in Melbourne, Australia; Shanghai,
China; Sao Paulo, Brazil; Munich, Germany; and Saronno, Italy. As part of
Hexcel's business consolidation activities, the Company's Lancaster, Ohio and
Gilbert, Arizona manufacturing facilities will be closed by early 2002. The
manufacturing output from these two facilities will be produced by the
Livermore, California and Salt Lake City, Utah facilities.
ENGINEERED PRODUCTS
The Engineered Products business segment has worldwide responsibility for
manufacturing and marketing composite structures primarily for use in the
aerospace industry, as well as OEM aircraft interiors. Composite structures and
aircraft interior components are manufactured from a variety of composite and
other materials (including prepregs, honeycomb and structural adhesives) using
such manufacturing processes as resin transfer molding, autoclave processing,
multi-axis numerically controlled machining, press laminating, heat forming and
other composite manufacturing techniques. Composite structures include such
items as wing-to-body and flap track fairings, radomes, engine cowls, inlet
ducts, wing panels and other aircraft components. Aircraft interior components
include such items as overhead storage bins, flight deck panels and door liners.
As previously discussed, in April 2000, the Company sold its Bellingham
aircraft interiors business. This business segment was responsible for the
design, engineering and manufacture of commercial aircraft interior components
and systems for airline refurbishment applications.
Hexcel's net sales and pro forma net sales of engineered products to third
party customers, after giving effect to the disposition of the Bellingham
business, as if the transaction occurred at the beginning of 1998, were as
follows:
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(IN MILLIONS) 2000 1999 1998
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Net sales $ 129.5 $ 214.7 $ 206.2
Pro forma net sales 110.6 144.7 171.9
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6
The decline in the pro forma net sales of the Engineered Products business
from 1998 to 2000 is primarily attributable to a decrease in sales made to
Boeing as a result of their reduction in aircraft production rates during the
second half of 1999 and the first half of 2000, together with certain price
reductions.
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ENGINEERED PRODUCTS
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KEY CUSTOMERS MANUFACTURING FACILITIES
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Boeing Kent, WA
Aviation Partners Boeing
Vought
Mitsubishi Heavy Industries
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Further discussion of Hexcel's business operations and operating segments
are contained under the caption "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and in Note 18 to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.
JOINT VENTURES
In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior applications for commercial aircraft. Hexcel
has a 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian
Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and
Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture
composite parts for secondary structures for commercial aircraft. Hexcel has a
25% equity ownership interest in this joint venture, which is located in Alor
Setar, Malaysia. Products manufactured by both joint ventures will be shipped to
Hexcel's customers worldwide, and it is anticipated that the first parts will be
delivered to customers in 2001.
As part of the acquired Clark-Schwebel business, the Company acquired
equity ownership interests in three joint ventures: a 43.6% share in Interglas
Technologies AG, formerly CS-Interglas AG ("Interglas"), headquartered in
Germany; a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"),
headquartered in Japan; and a 50.0% share in Clark-Schwebel Tech-Fab Company
("CS Tech-Fab"), headquartered in the United States. Interglas and
Asahi-Schwebel are fiberglass fabric producers serving the European and Asian
electronics industry as well as other markets for fiberglass fabrics. CS
Tech-Fab manufactures non-woven materials for roofing, construction and other
specialty applications.
Hexcel owns a 45% equity interest in DIC-Hexcel Limited ("DHL"), a joint
venture with Dainippon Ink and Chemicals, Inc. ("DIC"). This joint venture is
located in Komatsu, Japan, and produces and sells prepregs, honeycomb and
decorative laminates using technology licensed from Hexcel and DIC.
BUSINESS CONSOLIDATION PROGRAMS
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. For the years ended December 31, 2000, 1999 and 1998, Hexcel
recorded business consolidation expenses of $10.9 million, $20.1 million and
$12.7 million, respectively. Further discussion of the Company's business
consolidation activities is contained under the caption "Management's Discussion
and Analysis of Financial Condition and Results of Operations," and in Note 4 to
the accompanying consolidated financial statements included in this Annual
Report on Form 10-K.
7
LEAN ENTERPRISE
In 1998, Hexcel initiated its Lean Enterprise program, which is designed to
create a common way of managing the Company, with a focus on creating value for
the Company's customers and eliminating waste throughout the value chain. The
goals of the program are faster processing of customer orders and deliveries,
faster manufacturing cycle times, shorter equipment set-up and clean-down times,
lower manufacturing rejects and warranty claims, simplified manufacturing
procedures and improved manufacturing processes. All of these actions, if
successful, are expected to result in higher throughput and greater capacity on
existing manufacturing equipment, thereby reducing both capital expenditures and
facility requirements. Improved efficiency and quality are expected to result in
lower unit labor requirements and thereby lower product costs and lower
inventory requirements. The Lean Enterprise program is also systematically
linked with key initiatives, such as Six Sigma, to improve quality and the
effectiveness of global procurement activities. This program contributed to
Hexcel's reduction in working capital and capital spending from 1998 to 1999, as
well as improvements in gross margin and operating income as a percentage of net
sales from 1999 to 2000.
RAW MATERIALS AND PRODUCTION ACTIVITIES
Due to the vertically integrated nature of Hexcel's operations, the Company
produces several materials used in the manufacture of certain industrial
fabrics, composite materials and engineered products, as well as the
polyacrylonitrile ("PAN") precursor material used in the manufacture of carbon
fibers. The Company consumed internally approximately 50% and 20% of its carbon
fiber and industrial fabric production, respectively, in 2000. However, the
Company purchases most of the raw materials used in production from third
parties. Several key materials are available from relatively few sources, and in
many cases the cost of product qualification makes it impractical to develop
multiple sources of supply. The unavailability of these materials, which the
Company does not currently anticipate, could have a material adverse effect on
operations.
In addition, certain raw materials and operating supplies used by Hexcel
are subject to price fluctuations caused by the volatility of underlying
commodity prices. The commodities most likely to have an impact on the Company's
results of operations in the event of significant price changes are electricity,
natural gas, aluminum and certain chemicals. The Company attempts to minimize
the impact of commodity price risk, when feasible, by entering into supply
agreements that specify raw material prices or limit price increases for a
reasonable period of time. The Company generally does not employ forward
contracts or other financial instruments to hedge commodity price risk.
Hexcel's production activities are generally based on a combination of
"make-to-order" and "make-to-forecast" production requirements. The Company
coordinates closely with key suppliers in an effort to avoid raw material
shortages and excess inventories.
RESEARCH AND TECHNOLOGY; PATENTS AND KNOW-HOW
Hexcel's Research and Technology ("R&T") departments support the Company's
core businesses worldwide. Through R&T activities, the Company maintains
expertise in chemical formulation and curatives, fabric forming and textile
architectures, advanced composite structures, process engineering, application
development analysis and testing of composite materials, computational design
and prediction, and other scientific disciplines related to the Company's
worldwide business base. Additionally, Hexcel's R&T function performs a limited
amount of contract research and development in the U.S. and Europe for
strategically important customers and government agencies in the areas of carbon
fiber ceramics, high temperature polymers, advanced textiles and composite
structures manufacturing.
8
Hexcel's products rely primarily on the Company's expertise in materials
science, textiles, process engineering and polymer chemistry. Consistent with
market demand, the Company has been placing more emphasis on cost effective
product design and lean manufacturing in recent years. Towards this end, the
Company has entered into formal and informal alliances, as well as licensing and
teaming arrangements, with several customers, suppliers, external agencies and
laboratories. Management believes that the Company possesses unique capabilities
to design, develop and manufacture composite materials and structures. The
Company owns and maintains in excess of 100 patents worldwide, has licensed many
key technologies, and has granted technology licenses and patent rights to
several third parties in connection with joint ventures and joint development
programs. It is the Company's policy to actively enforce its proprietary rights.
The Company believes that the patents and know-how rights currently owned or
licensed by the Company are adequate for the conduct of its business.
Hexcel spent $21.2 million for research and technology in 2000, $24.8
million in 1999 and $23.7 million in 1998. These expenditures were expensed as
incurred.
MARKETS AND CUSTOMERS
Hexcel's products are sold for a broad range of end uses. The following
tables summarize net sales to third-party customers by market and by geography
for the three years ended December 31:
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2000 1999 1998
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NET SALES BY MARKET
Commercial aerospace 50% 57% 62%
Space and defense 11 11 13
Electronics 17 14 8
Industrial 22 18 17
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Total 100% 100% 100%
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
NET SALES BY GEOGRAPHY
United States 57% 57% 54%
U.S. exports 5 8 9
International 38 35 37
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Total 100% 100% 100%
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COMMERCIAL AEROSPACE
Historically, the commercial aerospace industry has led the development of
applications for advanced structural materials and components because it has the
strongest need for the performance properties of these materials and is well
positioned to maximize the economic benefits from their use. Accordingly, the
demand for advanced structural material products is closely correlated to the
demand for commercial aircraft.
Commercial aerospace activity fluctuates in relation to two principal
factors. First, the number of revenue passenger miles flown by the airlines
affects the size of the airline fleets and generally follows the level of
overall economic activity. The second factor, which is less sensitive to the
general economy, is the replacement and retrofit rates for existing aircraft.
These rates, resulting mainly from obsolescence, are determined in part by the
regulatory requirements established by various civil aviation authorities as
well as public concern regarding aircraft age, safety and noise. These rates may
also be affected by the desire of the various airlines for higher payloads and
more fuel efficient aircraft, which in turn is influenced by the price of fuel.
9
Reflecting the demand factors noted above, the number of commercial
aircraft delivered by Boeing and Airbus Industrie ("Airbus") declined by 48%
from 1992 to 1995. At the lowest point during this period, Boeing and Airbus
reported combined deliveries of 380 aircraft. Beginning in 1996, however,
aircraft deliveries by Boeing and Airbus began to rise, growing to a combined
record peak of 914 in 1999, which decreased to 800 in 2000. Set forth below are
historical deliveries as published by Boeing and Airbus:
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1992 1993 1994 1995 1996 1997 1998 1999 2000
- --------------------------------------------------------------------------------------------------------------------
Boeing (including McDonnell
Douglas) 573 409 311 256 271 375 559 620 489
Airbus 157 138 127 124 126 182 229 294 311
- --------------------------------------------------------------------------------------------------------------------
Total 730 547 438 380 397 557 788 914 800
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Approximately 20%, 28% and 35% of Hexcel's 2000, 1999, and 1998 net sales,
respectively, were to Boeing and related subcontractors. Of the 20% of sales to
Boeing and its subcontractors, 17% and 3% related to commercial aerospace and
space and defense market applications, respectively. Approximately 13%, 10% and
11% of Hexcel's 2000, 1999 and 1998 net sales, respectively, were to Airbus and
related subcontractors. The decrease in the percentages of sales made to Boeing
and related subcontractors primarily reflect the increased sales from the
acquired Clark-Schwebel business as well as the decline in sales to Boeing as a
result of Boeing's 1999 build rate reductions. On average, the Company delivers
products into the Boeing supply chain about six months prior to aircraft
delivery. As a result, the Company began to see the impact of reduced Boeing
production rates in the second quarter of 1999. The loss of all or a significant
portion of the business with Boeing or Airbus could have a material adverse
effect on sales and earnings.
Depending on the product, orders placed with Hexcel are received anywhere
between one and eighteen months prior to delivery of the aircraft to the
customer. Based on published projections, combined deliveries for Boeing and
Airbus are expected to increase from 800 in 2000 to approximately 860 in 2001,
and to more than 880 in 2002. The Company is also expecting continued strength
in the demand for regional and business aircraft produced by Hexcel customers
such as Bombardier Aerospace and Embraer-Empresa Brasileira de Aeronautica.
SPACE AND DEFENSE
The space and defense markets have historically been innovators in and
sources of significant demand for advanced structural materials. For example,
advanced structural materials made a major contribution to the development of
"stealth" aircraft technologies. However, aggregate demand by space and defense
customers is primarily a function of military aircraft procurement by the U.S.
and certain European governments. Presently, there are a number of potentially
significant military aircraft programs in various stages of development or
initial production that utilize advanced structural materials. The Company is
currently qualified to supply materials to a broad range of military aircraft
and helicopter programs anticipated either to enter full-scale production in the
near future or to significantly increase production rates. These programs
include the F/A-18E/F Hornet, the F-22 Raptor, and the Eurofighter/Typhoon, as
well as the C-17, the V-22 Osprey tiltrotor aircraft, and the RAH-66 Comanche
and NH90 helicopters. The benefits the Company obtains from these programs will
depend upon which ones are funded and the extent of such funding.
Contracts to supply materials for military and some commercial projects
contain provisions for termination at the convenience of the U.S. government or
the buyer. In the case of such a termination, Hexcel is entitled to recover
reasonable incurred cost plus a provision for profit on the incurred cost. In
addition, the Company is subject to U.S. government cost accounting standards,
which are applicable to companies with more than $25 million of government
contract or subcontract awards each year.
10
ELECTRONICS
The acquisition of the Clark-Schwebel business has provided Hexcel with a
global platform to supply the electronics industry, which the Company believes
has attractive long-term growth potential. The Company is the largest producer
of fine, lightweight fiberglass fabrics used in the fabrication of multilayer
printed wiring boards, with an estimated 45% market share in the U.S. and 28%
market share in Europe. In addition to its U.S. businesses, the Company has
significant ownership positions in three joint ventures: Interglas,
Asahi-Schwebel and CS Tech-Fab. Interglas and Asahi-Schwebel are leading
fiberglass fabric manufacturers in Europe, Japan and Southeast Asia. Fiberglass
fabrics are a critical component used in the production of printed wiring
boards, which are integral to most advanced electronic products, including
computers, telecommunications equipment, advanced cable television equipment,
network servers, televisions, automotive equipment and home appliances.
INDUSTRIAL MARKETS
Hexcel has focused its participation in industrial markets in areas where
the application of advanced structural material technology offers significant
benefits to the end user. As a result, the Company has chosen to focus on select
opportunities where high performance is the key product criterion. Future
opportunities and growth depend primarily upon the success of the individual
programs and industries in which the Company has elected to participate. Within
industrial markets, key applications include surface transportation
(automobiles, mass transit and high-speed rail and marine applications), wind
energy, civil engineering, skis, snowboards, golf club shafts, fishing rods,
tennis rackets, bicycles and soft body armor. Hexcel's participation in these
markets is a valuable complement to its commercial and military aerospace
businesses, and the Company is committed to pursuing the utilization of advanced
structural material technology in its industrial markets.
Further discussion of Hexcel's markets and customers, including certain
risks, uncertainties and other factors with respect to "forward-looking
statements" about those markets and customers, is contained under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
SALES AND MARKETING
A staff of salaried market managers, product managers and salespeople sell
and market Hexcel products directly to customers worldwide. The Company also
uses independent distributors and manufacturer representatives for certain
products, markets and regions.
COMPETITION
In the production and sale of advanced structural materials, Hexcel
competes with numerous U.S. and international companies on a worldwide basis.
The broad markets for the Company's products are highly competitive, and the
Company has focused on both specific markets and specialty products within
markets to obtain market share. In addition to competing directly with companies
offering similar products, the Company competes with producers of substitute
structural materials such as structural foam, wood, metal, and concrete.
Depending upon the material and markets, relevant competitive factors include
price, delivery, service, quality and product performance.
ENVIRONMENTAL MATTERS
To date, environmental control regulations have not had a significant
adverse effect on overall operations. A discussion of environmental matters is
contained under the caption, "Legal Proceedings," and in Note 16 to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.
11
EMPLOYEES
As of December 31, 2000, Hexcel employed 6,072 full-time employees,
compared with 6,328 and 7,139 as of December 31, 1999 and 1998, respectively.
The decrease in the number of employees from 1998 to the end of 2000 was
primarily attributable to Hexcel's business consolidation programs, including
the closure of a facility in Cleveland, Georgia and the disposition of a
business in Brindisi, Italy, as well as the divestiture of the Bellingham
business.
ITEM 2. PROPERTIES
Hexcel owns and leases manufacturing facilities and sales offices located
throughout the United States and in other countries as noted below. The
corporate offices and principal corporate support activities for the Company are
located in leased facilities in Stamford, Connecticut and Wilton, Connecticut.
The Company's corporate research and technology administration and certain
composite materials laboratories are located in Dublin, California.
The following table lists the manufacturing facilities of Hexcel by
geographic location, approximate square footage, and principal products
manufactured. This table does not include manufacturing facilities owned by
entities in which the Company has a joint venture interest.
MANUFACTURING FACILITIES
Approximate
FACILITY LOCATION SQUARE FOOTAGE PRINCIPAL PRODUCTS
United States:
Anderson, South Carolina 432,000 Industrial fabrics
Burlington, Washington 73,000 Honeycomb Parts
Casa Grande, Arizona 307,000 Honeycomb and Honeycomb Parts
Decatur, Alabama 159,000 PAN Precursor (used to produce Carbon Fibers)
Gilbert, Arizona 30,000 Prepregs
Kent, Washington 733,000 Composite Structures; OEM Aircraft Interiors
Lancaster, Ohio 49,000 Prepregs
Livermore, California 141,000 Prepregs
Pottsville, Pennsylvania 134,000 Honeycomb Parts
Salt Lake City, Utah 457,000 Carbon Fibers; Prepregs
Seguin, Texas 204,000 Industrial fabrics
Statesville, North Carolina 553,000 Electronic fabrics; Industrial fabrics
Washington, Georgia 160,000 Electronic fabrics
International:
Dagneux, France 130,000 Prepregs
Decines, France 90,000 Industrial fabrics
Duxford, United Kingdom 440,000 Prepregs; Honeycomb and Honeycomb Parts
Les Avenieres, France 476,000 Electronic fabrics; Industrial fabrics
Linz, Austria 163,000 Prepregs
Parla, Spain 43,000 Prepregs
Welkenraedt, Belgium 223,000 Honeycomb and Honeycomb Parts
Hexcel leases the facilities located in Anderson, South Carolina;
Washington, Georgia; Statesville, North Carolina; and Gilbert, Arizona; and the
land on which the Burlington, Washington, facility is located. The Company also
leases portions of the facilities located in Casa Grande, Arizona; Linz,
Austria; and Les Avenieres, France.
12
As previously discussed, as part of Hexcel's business consolidation
programs, the Lancaster, Ohio and Gilbert, Arizona manufacturing facilities will
be closed by early 2002. The manufacturing output from these two facilities will
be produced by the Livermore, California and Salt Lake City, Utah facilities.
ITEM 3. LEGAL PROCEEDINGS
Hexcel is involved in litigation, investigations and claims arising out of
the conduct of its business, including those relating to commercial
transactions, as well as to environmental, health and safety matters. The
Company estimates and accrues its liabilities resulting from such matters based
on a variety of factors, including outstanding legal claims and proposed
settlements; assessments by internal and external counsel of pending or
threatened litigation; and assessments by environmental engineers and
consultants of potential environmental liabilities and remediation costs. Such
estimates exclude counterclaims against other third parties. Such estimates are
not discounted to reflect the time value of money due to the uncertainty in
estimating the timing of the expenditures, which may extend over several years.
Although it is impossible to determine the level of future expenditures for
legal, environmental and related matters with any degree of certainty, it is the
Company's opinion, based on available information, that it is unlikely that
these matters, individually or in the aggregate, will have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company.
LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS
The Company is subject to numerous federal, state, local and foreign laws
and regulations that impose strict requirements for the control and abatement of
air, water and soil pollutants and the manufacturing, storage, handling and
disposal of hazardous substances and waste. These laws and regulations include
the Federal Comprehensive Environmental Response, Compensation, and Liability
Act ("CERCLA" or "Superfund"), the Clean Air Act, the Clean Water Act and the
Resource Conservation and Recovery Act, and analogous state laws and
regulations. Regulatory standards under these environmental laws and regulations
have tended to become increasingly stringent over time.
Hexcel has been named as a potentially responsible party with respect to
several hazardous waste disposal sites that it does not own or possess, which
are included on the Superfund National Priority List of the U.S. Environmental
Protection Agency or on equivalent lists of various state governments. Because
CERCLA provides for joint and several liability, the Company could be
responsible for all remediation costs at such sites, even if it is one of many
potentially responsible parties ("PRPs"). While the Company believes, based on
the amount and the nature of its waste, and the number of other financially
viable PRPs, that its liability in connection with such matters will not be
material, the Company has nonetheless accrued an estimate of its liability with
respect to this matter.
Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act,
Hexcel signed an administrative consent order and later entered into a
Remediation Agreement to pay for the environmental remediation of a
manufacturing facility it owns and formerly operated in Lodi, New Jersey. The
Company's estimate of the remaining cost to satisfy this consent order is
accrued in its consolidated balance sheets. The ultimate cost of remediating the
Lodi site will depend on developing circumstances.
Hexcel was party to a cost-sharing agreement regarding the operation of
certain environmental remediation systems necessary to satisfy a post-closure
care permit issued to a previous owner of the Company's Kent, Washington, site
by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing
agreement, the Company was obligated to reimburse the previous owner for a
portion of the cost of the required remediation activities. Management has
determined that the cost-sharing agreement terminated in December 1998; however,
the other party disputes this determination. The Company's estimate of the
remaining costs associated with the cleanup of this site is accrued in its
consolidated balance sheets.
13
Hexcel is aware of a grand jury investigation being conducted by the
Antitrust Division of the United States Department of Justice with respect to
the carbon fiber and carbon fiber prepreg industries. The Department of Justice
appears to be reviewing the pricing of all manufacturers of carbon fiber and
carbon fiber prepreg since 1993. The Company, along with other manufacturers of
these products, has received a grand jury subpoena requiring production of
documents to the Department of Justice. The Company is not in a position to
predict the direction or outcome of the investigation; however, it is
cooperating with the Department of Justice.
In 1999, Hexcel was joined in a purported class action lawsuit alleging
antitrust violations in the sale of carbon fiber, carbon fiber industrial
fabrics and carbon fiber prepreg (Thomas & Thomas Rodmakers, Inc. et. al. v.
Newport Adhesives and Composites, Inc., et. al., Amended and Consolidated Class
Action Complaint filed October 4, 1999, United States District Court, Central
District of California, Western Division, CV-99-07796-GHK (CTx). The Company was
one of many manufacturers joined in the lawsuit, which was spawned from the
Department of Justice investigation. The lawsuit is in its preliminary stages
and the Company is not in a position to predict the outcome, but believes that
the lawsuit is without merit as to the Company.
At its Livermore, California facility, Hexcel has recently received a
series of notices of violation of air quality standards from the Bay Area Air
Quality Management District. Hexcel is investigating the issues and is
cooperating with the District.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Hexcel common stock is traded on the New York and Pacific Stock Exchanges.
The range of high and low sales prices of Hexcel common stock on the New York
Stock Exchange Composite Tape is contained in Note 19 to the accompanying
consolidated financial statements included in this Annual Report on Form 10-K
and is incorporated herein by reference.
Hexcel did not declare or pay any dividends in 2000, 1999, or 1998. The
payment of dividends is generally prohibited under the terms of certain of the
Company's credit agreements.
On March 23, 2001, there were 1,565 holders of record of Hexcel common
stock.
ITEM 6. SELECTED FINANCIAL DATA
The information required by Item 6 is contained on page 34 of this Form
10-K under the caption "Selected Financial Data" and is incorporated herein by
reference.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information required by Item 7 is contained on pages 35 to 54 of this
Form 10-K under "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCUSSION DISCLOSURES ABOUT MARKET RISK
The information required by Item 7A is contained under the heading "Market
Risks" on pages 51 to 53 of this Form 10-K and is incorporated herein by
reference.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is contained on pages 55 to 84 of this
Form 10-K under "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference. The report of the independent public
accountants for the years ended December 31, 2000, 1999 and 1998 is contained on
page 57 of this Form 10-K under the caption "Report of Independent Accountants"
and is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:
Listed below are the directors of Hexcel as of March 23, 2001, the
positions with the Company held by them and a brief description of each
director's prior business experience.
DIRECTOR
NAME AGE SINCE POSITION(S) WITH HEXCEL
- --------------------------------------------------------------------------------------------------------------------
John J. Lee...................... 64 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne............... 61 1998 President; Chief Operating Officer; Director
H. Arthur Bellows, Jr.......... 63 2000 Director
Robert S. Evans................ 57 1999 Director
James J. Gaffney ............. 60 2000 Director
Marshall S. Geller............ 62 1994 Director
Sanjeev K. Mehra............. 42 2000 Director
Lewis Rubin.................... 63 1999 Director
Peter M. Sacerdote............ 63 2000 Director
Martin L. Solomon............ 64 1996 Director
- --------------------------------------------------------------------------------------------------------------------
JOHN J. LEE, age 64, has served as Chairman of the Board of Directors of
Hexcel since February 1996, Chief Executive Officer since January 1994, Chairman
and Chief Executive Officer from January 1994 to February 1995, Chairman and
Co-Chief Executive Officer from July 1993 to December 1993 and a director since
May 1993. Mr. Lee also serves as Chairman of the Nominating and Finance
15
Committees of Hexcel. He has served as Chairman of the Board, President and
Chief Executive Officer of Lee Development Corporation, a merchant banking
company, since 1987 and an advisor to the Clipper Group, a private investment
partnership, since 1993. He is also a director of Crane Co. and other various
privately held corporations. Mr. Lee was a director of XTRA Corporation, a
transportation equipment leasing company, from 1990 to 1996 and a director of
Hvide Marine Inc., a marine support and transportation services company, from
1994 to October 1999.
HAROLD E. KINNE, age 61, has served as President and Chief Operating
Officer of Hexcel since July 1998. Prior to joining Hexcel, he was President of
the Additives Division, corporate vice president and a member of the corporate
management committee of Ciba Specialty Chemicals Corporation, a wholly owned
affiliate of Ciba ("CSC"), from 1996 to June 1998. Mr. Kinne also held the same
positions in and was a director of Ciba-Geigy Corporation, a wholly owned
affiliate of Ciba-Geigy Limited ("CGC"), from 1988 through 1996. Prior to that,
Mr. Kinne served as Vice President, Pigments, for the Plastics & Additives
Division of CGC from 1986 to 1988. Mr. Kinne held various other technical and
managerial positions with CGC from 1965 to 1986.
H. ARTHUR BELLOWS, JR., age 63, has been a director of Hexcel since
December 2000. Mr. Bellows also serves as a member of the Audit Committee of
Hexcel. He has served as Chairman of Braeburn Associates, a private merchant
banking firm, from 1999, and Chairman of The Finance Network, a private
financial services firm, from 1999. Mr. Bellows was President, Chief Operating
Officer and a director of Audits & Surveys Worldwide, Inc., an international
market research firm, from 1995 to March 1999, and continues to serve as a
director. In 1967, he founded The Triangle Corporation, a manufacturer of hand
tools, aerosol chemicals, diagnostic equipment for automobiles and various
hardware products, and served as its Chairman, President and Chief Executive
Officer from its founding to March, 1995. Mr. Bellows also acts as an officer
and director of various civic organizations.
ROBERT S. EVANS, age 57, has been a director of Hexcel since November 1999.
Mr. Evans also serves as a member of the Finance Committee of Hexcel. He is
Chairman and Chief Executive Officer and a director of Crane Co., a New York
Stock Exchange company. Crane Co. is a diversified manufacturer of engineered
industrial products serving a number of industrial markets, including aerospace
and specialty materials markets in which Hexcel does not participate. Mr. Evans
has been Chairman and CEO of Crane Co. since 1984 and a director since 1979. In
addition, Mr. Evans is also a director of Fansteel, Inc., HBD Industries Inc.
and Chairman of Huttig Building Products.
JAMES J. GAFFNEY, age 60, has been a director of Hexcel since December
2000. Mr. Gaffney also serves as a member of the Audit Committee of Hexcel.
Since 1997 he has served as a consultant to certain private investment funds
("GS Funds") affiliated with Goldman Sachs & Co. ("Goldman Sachs") in relation
to GS Funds' investment in Viking Pacific Holdings and Vermont Investments
Limited. Since 1997 he has served as Vice Chairman of Viking Pacific Holdings
Ltd. From 1995 through 1997, Mr. Gaffney served as Chairman of the Board and
Chief Executive Officer of General Aquatics, Inc., which manufactures swimming
pool equipment and constructs swimming pools. From 1993 through 1995 he was
President and Chief Executive Officer of KDI Corporation, a conglomerate which
was involved in swimming pool construction and manufactured products for a
variety of industries. Prior to 1993, Mr. Gaffney held numerous other executive
and financial positions. He also is a director of SCP Pool, Inc., Advantica
Restaurant Group, Purina Mills, Safelite Glass Corp. and Hvide Marine Inc.,
where he serves as Chairman of the Board, and of various private companies.
MARSHALL S. GELLER, age 62, served as Co-Chairman of the Board of Directors
of Hexcel from February 1995 to February 1996 and has been a director of Hexcel
since August 1994. Mr. Geller also serves as a member of the Compensation and
Nominating Committees of Hexcel. Mr. Geller has served as Chairman of the Board,
Chief Executive Officer and founding partner at Geller & Friend Capital
16
Partners, Inc., a merchant banking firm, since 1995. Mr. Geller was Senior
Managing Director of Golenberg & Geller, Inc., a merchant banking firm, from
1991 to 1995; Vice Chairman of Gruntal & Company, an investment banking firm,
from 1988 to 1990; and a Senior Managing Director of Bear, Stearns & Co., Inc.,
an investment banking firm, from 1967 to 1988. Mr. Geller is currently a
director of Ballantyne of Omaha, Inc., ValueVision International, Inc.,
drkoop.com, Inc., FutureLink Corp., Concepts Direct Inc., and various other
privately held corporations and charitable organizations.
SANJEEV K. MEHRA, age 42, has been a director of Hexcel since December
2000. Mr. Mehra also serves as a member of the Finance, Compensation and
Nominating Committees of Hexcel. Mr. Mehra joined Goldman Sachs in 1986, and has
served since 1996 as a Managing Director in the Principal Investment Area of
Goldman Sachs' Merchant Banking Division and, serves on the Principal
Investment Area Investment Committee. Mr. Mehra is a director of Amscan
Holdings, Inc., ProMedCo Management Company, Inc. and various privately held
companies.
LEWIS RUBIN, age 63, has been a director of Hexcel since November 1999. He
also served on Hexcel's Board from 1993 to 1995. Mr. Rubin also serves as
Chairman of the Audit Committee of Hexcel. Mr. Rubin is President, Chief
Executive Officer and a director of XTRA Corporation, a New York Stock Exchange
company, and has served in those positions since 1990. XTRA Corporation is a
leading global transportation equipment lessor with operations in highway,
domestic intermodal and marine container markets. From 1988 to 1990, he was a
consultant with Lewis Rubin Associates, a consulting firm advising the
transportation equipment industry. From 1984 to 1988, Mr. Rubin served as
President and Chief Executive Officer of Gelco CTI Container Services, a
subsidiary of Gelco Corporation, a diversified international management services
corporation, and as an Executive Vice President of Gelco Corporation. From 1981
to 1983, Mr. Rubin was President and Chief Executive Officer of Flexi-Van
Corporation, a company engaged in the leasing of intermodal transportation
equipment.
PETER M. SACERDOTE, age 63, has been a director of Hexcel since December
2000. Mr. Sacerdote has been an advisory director of Goldman Sachs since May
1999 where he also serves as chairman of its Investment Committee and as a
member of its Real Estate Principal Investment Committee. He joined Goldman
Sachs in 1964 and served as a general partner from 1973 through 1990 and a
limited partner from 1991 through 1999. He also serves as a director of AMF
Bowling, Inc., AMF Group Holdings Inc., Qualcomm Incorporated and Franklin
Resources, Inc. He is also a director and/or officer of various civic
organizations.
MARTIN L. SOLOMON, age 64, has been a director of Hexcel since May 1996.
Mr. Solomon also serves as Chairman of the Compensation Committee and is a
member of the Finance Committee of Hexcel. Mr. Solomon has been Co-Chairman of
American County Holdings, Inc., an insurance holding company, since 2000 and,
from 1997 to 2000 he served as Chairman and Chief Executive Officer. Mr. Solomon
has been a self-employed investor since 1990. Mr. Solomon was a director and
Vice Chairman of the Board of Directors of Great Dane Holdings, Inc., which is
engaged in the manufacture of transportation equipment, automobile stamping, the
leasing of taxis and insurance, from 1985 to 1996, Managing Partner of Value
Equity Associates I, L.P., an investment partnership, from 1988 to 1990, and was
an investment analyst and portfolio manager of Steinhardt Partners, an
investment partnership, from 1985 to 1987. Mr. Solomon has been a director of
XTRA Corporation since 1990, a director of Telephone and Data Systems, Inc.
since 1997, a director of MFN Corp. since 1999, and a director of eMagin
Corporation since 2000. Mr. Solomon is also a director of various privately-held
corporations and civic organizations.
17
Listed below are the executive officers and other senior management of
Hexcel as of March 23, 2001, the positions held by them and a brief description
of their business experience. For additional information concerning Messrs. Lee
and Kinne, see above.
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
-------------------------------------------------------------------------------------------------------------------
John J. Lee..................64 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne............ 61 1998 President; Chief Operating Officer; Director
Stephen C. Forsyth......... 45 1994 Executive Vice President; Chief Financial Officer
Ira J. Krakower............ 60 1996 Senior Vice President; General Counsel; Secretary
Kirk Forbeck.............. 40 1999 Corporate Controller; Chief Accounting Officer
Robert F. Matthews........ 54 2000 Vice President Human Resources
Joseph H. Shaulson........ 35 1996 Vice President of Corporate Planning and Chief Information
Officer
Justin P.S. Taylor......... 47 1996 Vice President, Manufacturing and Environmental,
Health and Safety
James N. Burns............ 61 1996 President of the Fibers business unit
William Hunt.............. 58 1996 President of the Composites Materials business unit
David R. Tanonis......... 44 1999 President of Structures and Interiors business unit
Steven T. Warshaw..... 52 2000 President of the Hexcel Schwebel business unit
STEPHEN C. FORSYTH, age 45, has served as Executive Vice President of
Hexcel since June 1998, Chief Financial Officer since November 1996, and Senior
Vice President of Finance and Administration between February 1996 and June
1998. Mr. Forsyth also serves as a director of Interglas Technologies AG. Mr.
Forsyth served as Vice President of International Operations of Hexcel from
October 1994 to February 1996 and has held other general management positions
with Hexcel from 1980 to 1994. Mr. Forsyth joined Hexcel in 1980.
IRA J. KRAKOWER, age 60, has served as Senior Vice President, General
Counsel and Secretary of Hexcel since September 1996. Prior to joining Hexcel,
Mr. Krakower served as Vice President and General Counsel to Uniroyal Chemical
Corporation from 1986 to August 1996 and served on the Board of Directors of and
as Secretary of Uniroyal Chemical Company, Inc. from 1989 to 1996.
KIRK G. FORBECK, age 40, has served as the Corporate Controller and Chief
Accounting Officer since September, 1999, Director of Financial Planning and
Analysis from 1997 to 1999, Assistant Corporate Controller from 1993 to 1997,
and Senior Financial analyst from 1991 to 1992. Prior to joining Hexcel in
1991, Mr. Forbeck worked at Coopers and Lybrand, where he was employed for six
years.
ROBERT F. MATTHEWS, age 54, has served as Vice President of Human Resources
since July 1, 2000, and, from January 10, 2000, served as a consultant to Hexcel
in human resources. From 1999 to June, 2000, Mr. Matthews engaged in consulting
in human resources matters. From 1994 to 1999, he served as Senior Vice
President of Human Resources for Phillips Electronics, North America Region.
From 1974 to 1994 he served in various human resources roles with General
Electric Co.
18
JOSEPH H. SHAULSON, age 35, has served as Vice President of Corporate
Planning and Chief Information Officer since September, 2000. Mr. Shaulson
served as Vice President of Planning and Integration of Hexcel from November
1998 to September, 2000 and Vice President of Corporate Development of Hexcel
from April 1996 to October 1998. In addition, Mr. Shaulson served as Acting
General Counsel and Acting Secretary of Hexcel from April 1996 to September
1996. Prior to joining Hexcel, Mr. Shaulson was an associate in the law firm of
Skadden, Arps, Slate, Meagher & Flom LLP, where he was employed from 1991 to
1996.
JUSTIN P. S. TAYLOR, age 47, has served as Vice President of Manufacturing
and Environmental, Health and Safety since June 1999. From April 1996 to June
1999, Mr. Taylor served as President of Hexcel's Structures and Interiors
business unit, and from July 1995 to April 1996 as a member of Ciba's strategic
planning unit. Prior to July 1995, Mr. Taylor held various management positions
in the Heath Tecna Division of CGC.
JAMES N. BURNS, age 61, has served as President of Hexcel's Fibers business
unit since July 1996. Prior to his employment with Hexcel, Mr. Burns served in a
number of management positions with the Composite Products Division of Hercules
Incorporated, including Business Director from March 1995 to June 1996, Business
Unit Director of Advanced Composite Materials from June 1992 to March 1995 and
Vice President of Marketing from June 1986 to June 1992.
WILLIAM HUNT, age 58, has served as President of Hexcel's Composites
Materials business unit since November 1998 and as President of the former
Hexcel EuroMaterials business unit from February 1996 to October 1998. Mr. Hunt
served as President of the EuroMaterials unit of the Ciba Composites Business
from 1991 to February 1996 and as Managing Director of Ciba-Geigy Plastics
("CGP") from 1990 to 1991. Prior to joining CGP in 1990, Mr. Hunt held various
other technical and managerial positions, including the position of Managing
Director of Illford Limited (Photographic) Co.
DAVID R. TANONIS, age 44, has served as President of Hexcel's Structures
and Interiors business unit since June 1999. Mr. Tanonis served as Vice
President of Hexcel's Structures and Interiors business unit, responsible for
the interiors business, from February 1996 to June 1999 and as the Vice
President of Interiors in the Heath Tecna Division of CGC prior to February
1996. Mr. Tanonis held various technical and managerial positions with Heath
Tecna since 1987. Mr. Tanonis held various management positions with Polymer
Engineering, Inc. from 1978 to 1987.
STEVEN T. WARSHAW, age 52, has served as President of the Hexcel Schwebel
business unit since April 2000. Prior to joining Hexcel, he was Senior Vice
President, Worldwide Sales and Marketing of Photronics, Inc., a materials
supplier to the semiconductor industry, from 1999 to 2000. From 1974 to 1999, he
served in a variety of general management positions at Olin Corp., including,
from 1996 to 1999, as President of Olin Microelectronic Materials, a company
supplying advanced chemicals, products and services to semiconductor
manufacturers. Mr. Warshaw is a director of NN Inc., a producer of steel balls
and rollers supplied to bearing manufacturers.
There are no family relationships among any of Hexcel's directors or
executive officers.
ITEM 11. EXECUTIVE COMPENSATION
The information required in Item 11 will be contained in Hexcel's
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
19
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in Item 12 will be contained in Hexcel's
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in Item 13 will be contained in Hexcel's
definitive Proxy Statement for the 2001 Annual Meeting of Stockholders. Such
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
A. FINANCIAL STATEMENTS
The consolidated financial statements of Hexcel, the notes thereto, and the
report of independent accountants are listed on page 55 of this Annual
Report on Form 10-K and are incorporated herein by reference.
B. FINANCIAL STATEMENT SCHEDULES
Financial statement schedules have not been included inasmuch as the
information required has been adequately disclosed in the underlying
consolidated financial statements.
C. REPORTS ON FORM 8-K
Current Report on Form 8-K dated January 19, 2001, relating to a press
release issued by the Company reporting on fourth-quarter and year-end
results.
Current Report on Form 8-K dated December 22, 2000, relating to a press
release issued by the Company announcing that an investor group controlled
by subsidiaries of The Goldman Sachs Group, Inc. completed the purchase of
approximately 14.5 million shares of Hexcel common stock owned by
subsidiaries of Ciba Specialty Chemicals Holding, Inc.
Current Report on Form 8-K dated November 3, 2000, relating to third
quarter 2000 financial results.
Current Report on Form 8-K dated October 13, 2000, relating to a press
release issued by the Company announcing that an investor group controlled
by subsidiaries of The Goldman Sachs Group, Inc. had entered into an
agreement to purchase approximately 14.5 million shares of Hexcel common
stock owned by subsidiaries of Ciba Specialty Chemicals Holding, Inc.
20
D. EXHIBITS
EXHIBIT NO. DESCRIPTION
2.1 Strategic Alliance Agreement dated as of September 29, 1995 among
Hexcel, Ciba-Geigy Limited and Ciba-Geigy Corporation
(incorporated herein by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated as of October 13,
1995).
2.1(a) Amendment dated as of December 12, 1995 to the Strategic
Alliance Agreement among Hexcel, Ciba-Geigy Limited and
Ciba-Geigy Corporation (incorporated herein by reference to
Exhibit 2.1(a) to the Company's Current Report on Form 8-K dated
as of March 15, 1996).
2.1(b) Letter Agreement dated as of February 28, 1996 among Hexcel,
Ciba-Geigy Limited and Ciba-Geigy Corporation (incorporated
herein by reference to Exhibit 2.1(b) to the Company's Current
Report on Form 8-K dated as of March 15, 1996).
2.1(c) Consent Letter dated February 21, 1997, between Hexcel and Ciba
Specialty Chemicals Holding Inc. (incorporated herein by
reference to Exhibit 2.1(d) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997).
2.2 Sale and Purchase Agreement dated as of April 15, 1996 among
Hexcel Corporation, Hercules Incorporated, Hercules Nederland BV
and HISPAN Corporation (incorporated herein by reference to
Exhibit 2.2 to the Company's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1996).
2.2(a) Amendment Number One dated as of June 27, 1996 to the Sale and
Purchase Agreement among Hexcel Corporation, Hercules
Incorporated, Hercules Nederland BV and HISPAN Corporation
(incorporated herein by reference to Exhibit 2.2 to Hexcel's
Current Report on Form 8-K dated July 12, 1996).
2.2(b) Letter Agreement dated as of June 27, 1996 among Hexcel
Corporation, Hercules Incorporated, Hercules Nederland BV and
HISPAN Corporation (incorporated herein by reference to Exhibit
2.3 to Hexcel's Current Report on Form 8-K dated July 12, 1996).
2.3 Asset Purchase Agreement by and among Stamford FHI Acquisition
Corp., Fiberite, Inc. and Hexcel Corporation, dated as of April
21, 1997 (incorporated herein by reference to Exhibit 10.1 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June
30, 1997).
2.3(a) Amended and Restated Asset Purchase Agreement by and among
Stamford FHI Acquisition Corp., Fiberite, Inc. and Hexcel
Corporation, dated as of August 25, 1997 (incorporated herein by
reference to Exhibit 10.11 to Hexcel's Quarterly Report on Form
10-Q for the Quarter ended September 30, 1997).
2.4 License of Intellectual Property agreement, by and among Hexcel
Corporation and Fiberite, Inc., dated as of August 29, 1997
(incorporated herein by reference to Exhibit 10.12 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended September 30,
1997).
2.5 Asset Purchase Agreement by and among the Company, Stamford CS
Acquisition Corp., Clark-Schwebel Holdings, Inc. and
Clark-Schwebel Inc., dated July 25, 1998 (incorporated herein by
reference to Exhibit 2.1 of the Company's Current Report on Form
8-K, filed on July 30, 1998). 2.5(a) Amendment No. 1 to Asset
Purchase Agreement by and among the Company, Stamford CS
Acquisition Corp., Clark-Schwebel Holdings, Inc. and
Clark-Schwebel Inc., dated as of September 15, 1998 (incorporated
by reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K, filed on September 24, 1998).
21
2.5(a) Amendment No. 1 to Asset Purchase Agreement by and among the
Company, Stamford CS Acquisition Corp., Clark-Schwebel Holdings,
Inc., dated as of September 15, 1998 (incorporated herein by
reference to Exhibit 2.1 of the Company's Current Report on Form
8-K, filed on September 24, 1998).
2.5(b) Amendment No. 2 to Asset Purchase Agreement by and among the
Company and EQCSI Holding Corp., formerly known as
Clark-Schwebel, Inc., dated as of December 23, 1998 (incorporated
herein by reference to Exhibit 2.5(b) to the Company's
Registration Statement on Form S-4 (No. 333-71601), filed on
February 2, 1999).
2.6 Asset Purchase Agreement dated March 31, 2000 between Hexcel
Corporation and Britax Cabin Interiors, Inc. (incorporated herein
by reference to Exhibit 2.1 to Hexcel's Current Report on Form
8-K dated May 10, 2000).
3.1 Restated Certificate of Incorporation of Hexcel Corporation
(incorporated herein by reference to Exhibit 1 to Hexcel's
Registration Statement on Form 8-A dated July 9, 1996,
Registration No. 1-08472).
3.2 Amended and Restated Bylaws of Hexcel Corporation (incorporated
herein by reference to Exhibit 3.1 to Hexcel's Current Report on
Form 8-K dated December 22, 2000).
4.1 Indenture dated as of January 21, 1999 between Hexcel Corporation
and The Bank of New York, as trustee, relating to the issuance of
the 93/4% Senior Subordinated Notes due 2009 (incorporated herein
by reference to Exhibit 4.1 to the Company's Registration
Statement on Form S-4 (No. 333-71601), filed on February 2,
1999).
4.2 Indenture dated as of July 24, 1996 between Hexcel Corporation
and First Trust of California, National Association, as trustee,
relating to the 7% Convertible Subordinated Notes due 2003 of the
Company (incorporated herein by reference to Exhibit 4 to
Hexcel's Quarterly Report on Form 10-Q for the quarter ended June
30, 1996).
4.3 Indenture dated as of February 29, 1996 between Hexcel and First
Trust of California, National Association, as trustee, relating
to the Increasing Rate Senior Subordinated Notes due 2003 of the
Company (incorporated herein by reference to Exhibit 4.1 to the
Company's Current Report on Form 8-K dated as of March 15, 1996).
4.3(a) First Supplemental Indenture dated as of June 27, 1996
between Hexcel and First Trust of California, N.A., as trustee,
to the Indenture dated as of February 29, 1996 between Hexcel and
First Trust of California, N.A., as trustee (incorporated herein
by reference to Exhibit 4.2(a) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997).
4.3(b) Second Supplemental Indenture dated as of March 5, 1998 between
Hexcel and First Trust of California, N.A., as trustee, to the
Indenture dated as of February 29, 1996 between Hexcel and First
Trust of California, N.A., as trustee (incorporated by reference
to Exhibit 4.2(b) to Hexcel's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997).
4.3(c) Third Supplemental Indenture dated as of September 15, 1998
between Hexcel and U.S. Bank Trust National Association (formerly
known as First Trust of California, National Association), as
trustee (incorporated herein by reference to Exhibit 4.5(c) to
the Company's Registration Statement on Form S-4 (No. 333-71601),
filed on March 12, 1999).
22
4.3(d) Fourth Supplemental Indenture dated as of January 21, 1999
between Hexcel and U.S. Bank Trust National Association (formerly
known as First Trust of California, National Association), as
trustee (incorporated herein by reference to Exhibit 4.5(d) to
the Company's Registration Statement on Form S-4 (No. 333-71601),
filed on March 12, 1999).
4.3(e) Fifth Supplemental Indenture dated as of December 19, 2000
between Hexcel and U.S. Bank Trust National Association (formerly
known as First Trust of California, National Association), as
trustee (incorporated herein by reference to Exhibit 10.3 to the
Company's Current Report on Form 8-K, dated December 22, 2000).
4.4 Indenture dated as of August 1, 1986 between Hexcel and the Bank
of California, N.A., as trustee, relating to the 7% Convertible
Subordinated Notes due 2011 of the Company (incorporated herein
by reference to Exhibit 4.3 to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1997).
4.4(a) Instrument of Resignation, Appointment and Acceptance, dated as
of October 1, 1993 (incorporated herein by reference to Exhibit
4.10 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1993).
10.1 Second Amended and Restated Credit Agreement, dated as of
September 15, 1998, by and among Hexcel and certain of its
subsidiaries as borrowers, the lenders from time to time parties
thereto, Citibank, N.A. as documentation agent, and Credit Suisse
First Boston as lead arranger and as administrative agent for the
lenders (incorporated herein by reference to Exhibit 10.1 of the
Company's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 1998).
10.1(a) First Amendment dated as of December 31, 1998 to the Second
Amended and Restated Credit Agreement by and among Hexcel
Corporation and the Foreign Borrowers from time to time party
thereto, the banks and other financial institutions from time to
time parties thereto, Citibank, N.A., as Documentation Agent, and
Credit Suisse First Boston, as Administrative Agent (incorporated
herein by reference to Exhibit 10.1(g) to the Company's
Registration Statement on Form S-4 (No. 333-71601), filed on
March 12, 1999).
10.1(b) Consent Letter dated as of January 15, 1999 relating to the
First Amendment dated December 31, 1998 to the Second Amended and
Restated Credit Agreement dated September 15, 1998 (incorporated
herein by reference to Exhibit 10.1(h) to the Company's
Registration Statement on Form S-4 (No. 333-71601), filed on
March 12, 1999).
10.1(c) Second Amendment dated August 13, 1999 to the Second Amended
and Restated Credit Agreement by and among Hexcel Corporation and
the Foreign Borrowers from time to time parties thereto, the
banks and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent (incorporated herein
by reference to Exhibit 10.3 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1999).
10.1(d) Third Amendment dated March 7, 2000 to the Second Amended and
Restated Credit Agreement by and among Hexcel Corporation and the
Foreign Borrowers from time to time parties thereto, the banks
and other financial institutions from time to time parties
thereto, Citibank, N.A., as Documentation Agent, and Credit
Suisse First Boston, as Administrative Agent (incorporated by
reference to Exhibit 10.1(j) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
23
10.1(e) Consent Letter dated March 30, 2000 relating to the Third
Amendment dated March 7, 2000 to the Second Amended and Restated
Credit Agreement dated September 15, 1998 (incorporated herein by
reference to Exhibit 2.1 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended March 30, 2000).
10.1(f) Fourth Amendment and Consent, dated as of October 26, 2000, to
the Second and Amended and Restated Credit Agreement, dated as of
September 15, 1998, among Hexcel Corporation and the Foreign
Borrowers from time to time party thereto, the banks and other
financial institutions from time to time party thereto, Citibank,
N.A., as Documentation Agent, and Credit Suisse First Boston, as
Administrative Agent (incorporated herein by reference to Exhibit
10.3 of the Company's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 2000).
10.1(g) Amended and Restated Collateral Agreement dated March 7, 2000
to the Second Amended and Restated Credit Agreement by and among
Hexcel Corporation and the Foreign Borrowers from time to time
parties thereto, the banks and other financial institutions from
time to time parties thereto, Citibank, N.A., as Documentation
Agent, and Credit Suisse First Boston, as Administrative Agent
(incorporated by reference to Exhibit 10.1(k) of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999).
10.2 Schedule to the ISDA Master Agreement between Credit Lyonnais
(New York Branch) and Hexcel Corporation, dated as of September
15, 1998 (incorporated by reference to Exhibit 10.2 of the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999).
10.2(a) Confirmation dated October 22, 1998 relating to transaction
entered into pursuant to ISDA Master Agreement between Credit
Lyonnais (New York Branch) and Hexcel Corporation, dated as of
September 15, 1998 (incorporated by reference to Exhibit 10.2(a)
of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.3* Hexcel Corporation Incentive Stock Plan as amended and restated
January 30, 1997 (incorporated herein by reference to Exhibit 4.3
to the Company's Registration Statement on Form S-8, Registration
No. 333-36163).
10.3(a)* Hexcel Corporation Incentive Stock Plan as amended and
restated January 30, 1997 and further amended December 10, 1997
(incorporated herein by reference to Exhibit 10.5(a) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
10.3(b)* Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997, and further amended on December 10,
1997 and March 25, 1999 (incorporated herein by reference to
Exhibit 4.3 of the Company's Registration Statement on Form S-8
filed on July 26, 1999).
10.3(c)* Hexcel Corporation Incentive Stock Plan, as amended and
restated on January 30, 1997, and further amended on December 10,
1997, March 25, 1999 and December 2, 1999 (incorporated by
reference to Exhibit 10.3(c) of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
10.3(d)* Hexcel Corporation Incentive Stock Plan, as amended and
restated on February 3, 2000 (incorporated herein by reference to
Annex A of the Company's Proxy Statement dated March 31, 2000).
24
10.3(e)* Hexcel Corporation Incentive Stock Plan, as amended and
restated on December 19, 2000.
10.4* Hexcel Corporation 1998 Broad Based Incentive Stock Plan
(incorporated herein by reference to Exhibit 4.3 of the Company's
Form S-8 filed on June 19, 1998, Registration No. 333-57223).
10.4(a)* Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as
amended on February 3, 2000 (incorporated by reference to Exhibit
10.1 to Hexcel's Quarterly Report on Form 10-Q for the Quarter
ended June 30, 2000).
10.4(b)* Hexcel Corporation 1998 Broad Based Incentive Stock Plan, as
amended on February 3, 2000, and further amended on February 1,
2001.
10.5* Hexcel Corporation Management Stock Purchase Plan (incorporated
herein by reference to Exhibit 10.9 to Hexcel's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1997).
10.5(a)* Hexcel Corporation Management Stock Purchase Plan, as amended
on March 25, 1999 (incorporated herein by reference to Exhibit
4.3 of the Company's Registration Statement on Form S-8 filed on
July 26, 1999).
10.5(b)* Hexcel Corporation Management Stock Purchase Plan, as amended
on March 25, 1999 and December 2, 1999 (incorporated by reference
to Exhibit 10.5(b) of the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1999).
10.5(c)* Hexcel Corporation Management Stock Purchase Plan, as amended
and restated on February 3, 2000 (incorporated herein by
reference to Annex B of the Company's Proxy Statement dated March
31, 2000).
10.5(d)* Hexcel Corporation Management Stock Purchase Plan, as amended
and restated on December 19, 2000.
10.6* Hexcel Corporation Management Incentive Compensation Plan, as
amended and restated on December 19, 2000.
10.7* Form of Employee Option Agreement(2000).
10.8* Form of Employee Option Agreement Special Executive Grant (2000)
dated December 20, 2000.
10.9* Form of Employee Option Agreement Special Executive Grant (1999)
dated December 2, 1999 (incorporated by reference to Exhibit 10.7
of the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1999).
10.10* Form of Employee Option Agreement (1999) dated December 2, 1999
(incorporated by reference to Exhibit 10.8 of the Company's
Annual Report on Form 10-K for the fiscal year ended December 31,
1999).
10.11* Form of Employee Option Agreement (1999) (incorporated herein
by reference to Exhibit 10.1 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1999).
10.12* Form of Employee Option Agreement (1998) (incorporated herein
by reference to Exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1998).
25
10.13* Form of Employee Option Agreement (1997) (incorporated herein
by reference to Exhibit 10.4 to Hexcel's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1997).
10.14* Form of Employee Option Agreement (1996) (incorporated herein
by reference to Exhibit 10.5 to Hexcel's Quarterly Report on Form
10-Q for the Quarter ended March 31, 1996).
10.15* Form of Employee Option Agreement (1995) (incorporated herein
by reference to Exhibit 10.6 to Hexcel's Quarterly Report on Form
10-Q for the Quarter ended March 31, 1996).
10.16* Form of Retainer Fee Option Agreement for Non-Employee
Directors (2000).
10.17* Form of Retainer Fee Option Agreement for Non-Employee
Directors (1999) (incorporated herein by reference to Exhibit
10.14 of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999).
10.18* Form of Retainer Fee Option Agreement for Non-Employee
Directors (1998) (incorporated herein by reference to Exhibit
10.11 to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998).
10.19* Form of Retainer Fee Option Agreement for Non-Employee
Directors (1997) (incorporated herein by reference to Exhibit
10.8 to Hexcel's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997).
10.20* Form of Option Agreement (Directors) (incorporated herein by
reference to Exhibit 10.13 to Hexcel's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.21* Form of Short-Term Option Agreement (incorporated herein by
reference to Exhibit 10.8 to Hexcel's Quarterly Report on Form
10-Q for the Quarter ended March 31, 1996).
10.22* Form of Performance Accelerated Restricted Stock Unit Agreement
(December 20, 2000).
10.23* Form of Performance Accelerated Restricted Stock Unit Agreement
(Special Executive Grant December 2, 1999) (incorporated herein
by reference to Exhibit 10.19 of the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1999).
10.24* Form of Performance Accelerated Restricted Stock Unit Agreement
(December 2, 1999) (incorporated herein by reference to Exhibit
10.20 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999).
10.25* Form of Performance Accelerated Restricted Stock Unit Agreement
(1999) (incorporated herein by reference to Exhibit 10.2 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.26* Form of Performance Accelerated Restricted Stock Unit Agreement
(1998) (incorporated herein by reference to Exhibit 10.2 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1998).
26
10.27* Form of Performance Accelerated Restricted Stock Unit Agreement
(1997) (incorporated herein by reference to Exhibit 10.5 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June
30, 1997).
10.28* Form of Performance Accelerated Restricted Stock Unit Agreement
(1996) (incorporated herein by reference to Exhibit 10.9 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1996).
10.29* Form of Reload Option Agreement (1997) (incorporated herein by
reference to Exhibit 10.8 of Hexcel's Quarterly Report on Form
10-Q for the Quarter ended June 30, 1997).
10.30* Form of Reload Option Agreement (1996) (incorporated herein by
reference to Exhibit 10.10 to Hexcel's Quarterly Report on Form
10-Q for the Quarter ended March 31, 1996).
10.31* Form of Exchange Performance Accelerated Stock Option Agreement
(incorporated herein by reference to Exhibit 10.3 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended September 30,
1998).
10.32* Form of Performance Accelerated Stock Option Agreement
(Director) (incorporated herein by reference to Exhibit 10.6 to
Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June
30, 1997).
10.33* Form of Performance Accelerated Stock Option (Employee)
(incorporated herein by reference to Exhibit 10.7 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended June 30,
1997).
10.34* Form of Grant of Restricted Stock Unit Agreement (incorporated
herein by reference to Exhibit 10.3 to Hexcel's Quarterly Report
on Form 10-Q for the Quarter ended March 31, 1999).
10.35* Form of Grant of Restricted Stock Unit Agreement (incorporated
herein by reference to Exhibit 10.10 to Hexcel's Quarterly Report
on Form 10-Q for the Quarter ended June 30, 1997).
10.36* Hexcel Corporation 1997 Employee Stock Purchase Plan
(incorporated herein by reference to Exhibit 10.2 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended June 30,
1997).
10.37* Amended and Restated Employment Agreement dated October 11,
2000 between Hexcel and John J. Lee (incorporated herein by
reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2000).
10.37(a)* Amendment to Amended and Restated Employment Agreement dated
October 11, 2000 between Hexcel and John J. Lee.
10.37(b)* Employee Option Agreement dated as of February 29, 1996
between Hexcel and John J. Lee (incorporated herein by reference
to Exhibit 10.14(a) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.37(c)* Bankruptcy Court Option Agreement dated as of February 29, 1996
between Hexcel and John J. Lee (incorporated herein by
reference to Exhibit 10.14(b) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
27
10.37(d)* Performance Accelerated Restricted Stock Unit Agreement
dated as of February 29, 1996 between Hexcel and John J. Lee
(incorporated herein by reference to Exhibit 10.14(c) to the
Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995).
10.37(e)* Short-Term Option Agreement dated as of February 29, 1996
between Hexcel and John J. Lee (incorporated herein by reference
to Exhibit 10.14(d) to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995).
10.37(f)* Form of Reload Option Agreement dated as of February 29,
1996 between Hexcel and John J. Lee (incorporated herein by
reference to Exhibit 10.14(e) to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1995).
10.37(g)* Supplemental Executive Retirement Agreement dated as of May
20, 1998 between Hexcel and John J. Lee (incorporated herein by
reference to Exhibit 10.3 to the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 1998).
10.37(h)* Amendment to Supplemental Executive Retirement Agreement
dated January 21, 1999, between Hexcel Corporation and John J.
Lee.
10.37(i)* Second Amendment to Supplemental Executive Retirement
Agreement dated October 11, 2000, between Hexcel Corporation and
John J. Lee (incorporated herein by reference to Exhibit 10.3 to
the Company's Quarterly Report on Form 10-Q for the Quarter ended
September 30, 2000).
10.37(j)* Split Dollar Agreement dated as of January 21, 1999 among
Hexcel, John J. Lee and certain Trustees (incorporated herein by
reference to Exhibit 10.4 to the Company's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1999).
10.37(k)* Executive Severance Agreement between Hexcel and John J. Lee
dated as of February 3, 1999 (incorporated herein by reference to
Exhibit 10.5 to the Company's Quarterly Report on Form 10-Q for
the Quarter ended March 31, 1999).
10.37(l)* Letter dated December 2, 1999 from Hexcel Corporation to
John J. Lee, regarding the Company's Management Incentive
Compensation Plan for 1999 (incorporated by reference to Exhibit
10.33(i) of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999).
10.37(m)* Employee Option Agreement dated as of December 20, 2000
between Hexcel and John J. Lee.
10.38* Summary of Terms of Employment (effective as of July 15, 1998)
between Hexcel and Harold E. Kinne, President and Chief Operating
Officer of Hexcel (incorporated herein by reference to Exhibit
10.5 of the Company's Quarterly Report on Form 10-Q for the
Quarter ended September 30, 1998).
10.38(a)* Letter dated December 2, 1999 from Hexcel Corporation to
Harold E. Kinne, regarding the Company's Management Incentive
Compensation Plan for 1999 (incorporated by reference to Exhibit
10.34(a) of the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1999).
10.38(b)* Supplemental Executive Retirement Agreement dated as of May
10, 2000 between Hexcel and Harold E. Kinne (incorporated herein
by reference to Exhibit 10.4 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 2000).
28
10.38(c)* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Harold E. Kinne (incorporated
herein by reference to Exhibit 10.6 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2000).
10.38(d)* Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Harold E. Kinne.
10.39* Letter dated December 2, 1999 from Hexcel Corporation to
Stephen C. Forsyth, regarding the Company's Management Incentive
Compensation Plan for 1999 (incorporated by reference to Exhibit
10.35 of the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999).
10.39(a)* Supplemental Executive Retirement Agreement dated as of May
10, 2000 between Hexcel and Stephen C. Forsyth (incorporated
herein by reference to Exhibit 10.5 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended June 30, 2000).
10.39(b)* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Stephen C. Forsyth (incorporated
herein by reference to Exhibit 10.8 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2000).
10.39(c)* Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Stephen C.
Forsyth.
10.40* Letter dated December 2, 1999 from Hexcel Corporation to Ira J.
Krakower, regarding the Company's Management Incentive
Compensation Plan for 1999.
10.40(a)* Supplemental Executive Retirement Agreement dated as of May
10, 2000 between Hexcel and Ira J. Krakower (incorporated herein
by reference to Exhibit 10.6 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 2000).
10.40(b)* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Ira J. Krakower (incorporated
herein by reference to Exhibit 10.3 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2000).
10.41* Form of Executive Severance Agreement between Hexcel and
certain executive officers dated as of February 3, 1999
(incorporated herein by reference to Exhibit 10.6 to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.42* Form of Executive Severance Agreement between Hexcel and
certain executive officers dated as of February 3, 1999
(incorporated herein by reference to Exhibit 10.7 to the
Company's Quarterly Report on Form 10-Q for the Quarter ended
March 31, 1999).
10.43* Executive Severance Agreement between Hexcel and Robert F.
Matthews dated as of July 1, 2000 (incorporated herein by
reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form
10-Q for the Quarter ended June 30, 2000).
10.43(a)* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Robert F. Matthews (incorporated
herein by reference to Exhibit 10.11 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2000).
10.43(b)* Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Robert F.
Matthews.
29
10.44* Executive Severance Agreement between Hexcel and Steven T.
Warshaw dated as of July 1, 2000 (incorporated herein by
reference to Exhibit 10.3 to Hexcel's Quarterly Report on
Form 10-Q for the Quarter ended June 30, 2000).
10.44(a)* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Steven Warshaw (incorporated
herein by reference to Exhibit 10.10 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2000).
10.44(b)* Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Steven Warshaw.
10.45* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and William Hunt (incorporated herein
by reference to Exhibit 10.14 of the Company's Quarterly Report
on Form 10-Q for the Quarter ended September 30, 2000).
10.45(a)* Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and William Hunt.
10.46* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and David Tanonis (incorporated herein
by reference to Exhibit 10.12 of the Company's Quarterly Report
on Form 10-Q for the Quarter ended September 30, 2000).
10.47* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Justin Taylor (incorporated herein
by reference to Exhibit 10.13 of the Company's Quarterly Report
on Form 10-Q for the Quarter ended September 30, 2000).
10.47(a)* Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Justin Taylor.
10.48* Amendment to Agreements, dated as of October 11, 2000 by and
between Hexcel Corporation and Joseph Shaulson (incorporated
herein by reference to Exhibit 10.9 of the Company's Quarterly
Report on Form 10-Q for the Quarter ended September 30, 2000).
10.48(a)* Amendment to Amendments to Agreements, dated as of November
21, 2000, by and between Hexcel Corporation and Joseph Shaulson.
10.49 Lease Agreement, dated as of September 15, 1998, by and among
Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel)
as lessee, CSI Leasing Trust as lessor, and William J. Wade as
co-trustee for CSI Leasing Trust (incorporated herein by
reference to Exhibit 10.2 of the Company's Quarterly Report on
Form 10-Q for the Quarter ended September 30, 1998).
10.50 Governance Agreement, dated as of December 19, 2000, among LXH
L.L.C., LXH II, L.L.C., Hexcel Corporation and the other parties
listed on the signature pages thereto (incorporated herein by
reference to Exhibit 10.1 to the Company's Current Report on Form
8-K dated December 22, 2000).
10.51 Registration Rights Agreement, dated as of December 19, 2000, by
and among Hexcel Corporation, LXH, L.L.C. and LXH II, L.L.C.
(incorporated herein by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated December 22, 2000).
10.52 Agreement, dated October 11, 2000, by and among Hexcel
Corporation, LXH, L.L.C. and LXH II, L.L.C. (incorporated herein
by reference to Exhibit 10.1 to the Company's Current Report on
Form 8-K dated October 13, 2000).
30
10.53 Consent and Termination Agreement, dated as of October 11, 2000,
by and between Hexcel Corporation and Ciba Specialty Chemicals
Holding Inc. (incorporated herein by reference to Exhibit 10.2 to
the Company's Current Report on Form 8-K dated October 13, 2000).
12.1 Statement regarding the computation of ratio of earnings to fixed
charges for the Company.
21.1 Subsidiaries of the Company.
23 Consent of Independent Accountants - PricewaterhouseCoopers LLP.
- --------------------------------------------
* Indicates a management contract or compensatory plan or arrangement
31
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
STAMFORD, STATE OF CONNECTICUT.
HEXCEL CORPORATION
MARCH 23, 2001 By: /S/ JOHN J. LEE
--------------------------------------------
John J. Lee, Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/S/ JOHN J. LEE Chairman of the March 23, 2001
- --------------------------------------------
(John J. Lee) Board of Directors and
Chief Executive Officer
(PRINCIPAL EXECUTIVE OFFICER)
/S/ HAROLD E. KINNE President, Chief Operating Officer March 23, 2001
- --------------------------------------------
(Harold E. Kinne) and Director
/S/ STEPHEN C. FORSYTH Executive Vice President and March 23, 2001
- --------------------------------------------
(Stephen C. Forsyth) Chief Financial Officer
(PRINCIPAL FINANCIAL OFFICER)
/S/ KIRK G. FORBECK Corporate Controller March 23, 2001
- --------------------------------------------
(Kirk G. Forbeck) (PRINCIPAL ACCOUNTING OFFICER)
/S/ H. ARTHUR BELLOWS, JR. Director March 20, 2001
- --------------------------------------------
(H. Arthur Bellows, Jr.)
/S/ ROBERT S. EVANS Director March 20, 2001
- --------------------------------------------
(Robert S. Evans)
/S/ JAMES J. GAFFNEY Director March 23, 2001
- --------------------------------------------
(James J. Gaffney)
/S/ MARSHALL S. GELLER Director March 23, 2001
- --------------------------------------------
(Marshall S. Geller)
32
/S/ SANJEEV K. MEHRA Director March 23, 2001
- --------------------------------------------
(Sanjeev K. Mehra)
/S/ LEWIS RUBIN Director March 23, 2001
- --------------------------------------------
(Lewis Rubin)
/S/ PETER M. SACERDOTE Director March 15, 2001
- --------------------------------------------
(Peter M. Sacerdote)
/S/ MARTIN L. SOLOMON Director March 23, 2001
- --------------------------------------------
(Martin L. Solomon)
33
SELECTED FINANCIAL DATA
(IN MILLIONS, EXCEPT PER SHARE DATA)
The following table summarizes selected financial data as of and for the
five years ended December 31:
- -----------------------------------------------------------------------------------------------------------------------
2000 1999 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA:
Net sales $ 1,055.7 $ 1,151.5 $ 1,089.0 $ 936.9 $ 695.2
Cost of sales 824.3 909.0 817.7 714.3 553.9
-------------------------------------------------------------------------
Gross margin 231.4 242.5 271.3 222.6 141.3
Selling, general and administrative
expenses 123.9 128.7 117.9 102.4 79.4
Research and technology expenses 21.2 24.8 23.7 18.4 16.7
Business consolidation expenses 10.9 20.1 12.7 25.3 42.4
-------------------------------------------------------------------------
Operating income 75.4 68.9 117.0 76.5 2.8
Gain on sale of Bellingham
aircraft interiors business 68.3 - - - -
Other income, net - - - - 3.0
Interest expense 68.7 73.9 38.7 25.8 21.6
-------------------------------------------------------------------------
Income (loss) from continuing
operations before income taxes 75.0 (5.0) 78.3 50.7 (15.8)
Provision for (recovery of) income taxes 26.3 (1.7) 28.4 (22.9) 3.4
Equity in earnings and write-down in
investments in affiliated companies 5.5 (20.0) 0.5 - -
-------------------------------------------------------------------------
Net income (loss) $ 54.2 $ (23.3) $ 50.4 $ 73.6 $ (19.2)
=========================================================================
Net income (loss) per share:
Basic $ 1.47 $ (0.64) $ 1.38 $ 2.00 $ (0.58)
Diluted $ 1.32 $ (0.64) $ 1.24 $ 1.74 $ (0.58)
=========================================================================
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Current assets $ 326.0 $ 327.8 $ 439.0 $ 387.1 $ 316.9
Non-current assets 885.4 934.1 965.2 424.5 384.8
-------------------------------------------------------------------------
Total assets $ 1,211.4 $ 1,261.9 $ 1,404.2 $ 811.6 $ 701.7
=========================================================================
Current liabilities $ 197.9 $ 210.5 $ 219.4 $ 186.4 $ 188.8
Long-term liabilities 697.8 781.3 882.4 375.3 333.6
Stockholders' equity 315.7 270.1 302.4 249.9 179.3
-------------------------------------------------------------------------
Total liabilities and stockholders'
equity $ 1,211.4 $ 1,261.9 $ 1,404.2 $ 811.6 $ 701.7
=========================================================================
- -----------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Shares outstanding at year-end, less
treasury stock 37.1 36.6 36.4 36.9 36.6
- -----------------------------------------------------------------------------------------------------------------------
A DISCUSSION OF THE IMPACT OF BUSINESS ACQUISITIONS AND DIVESTITURES ON SELECTED
FINANCIAL DATA IS CONTAINED IN NOTES 1, 2 AND 3 TO THE ACCOMPANYING CONSOLIDATED
FINANCIAL STATEMENTS.
34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BUSINESS OVERVIEW
----------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
---------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 1998
----------------------------------------------------------------------------------------------------------------
PRO FORMA (a):
Sales $ 1,036.8 $ 1,081.5 $ 1,200.5
Adjusted EBITDA (b) $ 144.0 $ 141.3 $ 203.1
Adjusted net income (c) $ 18.8 $ 9.7 $ 56.3
Adjusted diluted net income per share (c) $ 0.50 $ 0.27 $ 1.37
----------------------------------------------------------------------------------------------------------------
AS REPORTED:
Sales $ 1,055.7 $ 1,151.5 $ 1,089.0
Gross margin % 21.9% 21.1% 24.9%
Adjusted operating income % (c) 8.2% 7.7% 11.9%
Adjusted EBITDA (b) $ 144.9 $ 150.4 $ 177.2
Net income (loss) $ 54.2 $ (23.3) $ 50.4
Adjusted net income (c) $ 17.2 $ 9.6 $ 59.2
Diluted net income (loss) per share $ 1.32 $ (0.64) $ 1.24
Adjusted diluted net income per share (c) $ 0.46 $ 0.26 $ 1.43
----------------------------------------------------------------------------------------------------------------
(a) Pro forma results for 2000, 1999 and 1998 give effect to the sale of the
Bellingham aircraft interiors business in April 2000, as if it had occurred
at the beginning of the respective years presented. Pro forma results for
1998 also give effect to the acquisition of the industrial fabrics
business of Clark-Schwebel in September 1998, as if it had occurred at the
beginning of 1998.
(b) Adjusted EBITDA is earnings before business consolidation expenses,
interest, taxes, depreciation, amortization, and equity in earnings of and
a write-down of an investment in affiliated companies. See "Financial
Condition and Liquidity" for a reconciliation of net income (loss) to
EBITDA and Adjusted EBITDA.
(c) Amounts exclude business consolidation and other acquisition related costs,
the gain on the disposal of the Bellingham business in 2000, and a
write-down of an investment in an affiliated company in 1999.
Hexcel's 2000 operating results reflect several important developments
during the year:
o On April 26, 2000, Hexcel completed the sale of its Bellingham aircraft
interiors business to Britax Cabin Interiors, Inc., a wholly owned
subsidiary of Britax International plc, for cash proceeds of $113.3
million. The sale of this business, which is discussed more fully below
under "Significant Transactions," generated a pre-tax gain of $68.3
million, which is equivalent to an after-tax gain of approximately $44
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, improving the Company's financial
leverage and reducing annual interest costs.
o Commercial aircraft markets stabilized, following a significant
reduction in aircraft production rates by The Boeing Company ("Boeing")
commencing in the second half of 1999. Boeing and Airbus Industrie
("Airbus") delivered a total of 800 airplanes in 2000, and have each
announced plans to moderately increase aircraft deliveries in 2001. As
a result, the decline in sales of composite materials to commercial
aerospace markets experienced by Hexcel in the second half of 1999 and
the first half of 2000 appears to have halted.
o Hexcel's Engineered Products business suffered from declining sales and
reduced productivity, attributable to the timing of customer programs
and to the impact of Boeing's 1999 aircraft build rate reductions. This
business unit has initiated a series of actions intended to align its
cost structure with its revenue base and to improve manufacturing
productivity. These actions are being undertaken in anticipation of
transferring the manufacture of certain Boeing aircraft structures to
the Company's joint venture affiliates in Malaysia and China.
35
o Sales of lightweight reinforcement fabrics used in multi-layer printed
wiring boards grew throughout the year, driven by strong worldwide
demand for increasingly sophisticated electronic devices. In order to
satisfy customer demand for materials used in high-performance
applications, Hexcel has switched existing manufacturing capacity from
heavyweight glass fabrics to lightweight glass fabrics, and also
undertaken an expansion of its lightweight glass fabric manufacturing
capacity. Nevertheless, the Company ended the year capacity
constrained. In addition, the Company raised prices on certain
fiberglass fabrics, although these price increases were accompanied by
increases in the price of fiberglass yarns used as raw materials.
o The use of Hexcel's composite materials in wind energy and automotive
applications continued to grow, resulting in double-digit revenue
growth from these industrial markets. Furthermore, the Company
benefited from increased sales of reinforcement fabrics for use in soft
body armor and architectural applications.
o Changes in currency exchange rates had the effect of reducing the
reported value of revenues generated by Hexcel's European facilities.
If the average exchange rates between the U.S. dollar, the British
pound and the Euro had been the same in 2000 as they were in 1999, the
Company's net sales for 2000 would have been approximately $45 million
higher than reported. On a pro forma basis, giving effect to the sale
of the Bellingham aircraft interiors business as it if had occurred at
the beginning of the year, such currency-adjusted sales would have been
approximately $1,082 million for 2000, about the same level as 1999.
o Hexcel's business consolidation and lean enterprise activities
progressed, contributing to improvements in gross margin and adjusted
operating income as a percentage of net sales. Business consolidation
expenses were $10.9 million in 2000, and cash expenditures on business
consolidation activities totaled $11.8 million. These amounts were in
line with management's expectations.
o In light of further opportunities to consolidate manufacturing
facilities, Hexcel decided in the fourth quarter of 2000 to close the
two smaller of its four U.S. prepreg manufacturing facilities - one in
Lancaster, Ohio and another in Gilbert, Arizona. The manufacturing
output from these two plants will now be produced by the two remaining
U.S. prepreg facilities in Livermore, California and Salt Lake City,
Utah. The closing of these two facilities, which will be completed
early in 2002, is expected to generate additional cost savings of more
than $4 million per year. Business consolidation activities are
discussed more fully below under "Business Consolidation Programs."
o Hexcel made certain changes to its U.S. retirement benefit plans that
are intended to improve the flexibility and visibility of future
retirement benefits for employees. These changes include an increase in
the amount that the Company will contribute to individual 401(k)
retirement savings accounts, beginning January 1, 2001, and an
offsetting curtailment of the Company's U.S. defined benefit retirement
plan, effective December 31, 2000. Results for 2000 include $5.1
million of non-cash pre-tax income (equivalent to $3.3 million of
after-tax income) attributable to the curtailment of this defined
benefit retirement plan.
o In December 2000, an investor group controlled by subsidiaries of The
Goldman Sachs Group, Inc. purchased approximately 14.5 million shares
of Hexcel common stock from subsidiaries of Ciba Specialty Chemicals
Holding, Inc. The Company incurred $2.2 million of pre-tax expenses
(equivalent to $1.4 million of after-tax expenses) in connection with
this transaction, which is described more fully below under
"Significant Transactions - Purchase of Approximately 14.5 Million
Shares of Hexcel Common Stock by an Investor Group."
o Equity in earnings of affiliated companies totaled $5.5 million for
2000, reflecting the strong performance of Hexcel's electronic fabrics
joint venture in Asia.
Looking forward to 2001, Hexcel anticipates modest growth in commercial
aerospace revenues, based on the most recent aircraft delivery projections from
Airbus and Boeing. In space and defense markets, demand from satellite and
launch vehicle applications remains weak. Production of a number of military
aircraft and helicopter programs is projected to increase over the next few
years, however actual demand will depend upon which programs are funded and the
amount of such funding.
36
While many of Hexcel's customers expect continued long-term growth in their
requirements for lightweight electronic fabrics, the year has started with many
manufacturers of finished telecommunication, computer and consumer electronic
products issuing warnings about the outlook for their sales revenues in 2001. As
the first quarter has progressed, the Company has seen reductions in customer
orders in the U.S. for electronic fabrics compared to demand in the fourth
quarter, 2000. A number of customers have indicated that they now expect to
reduce purchases of electronic fabrics below recent levels until demand from the
manufacturers of finished electronic products improves. However, to date demand
from European customers has remained strong. While the net impact on total
Company performance for the first two months of 2001 has been relatively small,
electronic product revenues for the first half look likely to be lower than for
the second half of 2000. In these circumstances, it is possible that electronic
product revenues will soften further during 2001, so the Company will continue
to closely monitor market developments and tightly manage manufacturing
capacity.
Absent a significant deterioration in the general macroeconomic
environment, the Company anticipates that sales to wind energy and automotive
markets should also continue to grow, reflecting increased demand for economical
and environmentally attractive sources of power, and the increased use of
composite materials in certain automotive applications. While the automotive
industry is sensitive to changes in the overall economic environment, the rate
of growth in sales to this market segment should be driven more by new product
applications for new car models being launched by customers in 2001 than sales
to existing models that currently use Hexcel's products. Other industrial
markets such as soft body armor, recreation, railways and marine vessels are
likely to provide nominal revenue growth, provided general economic conditions
remain stable.
In 2001, equity in earnings from affiliated companies are expected to be
about half the amount reported in 2000, reflecting start-up losses at the
Company's engineered products ventures in Malaysia and China, as these
operations ramp up their manufacturing activities.
RESULTS OF OPERATIONS
2000 COMPARED TO 1999
NET SALES: Net sales for 2000 were $1,055.7 million, a decrease of $95.8
million or 8% from 1999 net sales of $1,151.5 million. Approximately $51 million
or 4% of the decrease is attributable to the sale of the Bellingham aircraft
interiors business on April 26, 2000. An additional $45 million of the decrease,
representing another 4% of the total, is due to changes in currency exchange
rates - primarily the decline of the British pound and the Euro relative to the
U.S. dollar.
On a pro forma basis, giving effect to the sale of the Bellingham business
as if it had occurred at the beginning of 1999, pro forma net sales for 2000
were $1,036.8 million, compared with pro forma net sales for 1999 of $1,081.5
million. Had the same U.S. dollar, British pound and Euro exchange rates applied
in 2000 as in 1999, pro forma revenues for 2000 would have been approximately
$1,082 million.
37
The following table summarizes actual and pro forma net sales to
third-party customers by product group and market segment for 2000 and 1999:
- ------------------------------------ --------------- ----------------- --------------- -------------- ----------------
COMMERCIAL SPACE &
(IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
- ------------------------------------ --------------- ----------------- --------------- -------------- ----------------
2000 NET SALES
Reinforcement products $ 60.6 $ 13.6 $ 181.2 $ 103.8 $ 359.2
Composite materials 347.9 95.4 - 123.7 567.0
Engineered products (a) 120.3 9.2 - - 129.5
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
Total (a) $ 528.8 $ 118.2 $ 181.2 $ 227.5 $ 1,055.7
50 % 11 % 17 % 22 % 100 %
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
PRO FORMA 2000 NET SALES
Total (b) $ 509.9 $ 118.2 $ 181.2 $ 227.5 $ 1,036.8
49% 11% 18% 22% 100%
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
1999 NET SALES
Reinforcement products $ 52.0 $ 18.2 $ 166.4 $ 94.3 $ 330.9
Composite materials 387.9 101.0 - 117.0 605.9
Engineered products (a) 201.7 13.0 - - 214.7
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
Total (a) $ 641.6 $ 132.2 $ 166.4 $ 211.3 $ 1,151.5
57% 11% 14% 18% 100%
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
PRO FORMA 1999 NET SALES
Total (b) $ 571.6 $ 132.2 $ 166.4 $ 211.3 $ 1,081.5
53% 12% 15% 20% 100%
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
(a) Net sales for 2000 include $18.9 million of commercial aerospace net sales
by the Bellingham business, which was a component of the Company's
engineered products segment until this business was sold on April 26, 2000.
Net sales for 1999 include $70.0 million of commercial aerospace net sales
by the Bellingham business.
(b) Pro forma net sales for 2000 and 1999 give effect to the sale of the
Bellingham business that occurred on April 26, 2000, as if it had occurred
at the beginning of the respective years presented.
Net sales to commercial aerospace customers for 2000 were $528.8 million,
compared with $641.6 million for 1999. The decrease of $112.8 million or 18% is
primarily attributable to:
o The sale of the Bellingham aircraft interiors business on April 26,
2000. This business generated $70.0 million of commercial aerospace
revenue for Hexcel during 1999, and $18.9 million during the first four
months of 2000.
o Boeing's reduction in aircraft production rates during the second half
of 1999 and the first half of 2000, together with some product
substitutions and price reductions on certain products. Boeing
delivered 489 aircraft to its customers in 2000, compared with 620
aircraft in 1999. The impact of this reduction was most pronounced on
the Company's Engineered Products business, which delivers its products
to Boeing just prior to the aircraft being completed and delivered to
the ultimate customer.
o The impact of changes in currency exchange rates.
Boeing has announced that it expects to deliver approximately 530 aircraft
to its customers in 2001 and another 530 aircraft in 2002, while Airbus is
expected to increase its aircraft deliveries from 311 in 2000 to 331 in 2001 and
more than 350 in 2002. As a result of these trends, as well as projections for
continued strength in the demand for regional and business aircraft produced by
such Hexcel customers as Bombardier Aerospace and Embraer-Empresa Brasileira de
Aeronautica, the Company expects modest growth in commercial aerospace revenues
in 2001. However, the benefit that the Company obtains from any increase in
aircraft build rates during 2001 and 2002 will depend upon the mix of aircraft
that are produced, the continuing impact on the aerospace supply chain of the
pressure to reduce the cost of commercial aircraft, and the results of
productivity improvements from the Company's Lean Enterprise initiatives.
38
Approximately 13% and 10% of 2000 and 1999 net sales, respectively, were
identified as sales to Airbus and its related subcontractors. Approximately 20%
of 2000 net sales and 28% of 1999 net sales were identified as sales to Boeing
and its related subcontractors. Of the 2000 net sales attributable to Boeing and
its related subcontractors, approximately 17% and 3% related to commercial
aerospace and space and defense market applications, respectively. For 1999, the
comparable percentages were 25% and 3%.
Net sales to space and defense markets totaled $118.2 million for 2000, a
decline of $14.0 million or 11% from 1999 net sales of $132.2 million. This
decline reflects the conclusion of one military contract, as well as reduced
demand for carbon fiber and pre-impregnated composites for use in satellites and
satellite launch vehicles. The satellite market continues to suffer from the
impact of a number of launch failures over the past two years, and from concerns
about the financial viability of certain commercial satellite ventures. Looking
forward, Hexcel is currently qualified to supply materials to a broad range of
military aircraft and helicopter programs anticipated either to enter full-scale
production in the near future or to significantly increase existing production
rates. These programs include the F/A-18E/F Hornet, the F-22 Raptor, and the
Eurofighter/Typhoon, as well as the C-17, the V-22 Osprey tiltrotor aircraft,
and the RAH-66 Comanche and NH90 helicopters. The benefits the Company obtains
from these programs will depend upon which ones are funded and the extent of
such funding.
Electronics net sales grew to $181.2 million for 2000, an increase of $14.8
million or 9% over 1999 net sales of $166.4 million. This sales growth reflects
increased demand for lightweight fiberglass fabrics used in electronics
applications, driven by improved economic conditions in Asia and Europe and by
growing worldwide demand for increasingly sophisticated electronic devices.
During 2000, Hexcel switched some of its heavyweight fabric production capacity
to meet lightweight fabric demand, and also began to install additional
lightweight fabric looms to meet the expected continuing growth in demand in
this market. In addition, the Company was able to raise prices on certain
fiberglass fabrics. However, the Company is monitoring conditions in the
electronics market very closely, so that it may adjust its capacity utilization
and expansion plans to reflect actual customer demand patterns in 2001,
particularly in the U.S.
Net sales to industrial markets rose to $227.5 million for 2000, up from
$211.3 million for 1999. This increase of $16.2 million or 8% is largely due to
the following:
o Increased sales of aramid fabrics used in the manufacture of
bullet-proof and puncture resistant vests, driven by military and
civilian demand for lighter, tougher vests.
o Increased sales of newly developed glass fabrics used in certain window
screen and architectural applications, such as screens designed to
reduce glare for computer users in commercial offices.
o Increased sales of prepreg composites products to European customers
for use in producing components for wind energy turbines.
o Increased sales of honeycomb core and machined honeycomb parts used in
certain automotive applications, such as inserts for automobile
headliners to better protect vehicle occupants in collisions.
Aggregate sales to other industrial market segments, such as surface
transportation and recreation markets, were relatively unchanged from 1999 to
2000, after adjusting for changes in currency exchange rates. Absent a
significant deterioration in the general macroeconomic environment, Hexcel
expects sales to wind energy and automotive customers to grow again in 2001,
driven by growing demand for low-cost, renewable energy supplies and improved
automobile safety, and by the Company's success in developing products for
specific customer applications. However, the actual rate of growth will depend
on economic conditions in the U.S. and Europe. Aggregate sales to other
industrial market segments are projected to rise more modestly at nominal rates.
39
GROSS MARGIN: Gross margin for 2000 was $231.4 million or 21.9% of net
sales, compared with $242.5 million or 21.1% of net sales for 1999. The
improvement in gross margin as a percentage of sales during 2000 primarily
reflects the impact of productivity improvements and cost reductions. Price
increases for certain fiberglass fabrics were offset by price decreases for
other select products, with the result that net price changes had minimal impact
on gross margin performance.
SELLING, GENERAL AND ADMINISTRATIVE ("SG&A") EXPENSES: SG&A expenses were
$123.9 million for 2000, or 11.7% of net sales. This compares to $128.7 million
or 11.2% of net sales for 1999. The net decline in SG&A expenses is attributable
in part to the recognition of a $5.1 non-cash benefit resulting from the
curtailment of a U.S. defined benefit retirement plan, partially offset by $2.2
million of expenses resulting from the purchase of Hexcel common stock by the
Goldman Sachs investor group. The remainder of the net decline primarily
reflects the impact of the sale of the Bellingham business and changes in
currency exchange rates.
RESEARCH AND TECHNOLOGY ("R&T") EXPENSES: R&T expenses were $21.2 million
for 2000, or 2.0% of net sales. This compares to $24.8 million or 2.2% of net
sales for 1999. The aggregate dollar decrease primarily reflects the completion
of specific R&T projects, as well as changes in currency exchange rates.
OPERATING INCOME: Operating income was $75.4 million or 7.1% of net sales
for 2000, of which $0.6 million was contributed by the Bellingham business. This
compares with operating income of $68.9 million or 6.0% of net sales for 1999,
of which $8.0 million was contributed by the Bellingham business. Excluding
business consolidation expenses, operating income was $86.3 million or 8.2% of
net sales for the 2000 period, and $89.0 million or 7.7% of net sales for the
1999 period. Business consolidation expenses, which totaled $10.9 million and
$20.1 million for 2000 and 1999, respectively, are discussed further under
"Business Consolidation Programs" below.
The divestiture of the Bellingham business in April reduced 2000 operating
income before business consolidation expenses by $7.7 million, compared with
1999. This decline was partially offset by reductions in SG&A and R&T expenses
during 2000. The improvement in operating income before business consolidation
expenses as a percentage of net sales primarily reflects the aggregate
improvement in gross margin performance noted above.
INTEREST EXPENSE: Interest expense was $68.7 million for 2000, versus $73.9
million for 1999. The decrease in interest expense primarily reflects the
reduction in outstanding term debt under Hexcel's senior credit facility that
resulted from the sale of the Bellingham business, partially offset by higher
interest rates on variable-rate debt.
PROVISION FOR (RECOVERY OF) INCOME TAXES: In 2000, the provision for
income taxes was $26.3 million, compared to a recovery of income taxes of $1.7
million for 1999. Hexcel's effective income tax rate was approximately 35% in
both years.
EQUITY IN EARNINGS AND WRITE-DOWN OF AN INVESTMENT IN AFFILIATED COMPANIES:
Equity in earnings of affiliated companies for 2000 was $5.5 million. The
primary source of these earnings was Hexcel's electronic fabrics joint venture
in Asia, which has benefited from the increase in worldwide demand for
electronic devices. The earnings contributed by this venture were partially
offset by the Company's share of the initial start-up losses of its engineered
products ventures in China and Malaysia.
In 1999, Hexcel wrote down its investment in one of its joint ventures,
Interglas Technologies AG, formerly CS-Interglas AG ("Interglas"), by $20.0
million to its estimated fair market value. The write-down was the result of
management's decision to allow its fixed-price options to increase its equity
investment in Interglas, from 43.6% to 84%, to expire unexercised, and an
assessment that an other-than-temporary decline in the investment occurred due
to its deteriorating financial condition. The amount of the write-down was
determined based on available market information and appropriate valuation
methodologies. The Company did not record a deferred tax benefit on the
write-down because of limitations imposed by foreign tax laws on the Company's
ability to realize a tax benefit.
40
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE:
-----------------------------------------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999
-----------------------------------------------------------------------------------------------------------------
Net income (loss) $ 54.2 $ (23.3)
Diluted net income (loss) per share $ 1.32 $ (0.64)
Diluted net income (loss) per share, excluding goodwill amortization $ 1.51 $ (0.40)
Adjusted diluted net income per share, excluding business consolidation
expenses, the 2000 gain on the sale of the Bellingham aircraft
interiors business, and a 1999 write-down of an investment in
an affiliated company $ 0.46 $ 0.26
Diluted weighted average shares outstanding 45.7 36.4
-----------------------------------------------------------------------------------------------------------------
Hexcel's convertible subordinated notes, due 2003, its convertible
subordinated debentures, due 2011, and its stock options were excluded from the
1999 computation of net loss per diluted share, as they were antidilutive. Refer
to Note 14 to the accompanying consolidated financial statements for the
calculation and the number of shares used for diluted net income (loss) per
share.
1999 COMPARED TO 1998
NET SALES: Net sales for 1999 were $1,151.5 million, an increase of $62.5
million or 6% compared with 1998 net sales of $1,089.0 million. The 1998 total
includes the net sales of the industrial fabrics business acquired from
Clark-Schwebel for the period from September 15, 1998, the date of acquisition,
to December 31, 1998. Net sales for 1999 were approximately $145 million higher
than net sales for 1998 because of the acquisition of the Clark-Schwebel
business. However, this increase was partially offset by sales reductions
attributable to declining aircraft production rates by Boeing, inventory
adjustments in excess of build rate changes by aerospace customers, price
reductions in early 1999 for certain aerospace products and electronic fabrics,
and a decrease in carbon fiber sales due to the impact of excess installed
industry capacity. Changes in currency exchange rates did not have a material
impact on revenue trends from 1998 to 1999.
The following table summarizes actual and pro forma net sales to
third-party customers by product group and market segment for 1999 and 1998:
- ------------------------------------ --------------- ----------------- --------------- -------------- ----------------
COMMERCIAL SPACE &
(IN MILLIONS) AEROSPACE DEFENSE ELECTRONICS INDUSTRIAL TOTAL
- ------------------------------------ --------------- ----------------- --------------- -------------- ----------------
1999 NET SALES
Reinforcement products $ 52.0 $ 18.2 $ 166.4 $ 94.3 $ 330.9
Composite materials 387.9 101.0 - 117.0 605.9
Engineered products (a) 201.7 13.0 - - 214.7
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
Total (a) $ 641.6 $ 132.2 $ 166.4 $ 211.3 $ 1,151.5
57% 11% 14% 18% 100%
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
PRO FORMA 1999 NET SALES
Total (b) $ 571.6 $ 132.2 $ 166.4 $ 211.3 $ 1,081.5
53% 12% 15% 20% 100%
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
1998 NET SALES
Reinforcement products $ 24.5 $ 26.4 $ 85.2 $ 88.7 $ 224.8
Composite materials 450.6 104.0 - 103.4 658.0
Engineered products (a) 195.0 11.2 - - 206.2
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
Total (a) $ 670.1 $ 141.6 $ 85.2 $ 192.1 $ 1,089.0
62% 13% 8% 17% 100%
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
PRO FORMA 1998 NET SALES
Total (b) $ 672.9 $ 141.6 $ 179.3 $ 206.7 $ 1,200.5
56% 12% 15% 17% 100%
- ------------------------------------ --- ----------- ---- ------------ --- ----------- -- ----------- ----- ----------
(a) Net sales for 1999 include $70.0 million of commercial aerospace net
sales by the Bellingham business, which was a component of the
Company's engineered products segment until this business was sold on
April 26, 2000. Net sales for 1998 include $34.3 million of commercial
aerospace net sales by the Bellingham business.
41
(b) Pro forma net sales for 1999 and 1998 give effect to the sale of the
Bellingham business that occurred on April 26, 2000, as if it had
occurred at the beginning of the respective years presented. Pro forma
net sales for 1998 also give effect to the acquisition of the
Clark-Schwebel business that occurred on September 15, 1998, as if it
had occurred at the beginning of 1998.
Commercial aerospace net sales for 1999 were $641.6 million, compared with
$670.1 million for 1998. The decrease of $28.5 million or 4% is largely
attributable to:
o Declining aircraft production rates by Boeing during the second half of
1999, in anticipation of lower aircraft deliveries in 2000.
o Inventory adjustments in excess of build rate changes by aerospace
customers in the U.S., Europe and certain export markets, in connection
with their efforts to improve working capital and reduce manufacturing
cycle times.
o Price reductions in early 1999 for certain aerospace products, in
response to market conditions.
Partially mitigating these sales reductions was an increase in sales of
woven fabrics attributable to the acquisition of the Clark-Schwebel business in
September 1998.
Approximately 10% of 1999 net sales and 11% of 1998 net sales were
identified as sales to Airbus and its related subcontractors. Approximately 28%
of 1999 net sales and 35% of 1998 net sales were identified as sales to Boeing
and its related subcontractors. Of the 1999 net sales attributable to Boeing and
its related subcontractors, approximately 25% and 3% related to commercial
aerospace and space and defense market applications, respectively. For 1998, the
comparable percentages were 32% and 3%.
Net sales to space and defense markets for 1999 were $132.2 million, a
decline of $9.4 million or 7% from 1998 net sales of $141.6 million. This
decrease is attributable to the conclusion of specific contracts to provide
reinforcement fabrics and composite materials to certain military and space
programs, and to the declining demand for satellites and satellite launch
vehicles in response to launch failures and concerns about the financial
viability of certain satellite ventures. Furthermore, Hexcel's carbon fiber
manufacturing capacity utilization was only 50% to 60% in 1999, compared to 90%
or higher for much of 1998. Initially, this reduction was due to inventory
corrections by space and defense customers, who purchased or ordered more carbon
fiber than they needed in response to significant carbon fiber supply shortages
in 1997. However, 1999 net sales were also impacted by the changes in the
commercial aerospace market as well as by the overhang of new global production
capacity added by Japanese producers. With the high level of fixed costs in this
business, reduced production output significantly impacts the profitability of
the business.
Electronics net sales rose to $166.4 million for 1999, an increase of $81.2
million or 95% over net sales for 1998 of $85.2 million. The acquisition of the
Clark-Schwebel business in September 1998, which is discussed further below
under "Significant Transactions - Acquisition of the Clark-Schwebel Industrial
Fabrics Business," added about $94 million of electronics revenues in 1999,
relative to 1998. This addition to Hexcel's revenue base was somewhat offset,
however, by the impact of sales volume and price reductions in the first half of
1999, which resulted from inventory adjustments in the electronics industry
supply chain and intense competition from manufacturers of fiberglass fabrics in
Asia and Europe. These pressures began to ease in the second half of 1999, due
to increased worldwide demand for electronic devices and improved manufacturing
capacity utilization throughout the fiberglass fabrics industry.
42
Industrial net sales for 1999 were $211.3 million, an increase of $19.2
million or 10% over the 1998 total of $192.1 million. This increase reflects the
following:
o The acquisition of the Clark-Schwebel business in September 1998, which
added more than $14 million of industrial revenues in 1999, compared with
1998.
o Increased sales of aramid and specialty fabrics for ballistics
applications, in response to increased demand for lightweight protective
vests by police forces and the U.S. military.
o Growth in sales of composite materials for wind energy applications, which
nearly doubled from 1998 to 1999.
o Increased sales of composite materials to the automotive industry,
reflecting Hexcel's development of new product applications for automotive
customers.
These positive factors were partially offset by reduced sales of carbon
fiber for industrial applications, due to the impact of excess industry
capacity, as well as lower sales for certain recreation applications.
GROSS MARGIN: Gross margin for 1999 was $242.5 million, or 21.1% of net
sales, compared with $271.3 million, or 24.9% of net sales, for 1998. The
decline in 1999 gross margin relative to 1998 is the result of lower sales
volumes to commercial aerospace and space and defense markets, and the
associated reduction in the absorption of fixed factory costs, as well as price
reductions on certain products. These factors were partially mitigated by
reductions in labor and overhead costs, as well as negotiated reductions in the
prices of certain raw materials.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES: SG&A expenses were $128.7
million in 1999, or 11.2% of net sales. This compares with SG&A expense of
$117.9 million or 10.8% of net sales for 1998. The aggregate dollar increase in
SG&A expenses is primarily attributable to the acquisition of the Clark-Schwebel
business.
RESEARCH AND TECHNOLOGY EXPENSES: R&T expenses were $24.8 million in 1999,
or 2.2% of net sales, compared with $23.7 million for 1998, or 2.2% of net
sales. The aggregate dollar increase in R&T expenses is primarily attributable
to the acquisition of the Clark-Schwebel business.
OPERATING INCOME: Operating income was $68.9 million or 6.0% of net sales
for 1999. This compares with operating income of $117.0 million or 10.7% of net
sales for 1998. Excluding business consolidation expenses, 1999 operating income
was $89.0 million or 7.7% of net sales, while 1998 operating income was $129.7
million or 11.9% of net sales. The decrease in operating income during 1999 was
primarily due to the reductions in sales volumes and prices noted above, and the
related gross margin impact.
INTEREST EXPENSE: Interest expense was $73.9 million for 1999, versus $38.7
million for 1998. The increase in interest expense primarily reflects the
increase in outstanding debt relating to the acquisition of the Clark-Schwebel
business.
PROVISION FOR (RECOVERY OF) INCOME TAXES: In 1999, the recovery of income
taxes was $1.7 million, reflecting an effective income tax rate of approximately
35%. In 1998, the provision for income taxes of $28.4 million equated to an
effective income tax rate of approximately 36%.
EQUITY IN INCOME AND WRITE-DOWN IN INVESTMENTS IN AFFILIATED COMPANIES:
Economic conditions in the electronics market during the latter part of 1998
and much of 1999 impacted the performance of Hexcel's joint ventures during
those years. As a result, the Company recognized a nominal amount of equity in
income of affiliated companies in 1999 and 1998. As previously discussed above,
in the third quarter of 1999, the Company wrote down its investment in one of
these joint ventures, Interglas, by $20.0 million to its estimated fair market
value.
43
NET INCOME (LOSS) AND NET INCOME (LOSS) PER SHARE:
-----------------------------------------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 1999 1998
-----------------------------------------------------------------------------------------------------------------
Net income (loss) $ (23.3) $ 50.4
Diluted net income (loss) per share $ (0.64) $ 1.24
Diluted net income (loss) per share, excluding goodwill amortization $ (0.40) $ 1.34
Adjusted diluted net income per share, excluding business consolidation
expenses and a 1999 write-down of an investment in
an affiliated company $ 0.26 $ 1.43
Diluted weighted average shares outstanding 36.4 45.7
-----------------------------------------------------------------------------------------------------------------
The decrease in the number of diluted weighted average shares outstanding
in 1999, relative to 1998, is attributable to the exclusion of 9.0 million
potential common shares relating to the convertible subordinated notes, due
2003, the convertible subordinated debentures, due 2011, and stock options that
were antidilutive in the 1999 period. Refer to Note 14 to the accompanying
consolidated financial statements for the calculation and the number of shares
used for diluted net income (loss) per share.
SIGNIFICANT TRANSACTIONS
PURCHASE OF APPROXIMATELY 14.5 MILLION SHARES OF HEXCEL COMMON STOCK BY AN
INVESTOR GROUP
On December 19, 2000, an investor group controlled by subsidiaries of The
Goldman Sachs Group, Inc. (the "Investor Group") completed a previously
announced purchase of approximately 14.5 million of the approximately 18 million
shares of Hexcel common stock owned by subsidiaries of Ciba Specialty Chemicals
Holding, Inc. (together with its subsidiaries, "Ciba"). The shares acquired by
the Investor Group represent approximately 39% of the Company's outstanding
common stock. In addition, the Company and the Investor Group have entered into
a governance agreement that became effective on December 19, 2000. Under this
governance agreement, the Investor Group has the right to, among other things,
designate three directors to sit on the Company's ten-member board of directors.
As a result of this transaction, Ciba's ownership of Hexcel common stock
was reduced to approximately 3.5 million shares. In addition, the governance
agreement between Ciba and Hexcel, which gave Ciba the right to designate four
directors to sit on the Company's board, terminated. Ciba has stated that its
investment in Hexcel is non-strategic and that it will explore options for the
future disposition of its remaining interest in the Company.
Hexcel incurred $2.2 million of costs in connection with this transaction,
all of which were expensed to "selling, general, and administrative expenses"
during the fourth quarter of 2000. These costs and expenses included legal,
consulting, and regulatory compliance expenses, as well as a non-cash charge
attributable to the accelerated vesting of certain stock-based compensation and
to certain amendments to an executive retirement plan. Under the terms of the
Company's various stock option and management incentive plans, the transaction
constituted a "change in control" event, resulting in all outstanding stock
options becoming vested and exercisable. The Chief Executive Officer waived the
vesting of his stock options by such event. In addition, nine of the most senior
executive officers other than the Chief Executive Officer agreed to defer the
vesting of their stock options such that any of their stock options that would
have otherwise vested immediately (or would have otherwise vested by their
terms) will vest one year after the closing with respect to half of such
options, and two years after the closing with respect to the remaining half of
such options, subject to earlier vesting in certain circumstances. As a result,
approximately 1.3 million stock options, with exercise prices ranging from $2.41
to $29.63 per share, and a weighted average exercise price of $8.99 per share,
vested and became exercisable on December 19, 2000.
44
In addition, due to the change in control event, shares of Hexcel's common
stock underlying a total of approximately 0.8 million restricted stock units and
performance accelerated restricted stock units (collectively, "stock units")
were distributed. However, the Chief Executive Officer waived the vesting of his
stock units, and nine of the most senior executive officers other than the Chief
Executive Officer agreed to defer the distribution of shares underlying their
stock units (although not the vesting of such stock units) such that any shares
of common stock that would have otherwise been distributed immediately will be
distributed one year after the closing with respect to half of such stock units,
and two years after the closing with respect to the remaining half of such stock
units, subject to earlier distribution under certain circumstances.
SALE OF THE BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business
to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax
International plc, for cash proceeds of $113.3 million. The sale of this
business generated a pre-tax gain of $68.3 million, which is equivalent to an
after-tax gain of approximately $44 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 Bellingham business generated net sales of $18.9 million for the period
from January 1 through April 26, 2000, and contributed $0.6 million of operating
income. The Bellingham business generated net sales of $70.0 million and $34.3
million, and operating income of $8.0 million and $3.9 million, for 1999 and
1998, respectively. The operating results of the Bellingham business are
reflected as a component of Hexcel's Engineered Products business segment up to
the date of disposal.
ACQUISITION OF THE CLARK-SCHWEBEL INDUSTRIAL FABRICS BUSINESS
Hexcel acquired the industrial fabrics business of Clark-Schwebel on
September 15, 1998. The business acquired from Clark-Schwebel is engaged in the
manufacture and sale of high-quality fiberglass fabrics, which are used to make
printed wiring boards for electronic equipment such as computers, cellular
telephones, televisions and automobiles. This business also produces
high-performance specialty products for use in insulation, filtration, wall and
facade claddings, soft body armor and reinforcements for composite materials. At
the date of acquisition, Clark-Schwebel operated four manufacturing facilities
in the southeastern U.S. and had approximately 1,300 full-time employees.
As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity
ownership interests in the following three joint ventures:
o a 43.6% share in Interglas, headquartered in Germany, together with
fixed-price options to increase this equity interest to 84%. Hexcel's
acquisition of the Interglas equity interest and related options was
completed on December 23, 1998.
o a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered
in Japan, which in turn owns interests in two joint ventures in Taiwan --
a 50% interest in Nittobo Asahi Glass and a 51% interest in Asahi-Schwebel
Taiwan.
o a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"),
headquartered in the United States.
Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other specialty
applications. The exercise price of the options to increase the Company's equity
interest in Interglas was significantly higher than their fair market value, and
as a result, Hexcel allowed the options to expire unexercised on December 31,
1999.
The acquisition of the Clark-Schwebel business was an important strategic
transaction for Hexcel. The acquisition established Hexcel as a leading global
materials supplier to the electronics and telecommunications industries, which
45
the Company believes have attractive long-term growth potential. Furthermore,
the acquisition added to Hexcel's revenue base and has further diversified the
Company's business beyond the historically cyclical commercial aerospace market.
The acquisition of Clark-Schwebel's industrial fabrics business was
completed pursuant to an asset purchase agreement dated July 25, 1998, as
amended by and among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel
(the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel
acquired the net assets of the business, other than certain excluded assets and
liabilities, in exchange for $472.8 million in cash. Hexcel also agreed to lease
$50.0 million of property, plant and equipment used in the acquired business
from an affiliate of Clark-Schwebel, pursuant to a long-term lease with purchase
options. Refer to "Financial Condition and Liquidity -- Financial Resources" for
a discussion of acquisition financing.
The above acquisition was accounted for under the purchase method of
accounting. Accordingly, the consolidated balance sheets, statements of
operations, stockholders' equity and comprehensive income, and cash flows
include the financial position, results of operations and cash flows of the
business acquired as of such date and for such period that this business was
owned by Hexcel. Further discussion and analysis of the Company's business
acquisitions is contained in Notes 1 and 3 to the accompanying consolidated
financial statements.
FINANCIAL CONDITION AND LIQUIDITY
FINANCIAL RESOURCES
In connection with the acquisition of the industrial fabrics business of
Clark-Schwebel on September 15, 1998, Hexcel obtained a new global credit
facility (the "Senior Credit Facility") to: (a) fund the purchase of the
Clark-Schwebel business; (b) refinance the Company's existing revolving credit
facility; and (c) provide for ongoing working capital and other financing
requirements of the Company. The Senior Credit Facility was subsequently amended
in January 1999, August 1999, March 2000 and October 2000, to accommodate, among
other things: (a) the planned sale of assets; (b) planned investments in
additional manufacturing capacity for selected products; (c) the impact of the
decline in the Company's operating results in the second half of 1999 on certain
financial covenants; (d) the sale by Ciba of approximately 14.5 million of the
approximately 18 million shares of Hexcel common stock held by them to the
Investor Group; and (e) a restructuring of the ownership and capital structure
of certain of the Company's European subsidiaries.
The Senior Credit Facility, as amended, provides Hexcel with approximately
$358 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
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 December 31, 2000, the
Company was in compliance with the financial covenants and other terms of the
Senior Credit Facility, and expects to remain in compliance for the foreseeable
future. However, given its financial leverage, the Company's continued
compliance with the financial covenants and other terms of the Senior Credit
Facility could be adversely affected if its performance were to deteriorate as a
result of a significant decline in the general macroeconomic environment or in
key markets served by the Company, or by other unforeseen events.
Hexcel completed the sale of its Bellingham aircraft interiors business on
April 26, 2000, and used $111.6 million of net proceeds from the sale to repay
outstanding term debt under the Senior Credit Facility. As of December 31, 2000,
unused borrowing capacity under the Senior Credit Facility was approximately
$135 million.
46
Hexcel expects that the Senior Credit Facility will be sufficient to fund
its worldwide operations for the foreseeable future. The Senior Credit Facility
is scheduled to expire in 2004, except for approximately $58 million of term
debt that is due for repayment in 2005.
Further discussion of the Company's financial resources is contained in
Note 8 to the accompanying consolidated financial statements
OTHER FINANCIAL COMMITMENTS
In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior applications for commercial aircraft. Hexcel
has a 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian
Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and
Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture
composite parts for secondary structures for commercial aircraft. Hexcel has a
25% equity ownership interest in this joint venture, which is located in Alor
Setar, Malaysia. It is anticipated that the first parts will be delivered to
customers in 2001. As of December 31, 2000, Hexcel has made cash investments in
these two joint ventures totaling $13.0 million, and has commitments to invest
another $2.5 million and to provide additional loan guarantees of up to $13.7
million. These commitments are expected to be fulfilled in increments through
2002.
As discussed below under "Market Risks - Currency Exchange Risks," in
January 2001, Hexcel entered into a number of foreign currency forward exchange
contracts to exchange U.S. dollars for Euros at fixed rates on specified dates
through March 2005. The aggregate notional amount of these contracts is $96.7
million. The purpose of these contracts is to hedge an equivalent amount of
projected U.S. dollar receipts by two of the Company's European facilities,
under long-term sales contracts with certain customers. These 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.
Mandatory redemption of Hexcel's 7.0% convertible subordinated debentures,
due 2011, is scheduled to begin in 2002 through annual sinking fund requirements
of $1.1 million in 2002 and $1.8 million in each year thereafter.
In 1998, Hexcel entered into a $50.0 million capital lease for property,
plant and equipment used in the acquired Clark-Schwebel business. The lease
expires in September 2006 and includes various purchase options.
CAPITAL EXPENDITURES
Capital expenditures were $39.6 million in 2000, compared with $35.6
million in 1999 and $66.5 million in 1998. The decrease in capital expenditures
from 1998 to 1999 reflects reduced spending due to changing market conditions,
the benefits from Hexcel's Lean Enterprise program, and a commitment by the
Company to reduce its debt. During 1999 and 2000, the majority of the Company's
capital expenditures have been directed toward: (a) process improvements
intended to increase productivity and reduce costs; (b) manufacturing capacity
additions for high-growth product applications, such as electronics, automotive
and wind energy; and (c) environmental, safety and maintenance initiatives. The
Company's capital expenditures are planned at a level of approximately $50
million in 2001, but actual spending will be carefully controlled against the
outlook for the Company's markets.
ADJUSTED EBITDA, CASH FLOWS AND THE RATIO OF EARNINGS TO FIXED CHARGES
2000: Earnings before business consolidation expenses, interest, taxes,
depreciation and amortization, equity in earnings of and write-down of an
investment in affiliated companies, and the gain from the sale of the Bellingham
aircraft interiors business ("Adjusted EBITDA"), was $144.9 million for 2000.
47
Pro forma Adjusted EBITDA, giving effect to the sale of the Bellingham aircraft
interiors business as if it had occurred at the beginning of 2000, was $144.0
million.
Net cash provided by operating activities was $33.0 million, with the major
sources of cash provided by net income, excluding the after-tax gain from the
sale of the Bellingham business, of $10.2 million and non-cash depreciation and
amortization of $58.7 million. However, these sources of operating cash flow
were offset by $5.5 million of income from affiliated companies was non-cash, as
was $5.1 million of income from the curtailment of a U.S. defined benefit
retirement plan. In addition, increases in accounts receivable and inventories
used a total of $24.7 million of cash.
Net cash provided by investing activities was $68.8 million, reflecting net
cash proceeds from the sale of the Bellingham business of $113.3 million,
partially offset by $39.6 million of capital expenditures and $8.3 million of
investments in joint venture affiliates in China and Malaysia. Net cash used for
financing activities was $95.0 million, primarily because the net cash proceeds
from the sale of the Bellingham business were used to reduce outstanding
indebtedness under Hexcel's Senior Credit Facility.
1999: Adjusted EBITDA for 1999 was $150.4 million. Pro forma Adjusted
EBITDA, giving effect to the sale of the Bellingham business as if it had
occurred at the beginning of 1999, was $141.3 million.
Net cash provided by operating activities was $133.7 million, as $61.3
million of non-cash depreciation and amortization, a $20.0 million non-cash
write-down of an investment in an affiliated company, $80.9 million of working
capital reductions and $20.1 million of business consolidation expenses more
than offset $23.3 million of net loss, $15.8 million of non-cash deferred income
taxes, and cash used by all other operating activities. The decrease in working
capital reflects lower levels of receivables and inventory due to aggressive
working capital management, Hexcel's Lean Enterprise program and lower sales
volumes.
Net cash used for investing activities was $40.3 million, reflecting
Hexcel's capital expenditures and investments in affiliated companies. Net cash
used for financing activities was $99.5 million, reflecting net debt reduction
and $11.0 million of debt issuance costs primarily pertaining to the issuance of
the senior subordinated notes, due 2009.
1998: Adjusted EBITDA for 1998 was $177.2 million. Pro forma Adjusted
EBITDA, giving effect to the acquisition of the Clark-Schwebel business and the
sale of the Bellingham business as if both these transactions had occurred at
the beginning of 1998, was $203.1 million.
Net cash provided by operating activities was $93.8 million, as $50.4
million of net income and $54.4 million of non-cash depreciation, amortization
and deferred income taxes were partially offset by increased working capital of
$14.5 million.
Net cash used for investing activities was $539.2 million, primarily
reflecting $472.8 million of net cash paid for the Clark-Schwebel business, and
$66.5 million of capital expenditures. Net cash provided by financing activities
was $440.7 million, primarily reflecting $459.7 million of net funds borrowed
under the Senior Credit Facility, including the financing of the acquisition of
the Clark-Schwebel business, offset in part by the repurchase of $10.0 million
of treasury stock and $10.3 million of debt issuance costs primarily incurred to
obtain the Senior Credit Facility.
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.
48
A reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for
2000, 1999 and 1998, as well as the ratio of earnings to fixed charges, is as
follows:
- --------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 54.2 $ (23.3) $ 50.4
Provision for (recovery of) income taxes 26.3 (1.7) 28.4
Interest expense 68.7 73.9 38.7
Depreciation and amortization 58.7 61.3 47.5
Equity in earnings of and write-down of an investment in
an affiliated company (5.5) 20.0 (0.5)
Other (0.1) 0.1 -
- --------------------------------------------------------------------------------------------------------------------
EBITDA 202.3 130.3 164.5
Business consolidation expenses 10.9 20.1 12.7
Gain on sale of Bellingham aircraft interiors business (68.3) - -
- --------------------------------------------------------------------------------------------------------------------
Adjusted EBITDA $ 144.9 $ 150.4 $ 177.2
- --------------------------------------------------------------------------------------------------------------------
Ratio of earnings to fixed charges 2.1x 0.7x 2.9x
- --------------------------------------------------------------------------------------------------------------------
The increase in the ratio of earnings to fixed charges from 1999 to 2000
primarily reflects the gain from the sale of the Bellingham business. The
decrease in the ratio of earnings to fixed charges from 1998 to 1999 reflects
Hexcel's lower operating income, higher interest costs and business
consolidation expenses. The ratio of earnings to fixed charges is equal to net
income (loss), excluding income taxes and interest expense, divided by interest
expense. Interest expense includes approximately one-third of the Company's
rental expense.
BUSINESS CONSOLIDATION PROGRAMS
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. Due to aerospace industry requirements to "qualify" specific
equipment and manufacturing processes for the manufacture of certain products,
some business consolidation actions have taken up to three years to complete.
These qualification requirements increase the complexity, cost and time of
moving equipment and rationalizing manufacturing activities.
Key initiatives under the three business consolidation programs have been:
o Rationalizing manufacturing activities and eliminating excess capacity
by moving and requalifying certain production processes, closing
manufacturing plants and vacating some leased facilities.
o Consolidating manufacturing, research, and marketing and administrative
functions into single global business units, in order to create centers
of technical excellence, improve customer service and eliminate
redundant functions.
o Disposing of non-core assets.
As of December 31, 2000, Hexcel has closed three manufacturing facilities,
vacated approximately 560 thousand square feet of manufacturing space, and
eliminated more than 700 manufacturing, marketing and administrative positions
in connection with these business consolidation programs.
All of the business consolidation activities initiated in 1996 and 1998 had
been completed as of December 31, 2000, although cash expenditures relating to
accrued severance will continue to be paid through 2001. A portion of the
business consolidation activities initiated in September 1999 have been
49
completed, including the consolidation of certain production processes, the
vacating of certain leased facilities, and the consolidation into one location
of the U.S. marketing, research and administrative functions of Hexcel's
composite materials business. However, the reorganization of certain
manufacturing activities will not be completed until 2001 or early in 2002, in
accordance with the Company's business consolidation plans.
In the fourth quarter of 2000, Hexcel added two further actions to the
September 1999 business consolidation program. The Company decided to close the
two smaller of its four U.S. prepreg manufacturing facilities - one in
Lancaster, Ohio and another in Gilbert, Arizona. The manufacturing output from
these two plants will now be produced by the two remaining U.S. prepreg
facilities in Livermore, California and Salt Lake City, Utah. These actions,
which are expected to be completed in early 2002, will result in the elimination
of an additional 79 thousand square feet of manufacturing space and 60
manufacturing positions.
As of December 31, 2000, future expenses to be recognized and cash
expenditures to be made for all remaining business consolidation activities are
estimated at $3.6 million and $5.6 million, respectively.
Business consolidation activities for the three years ending December 31,
2000, consisted of the following:
- ------------------------------------------------- --------------- ---------------- ------------ --------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
(IN MILLIONS) RELOCATION RELOCATION OTHER TOTAL
- ------------------------------------------------- --------------- ---------------- ------------ --------------
BALANCE AS OF JANUARY 1, 1998 $ 9.7 $ 2.0 $ 0.5 $ 12.2
Business consolidation expenses:
Current period expenses 3.3 9.6 6.3 19.2
Reversal of 1997 expenses (6.5) - - (6.5)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
Net business consolidation expenses (3.2) 9.6 6.3 12.7
Cash expenditures (1.2) (6.3) (1.2) (8.7)
Non-cash usage, including asset write-downs 0.5 (2.9) (5.6) (8.0)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
BALANCE AS OF DECEMBER 31, 1998 5.8 2.4 - 8.2
Business consolidation expenses 5.1 15.0 - 20.1
Cash expenditures (6.7) (2.8) - (9.5)
Non-cash usage, including asset write-downs (0.7) (14.0) - (14.7)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
BALANCE AS OF DECEMBER 31, 1999 3.5 0.6 - 4.1
Business consolidation expenses:
Current period expenses 3.7 10.6 - 14.3
Reversal of 1999 expenses (0.3) (3.1) - (3.4)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
Net business consolidation expenses 3.4 7.5 - 10.9
Cash expenditures (3.9) (7.9) - (11.8)
Non-cash items:
Reversal of 1999 business consolidation
expenses - 3.1 - 3.1
Other non-cash usage, including
asset write-downs (0.6) (3.0) - (3.6)
- ----------------------------------------------------- --------- ---- ---------- ---- ---------- --- ----------
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
Total non-cash items (0.6) 0.1 - (0.5)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
BALANCE AS OF DECEMBER 31, 2000 $ 2.4 $ 0.3 $ - $ 2.7
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
In 1998, Hexcel reversed $6.5 million of accrued business consolidation
expenses relating to employee severance. From 1996 through 1998, during the
implementation of certain business consolidation initiatives, Hexcel experienced
significant increased business volume in its commercial aerospace market, which
enabled Hexcel to reassign employees who would have otherwise been terminated.
As a result, the actual number of employees terminated were fewer than
anticipated, and Hexcel no longer required the full amount of its business
consolidation employee severance accrual.
As part of a business consolidation program, Hexcel disposed of its
operations in Brindisi, Italy (the "Italian Operations") in 1999. In accordance
50
with Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
Hexcel recorded a charge of $5.6 million in 1998 for an asset impairment related
to its Italian Operations, which was included in business consolidation
expenses. The estimate of fair value used in determining the impairment charge
was based on offers received from interested buyers. The Italian Operations was
disposed of for net proceeds that approximated amounts accrued and was accounted
for under the Company's Engineered Products business segment. Financial
operating results for this business were not material to the Company's
consolidated financial statements.
In the second quarter of 2000, Hexcel amended its September 1999 business
consolidation program in response to the manufacturing constraints caused by a
stronger than expected increase in sales and production for its electronic woven
glass fabrics and its ballistics protection products. Based on these improved
market conditions, which were expected to continue beyond 2000, and a
manufacturing capacity review, the Company concluded to expand its capacity by
purchasing additional looms and revising the previous decision to consolidate a
number of weaving activities at two of the Company's facilities. As a result of
the decision to not proceed to consolidate production, the Company reversed a
total of $3.4 million of business consolidation expenses that were previously
recognized in 1999, including $3.1 million in non-cash write-downs of machinery
and equipment that was to have been sold or scrapped as a result of the
consolidation.
MARKET RISKS
As a result of its global operating and financing activities, Hexcel is
exposed to various market risks that may affect its results of operations and
financial position. These market risks include 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's primary currency exposures are in Europe,
where the Company has significant business activities. To a lesser extent, the
Company is also exposed to fluctuations in the prices of certain commodities,
such as electricity, natural gas, aluminum and certain chemicals.
Hexcel attempts to net individual exposures on a consolidated basis, when
feasible, to take advantage of natural offsets. In addition, the Company employs
an interest rate cap agreement and foreign currency forward exchange contracts
for the purpose of hedging certain specifically identified interest rate and net
currency exposures. The use of these financial instruments is intended to
mitigate some of the risks associated with fluctuations in interest rates and
currency exchange rates, but does not eliminate such risks. The Company does not
use financial instruments for trading purposes.
INTEREST RATE RISKS
Hexcel's long-term debt bears interest at both fixed and variable rates. As
a result, the Company's results of operations are affected by interest rate
changes on its variable rate debt. Assuming a 10% favorable and a 10%
unfavorable change in the underlying weighted average interest rates of the
Company's variable rate debt, net income for 2000 of $54.2 million would have
been $56.8 million and $52.5 million, respectively.
In order to partially mitigate interest rate risks, in 1998 Hexcel entered
into a five-year interest rate cap agreement. 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. In addition, on January 21, 1999, the Company issued
$240.0 million of 9.75% senior subordinated notes, due 2009. Net proceeds of
approximately $231 million from this offering were used to redeem variable rate
amounts owed under the Senior Credit Facility. As of December 31, 2000, the fair
value of the interest rate cap agreement was not material to the Company's
consolidated financial position, and management does not expect that gains or
losses under this agreement will be material to the Company's consolidated
results of operations or cash flows.
51
CURRENCY EXCHANGE RISKS
Hexcel has significant business activities in Europe. The Company operates
seven manufacturing facilities in Europe which generated approximately 38% of
2000 net sales. The Company's European business activities primarily involve
three major currencies - the U.S. dollar, the British pound, and the Euro. The
Company also conducts business or has joint venture investments in Japan, China,
Malaysia, Australia and Brazil, and sells products to customers throughout the
world. The majority of the Company's transactions with customers and joint
venture affiliates outside of Europe are denominated in U.S. dollars, thereby
limiting the Company's exposure to short-term currency fluctuations involving
these countries. However, the value of the Company's investments in these
countries could be impacted by changes in currency exchange rates over time, as
could the Company's ability to profitably compete in international markets.
Hexcel attempts to net individual currency positions at its various
European operations on a consolidated basis, to take advantage of natural
offsets and reduce the need to employ foreign currency forward exchange
contracts. The Company also enters into short-term foreign currency forward
exchange contracts, usually with a term of ninety days or less, to hedge net
currency exposures resulting from specifically identified transactions.
Consistent with the nature of the economic hedge provided by such contracts, any
unrealized gain or loss would be offset by corresponding decreases or increases,
respectively, of the underlying transaction being hedged. As of December 31,
2000, the aggregate fair value of outstanding foreign currency forward exchange
contracts was not material to the Company's consolidated financial position, and
management does not expect that gains or losses on these contracts will be
material to the Company's consolidated results of operations or cash flows.
In January 2001, Hexcel entered into a number of foreign currency forward
exchange contracts to exchange U.S. dollars for Euros at fixed rates on
specified dates through March 2005. The aggregate notional amount of these
contracts is $96.7 million. The purpose of these contracts is to hedge an
equivalent amount of projected U.S. dollar receipts by two of the Company's
European facilities, under long-term sales contracts with certain customers.
These 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. Assuming a
10% increase in the value of the Euro relative to the U.S. dollar, the aggregate
fair value of these contracts would constitute a $9.7 million asset of the
Company. Alternatively, assuming a 10% decrease in the value of the Euro
relative to the U.S. dollar, the aggregate fair value of these contracts would
represent a $9.7 million liability of the Company.
COMMODITY PRICE RISKS
Certain raw materials and operating supplies used by Hexcel are subject to
price fluctuations caused by the volatility of underlying commodity prices. The
commodities most likely to have an impact on the Company's results of operations
in the event of significant price changes are electricity, natural gas, aluminum
and certain chemicals. The Company attempts to minimize the impact of commodity
price risk, when feasible, by entering into supply agreements that specify raw
material prices or limit price increases for a reasonable period of time. The
Company generally does not employ forward contracts or other financial
instruments to hedge commodity price risk.
OTHER RISKS
As of December 31, 2000, the aggregate fair values of the Company's senior
subordinated notes, due 2009, convertible subordinated notes, due 2003, and the
convertible subordinated debentures, due 2011, were $211.2 million, $99.5
million and $17.9 million, respectively. The convertible debt securities are
convertible into Hexcel common stock at a price of $15.81 and $30.72 per share,
respectively. Fair values were estimated on the basis of quoted market prices,
52
although trading in these debt securities is limited and may not reflect fair
value. Due to the conversion feature in these debt securities, fair values are
subject to fluctuations based on the value of the Company's stock and the
Company's credit rating, as well as changes in interest rates for debt
securities with similar terms.
Assuming that all other factors remain constant, the fair values of
Hexcel's convertible subordinated notes, due 2003, and the convertible
subordinated debentures, due 2011, would be approximately $109.5 million and
$19.7 million, respectively, assuming a 10% favorable change in the market price
of the Company's stock, and $89.6 million and $16.1 million, respectively,
assuming a 10% unfavorable change in market price.
RECENTLY ISSUED ACCOUNTING STANDARDS
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition," which
provides guidance on the recognition, presentation, and disclosure of revenue
in financial statements filed with the SEC. SAB 101 outlines the basic criteria
that must be met in order to recognize revenue, and provides guidance for
disclosures related to revenue recognition policies. Based on a review of
Hexcel's revenue recognition policies and practices and a review of the
provisions of SAB 101, management concluded that SAB 101 did not have a
material effect on the Company's previously reported financial results.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("SFAS 133"). SFAS 133, as amended, establishes
accounting and reporting standards for derivative instruments and hedging
activities. It requires an entity to recognize all derivatives as either assets
or liabilities on the balance sheet and measure those instruments at fair value.
Gains or losses resulting from changes in the fair values of those derivatives
would be accounted for depending on the use of the derivative and whether it
qualifies for hedge accounting. Hexcel adopted SFAS 133 effective January 1,
2001. The adoption of this accounting standard did not have a material effect on
the Company's consolidated financial position or results of operations as of the
date of adoption. The foreign currency forward exchange contracts entered into
in January 2001, for an aggregate notional amount of $96.7 million, which are
described above, will be measured at fair value and reported as assets or
liabilities in subsequent financial statements of the Company.
FORWARD-LOOKING STATEMENTS AND RISK FACTORS
This annual report includes forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These statements relate
to analyses and other information that are based on forecasts of future results
and estimates of amounts not yet determinable. These statements also relate to
future prospects, developments and business strategies. These forward-looking
statements are identified by their use of terms and phrases such as
"anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan,"
"predict," "project," "should," "will," and similar terms and phrases, including
references to assumptions. Such statements are based on current expectations,
are inherently uncertain, and are subject to changing assumptions.
Such forward-looking statements include, but are not limited to: (a)
estimates of commercial aerospace production and delivery rates, including those
of Airbus and Boeing; (b) expectations regarding growth in sales to regional and
business aircraft manufacturers, and to the aircraft aftermarket; (c)
expectations regarding the growth in the production of military aircraft,
helicopters and launch vehicle programs in 2001 and beyond; (d) expectations
regarding the demand for electronics fabrics used in multi-layer printed wiring
boards, as well as future industry capacity utilization and pricing trends in
the electronics fabrics industry; (e) expectations regarding the demand for soft
body armor made of aramid and specialty fabrics; (f) expectations regarding
growth in sales of composite materials for wind energy, automotive and other
industrial applications; (g) estimates of changes in net sales by market
compared to 2000; (h) expectations regarding manufacturing productivity,
operating margins and Adjusted EBITDA, including the estimated cost reductions
and other benefits of the Company's business consolidation programs and Lean
53
Enterprise initiatives; (i) estimates of the timing, expenses and cash
expenditures required to complete the September 1999 business consolidation
program; (j) expectations regarding the Company's equity in the earnings of
joint ventures, as well as joint venture investments and loan guarantees; (k)
expectations regarding working capital trends and capital expenditures; (l) the
availability and sufficiency of the Senior Credit Facility and other financial
resources to fund the Company's worldwide operations in 2001; and (m) the impact
of various market risks, including fluctuations in the interest rates underlying
the Company's variable-rate debt, fluctuations in currency exchange rates,
fluctuations in commodity prices, and fluctuations in the market price of the
Company's common stock.
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 and cost
levels; changes in political, social and economic conditions and local
regulations, particularly in Asia and Europe; foreign currency fluctuations;
changes in aerospace delivery rates; reductions in sales to any significant
customers, particularly Airbus or Boeing; changes in sales mix; changes in
government defense procurement budgets; changes in military aerospace programs
technology; industry capacity; competition; disruptions of established supply
channels; manufacturing capacity constraints; and the availability, terms and
deployment of capital.
If one or more of these risks or uncertainties materialize, or if
underlying assumptions prove incorrect, actual results may vary materially from
those expected, estimated or projected. In addition to other factors that affect
Hexcel's operating results and financial position, neither past financial
performance nor the Company's expectations should be considered reliable
indicators of future performance. Investors should not use historical trends to
anticipate results or trends in future periods. Further, the Company's stock
price is subject to volatility. Any of the factors discussed above could have an
adverse impact on the Company's stock price. In addition, failure of sales or
income in any quarter to meet the investment community's expectations, as well
as broader market trends, can have an adverse impact on the Company's stock
price. The Company does not undertake an obligation to update its
forward-looking statements or risk factors to reflect future events or
circumstances.
54
CONSOLIDATED FINANCIAL STATEMENTS
Description Page
- ------------------------------------------------------------------------------------------------------------ ---------
Management Responsibility for Consolidated Financial Statements 56
Report of Independent Accountants 57
Consolidated Financial Statements:
Consolidated Balance Sheets as of December 31, 2000 and 1999 58
Consolidated Statements of Operations for each of the three years ended December 31, 2000 59
Consolidated Statements of Stockholders' Equity and Comprehensive Income
for each of the three years ended December 31, 2000 60
Consolidated Statements of Cash Flows for each of the three years ended December 31, 2000 61
Notes to the Consolidated Financial Statements 62 - 84
55
MANAGEMENT RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS
Hexcel management has prepared and is responsible for the consolidated
financial statements and the related financial data contained in this report.
These financial statements, which include estimates, were prepared in accordance
with generally accepted accounting principles. Management uses its best judgment
to ensure that such statements reflect fairly the consolidated financial
position, results of operations and cash flows of the Company.
Hexcel maintains accounting and other control systems which management
believes provide reasonable assurance that financial records are reliable for
purposes of preparing financial statements, and that assets are safeguarded and
accounted for properly. Underlying this concept of reasonable assurance is the
premise that the cost of control should not exceed benefits derived from
control.
The Audit Committee of the Board of Directors reviews and monitors the
financial reports and accounting practices of Hexcel. These reports and
practices are reviewed regularly by management and by the Company's independent
accountants, PricewaterhouseCoopers LLP, in connection with the audit of the
Company's financial statements. The Audit Committee, composed solely of outside
directors, meets periodically, separately and jointly, with management and the
independent accountants.
/S/ JOHN J. LEE
John J. Lee
CHIEF EXECUTIVE OFFICER
/S/ STEPHEN C. FORSYTH
Stephen C. Forsyth
CHIEF FINANCIAL OFFICER
/S/ KIRK G. FORBECK
Kirk G. Forbeck
CHIEF ACCOUNTING OFFICER
56
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholders of Hexcel Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, of stockholders' equity and
comprehensive income and of cash flows present fairly, in all material respects,
the financial position of Hexcel Corporation and its subsidiaries at December
3l, 2000 and 1999, and the results of their operations and their cash flows for
each of the three years in the period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
/S/ PRICEWATERHOUSECOOPERS LLP
PricewaterhouseCoopers LLP
San Jose, California
January 18, 2001
57
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETs
AS OF DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999
- --------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 5.1 $ 0.2
Accounts receivable 150.3 158.6
Inventories 155.4 153.7
Prepaid expenses and other assets 5.5 5.1
Deferred tax asset 9.7 10.2
- --------------------------------------------------------------------------------------------------------------------
Total current assets 326.0 327.8
Net property, plant and equipment 359.7 392.1
Goodwill and other purchased intangibles, net of accumulated
amortization of $36.1 in 2000 and $24.9 in 1999 391.7 411.2
Investments in affiliated companies and other assets 134.0 130.8
- --------------------------------------------------------------------------------------------------------------------
Total assets $ 1,211.4 $ 1,261.9
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable and current maturities of capital lease obligations $ 22.1 $ 34.3
Accounts payable 69.4 80.3
Accrued compensation and benefits 47.4 38.4
Accrued interest 17.6 19.1
Other accrued liabilities 41.4 38.4
- --------------------------------------------------------------------------------------------------------------------
Total current liabilities 197.9 210.5
Long-term notes payable and capital lease obligations 627.1 712.5
Indebtedness to a related party 24.4 24.1
Other non-current liabilities 46.3 44.7
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 895.7 991.8
- --------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities (see accompanying notes)
Stockholders' equity:
Preferred stock, no par value, 20.0 shares of stock authorized,
no stock issued or outstanding in 2000 and 1999 - -
Common stock, $0.01 par value, 100.0 shares of stock authorized,
shares of stock issued and outstanding of 38.0 in 2000 and 37.4 in 1999 0.4 0.4
Additional paid-in capital 280.7 273.6
Retained earnings 65.8 11.6
Accumulated other comprehensive loss (20.0) (4.8)
- --------------------------------------------------------------------------------------------------------------------
326.9 280.8
Less- Treasury stock, at cost, 0.9 shares in 2000 and 0.8 in 1999 (11.2) (10.7)
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 315.7 270.1
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 1,211.4 $ 1,261.9
- --------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
58
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
- ---------------------------------------------------------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA) 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
Net sales $ 1,055.7 $ 1,151.5 $ 1,089.0
Cost of sales 824.3 909.0 817.7
- ---------------------------------------------------------------------------------------------------------------------
Gross margin 231.4 242.5 271.3
Selling, general and administrative expenses 123.9 128.7 117.9
Research and technology expenses 21.2 24.8 23.7
Business consolidation expenses 10.9 20.1 12.7
- ---------------------------------------------------------------------------------------------------------------------
Operating income 75.4 68.9 117.0
Gain on sale of Bellingham aircraft interiors business 68.3 - -
Interest expense 68.7 73.9 38.7
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 75.0 (5.0) 78.3
Provision for (recovery of) income taxes 26.3 (1.7) 28.4
- ---------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------
Income (loss) before equity in earnings 48.7 (3.3) 49.9
Equity in earnings of and write-down of an investment in
affiliated companies 5.5 (20.0) 0.5
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 54.2 $ (23.3) $ 50.4
- ---------------------------------------------------------------------------------------------------------------------
Net income (loss) per share:
Basic $ 1.47 $ (0.64) $ 1.38
Diluted $ 1.32 $ (0.64) $ 1.24
Weighted average shares:
Basic 36.8 36.4 36.7
Diluted 45.7 36.4 45.7
- ---------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
59
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
- ----------------------------------------------------------------------------------------------------------- --------------
COMMON STOCK
--------------------- RETAINED ACCUMULATED
ADDITIONAL EARNINGS OTHER TOTAL
PAID-IN (ACCUMULATED COMPREHENSIVE TREASURY STOCKHOLDERS' COMPREHENSIVE
(IN MILLIONS) PAR CAPITAL DEFICIT) INCOME (LOSS) SHARES EQUITY INCOME (LOSS)
- --------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1998 $ 0.4 $ 266.8 $ (15.5) $ (1.1) $ (0.7) $ 249.9
Net income 50.4 50.4 $ 50.4
Currency translation
adjustment 7.4 7.4 7.4
--------------
Comprehensive income 57.8
--------------
Activity under stock plans 4.6 4.6
Conversion of senior
subordinated notes 0.1 0.1
Treasury stock purchased (10.0) (10.0)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1998 0.4 271.5 34.9 6.3 (10.7) 302.4
Net loss (23.3) (23.3) 23.3)
Currency translation
adjustment (11.1) (11.1) (11.1)
--------------
Comprehensive loss (34.4)
--------------
Activity under stock plans 2.1 2.1
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1999 0.4 273.6 11.6 (4.8) (10.7) $ 270.1
Net income 54.2 54.2 54.2
Currency translation
adjustment (10.2) (10.2) (10.2)
Minimum pension obligation (5.0) (5.0) (5.0)
--------------
Comprehensive income $ 39.0
--------------
Activity under stock plans 7.1 7.1
Treasury stock purchased (0.5) (0.5)
- ----------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 $ 0.4 $ 280.7 $ 65.8 $ (20.0) $(11.2) $ 315.7
- ----------------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
60
HEXCEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------------
(IN MILLIONS) 2000 1999 1998
- --------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 54.2 $ (23.3) $ 50.4
Reconciliation to net cash provided by operations:
Depreciation 45.6 47.9 37.4
Amortization 13.1 13.4 10.1
Deferred income taxes 8.6 (15.8) 6.9
Gain on sale of Bellingham aircraft interiors business (68.3) - -
Business consolidation expenses 10.9 20.1 12.7
Business consolidation payments (11.8) (9.5) (8.7)
Equity in earnings and write-down of an investment in
affiliated companies (5.5) 20.0 (0.5)
Gain on curtailment of pension plan (5.1) - -
Changes in assets and liabilities, net of effects of
acquisitions:
Decrease (increase) in accounts receivable (7.7) 16.1 18.2
Decrease (increase) in inventories (17.0) 49.0 (9.3)
Decrease (increase) in prepaid expenses and other assets (0.4) 1.5 (2.9)
Increase (decrease) in accounts payable and accrued 10.7 11.9 (17.1)
liabilities
Changes in other non-current assets and long-term liabilities 5.7 2.4 (3.4)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 33.0 133.7 93.8
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (39.6) (35.6) (66.5)
Proceeds from sale of Bellingham aircraft interiors business 113.3 - -
Proceeds from sale of other assets 3.4 - -
Cash paid for business acquisitions - - (472.8)
Investments in affiliated companies (8.3) (4.7) (1.3)
Dividends received from affiliated companies - - 1.4
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 68.8 (40.3) (539.2)
- -----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from credit facilities 96.2 37.7 726.0
Repayments of credit facilities (66.7) (349.6) (266.3)
Proceeds from issuance of long-term debt - 240.0 0.3
Repayments of long-term debt (126.0) (18.0) (1.8)
Debt issuance costs (0.9) (11.0) (10.3)
Purchase of treasury stock (0.5) - (10.0)
Activity under stock plans 2.9 1.4 2.8
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) financing activities (95.0) (99.5) 440.7
- -----------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and cash equivalents (1.9) (1.2) 3.2
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 4.9 (7.3) (1.5)
Cash and cash equivalents at beginning of year 0.2 7.5 9.0
- -----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 5.1 $ 0.2 $ 7.5
- -----------------------------------------------------------------------------------------------------------------------
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.
61
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS IN MILLIONS, EXCEPT PER SHARE DATA)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND BASIS OF ACCOUNTING
The accompanying consolidated financial statements include the accounts of
Hexcel Corporation and subsidiaries ("Hexcel" or the "Company"), after
elimination of intercompany transactions and accounts. Investments in companies
over which the Company exerts significant influence, but does not control the
financial and operating decisions, are accounted for using the equity method.
Hexcel is a leading international producer of advanced structural
materials. The Company 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 markets. The Company serves international markets through
manufacturing facilities and sales offices located in the United States and
Europe, and through sales offices located in Asia, Australia and South America.
The Company is also a member of six joint ventures, four of which manufacture
and market reinforcement products and composite materials in Europe, Asia and
the United States, and two of which will manufacture composite structures and
interiors in Asia.
As discussed in Notes 2 and 3, Hexcel sold its Bellingham aircraft
interiors business on April 26, 2000, and it acquired the industrial fabrics
business of Clark-Schwebel, Inc. and its subsidiaries ("Clark-Schwebel") on
September 15, 1998. The Clark-Schwebel acquisition was accounted for under the
purchase method of accounting. As a result of these transactions, the
accompanying consolidated balance sheets, statements of operations,
stockholders' equity and comprehensive income, and cash flows include the
financial position, results of operations and cash flows of these businesses as
of such dates and for such periods that these businesses were owned by Hexcel.
USE OF ESTIMATES
The preparation of the accompanying consolidated financial statements in
conformity with generally accepted accounting principles required management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosures of contingent assets and liabilities, as well as the
reported amounts of revenues and expenses. Actual results could differ from
those estimates.
CASH AND CASH EQUIVALENTS
Hexcel invests excess cash in investments with original maturities of less
than three months. The investments consist primarily of Eurodollar time deposits
and are stated at cost, which approximates fair value. The Company considers
such investments to be cash equivalents for purposes of the consolidated
statements of cash flows.
INVENTORIES
Inventories are valued at the lower of cost or market, with cost determined
using the first-in, first-out and average cost methods.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Repairs and maintenance
are charged to expense as incurred; replacements and betterments are
capitalized. Property, plant and equipment are depreciated over estimated useful
lives, using accelerated and straight-line methods. The estimated useful lives
range from 10 to 40 years for buildings and improvements and from 3 to 20 years
for machinery and equipment.
62
GOODWILL AND OTHER PURCHASED INTANGIBLES
Goodwill, representing the excess of purchase price and acquisition costs
over the fair value of the net assets of the businesses acquired, and other
purchased intangibles are amortized on a straight-line basis over estimated
economic lives, which are as follows:
Goodwill from the acquisition of the Clark-Schwebel business 40 years
Other goodwill 20 years
Other purchased intangibles 15 years
The realizability of goodwill, intangibles and other long-term assets is
evaluated periodically when events or circumstances indicate that the carrying
amount of an asset might not be recoverable. Management determines whether there
has been an impairment by comparing the anticipated undiscounted future net cash
flows to the related asset's carrying value. If an asset is considered impaired,
the asset is written down to fair value, which is determined based either on
discounted cash flows or appraised values, depending on the nature of the asset.
DEBT FINANCING COSTS
Debt financing costs are deferred and amortized over the life of the
related debt, which ranges from 7 to 10 years.
STOCK-BASED COMPENSATION
Stock-based compensation is accounted for in accordance with Accounting
Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation expense is not recognized when options are
granted at the fair market value at the date of grant. Hexcel also provides
additional pro forma disclosures as required under Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation."
CURRENCY TRANSLATION
The assets and liabilities of international subsidiaries are translated
into U.S. dollars at year-end exchange rates, and revenues and expenses are
translated at average exchange rates during the year. Cumulative currency
translation adjustments are included in "stockholders' equity." Realized gains
and losses from currency exchange transactions are recorded in "selling, general
and administrative expenses" in the accompanying consolidated statements of
operations and were not material to Hexcel's consolidated results of operations
in 2000, 1999 or 1998.
REVENUE RECOGNITION
Product sales are recognized when all significant contractual obligations
have been satisfied and collection of the resulting receivable is reasonably
assured, which is generally on the date of shipment. Revenues derived from
design, installation and support services are recognized when the service is
provided, or alternatively, when the product to which the service relates is
delivered to the customer. The Company accrues for warranty costs and other
sales allowances based on its experience.
CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject Hexcel to significant
concentrations of credit risk consist primarily of trade accounts receivable.
The Company's sales to two customers and their related subcontractors accounted
for approximately 33% and 38% of the Company's 2000 and 1999 net sales,
respectively. The Company performs ongoing credit evaluations of its customers'
financial condition but generally does not require collateral or other security
to support customer receivables. The Company establishes an allowance for
doubtful accounts based on factors surrounding the credit risk of specific
customers, historical trends and other financial information. As of December 31,
2000 and 1999, the allowance for doubtful accounts was $7.1 and $6.0,
respectively. Bad debt expense was $0.6, $0.7 and $0.8 in 2000, 1999 and 1998,
respectively.
63
DERIVATIVE FINANCIAL INSTRUMENTS
Hexcel employs an interest rate cap agreement and foreign currency forward
exchange contracts in the management of its interest rate and currency exchange
exposures. The Company has designated its interest rate cap agreement against a
specific debt instrument and recognizes interest differentials as adjustments to
interest expense as the differentials occur. Realized and unrealized gains and
losses arising from foreign currency forward exchange contracts are recognized
in income (loss) as offsets to gains and losses resulting from the underlying
hedged transaction. The Company does not use financial instruments for trading
purposes.
Hexcel adopted Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"), as
amended, effective January 1, 2001. SFAS 133 requires an entity to recognize all
derivatives as either assets or liabilities on the balance sheet and measure
those instruments at fair value. Gains or losses resulting from changes in the
fair values of those derivatives are accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. SFAS 133 did not have
a material effect on the Company's consolidated financial position or results of
operations as of the date of adoption.
RECLASSIFICATIONS
Certain prior year amounts in the accompanying consolidated financial
statements and related notes have been reclassified to conform to the 2000
presentation.
NOTE 2 - GAIN ON SALE OF BELLINGHAM AIRCRAFT INTERIORS BUSINESS
On April 26, 2000, Hexcel sold its Bellingham aircraft interiors business
to Britax Cabin Interiors, Inc., a wholly owned subsidiary of Britax
International plc, for cash proceeds of $113.3. The sale resulted in a pre-tax
gain of $68.3 or an after-tax gain of approximately $44 ($0.97 per diluted
share.) Net proceeds from the sale were used to repay $111.6 of outstanding term
debt under the Company's senior credit facility. The 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:
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
2000 1999 1998
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
- ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
Net sales $ 18.9 $ 70.0 $ 34.3
Operating income 0.6 8.0 3.9
- ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
NOTE 3 - BUSINESS ACQUISITION
On September 15, 1998, Hexcel acquired certain assets and assumed certain
operating liabilities from Clark-Schwebel. The business acquired from
Clark-Schwebel is engaged in the manufacture and sale of high-quality fiberglass
fabrics, which are used to make printed circuit boards for electronic equipment
such as computers, cellular telephones, televisions and automobiles. This
business also produces high-performance specialty products for use in
insulation, filtration, wall and facade claddings, soft body armor and
reinforcements for composite materials. At the date of acquisition,
Clark-Schwebel operated four manufacturing facilities in the southeastern U.S.
and had approximately 1,300 full-time employees.
As part of this acquisition, Hexcel also acquired Clark-Schwebel's equity
ownership interests in the following three joint ventures:
o a 43.6% share in Interglas Technologies AG, formerly CS-Interglas AG
("Interglas"), headquartered in Germany, together with fixed price options
to increase this equity interest to 84%. Hexcel's acquisition of this
investment was completed on December 23, 1998;
64
o a 43.3% share in Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"),
headquartered in Japan, which in turn owns interests in two joint ventures
in Taiwan -- a 50% interest in Nittobo Asahi Glass and a 51% interest in
Asahi-Schwebel Taiwan; and
o a 50.0% share in Clark-Schwebel Tech-Fab Company ("CS Tech-Fab"),
headquartered in the United States.
Interglas and Asahi-Schwebel are fiberglass fabric producers serving the
European and Asian electronics and telecommunications industries. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other specialty
applications. The exercise price of the options to increase the equity interest
in Interglas was significantly higher than their fair market value, and as a
result, Hexcel allowed the options to expire unexercised on December 31, 1999.
The acquisition of Clark-Schwebel's industrial fabrics business was
completed pursuant to an asset purchase agreement dated July 25, 1998, as
amended by and among Hexcel, Stamford CS Acquisition Corp., and Clark-Schwebel
(the "Asset Purchase Agreement"). Under the Asset Purchase Agreement, Hexcel
acquired the net assets of the business, other than certain excluded assets and
liabilities, in exchange for $472.8 in cash. The assets acquired and the
liabilities assumed or incurred were:
Estimated fair value of assets acquired:
Cash $ 5.0
Accounts receivable 20.2
Inventories 35.5
Net property, plant and equipment 70.0
Investment in joint ventures, intangibles and other assets 68.4
Goodwill 365.3
- ------------------------------------------------------------------------- ------------------------------------------
Total assets acquired 564.4
- ------------------------------------------------------------------------- ------------------------------------------
Estimated fair value of liabilities assumed or incurred:
Accounts payable and accrued liabilities 32.5
Capital lease obligations 50.0
Other non-current liabilities 4.1
- ------------------------------------------------------------------------- ------------------------------------------
Total liabilities assumed or incurred 86.6
- ------------------------------------------------------------------------- ------------------------------------------
Estimated fair value of net assets acquired $ 477.8
- ------------------------------------------------------------------------- ------------------------------------------
Less cash acquired (5.0)
- ------------------------------------------------------------------------- ------------------------------------------
Net cash paid $ 472.8
- ------------------------------------------------------------------------- ------------------------------------------
The allocations of the purchase price to the assets acquired and
liabilities assumed or incurred in connection with the Clark-Schwebel business
were based on estimates of fair values. As part of the acquisition, Hexcel
entered into a $50.0 lease for property, plant and equipment used in the
acquired business from an affiliate of Clark-Schwebel, pursuant to a long-term
lease that includes purchase options.
PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma net sales, net income and diluted net income per share of
Hexcel for the year ended December 31, 1998, giving effect to the acquisition of
the Clark-Schwebel business as if it had occurred at the beginning of 1998, were
$1,234.8, $49.5 and $1.22, respectively.
65
NOTE 4 - BUSINESS CONSOLIDATION PROGRAMS
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. Due to aerospace industry requirements to "qualify" specific
equipment and manufacturing processes for the manufacture of certain products,
some business consolidation actions have taken up to three years to complete.
These qualification requirements increase the complexity, cost and time of
moving equipment and rationalizing manufacturing activities.
Key initiatives under the three business consolidation programs have been:
o Rationalizing manufacturing activities and eliminating excess capacity by
moving and requalifying certain production processes, closing manufacturing
plants and vacating some leased facilities.
o Consolidating manufacturing, research, and marketing and administrative
functions into single global business units, in order to create centers of
technical excellence, improve customer service and eliminate redundant
functions.
o Disposing of non-core assets.
As of December 31, 2000, Hexcel has closed three manufacturing facilities,
vacated approximately 560 thousand square feet of manufacturing space, and
eliminated more than 700 manufacturing, marketing and administrative positions
in connection with these business consolidation programs.
All of the business consolidation activities initiated in 1996 and 1998 had
been completed as of December 31, 2000, although cash expenditures relating to
accrued severance will continue to be paid through 2001. A portion of the
business consolidation activities initiated in September 1999 have been
completed, including the consolidation of certain production processes, the
vacating of certain leased facilities, and the consolidation into one location
of the U.S. marketing, research and administrative functions of Hexcel's
composite materials business. However, the reorganization of certain
manufacturing activities will not be completed until 2001 or early in 2002, in
accordance with the Company's business consolidation plans.
In the fourth quarter of 2000, Hexcel added two further actions to the
September 1999 business consolidation program. The Company decided to close the
two smaller of its four U.S. prepreg manufacturing facilities - one in
Lancaster, Ohio and another in Gilbert, Arizona. The manufacturing output from
these two plants will now be produced by the two remaining U.S. prepreg
facilities in Livermore, California and Salt Lake City, Utah. These actions,
which are expected to be completed in early 2002, will result in the elimination
of an additional 79 thousand square feet of manufacturing space and 60
manufacturing positions.
66
Business consolidation activities for the three years ending December 31,
2000, consisted of the following:
- ------------------------------------------------- --------------- ---------------- -------------- --------------
EMPLOYEE FACILITY &
SEVERANCE & EQUIPMENT
RELOCATION RELOCATION OTHER TOTAL
- ------------------------------------------------- --------------- ---------------- -------------- --------------
BALANCE AS OF JANUARY 1, 1998 $ 9.7 $ 2.0 $ 0.5 $ 12.2
Business consolidation expenses:
Current period expenses 3.3 9.6 6.3 19.2
Reversal of 1997 expenses (6.5) - - (6.5)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
Net business consolidation expenses (3.2) 9.6 6.3 12.7
Cash expenditures (1.2) (6.3) (1.2) (8.7)
Non-cash usage, including asset write-downs 0.5 (2.9) (5.6) (8.0)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
BALANCE AS OF DECEMBER 31, 1998 5.8 2.4 - 8.2
Business consolidation expenses 5.1 15.0 - 20.1
Cash expenditures (6.7) (2.8) - (9.5)
Non-cash usage, including asset write-downs (0.7) (14.0) - (14.7)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
BALANCE AS OF DECEMBER 31, 1999 3.5 0.6 - 4.1
Business consolidation expenses:
Current period expenses 3.7 10.6 - 14.3
Reversal of 1999 expenses (0.3) (3.1) - (3.4)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
Net business consolidation expenses 3.4 7.5 - 10.9
Cash expenditures (3.9) (7.9) - (11.8)
Non-cash items:
Reversal of 1999 business consolidation
expenses - 3.1 - 3.1
Other non-cash usage, including
asset write-downs (0.6) (3.0) - (3.6)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
Total non-cash items (0.6) 0.1 - (0.5)
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
BALANCE AS OF DECEMBER 31, 2000 $ 2.4 $ 0.3 $ - $ 2.7
- ------------------------------------------------- --- --------- ---- ---------- ---- ---------- --- ----------
In 1998, Hexcel reversed $6.5 of accrued business consolidation expenses
relating to employee severance. From 1996 through 1998, during the
implementation of certain business consolidation initiatives, Hexcel experienced
significant increased business volume in its commercial aerospace market, which
enabled Hexcel to reassign employees who would have otherwise been terminated.
As a result, the actual number of employees terminated were fewer than
anticipated, and Hexcel no longer required the full amount of its business
consolidation employee severance accrual.
As part of a business consolidation program, Hexcel disposed of its
operations in Brindisi, Italy (the "Italian Operations") in 1999. In accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of," Hexcel recorded a charge of $5.6 in 1998
for an asset impairment related to its Italian Operations, which was included in
business consolidation expenses. The estimate of fair value used in determining
the impairment charge was based on offers received from interested buyers. The
Italian Operations was disposed of for net proceeds that approximated amounts
accrued and was accounted for under the Company's Engineered Products business
segment. Financial operating results for this business were not material to
Hexcel's consolidated financial statements.
In the second quarter of 2000, Hexcel amended its September 1999 business
consolidation program in response to the manufacturing constraints caused by a
stronger than expected increase in sales and production for its electronic woven
glass fabrics and its ballistic protection products. Based on these improved
market conditions, which were expected to continue beyond 2000, and a
manufacturing capacity review, the Company concluded to expand its capacity by
purchasing additional looms and revising the previous decision to consolidate a
number of weaving activities at two of the Company's facilities. As a result of
the decision to not proceed to consolidate production, the Company reversed a
total of $3.4 of business consolidation expenses that were previously recognized
in 1999, including $3.1 in non-cash write-downs of machinery and equipment that
was to have been sold or scrapped as a result of the consolidation.
67
NOTE 5 - INVENTORIES
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Raw materials $ 74.5 $ 55.5
Work in progress 45.2 47.8
Finished goods 35.7 50.4
- ---------------------------------------------------------------------------------------------------------------------
Inventories $ 155.4 $ 153.7
- ---------------------------------------------------------------------------------------------------------------------
NOTE 6 - NET PROPERTY, PLANT AND EQUIPMENT
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Land $ 23.9 $ 21.8
Buildings 135.1 152.7
Equipment 456.3 440.0
- ---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment 615.3 614.5
Less accumulated depreciation (255.6) (222.4)
- ---------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment $ 359.7 $ 392.1
- ---------------------------------------------------------------------------------------------------------------------
NOTE 7 - INVESTMENTS IN AFFILIATED COMPANIES AND OTHER ASSETS
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Investments in affiliated companies $ 72.1 $ 58.7
Deferred tax asset 29.5 37.2
Deferred debt financing costs, net of accumulated amortization of
$8.7 and $5.0 as of December 31, 2000 and 1999, respectively 16.7 19.2
Other assets 15.7 15.7
- ---------------------------------------------------------------------------------------------------------------------
Investments in affiliated companies and other assets $ 134.0 $ 130.8
- ---------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN AFFILIATED COMPANIES
In 1999, Hexcel, Boeing and Aviation Industries of China formed a joint
venture, BHA Aero Composite Parts Co., Ltd., to manufacture composite parts for
secondary structures and interior applications for commercial aircraft. Hexcel
has a 33% equity ownership interest in this joint venture, which is located in
Tianjin, China. Also in 1999, Hexcel formed another joint venture, Asian
Composites Manufacturing Sdn. Bhd., with Boeing, Sime Link Sdn. Bhd., and
Malaysia Helicopter Services Bhd. (now known as Naluri Berhadto), to manufacture
composite parts for secondary structures for commercial aircraft. Hexcel has a
25% equity ownership interest in this joint venture, which is located in Alor
Setar, Malaysia. It is anticipated that the first parts will be delivered to
customers in 2001. For the years ended December 31, 2000 and 1999, Hexcel made
cash equity investments totaling $8.3 and $4.7, respectively, in these two joint
ventures. As of December 31, 2000, Hexcel has aggregate commitments to these
joint ventures to invest another $2.5 and to provide additional loan guarantees
of up to $13.7. These commitments are expected to be fulfilled in increments
through 2002.
As discussed in Note 3, the Company owns equity interests in three joint
ventures: a 43.6% share in Interglas; a 43.3% share in Asahi-Schwebel; and a
50.0% share in CS Tech-Fab. These joint ventures produce and sell fiberglass
fabric and other non-woven materials. In the third quarter of 1999, the Company
wrote down its investment in Interglas by $20.0 to its estimated fair market
value. The write-down was the result of management's decision to allow its
fixed-price options to increase its equity investment in Interglas, from 43.6%
68
to 84%, to expire unexercised, and an assessment that an other-than-temporary
decline in the investment had occurred due to its deteriorating financial
condition. The amount of the write-down was determined based on available market
information and appropriate valuation methodologies. The Company did not record
a deferred tax benefit on the write-down because of limitations imposed by
foreign tax laws on the Company's ability to realize the tax benefit.
Lastly, Hexcel owns a 45% equity interest in DIC-Hexcel Limited ("DHL"), a
joint venture with Dainippon Ink and Chemicals, Inc. ("DIC"). This joint venture
is located in Komatsu, Japan, and produces and sells prepregs, honeycomb and
decorative laminates using technology licensed from Hexcel and DIC. Hexcel is
contingently liable to pay DIC up to $4.5 with respect to DHL's bank debt.
NOTE 8 - NOTES PAYABLE
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Senior Credit Facility $ 211.9 $ 303.0
European credit and overdraft facilities 13.7 14.8
Senior subordinated notes, due 2009 240.0 240.0
Convertible subordinated notes, due 2003 114.4 114.4
Convertible subordinated debentures, due 2011 25.6 25.6
Various notes payable 0.3 0.4
- ---------------------------------------------------------------------------------------------------------------------
Total notes payable 605.9 698.2
Capital lease obligations 43.3 48.6
Senior subordinated notes payable to a related party, net of unamortized
discount of $0.6 and $0.9 as of December 31, 2000 and 1999, respectively 24.4 24.1
- ---------------------------------------------------------------------------------------------------------------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 673.6 $ 770.9
- ---------------------------------------------------------------------------------------------------------------------
Notes payable and current maturities of long-term liabilities $ 22.1 $ 34.3
Long-term notes payable and capital lease obligations, less current maturities 627.1 712.5
Indebtedness to a related party 24.4 24.1
- ---------------------------------------------------------------------------------------------------------------------
Total notes payable, capital lease obligations and
indebtedness to a related party $ 673.6 $ 770.9
- ---------------------------------------------------------------------------------------------------------------------
SENIOR CREDIT FACILITY
In connection with the acquisition of the Clark-Schwebel business on
September 15, 1998, Hexcel obtained a new global credit facility (the "Senior
Credit Facility") to: (a) fund the purchase of the Clark-Schwebel business; (b)
refinance the Company's existing revolving credit facility; and (c) provide for
ongoing working capital and other financing requirements of the Company. The
Senior Credit Facility was subsequently amended in January 1999, August 1999,
March 2000 and October 2000, to accommodate, among other things: (a) the planned
sale of assets; (b) planned investments in additional manufacturing capacity for
selected products; (c) the impact of the decline in the Company's operating
results in the second half of 1999 on certain financial covenants; (d) the
purchase by an investor group of approximately 14.5 million shares of Hexcel
common stock held by a significant shareholder of the Company; and (e) a
restructuring of the ownership and capital structure of certain of the Company's
European subsidiaries.
The Senior Credit Facility, as amended, provides Hexcel with approximately
$358 of borrowing capacity, subject to certain limitations. The Senior Credit
Facility is secured by a pledge of shares of certain of the Company's
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. Unused borrowing capacity under
the Senior Credit Facility was approximately $135 on December 31, 2000. The
Senior Credit Facility is scheduled to expire in 2004, except for approximately
$58 of term loans that are due for repayment in 2005.
69
Since March 2000, interest on outstanding borrowings under the Senior
Credit Facility has ranged from 0.75% to 3.00% in excess of the applicable
London interbank rate, or at the option of the Company, from 0.0% to 2.00% in
excess of the base rate of the administrative agent for the lenders. From
January 1998 through March 2000, the upper limits of these interest ranges
averaged 2.50% and 1.50%, respectively. In addition, the Senior Credit Facility
is subject to a commitment fee ranging from approximately 0.20% to 0.50% per
annum of the total facility. As of December 31, 2000 and 1999, Hexcel had an
interest rate cap agreement outstanding which covered a notional amount of $50.0
of the Senior Credit Facility, providing a maximum fixed rate of 5.5% on the
applicable London interbank rate.
EUROPEAN CREDIT AND OVERDRAFT FACILITIES
In addition to the Senior Credit Facility, certain of Hexcel's European
subsidiaries have access to limited credit and overdraft facilities provided by
various local lenders. These credit and overdraft facilities are primarily
uncommitted facilities that are terminable at the discretion of the lenders. The
interest rates on these credit and overdraft facilities for the years ended
December 31, 2000, 1999 and 1998 ranged from 3.0% to 6.6% per annum.
SENIOR SUBORDINATED NOTES, DUE 2009
On January 21, 1999, the Company issued $240.0 of 9.75% senior subordinated
notes, due 2009. The senior subordinated notes are general unsecured obligations
of Hexcel. Net proceeds from the issuance of these notes were used to repay
amounts owed under the Senior Credit Facility.
CONVERTIBLE SUBORDINATED NOTES, DUE 2003
The convertible subordinated notes carry an annual interest rate of 7.0%,
are due in 2003 and are convertible into Hexcel common stock at a conversion
price of $15.81 per share, subject to adjustment under certain conditions. The
convertible subordinated notes are redeemable, in whole or in part, at the
option of Hexcel at a price equal to 100.0% of the outstanding principal amount.
CONVERTIBLE SUBORDINATED DEBENTURES, DUE 2011
The 7.0% convertible subordinated debentures, due 2011, are redeemable by
Hexcel prior to maturity. Mandatory redemption is scheduled to begin in 2002
through annual sinking fund requirements. The debentures are convertible prior
to maturity into common shares of the Company at $30.72 per share.
SENIOR SUBORDINATED NOTES PAYABLE TO A RELATED PARTY
The senior subordinated notes payable to a related party are general
unsecured obligations payable to certain subsidiaries of Ciba Specialty
Chemicals Holding, Inc. (collectively, "Ciba"). Prior to February 1999, these
notes bore interest at a rate of 7.5% per annum. Effective February 1999,
interest on these notes was increased to a rate of 10.5% per annum, a rate which
increases by 0.5% per annum each February thereafter until the notes mature in
2003. The average interest rate on these notes was 11.0% in 2000, 10.25% in
1999, and 7.75% in 1998.
AGGREGATE MATURITIES OF NOTES PAYABLE AND INDEBTEDNESS TO A RELATED PARTY
The table below reflects aggregate maturities of notes payable and
indebtedness to a related party:
Payable during years ending December 31:
- ------------------------------------------------------------------------------- -----------------
2001 $ 16.7
2002 9.7
2003 149.5
2004 135.9
2005 59.5
2006 and thereafter 259.0
- ------------------------------------------------------------------------------- ---- ------------
Total notes payable and indebtedness to a related party $ 630.3
- ------------------------------------------------------------------------------- ---- ------------
70
ESTIMATED FAIR VALUES OF NOTES PAYABLE
The Senior Credit Facility and the various European credit facilities
outstanding as of December 31, 2000 and 1999 are variable-rate debt obligations.
Accordingly, the estimated fair values of each of these debt obligations
approximate their respective book values. The aggregate fair values of the
Company's other notes payable are as follows:
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Senior subordinated notes, due 2009 $ 211.2 $ 205.2
Convertible subordinated notes, due 2003 99.5 80.1
Convertible subordinated debentures, due 2011 17.9 18.5
- ---------------------------------------------------------------------------------------------------------------------
The aggregate fair values of the above notes payable were estimated on the
basis of quoted market prices; however, trading in these securities is limited
and may not reflect fair value.
NOTE 9 - LEASING ARRANGEMENTS
Assets, accumulated depreciation, and related liability balances under
capital leasing arrangements, as of December 31, 2000 and 1999, were:
- ---------------------------------------------------------------------------------------------------------------------
2000 1999
- ---------------------------------------------------------------------------------------------------------------------
Property, plant and equipment $ 62.0 $ 63.0
Less accumulated depreciation (22.2) (15.0)
- ---------------------------------------------------------------------------------------------------------------------
Net property, plant and equipment $ 39.8 $ 48.0
- ---------------------------------------------------------------------------------------------------------------------
Capital lease obligations $ 43.3 $ 48.6
Less current maturities (5.3) (5.1)
- ---------------------------------------------------------------------------------------------------------------------
Long-term capital lease obligations, net $ 38.0 $ 43.5
- ---------------------------------------------------------------------------------------------------------------------
Certain sales and administrative offices, data processing equipment and
manufacturing facilities are leased under operating leases. Rental expense under
operating leases was $7.0 in 2000, $9.4 in 1999 and $8.2 in 1998.
Future minimum lease payments as of December 31, 2000 were:
- ------------------------------------------------------------------------------------------------------------------------------------
TYPE OF LEASE
---------------- -----------------
Payable during years ending December 31: CAPITAL OPERATING
- -----------------------------------------------
--- ------------ ---- ------------
2001 $ 8.5 $ 4.8
2002 8.5 3.9
2003 8.2 2.8
2004 8.4 2.1
2005 8.3 1.9
2006 and thereafter 6.9 4.0
- ---------------------------------------------------------------------------------- --- ------------ ---- ------------
Total minimum lease payments $ 48.8 $ 19.5
- ---------------------------------------------------------------------------------- --- ------------ ---- ------------
Total minimum capital lease payments include $5.5 of imputed interest.
71
NOTE 10 - RELATED PARTIES
CHANGE IN CONTROL
On December 19, 2000, an investor group controlled by subsidiaries of The
Goldman Sachs Group, Inc. (the "Investor Group") completed a previously
announced purchase of approximately 14.5 of the approximately 18 shares of
Hexcel common stock owned by Ciba. The shares acquired by the Investor Group
represent approximately 39% of the Company's outstanding common stock. In
addition, the Company and the Investor Group entered into a governance agreement
that became effective on December 19, 2000. Under this governance agreement, the
Investor Group has the right to, among other things, designate three directors
to sit on the Company's ten-member board of directors.
As a result of this transaction, Ciba's ownership of Hexcel common stock
was reduced to approximately 3.5 shares. In addition, the governance agreement
between Ciba and Hexcel, which gave Ciba the right to designate four directors
to sit on the Company's board, terminated. Ciba has stated that its investment
in Hexcel is non-strategic and that it will explore options for the future
disposition of its remaining interest in the Company.
Hexcel incurred $2.2 of costs in connection with this transaction, all of
which were expensed to "selling, general, and administrative expenses" during
the fourth quarter of 2000. These costs and expenses included legal, consulting,
and regulatory compliance expenses, as well as a non-cash charge attributable to
the accelerated vesting of certain stock-based compensation and to certain
amendments to an executive retirement plan. Under the terms of the Company's
various stock option and management incentive plans, the transaction constituted
a "change in control" event, resulting in all outstanding stock options becoming
vested and exercisable. The Chief Executive Officer waived the vesting of his
stock options by such event. In addition, nine of the most senior executive
officers other than the Chief Executive Officer agreed to defer the vesting of
their stock options such that any of their stock options that would have
otherwise vested immediately (or would have otherwise vested by their terms)
will vest one year after the closing with respect to half of such options, and
two years after the closing with respect to the remaining half of such options,
subject to earlier vesting in certain circumstances. As a result, approximately
1.3 stock options, with exercise prices ranging from $2.41 to $29.63 per share,
and a weighted average exercise price of $8.99 per share, vested and became
exercisable on December 19, 2000.
In addition, due to the change in control event, shares of the Company's
common stock underlying a total of approximately 0.8 restricted stock units and
performance accelerated restricted stock units (collectively, "stock units")
were distributed. However, the Chief Executive Officer waived the vesting of his
stock units, and nine of the most senior executive officers other than the Chief
Executive Officer agreed to defer the distribution of shares underlying their
stock units (although not the vesting of such stock units) such that any shares
of common stock that would have otherwise been distributed immediately will be
distributed one year after the closing with respect to half of such stock units,
and two years after the closing with respect to the remaining half of such stock
units, subject to earlier distribution under certain circumstances.
TRANSACTIONS AND BALANCES
In addition to the senior subordinated notes payable to Ciba, transactions
and balances with Ciba, as of and for the years ended December 31, 2000, 1999
and 1998, were as follows:
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
2000 1999 1998
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Raw material purchases $ 24.4 $ 32.6 $ 37.7
Interest expense 2.7 2.7 2.8
Net sales - - -
- ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
Accounts payable $ - $ 3.1 $ 3.3
Accrued interest payable 1.1 1.1 0.9
- ---------------------------------------------------------------- --- ------------- --- ------------ ---- ------------
72
NOTE 11 - RETIREMENT AND OTHER POSTRETIREMENT BENEFIT PLANS
Hexcel maintains qualified and nonqualified defined benefit retirement
plans covering certain U.S. and European employees, as well as retirement
savings plans covering eligible U.S. employees. The defined benefit retirement
plans are generally based on years of service and employee compensation under
either a career average or final pay benefits method, except as described below.
Hexcel's funding policy is to contribute the minimum amount required by
applicable regulations. The Company also participates in a union sponsored
multi-employer pension plan covering certain U.S. employees with union
affiliations.
Under the retirement savings plans, eligible U.S. employees can contribute
up to 16% of their compensation to an individual retirement savings account.
Hexcel makes matching contributions equal to 50% of employee contributions, not
to exceed 3% of employee compensation. The Company also makes profit sharing
contributions when it meets or exceeds certain performance targets which are set
annually.
Effective December 31, 2000, Hexcel made certain changes to its U.S.
retirement benefit plans that are intended to improve the flexibility and
visibility of future retirement benefits for employees. The primary changes are:
o Beginning January 1, 2001, the Company will contribute an additional 2%
to 3% of each eligible employee's salary to an individual 401(k)
retirement savings account, depending on the employee's age. This
increases the maximum contribution to individual employee savings
accounts to between 5% and 6% per year, before any profit sharing
contributions.
o Offsetting the estimated incremental cost of this additional benefit,
participants in the Company's U.S. qualified defined benefit retirement
plan will no longer accrue benefits under this plan after December 31,
2000. However, employees will retain all benefits earned under this
plan as of that date. Hexcel recognized a non-cash curtailment gain of
$5.1 in 2000 as a result of this amendment to its U.S. defined
benefit retirement plan.
The net pension expense for all of these defined benefit and retirement
savings plans, for the three years ended December 31, 2000, were:
- ------------------------------------------------------------------------- ------------- ---------------- -------------
2000 1999 1998
- ------------------------------------------------------------------------- ------------- ---------------- -------------
Defined benefit retirement plans $ (1.2) $ 6.3 $ 5.2
Multi-employer pension plan 0.3 0.4 0.3
Retirement savings plans- matching contributions 2.9 3.4 3.0
Retirement savings plans- profit sharing and incentive
contributions 5.0 5.4 5.3
- ------------------------------------------------------------------------- --- --------- ---- ----------- --- ---------
Net pension expense $ 6.6 $ 15.5 $ 13.8
- ------------------------------------------------------------------------- --- --------- ---- ----------- --- ---------
In addition to defined benefit and retirement savings plan benefits, Hexcel
also provides certain postretirement health care and life insurance benefits to
eligible U.S. retirees. Depending upon the plan, benefits are available to
eligible employees who retire on or after age 58 or 65 after rendering a minimum
of 15 years or 25 years of service to Hexcel.
73
The net periodic cost of Hexcel's defined benefit retirement and U.S.
postretirement plans for the three years ended December 31, 2000, were:
-----------------------------------------------------------------------------------------------------------------------
U.S. PLANS EUROPEAN PLANS
-------------------------------------------------------------------------------
DEFINED BENEFIT RETIREMENT PLANS 2000 1999 1998 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
Service cost - benefits
earned during the year $ 3.0 $ 3.6 $ 3.3 $ 2.4 $ 2.7 $ 2.1
Interest cost on projected
benefit obligation 1.8 1.5 1.2 2.5 2.4 2.3
Expected return on plan assets (1.3) (1.0) (0.8) 1.6 (14.4) (4.4)
Net amortization and deferral 0.4 0.7 0.6 (6.3) 10.8 0.9
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Sub-total 3.9 4.8 4.3 0.2 1.5 0.9
Curtailment and settlement gains (5.3) - - - - -
-----------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ (1.4) $ 4.8 $ 4.3 $ 0.2 $ 1.5 $ 0.9
-----------------------------------------------------------------------------------------------------------------------
POSTRETIREMENT PLANS- U.S. PLANS 2000 1999 1998
-----------------------------------------------------------------------------------------------------------------------
Service cost - benefits earned during the year $ 0.2 $ 0.2 $ 0.1
Interest cost on projected benefit obligation 1.0 0.9 0.7
Net amortization and deferral (0.4) (0.3) (0.3)
-----------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 0.8 $ 0.8 $ 0.5
-----------------------------------------------------------------------------------------------------------------------
The benefit obligation, fair value of plan assets, funded status, and
amounts recognized in the consolidated financial statements for Hexcel's defined
benefit retirement plans and U.S. postretirement plans, as of and for the years
ended December 31, 2000 and 1999, were:
-----------------------------------------------------------------------------------------------------------------------
DEFINED BENEFIT RETIREMENT PLANS
---------------------------------------------------------------------------------
U.S. PLANS EUROPEAN PLANS POSTRETIREMENT PLANS
---------------------------------------------------------------------------------
2000 1999 2000 1999 2000 1999
-----------------------------------------------------------------------------------------------------------------------
Change in benefit obligation:
Benefit obligation- beginning of
year $ 21.4 $ 21.5 $ 45.0 $ 47.1 $ 13.0 $ 13.4
Service cost 3.0 3.6 2.4 2.7 0.2 0.2
Interest cost 1.8 1.5 2.5 2.4 1.0 0.9
Plan participants' contributions - - 0.5 0.5 0.1 0.1
Actuarial loss (gain) 4.3 (4.1) 4.0 (6.2) 1.0 (0.8)
Benefits paid (2.0) (1.0) (0.8) (0.4) (1.1) (0.9)
Curtailment and settlement gains (5.3) - - - - -
Foreign exchange translation - - (3.3) (1.3) - -
Other 0.9 (0.1) (0.5) 0.2 - 0.1
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Benefit obligation- end of year 24.1 21.4 49.8 45.0 14.2 13.0
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets-
beginning of year 13.6 11.5 66.2 51.7 - -
Actual return on plan assets (0.6) 1.8 (1.7) 14.4 - -
Employer contributions 3.8 1.2 1.3 1.2 1.0 0.8
Plan participants' contributions - - 0.5 0.5 0.1 0.1
Benefits paid (2.0) (1.0) (0.8) (0.4) (1.1) (0.9)
Foreign exchange translation - - (4.9) (1.3) - -
Other (0.1) 0.1 (0.2) 0.1 - -
-----------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------------
Fair value of plan assets- end of year 14.7 13.6 60.4 66.2 - -
-----------------------------------------------------------------------------------------------------------------------
Funded status:
Plan assets in excess of
(less than) benefit obligation (9.4) (7.8) 10.6 21.2 (14.2) (13.0)
Unrecognized actuarial loss (gain) 3.5 0.1 (1.6) (12.1) 0.6 (0.7)
Unrecognized net liability - 0.2 - - - -
Unrecognized prior service cost 0.8 (2.7) - - (5.0) (5.1)
-------------------------------------------------------------------------- ---------------------------------------------
Prepaid (accrued) benefit cost $ (5.1) $ (10.2) $ 9.0 $ 9.1 $ (18.6) $ (18.8)
-----------------------------------------------------------------------------------------------------------------------
74
The accumulated benefit obligation for pension plans with accumulated
benefit obligations in excess of plan assets were $22.9 and $18.6 as of December
31, 2000 and 1999, respectively. In 1998, the Company updated certain
assumptions with respect to its European plans, resulting in an actuarial loss.
Amortization of this loss and other prior service costs is calculated on a
straight-line basis over the expected future years of service of the plans'
active participants. Assets for the defined benefit pension plans generally
consist of publicly traded securities, bonds and cash investments.
As of December 31, 2000 and 1999, the prepaid benefit cost was included in
"investments in affiliated companies and other assets" in the accompanying
consolidated balance sheets. For the same periods, the accrued benefit cost was
included in "accrued compensation and benefits" and "other non-current
liabilities" in the accompanying consolidated balance sheets.
Assumptions used to estimate the actuarial present value of benefit
obligations were as follows:
- --------------------------------------------------------------- ------------------ ---------------- -----------------
2000 1999 1998
- --------------------------------------------------------------- ------------------ ---------------- -----------------
U.S. defined benefit retirement plans:
Discount rates 7.5% 8.0% 7.0%
Rate of increase in compensation 4.5% 4.5% 4.5%
Expected long-term rate of return on plan assets 9.0% 9.0% 9.0%
European defined benefit retirement plans:
Discount rates 5.8% - 6.0% 5.8% - 6.0% 5.5% - 5.8%
Rates of increase in compensation 2.5% - 4.0% 2.0% - 4.0% 1.5% - 4.0%
Expected long-term rates of return on plan assets 6.5% - 7.0% 6.5% - 7.0% 6.5% - 7.0%
Postretirement benefit plans:
Discount rates 7.0% - 7.5% 7.0% - 8.0% 6.8% - 7.0%
- --------------------------------------------------------------- ------------------ ---------------- -----------------
For measurement purposes, the annual rate of increase in the per capita
cost of covered health care benefits were assumed at approximately 8.0% for
medical, and 5.0% for dental and vision for 2000. The medical rates were assumed
to decrease gradually to approximately 6.0% by 2004, whereas dental and vision
rates were assumed to remain at 5.0% through 2004.
The table below presents the impact of a one-percentage-point increase and
a one-percentage-point decrease in the assumed health care cost trend on the
total of service and interest cost components, and on the postretirement benefit
obligation.
- ---------------------------------------------------------------------------------- ---------------- ------------------
2000 1999
- ---------------------------------------------------------------------------------- ---------------- ------------------
One-percentage-point increase:
Effect on total service and interest cost components $ 0.1 $ 0.1
Effect on postretirement benefit obligation 0.9 0.8
One-percentage-point decrease:
Effect on total service and interest cost components (0.1) (0.1)
Effect on postretirement benefit obligation (0.8) (0.7)
- ---------------------------------------------------------------------------------- ----- ---------- ------- ----------
75
NOTE 12 - INCOME TAXES
Income (loss) before income taxes and the provision for (recovery of)
income taxes, for the years ended December 31, 2000, 1999 and 1998, were:
- --------------------------------------------------------------- ----------------- ---------------- -----------------
2000 1999 1998
- --------------------------------------------------------------- ----------------- ---------------- -----------------
Income (loss) before income taxes:
U.S. $ 22.4 $ (47.5) $ 30.6
International 52.6 42.5 47.7
- --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Total income (loss) before income taxes $ 75.0 $ (5.0) $ 78.3
- --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Provision for (recovery of) income taxes:
Current:
U.S. $ - $ (0.8) $ 6.3
International 17.7 14.9 15.2
- --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Current provision for income taxes 17.7 14.1 21.5
- --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Deferred:
U.S. 9.0 (17.1) 4.7
International (0.4) 1.3 2.2
- --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Deferred provision for (recovery of) income taxes 8.6 (15.8) 6.9
- --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
Total provision for (recovery of) income taxes $ 26.3 $ (1.7) $ 28.4
- --------------------------------------------------------------- --- ------------- ---- ----------- --- -------------
A reconciliation of the provision for (recovery of) income taxes at the
U.S. federal statutory income tax rate of 35% to the effective income tax rate,
for the years ended December 31, 2000, 1999 and 1998, is as follows:
- ---------------------------------------------------------------- --------------- ----------------- -----------------
2000 1999 1998
- ---------------------------------------------------------------- --------------- ----------------- -----------------
Provision (recovery) at U.S. federal statutory rate $ 26.3 $ (1.8) $ 27.4
U.S. state taxes, less federal tax benefit 0.3 (1.1) 0.8
Impact of different international tax rates, permanent
differences and other (0.2) 1.5 1.4
Valuation allowance (0.1) (0.3) (1.2)
- ---------------------------------------------------------------- -- ------------ ----- ----------- --- -------------
Total provision for (recovery of) income taxes $ 26.3 $ (1.7) $ 28.4
- ---------------------------------------------------------------- -- ------------ ----- ----------- --- -------------
The Company has made no U.S. income tax provision for approximately $105.7
of undistributed earnings of international subsidiaries as of December 31, 2000.
Such earnings are considered to be permanently reinvested. The additional U.S.
income tax on these earnings, if repatriated, would be offset in part by foreign
tax credits.
DEFERRED INCOME TAXES
Deferred income taxes result from temporary differences between the
recognition of items for income tax purposes and financial reporting purposes.
Principal temporary differences as of December 31, 2000 and 1999, were:
- ---------------------------------------------------------------------------------- ----------------- ----------------
2000 1999
- ---------------------------------------------------------------------------------- --- ------------- ----------------
Net operating loss carryforwards $ 43.0 $ 36.3
Reserves and other, net 30.5 29.3
Accelerated depreciation and amortization (35.2) (18.5)
Valuation allowance (6.2) (6.4)
- ---------------------------------------------------------------------------------- --- ------------- --- ------------
Net deferred tax asset $ 32.1 $ 40.7
- ---------------------------------------------------------------------------------- --- ------------- --- ------------
76
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 2000, Hexcel had net operating loss ("NOL")
carryforwards for U.S. federal and Belgium income tax purposes of approximately
$110.4 and $4.9, respectively. The U.S. NOL carryforwards, which are available
to offset future taxable income, expire at various dates through the year 2019.
As a result of a change in ownership that occurred in connection with the
purchase of a business in 1996, the Company has a limitation on the utilization
of $37.0 of U.S. NOL carryforwards of approximately $12.0 per year.
NOTE 13 - STOCKHOLDERS' EQUITY
COMMON STOCK OUTSTANDING
- ------------------------------------------------------------ ----------------------- -------------- ----------------
(NUMBER OF SHARES) 2000 1999 1998
- ------------------------------------------------------------ ----------------------- -------------- ----------------
Common stock:
Balance, beginning of year 37.4 37.2 36.9
Activity under stock plans 0.6 0.2 0.3
- ------------------------------------------------------------ ----------------------- -------------- ----------------
Balance, end of year 38.0 37.4 37.2
- ------------------------------------------------------------ ----------------------- -------------- ----------------
Treasury stock:
Balance, beginning of year 0.8 0.8 -
Repurchased 0.1 - 0.8
- ------------------------------------------------------------ ----------------------- -------------- ----------------
Balance, end of year 0.9 0.8 0.8
- ------------------------------------------------------------ ----------------------- -------------- ----------------
Common stock outstanding 37.1 36.6 36.4
- ------------------------------------------------------------ ----------------------- -------------- ----------------
In 1998, Hexcel's Board of Directors approved plans to repurchase up to
$20.0 of the Company's common stock. In 1998, the Company repurchased 0.8 shares
of its common stock at an average cost of $12.32 per share, for a total of
$10.0. The Board of Directors may also approve additional stock buybacks from
time to time, subject to market conditions and the terms of the Company's credit
agreements and indentures.
STOCK-BASED INCENTIVE PLANS
Hexcel has various stock option and management incentive plans for eligible
employees, officers, directors and consultants. These plans provide for awards
in the form of stock options, stock appreciation rights, restricted stock,
restricted stock units and other stock-based awards. Options to purchase common
stock are generally granted at the fair market value on the date of grant.
Substantially all of these options have a ten-year term and generally vest over
a three-year period, except for certain circumstances which may accelerate the
vesting period. In 1998, Hexcel's stockholders approved various amendments to
the Company's stock-based incentive plans, which increased the aggregate number
of shares of stock issuable under these plans by 4.5 to 7.4. In 2000, the
aggregate number of shares of stock issuable under these plans was further
increased to 9.1.
As of December 31, 2000, 1999 and 1998, Hexcel had outstanding a total of
0.8, 0.9 and 0.5 of performance accelerated restricted stock units ("PARS"),
respectively. PARS are convertible to an equal number of shares of Hexcel common
stock and generally vest in increments over a seven-year period, subject to
certain terms of employment and other circumstances that may accelerate the
vesting period. In 2000, 1999 and 1998, 0.7, 0.1 and 0.3 PARS vested,
respectively, and 0.2, 0.3, and 0 PARS were converted into shares of Hexcel
common stock, respectively. Approximately $4.5, $0.5 and $1.7 of compensation
expense was recognized in 2000, 1999 and 1998, respectively, with respect to the
PARS. In 2000, $2.4 of PARS compensation expense was recognized due to
accelerated vesting as a result of the attainment of certain financial and other
performance targets as well as the change in control transaction.
77
Stock option data for the three years ended December 31, 2000, 1999 and
1998, were:
- --------------------------------------------------------------------------------- --------------- -------------------
WEIGHTED
AVERAGE
NUMBER OF EXERCISE
OPTIONS PRICE
- ---------------------------------------------------------------------------------- -------------- ----- -------------
Options outstanding as of January 1, 1998 4.9 $ 15.39
Options granted 3.2 $ 12.23
Options exercised (0.2) $ 8.53
Options expired or canceled (2.8) $ 18.52
- ---------------------------------------------------------------------------------- -------------- ----- -------------
Options outstanding as of December 31, 1998 5.1 $ 12.05
Options granted 1.0 $ 6.57
Options expired or canceled (0.2) $ 11.81
- ---------------------------------------------------------------------------------- -------------- ----- -------------
Options outstanding as of December 31, 1999 5.9 $ 11.18
Options granted 1.6 $ 9.23
Options exercised (0.3) $ 6.52
Options expired or canceled (0.5) $ 11.85
- ---------------------------------------------------------------------------------- -------------- ----- -------------
Options outstanding as of December 31, 2000 6.7 $ 10.56
- ---------------------------------------------------------------------------------- -------------- ----- -------------
As previously discussed in Note 10, approximately 1.3 of stock options,
with exercise prices ranging from $2.41 to $29.63 per share, and having a
weighted average exercise price of $8.99 per share, became vested as a result of
the change in control event. The number of options exercisable as of December
31, 2000, 1999 and 1998 were 3.9, 2.1 and 1.5, respectively, at a weighted
average exercise price per share of $10.80, $12.02 and $11.54, respectively.
The following table summarizes information about stock options outstanding
as of December 31, 2000:
- ---------------------------- ------------------------------------------------------ ----------------------------------
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ---------------------------- ------------------------------------------------------ ----------------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER OF AVERAGE AVERAGE NUMBER OF AVERAGE
RANGE OF OPTIONS REMAINING EXERCISE OPTIONS EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (IN YEARS) PRICE EXERCISABLE PRICE
- ---------------------------- ---------------- ------------------ ------------------ ---------------- -----------------
$ 2.41 - 4.53 0.2 5.6 $ 3.52 0.1 $ 3.18
$ 4.54 - 9.94 2.6 8.7 $ 7.37 1.5 $ 7.00
$ 9.95 - 14.99 3.4 7.4 $ 11.93 1.7 $ 12.25
$ 15.00 - 18.50 0.4 6.1 $ 16.54 0.5 $ 16.56
$ 18.51 - 29.63 0.1 6.9 $ 24.26 0.1 $ 24.34
- ----- ---------------------- ---------------- ------------------ ----- ------------ ---------------- ---- ------------
$ 2.41 - 29.63 6.7 7.8 $ 10.56 3.9 $ 10.80
- ----- ---------------------- ---------------- ------------------ ----- ------------ ---------------- ---- ------------
EMPLOYEE STOCK PURCHASE PLAN ("ESPP")
Hexcel maintains an ESPP, under which eligible employees may contribute up
to 10% of their base earnings toward the quarterly purchase of the Company's
common stock at a purchase price equal to 85% of the fair market value of the
common stock on the purchase date. The maximum number of shares of common stock
reserved for issuance under the ESPP is 0.2. During 2000, 1999 and 1998, an
aggregate total of 0.2 shares of common stock were issued under the ESPP.
78
PRO FORMA DISCLOSURES
The Company has elected to continue to follow APB Opinion No. 25 for
accounting for its stock-based incentive plans. Had compensation expense for the
Company's stock option plans been determined as prescribed by SFAS 123, pro
forma net income (loss) and related per share amounts would have been as
follows:
- ----------------------------------------------------------------- ---------------- --------------- ----------------
2000 1999 1998
- ----------------------------------------------------------------- ---- ----------- --- ----------- --- ------------
Net income (loss):
As reported $ 54.2 $ (23.3) $ 50.4
Pro forma 48.9 (25.8) 48.2
Basic net income (loss) per share:
As reported $ 1.47 $ (0.64) $ 1.38
Pro forma 1.33 (0.71) 1.31
Diluted net income (loss) per share:
As reported $ 1.32 $ (0.64) $ 1.24
Pro forma 1.21 (0.71) 1.19
- ----------------------------------------------------------------- ---- ----------- --- ----------- --- ------------
The weighted average fair value of options granted, as determined by the
Black-Scholes pricing model, during 2000, 1999 and 1998 was $4.48, $6.57 and
$12.23, respectively. The following ranges of assumptions were used in the
Black-Scholes pricing models for options granted in 2000, 1999 and 1998:
risk-free interest of 4.6% to 6.5%; estimated volatility of 40% to 50%; dividend
yield of 0.0%; and an expected life of 4 to 5 years.
NOTE 14 - NET INCOME (LOSS) PER SHARE
Computations of basic and diluted net income (loss) per share for the
years ended December 31, 2000, 1999 and 1998, are as follows:
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
2000 1999 1998
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Basic net income (loss) per share:
Net income (loss) $ 54.2 $ (23.3) $ 50.4
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Weighted average common shares outstanding 36.8 36.4 36.7
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Basic net income (loss) per share $ 1.47 $ (0.64) $ 1.38
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Diluted net income (loss) per share:
Net income (loss) $ 54.2 $ (23.3) $ 50.4
Effect of dilutive securities:
Convertible subordinated notes, due 2003 5.1 - 5.1
Convertible subordinated debentures, due 2011 1.1 - 1.1
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Adjusted net income (loss) $ 60.4 $ (23.3) $ 56.6
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Weighted average common shares outstanding 36.8 36.4 36.7
Effect of dilutive securities:
Stock options 0.8 - 0.9
Convertible subordinated notes, due 2003 7.2 - 7.2
Convertible subordinated debentures, due 2011 0.9 - 0.9
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Diluted weighted average common shares outstanding 45.7 36.4 45.7
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
Diluted net income (loss) per share $ 1.32 $ (0.64) $ 1.24
- ---------------------------------------------------------------- ---- ------------ ---- ----------- ----- -----------
The convertible subordinated notes, due 2003, the convertible subordinated
debentures, due 2011, and the stock options were excluded from the 1999
computation of diluted net loss per share, as they were antidilutive.
79
Approximately 4.5 stock options were excluded from the 2000 calculation of
diluted net income per share. The exercise price for these stock options ranged
from approximately $9.19 to $29.63 per share, with the weighted average price
being approximately $12.55 per share. Substantially all of the Company's stock
options were included in the calculation of the diluted net income per share for
the year ended December 31, 1998.
NOTE 15 - DERIVATIVE FINANCIAL INSTRUMENTS
As of December 31, 2000 and 1999, the Company had an interest rate cap
agreement outstanding which provided a maximum fixed rate of 5.5% on the
applicable London interbank rate on a notional amount of $50.0 of the Senior
Credit Facility. The cost of the interest rate cap was being amortized to
interest expense over the term of the contract. As of December 31, 2000 and
1999, the fair value and carrying amount of this contract was not material to
Hexcel's consolidated financial statements.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS (UNAUDITED)
In January 2001, Hexcel entered into a number of foreign currency forward
exchange contracts to exchange U.S. dollars for Euros at fixed rates on
specified dates through March 2005. The aggregate notional amount of these
contracts is $96.7. The purpose of these contracts is to hedge an equivalent
amount of projected U.S. dollar receipts by two of the Company's European
subsidiaries, under long-term sales contracts with certain customers. These
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.
NOTE 16 - CONTINGENCIES
Hexcel is involved in litigation, investigations and claims arising out of
the conduct of its business, including those relating to commercial
transactions, as well as to environmental, health and safety matters. The
Company estimates and accrues its liabilities resulting from such matters based
on a variety of factors, including outstanding legal claims and proposed
settlements; assessments by internal and external counsel of pending or
threatened litigation; and assessments by environmental engineers and
consultants of potential environmental liabilities and remediation costs. Such
estimates exclude counterclaims against other third parties. Such estimates are
not discounted to reflect the time value of money due to the uncertainty in
estimating the timing of the expenditures, which may extend over several years.
Although it is impossible to determine the level of future expenditures for
legal, environmental and related matters with any degree of certainty, it is the
Company's opinion, based on available information, that it is unlikely that
these matters, individually or in the aggregate, will have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company.
LEGAL AND ENVIRONMENTAL CLAIMS AND PROCEEDINGS
Hexcel has been named as a potentially responsible party with respect to
several hazardous waste disposal sites that it does not own or possess, which
are included on the Superfund National Priority List of the U.S. Environmental
Protection Agency or on equivalent lists of various state governments. The
Company believes that it has limited or no liability for cleanup costs at these
sites, and intends to vigorously defend itself in these matters.
Pursuant to the New Jersey Environmental Responsibility and Clean-Up Act,
Hexcel signed an administrative consent order to pay for the environmental
remediation of a manufacturing facility it owns and formerly operated in Lodi,
New Jersey. The Company's estimate of the remaining cost to satisfy this consent
order is accrued in the accompanying consolidated balance sheets. The ultimate
cost of remediating the Lodi site will depend on developing circumstances.
Hexcel was party to a cost-sharing agreement regarding the operation of
certain environmental remediation systems necessary to satisfy a post-closure
80
care permit issued to a previous owner of the Company's Kent, Washington, site
by the U.S. Environmental Protection Agency. Under the terms of the cost-sharing
agreement, the Company was obligated to reimburse the previous owner for a
portion of the cost of the required remediation activities. Management has
determined that the cost-sharing agreement terminated on December 22, 1998;
however, the other party disputes this determination. The Company's estimate of
the remaining costs associated with the cleanup of this site is accrued in the
accompanying consolidated balance sheets.
OTHER PROCEEDINGS
Hexcel is aware of a grand jury investigation being conducted by the
Antitrust Division of the United States Department of Justice with respect to
the carbon fiber and carbon fiber prepreg industries. The Department of Justice
appears to be reviewing the pricing of all manufacturers of carbon fiber and
carbon fiber prepreg since 1993. The Company, along with other manufacturers of
these products, has received a grand jury subpoena requiring production of
documents to the Department of Justice. The Company is not in a position to
predict the direction or outcome of the investigation; however, it is
cooperating with the Department of Justice.
In 1999, Hexcel was joined in a purported class action lawsuit alleging
antitrust violations in the sale of carbon fiber, carbon fiber industrial
fabrics and carbon fiber prepreg. The Company was one of many manufacturers
joined in the lawsuit, which was spawned from the Department of Justice
investigation. The lawsuit is in its preliminary stages and the Company is not
in a position to predict the outcome, but believes that the lawsuit is without
merit as to the Company.
NOTE 17 - SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information, including non-cash financing and
investing activities, for the years ended December 31, 2000, 1999 and 1998,
consist of the following:
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
2000 1999 1998
- ---------------------------------------------------------------- ----------------- ---------------- -----------------
Cash paid for:
Interest $ 63.3 $ 59.1 $ 28.8
Taxes 11.5 17.7 26.4
- ---------------------------------------------------------------- ----- ----------- ---- ----------- ----- -----------
Non-cash items:
Common stock issued under incentive plans 4.2 0.7 1.9
Conversion of senior subordinated notes, due 2003 - - 0.1
Capital lease obligation in connection with the
acquisition of the Clark-Schwebel business - - 50.0
- ---------------------------------------------------------------- ----- ----------- ---- ----------- ----- -----------
NOTE 18 - SEGMENT INFORMATION
Hexcel's business segments and related products are as follows:
REINFORCEMENT PRODUCTS: This segment manufactures and sells carbon fibers
and carbon, glass and aramid fiber fabrics. These reinforcement products
comprise the foundation of most composite materials, parts and structures. The
segment weaves electronic fiberglass fabrics that are a substrate for printed
circuit boards. All of the Company's electronics sales come from reinforcement
fabric sales. This segment also sells products for industrial applications such
as decorative blinds and soft body armor. In addition, this segment sells to the
Company's Composite Materials business segment, and to other third-party
customers in the commercial aerospace and space and defense markets. Sales from
the acquired Clark-Schwebel business are included in this business segment.
COMPOSITE MATERIALS: This segment manufactures and sells composite
materials, including prepregs, honeycomb, structural adhesives, sandwich panels
81
and specially machined honeycomb parts, primarily to the commercial aerospace
and space and defense markets, as well as to industrial markets. This segment
also sells to the Company's Engineered Products business segment.
ENGINEERED PRODUCTS: This segment manufactures and sells a range of
lightweight, high-strength composite structures primarily to the commercial
aerospace and space and defense markets. As discussed in Note 2, the Engineered
Products business segment includes the results of the Bellingham aircraft
interiors businesses, up to the date of its disposal on April 26, 2000. This
business manufactured and sold composite interiors to the aircraft refurbishment
market.
The financial results for Hexcel's business segments have been prepared
using a management approach, which is consistent with the basis and manner in
which Hexcel management internally segregates financial information for the
purposes of assisting in making internal operating decisions. Hexcel evaluates
performance based on adjusted income before business consolidation expenses,
interest and taxes ("Adjusted EBIT"), and generally accounts for intersegment
sales based on arm's-length prices. Corporate and other expenses are not
allocated to the business segments, except to the extent that the expenses can
be directly attributable to the business segments.
The following table presents financial information on the Company's
business segments as of December 31, 2000, 1999 and 1998, and for the years then
ended:
- ------- ---------- ----------------- ----------------- --------------- ---------------- --------------- --------------
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE/
PRODUCTS MATERIALS PRODUCTS ELIMINATIONS TOTAL
- ------- ---------- ----------------- ----------------- --------------- ---------------- --------------- --------------
Third-Party Sales
2000 $ 359.2 $ 567.0 $ 129.5 $ - $ 1,055.7
1999 330.9 605.9 214.7 - 1,151.5
1998 224.8 658.0 206.2 - 1,089.0
- ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ----------
Intersegment sales
2000 97.5 7.1 - (104.6) -
1999 111.0 9.0 - (120.0) -
1998 130.3 11.8 0.1 (142.2) -
- ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ----------
Adjusted EBIT
2000 46.2 68.5 6.0 (34.4) 86.3
1999 33.7 68.0 22.4 (35.1) 89.0
1998 57.4 82.7 20.5 (30.9) 129.7
- ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ----------
Depreciation & amortization
2000 34.1 18.5 3.3 2.8 58.7
1999 34.4 20.3 3.5 3.1 61.3
1998 23.6 17.4 3.3 3.2 47.5
- ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ----------
Equity in earnings and writedown of
investments in affiliated companies
2000 5.9 - (0.4) - 5.5
1999 (20.0) - - - (20.0)
1998 0.5 - - - 0.5
- ------- ---------- ----------------- -- -------------- ----- ---------- --- ----------- ---- ----------- --- ----------
Business consolidation expenses
2000 (1.4) 10.9 1.4 - 10.9
1999 6.7 9.7 1.6 2.1 20.1
1998 1.6 3.2 5.5 2.4 12.7
- ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ----------
Business consolidation payments
2000 2.2 7.2 1.9 0.5 11.8
1999 2.7 3.0 0.3 3.5 9.5
1998 0.6 7.1 - 1.0 8.7
- ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ----------
Segment assets
2000 704.6 377.7 84.2 44.9 1,211.4
1999 712.5 359.3 115.4 74.7 1,261.9
1998 788.4 428.2 140.5 47.1 1,404.2
- ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ----------
82
- ------- ----------- ---------------- ----------------- ---------------- ---------------- ---------------- --------------
REINFORCEMENT COMPOSITE ENGINEERED CORPORATE/
PRODUCTS MATERIALS PRODUCTS ELIMINATIONS TOTAL
- ------- ----------- ---------------- ----------------- ---------------- ---------------- ---------------- --------------
Investments in affiliated companies
2000 $ 59.6 $ - $ 12.5 $ - $ 72.1
1999 54.0 - 4.7 - 58.7
1998 70.3 - - - 70.3
- ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ----------
Capital expenditures
2000 15.6 21.2 1.1 1.7 39.6
1999 14.0 16.1 5.0 0.5 35.6
1998 21.1 33.3 9.2 2.9 66.5
- ------- ---------- ------------------ -- ------------- ---- ---------- ---- ----------- --- ----------- --- ----------
A reconciliation of the totals reported for Adjusted EBIT to consolidated
income (loss) before income taxes is as follows:
- ----------------------------------------------------------------- ---------------- ----------------- -----------------
2000 1999 1998
- ----------------------------------------------------------------- ---------------- ----------------- -----------------
Total Adjusted EBIT for reportable segments & corporate $ 86.3 $ 89.0 $ 129.7
Total consolidated business consolidation expenses (10.9) (20.1) (12.7)
Interest expense (68.7) (73.9) (38.7)
Gain on sale of Bellingham aircraft interiors business 68.3 - -
- ----------------------------------------------------------------- -- ------------- --- ------------- ---- ------------
Consolidated income (loss) before income taxes 75.0 (5.0) 78.3
- ----------------------------------------------------------------- -- ------------- --- ------------- ---- ------------
GEOGRAPHIC DATA
Sales and long-lived assets, by geographic area, consisted of the following
for the three years ended December 31, 2000, 1999 and 1998:
- ---------------------------------------------------------------- ----------------- ----------------- -----------------
2000 1999 1998
- ---------------------------------------------------------------- ----------------- ----------------- -----------------
Net sales to external customers:
United States $ 650.7 $ 744.1 $ 687.6
International
France 164.6 168.1 178.8
United Kingdom 75.0 76.4 66.0
Other 165.4 162.9 156.6
- ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total international 405.0 407.4 401.4
- ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated net sales 1,055.7 1,151.5 1,089.0
- ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Long-lived assets:
United States 746.6 793.5 831.4
International
France 35.1 36.6 42.2
United Kingdom 46.0 44.0 46.4
Other 28.1 22.8 31.7
- ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total international 109.2 103.4 120.3
- ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Total consolidated long-lived assets $ 855.8 $ 896.9 $ 951.7
- ---------------------------------------------------------------- --- ------------- --- ------------- ---- ------------
Net sales are attributed to geographic areas based on the location in which
the sale originated. U.S. net sales include U.S. exports to non-affiliates of
$47.7, $91.4 and $100.0, for the years ended December 31, 2000, 1999 and 1998,
respectively, of which $12.1, $32.7, and $20.9, respectively, were sales
attributable to the Bellingham aircraft interiors business. Long-lived assets
primarily consist of property, plant and equipment, intangibles, investments in
affiliated companies and other assets, less long-term deferred tax assets.
83
SIGNIFICANT CUSTOMERS
To the extent that the end application of net sales can be identified, The
Boeing Company and its subcontractors accounted for approximately 20%, 28% and
35% of 2000, 1999 and 1998 net sales, respectively. Similarly, the Airbus
Industrie consortium and its subcontractors accounted for approximately 13%, 10%
and 11% of 2000, 1999 and 1998 net sales, respectively.
NOTE 19 - QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 2000 and 1999,
were:
- ----------------------------------------------- ---------------- ----------------- ---------------- -----------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
2000
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Net sales $ 279.8 $ 271.6 $ 247.4 $ 256.9
Gross margin 62.2 60.5 51.7 57.0
Business consolidation expenses 1.2 - 3.3 6.4
Operating income 21.8 24.1 13.4 16.1
Net income 2.6 50.4 0.2 1.0
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Net income per share:
Basic $ 0.07 $ 1.38 $ 0.00 $ 0.03
Diluted 0.07 1.14 0.00 0.03
Dividends per share - - - -
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Market price:
High $ 6.25 $ 9.94 $ 15.44 $ 13.56
Low 4.75 5.00 9.38 8.56
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
1999
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Net sales $ 316.2 $ 292.6 $ 274.1 $ 268.6
Gross margin 70.7 66.3 51.5 54.0
Business consolidation expenses 2.8 1.4 13.6 2.3
Operating income 27.2 24.8 2.7 14.2
Net income (loss) 5.2 4.3 (30.1) (2.7)
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Net income (loss) per share:
Basic $ 0.14 $ 0.12 $ (0.82) $ (0.07)
Diluted 0.14 0.12 (0.82) (0.07)
Dividends per share - - - -
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
Market price:
High $ 9.60 $ 11.38 $ 9.06 $ 6.06
Low 6.50 6.94 5.81 5.00
- ----------------------------------------------- -- ------------- --- ------------- -- ------------- --- -------------
As discussed in Note 2, the Bellingham aircraft interiors business was sold
on April 26, 2000, resulting in an after-tax gain of approximately $44, or $0.97
per diluted share.
84