25 January 2002
25 January 2002
Hexcel Corporation reported results for the fourth quarter and full year 2001. For the year, the Company's net loss was $433.7 million, compared to net income in 2000 of $54.2 million.
Results for 2000 included a gain on the sale of the Bellingham aircraft interiors business of $68.3 million ($44.3 million on an after tax basis). Excluding business consolidation and restructuring expenses, impairments of goodwill and other purchased intangibles, and the gain on the sale of the Bellingham business, the Company's pretax loss in 2001 was $13.5 million, as compared to pretax income in 2000 of $17.6 million.
Commenting on Hexcel's fourth quarter results, Mr. David E. Berges, Chairman, President and Chief Executive Officer, said, ""In the fourth quarter, the Company began to dramatically reshape itself to adapt to the new business realities of the post September 11th world. We are well on our way to removing $60.0 million in cash fixed costs. Also during the quarter, we completed the closure of one of the two plants targeted for elimination, reduced inventories by 20%, reduced our capital spending to approximate 60% of depreciation and reassessed the value of all of our assets resulting in several impairments. While the personnel cuts are particularly painful, it is important to note that they are well targeted. Four of the top eleven executive positions have been eliminated (36%), over 30% of the corporate staff has been reduced and almost 20% of all other fixed and indirect positions are being eliminated. R&T, sales and customer service functions were the least affected by the fixed cost actions, and direct labor will only be impacted by customer demand and productivity initiatives. Critical customer programs, growth markets, and strategic research projects have been well funded and staffed.""
Mr. Berges continued, ""I am particularly pleased with our ability to reduce inventory ahead of the decline in customer sales. Our vertical integration allowed us to take immediate action from composite structures, through prepregs and fabric operations, and all the way down to fiber manufacturing once we had visibility to aerospace customer build rate adjustments. While this quick action had a serious impact on absorption and the resultant gross margin, it minimizes the risk of experiencing the kind of multi-tiered inventory glut that the entire electronics industry supply chain suffered from in 2001. With the benefit of lower fixed costs and more normalized inventory to sales tracking, we anticipate recovering from the anomalous fourth quarter gross margins as 2002 progresses.""
Mr. Berges noted, ""We are also pleased with the solid support the banks behind our Senior Credit Facility have continued to provide. I am convinced that in addition to our strong share position and the long-term growth prospects for our markets, our aggressive restructuring actions demonstrated that Hexcel does not intend to be a victim of the external challenges 2001 delivered.
Mr. Berges concluded, ""The impact of this radical reshaping obviously had a devastating impact on the final quarter of 2001. I trust that those who follow us will recognize that the tragedy of September gave us little choice. We cannot always control events, but we can control how we react to them.""
Commercial Aerospace. Sales of composite materials and reinforcement products to Airbus, Boeing and regional aircraft producers began to decline as the quarter progressed due to the anticipated supply chain inventory correction associated with the scheduled 2002 decline in commercial aircraft build rates. Revenues for the 2001 fourth quarter were $124.2 million, 3.9% lower than 2001 third quarter revenue of $129.2 million. For the full year, Hexcel experienced 8.0% revenue growth in this market from higher aircraft build rates in 2001.
Space & Defense. Revenues for the 2001 fourth quarter of $39.7 million were 12.5% higher than the prior quarter and 19.9% higher than the fourth quarter of 2000. Revenues for 2001 were $143.3 million, up 11.1% from 2000.
Electronics. Sales for the 2001 fourth quarter were $11.6 million, down 74.8% from the fourth quarter of 2000. The 2001 fourth quarter revenues remained depressed reflecting the continued impact of the severe industry downturn and inventory correction working through the global electronics market, as well as intense competition for the remaining low levels of customer demand.
Industrial Markets. Sales were $63.6 million in the 2001 fourth quarter compared to $55.2 million in the fourth quarter of 2000. The 15.2% increase in revenues year over year is evident in both the Company's reinforcement products and composite materials segments and reflects, among other things, continued strength in soft body armor, wind energy and new automotive applications. Revenues from recreational applications declined in line with the softening of the global economy.
For the year, the Company's consolidated revenues were $1,009.4 million, compared with consolidated revenues on a pro forma basis of $1,036.8 million for 2000. Revenues declined 2.6% year over year reflecting the severe industry downturn and inventory correction in the electronics market, with sales to that market down $104.2 million or 57.5% year on year. Commercial aerospace revenues were up $40.1 million or 8.0% year on year. Revenues in the space & defense and industrial markets were up 11.1% and 9.8%, respectively, and reflect continuing strengths in these markets. Pro forma revenues give effect to the sale of the Bellingham business as if the transaction had occurred on January 1, 2000.
To respond to the forecasted reductions in commercial aircraft production and the continued weakness in electronics, Hexcel announced a major restructuring plan on November 7, 2001. The plan targets a 20% reduction in cash fixed overhead costs, or $60.0 million, as compared to then current spending rates and results should be visible in the Company's second quarter 2002 performance. The plan also provides for the reduction of direct manufacturing employment as customer orders decline. The cash fixed cost reductions are primarily being achieved through company wide reductions of managerial, professional, indirect manufacturing and administrative employees along with organizational rationalization. The majority of the actions necessary to effect this cost reduction had been taken by the end of the quarter and the Company will complete virtually all of these actions in the first quarter of 2002. As a result, at the end of 2001, Hexcel employed 5,376 people, down almost 15% from September, and we expect to reduce that number to approximately 4,500 by the end of 2002. The fourth quarter 2001 restructuring plan has resulted in a $47.9 million charge to earnings for the Company with cash costs expected to approximate $35.0 million. Cash costs of approximately $3.0 million were incurred in the fourth quarter. The balance will be incurred over the next four quarters. The Company also incurred business consolidation expenses of $3.2 million during the quarter primarily relating to its previously announced actions to close its Gilbert (AZ) and Lancaster (OH) pre-preg manufacturing plants. The closure of the Gilbert plant was completed during the quarter ahead of schedule and it is anticipated that the Lancaster plant closure will be completed in the second quarter of 2002.
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