26 January 2003
26 January 2003
Hexcel’s net sales for the fourth quarter of 2002 were $206.5 million as compared to $239.1 million for the fourth quarter of 2001. Operating income for the fourth quarter of 2002 was $12.3 million versus an operating loss $357.4 million for the fourth quarter of 2001.
Net loss for the fourth quarter of 2002 was $6.1 million, compared to a net loss of $413.8 million, for the fourth quarter of 2001. As of January 1, 2002, the Company adopted FAS 142 and ceased amortizing goodwill. The Company's fourth quarter of 2001 net loss would have been $411.0 million had FAS 142 been in effect at that time.
Fourth quarter 2001 results included $51.1 million in business consolidation and restructuring expenses, and $349.5 million in charges representing impairment of goodwill, certain purchased intangibles, a minority equity investment and U.S. deferred tax assets. Excluding business consolidation and restructuring expenses and the impairment charges, and assuming that the Company ceased amortizing goodwill in 2001, the Company's pretax losses for the fourth quarter of 2002 and 2001 were $2.3 million and $9.2 million, respectively.
For the full year of 2002, net sales were $850.8 million as compared to $1,009.4 million in 2001. Operating income for the year was $60.2 million versus an operating loss of $316.2 million in 2001. Net loss for 2002 was $13.6 million, or $0.35 per diluted share, compared to a net loss of $433.7 million, or $11.54 per diluted share, for 2001. The Company's net loss for 2001 would have been $421.2 million had the Company ceased amortizing goodwill during the period. Excluding business consolidation and restructuring charges, the litigation gain reported in 2002 and the impairment charges reported in 2001, and assuming that the Company ceased amortizing goodwill in 2001, the Company's pretax loss in 2002 was $1.6 million, as compared to a pretax loss of $3.7 million in 2001.
Adjusted EBITDA for the fourth quarter of 2002 was $25.7 million versus $19.9 million for the fourth quarter of 2001. For the full year, Adjusted EBITDA was $109.4 million in 2002 and $119.2 million in 2001. The Company reports Adjusted EBITDA as defined by the Company's senior credit facility, as it is used in the computation of all of the financial covenants in that facility.
Commenting on Hexcel's fourth quarter results, Mr. David E. Berges, Chairman, President and Chief Executive Officer, said, ""In the quarter, the Company continued to benefit from the results of its cost reduction programs launched in November 2001. Throughout the year, we have exceeded our goals for reductions in cash fixed costs. This quarter, those cost reductions permitted us to achieve a more normalized level of operating income as a percentage of sales, despite revenues being $32.6 million, or 13.6%, lower when compared to the fourth quarter of 2001.""
Mr. Berges added, ""I am particularly pleased to report that once again we were able to reduce our total debt during the quarter. During the fourth quarter of 2002, our total debt, net of cash, decreased $22.5 million to $613.5 million. Reductions in inventories by a further $13.5 million to $113.6 million contributed to this reduction in debt. Inventories are now at the lowest point since we acquired the Ciba Composites business in 1996 and yet our on-time delivery performance improved in the year. Net debt is now $60.8 million lower than a year ago despite $24.3 million in cash restructuring costs to right-size our Company.""
Mr. Berges continued, ""The year 2002 was a year of significant accomplishment for Hexcel. Despite a dramatic sales decline due to difficult market conditions, we met all of our financial commitments. For the most part, this was a result of the benefits derived from the restructuring program announced in November of 2001.""
Mr. Berges concluded, ""This performance in the face of adversity, combined with Hexcel's strong market position in the Company's long-term growth markets, facilitated the recently announced agreement to raise $125.0 million in equity. Armed with this new capital commitment, we expect to refinance our senior credit facility with the maturity of the new senior debt set well into the expected recovery cycle.""
Consolidated revenues of $206.5 million for the fourth quarter of 2002 were 13.6% lower than 2001 fourth quarter revenues of $239.1 million, driven overwhelmingly by the sharp reduction in sales to the commercial aerospace market. Had the same U.S. dollar, British pound and Euro exchange rates applied in the fourth quarter of 2002 as in the fourth quarter of 2001, revenues for the fourth quarter of 2002 would have been $199.1 million, reflecting the weakening of the U.S. dollar over the prior year.
Commercial Aerospace. Sales to aircraft producers and their subcontractors continued to reflect the sharp impact of reducing aircraft build rates in 2002 compared to 2001. Revenues for the 2002 fourth quarter were $96.3 million, 22.5% lower than the 2001 fourth quarter revenues of $124.2 million. For the full year, revenues were $391.1 million, 27.4% lower than revenues of $538.9 million in the prior year, reflecting the four to six month lead times in which Hexcel's deliveries precede build schedules.
Industrial Markets. Sales for the 2002 fourth quarter of $59.9 million were 5.8% lower than the $63.6 million reported in the fourth quarter of 2001. The Company saw lower demand for its reinforcement fabrics used in military body armor applications. Sales were impacted by delays in funding for military body armor programs and pending product transition within the military services. Demand for the Company's products used in other non-aerospace applications, including architectural, automotive, civilian body armor, recreation equipment, and wind energy applications, continued to show strength. In particular, sales of composite materials used in wind energy applications achieved record quarterly revenues. Industrial sales for 2002 were $253.9 million, up slightly from $250.2 million in 2001. Due to the lack of clarity in military soft body armor demand, the Company's Industrial revenues may fluctuate for several quarters even though the prospects for growth from wind energy, automotive, and other applications remain strong.
Space & Defense. Revenues of $37.2 million for the fourth quarter of 2002 were 6.3% lower than the unusually strong fourth quarter of 2001. While the Company's space & defense revenues tend to vary quarter to quarter due to military procurement schedules, sales associated with military aircraft and helicopters continue to trend upwards as the new generation of military aircraft in the United States and Europe ramp up in production. For the full year, revenues were $147.5 million, 2.9% higher than revenues of $143.3 million in the prior year.
Electronics. Sales for the 2002 fourth quarter were $13.1 million, up 12.9% from the fourth quarter of 2001. Although sales showed some improvement over the lower sales experienced in the fourth quarter of 2001, sales continue to be affected by a severe industry downturn in the global electronics market that began in 2001 and has persisted throughout 2002. The Company still sees no evidence of a substantial near term recovery in this market. Sales for 2002 were $58.3 million, or 24.3%, lower than 2001 primarily because the industry downturn mentioned above did not begin until late in the first quarter of 2001.
Based, in part, on the factors discussed above, the Company currently estimates that its 2003 net sales are likely to be in the range of $800 million to $850 million.
Gross margin for the fourth quarter of 2002 was $39.6 million, or 19.2% of sales, compared with $35.2 million, or 14.7% of sales, for the same period last year. For the year, gross margin was $161.3 million, or 19.0% of sales, compared with $190.8 million, or 18.9%, for 2001, as the Company's cost reduction programs took effect and operations adjusted to lower levels of production.
Operating income for the 2002 fourth quarter was $12.3 million, or 6.0% of sales, compared to an operating loss of $357.4 million for the 2001 fourth quarter. Operating income for the full year was $60.2 million, or 7.1% of sales. Full year operating income, as a percentage of sales, achieved by the Company in 2002 is at a more normalized level despite a $158.6 million drop in revenues. Included in selling, general and administrative expenses for the 2002 fourth quarter were $1.5 million of expenses incurred in connection with the announced equity investment. Excluding these expenses and the $12.5 million benefit of adopting the new accounting standard for the amortization of goodwill, selling, general and administrative expenses in the year 2002 were $24.0 million lower than in 2001.
Equity in losses of affiliated companies was $1.5 million for the fourth quarter of 2002, reflecting primarily losses reported by the Company's joint ventures in China and Malaysia as they ramp up production of aerospace composite structures. Equity in losses of affiliated companies was $10.1 million in the fourth quarter of 2001, and included a $7.8 million write-down of the Company's carrying value of its equity investment in an affiliated company. These losses by affiliated companies do not affect the Company's cash flows.
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