Regulatory News:
Hexcel Corporation (NYSE:HXL)(Paris:HXL):
Quarter Ended
September 30,
Nine Months Ended
September 30,
(In millions, except per share data)
2012 2011 % Change
2012 2011 % Change Net
Sales
$ 391.6 $ 351.8 11.3%
$ 1,190.9 $
1,037.1 14.8% Net sales change in constant currency 13.4% 17.0%
Operating Income
60.0 46.0 30%
194.5 142.6 36% Net
Income
39.8 32.2 24%
127.4 96.0 33% Diluted net
income per common share
$ 0.39 $ 0.32 22%
$
1.25 $ 0.95 32% Non-GAAP Measures for y-o-y
comparisons: Adjusted Operating Income (table C)
$
60.0 $ 48.7 23%
$ 185.0 $ 139.6 33% As a % of
sales
15.3% 13.8%
15.5% 13.5% Adjusted Net Income
(table C)
39.8 34.0 17.1%
122.1 91.2 34% Adjusted
diluted net income per share
$ 0.39 $
0.34 14.7%
$ 1.20 $ 0.91
32%
Hexcel Corporation (NYSE:HXL), today reported results for the
third quarter of 2012. Net sales during the quarter were $391.6
million, 11.3% higher than the $351.8 million reported for the
third quarter of 2011. Operating income for the period was $60.0
million, compared to $46.0 million last year, while net income for
the third quarter of 2012 was $39.8 million, or $0.39 per diluted
share, compared to $32.2 million or $0.32 per diluted share in
2011. Excluding the impact of items in Table C, adjusted diluted
net income for the third quarter of 2012 was $0.39 per share
compared to $0.34 per share in 2011.
Chief Executive Officer
Comments
Mr. Berges commented, “Hexcel’s results continue to be strong,
as solid execution and increased sales combined to yield another
quarter with excellent performance. For the quarter, adjusted
operating income grew 23% over the same period last year on 13%
constant currency revenue growth, resulting in a 150 basis point
improvement in operating margins.”
Looking ahead, Mr. Berges said, “As we expect continued year
over year sales growth and operational performance, we are
increasing our 2012 guidance for adjusted diluted EPS to $1.54 to
$1.59 (from $1.45 to $1.55). We are also narrowing the sales range
to $1.56 billion to $1.59 billion (from $1.55 billion to $1.65
billion). Additionally, we have revised our capital spending plan
to incorporate recent yield and productivity improvements, reduced
cycle time to replicate and qualify new lines, and our latest
demand model. We are lowering our 2012 accrued capital expenditure
guidance to $230 million to $250 million (from $250 million to $275
million) and expect 2013 to be around $200 million.”
Markets
Commercial Aerospace
- Commercial Aerospace sales of $234.1
million increased 12.9% (13.6% in constant currency) for the
quarter as compared to the third quarter of 2011. Revenues
attributed to new aircraft programs (A380, A350, B787, B747-8)
increased more than 30% versus the same period last year and
comprise about 30% of Commercial Aerospace sales. Sales for Airbus
and Boeing legacy aircraft comprise more than half of commercial
aerospace sales and were up about 9% compared to the third quarter
of 2011.
- Sales to “Other Commercial Aerospace,”
which include regional and business aircraft customers, were about
the same as the third quarter of 2011, though about 10% lower than
first half levels.
Space & Defense
- Space & Defense sales of $90.6
million were 12.0% higher (14.4% in constant currency) than the
third quarter of 2011. We continue to benefit from civil and
military rotorcraft growth across all regions.
Industrial
- Total Industrial sales of $66.9 million
for the third quarter of 2012 were 5.4% higher (11.5% in constant
currency) than the third quarter of 2011. Sales to wind turbine
manufacturers were up significantly from last year’s third quarter,
but were down almost 20% versus the second quarter of 2012, as we
begin to see the impact of a U.S. slowdown. Third quarter sales
from our U.S. wind facility were less than 30% of our global wind
sales.
Tax
- The tax provision was $18.0 million for
the third quarter of 2012, an effective tax rate of 31.1%,
reflecting the reduction in our year to date rate to 31.6%. Last
year’s third quarter tax provision was $12.0 million, an effective
tax rate of 27.4%, as last year benefited from a release of $1.0
million of reserves for uncertain tax positions and a reduction in
our estimated tax rate for 2011 to 31%.
Cash and other
- Free cash flow (defined as cash
provided from operating activities less cash paid for capital
expenditures) for the first nine months of 2012 was a use of $58.4
million versus a source of $11.5 million in the first nine months
of 2011, reflecting increased capital expenditures partially offset
by $48.6 million increase in adjusted EBITDA (see Table C) for the
comparable period. Cash paid for capital expenditures was $208.9
million in the first nine months of 2012 compared to $99.5 million
in the first nine months of 2011. Accrued capital expenditures were
$174.7 million for the first nine months of 2012.
- Total debt, net of cash as of September
30, 2012 was $253.2 million, a decrease of $14.1 million from June
30, 2012.
- Foreign exchange rates contributed
about 30 basis points to the higher operating income percentage in
the third quarter of 2012 as compared to 2011.
2012 Outlook
We have updated our 2012 outlook:
- Sales to be in the range of $1.56
billion to $1.59 billion (previously the range was $1.55 billion to
$1.65 billion). The strengthening of the dollar against the Euro
and the GBP results in a reduction of our reported sales. At
today’s exchange rates, our reported sales for the full year will
be $35 million to $40 million less than at the rates forecasted at
the beginning of the year.
- Adjusted diluted earnings per share to
be in the range of $1.54 to $1.59 (versus prior guidance of $1.45
to $1.55).
- Accrual basis capital expenditures to
be in the range of $230 million to $250 million (versus prior
guidance of $250 million to $275 million). We expect our capital
spending to be funded by our cash from operating activities and our
existing credit facilities. We expect free cash flow for the year
to be a use of cash in the range of $40 million to $60 million
(improved from a use of $50 million to $75 million in prior
guidance).
*****
Hexcel will host a conference call at 10:00 A.M. ET, tomorrow,
October 23, 2012 to discuss the third quarter results and respond
to analyst questions. The telephone number for the conference call
is (719) 325-2144 and the confirmation code is 5171354. The call
will be simultaneously hosted on Hexcel’s web site at
www.hexcel.com/investors/index.html. Replays of the call will be
available on the web site for approximately three days.
*****
Hexcel Corporation is a leading advanced composites company. It
develops, manufactures and markets lightweight, high-performance
structural materials, including carbon fibers, reinforcements,
prepregs, honeycomb, matrix systems, adhesives and composite
structures, used in commercial aerospace, space and defense and
industrial applications such as wind turbine blades.
*****
Disclaimer on Forward Looking Statements
This press release contains statements that are forward looking,
including statements relating to anticipated trends in constant
currency for the market segments we serve (including changes in
commercial aerospace revenues, the estimates and expectations based
on aircraft production rates made publicly available by Airbus and
Boeing, the revenues we may generate from an aircraft model or
program, the impact of delays in new aircraft programs, the outlook
for space & defense revenues and the trend in wind energy,
recreation and other industrial applications); our ability to
maintain and improve margins in light of the changes in product
mix, efficiency improvements, continued cost reduction efforts and
the current economic environment; outcome of legal matters; the
magnitude and timing of capital expenditures in relation to market
demand; and the impact of the above factors on our expectations of
2012 financial results. Actual results may differ materially from
the results anticipated in the forward looking statements due to a
variety of factors, including but not limited to changing market
conditions, increased raw material costs, competition, product mix,
inability to achieve planned manufacturing improvements and cost
reductions, supply chain disruptions, conditions in the financial
markets and changes in currency exchange rates, interest rates,
governmental and environmental regulations and tax codes.
Additional risk factors are described in our filings with the SEC.
We do not undertake an obligation to update our forward-looking
statements to reflect future events.
Hexcel Corporation and Subsidiaries Condensed
Consolidated Statements of Operations
Unaudited
Quarter Ended
September 30,
Nine Months Ended
September 30,
(In millions, except per share data)
2012
2011
2012 2011 Net
sales
$ 391.6 $ 351.8
$ 1,190.9
$ 1,037.1 Cost of sales
292.4
265.3
879.8
780.6 Gross margin
99.2 86.5
311.1 256.5 % Gross margin
25.3 % 24.6 %
26.1 % 24.7 % Selling, general and
administrative expenses
30.3 29.9
99.4 92.5 Research
and technology expenses
8.9 7.9
26.7 24.4 Other
operating (income) expense (a)
—
2.7
(9.5 )
(3.0 ) Operating income
60.0 46.0
194.5 142.6
Interest expense, net
2.2 2.2
8.2 9.3
Non-operating expense (b)
—
—
1.1 4.9
Income before income taxes and equity in earnings
from affiliated companies
57.8 43.8
185.2 128.4
Provision for income taxes (c)
18.0
12.0
58.5
33.5 Income before equity in earnings from
affiliated companies
39.8 31.8
126.7 94.9 Equity in
earnings from affiliated companies
—
0.4
0.7
1.1 Net income
$ 39.8
$ 32.2
$ 127.4
$ 96.0 Basic net income per
common share:
$ 0.40 $ 0.33
$
1.27 $ 0.97 Diluted net income per
common share:
$ 0.39 $ 0.32
$
1.25 $ 0.95 Weighted-average
common shares: Basic
100.3 99.0
100.1 98.6
Diluted
102.1 101.1
102.0 100.7
(a) Other operating income for the nine months ended September
30, 2012 includes income from a $9.6 million business interruption
insurance settlement related to a prior year claim, a $4.9 million
gain on the sale of land and a $5.0 million charge for additional
environmental reserves primarily for remediation of a manufacturing
facility sold in 1986. For the nine months ended September 30, 2011
other operating income is a $5.7 million benefit from the
curtailment of a pension plan and a $2.7 million charge for
additional environmental reserves for remediation of a
manufacturing facility sold in 1986.
(b) Non-operating expense is the accelerated amortization of
deferred financing costs and expensing of the call premium from
redeeming $73.5 million in June 2012 and $150 million in February
2011 of the Company’s 6.75% senior subordinated notes.
(c) Provision for income taxes for the nine months ended
September 30, 2011 includes a release of $5.5 million of reserves
primarily for uncertain tax positions as a result of an audit
settlement.
Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance
Sheets
Unaudited
(In millions)
September 30, 2012 December 31,
2011
Assets Current assets: Cash and cash
equivalents $
43.2 $ 49.5 Accounts receivable, net
242.2 199.3 Inventories, net
235.7 215.7 Current
deferred tax assets and other current assets
63.1 59.8 Total current assets
584.2 524.3 Property, plant and equipment
1,391.0 1,223.5 Less accumulated depreciation
(532.8 ) (501.4 ) Property, plant and
equipment, net
858.2 722.1 Goodwill and other
intangible assets, net
57.7 57.4 Investments in affiliated
companies
21.9 21.7 Deferred tax assets
28.0 33.0
Other assets
16.9 17.6
Total assets $
1,566.9 $ 1,376.1
Liabilities and Stockholders' Equity Current
liabilities: Notes payable and current maturities of capital lease
obligations $
17.1 $ 12.6 Accounts payable
104.3
141.7 Accrued liabilities
108.1
93.2 Total current liabilities
229.5 247.5
Long-term notes payable and capital lease obligations
279.3 238.3 Other non-current liabilities
109.2 88.1 Total liabilities
618.0 573.9 Stockholders' equity: Common stock, $0.01
par value, 200.0 shares authorized, 102.2 shares issued at
September 30, 2012 and 101.0 shares issued at December 31, 2011
1.0 1.0 Additional paid-in capital
612.2 589.2
Retained earnings
411.3 283.9 Accumulated other
comprehensive loss
(36.4 )
(39.8 )
988.1 834.3 Less – Treasury stock, at cost,
2.5 shares and 2.2 shares at September 30, 2012 and December 31,
2011, respectively
(39.2 )
(32.1 ) Total stockholders' equity
948.9 802.2 Total liabilities
and stockholders' equity $
1,566.9 $
1,376.1
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited Year to Date Ended
September 30,
(In millions)
2012 2011
Cash
flows from operating activities Net income
$
127.4 $ 96.0 Reconciliation to net cash provided by
operating activities: Depreciation and amortization
43.0
41.6 Amortization of deferred financing costs and call premium
expense
2.5 6.4 Deferred income taxes
21.3 27.4
Equity in earnings from affiliated companies
(0.7 )
(1.1 ) Share-based compensation
13.1 11.3 Gain on sale of
land
(4.9 ) Pension curtailment gain
—
(5.7 ) Excess tax benefits on share-based compensation
(5.8
) (3.7 ) Changes in assets and liabilities: Increase
in accounts receivable
(45.0 ) (31.8 ) Increase in
inventories
(20.7 ) (41.8 ) (Increase) decrease in
other current assets
1.5 (2.0 ) Increase in accounts payable
and accrued liabilities
26.9
18.4 Other – net
(8.1 )
(4.0 ) Net cash provided by operating activities (a)
150.5 111.0
Cash flows
from investing activities Proceeds from sale of land
5.3
— Capital expenditures (b)
(208.9 ) (99.5 )
Settlement of foreign currency hedge
—
(5.2 ) Net cash used for investing activities
(203.6 ) (104.7 )
Cash flows from financing activities Borrowings from senior
secured credit facility
122.0 135.0 Repayments of capital
lease obligations and other debt, net
1.8 (3.6 ) Issuance
costs related to senior secured credit facility
(0.6
) — Call premium payment for 6.75% senior subordinated notes
(0.8 ) (3.4 ) Repayment of senior secured credit
facility – term loan
(5.0 ) (3.8 ) Repayment of 6.75%
senior subordinated notes
(73.5 ) (150.0 ) Repayment
of senior secured credit facility
— (61.0 ) Activity under
stock plans
3.0 9.1
Net cash provided by (used in) financing activities
46.9 (77.7 ) Effect of
exchange rate changes on cash and cash equivalents
(0.1 ) 2.6 Net decrease in cash
and cash equivalents
(6.3 ) (68.8 ) Cash and cash
equivalents at beginning of period
49.5
117.2 Cash and cash equivalents at end of
period
$ 43.2 $ 48.4
Supplemental Data: Free cash flow (a)+(b)
$
(58.4 ) $ 11.5 Accrual basis additions to property,
plant and equipment
$ 174.7 $ 104.3
Hexcel
Corporation and Subsidiaries Net Sales to Third-Party
Customers by Market Segment Quarters Ended September 30,
2012 and 2011 (Unaudited) Table A (In
millions)
As Reported Constant Currency
(a) Market Segment 2012
2011
B/(W) % FX
Effect (b)
2011 B/(W)
%
Commercial Aerospace
$ 234.1 $ 207.4
12.9 $ (1.4)
$ 206.0
13.6 Space & Defense
90.6 80.9
12.0
(1.7)
79.2 14.4 Industrial
66.9
63.5
5.4 (3.5)
60.0 11.5 Consolidated Total
$ 391.6 $ 351.8
11.3
$ (6.6)
$ 345.2 13.4
Consolidated % of Net Sales %
%
%
Commercial Aerospace
59.8 59.0
59.7
Space & Defense
23.1 23.0
22.9 Industrial
17.1 18.0
17.4 Consolidated
Total 100.0 100.0
100.0
Nine Months Ended September 30, 2012 and 2011
(Unaudited) (In millions)
As Reported
Constant Currency (a) Market Segment
2012 2011
B/(W) %
FX
Effect (b)
2011 B/(W)
%
Commercial Aerospace
$ 709.9 $ 612.8
15.8 $ (6.5)
$ 606.3
17.1 Space & Defense
263.6 242.3
8.8 (4.2)
238.1 10.7 Industrial
217.4 182.0
19.5
(8.4)
173.6 25.2 Consolidated
Total $ 1,190.9 $ 1,037.1
14.8 $ (19.1)
$ 1,018.0
17.0 Consolidated % of Net Sales
% %
% Commercial Aerospace
59.6 59.1
59.6 Space & Defense
22.1 23.4
23.4
Industrial
18.3 17.5
17.0
Consolidated Total 100.0
100.0
100.0
(a) To assist in the analysis of our net sales trend, total net
sales and sales by market for the quarter and nine months ended
September 30, 2011 have been estimated using the same U.S. dollar,
British pound and Euro exchange rates as applied for the respective
period in 2012 and are referred to as “constant currency”
sales.
(b) FX effect is the estimated impact on “as reported” net sales
due to changes in foreign currency exchange rates.
Hexcel Corporation and Subsidiaries Segment
Information (Unaudited) Table B (In
millions)
Composite Materials (b)
Engineered Products Corporate &
Other (a)(b) Total Third Quarter
2012
Net sales to external customers
$ 299.9 $ 91.7 $
— $ 391.6 Intersegment sales
14.0 0.9
(14.9 ) — Total
sales
313.9 92.6 (14.9 ) 391.6
Operating income (loss)
57.0 14.9 (11.9
) 60.0 % Operating margin
18.2 %
16.1 % 15.3 % Depreciation and
amortization
13.4 1.2 0.1 14.7
Stock-based compensation expense
0.7 0.2 1.7
2.6 Accrual based additions to capital expenditures
55.6 4.6
— 60.2 Third
Quarter 2011
Net sales to external customers $ 262.4 $ 89.4 $ — $
351.8 Intersegment sales 14.6
0.3 (14.9 ) — Total sales
277.0 89.7 (14.9 ) 351.8 Operating income (loss) (b) 45.1 16.2
(15.3 ) 46.0 % Operating margin 16.3 % 18.1 % 13.1 % Other
operating (income) expense (b) — — 2.7 2.7 Depreciation and
amortization 12.5 1.1 0.1 13.7 Stock-based compensation expense 0.9
0.5 1.1 2.5 Accrual based additions to capital expenditures
46.5 2.2 0.5
49.2
First Nine Months 2012
Net sales to external customers
$
932.8 $ 258.1 $ — $
1,190.9 Intersegment sales
44.8
1.2 (46.0 )
— Total sales
977.6 259.3
(46.0 ) 1,190.9 Operating income (loss)
203.7 38.4 (47.6 ) 194.5 %
Operating margin
20.8 % 14.8 %
16.3 % Other operating (income) expense (b)
(14.5 ) — 5.0 (9.5 )
Depreciation and amortization
39.6 3.3 0.1
43.0 Stock-based compensation expense
3.7 0.7
8.7 13.1 Accrual based additions to capital
expenditures
166.2
8.3 0.2
174.7 First Nine Months 2011
Net sales to external
customers $ 795.5 $ 241.6 $ — $ 1,037.1 Intersegment sales
42.4 0.8 (43.2 )
— Total sales 837.9 242.4 (43.2 ) 1,037.1
Operating income (loss) 143.4 40.6 (41.4 ) 142.6 % Operating margin
17.1 % 16.7 % 13.7 % Other operating (income) expense (b)
(5.7 ) — 2.7 (3.0 ) Depreciation and amortization 38.2 3.2 0.2 41.6
Stock-based compensation expense 3.4 0.9 7.0 11.3 Accrual based
additions to capital expenditures 99.2
4.6 0.5 104.3
(a) We do not allocate corporate expenses to the operating
segments.
(b) Other operating income for the nine months ended September
30, 2012 includes income from a $9.6 million business interruption
insurance settlement related to a prior year claim, a $4.9 million
gain on the sale of land and a $5.0 million charge for additional
environmental reserves primarily for remediation of a manufacturing
facility sold in 1986. The third quarter of 2011 includes $2.7
million of charges to the environmental reserves primarily for
remediation at a manufacturing facility sold in 1986. For the nine
months ended September 30, 2011 other operating income is a $5.7
million benefit from the curtailment of a pension plan.
Hexcel Corporation and Subsidiaries Reconciliation of
GAAP and Non-GAAP Operating Income and Net Income
Table C Unaudited Quarter Ended
September 30,
Nine Months Ended
September 30,
(In millions)
2012 2011
2012 2011 GAAP operating income
$ 60.0 46.0
$ 194.5 $ 142.6 - Other
operating (income) expense (a)
—
2.7
(9.5 ) (3.0 )
Adjusted Operating Income
$ 60.0 48.7
$
185.0 $ 139.6 % of Net Sales
15.3 % 13.8 %
15.5 % 13.5 % - Stock Compensation Expense
$
2.6 2.5
$ 13.1 $ 11.3 - Depreciation and
Amortization
14.7 13.7
43.0 41.6 Adjusted
EBITDA
$ 77.3 64.9
$ 241.1 $ 192.5
Unaudited Quarter Ended September 30,
2012
2011 (In millions, except per diluted share data)
As Reported EPS As Reported EPS
GAAP net income
$ 39.8 $
0.39 $ 32.2 $ 0.32 - Other operating (income) expense (net of
tax) (a)
— —
1.8 0.02 Adjusted net income
$ 39.8 $ 0.39
$ 34.0 $ 0.34 Unaudited Nine Months
Ended September 30,
2012 2011 (In millions, except
per diluted share data)
As Reported EPS
As Reported EPS GAAP net income
$
127.4 $ 1.25 $ 96.0 $ 0.95 - Other operating (income)
expense (net of tax) (a)
(6.0 ) (0.06 )
(2.3 ) (0.02 ) - Non-operating expense (net of tax) (b)
0.7
0.01 3.0 0.03 - Benefit from tax audit settlement (c)
— — (5.5 )
(0.05 ) Adjusted net income
$ 122.1
$ 1.20 $ 91.2 $
0.91
(a) Other operating income for nine months ended September 30,
2012 includes income from a $9.6 million business interruption
insurance settlement related to a prior year claim, a $4.9 million
gain on the sale of land and a $5.0 million charge for additional
environmental reserves primarily for remediation of a manufacturing
facility sold in 1986. The third quarter of 2011 includes $2.7
million of charges to the environmental reserves primarily for
remediation at a manufacturing facility sold in 1986. For the nine
months ended September 30, 2011 other operating income is a $5.7
million benefit from the curtailment of a pension plan.
(b) Non-operating expense is the accelerated amortization of
deferred financing costs and expensing of the call premium from
redeeming $73.5 million in June 2012 and $150 million in February
2011 of the Company’s 6.75% senior subordinated notes.
(c) Tax benefit from the release of $5.5 million of reserves
primarily for uncertain tax positions as a result of an audit
settlement.
Management believes that adjusted operating income, adjusted
EBITDA, adjusted net income and free cash flow (defined as cash
provided by operating activities less cash payments for capital
expenditures), which are non-GAAP measurements, are meaningful to
investors because they provide a view of Hexcel with respect to
ongoing operating results excluding special items. Special items
represent significant charges or credits that are important to an
understanding of Hexcel’s overall operating results in the periods
presented. In addition, management believes that total debt, net of
cash, which is also a non-GAAP measure, is an important measure of
Hexcel’s liquidity. Such non-GAAP measurements are not recognized
in accordance with generally accepted accounting principles and
should not be viewed as an alternative to GAAP measures of
performance.
Hexcel Corporation and Subsidiaries Schedule of Total
Debt, Net of Cash Table D Unaudited
September 30, June 30, December 31, (In
millions)
2012 2012 2011 Notes
payable and current maturities of capital lease obligations
$ 17.1 $ 19.2 $ 12.6 Long-term notes payable and
capital lease obligations
279.3
280.7 238.3 Total Debt
296.4 299.9 250.9 Less: Cash and cash equivalents
(43.2 ) (32.6 )
(49.5 ) Total debt, net of cash
$ 253.2
$ 267.3 $ 201.4
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