Regulatory News:
Hexcel Corporation (NYSE:HXL)(Paris:HXL):
Quarter Ended
June 30,
Six Months Ended
June 30,
(In millions, except per share data)
2012
2011 % Change
2012 2011 %
Change Net Sales
$ 399.2 $ 353.7 12.9%
$ 799.3 $ 685.3 16.6% Net sales change in constant
currency 15.7% 18.8% Operating Income
73.9 49.4 50%
134.5 96.6 39% Net Income
48.0 37.4 28%
87.6
63.8 37% Diluted net income per common share
$ 0.47 $
0.37 27%
$ 0.86 $ 0.63 37% Non-GAAP Measures
for y-o-y comparisons: Adjusted Operating Income (table C)
$
64.4 $ 49.4 30%
$ 125.0 $ 90.9 38% As a % of
sales
16.1% 14.0%
15.6% 13.3% Adjusted Net Income
(table C)
42.7 31.9 34%
82.3 57.2 44% Adjusted
diluted net income per share
$ 0.42 $
0.32 31%
$ 0.81 $ 0.57
42%
Hexcel Corporation (NYSE: HXL), today reported results for the
second quarter of 2012. Net sales during the quarter were $399.2
million, 12.9% higher than the $353.7 million reported for the
second quarter of 2011. Operating income for the period was $73.9
million, compared to $49.4 million last year. Net income for the
second quarter of 2012 was $48.0 million, or $0.47 per diluted
share, compared to $37.4 million or $0.37 per diluted share in
2011. Excluding the impact of items in Table C, adjusted diluted
net income for the second quarter of 2012 was $0.42 per share
compared to $0.32 per share in 2011.
Chief Executive Officer
Comments
Mr. Berges commented, “This was another strong quarter for
Hexcel, as solid execution combined with increased sales to yield
excellent results. For the quarter, our adjusted diluted EPS of
$0.42 was 31% higher than last year, on a 16% increase in constant
currency sales. We are also particularly pleased that our adjusted
operating income was 16.1% of net sales for the quarter, over 200
basis points better than last year.”
Looking ahead, Mr. Berges said, “Historically, seasonal effects
result in slightly lower second half margins, but this strong first
half of the year gives us confidence to reaffirm our 2012 guidance
despite global economic concerns. While we were certainly helped by
the revenue growth, our operational execution truly stands out in
our first half as we delivered over 26% incremental operating
income on the growth after excluding the benefits of the strong
dollar.”
Markets
Commercial Aerospace
- Commercial Aerospace sales of $233.5
million increased 12.4% (14.2% in constant currency) for the
quarter as compared to the second quarter of 2011. Combined
revenues attributed to new aircraft programs (A380, A350, B787,
B747-8) increased over 30% versus the same period last year and now
comprise about 30% of Commercial Aerospace sales.
- Sales for Airbus and Boeing legacy
aircraft were up modestly compared to the second quarter of 2011,
but lower than the first quarter of 2012 as sales rates move in
line with current aircraft production levels after a modest
inventory restocking by our customers in the first quarter.
- Sales to “Other Commercial Aerospace,”
which include regional and business aircraft customers, were up
over 10% compared to the same period last year, but down slightly
from the robust level of the first quarter of 2012.
Space & Defense
- Space & Defense sales of $88.1
million were 7.8% higher (10.3% in constant currency) than the
second quarter of 2011. We continue to benefit from rotorcraft
growth.
Industrial
- Total Industrial sales of $77.6 million
for the second quarter of 2012 were 20.9% higher (28.3% in constant
currency) than the second quarter of 2011. Wind sales were up
significantly from the easy comparisons of last year’s second
quarter results, and have now grown sequentially for the last six
quarters. While we are encouraged by this growth and the large
backlog of turbines on order with our largest customer, our
guidance for the year assumes a second half similar to the second
half of 2011 due to economic uncertainties.
Tax
- The tax provision was $22.1 million for
the second quarter of 2012, bringing our year to date effective tax
rate to 31.8%. Last year’s second quarter tax provision was $9.3
million, an effective tax rate of 20.0%, but excluding one-time
benefits taken in the quarter, we had an effective tax rate of
31.9% for the first half of 2011.
Cash and other
- Free cash flow (defined as cash
provided from operating activities less cash paid for capital
expenditures) for the first half of 2012 was a use of $70.6 million
versus a source of $9.5 million in the first half of 2011,
reflecting increased capital expenditures for additional capacity.
Cash paid for capital expenditures was $144.4 million in the first
half of 2012 compared to $67.8 million in the first half of 2011.
Total debt, net of cash as of June 30, 2012 was $267.3 million, an
increase of $6.7 million from March 31, 2012.
- Foreign exchange rates contributed
about 30 basis points to the higher operating income percentage in
the second quarter of 2012 as compared to 2011.
- This quarter’s operating income
included a net $9.5 million of other operating income (after tax of
$0.06 per diluted share) as a result of three items. First, we
settled our business interruption insurance claim from the April
2011 tornado in Decatur, Alabama, which resulted in income of $9.6
million. Second, we recorded a gain of $4.9 million from the sale
of land from a previously closed manufacturing facility. Lastly, we
recorded a $5.0 million charge to the environmental reserves
primarily for remediation at a manufacturing facility sold in
1986.
- As previously announced, the quarter
results include a $1.1 million charge (after tax of $0.01 per
diluted share) from the accelerated amortization of deferred
financing costs and expensing of the call premium from redeeming
the remaining $73.5 million of the 6.75% senior subordinated notes.
The redemption was funded by a $75 million add-on to our senior
secured credit facility.
2012 Outlook
We reaffirm our 2012 outlook:
- Sales to be in the range of $1.55 to
$1.65 billion. The strengthening of the dollar against the Euro and
the GBP has resulted in a reduction of our reported sales. At
today’s exchange rates, our reported sales for the year will be $35
to $45 million less than at the rates at the beginning of the
year.
- Adjusted diluted earnings per share to
be in the range of $1.45 to $1.55.
- Accrual basis capital expenditures to
be in the range of $250 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 $50 to $75 million.
*****
Hexcel will host a conference call at 10:00 A.M. ET, tomorrow,
July 24, 2012 to discuss the second quarter results and respond to
analyst questions. The telephone number for the conference call is
(719) 325-2115 and the confirmation code is 6084663. 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
June 30,
Six Months Ended
June 30,
(In millions, except per share data)
2012 2011
2012 2011 Net sales
$ 399.2
$ 353.7
$ 799.3 $ 685.3 Cost of sales
293.7 266.7
587.4 515.3 Gross margin
105.5
87.0
211.9 170.0 % Gross margin
26.4% 24.6%
26.5% 24.8% Selling, general and administrative
expenses
32.5 29.7
69.1 62.6 Research and technology
expenses
8.6 7.9
17.8 16.5 Other operating (income)
expense (a)
(9.5) —
(9.5) (5.7) Operating income
73.9 49.4
134.5 96.6 Interest expense, net
3.0 2.9
6.0 7.1 Non-operating expense (b)
1.1 —
1.1
4.9 Income before income taxes and equity in earnings
from affiliated companies
69.8 46.5
127.4 84.6
Provision for income taxes (c)
22.1
9.3
40.5 21.5
Income before equity in earnings from affiliated companies
47.7 37.2
86.9 63.1 Equity in earnings from
affiliated companies
0.3 0.2
0.7 0.7 Net income
$ 48.0 $ 37.4
$ 87.6
$ 63.8 Basic net income per common
share:
$ 0.48 $ 0.38
$ 0.88 $ 0.65
Diluted net income per common share:
$ 0.47 $
0.37
$ 0.86 $ 0.63 Weighted-average
common shares: Basic
100.2 98.6
100.0 98.4
Diluted
102.0 100.7
101.9 100.5
(a) Other operating income for the three and six months ended
June 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 six months ended June
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) Provision for income taxes for the quarter ended June 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)
June 30, 2012 December 31, 2011
Assets
Current assets: Cash and cash equivalents $
32.6 $
49.5 Accounts receivable, net
250.4 199.3 Inventories, net
242.2 215.7 Current deferred tax assets and other current
assets
66.4 59.8
Total current assets
591.6 524.3 Property, plant and
equipment
1,324.7 1,223.5 Less accumulated depreciation
(516.2 ) (501.4 )
Property, plant and equipment, net
808.5 722.1
Goodwill and other intangible assets, net
57.4 57.4
Investments in affiliated companies
22.8 21.7 Deferred tax
assets
22.1 33.0 Other assets
14.9
17.6 Total assets $
1,517.3 $ 1,376.1
Liabilities
and Stockholders' Equity Current liabilities: Notes payable and
current maturities of capital lease obligations $
19.2 $
12.6 Accounts payable
121.3 141.7 Accrued liabilities
100.9 93.2 Total current
liabilities
241.4 247.5 Long-term notes payable and
capital lease obligations
280.7 238.3 Other non-current
liabilities
100.7 88.1
Total liabilities
622.8 573.9 Stockholders'
equity: Common stock, $0.01 par value, 200.0 shares authorized,
102.2 shares issued at June 30, 2012 and 101.0 shares issued at
December 31, 2011
1.0 1.0 Additional paid-in capital
609.2 589.2 Retained earnings
371.5 283.9 Accumulated
other comprehensive loss
(48.1 )
(39.8 )
933.6 834.3 Less – Treasury stock, at cost,
2.5 shares and 2.2 shares at June 30, 2012 and December 31, 2011,
respectively
(39.1 )
(32.1 ) Total stockholders' equity
894.5
802.2 Total liabilities and
stockholders' equity $
1,517.3 $
1,376.1
Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
Unaudited Year to Date Ended
June 30,
(In millions)
2012 2011
Cash flows
from operating activities Net income
$ 87.6 $
63.8 Reconciliation to net cash provided by operating
activities: Depreciation and amortization
28.3 27.9
Amortization of deferred financing costs and call premium expense
2.1 5.9 Deferred income taxes
15.3 6.7 Equity in
earnings from affiliated companies
(0.7 ) (0.7 )
Share-based compensation
10.5 8.8 Gain on sale of land
(4.9 ) Pension curtailment gain
— (5.7 )
Excess tax benefits on share-based compensation
(5.4
) (3.6 ) Changes in assets and liabilities: Increase
in accounts receivable
(54.4 ) (25.4 ) Increase in
inventories
(28.7 ) (31.5 ) (Increase) decrease in
other current assets
1.5 (3.1 ) Increase in accounts payable
and accrued liabilities
28.0 36.0 Other – net
(5.4 ) (1.8 ) Net cash provided by
operating activities (a)
73.8
77.3
Cash flows from investing
activities Proceeds from sale of land
5.3 — Capital
expenditures (b)
(144.4 )
(67.8 ) Net cash used for investing activities
(139.1 ) (67.8 )
Cash flows
from financing activities Borrowings from senior secured credit
facility
121.0 135.0 Repayments of capital lease obligations
and other debt, net
4.1 (3.5 ) 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
(2.5 ) (2.5 ) Repayment of 6.75% senior subordinated
notes
(73.5 ) (150.0 ) Repayment of senior secured
credit facility
— (60.0 ) Activity under stock plans
2.5 7.4 Net cash provided
by (used in) financing activities
50.2
(77.0 ) Effect of exchange rate changes on
cash and cash equivalents
(1.8 )
6.2 Net decrease in cash and cash equivalents
(16.9 ) (61.3 ) Cash and cash equivalents at
beginning of period
49.5
117.2 Cash and cash equivalents at end of period
$ 32.6 $ 55.9
Supplemental Data: Free cash flow (a)+(b)
$
(70.6 ) $ 9.5 Accrual basis additions to property,
plant and equipment
$ 114.5 $ 55.1
Hexcel
Corporation and Subsidiaries Net Sales to Third-Party
Customers by Market Segment Quarters Ended June 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
$ 233.5 $ 207.8
12.4 $ (3.3)
$ 204.5
14.2 Space & Defense
88.1 81.7
7.8
(1.8)
79.9 10.3 Industrial
77.6
64.2
20.9 (3.7)
60.5 28.3 Consolidated Total
$ 399.2 $ 353.7
12.9
$ (8.8)
$ 344.9 15.7
Consolidated % of Net Sales % %
%
Commercial Aerospace
58.5 58.7
59.3 Space &
Defense
22.1 23.1
23.2 Industrial
19.4 18.2
17.5 Consolidated Total
100.0 100.0
100.0 Six
Months Ended June 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
$ 475.8 $ 405.4
17.4 $ (5.1)
$ 400.3
18.9 Space & Defense
173.0 161.4
7.2 (2.5)
158.9 8.9 Industrial
150.5 118.5
27.0
(4.9)
113.6 32.5 Consolidated
Total $ 799.3 $ 685.3
16.6 $ (12.5)
$ 672.8
18.8 Consolidated % of Net Sales %
%
%
Commercial Aerospace
59.5 59.1
59.5 Space
& Defense
21.7 23.6
23.6 Industrial
18.8 17.3
16.9 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 six months ended June
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 Second Quarter 2012
Net sales to external customers
$
316.7 $ 82.5 $ —
$ 399.2 Intersegment sales
14.9 0.2
(15.1 ) — Total sales
331.6 82.7 (15.1 ) 399.2
Operating income (loss)
80.9 11.7 (18.7
) 73.9 % Operating margin
24.4 %
14.1 % 18.5 % Other operating
(income) expense (b)
(14.5 ) — 5.0
(9.5 ) Depreciation and amortization
13.3
1.0 — 14.3 Stock-based compensation expense
0.9 0.1 2.0 3.0 Accrual based additions
to capital expenditures
67.0
2.6 0.2
69.8 Second Quarter 2011
Net sales to external
customers $ 276.8 $ 76.9 $ — $ 353.7 Intersegment sales
13.9 0.2 (14.1 )
— Total sales 290.7 77.1 (14.1 ) 353.7
Operating income (loss) (b) 48.5 11.9 (11.0 ) 49.4 % Operating
margin 16.7 % 15.4 % 14.0 % Depreciation and amortization
12.8 1.0 — 13.8 Stock-based compensation expense 0.9 0.1 1.4 2.4
Accrual based additions to capital expenditures 28.4
1.5 —
29.9
First Six Months 2012
Net sales to external customers
$
632.9 $ 166.4 $ — $
799.3 Intersegment sales
30.8
0.3 (31.1 )
— Total sales
663.7 166.7
(31.1 ) 799.3 Operating income (loss)
146.7 23.5 (35.7 ) 134.5 %
Operating margin
22.1 % 14.1 %
16.8 % Other operating (income) expense (b)
(14.5 ) — 5.0 (9.5 )
Depreciation and amortization
26.2 2.1 —
28.3 Stock-based compensation expense
3.0 0.5
7.0 10.5 Accrual based additions to capital
expenditures
110.6
3.7 0.2
114.5 First Six Months 2011
Net sales to external
customers $ 533.1 $ 152.2 $ — $ 685.3 Intersegment sales
27.8 0.5 (28.3 )
— Total sales 560.9 152.7 (28.3 ) 685.3
Operating income (loss) 98.3 24.4 (26.1 ) 96.6 % Operating margin
17.5 % 16.0 % 14.1 % Other operating (income) expense (b)
(5.7 ) — — (5.7 ) Depreciation and amortization 25.7 2.1 0.1 27.9
Stock-based compensation expense 2.5 0.4 5.9 8.8 Accrual based
additions to capital expenditures 52.7
2.4 — 55.1
(a) We do not allocate corporate expenses to the operating
segments.
(b) Other operating income for the three and six months ended
June 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 six months ended June
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
June 30,
Six Months Ended
June 30,
(In millions)
2012 2011
2012
2011 GAAP operating income
$
73.9 49.4
$ 134.5 $ 96.6 - Other operating
(income) expense (a)
(9.5 ) —
(9.5 ) (5.7 )
Adjusted Operating Income
$ 64.4 49.4
$
125.0 $ 90.9 % of Net Sales
16.1 % 14.0 %
15.6 % 13.3 % - Stock Compensation Expense
$
3.0 2.4
$ 10.5 $ 8.8 - Depreciation and
Amortization
14.3 13.8
28.3 27.9 Adjusted
EBITDA
$ 81.7 65.6
$ 163.8 $ 127.6
Unaudited Quarter Ended June 30,
2012
2011 (In millions, except per diluted share data)
As
Reported EPS As Reported EPS
GAAP net income
$ 48.0 $ 0.47 $
37.4 $ 0.37 - Other operating (income) expense (net of tax) (a)
(6.0 ) (0.06 ) — — -
Non-operating expense (net of tax) (b)
0.7 0.01
— — - Benefit from tax audit settlement (c)
— — (5.5 )
(0.05 ) Adjusted net income
$ 42.7
$ 0.42 $ 31.9 $
0.32 Unaudited Six Months Ended June 30,
2012
2011 (In millions, except per diluted share data)
As
Reported EPS As Reported EPS
GAAP net income
$ 87.6 $ 0.86 $ 63.8 $ 0.63 -
Other operating (income) expense (net of tax) (a)
(6.0
) (0.06 ) (4.1 ) (0.04 ) - 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
$ 82.3 $ 0.81
$ 57.2 $ 0.57
(a) Other operating income for the three and six months ended
June 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 six months ended June
30, 2011 other operating income for the six months ended June 30,
2011 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
June 30, March 31, December 31, (In millions)
2012 2012 2011 Notes payable and
current maturities of capital lease obligations
$
19.2 $ 14.5 $ 12.6 Long-term notes payable and capital lease
obligations
280.7 294.8
238.3 Total Debt
299.9 309.3
250.9 Less: Cash and cash equivalents
(32.6
) (48.7 ) (49.5 ) Total debt,
net of cash
$ 267.3 $ 260.6
$ 201.4
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