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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / 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
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HEXCEL CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 94-1109521
(State of (I.R.S. Employer Identification
Incorporation) 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:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS 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 Debentures Due 2011
7% Convertible Subordinated Notes Due 2003
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 ____
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 24, 1999 of voting stock held by
nonaffiliates of the registrant: $128,715,209
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
of reorganization confirmed by a U.S. Bankruptcy Court. Yes __X No ____
The number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
OUTSTANDING AT MARCH 24,
CLASS 1999
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Common Stock 36,409,635
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, general industrial and recreation 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 circuit boards
("PCBs"), computers, cellular telephones, televisions, 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 and marketing
facilities located in the United States and Europe, as well as sales offices in
Asia, Australia and South America. The Company is also a member of four joint
ventures that manufacture and market reinforcement products and composite
materials in Europe, Asia and the United States.
Through a series of strategic acquisitions over the past three years, the
Company has expanded and diversified its product lines, manufacturing
capabilities and technology portfolio. The Company believes that it is the most
vertically integrated company in the advanced structural materials industry.
This vertical integration enhances the Company's control over the cost, quality
and delivery of its products, and enables the Company to offer a variety of
solutions to its customers' structural materials needs.
RECENT ACQUISITION HISTORY
On September 15, 1998, the Company acquired the industrial fabrics business
of Clark-Schwebel and its subsidiaries (the "Acquired Clark-Schwebel Business")
for a cash purchase price of approximately $473 million (including $19 million
paid on December 23, 1998). This business is engaged in the manufacture and sale
of high-quality fiberglass fabrics used to make PCBs for electronics equipment
such as computers, cellular telephones, televisions and automobiles. The
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 Company also entered into a $50
million lease of property, plant and equipment used in that business pursuant to
a long-term lease which includes purchase options.
The acquisition of the Acquired Clark-Schwebel Business established the
Company as a leading global materials supplier to the electronics industry,
which the Company believes has attractive long-term growth potential, and
further diversified the Company's business beyond the historically cyclical
commercial aerospace market.
The Acquired Clark-Schwebel Business was the Company's most recent in a
series of strategic acquisitions. On February 29, 1996, the Company purchased
the composites business of Ciba-Geigy Limited (the "Acquired Ciba Business") for
an aggregate value of approximately $209 million. This acquisition combined two
of the world's leading and most technically advanced structural materials
companies, broadening the Company's range of products and markets, enhancing the
Company's research, development and technological capabilities and balancing the
Company's geographical scope. The Acquired Ciba Business' composite product
lines were highly complementary to the Company's fabrics, prepregs and honeycomb
businesses; furthermore, the Acquired Ciba Business provided the Company with
manufacturing capabilities in finished and semi-finished structures and
interiors for original equipment manufacturers' ("OEMs") airframes. The
Company's overall customer profiles were similar, but the
1
Acquired Ciba Business had a stronger presence in Europe, particularly with
members of the Airbus consortium (Aerospatiale, British Aerospace, CASA and
DASA) ("Airbus"). With equally strong market positions in Europe and the United
States, the Company benefits from future aircraft orders placed with either the
Boeing Company ("Boeing") or Airbus. As a result of this acquisition and the
spinoff of Ciba Specialty Chemical Holding Inc. (a Swiss Corporation formerly an
affiliate of Ciba-Geigy Limited) ("Ciba") from Ciba-Geigy Limited, Ciba has a
significant relationship with the Company and now beneficially owns 49.6% of the
Company's outstanding common stock.
On June 27, 1996, the Company acquired Hercules Inc.'s carbon fibers and
prepreg business (the "Acquired Hercules Business") for a cash purchase price of
approximately $139 million. This acquisition combined two leading prepreg
manufacturers and enabled the Company to produce a large portion of a
significant raw material, polyacrylonitrile ("PAN") based carbon fiber. With
this acquisition, the Company became the fourth largest carbon fiber producer in
the world. The Company is also today the largest consumer of PAN-based carbon
fiber in the world, utilizing approximately 20% of worldwide carbon fiber
production. This has created a hedge against carbon fiber price fluctuations for
the Company because the Company can both buy and sell this crucial raw material.
In addition, the Acquired Hercules Business further enhanced the Company's
technological and integrated manufacturing capabilities and provided the Company
with new prepreg products and customer qualifications both in the United States
and Europe, thus strengthening existing customer relationships.
On September 30, 1997, the Company acquired from Fiberite, Inc. ("Fiberite")
its satellite business consisting of intangible assets and inventory, and
certain non-exclusive worldwide rights to other prepreg technologies for $37.0
million in cash. The Fiberite acquisition expanded the Company's existing role
as a supplier of carbon fiber, prepreg and honeycomb to rocket and space
satellite programs, positioned the Company to capitalize on the expected growth
in commercial satellite activities and expanded the Company's offering of
prepregs for commercial and military applications.
Further discussion of the Company's business acquisitions 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 included in this Annual Report on Form 10-K.
2
BUSINESS SEGMENTS AND OVERVIEW
Hexcel is a vertically integrated manufacturer of a variety of products
within a single business industry: Advanced Structural Materials. Hexcel's
advanced structural materials business is organized around three strategic
operating 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:
BUSINESS SEGMENTS PRODUCTS PRIMARY END-USE
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Reinforcement Products Carbon Fibers - Raw materials for industrial fabrics and prepregs; and
- Filament winding for various space, defense and
industrial applications.
Industrial Fabrics - Printed circuit boards;
- Raw materials for prepregs and honeycomb;
- Various marine applications;
- Window blinds;
- Insulation;
- Metal and fume filtration systems;
- Soft body armor; and
- Civil engineering and construction applications.
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Composite Materials Prepregs - Raw materials for composite structures and interiors;
- Semi-finished aircraft components;
- Munitions and defense systems; and
- Skis, snowboards, golf club shafts, fishing rods and
tennis rackets.
Structural Adhesives - Bonding of structural materials and components,
including composite panels.
Honeycomb, Honeycomb - Raw materials for composite structures and interiors;
Parts & Composite Panels and
- Semi-finished aircraft components used in:
Helicopter blades;
Aircraft surfaces (flaps, wing tips, elevators and
fairings);
High-speed ferries, truck and train components;
Automotive components; and
Space shuttle doors.
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Engineered Products Composite Structures - Aircraft structures and finished aircraft components,
including:
Wing-to-body and flap track fairings;
Radomes;
Engine cowls and inlet ducts;
Wing panels; and
Truck floor panels.
Interiors - OEM and retrofit aircraft interiors, including:
Overhead stowage compartments;
Lavatories; and
Sidewalls and ceilings.
REINFORCEMENT PRODUCTS
The Reinforcement Products business segment manufactures and markets carbon
fibers and industrial fabrics.
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 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,
3
as well as certain general industrial and recreational applications such as golf
club shafts and tennis racquets.
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 PCBs, 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 the Company 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 acquisitions of the Acquired
Clark-Schwebel, Ciba and Hercules Businesses as if those transactions had
occurred at the beginning of 1996 were as follows:
1998 1997 1996
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(IN MILLIONS)
Net sales........................................................ $ 224.8 $ 170.1 $ 155.2
Pro forma net sales.............................................. 370.5 410.3 402.7
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The Company expanded its reinforcement products business with the
acquisitions of the Acquired Clark-Schwebel Business in 1998 and the Acquired
Ciba and Hercules Businesses in 1996. The decrease in pro forma net sales in
1998 was the result of worldwide inventory adjustments in the electronics
industry. Approximately 37%, 42% and 27% of the Company's production of
reinforcement products was used internally to manufacture composite materials in
1998, 1997 and 1996, respectively. The percentage of production of reinforcement
products for internal use decreased in 1998, due to the acquisition of the
Acquired Clark-Schwebel Business and increased in 1997 from 1996 levels due to
the increase in commercial aerospace composites materials sales.
REINFORCEMENT PRODUCTS
KEY CUSTOMERS MANUFACTURING FACILITIES
AlliedSignal Anderson, SC
Alliant Techsystems Cleveland, GA
Cytec Fiberite Decatur, AL
IBM Decines, France
Isola Les Avenieres, France
Nelco Salt Lake City, UT
Piad Seguin, TX
Polyclad Statesville, NC
Second Chance Washington, GA
As part of the Company's business consolidation program, the Company
recently announced the closure of its Cleveland, Georgia facility. Production
equipment from this facility will be relocated to the Company's Andersen, South
Carolina, facility, with the closure expected to be completed by July 1, 1999.
COMPOSITE MATERIALS
The Composite Materials business segment, which was recently reorganized on
a global basis, 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-Registered Trademark- and E-type fiberglass, carbon,
aramid, quartz, ceramic, Thorstrand-Registered Trademark-, polyethylene and
other specialty reinforcements. Resin matrices include bismaleimide, cyanates,
epoxy, phenolic, polyester, polyimide and other specialty resins.
Hexcel designs and markets a comprehensive range of
Redux-Registered Trademark- 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
several 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 which 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. The
Company 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 general industrial uses. In addition, the Company produces honeycomb for
its Engineered Products business segment for use in manufacturing finished parts
for airframe OEMs.
Hexcel's net sales and pro forma net sales of composite materials to third
party customers, after giving effect to the acquisitions of the Acquired
Clark-Schwebel, Ciba and Hercules Businesses as if those transactions had
occurred at the beginning of 1996, were as follows:
1998 1997 1996
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(IN MILLIONS)
Net sales........................................................ $ 653.6 $ 585.4 $ 438.2
Pro forma net sales.............................................. 653.6 585.4 502.0
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The Company expanded its composite materials business in connection with the
acquisitions of the Acquired Ciba and Hercules Businesses in 1996. These
products have benefited from the increases in commercial aerospace build rates
as further discussed under the captions "Markets and Customers" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
5
Approximately 3% of the Company's production of composite materials are used
internally to manufacture composite structures and interiors.
COMPOSITE MATERIALS
KEY CUSTOMERS MANUFACTURING FACILITIES
United States: United States:
Boeing Burlington, WA
CFAN Casa Grande, AZ
Embraer Gilbert, AZ
Hawker de Havilland Lancaster, OH
Lockheed Martin Livermore, CA
Northrop Grumman Pottsville, PA
Rohr Salt Lake City, UT
United Technologies Europe:
Europe: Dagneux, France
Aerospatiale Duxford, England
Alenia Linz, Austria
British Aerospace Parla, Spain
CASA Swindon, England
DASA Welkenraedt, Belgium
The Company also operates sales offices in Sydney, Australia; Singapore;
Taipei, Taiwan; Shanghai, China and Sao Paulo, Brazil.
ENGINEERED PRODUCTS
Hexcel entered the composite structures and interiors businesses in
connection with the purchase of the Acquired Ciba Business. The Engineered
Products business segment has worldwide responsibility for manufacturing and
marketing composite structures and interiors, primarily for use in the aerospace
industry.
COMPOSITE STRUCTURES: Composite structures and structural parts, are
manufactured from a variety of composite materials (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.
Composite structural components are also used in heavy trucks such as the cab
floor of the Kenworth T2000 truck, and certain other industrial products.
AIRCRAFT INTERIORS: The interiors operations of the Engineered Products
business segment design and produce innovative, lightweight, high-strength
composite interior systems for aircraft. Aircraft interior products, which
include overhead stowage bins, lavatories, sidewalls and ceilings, are sold to
Boeing and other airframe manufacturers for production on certain aircraft and
to airlines for replacement of existing interior components. With increasing
airline traffic and the trend of increased use of rolling carry-on luggage,
airlines are increasingly requesting larger overhead stowage bins. The Company
has developed a patented bin extension kit to increase the size of certain
single-aisle aircraft overhead stowage bins which increases their capacity to
accommodate these larger bags. This product is being marketed to the world's
airlines.
6
Hexcel's net sales and pro forma net sales of engineered products to third
party customers, after giving effect to the acquisition of the Acquired Ciba
Business as if the transaction had occurred at the beginning of 1996, were as
follows:
1998 1997 1996
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(IN MILLIONS)
Net sales........................................................ $ 210.6 $ 181.4 $ 101.9
Pro forma net sales.............................................. 210.6 181.4 114.7
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The improvement in engineered products net sales primarily reflects the
production of structural and interior components outsourced to Hexcel by Boeing
starting in the second half of 1996 and expanding sales of retrofit interior
products.
ENGINEERED PRODUCTS
KEY CUSTOMERS MANUFACTURING FACILITIES
Alenia Bellingham, WA
Boeing Brindisi, Italy
Cathy Pacific Kent, WA
Continental Airlines
Kenworth
Mitsubishi
Northrop Grumman
Qantas
United Airlines
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 16, to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.
JOINT VENTURES AND ALLIANCE ACTIVITIES
In January 1998, the Company reached an agreement in principle with Boeing
and Aviation Industries of China to form a joint venture, BHA Aero Composite
Parts Co., Ltd., to manufacture composite parts for secondary structures and
interior applications on commercial aircraft. This joint venture will be located
in Tianjin, China. In February 1998, the Company signed an agreement with
Boeing, Sime Darby Berhad and Malaysia Helicopter Services (now known as Naluri
Berhad) to form another joint venture, Asian Composite Manufacturing Sdn. Bhd.,
to manufacture composite parts for secondary structures on commercial aircraft.
This joint venture will be located in Alor Setar, Malaysia. Products
manufactured by both joint ventures will be shipped to the Company's Kent,
Washington facility for final assembly, inspection and shipment to Boeing as
well as other customers worldwide. It is anticipated that the first parts will
be delivered to customers in 2001. The Company's total estimated financial
commitment to both of these joint ventures will be approximately $31 million,
which is expected to be made in increments through 2001. However, implementation
of these projects and their related investments, remain subject to certain
significant conditions, including foreign government approvals.
As part of the Acquired Clark-Schwebel Business, the Company also acquired
significant equity ownership interests in three joint ventures: a 43.3% share in
Asahi-Schwebel Co., Ltd. ("Asahi-Schwebel"), headquartered in Japan, which in
turn has its own joint venture with AlliedSignal in Taiwan; a 43.6% share in
CS-Interglas AG ("CS-Interglas"), together with fixed-price options to increase
this equity interest to approximately 84%; and a 50.0% share in Clark-Schwebel
Tech-Fab Company ("CS Tech-Fab"),
7
headquartered in the U.S. CS-Interglas and Asahi-Schwebel are fiberglass fabric
producers serving the European and Asian electronics industry. CS Tech-Fab
manufactures non-woven materials for roofing, construction and other specialty
applications.
In addition, Hexcel has a 45% equity interest in a joint venture in Japan
with Dainippon Ink and Chemicals ("DIC"). This joint venture, which owns and
operates a manufacturing facility in Komatsu, Japan, was formed in 1990 and
produces and sells prepregs, honeycomb, decorative laminates and bulk molding
compounds using technology licensed from Hexcel and DIC.
Hexcel has also formed a global alliance with Sika Finanz AG ("Sika") to
develop and market composite systems for the construction industry. Initial
applications will focus on the strengthening and repair of existing structures
using composite materials. Under the terms of the alliance, Sika will generally
take leadership for the marketing and sale of alliance products under the Sika
Carbodur-Registered Trademark- trade name, and Hexcel will take leadership for
the development and manufacture of advanced structural materials for the
alliance. Sika is a worldwide leader in construction chemicals and structural
adhesives. Sika has extensive experience and expertise in the repair, protection
and strengthening of structures in the construction industry and the use of
elastic bonding technology in the transportation industry.
BUSINESS CONSOLIDATION
Between 1996 and 1998, the Company announced various business consolidation
plans. The goals of these consolidation plans were to integrate the Company's
acquired businesses and to respond to changing market conditions and the need
for continuous improvement. The Company also expects to complete a global
capacity review of its worldwide facilities requirements during 1999. As a
result of such review, on March 16, 1999, the Company announced the closing of
its Cleveland, Georgia facility, which currently employs 100 people and produces
fabrics for the electronics market. The ongoing global capacity review may
result in the closing or right-sizing of additional facilities and, as a result,
additional consolidation charges may be recognized in 1999.
For the years ended December 31, 1998, 1997 and 1996, the Company recorded
business acquisition and consolidation expenses of $12.7 million, $25.3 million
and $42.4 million, respectively, in relation to these plans as well as other
costs relating to acquisitions that were either downsized or not consummated.
Further discussion of the Company's business consolidation plans is contained
under the caption "Management's Discussion and Analysis of Financial Condition
and Results of Operations," and in Note 3 to the accompanying consolidated
financial statements included in this Annual Report on Form 10-K.
LEAN ENTERPRISE AND VALUE CHAIN MANAGEMENT PROGRAMS
The Company is in the process of implementing Lean Enterprise and value
chain management programs which are designed to create a common way of managing
the Company, with a singular focus on creating value for the Company's customers
and eliminating waste throughout the value chain. This new management approach
targets value creation, and challenges employees to continually reduce cost,
improve operating efficiency and maximize the quality of the Company's products.
Success of the program will depend on training employees to eliminate waste and
non-value activity while improving business processes to deliver superior
product faster and more efficiently than Hexcel's competitors.
The goals of the program are reduced scrap, faster manufacturing cycle
times, shorter equipment set-up and clean-down times, lower manufacturing
rejects and warranty claims, faster processing of customer orders and
deliveries, 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.
8
The potential for improvement encompasses the Company's entire vertically
integrated supply chain, including its manufacturing plants, support functions,
product development activities and customers and suppliers. The Lean Enterprise
program is also systematically linked with key initiatives to improve the
quality and effectiveness of global procurement activities. The results of these
multi-year initiatives will be measured by the satisfaction of customers and the
progressive improvement in the Company's operating performance.
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 PAN used as
a precursor material in the manufacture of carbon fibers. The Company consumed
internally approximately 43% and 39% of its carbon fiber and fabric production,
respectively, in 1998. However, the Company purchases most of the raw materials
used in production. 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.
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") function supports all of 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 composites structures, process engineering,
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 in the areas of ceramics, higher temperature polymers,
advanced textiles and composite structures manufacturing.
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. In
addition to the rights to certain technologies obtained as part of the Fiberite
transaction, 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 $23.6 million for research and technology in 1998, $18.4
million in 1997 and $16.7 million in 1996. These expenditures were expensed as
incurred.
9
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:
1998 1997 1996
--------- --------- ---------
NET SALES BY MARKET
Commercial aerospace................................................ 63% 64% 56%
Space and defense................................................... 12 9 11
Electronics 8 5 6
General industrial.................................................. 12 15 17
Recreation.......................................................... 5 7 10
--------- --------- ---------
Total............................................................. 100% 100% 100%
--------- --------- ---------
--------- --------- ---------
NET SALES BY GEOGRAPHY
United States....................................................... 54% 56% 49%
U.S. exports........................................................ 9 8 8
International....................................................... 37 36 43
--------- --------- ---------
Total............................................................. 100% 100% 100%
--------- --------- ---------
--------- --------- ---------
SIGNIFICANT CUSTOMERS
To the extent that the end application of net sales can be identified,
Boeing and related subcontractors accounted for approximately 35% of 1998 net
sales, and Airbus and related subcontractors accounted for approximately 11% of
1998 net sales. The loss of all or a significant portion of the business with
Boeing or Airbus, which Hexcel does not currently anticipate, could have a
material adverse effect on sales and earnings.
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. A recent document, published by Boeing, projects that
revenue passenger miles will increase an average of 4.9% per year over the next
decade, providing a source of long-term demand for new commercial aircraft.
However, recent economic events in Asia, Latin America and other parts of the
world may result in difficulties in achieving this projected growth rate,
especially in the near term. 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.
Reflecting the demand factors noted above, the number of commercial aircraft
delivered by Boeing, including McDonnell Douglas, and 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
total of 397 in 1996, 557 in
10
1997, and 788 in 1998. Based on published projections, including a press release
issued by Boeing on January 26, 1999, combined deliveries are expected to peak
at 913 in 1999, before declining to 797 in 2000. Set forth below are historical
and projected deliveries as published by Boeing and Airbus:
1990 1991 1992 1993 1994 1995 1996
----- ----- ----- ----- ----- ----- -----
Boeing/McDonnell Douglas............. 527 605 573 409 311 256 271
Airbus............................... 95 163 157 138 127 124 126
--- --- --- --- --- --- ---
Total................................ 622 768 730 547 438 380 397
--- --- --- --- --- --- ---
--- --- --- --- --- --- ---
PROJECTED
-------------
1997 1998 1999 2000
----- ----- ----- -----
Boeing/McDonnell Douglas............. 375 559 620 480
Airbus............................... 182 229 293 317
--- --- --- ---
Total................................ 557 788 913 797
--- --- --- ---
--- --- --- ---
Approximately 35%, 36% and 22% of Hexcel's 1998, 1997 and 1996 net sales,
respectively, were identifiable as sales to Boeing and related subcontractors.
Of the 35% of sales attributable to Boeing and its subcontractors, 32% and 3%
related to commerical areospace and space and defense market applications,
respectively. Approximately 11%, 10% and 10% of Hexcel's 1998, 1997 and 1996 net
sales, respectively, were identifiable as sales to Airbus, and related
subcontractors. These percentages are expected to decline in 1999, as a result
of the projected trends in commercial aircraft deliveries as well as to certain
procurement and manufacturing trends. In addition, the acquisition of the
Acquired Clark-Schwebel Business will increase the proportion of Hexcel's sales
to the electronics market in 1999. On a pro forma basis, Hexcel's net sales for
the year ended December 31, 1998 to Boeing, Airbus and related subcontractors
were approximately 34% of its total net sales.
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. The Company sells material for every model of commercial aircraft sold
by Boeing and Airbus, with sales per aircraft ranging from $0.2 million to over
$1.0 million. Based on published projections, combined deliveries for Boeing and
Airbus are expected to peak at 913 in 1999, before declining to approximately
800 in 2000. As the Company supplies its products ahead of the delivery of a
commercial aircraft, it will start to see the impact of reduced Boeing
production rates by summer 1999. The Company's sales to regional and general
aviation aircraft manufacturers remain robust.
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. Consequently, the space and defense market for
composite materials and structures declined significantly during the early part
of this decade, as a result of substantial decreases in military aircraft
procurement that began in the late 1980's. Presently, there are a number of
potentially significant military aircraft programs in various stages of
development or initial production that utilize advanced structural materials.
Hexcel has a number of carbon fiber and composite material products qualified
for use on several of these programs, including the competing development
versions of the Joint Strike Fighter (JSF), the F-22 (Raptor) and F/A-18 E/F
(Hornet) aircraft, the European Fighter Aircraft (Typhoon), the C-17 cargo and
V-22 (Osprey) tilt-rotor aircraft, RAH-66 (Comanche) and NH90 helicopter.
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.
11
ELECTRONICS
The acquisition of the Acquired Clark-Schwebel Business provides Hexcel with
a global platform to supply the electronics industry, which the Company believes
has attractive long-term growth potential. The Acquired Clark-Schwebel Business
is the largest producer of fine, lightweight fiberglass fabrics used in the
fabrication of multilayer PCBs, with an estimated 50% market share in the U.S.
In addition to its U.S. businesses, it has significant ownership positions in
three joint ventures: CS-Interglas, Asahi-Schwebel and CS Tech-Fab. CS-Interglas
and Asahi-Schwebel are leading fiberglass fabric manufacturers in Europe, Japan
and Southeast Asia with estimated electronics fiberglass fabric market shares of
36%, 38% and 13%, respectively. Hexcel's existing operations in Europe also
partcipate in the eclecronics fiberglas fabric market. Fiberglass fabrics are a
critical component used in the production of PCBs, which are integral to most
advanced electronics products, including computers, telecommunications
equipment, advanced cable television equipment, network servers, televisions,
automotive equipment and home appliances.
GENERAL INDUSTRIAL AND RECREATION MARKETS
Hexcel has focused its participation in general industrial and recreation
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. Accordingly, future opportunities and growth depend primarily
upon the success of the individual programs and industries in which the Company
has elected to participate. Within general industrial markets, key applications
include surface transportation (automobiles, trucks, mass transit and high-speed
rail and marine applications), wind energy and civil engineering. Within the
recreation market, key product applications in which the Company is involved
include skis, snowboards, golf club shafts, fishing rods, tennis rackets and
bicycles. 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
general industrial and recreation markets.
HEXCEL VENTURES
In 1997, the Company created Hexcel Ventures, which is an internal
organization responsible for certain entrepreneurial activities outside of the
Company's commercial aerospace and space and defense markets. This organization
focuses on leveraging Hexcel's vertically integrated capabilities and geographic
reach to bring cost effective advanced materials solutions to new customers and
applications. In particular, Hexcel Ventures seeks to stimulate internally and
externally driven growth and diversification through targeted projects in areas
such as automotive, civil engineering/construction and composite part making for
industrial applications.
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.
12
BACKLOG
The following table summarizes the backlog of orders by product group as of
December 31, 1998 and 1997 (IN MILLIONS):
AS OF DECEMBER 31, 1998 AEROSPACE(a) NON-AEROSPACE(b) TOTAL
- ---------------------------------------------------- ------------- ------------------- ---------
Reinforcement products.............................. $ 12.4 $ 14.1 $ 26.5
Composite materials................................. 267.0 26.5 293.5
Engineered products................................. 172.7 0.4 173.1
------ ----- ---------
Total............................................. $ 452.1 $ 41.0 $ 493.1
------ ----- ---------
------ ----- ---------
AS OF DECEMBER 31, 1997 AEROSPACE(a) NON-AEROSPACE(b) TOTAL
- ---------------------------------------------------- ------------- ------------------- ---------
Reinforcement products.............................. $ 33.3 $ 24.4 $ 57.7
Composite materials................................. 273.2 19.1 292.3
Engineered products................................. 170.0 -- 170.0
------ ----- ---------
Total............................................. $ 476.5 $ 43.5 $ 520.0
------ ----- ---------
------ ----- ---------
(a) Includes commercial aerospace and space and defense markets.
(b) Includes electronics, general industrial and recreation markets.
The backlog of orders for aerospace materials to be filled within 12 months
was $452.1 million as of December 31, 1998, as compared to $476.5 million as of
December 31, 1997 and $347.5 million as of December 31, 1996. The decrease in
backlog reflects a number of factors, including a continuing trend toward
shorter lead times and better supply-chain management by the industry overall.
Orders for aerospace materials generally lag behind the award of orders for
new aircraft by a considerable period. Thus, the level of new aircraft
procurement normally will not have an impact on aerospace orders received by
Hexcel for about one to three years, depending on the nature of the product, the
manufacturer, and delivery schedules. Aerospace orders are generally received by
the Company between one and eighteen months prior to scheduled delivery of the
aircraft to the customer. However, in the light of changing conditions in the
aerospace industry discussed above, twelve month backlog information may no
longer be a meaningful trend indicator. The Company continues to closely watch
the economic situation in Asia, along with overall aircraft orders and
production trends, to monitor future sales.
Backlog for non-aerospace was $41.0 million at December 31, 1998 compared
with $43.5 million at December 31, 1997. The decrease in backlog is primarily
attributable to a decrease in orders from customers in the recreation market.
Customers in the electronics, general industrial and recreation markets
generally operate with little advance purchasing and thus, backlog is subject to
certain fluctuations. The Acquired Clark-Schwebel Business also operates with
nominal backlog. The Company's backlog in the non-aerospace markets for the next
twelve months is therefore not necessarily a meaningful indicator of future
sales.
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 substitute structural materials such as
structural foam, wood, metal, and concrete.
13
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 14 to the
accompanying consolidated financial statements included in this Annual Report on
Form 10-K.
EMPLOYEES
As of December 31, 1998, Hexcel employed 6,875 full-time employees, compared
with 5,597 and 5,013 as of December 31, 1997 and 1996, respectively. The
increase from the end of 1997 to the end of 1998 is primarily attributable to
the Acquired Clark-Schwebel Business, which added approximately 1,300 employees
to Hexcel's workforce. The increase from the end of 1996 to the end of 1997 is
primarily attributable to the growth in the Company's sales.
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 Pleasanton,
California. 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. The following 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 Reinforcement fabrics
Bellingham, Washington................. 188,000 Interiors
Burlington, Washington................. 73,000 Honeycomb Parts
Casa Grande, Arizona................... 307,000 Honeycomb and Honeycomb Parts
Cleveland, Georgia *................... 93,000 Heavyweight electronic fabric
Decatur, Alabama....................... 159,000 PAN Precursor (used to produce Carbon Fibers)
Gilbert, Arizona....................... 30,000 Prepregs
Kent, Washington....................... 883,000 Composite Structures; Interiors
Lancaster, Ohio........................ 49,000 Prepregs
Livermore, California.................. 141,000 Prepregs
Pottsville, Pennsylvania............... 134,000 Honeycomb Parts
Salt Lake City, Utah................... 371,000 Carbon Fibers; Prepregs
Seguin, Texas.......................... 204,000 Reinforcement fabrics
Statesville, North Carolina............ 553,000 Lightweight electronic fabrics; reinforcement fabrics
Washington, Georgia.................... 160,000 Midweight electronic fabrics
14
APPROXIMATE
FACILITY LOCATION SQUARE FOOTAGE PRINCIPAL PRODUCTS
- ----------------------------------------- -------------- ------------------------------------------------------
International:
Brindisi, Italy........................ 110,000 Engineered Products
Dagneux, France........................ 130,000 Prepregs
Decines, France........................ 90,000 Reinforcement fabrics
Duxford, United Kingdom................ 440,000 Prepregs; Honeycomb and Honeycomb Parts
Les Avenieres, France.................. 476,000 Reinforcement fabrics; Prepregs
Linz, Austria.......................... 163,000 Prepregs
Parla, Spain........................... 43,000 Prepregs
Swindon, United Kingdom................ 20,000 Honeycomb Parts
Welkenraedt, Belgium................... 223,000 Honeycomb and Honeycomb Parts
* On March 16, 1999, the Company announced its intention to close its
Cleveland, GA. facility by July, 1999.
Hexcel leases the facilities located in Anderson, South Carolina;
Washington, Georgia; Statesville, North Carolina; Gilbert, Arizona; and Swindon,
U.K., and the land on which the Burlington, Washington facility is located. The
Company also leases portions of the facilities located in Casa Grande, Arizona;
Bellingham and Kent, Washington; Linz, Austria; and Les Avenieres, France.
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, and 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"). The Company believes, however, based
on its experience with such matters, the amount and the nature of its waste, and
the number of other financially viable PRPs, that the Company's liability in
connection with such matters will not be material.
15
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.
In connection with the purchase of the Acquired Ciba Business, Hexcel
assumed various liabilities including a liability with respect to certain
environmental remediation activities at an acquired facility in Kent,
Washington. The Company was a 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 Kent 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. The Company has determined that the
cost sharing agreement terminated on December 22, 1998; however, the other party
disputes this determination. The Company's estimate of other costs associated
with the cleanup of the Kent site are accrued in the accompanying consolidated
balance sheets.
The Company 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 and is cooperating with
the Department of Justice.
PRODUCT CLAIM
In 1993, Hexcel became aware of an aluminum honeycomb sandwich panel
delamination problem with panels produced by its wholly-owned Belgium
subsidiary, Hexcel Composites S.A., and installed in rail cars in France and
Spain. Two customers alleged that Hexcel Composites S.A. was responsible for the
problem. In 1998, the Company negotiated a settlement to be paid in 1999 with
one customer and the Company expects to settle with the remaining customer in
1999. The Company's estimated liability for this matter is accrued in the
accompanying consolidated balance sheets.
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 17 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 1998, 1997 or 1996. The
payment of dividends is generally prohibited under the terms of certain of the
Company's credit agreements.
On March 24, 1999, there were 1778 holders of record of Hexcel common stock.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by Item 6 is contained on page 33 of this Form 10-K
under the caption "Selected Financial Data" and is incorporated herein by
reference.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by Item 7 is contained on pages 34 to 51 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 page 47 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 52 to 86 of this
Form 10-K under "Consolidated Financial Statements and Supplementary Data" and
is incorporated herein by reference. The reports of the independent public
accountants for the years ended December 31, 1998, 1997 and 1996 are contained
on pages 54 and 55 of this Form 10-K under the captions "Report of Independent
Accountants" and "Independent Auditors' Report" and are incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
On July 10, 1997, the Company changed independent auditors. There were no
disagreements or other reportable events related to this change.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
(a) Listed below are the directors of Hexcel as of March 24, 1999, 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................. 62 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne............. 59 1998 President and Chief Operating Officer; Director
John M.D. Cheesmond......... 49 1996 Director
Marshall S. Geller.......... 60 1994 Director
John J. McGraw.............. 58 1999 Director
Martin Riediker............. 47 1999 Director
Stanley Sherman............. 60 1996 Director
Martin L. Solomon........... 62 1996 Director
George S. Springer.......... 65 1993 Director
Franklin S. Wimer........... 63 1995 Director
JOHN J. LEE, age 62, 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. He also serves as Chairman of the Nominating Committee and is a member
of the Finance Committee of Hexcel. Mr. Lee is a director of Hvide Marine
Incorporated, a marine support and transportation services company. He has
served as Chairman of the Board, President and Chief Executive Officer of Lee
Development Corporation, a merchant banking company, since 1987. He is also a
trustee of Yale University. Mr. Lee was a director of Aviva Petroleum
Corporation, an oil and gas exploration company, from 1993 to 1998, a director
of XTRA Corporation, a transportation equipment leasing company, from 1990 to
1996 and Chairman of the Board and Chief Executive Officer of Seminole
Corporation, a manufacturer and distributor of fertilizer, from 1989 to 1993.
Mr. Lee served as an advisor to the Clipper Group, a private investment
partnership, from 1993 to 1998. Mr. Lee also served as a
17
director of Tosco Corporation, a national refiner and marketer of petroleum
products, from 1988 to 1993 and as President and Chief Operating Officer of
Tosco Corporation from 1990 through 1993.
HAROLD E. KINNE, age 59, has served as President, Chief Operating Officer
and a member of the Board of Directors of Hexcel since July 1998. Prior to
joining Hexcel, he was President of the Additives Division, corporate vice
president, a member of the corporate management committee and a director of Ciba
Specialty Chemicals Corporation ("CSCC") from 1996 to June 1998. Mr. Kinne also
held the same positions in Ciba-Geigy Corporation ("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 has held
various other technical and managerial positions with CGC from 1965 to 1986.
JOHN M.D. CHEESMOND, age 49, has been a director of Hexcel since February
1996. Mr. Cheesmond also serves as Chairman of the Executive Compensation
Committee and is a member of the Finance Committee of Hexcel and is Executive
Vice President of Ciba Specialty Chemicals, Inc. (Switzerland). Mr. Cheesmond
was Senior Vice President and Head of Regional Finance and Control of Ciba Geigy
Limited ("CGL") from 1994 to 1996. From 1991 to 1993, Mr. Cheesmond served as
Group Vice President, Planning, Information and Control at Ciba Vision
Corporation.
MARSHALL S. GELLER, age 60, 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 Audit, Executive
Compensation and Nominating Committees of Hexcel. Mr. Geller has served as
Chairman of the Board, Chief Executive Officer and founding partner at Geller &
Friends Capital 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., Players International, Value
Vision International, Inc., iMall Inc., Cabletel Communications Corp., Stroud's,
Inc. and various other privately-held corporations and charitable organizations.
JOHN J. McGRAW, age 58, has been a director of Hexcel since February 1999.
Mr. McGraw is Vice President, General Counsel, Secretary and a member of the
Board of Directors of CSCC. Mr. McGraw served as Vice President, General Counsel
and Secretary of CGC from 1998 to 1996, and was a member of the Board of
Directors and of the Finance Committee of CGC from 1989 to 1996. Mr. McGraw also
serves on the Board of Directors of the Westchester Legal Aid Society.
MARTIN RIEDIKER, age 47, has been a director of Hexcel since February 1999.
Mr. Riediker is Global President of Ciba's Consumer Care Division and a member
of Ciba's Executive Committee and as such is also responsible for Ciba's
Performance Polymers Division. Mr. Riediker was appointed Head of CGL's Ciba
Chemicals Division in 1995. From 1994 to 1995 he served as head of CGC's US
Polymers Division and as a Management Committee member of CGC in the United
States.
STANLEY SHERMAN, age 60, has been a director of Hexcel since February 1996.
Mr. Sherman also serves as a member of the Executive Compensation and Finance
Committees of Hexcel. Mr. Sherman is President, Chief Executive Officer and
Chairman of the Board of Ciba Specialty Chemicals Corporation and Chairman of
the Board of Ciba Specialty Chemicals (Canada). Mr. Sherman served as a director
and Vice President and Chief Financial Officer of CGC from 1991 to 1996, and was
a member of the Finance Committee and the Corporate Management Committee of
CGC's Board of Directors. From 1986 to 1991, Mr. Sherman served as Vice
President-Corporate Planning of CGC. Mr. Sherman also serves on the Board of
Directors of the Chemical Manufacturers Association and of the Westchester
Educational Coalition.
MARTIN L. SOLOMON, age 62, has been a director of Hexcel since May 1996. Mr.
Solomon serves as Chairman of the Finance Committee and is a member of the Audit
and Executive Compensation Committees of Hexcel. Mr. Solomon has been Chairman
and Chief Executive Officer of American County Holdings, Inc., an insurance
holding company, since 1997 and a self-employed investor since 1990. Mr. Solomon
was a director and Vice Chairman of the Board of Directors of Great Dane
Holdings, Inc.,
18
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.R., 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, of Telephone and Data Systems Inc., a
diversified telecommunications service company, since 1997. Mr. Solomon is also
a director of various privately-held corporations and civic organizations.
GEORGE S. SPRINGER, age 65, has been a director of Hexcel since January
1993. Mr. Springer also serves as Chairman of the Technology Committee of
Hexcel. Mr. Springer is the Paul Pigott Professor and Chairman of the Department
of Aeronautics and Astronautics, and by courtesy, Professor of Mechanical
Engineering and Professor of Civil Engineering, at Stanford University. Mr.
Springer joined Stanford University's faculty in 1983.
FRANKLIN S. WIMER, age 63, was a director of Hexcel from February 1995 to
February 1996 and was reelected in May 1996. Mr. Wimer also serves as Chairman
of the Audit Committee and is a member of the Technology Committee of Hexcel.
Mr. Wimer is President and Principal of UniRock Management Corporation
("UniRock"), a private merchant banking firm based in Denver, Colorado. Mr.
Wimer has been with UniRock since 1987. UniRock acted as strategic planning
consultant to Hexcel from December 1993 through April 1996. Mr. Wimer is
currently Chairman of the Board of Vista Restaurants, Inc., Chairman of the
Board of Colorado Gaming & Entertainment Co. and is a director of the Denver
Paralegal Institute and Foresight Products, Inc.
(b) Listed below are the executive officers and other senior management of
Hexcel as of March 24, 1999, the positions held by them and a brief description
of their business experience. For additional information concerning Messrs. Lee
and Kinne, see Item 10(a).
EXECUTIVE
OFFICER
NAME AGE SINCE POSITION(S) WITH HEXCEL
- -------------------------- --- ----------- ---------------------------------------------------------------------
John J. Lee 62 1993 Chairman of the Board; Chief Executive Officer; Director
Harold E. Kinne 59 1998 President; Chief Operating Officer; Director
Stephen C. Forsyth 43 1994 Executive Vice President; Chief Financial Officer
Ira J. Krakower 58 1996 Senior Vice President; General Counsel; Secretary
Lynn L. Brown 49 1999 Vice President of Human Resources
Wayne C. Pensky 43 1993 Vice President; Corporate Controller; Chief Accounting Officer
Robert A. Petrisko 44 1993 Vice President of Research and Technology
Gary L. Sandercock 57 1989 Vice President of Manufacturing
Joseph H. Shaulson 33 1996 Vice President of Planning and Integration
David M. Wong 54 1996 Vice President of Corporate Affairs
Bruce D. Herman 43 1996 Treasurer
William Hunt 55 1996 President of the Composites Materials business unit
William D. Bennison 54 1998 President of the Hexcel Schwebel business unit
Justin P.S. Taylor 45 1996 President of the Structures and Interiors business unit
James N. Burns 58 1996 President of the Fibers business unit
STEPHEN C. FORSYTH, age 43, 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 served as Vice President of International Operations of Hexcel from
October 1994 to February 1996, General Manager of Hexcel's Resins Business and
Export Marketing from 1989 to 1994 and has held other general management
positions with Hexcel from 1980 to 1989. Mr. Forsyth joined Hexcel in 1980.
IRA J. KRAKOWER, age 58, 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
19
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.
LYNN L. BROWN, age 49, has served as Vice President of Human Resources since
March 1999. Prior to joining Hexcel, Ms. Brown served as Vice President of Human
Resources at MKE-Quantum Components, LLC from 1998 to February 1999, as Vice
President of Organizational Development and International Human Resources at
Burger King Corporation from 1996 to 1998, and as Director of Human Resources at
several business units of AlliedSignal, Inc. from 1993 to 1996.
WAYNE C. PENSKY, age 43, has served as Vice President of Hexcel since
December 1998 and as Corporate Controller and Chief Accounting Officer of Hexcel
since July 1993. Prior to joining Hexcel in 1993, Mr. Pensky was a partner at
Arthur Andersen & Co., an accounting firm, where he was employed from 1979 to
1993.
ROBERT A. PETRISKO, age 44, has served as Vice President of Research and
Technology of Hexcel since September 1993. Mr. Petrisko served at Hexcel's
Chandler facility as Manager of the Signature Technology Group from 1989 to
April 1993 and as Director of Aerospace Technology from April 1993 to September
1993. Mr. Petrisko joined Hexcel in 1989 after serving as a Research Specialist
with Dow Corning Corporation from 1985 to 1989.
GARY L. SANDERCOCK, age 57, has served as Vice President of Manufacturing of
Hexcel since October 1996. From February 1996 to October 1996, he served as
President of Hexcel's Special Process business unit. Mr. Sandercock served as
Vice President of Manufacturing of Hexcel from April 1993 to February 1996, Vice
President of the Reinforcement Fabrics business unit of Hexcel from 1989 to
1993, General Manager of the Trevarno Division of Hexcel from 1985 to 1989 and
has held other manufacturing and general management positions from 1967 to 1985.
Mr. Sandercock joined Hexcel in 1967.
JOSEPH H. SHAULSON, age 33, has served as Vice President of Planning and
Integration of Hexcel since November 1998. Mr. Shaulson served as 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.
DAVID M. WONG, age 54, has served as Vice President of Corporate Affairs of
Hexcel since February 1996. Mr. Wong served as Hexcel's Director of Special
Projects from July 1993 to February 1996, Corporate Controller and Chief
Accounting Officer of Hexcel from 1983 to 1993 and has held other general
management positions from 1979 to 1983. Mr. Wong joined Hexcel in 1979.
BRUCE D. HERMAN, age 43, has served as Treasurer of Hexcel since April 1996.
Prior to joining Hexcel, Mr. Herman served as Vice President of Finance in the
Transportation and Industrial Financing Division of USL Capital Corp. (formerly
U.S. Leasing Inc.) ("USL") from 1993 to 1996. Mr. Herman also served as Vice
President of Finance in the Equipment Financing Group of USL from 1991 to 1993.
WILLIAM HUNT, age 55, has served as President of Hexcel's Global Materials
business unit since November 1998 and as President of the former Hexcel
EuroMaterials business unit since February 1996. 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.
WILLIAM D. BENNISON, age 54, has served as President of the Hexcel Schwebel
business unit since November 1998. Mr. Bennison also serves as President of
Clark-Schwebel Tech-Fab Company and as a director of CS-Interglas AG and
Asahi-Schwebel Co. Ltd. Prior to joining Hexcel, Mr. Bennison was President of
Clark-Schwebel, Inc. from 1991 to September 1998.
JUSTIN P. S. TAYLOR, age 45, has served as President of Hexcel's Structures
and Interiors business unit since April 1996. From July 1995 to April 1996, Mr.
Taylor served as a member of CGL's strategic
20
planning unit. Prior to July 1995, Mr. Taylor held various management positions
in the Heath Tecna Division of CGC.
JAMES N. BURNS, age 58, 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.
(c) 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 1999 Annual Meeting of Stockholders. Such information is
incorporated herein by reference.
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 1999 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 1999 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, notes thereto, and report
of independent accountants are listed on page 52 of this Annual Report on Form
10-K and are incorporated herein by reference.
B. REPORTS ON FORM 8-K
Current Report on Form 8-K dated March 29, 1999, relating to the Company's
outlook for the first quarter of 1999.
Current Report on Form 8-K dated March 17, 1999 relating to the closure of
the Company's facility in Cleveland, Georgia.
Current Report on Form 8-K dated January 25, 1999 relating to the Company's
fourth quarter 1998 and year-end net sales, EBITDA and net income.
Current Report on Form 8-K dated January 5, 1999 with respect to the
Company's proposed issuance of Senior Subordinated Notes due 2009.
Current Report on Form 8-K dated December 30, 1998 relating to the
consummation of the acquisition a 43.6% equity interest in CS-Interglas AG
and the Company's business consolidation program.
21
Current Report on Form 8-K/A dated November 12, 1998 amending the Company's
Current Report on Form 8-K dated September 24, 1998 to include the financial
statements of Clark-Schwebel, Inc. and its subsidiaries.
Current Report on Form 8-K dated October 22, 1998 relating to the Company's
third quarter 1998 sales, EBITDA and net income.
Current Report on Form 8-K dated October 9, 1998 relating to the Company's
stock buyback plan.
C. 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) Distribution Agreement dated as of February 29, 1996 among the Company, Brochier S.A., Composite
Materials Limited, Salver S.r.l. and Ciba Geigy Limited (incorporated by reference to Exhibit
2.1(c) to the Company's Current Report on Form 8-K dated as of March 15, 1996).
2.1(d) 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 fiscal 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).
22
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
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).
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 First Amended Plan of Reorganization dated as of November 7, 1994 (incorporated by reference to
Exhibit 2 to the Company's Quarterly Report on Form 10-Q for the fiscal Quarter ended October 2,
1994).
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 2 to
Hexcel's Registration Statement on Form 8-A dated July 9, 1996, Registration No. 1-08472).
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 9 3/4% 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 Registration Rights Agreement dated as of January 21, 1999 by and among Hexcel Corporation, Credit
Suisse First Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the
9 3/4% Senior Subordinated Notes due 2009 (incorporated herein by reference to Exhibit 4.2 to the
Company's Registration Statement on Form S-4 (No. 333-71601), filed on February 2, 1999).
4.3 Purchase Agreement dated as of January 15, 1999 by and among Hexcel Corporation, Credit Suisse First
Boston Corporation and Salomon Smith Barney Inc., relating to the issuance of the 9 3/4% Senior
Subordinated Notes due 2009 (incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 (No. 333-71601), filed on February 2, 1999).
4.4 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).
23
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
4.5 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).
4.5(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).
4.5(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).
4.5(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).
4.5(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).
4.6 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).
4.6(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 Credit Agreement dated as of June 27, 1996 among Hexcel and certain of its subsidiaries as borrowers,
the institutions party thereto as lenders, the institutions party thereto as issuing banks,
Citibank, N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein
by reference to Exhibit 99.2 to Hexcel's Current Report on Form 8-K dated July 12, 1996).
10.1(a) Consent Number 1 and First Amendment dated as of July 3, 1996 to the Credit Agreement dated as of
June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.2 to Hexcel's Quarterly Report on Form 10-Q for the Quarter ended June 30,
1996).
24
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.1(b) Modifications dated as of July 8, 1996 to the First Amendment to the Credit Agreement among Hexcel
Corporation and certain of its subsidiaries as borrowers, the institutions party thereto as
lenders, the institutions party thereto as issuing banks, Citibank, N.A. as collateral agent and
Credit Suisse as administrative agent (incorporated herein by reference to Exhibit 10.3 to Hexcel's
Quarterly Report on Form 10-Q for the Quarter ended June 30, 1996).
10.1(c) Consent Number 2 and Second Amendment dated as of November 12, 1996 to the Credit Agreement dated as
of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.4(b) to Hexcel's Annual Report on Form 10-K for the year ended December 31,
1996).
10.1(d) Consent Number 3 and Third Amendment dated as of February 27, 1997 to the Credit Agreement dated as
of June 27, 1996 among Hexcel Corporation and certain of its subsidiaries as borrowers, the
institutions party thereto as lenders, the institutions party thereto as issuing banks, Citibank,
N.A. as collateral agent and Credit Suisse as administrative agent (incorporated herein by
reference to Exhibit 10.4(c) to Hexcel's Annual Report on Form 10-K for the year ended December 31,
1996).
10.1(e) Amended and Restated Credit Agreement dated as of March 5, 1998 among Hexcel and certain subsidiaries
as borrowers, the lenders and issuing banks party thereto, Citibank, N.A., as U.S. administrative
agent, Citibank International plc, as European administrative agent and Credit Suisse, as
syndication agent (incorporated herein by reference to Exhibit 10.4(d) to Hexcel's Annual Report on
Form 10-K for the year ended December 31, 1997).
10.1(f) 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(g) 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(h) 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).
10.2 Schedule to the ISDA Master Agreement between Credit Lyonnais (New York Branch) and Hexcel
Corporation, dated as of September 15, 1998.
25
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
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.
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).
10.4 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).
10.5 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).
10.6 Hexcel Corporation Management Incentive Compensation Plan (incorporated herein by reference to Annex
A of the Company's Proxy Statement dated April 20, 1998, which was previously filed
electronically).
10.7 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).
10.8 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).
10.9 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).
10.10 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).
10.11 Form of Retainer Fee Option Agreement for Non-Employee Directors (1998).
10.12 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).
10.13 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).
10.14 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).
10.15 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
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.16 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).
10.17 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).
10.18 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).
10.19 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).
10.20 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).
10.21 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).
10.22 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).
10.23 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).
10.24 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).
10.25 Employment Agreement dated as of February 29, 1996 between Hexcel and John J. Lee (incorporated
herein by reference to Exhibit 10.14 to the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995).
10.25(a) 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).
10.25(b) 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).
10.25(c) 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).
10.25(d) 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).
27
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.25(e) 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).
10.25(f) 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).
10.26 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).
10.27 Employment Agreement dated as of July 25, 1998 (effective date September 15, 1998) between Hexcel and
William D. Bennison, President of Clark-Schwebel Corporation (a wholly-owned subsidiary of Hexcel)
(incorporated herein by reference to Exhibit 10.8 of the Company's Quarterly Report on Form 10-Q
for the Quarter ended September 30, 1998).
10.28 Agreement dated September 3, 1996 between Hexcel Corporation and Ira J. Krakower (incorporated herein
by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997).
10.29 Agreement between Hexcel Corporation and Stephen C. Forsyth (incorporated herein by reference to
Exhibit 10.4(L) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.30 Agreement between Hexcel Corporation and Gary L. Sandercock (incorporated herein by reference to
Exhibit 10.4(I) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31,
1994).
10.31 Governance Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited
(incorporated herein by reference to Exhibit 10.21 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.32 Registration Rights Agreement dated as of February 29, 1996 between Hexcel and Ciba-Geigy Limited
(incorporated herein by reference to Exhibit 10.22 to the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1995).
10.32(a) Amendment No.1 dated as of December 29, 1998 to the Registration Rights Agreement by and between
Ciba-Geigy Limited (which has since assigned the Registration Rights Agreement to Ciba Specialty
Chemical Holding Inc.) and Hexcel Corporation (incorporated herein by reference to Exhibit 10.29(a)
to the Company's Registration Statement on Form S-4 (No. 333-71601), filed on March 12, 1999).
10.33 Amendment dated as of November 22, 1995 to the Agreement Governing United States Employment Matters
between Hexcel and Ciba-Geigy Corporation (incorporated herein by reference to Exhibit 10.23(a) to
the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995).
10.34 Employment Matters Agreement dated as of February 29, 1996 among Ciba-Geigy PLC, Composite Materials
Limited and Hexcel (incorporated herein by reference to Exhibit 10.24 to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1995).
28
EXHIBIT NO. DESCRIPTION
- ----------- -----------------------------------------------------------------------------------------------------
10.35 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).
12.1 Statement regarding the computation of ratio of earnings to fixed charges for the Company.
21.1 Subsidiaries of the Company (incorporated herein by reference to Exhibit 21.2 of the Company's
Registration Statement on Form S-4 (No. 333-71706) filed on February 2, 1999).
23 Consent of Independent Accountants -- PricewaterhouseCoopers LLP.
23.1 Independent Auditors' Consent -- Deloitte & Touche LLP.
27. Financial Data Schedule (electronic filing only).
29
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 29, 1999 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
- ---------------------------------------- ------------------------------ --------------
Chairman of the Board of
/s/ JOHN J. LEE Directors March 29, 1999
------------------------------------ and Chief Executive Officer
(John J. Lee) (PRINCIPAL EXECUTIVE
OFFICER)
/s/ HAROLD E. KINNE President, Chief Operating March 29, 1999
------------------------------------ Officer and Director
(Harold E. Kinne)
Executive Vice President and
/s/ STEPHEN C. FORSYTH Chief Financial Officer March 29, 1999
------------------------------------ (PRINCIPAL FINANCIAL
(Stephen C. Forsyth) OFFICER)
Vice President and Corporate
/s/ WAYNE C. PENSKY