EX-99.1 2 a5066389ex99_1.txt EXHIBIT 99.1 Exhibit 99.1 Hexcel Reports 2005 Fourth Quarter and Year-End Results STAMFORD, Conn.--(BUSINESS WIRE)--Jan. 25, 2006--Hexcel Corporation (NYSE/PCX: HXL): Fourth Quarter 2005 Highlights -- Net income for the quarter was $134.8 million, including a $117.6 million benefit from the reversal of the Company's valuation allowance against its U.S. deferred tax assets. -- On a constant currency basis, net sales to Commercial Aerospace increased by 9.2% and Space & Defense increased by 13.3% compared to the fourth quarter of 2004. -- Operating income was up 24.8% to $25.7 million or 9.1% of net sales compared to operating income in the fourth quarter of 2004 of $20.6 million or 7.5% of net sales. -- Total debt, net of cash, decreased by $15.2 million to $398.8 million. See Statements of Operations and Reconciliation of GAAP and Non-GAAP Measures (Table F) for profitability comparisons for the quarter and 2005 full year. Hexcel Corporation (NYSE/PCX: HXL), today reported results for the fourth quarter and full year of 2005. Net sales for the quarter were $282.9 million, 2.4% higher than the $276.4 million reported for the fourth quarter of 2004. Operating income for the fourth quarter was $25.7 million compared to $20.6 million for the same quarter last year, a 24.8% increase. Net income available to common shareholders for the quarter was $120.4 million, or $1.43 per diluted common share. These results reflect a favorable benefit to earnings of $117.6 million from the reversal of the valuation allowance against the Company's U.S. deferred tax assets and a $13.1 million charge to deemed preferred dividends and accretion related to the conversion of the Company's remaining mandatorily redeemable convertible preferred stock. In the same quarter last year the Company reported a net loss available to common shareholders of $8.4 million or 0.20 cents per diluted share. Those results reflected $1.1 million of transaction costs related to a secondary offering of shares of the Company's common stock by certain of its shareholders, a $1.6 million loss on early retirement of debt and a $12.9 million charge to deemed preferred dividends and accretion related to the conversion of mandatorily redeemable convertible preferred stock. For the full year of 2005, net sales were $1,161.4 million as compared to $1,074.5 million in 2004, an increase of 8.1%. Gross margin increased to $254.2 million from $229.1 million. Operating income of $104.2 million in 2005 was $15.4 million higher than the $88.8 million reported in 2004. Net income available to common shareholders was $108.9 million for 2005 or $1.49 per diluted common share compared to $3.4 million or $0.08 per diluted common share in 2004. These results include both special items for 2005 and 2004 (see Table F) as well as charges of $23.2 million and $12.9 million, respectively, in connection with the conversions of mandatorily redeemable convertible preferred stock. Chief Executive Officer Comments "The fourth quarter and second half of 2005 have seen a number of transient events that have constrained revenue growth, but have not changed the outlook for Hexcel. As has been evidenced by the record aircraft orders placed with Boeing and Airbus in 2005, we are in the midst of a strong upturn in the commercial aerospace market. Boeing and Airbus have indicated they will deliver increasing numbers of aircraft in 2006 and 2007. What I find most satisfying about this upsurge is the number of Boeing 787 and Airbus A350 aircraft being ordered which confirms the viability of these programs that will enter production later in the decade and perhaps more importantly, the airline industry's acceptance of, and excitement over, this new breed of composite-rich commercial aircraft. Against these market fundamentals, the short-term impacts of the Boeing strike in the third quarter, 2005 and the six month push-out in the A380 program pale in significance." "While the lower revenue growth in the quarter did not give us much to work with, we again demonstrated operating leverage. This quarter the gains came primarily from lower selling, general and administrative ("SG&A") expenses. The gross margin leverage we did get in the quarter from the modest net sales increase was offset by the impact of higher oil and natural gas prices on utility, freight and certain raw materials costs. Our plants did well to sustain gross margins in the quarter." "Two indicators of our continued progress were the reversal of our U.S. income tax valuation allowance and the conversion of the remaining mandatorily redeemable convertible preferred stock. The improvements we have made in U.S. operating profitability, reductions in interest expense from de-leveraging and refinancing and other factors provided the evidence required under the accounting standards to normalize our U.S. tax accounting. The holders of our mandatorily redeemable convertible preferred stock showed their confidence in us by voluntarily converting their remaining shares of preferred stock into common stock in December. With these two steps, our shareholder's equity reached $209.1 million as of December 31, 2005 - the first time we have had a positive net worth since 2001. Perhaps more importantly, with these events and our first quarter, 2005 debt refinancing behind us, our financial reporting should be much easier for all investors to follow in 2006." "Despite the short term factors that affected the second half of 2005 and a number of special items, 2005 was a record year. Excluding the special items (see Table F) operating income increased by 31.5% to 10.5% of sales. Our operating leverage on incremental sales for the year was 33.7%. With the benefit of the interest savings and improved JV performance, net income increased by 130.8%." "While 2005 was impressive, we expect 2006 to be even stronger. Commercial aerospace revenues are set to return to "teens" percentage growth rates in the first quarter driven by increased aircraft production. While uncertainty continues as to the level of demand from ballistics applications, we anticipate a year with overall Company sales growth of about 10%. If we stay on track and continue to deliver operating leverage, in 2006 we can achieve gross margins of 23% and operating margins of 11% (before business consolidation and restructuring expenses) despite starting to reflect the cost of expensing stock options." Business Highlights Commercial Aerospace -- In constant currency, sales for the quarter of $132.0 million were 9.2% higher than the fourth quarter, 2004. -- Sales to Boeing and its subcontractors saw the residual effects of supply chain adjustments from Boeing's third quarter strike and Boeing's decision not to make up the resulting aircraft delivery shortfalls in the fourth quarter. In spite of the strike's negative impact, sales related to Boeing for the quarter grew by about 10% compared to the fourth quarter, 2004. -- Sales to Airbus and its subcontractors related to the A380 were again down this quarter compared to the prior year due to the previously announced six month push-out of the first delivery of the A380 aircraft to the end of 2006. As a result, total sales to Airbus for the quarter were about the same level as the fourth quarter, 2004. -- Sales to other commercial aircraft applications continued to grow in the quarter with constant currency sales up by about 20% compared to the fourth quarter, 2004. -- Current indications are that with the "slack" mostly behind us from the A380 push-out and the Boeing strike, the Company's year-over-year sales growth to commercial aerospace applications will return to "teens" in the first quarter. Industrial -- In constant currency, sales for the quarter of $88.4 million were 3.2% lower than the fourth quarter, 2004. Growth in revenues from wind energy and recreation applications was not strong enough this quarter to offset year-on-year declines in revenues from ballistic applications. Sales for the year however, increased by 2.1% compared to 2004 with revenue growth from wind energy applications more than offsetting declines in ballistics. -- Fourth quarter 2005 sales to ballistic applications were at a level comparable to the third quarter, 2005 but lower than the fourth quarter, 2004. For the full year of 2005, sales were lower than the 2004 surge levels. We are still waiting to see the full value of orders for military soft body armor to be placed for delivery in 2006. However, Hexcel's 2006 revenues from these applications likely will be lower than those in 2005. -- Revenues from wind energy applications remained strong and were up modestly in constant currency compared to the fourth quarter of 2004 in spite of customer operating and supply chain difficulties. Market share gains won in 2004 combined with market growth pushed sales for the full year of 2005 up over 50% in constant currency compared to the prior year. With the benefit of the 2004 share gains fully reflected in our revenue trend, 2006 growth rates will more closely align with the growth rates of our customers, which should remain strong globally. -- Carbon fiber availability continues to limit growth in sales to recreational and industrial applications. Nevertheless, constant currency sales to recreation applications increased in the quarter and the year compared to 2004, in part due to price increases. Space & Defense -- In constant currency, sales for the quarter of $57.0 million were 13.3% higher than the fourth quarter, 2004. -- Revenues related to helicopter programs such as the V-22 Osprey, Blackhawk, Tiger, and NH90 as well as blade replacement programs continued to show the greatest contribution to growth. This trend is expected to continue in 2006. Electronics -- Sales for the quarter in constant currency of $12.5 million were at a comparable level to the third quarter, 2005 and 10.1% lower that the fourth quarter, 2004. However, sales for the year in constant currency, decreased by 8.3% compared to 2004 to $56.7 million. Revenues in this market continue to be difficult to predict, but no major upturn is expected. -- In January 2006, Hexcel announced plans to consolidate its North American electronics production activities into the Statesville, NC plant and to close the plant in Washington, GA. In December 2005, Hexcel announced plans to consolidate certain of its glass fabric production activities in France. These programs are aimed at matching regional production capacities with anticipated demand. The estimated 2006 business consolidation and restructuring expense associated with these programs is $4.0 million. In addition to these cash costs, the Company expects to record approximately $2.5 million of accelerated depreciation in 2006. An additional $0.3 million of business consolidation and restructuring expense was recorded in 2005 as a result of the consolidation activities in France. The Company expects to earn its return on these investments during 2007. Operations -- Compared to the fourth quarter, 2004, utility costs were $2.8 million higher for the quarter and $5.7 million higher for the year due to increased volumes and energy prices. -- SG&A was $2.5 million lower than in the fourth quarter, 2004 at $26.7 million. The 2004 expense reflected $1.1 million of transaction costs related to a secondary offering of shares of the Company's common stock by certain of its shareholders as well as the peak spending on the implementation of s404 of the Sarbanes-Oxley Act. -- As indicated at the end of the third quarter 2005, the Company targeted inventory reductions in the fourth quarter. In constant currency, inventories were reduced by $8.9 million in the quarter from the September 30, 2005 balance of $160.5 million. The strengthening of the U.S. dollar further reduced the reported value of inventories by $1.2 million. -- Cash spent for capital in the quarter was $34.5 million versus $17.8 million for 2004, and included expenditures related to the Company's carbon fiber capacity expansion. -- Total debt, net of cash, decreased by $15.2 million to $398.8 million as of December 31, 2005. During the quarter, the Company paid the carbon fiber litigation settlement of $15.8 million that was agreed to in the third quarter, 2005. Excluding the first quarter 2005 debt refinancing cash costs of $42.1 million and payments of litigation settlements of $23.3 million during the year, net debt would have decreased by $40.8 million in 2005 despite the higher levels of capital expenditures in the year. 2006 Guidance The following forward looking information is provided to assist investors in their modeling of Hexcel's anticipated performance in 2006: -- Sales Growth. 2006 sales growth from commercial aerospace and wind energy applications is expected to be in the "teens", driven by increased aircraft production and wind turbine installations. Assuming some reduction in demand from the ballistics market, overall sales growth is expected to be about 10% for the year. -- Margins. Based on anticipated sales growth and continued operating leverage, the Company expects to earn 23% gross margins and 11% operating margins for the year (before business consolidation and restructuring expenses, but including stock based compensation expense). -- Stock Based Compensation. The Company is adopting Financial Accounting Standard No. 123(R), "Share-Based Payment", as of January 1, 2006. The increase in pre-tax expense for stock based compensation in 2006 as a result of adopting the new accounting standard is estimated to be in a range of $5 to $6 million. -- Tax Rate. Following the reversal of the valuation allowance against its U.S. deferred tax assets as of December 31, 2005, the Company will provide a full tax provision on its U.S. pre-tax earnings commencing in the first quarter, 2006. The estimated 2006 effective tax rate for the Company's consolidated pre-tax earnings is in a range of 37% to 39%. The Company estimates that the portion of its deferred tax assets it can utilize in 2006 to reduce its cash tax expense will be approximately $27 million. -- Basic and Diluted Shares Outstanding. The number of basic common shares outstanding at the beginning of 2006 is 92.6 million. The diluted shares count will likely be 2 to 3 million shares higher. -- Capital Spending. As previously indicated, capital expenditures for 2006 are projected at $100 million. The increase over 2005 spending of $66.9 million (including deposits) from $38.1 million during 2004 primarily reflects the impact of the Company's carbon fiber capacity expansion program. -- Total Debt, Net of Cash. Net cash flows provided by operations for 2006 are expected to exceed capital expenditures for the year so that the Company's total debt, net of cash at the end of 2006 should show a modest reduction. Independent Registered Public Accounting Firm's 2005 Report Due to the requirements of Section 404 of the Sarbanes-Oxley Act, the independent registered public accounting firm's audit report date on the financial statements will be deferred until the Company files its 2005 Annual Report on Form 10-K. Hexcel will host a conference call at 11:00 A.M. ET, tomorrow, January 26, 2006 to discuss the fourth quarter results and respond to questions. The telephone number for the conference call is (719) 457-2683 and the confirmation code is 3447561. The call will be simultaneously hosted on Hexcel's web site at www.hexcel.com/investors/index.html. Replays of the call will be available on the web site for approximately three days. Hexcel Corporation is a leading advanced structural materials company. It develops, manufactures and markets lightweight, high-performance reinforcement products, composite materials and composite structures for use in commercial aerospace, space and defense, electronics, and industrial applications. Disclaimer on Forward Looking Statements This press release contains statements that are forward looking, including statements relating to anticipated trends in the market segments the Company serves (including increases in production of commercial aircraft, increased composite penetration of commercial aircraft, the growth in revenues from wind energy applications and the trend in revenues from soft body armor and electronics applications), the 2006 outlook for sales growth, first quarter commercial aerospace sales growth, the impact of adopting FAS 123R, the estimated effective tax rate, the weighted average number of common shares outstanding, capital expenditures and changes in debt, net of cash, and the Company's expectations for percentage gross and operating margins in 2006 based upon operating leverage. Actual results may differ materially from the results anticipated in the forward looking statements due to a variety of factors, including but not limited to changing market conditions, increased competition, product mix, inability to achieve planned manufacturing improvements and cost reductions, conditions in the financial markets and changes in currency exchange rates. Additional risk factors are described in the Company's filings with the SEC. The Company does not undertake an obligation to update its forward-looking statements to reflect future events. Hexcel Corporation and Subsidiaries Condensed Consolidated Statements of Operations ---------------------------------------------------------------------- Unaudited ---------------------------------- Quarter Ended Year Ended December 31, December 31, (In millions, except per share data) 2005 2004 2005 2004 ---------------------------------------------------------------------- Net sales $ 282.9 $276.4 $1,161.4 $1,074.5 Cost of sales 223.5 218.3 907.2 845.4 ---------------------------------------------------------------------- Gross margin 59.4 58.1 254.2 229.1 % Gross Margin 21.0% 21.0% 21.9% 21.3% Selling, general and administrative expenses (a) (b) 26.7 29.2 106.6 110.8 Research and technology expenses (a) 5.9 7.4 25.4 23.6 Business consolidation and restructuring expenses (c) 1.1 0.9 2.9 2.9 Other expense, net (d) - - 15.1 3.0 ---------------------------------------------------------------------- Operating income 25.7 20.6 104.2 88.8 Interest expense (e) 7.2 11.4 33.9 47.7 Non-operating expense, net (f) - 1.6 40.9 2.2 ---------------------------------------------------------------------- Income before income taxes 18.5 7.6 29.4 38.9 Provision for income taxes (g) (115.3) 0.3 (106.7) 11.2 ---------------------------------------------------------------------- Income (loss) before equity in earnings 133.8 7.3 136.1 27.7 Equity in earnings of affiliated companies 1.0 0.3 3.6 1.1 ---------------------------------------------------------------------- Net income 134.8 7.6 139.7 28.8 Deemed preferred dividends and accretion (h) (14.4) (16.0) (30.8) (25.4) ---------------------------------------------------------------------- Net income (loss) available to common shareholders $ 120.4 $ (8.4) $ 108.9 $ 3.4 ---------------------------------------------------------------------- Net income (loss) per common share (i): Basic $ 1.74 $(0.20) $ 1.81 $ 0.09 Diluted $ 1.43 $(0.20) $ 1.49 $ 0.08 Weighted-average common shares (i): Basic 69.1 41.6 60.0 39.3 Diluted 94.4 41.6 93.7 42.1 ---------------------------------------------------------------------- (a) The presentation of research and technology expenses has been changed to include certain new product qualification costs that were previously reported under selling, general and administrative expenses. Prior periods have been reclassified to conform to this presentation. (b) Includes for the year ended December 31, 2005, $1.9 million of legal fees and expenses associated with two previously disclosed litigation matters, $1.0 million of transaction costs related to a secondary offering of common shares, and a $0.6 million provision against accounts receivable from Second Chance Body Armor, Inc., a ballistics customer that filed for protection under Chapter 11 of the U.S. Bankruptcy Code. Includes in the fourth quarter and year ended December 31, 2004 $1.1 million of transaction costs related to a secondary offering of common shares and a provision of $2.3 million against accounts receivable from Second Chance Body Armor, Inc. (c) Business consolidation and restructuring expenses of $1.1 million in the fourth quarter of 2005 included $0.3 million for the Electronics restructuring action. (d) Includes accruals of $16.5 million for the settlement of litigation matters and a $1.4 million gain on the sale of assets for the year ended December 31, 2005. Includes $7.0 million for the settlement of litigation matters and a $4.0 million gain on the sale of assets for the year ended December 31, 2004. (e) The reduction in interest expense reflects the benefits of lower interest rates as a result of the Company's debt refinancing which occurred during the first quarter of 2005 (Refer to Table F). (f) Non-operating expense, net includes a charge of $1.6 million for the early retirement of debt for the quarter ended December 31, 2004. For the years ended December 31, 2005 and 2004, non-operating expense, net includes charges of $40.9 million and $3.2 million for the early retirement of debt, respectively and a $1.0 million gain on the de-mutualization of an insurance company in 2004. (g) Provision for income taxes includes a benefit of $117.6 million arising from the reversal of the valuation allowance against the Company's U.S. deferred tax assets as of December 31, 2005. (h) Deemed preferred dividends and accretion includes a $13.1 million charge arising from the conversion of mandatorily redeemable convertible preferred stock in December 2005. For the years ended December 31, 2005 and 2004, and in connection with conversions of mandatorily redeemable convertible preferred stock, deemed preferred dividends and accretion includes charges of $23.2 million and $12.9 million, respectively. (i) Refer to Table D for further information related to basic and diluted income (loss) per share. Hexcel Corporation and Subsidiaries Condensed Consolidated Balance Sheets ---------------------------------------------------------------------- Unaudited --------------------------- December September December 31, 30, 31, (In millions, except per share data) 2005 2005 2004 ---------------------------------------------------------------------- Assets Current assets: Cash and cash equivalents $ 21.0 $ 12.3 $ 57.2 Accounts receivable, net 155.9 161.8 153.5 Inventories, net 150.4 160.5 144.2 Prepaid expenses and other current assets (a) 43.0 15.7 18.4 ---------------------------------------------------------------------- Total current assets 370.3 350.3 373.3 Property, plant and equipment 726.0 718.8 734.0 Less accumulated depreciation (440.8) (451.1) (447.4) ---------------------------------------------------------------------- Net property, plant and equipment 285.2 267.7 286.6 Goodwill and other intangibles, net 74.7 75.5 78.3 Investments in affiliated companies 14.3 14.3 5.5 Other assets (a) 134.5 34.9 33.1 ---------------------------------------------------------------------- Total assets $ 879.0 $ 742.7 $ 776.8 ---------------------------------------------------------------------- Liabilities and Stockholders' Equity (Deficit) Current liabilities: Notes payable and current maturities of capital lease obligations $ 3.0 $ 3.9 $ 1.0 Accounts payable 94.5 86.0 94.8 Accrued liabilities 98.3 108.9 120.2 ---------------------------------------------------------------------- Total current liabilities 195.8 198.8 216.0 Long-term notes payable and capital lease obligations 416.8 422.4 430.4 Other non-current liabilities 57.3 65.2 64.3 ---------------------------------------------------------------------- Total liabilities 669.9 686.4 710.7 Mandatorily redeemable convertible preferred stock, 0.125 shares of series A and 0.125 shares of series B authorized, 0.071 shares of series A issued and outstanding at September 30, 2005; and 0.101 shares of series A and 0.047 shares of series B issued and outstanding at December 31, 2004 (b) - 64.3 90.5 Stockholders' equity (deficit): Preferred stock, no par value, 20.0 shares authorized, no shares issued or outstanding - - - Common stock, $0.01 par value, 200.0 shares authorized, 94.0 shares issued at December 31, 2005, 70.0 shares issued at September 30, 2005 and 55.0 shares issued at December 31, 2004 0.9 0.7 0.5 Additional paid-in capital 455.0 374.4 334.5 Accumulated deficit (224.1) (358.9) (363.8) Accumulated other comprehensive income (loss) (7.3) (8.8) 18.4 ---------------------------------------------------------------------- 224.5 7.4 (10.4) Less - Treasury stock, at cost, 1.5 shares at December 31, 2005 and September 30, 2005 and 1.4 shares at December 31, 2004 (15.4) (15.4) (14.0) ---------------------------------------------------------------------- Total stockholders' equity (deficit) 209.1 (8.0) (24.4) ---------------------------------------------------------------------- Total liabilities and stockholders' equity (deficit) $ 879.0 $ 742.7 $ 776.8 ---------------------------------------------------------------------- (a) Includes $32.9 million and $106.3 million of current and non-current deferred tax assets, respectively, against which the Company released its valuation allowance as of December 31, 2005. (b) All outstanding shares of series A and series B mandatorily redeemable convertible preferred stock were converted into common stock in December 2005 and August 2005, respectively. Hexcel Corporation and Subsidiaries Condensed Consolidated Statements of Cash Flows ---------------------------------------------------------------------- Unaudited ------------------------------- Quarter Ended Year Ended December 31, December 31, (In millions) 2005 2004 2005 2004 ---------------------------------------------------------------------- Cash flows from operating activities Net income $ 134.8 $ 7.6 $ 139.7 $ 28.8 Reconciliation to net cash provided by operating activities: Depreciation and amortization 11.8 13.1 47.3 52.0 Amortization of debt discount and deferred financing costs 0.3 0.7 2.0 3.3 Deferred income taxes (benefit), including reversal of valuation allowance (117.8) (0.6) (116.8) (1.1) Business consolidation and restructuring expenses 1.1 0.9 2.9 2.9 Business consolidation and restructuring payments (0.8) (0.9) (2.7) (4.7) Loss on early retirement of debt - 1.6 40.9 3.2 Equity in earnings of affiliated companies (1.0) (0.3) (3.6) (1.1) (Increase) decrease in accounts receivable 4.4 1.5 (16.9) (19.3) (Increase) decrease in inventories 8.9 7.4 (16.8) (17.5) (Increase) decrease in prepaid/other current assets 2.0 0.4 4.4 (7.4) (Increase) decrease in accounts payable/accrued liabilities (a) (1.6) 9.0 (11.6) 45.9 Changes in non-current assets and long-term liabilities and other 1.6 - 3.7 0.9 ---------------------------------------------------------------------- Net cash provided by operating activities 43.7 40.4 72.5 85.9 ---------------------------------------------------------------------- Cash flows from investing activities Capital expenditures (30.3) (17.8) (62.7) (38.1) Deposits for capital purchases (4.2) - (4.2) - Proceeds from the sale of assets - - 1.4 - Dividends from affiliated companies 1.0 - 3.1 6.5 Investment in affiliated companies - 1.5 (7.5) 3.0 ---------------------------------------------------------------------- Net cash used for investing activities (33.5) (16.3) (69.9) (28.6) ---------------------------------------------------------------------- Cash flows from financing activities Proceeds from 6.75% senior subordinated notes - - 225.0 - Proceeds from (repayments of) senior secured credit facilities, net (5.0) - 190.0 (4.1) Repayments of 9.75% senior subordinated notes - (24.1) (285.3) (47.0) Redemption of 7.0% convertible subordinated debentures - (1.7) (19.2) (1.7) Redemption of 9.875% senior secured notes - - (125.0) - Proceeds from (repayments of) capital lease obligations and other debt, net (1.3) (1.3) 0.7 (1.6) Issuance costs related to debt offerings - - (12.1) - Debt retirement costs - - (30.0) - Activity under stock plans 5.1 9.2 15.2 12.8 ---------------------------------------------------------------------- Net cash used for financing activities (1.2) (17.9) (40.7) (41.6) ------------------------------- Effect of exchange rate changes on cash and cash equivalents (0.3) (0.5) 1.9 (0.2) ---------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents 8.7 5.7 (36.2) 15.5 Cash and cash equivalents at beginning of period 12.3 51.5 57.2 41.7 ---------------------------------------------------------------------- Cash and cash equivalents at end of period $ 21.0 $ 57.2 $ 21.0 $ 57.2 ---------------------------------------------------------------------- Supplemental Data: Cash interest paid $ 2.9 $ 7.4 $ 40.0 $ 47.1 Cash taxes paid $ 2.4 $ 2.6 $ 12.0 $ 10.4 ---------------------------------------------------------------------- (a) The quarter ended December 31, 2005 included the payment of the $15.8 million litigation settlement accrued in the third quarter of 2005. Net Sales to Third-Party Customers by Market Segment Quarters Ended December 31, 2005 and 2004 (Unaudited) Table A ---------------------------------------------------------------------- (In millions) As Reported Constant Currency (a) ---------------------------------------------------------------------- B/(W) FX B/(W) Market Segment 2005 2004 % Effect(b) 2005 % ---------------------------------------------------------------------- Commercial Aerospace $129.5 $120.9 7.1 $(2.5) $132.0 9.2 Industrial 85.5 91.3 (6.4) (2.9) 88.4 (3.2) Space & Defense 55.6 50.3 10.5 (1.4) 57.0 13.3 Electronics 12.3 13.9 (11.5) (0.2) 12.5 (10.1) ---------------------------------------------------------------------- Consolidated Total $282.9 $276.4 2.4 $(7.0) $289.9 4.9 ---------------------------------------------------------------------- Consolidated % of Net Sales % % % ---------------------------------------------------------------------- Commercial Aerospace 45.8 43.8 45.5 Industrial 30.2 33.0 30.5 Space & Defense 19.7 18.2 19.7 Electronics 4.3 5.0 4.3 ---------------------------------------------------------------------- Consolidated Total 100.0 100.0 100.0 ---------------------------------------------------------------------- Year Ended December 31, 2005 and 2004 (Unaudited) Table B ---------------------------------------------------------------------- (In millions) As Reported Constant Currency (a) ---------------------------------------------------------------------- B/(W) FX B/(W) Market Segment 2005 2004 % Effect(b) 2005 % ---------------------------------------------------------------------- Commercial Aerospace $529.4 $462.5 14.5 $(0.4) $529.8 14.6 Industrial 365.8 357.1 2.4 1.1 364.7 2.1 Space & Defense 209.3 193.1 8.4 - 209.3 8.4 Electronics 56.9 61.8 (7.9) 0.2 56.7 (8.3) ---------------------------------------------------------------------- Consolidated Total $1,161.4 $1,074.5 8.1 $0.9 $1,160.5 8.1 ---------------------------------------------------------------------- Consolidated % of Net Sales % % % ---------------------------------------------------------------------- Commercial Aerospace 45.6 43.0 45.7 Industrial 31.5 33.2 31.4 Space & Defense 18.0 18.0 18.0 Electronics 4.9 5.8 4.9 ---------------------------------------------------------------------- Consolidated Total 100.0 100.0 100.0 ---------------------------------------------------------------------- (a) To assist in the interpretation of the Company's net sales trend, total net sales and sales by market for the quarter, and year ended December 31, 2005 have been estimated using the same U.S. dollar, British pound and Euro exchange rates as applied for the respective periods in 2004 and are referred to as "constant currency" sales. (b) FX effect is the estimated impact on "as reported" net sales due to changes in foreign currency exchange rates. Note: Sales by market by business segment can be found under the Investor News tab on the Investor Relations section of the Company's web site www.hexcel.com. Hexcel Corporation and Subsidiaries Table C Segment Data ---------------------------------------------------------------------- Unaudited ------------------------------------------------ Corporate Reinforce- Compos- Struc- & Other (In millions) ments ites tures (a) Total ---------------------------------------------------------------------- Fourth Quarter 2005 ---------------------------------------------------------------------- Net sales to external customers $ 67.7 $191.0 $ 24.2 $ - $ 282.9 Intersegment sales 32.8 6.0 - - 38.8 ---------------------------------------------------------------------- Total sales 100.5 197.0 24.2 - 321.7 Operating income (loss) 10.1 20.9 3.1 (8.4) 25.7 Depreciation and amortization 3.4 7.9 0.5 - 11.8 Business consolidation and restructuring expenses 0.3 0.8 - - 1.1 Capital expenditures (b) and deposits 4.3 28.1 0.6 1.5 34.5 ---------------------------------------------------------------------- Fourth Quarter 2004 ---------------------------------------------------------------------- Net sales to external customers $ 76.0 $181.9 $ 18.5 $ - $ 276.4 Intersegment sales 24.8 5.1 - - 29.9 ---------------------------------------------------------------------- Total sales 100.8 187.0 18.5 - 306.3 Operating income (c) (loss) 9.2 20.2 1.5 (10.3) 20.6 Depreciation 4.2 8.4 0.4 0.1 13.1 Business consolidation and restructuring expenses 0.1 0.8 - - 0.9 Capital expenditures 4.9 12.6 0.3 - 17.8 ---------------------------------------------------------------------- Full Year 2005 ---------------------------------------------------------------------- Net sales to external customers $ 291.2 $787.0 $ 83.2 $ - $1,161.4 Intersegment sales 131.5 24.8 - - 156.3 ---------------------------------------------------------------------- Total sales 422.7 811.8 83.2 - 1,317.7 Operating income (d) (e) (f) (loss) 43.0 104.0 8.0 (50.8) 104.2 Depreciation and amortization 14.0 31.3 1.9 0.1 47.3 Business consolidation and restructuring expenses 0.3 2.6 - - 2.9 Capital expenditures (b) and deposits 7.9 55.4 0.7 2.9 66.9 ---------------------------------------------------------------------- Full Year 2004 ---------------------------------------------------------------------- Net sales to external customers $ 319.4 $683.9 $ 71.2 $ - $1,074.5 Intersegment sales 103.3 19.0 - - 122.3 ---------------------------------------------------------------------- Total sales 422.7 702.9 71.2 - 1,196.8 Operating income (d) (e) (g) (loss) 39.7 89.1 3.8 (43.8) 88.8 Depreciation 16.5 33.5 1.9 0.1 52.0 Business consolidation and restructuring expenses 0.7 2.3 - (0.1) 2.9 Capital expenditures 10.3 26.4 0.4 1.0 38.1 ---------------------------------------------------------------------- (a) The Company does not allocate corporate expenses to its business segments. (b) Includes $4.2 million related to deposits for capital purchases for the quarter and year ended December 31, 2005. (c) Includes $1.1 million in transaction costs related to the December 2004 secondary offering of common shares. (d) Includes a provision of $0.6 million and $2.3 million against accounts receivable for the years ended December 31, 2005 and 2004, respectively related to Second Chance Body Armor, Inc., a ballistics customer that filed for protection under Chapter 11 of the U.S. Bankruptcy Code. (e) Includes gains on sale of assets of $1.4 million and $4.0 million for the years ended December 31, 2005 and 2004, respectively. (f) Includes litigation settlements of $16.5 million, $1.9 million for legal fees and expenses associated with two previously disclosed litigation matters, and $1.0 million in transaction costs related to the August 2005 secondary offering of common shares. (g) Includes litigation settlements of $7.0 million, and $1.1 million in transaction costs related to the August 2005 secondary offering of common shares. Hexcel Corporation and Subsidiaries Table D Schedule of Net Income (Loss) Per Common Share ---------------------------------------------------------------------- Unaudited ----------------------------- Quarter Ended Year Ended December 31, December 31, (In millions, except per share data) 2005 2004 2005 2004 ---------------------------------------------------------------------- Basic net income (loss) per common share: Net income $134.8 $ 7.6 $139.7 $ 28.8 Deemed preferred dividends and accretion (14.4) (16.0) (30.8) (25.4) ---------------------------------------------------------------------- Net income (loss) available to common shareholders $120.4 $ (8.4) $108.9 $ 3.4 ---------------------------------------------------------------------- Weighted average common shares outstanding 69.1 41.6 60.0 39.3 Basic net income (loss) per common share $ 1.74 $ 0.20 $ 1.81 $ 0.09 ---------------------------------------------------------------------- Diluted net income (loss) per common share: Net income $134.8 $ 7.6 $139.7 $ 28.8 Deemed preferred dividends and accretion (14.4) (16.0) (30.8) (25.4) ---------------------------------------------------------------------- Net income (loss) available to common shareholders $120.4 $ (8.4) $108.9 $ 3.4 Plus: Deemed preferred dividends and accretion 14.4 - 30.8 - ---------------------------------------------------------------------- Net income available to common shareholders plus assumed conversions $134.8 $ (8.4) $139.7 $ 3.4 ---------------------------------------------------------------------- Weighted average common shares outstanding - Basic 69.1 41.6 60.0 39.3 Plus incremental shares from assumed conversions: Restricted stock units 0.5 - 0.4 0.5 Stock options 1.8 - 1.8 2.3 Convertible preferred stock 23.1 - 31.5 - ---------------------------------------------------------------------- Weighted average common shares outstanding-Dilutive (a) (b) 94.4 41.6 93.7 42.1 ---------------------------------------------------------------------- Diluted net income (loss) per common share $ 1.43 $(0.20) $ 1.49 $ 0.08 ---------------------------------------------------------------------- (a) All outstanding shares of series A and B mandatorily redeemable convertible preferred stock were converted to common stock in December 2005 and August 2005. (b) The Company's mandatorily redeemable convertible preferred stock was excluded from the computations of diluted net income (loss) per share for the quarter and year ended December 31, 2004, as it was anti-dilutive. In addition, restricted stock units and stock options were excluded from calculation of diluted net loss per share for the quarter ended December 31, 2004 as they were anti-dilutive. Had earnings not been anti-dilutive, the diluted share count would have been 94.0 million and 91.5 million for the quarter and year ended December 31, 2004, respectively. Hexcel Corporation and Subsidiaries Table E Schedule of Interest Expense ---------------------------------------------------------------------- Unaudited -------------------------- Quarter Ended Year Ended December 31, December 31, (In millions) 2005 2004 2005 2004 ---------------------------------------------------------------------- Interest on debt instruments $ 6.6 $10.3 $30.8 $43.0 Banking, commitment and other fees 0.1 0.3 1.0 1.4 Amortization of financing costs and discounts (non-cash) 0.5 0.8 2.1 3.3 ---------------------------------------------------------------------- Interest Expense $ 7.2 $11.4 $33.9 $47.7 ---------------------------------------------------------------------- Hexcel Corporation and Subsidiaries Reconciliation of GAAP and Non-GAAP Measures Table F ---------------------------------------------------------------------- Unaudited ----------------------------- Quarter Ended Year Ended December 31, December 31, ----------------------------- (In millions) 2005 2004 2005 2004 ---------------------------------------------------------------------- GAAP operating income $ 25.7 $20.6 $ 104.2 $88.8 - Litigation settlement expense - - 16.5 7.0 - Legal fees and expenses related to litigation settlements - - 1.9 - - Secondary offering transaction costs - 1.1 1.0 1.1 - Gains on sale of assets - - (1.4) (4.0) ---------------------------------------------------------------------- Non-GAAP operating income 25.7 21.7 122.2 92.9 GAAP Net Income 134.8 7.6 139.7 28.8 - Litigation settlement expense - - 16.5 7.0 - Legal fees and expenses related to litigation settlements - - 1.9 - - Secondary offering transaction costs - 1.1 1.0 1.1 - Gains on sale of assets - - (1.4) (4.0) - Gains related to de-mutualization of an insurance company - - - (1.0) - Early retirement of debt - 1.6 40.9 3.2 - Reversal of U.S. deferred tax asset valuation allowance (117.6) - (117.6) - ---------------------------------------------------------------------- Non-GAAP net income $ 17.2 $10.3 81.0 35.1 Table G ---------------------------------------------------------------------- Unaudited ------------------------------- December September December (In millions) 31, 2005 30, 2005 31, 2004 ---------------------------------------------------------------------- Notes payable and current maturities of capital lease obligations $ 3.0 $ 3.9 $ 1.0 Long-term notes payable and capital lease obligations 416.8 422.4 430.4 -------------------------------------------------- --------- --------- Total Debt 419.8 426.3 431.4 Cash and cash equivalents 21.0 12.3 57.2 -------------------------------------------------- --------- --------- Total debt, net of cash $398.8 $414.0 $ 374.2 -------------------------------------------------- --------- --------- Management believes that operating income and net income before special items, which are non-GAAP measurements, are meaningful to investors because they provide a view of the Company with respect to ongoing operating results. Special items represent significant charges or credits that are important to an understanding of the Company's overall operating results in the periods presented. In addition, management believes that total debt, net of cash, which is also a non-GAAP measure, is an important measure of the Company's liquidity. Such non-GAAP measurements are not recognized in accordance with generally accepted accounting principles and should not be viewed as an alternative to GAAP measures of performance. CONTACT: Hexcel Corporation Investors: Stephen C. Forsyth, 203-969-0666 ext. 425 stephen.forsyth@hexcel.com or Media: Michael Bacal, 203-969-0666 ext. 426 michael.bacal@hexcel.com