Hexcel Corporation — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone fourth-quarter report; quarterly figures are included below. Amounts are in U.S. dollars.
Business context
Hexcel develops and manufactures advanced composite materials and engineered products for Commercial Aerospace, Space & Defense, and Industrial markets. Its two reportable segments are Composite Materials and Engineered Products. Commercial Aerospace represented 65% of 2013 sales, Space & Defense 22%, and Industrial 13%.
Financial performance and position
| Metric | 2013 | 2012 |
|---|---|---|
| Net sales | $1,678.2 million | $1,578.2 million |
| Gross margin | $454.0 million; 27.1% | $406.7 million; 25.8% |
| Operating income | $270.9 million; 16.1% | $248.8 million; 15.8% |
| Net income | $187.9 million | $164.3 million |
| Diluted EPS | $1.84 | $1.61 |
| Cash from operations | $272.9 million | $232.4 million |
| Capital expenditures and deposits | $194.9 million | $263.7 million |
| Free cash flow (company-defined, non-GAAP) | $78.0 million | $(31.3) million |
| Total debt | $295.0 million | $256.6 million |
| Cash and cash equivalents | $65.5 million | $32.6 million |
| Working capital | $387.7 million | $340.4 million |
Net debt was $229.5 million at year-end. Hexcel had $306.5 million of undrawn availability under its revolving credit facility. Total assets were $1,836.1 million and stockholders’ equity was $1,160.4 million. The company reported compliance with its debt covenants.
Fourth-quarter 2013 sales were $426.8 million, operating income $67.0 million, net income $47.1 million, and diluted EPS $0.46. Corresponding fourth-quarter 2012 figures were $387.3 million, $54.3 million, $36.9 million, and $0.36.
Changes versus prior year
- Sales rose $100.0 million, or about 6%, from 2012; management reported 6% growth in constant currency.
- Commercial Aerospace sales increased 14.9% to $1,084.5 million, driven by higher aircraft production and new programs. Space & Defense sales increased 5.3% to $375.9 million.
- Industrial sales fell 21.4% to $217.8 million, mainly because wind energy sales declined more than 25% from 2012’s record level.
- Gross margin improved 1.3 percentage points, reflecting higher volume, more favorable aerospace mix, and operating improvements. Operating income increased 9% as reported; excluding specified 2012 other-income and expense items, management said operating income rose 13%.
- Operating cash flow increased $40.5 million, supported by higher earnings and lower working-capital usage. Capital spending remained substantial, though below 2012.
Outlook, commentary, and risks
- Management expected 2014 Airbus and Boeing deliveries to exceed 2013 levels. Their combined year-end backlog was 10,639 aircraft, while actual production, program timing, and supply-chain inventory can affect Hexcel’s sales.
- 2014 capital spending was projected at $225–$250 million, with expected positive free cash flow of $25–$75 million. Management anticipated typical first-half cash usage would be funded through available credit-facility borrowings.
- Wind energy sales were expected to increase by mid-single digits in 2014, based on the largest customer’s backlog. This outlook depends on factors including economic conditions, government incentives, energy costs, and turbine efficiency.
- The A350 was expected to enter service in the fourth quarter of 2014. Hexcel estimated about $5 million of content per aircraft and projected annual sales of about $600 million once Airbus reached its stated production rate of 120 aircraft per year; these are forward-looking estimates.
- Key risks include reliance on Boeing and Airbus (34% and 29% of 2013 sales, respectively, including related subcontractors), aircraft production delays or cancellations, defense spending changes, industrial-market weakness, and potential cost or supply disruptions for materials available from limited sources. Foreign exchange, environmental liabilities, and manufacturing capacity execution are also risks.
- Environmental accruals were $3.9 million at year-end, but the company noted that some site liabilities—including potential Lower Passaic River costs and natural-resource damages—could not be determined. The company stated its recorded accruals were estimated at the low end of ranges where no better estimate was available.
- The company refinanced in June 2013 with a $600 million senior secured revolving facility maturing in 2018. No significant scheduled debt maturity was expected before then; the filing lists $292 million due at facility maturity.
- Hexcel repurchased $90 million of shares in 2013, including purchases under a $150 million authorization. It paid no dividends and reported no plan to pay them.
Most important facts to verify
- Whether aircraft build rates, especially for the A350 and other newer programs, and Hexcel’s actual content per aircraft match management’s assumptions.
- Whether the expected 2014 capital spending, free cash flow, and wind-market recovery materialized.
- How customer concentration and limited-source raw materials affect margins and production resilience.
- Whether debt-facility availability, covenant compliance, and the 2018 refinancing/maturity profile remain consistent with the filing’s disclosures.
- Whether environmental and tax exposures change: unrecognized tax benefits were $42.7 million, and the ultimate Lower Passaic River liability was not estimable.