X annual report pursuant to section 13 or 15(d) of the securities exchange act of 1934


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Carbon Fibers:  HexTow 

Industrial Fabrics and Specialty Reinforcements:  Industrial fabrics and specialty reinforcements are made from a variety of fibers, including carbon, aramid and other high strength polymers, several types of fiberglass, quartz, ceramic and other specialty fibers.   These reinforcements are used in the production of prepregs and other matrix materials used in primary and secondary structural aerospace applications such as wing components, horizontal and vertical stabilizer components, fairings, radomes and engine nacelles as well as overhead storage bins and other interior components.  Our reinforcements are also used in the manufacture of a variety of industrial and recreational products such as wind energy blades, automotive components, boats, surfboards, skis and other sporting goods equipment and certain civil engineering and construction applications.

 

Prepregs:  HexPly 

Other Fiber-Reinforced Matrix Materials:  New fiber reinforced matrix developments include HexMC 

Resins:  Polymer matrix materials are sold in bulk and film form for use in direct process manufacturing of composite parts.  Resins can be combined with fiber reinforcements in manufacturing processes such resin transfer molding (RTM), resin film infusion (RFI) or vacuum assisted resin transfer molding (VARTM) to produce high quality composite components for both aerospace and industrial applications.

 

Structural Adhesives:  We manufacture and market a comprehensive range of Redux 

Honeycomb:  HexWeb 

We produce 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 materials used in the manufacture of honeycomb include fiberglass, carbon fiber, thermoplastics, non-flammable aramid papers, aramid fiber and other specialty materials.

 

We sell honeycomb as standard blocks and in slices cut from a block. Honeycomb is also supplied as sandwich panels, with facing skins bonded to either side of the core material.  Aerospace is the largest market for honeycomb products.  We also sell honeycomb for non-aerospace applications including automotive parts, high-speed trains and mass transit vehicles, energy absorption products, marine vessel compartments, portable shelters, and other industrial uses.  In addition, we produce honeycomb for our Engineered Products segment for use in manufacturing finished parts for airframe Original Equipment Manufacturers (“OEMs”).

 

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The following table identifies the key customers and the major manufacturing facilities of the Composite Materials segment:

 

COMPOSITE MATERIALS

KEY CUSTOMERS

 

MAJOR MANUFACTURING FACILITIES

Alenia

 

FACC

 

Casa Grande, Arizona

Alliant Techsystems

 

Gamesa

 

Decatur, Alabama

BAE Systems

 

GKN

 

Dagneux, France

The Boeing Company

 

Goodrich

 

Duxford, England

Bombardier

 

Lockheed Martin

 

Linz, Austria

CFAN

 

Northrop Grumman

 

Les Avenieres, France

Composites One

 

Safran

 

Parla, Spain

CTRM Aero Composites

 

Spirit Aerosystems

 

Salt Lake City, Utah

Cytec Engineered Materials

 

Trek

 

Seguin, Texas

EADS (Airbus and Eurocopter)

 

United Technologies

 

 

Embraer-Empresa

 

Vestas

 

 

 

Net sales for the Composite Materials segment to third-party customers were $941.9 million in 2007, $858.2 million in 2006, and $791.5 million in 2005, which represented approximately 80%, 82%, and 83% of our net sales, respectively.  Net sales for composite materials are highly dependent upon the number of large commercial aircraft produced as further discussed under the captions “Significant Customers,” “Markets” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  In addition, about 3% of our total production of composite materials in 2007 was used internally by the Engineered Products segment.

 

Engineered Products

 

The Engineered Products segment manufactures and markets composite structures and precision machined honeycomb parts for use in the aerospace industry. Composite structures are manufactured from a variety of composite and other materials, including prepregs, honeycomb, structural adhesives and advanced molding materials, using such manufacturing processes as autoclave processing, multi-axis numerically controlled machining, heat forming, compression molding and other composite manufacturing techniques. Composite structures and machined honeycomb include such items as aerodynamic fairings, wing panels, rotor blades, and other specific aircraft components.

 

The following table identifies the principal products and examples of the primary end-uses from the Engineered Products segment:

 

SEGMENT

 

PRODUCTS

 

PRIMARY END-USES

ENGINEERED PRODUCTS

 

Composite Structures

 

·

Aircraft structures and finished aircraft components, including wing to body fairings, wing panels, flight deck panels, door liners, helicopter blades, spars and tip caps

 

 

 

 

 

 

 

Machined Honeycomb

 

·

Aircraft structural sub-components and semi-finished components used in helicopter blades, engine nacelles, and aircraft surfaces (flaps, wings, elevators and fairings)

 

Net sales for the Engineered Products segment to third-party customers were $229.2 million in 2007, $191.3 million in 2006, and $166.1 million in 2005, which represented approximately 20%, 18%, and 17% of our net sales, respectively.

 

The Engineered Products business unit has equity investments in two Asian joint ventures. They consist of BHA Aero Composite Parts Co., Ltd. (“BHA Aero”) and Asian Composites Manufacturing Sdn. Bhd. (“ACM”).  Under the terms of the joint venture agreements, Hexcel and Boeing have transferred the manufacture of certain semi-finished composite components to these joint ventures.  Hexcel purchases the semi-finished composite components from the joint ventures, inspects and performs additional skilled assembly work before delivering them to Boeing.  The joint ventures also manufacture composite components for other tier 1 aircraft component manufacturers.  These Asian joint ventures had combined revenues of $63.0 million and $53.0 million in 2007 and 2006, respectively.  For additional information on the Joint Venture investment see Note 6, Investments in Affiliated Companies .

 

The following table identifies the key customers and the major manufacturing facilities of the Engineered Procucts segment:

 

 

ENGINEERED PRODUCTS

KEY CUSTOMERS

 

MAJOR MANUFACTURING FACILITIES

The Boeing Company

 

Kent, Washington

Sikorsky

 

Pottsville, Pennsylvania

Spirit

 

Burlington, Washington

Bombardier

 

Welkenraedt, Belgium

Hawker / Beechcraft

 

Tianjin, China (JV)

 

 

Alor Setar, Malaysia (JV)

 

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Divestitures and Related Matters

 

In July of 2006, we announced our intention to explore strategic alternatives for portions of our previously reported Reinforcements segment.  In order to take full advantage of the many growing applications for advanced composite materials, we decided to narrow our focus and consolidate our activities around our carbon fiber, reinforcements for composites, honeycomb, matrix and engineered products product lines.  In doing so, we decided to combine our Reinforcements activities related to advanced composites with our previously reported Composites and Structures segments into a single organization, and explore the sale of our European Architectural business, our EBGI product lines and our interest in the TechFab joint venture, previously reported within the Reinforcements segment.

 

In December 2006, we completed the sale of our interest in TechFab LLC (“TechFab”) to our joint venture partner for $22.0 million in cash.  TechFab is headquartered in Anderson, SC and manufactures non-woven reinforcement materials used in the manufacture of construction and roofing materials, sail cloth and other specialty applications.  As a result of the sale, we recognized a after-tax gain of $9.6 million in the fourth quarter of 2006.  The TechFab joint venture was part of our previously reported Reinforcements segment.

 

In February 2007, we completed the sale of our European Architectural business.  Cash proceeds from the sale were $25.0 million.  As a result of the sale, we recognized an after-tax gain of $6.5 million.

 

In August 2007, we completed the sale of the EBGI portion of our reinforcements business.  Cash proceeds from the sale, net of transaction costs, were $58.5 million, resulting in a net after-tax loss of $3.4 million.  The sale includes up to $12.5 million of additional payments contingent upon future sales of the Ballistics product line.  Any additional payments will be recorded as income when earned.

 

With the completion of the EBGI sale, our previously announced portfolio review reached a successful conclusion, resulting in total cash proceeds, before any earnout payments, of $106.0 million and a net after-tax gain of $12.7 million.

 

In December of 2005, Hexcel and Dainippon Ink and Chemicals, Inc. (“DIC”) decided to dissolve the DIC-Hexcel Limited (“DHL”) joint venture. This joint venture was located in Komatsu, Japan, and produced and sold prepregs, honeycomb and decorative laminates using technology licensed from us and DIC.  The dissolution was completed in the fourth quarter of 2006 with Hexcel receiving a cash distribution of $0.1 million.  The DHL joint venture was part of our previously reported Composites segment.

 

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 2 “Discontinued Operations” and Note 6 “Investments in Affiliated Companies” to the accompanying consolidated financial statements of this Annual Report on Form 10-K for further information related to the status of our strategic review, results from discontinued operations and information related to our joint ventures.

 
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