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Hexcel Corp./DE – ‘10-Q’ for 6/30/22

On:  Monday, 7/25/22, at 4:31pm ET   ·   For:  6/30/22   ·   Accession #:  950170-22-12991   ·   File #:  1-08472

Previous ‘10-Q’:  ‘10-Q’ on 4/25/22 for 3/31/22   ·   Next:  ‘10-Q’ on 10/24/22 for 9/30/22   ·   Latest:  ‘10-Q’ on 10/23/23 for 9/30/23   ·   3 References:   

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 7/25/22  Hexcel Corp./DE                   10-Q        6/30/22   73:11M                                    Donnelley … Solutions/FA

Quarterly Report   —   Form 10-Q

Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML   3.17M 
 2: EX-10.3     Material Contract                                   HTML     37K 
 3: EX-10.4     Material Contract                                   HTML     58K 
 4: EX-31.1     Certification -- §302 - SOA'02                      HTML     27K 
 5: EX-31.2     Certification -- §302 - SOA'02                      HTML     27K 
 6: EX-32       Certification -- §906 - SOA'02                      HTML     27K 
12: R1          Document and Entity Information                     HTML     75K 
13: R2          Condensed Consolidated Balance Sheets               HTML    137K 
14: R3          Condensed Consolidated Balance Sheets               HTML     29K 
                (Parenthetical)                                                  
15: R4          Condensed Consolidated Statements of Operations     HTML     92K 
16: R5          Condensed Consolidated Statements of Comprehensive  HTML     42K 
                (Loss) Income                                                    
17: R6          Condensed Consolidated Statements of Cash Flows     HTML    105K 
18: R7          Condensed Consolidated Statements of Stockholders'  HTML     55K 
                Equity                                                           
19: R8          Condensed Consolidated Statements of Stockholders'  HTML     23K 
                Equity (Parenthetical)                                           
20: R9          Significant Accounting Policies                     HTML     32K 
21: R10         Net Income (Loss) Per Common Share                  HTML    136K 
22: R11         Inventories                                         HTML     45K 
23: R12         Retirement and Other Postretirement Benefit Plans   HTML    194K 
24: R13         Debt                                                HTML     91K 
25: R14         Derivative Financial Instruments                    HTML    103K 
26: R15         Fair Value Measurements                             HTML     44K 
27: R16         Revenue                                             HTML    104K 
28: R17         Segment Information                                 HTML    338K 
29: R18         Accumulated Other Comprehensive Loss                HTML    132K 
30: R19         Commitments and Contingencies                       HTML     62K 
31: R20         Restructuring                                       HTML    143K 
32: R21         Significant Accounting Policies (Policies)          HTML     34K 
33: R22         Net Income (Loss) Per Common Share (Tables)         HTML    131K 
34: R23         Inventories (Tables)                                HTML     45K 
35: R24         Retirement and Other Postretirement Benefit Plans   HTML    187K 
                (Tables)                                                         
36: R25         Debt (Tables)                                       HTML     65K 
37: R26         Derivative Financial Instruments (Tables)           HTML     64K 
38: R27         Revenue (Tables)                                    HTML     97K 
39: R28         Segment Information (Tables)                        HTML    333K 
40: R29         Accumulated Other Comprehensive Loss (Tables)       HTML    131K 
41: R30         Commitments and Contingencies (Tables)              HTML     44K 
42: R31         Restructuring (Tables)                              HTML    139K 
43: R32         Significant Accounting Policies - Additional        HTML     34K 
                Information (Details)                                            
44: R33         Net Income (Loss) Per Common Share - Summary of     HTML     62K 
                Earnings Per Share Basic and Diluted (Details)                   
45: R34         Net Income (Loss) Per Common Share - Additional     HTML     24K 
                Information (Details)                                            
46: R35         Inventories - Schedule of Inventories (Details)     HTML     31K 
47: R36         Retirement and Other Postretirement Benefit Plans   HTML     64K 
                - Schedule of Net Periodic Benefit Costs of                      
                Defined Benefit Retirement Plans (Details)                       
48: R37         Retirement and Other Postretirement Benefit Plans   HTML     64K 
                - Schedule of Amounts Recognized on Balance Sheet                
                (Details)                                                        
49: R38         Retirement and Other Postretirement Benefit Plans   HTML     66K 
                - Additional Information (Details)                               
50: R39         Debt - Schedule of Debt and Capital Lease           HTML     48K 
                Obligations (Details)                                            
51: R40         Debt - Schedule of Debt and Capital Lease           HTML     29K 
                Obligations (Parenthetical) (Details)                            
52: R41         Debt - Additional Information (Details)             HTML    104K 
53: R42         Derivative Financial Instruments - Additional       HTML    115K 
                Information (Details)                                            
54: R43         Derivative Financial Instruments - Schedule of      HTML     38K 
                Change in Fair Value of Foreign Currency Forward                 
                Exchange Contracts Under Hedge Designations                      
                (Details)                                                        
55: R44         Income Taxes - Additional Information (Details)     HTML     25K 
56: R45         Fair Value Measurements - Additional Information    HTML     65K 
                (Details)                                                        
57: R46         Revenue - Additional Information (Details)          HTML     23K 
58: R47         Revenue - Schedule of Revenue by Market (Details)   HTML     34K 
59: R48         Revenue - Schedule of Activity Related to Contract  HTML     31K 
                Assets (Details)                                                 
60: R49         Segment Information - Schedule of Operating         HTML     60K 
                Segment Reporting Information (Details)                          
61: R50         Segment Information - Schedule of Goodwill and      HTML     34K 
                Intangible Assets by Segment (Details)                           
62: R51         Segment Information - Additional Information        HTML     26K 
                (Details)                                                        
63: R52         Accumulated Other Comprehensive Loss - Schedule of  HTML     56K 
                Components of Accumulated Other Comprehensive Loss               
                (Details)                                                        
64: R53         Accumulated Other Comprehensive Loss - Schedule of  HTML     46K 
                unrecognized net defined benefit and                             
                postretirement plan costs (Details)                              
65: R54         Commitments and Contingencies - Additional          HTML     48K 
                Information (Details)                                            
66: R55         Commitments and Contingencies - Schedule of         HTML     27K 
                Product Warranty (Details)                                       
67: R56         Restructuring - Additional Information (Details)    HTML     29K 
68: R57         Restructuring - Schedule of Restructuring           HTML     41K 
                (Details)                                                        
71: XML         IDEA XML File -- Filing Summary                      XML    131K 
69: XML         XBRL Instance -- hxl-20220630_htm                    XML   3.19M 
70: EXCEL       IDEA Workbook of Financial Reports                  XLSX    120K 
 9: EX-101.CAL  XBRL Calculations -- hxl-20220630_cal                XML    142K 
 7: EX-101.DEF  XBRL Definitions -- hxl-20220630_def                 XML    602K 
11: EX-101.LAB  XBRL Labels -- hxl-20220630_lab                      XML   1.11M 
 8: EX-101.PRE  XBRL Presentations -- hxl-20220630_pre               XML    846K 
10: EX-101.SCH  XBRL Schema -- hxl-20220630                          XSD    151K 
72: JSON        XBRL Instance as JSON Data -- MetaLinks              395±   610K 
73: ZIP         XBRL Zipped Folder -- 0000950170-22-012991-xbrl      Zip    329K 


‘10-Q’   —   Quarterly Report

Document Table of Contents

Page (sequential)   (alphabetic) Top
 
11st Page  –  Filing Submission
"Financial Information
"Condensed Consolidated Financial Statements (Unaudited)
"Condensed Consolidated Balance Sheets -- June 30 2022, and December 31, 2021
"Condensed Consolidated Statements of Operations -- The quarter and six months ended June 30, 2022 and 2021
"Condensed Consolidated Statements of Comprehensive (Loss) Income -- The quarter and six months ended June 30, 2022 and 2021
"Condensed Consolidated Statements of Cash Flows -- The six months ended June 30, 2022 and 2021
"Condensed Consolidated Statements of Stockholders' Equity -- The quarter and six months ended June 30, 2022 and 2021
"Notes to Condensed Consolidated Financial Statements
"Note 11
"Management's Discussion and Analysis of Financial Condition and Results of Operations
"Quantitative and Qualitative Disclosures About Market Risk
"Controls and Procedures
"Other Information
"Legal Proceedings
"Risk Factors
"Exhibits
"Signature

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img129080882_0.jpg 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM  i 10-Q

 

 i  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended  i June 30,  i 2022 / 

or

 i  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  i 1-8472

 

 i Hexcel Corporation

(Exact name of registrant as specified in its charter)

 

 i Delaware

 

 i 94-1109521

(State or Other Jurisdiction of Incorporation or Organization)

 

(I.R.S. Employer Identification No.)

 i Two Stamford Plaza

 i 281 Tresser Boulevard

 i Stamford,  i Connecticut  i 06901-3238

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code:  i (203)  i 969-0666

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange on which registered

 i Common Stock, par value $0.01

 

 i HXL

 

 i New York Stock Exchange

 

 

 

 

 

 

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.  i Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  i Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 i Large accelerated filer x

 

Accelerated filer o

Non-accelerated filer o

 

Smaller reporting company  i 

 

 

Emerging growth company  i 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  i  No x

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at July 21, 2022

COMMON STOCK

 

 i 84,102,467

 

 


 

HEXCEL CORPORATION AND SUBSIDIARIES

INDEX

 

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

3

 

 

 

 

 

ITEM 1.

 

Condensed Consolidated Financial Statements (Unaudited)

 

3

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets — June 30 2022, and December 31, 2021

 

3

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations — The quarter and six months ended June 30, 2022 and 2021

 

4

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income — The quarter and six months ended June 30, 2022 and 2021

 

4

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows — The six months ended June 30, 2022 and 2021

 

5

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Stockholders’ Equity — The quarter and six months ended June 30, 2022 and 2021

 

6

 

 

 

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

7

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

18

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

24

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

24

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

25

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

25

 

 

 

 

 

ITEM 1A.

 

Risk Factors

 

25

 

 

 

 

 

ITEM 6.

 

Exhibits

 

26

 

 

 

 

 

 

 

SIGNATURE

 

27

 

 

2


 

PART I. FINANCIAL INFORMATION

 

ITEM 1. Condensed Consolidated Financial Statements

Hexcel Corporation and Subsidiaries

Condensed Consolidated Balance Sheets

 

 

 

(Unaudited)

 

 

 

June 30,

 

 

December 31,

 

(In millions)

 

2022

 

 

2021

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

 i 99.2

 

 

$

 i 127.7

 

Accounts receivable, net

 

 

 i 234.2

 

 

 

 i 160.3

 

Inventories, net

 

 

 i 271.5

 

 

 

 i 245.7

 

Contract assets

 

 

 i 30.1

 

 

 

 i 30.5

 

Prepaid expenses and other current assets

 

 

 i 44.3

 

 

 

 i 39.5

 

Assets held for sale

 

 

 i 12.6

 

 

 

 i 12.6

 

Total current assets

 

 

 i 691.9

 

 

 

 i 616.3

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 i 3,045.4

 

 

 

 i 3,110.0

 

Less accumulated depreciation

 

 

( i 1,375.1

)

 

 

( i 1,363.9

)

Net property, plant and equipment

 

 

 i 1,670.3

 

 

 

 i 1,746.1

 

 

 

 

 

 

 

 

Goodwill and other intangible assets, net

 

 

 i 258.8

 

 

 

 i 267.5

 

Investments in affiliated companies

 

 

 i 46.1

 

 

 

 i 44.6

 

Other assets

 

 

 i 152.3

 

 

 

 i 144.9

 

Total assets

 

$

 i 2,819.4

 

 

$

 i 2,819.4

 

 

 

 

 

 

 

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Short-term borrowings

 

$

 i 0.5

 

 

$

 i 0.9

 

Accounts payable

 

 

 i 103.4

 

 

 

 i 113.2

 

Accrued compensation and benefits

 

 

 i 71.3

 

 

 

 i 54.4

 

Financial instruments

 

 

 i 20.7

 

 

 

 i 5.7

 

Accrued liabilities

 

 

 i 75.3

 

 

 

 i 73.4

 

Total current liabilities

 

 

 i 271.2

 

 

 

 i 247.6

 

 

 

 

 

 

 

 

Long-term debt

 

 

 i 812.0

 

 

 

 i 822.4

 

Retirement obligations

 

 

 i 48.7

 

 

 

 i 52.6

 

Deferred income taxes

 

 

 i 128.6

 

 

 

 i 140.0

 

Other non-current liabilities

 

 

 i 78.6

 

 

 

 i 71.3

 

Total liabilities

 

 

 i 1,339.1

 

 

 

 i 1,333.9

 

Stockholders' equity:

 

 

 

 

 

 

Common stock, $ i  i 0.01 /  par value,  i  i 200.0 /  shares authorized,  i 110.3 shares and  i 110.1 shares issued at June 30, 2022 and December 31, 2021, respectively

 

 

 i 1.1

 

 

 

 i 1.1

 

Additional paid-in capital

 

 

 i 894.1

 

 

 

 i 878.6

 

Retained earnings

 

 

 i 2,058.0

 

 

 

 i 2,012.5

 

Accumulated other comprehensive loss

 

 

( i 191.3

)

 

 

( i 126.5

)

 

 

 

 i 2,761.9

 

 

 

 i 2,765.7

 

Less – Treasury stock, at cost,  i 26.2 shares at June 30, 2022 and  i 26.1 shares
at December 31, 2021

 

 

( i 1,281.6

)

 

 

( i 1,280.2

)

Total stockholders' equity

 

 

 i 1,480.3

 

 

 

 i 1,485.5

 

Total liabilities and stockholders' equity

 

$

 i 2,819.4

 

 

$

 i 2,819.4

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

3


 

 

Hexcel Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net sales

 

$

 i 393.0

 

 

$

 i 320.3

 

 

$

 i 783.6

 

 

$

 i 630.6

 

Cost of sales

 

 

 i 303.5

 

 

 

 i 258.4

 

 

 

 i 607.4

 

 

 

 i 515.6

 

Gross margin

 

 

 i 89.5

 

 

 

 i 61.9

 

 

 

 i 176.2

 

 

 

 i 115.0

 

Selling, general and administrative expenses

 

 

 i 33.5

 

 

 

 i 31.1

 

 

 

 i 78.2

 

 

 

 i 70.7

 

Research and technology expenses

 

 

 i 11.3

 

 

 

 i 11.5

 

 

 

 i 22.2

 

 

 

 i 23.1

 

Other operating (income) expense

 

 

( i 19.1

)

 

 

 i 3.1

 

 

 

( i 18.1

)

 

 

 i 15.2

 

Operating income

 

 

 i 63.8

 

 

 

 i 16.2

 

 

 

 i 93.9

 

 

 

 i 6.0

 

Interest expense, net

 

 

 i 8.9

 

 

 

 i 9.3

 

 

 

 i 18.0

 

 

 

 i 19.6

 

Other income

 

 

( i 0.3

)

 

 

-

 

 

 

( i 0.3

)

 

 

-

 

Income (loss) before income taxes, and equity in earnings from affiliated companies

 

 

 i 55.2

 

 

 

 i 6.9

 

 

 

 i 76.2

 

 

 

( i 13.6

)

Income tax expense (benefit)

 

 

 i 12.7

 

 

 

 i 4.0

 

 

 

 i 17.4

 

 

 

( i 3.5

)

Income (loss) before equity in earnings from affiliated companies

 

 

 i 42.5

 

 

 

 i 2.9

 

 

 

 i 58.8

 

 

 

( i 10.1

)

Equity in earnings (losses) from affiliated companies

 

 

 i 2.2

 

 

 

( i 0.7

)

 

 

 i 3.7

 

 

 

( i 1.7

)

Net income (loss)

 

$

 i 44.7

 

 

$

 i 2.2

 

 

$

 i 62.5

 

 

$

( i 11.8

)

Basic net income (loss) per common share

 

$

 i 0.53

 

 

$

 i 0.03

 

 

$

 i 0.74

 

 

$

( i 0.14

)

Diluted net income (loss) per common share

 

$

 i 0.53

 

 

$

 i 0.03

 

 

$

 i 0.74

 

 

$

( i 0.14

)

Weighted-average common shares:

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

 i 84.4

 

 

 

 i 84.1

 

 

 

 i 84.3

 

 

 

 i 84.0

 

Diluted

 

 

 i 85.0

 

 

 

 i 84.7

 

 

 

 i 84.9

 

 

 

 i 84.0

 

 

 

Hexcel Corporation and Subsidiaries

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive (Loss) Income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Unaudited)

 

 

(Unaudited)

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Net income (loss)

 

$

 i 44.7

 

 

$

 i 2.2

 

 

$

 i 62.5

 

 

$

( i 11.8

)

Currency translation adjustments

 

 

( i 34.8

)

 

 

 i 4.2

 

 

 

( i 50.5

)

 

 

( i 7.8

)

Net unrealized pension and other benefit actuarial gains (losses) and prior service credits (net of tax)

 

 

 i 4.5

 

 

 

( i 0.2

)

 

 

 i 7.7

 

 

 

( i 1.9

)

Net unrealized gains (losses) on financial instruments (net of tax)

 

 

( i 16.9

)

 

 

 i 1.5

 

 

 

( i 22.0

)

 

 

( i 3.9

)

Total other comprehensive (loss) income

 

 

( i 47.2

)

 

 

 i 5.5

 

 

 

( i 64.8

)

 

 

( i 13.6

)

Comprehensive (loss) income

 

$

( i 2.5

)

 

$

 i 7.7

 

 

$

( i 2.3

)

 

$

( i 25.4

)

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

 

4


 

 

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

 

 

 

(Unaudited)

 

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

Cash flows from operating activities

 

 

 

 

 

 

Net income (loss)

 

$

 i 62.5

 

 

$

( i 11.8

)

Reconciliation to net cash used by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

 i 63.9

 

 

 

 i 68.7

 

Amortization related to financing

 

 

 i 0.4

 

 

 

 i 2.1

 

Deferred income taxes

 

 

( i 4.1

)

 

 

( i 10.7

)

Equity in (earnings) losses from affiliated companies

 

 

( i 3.7

)

 

 

 i 1.7

 

Stock-based compensation

 

 

 i 12.8

 

 

 

 i 13.3

 

Merger and restructuring expenses, net of payments

 

 

( i 6.0

)

 

 

( i 2.5

)

Gain on sale of asset

 

 

( i 19.4

)

 

 

-

 

Gain on sale of investment

 

 

( i 0.3

)

 

 

-

 

Changes in assets and liabilities:

 

 

 

 

 

 

Increase in accounts receivable

 

 

( i 74.5

)

 

 

( i 45.9

)

Increase in inventories

 

 

( i 38.9

)

 

 

( i 21.8

)

Increase in prepaid expenses and other current assets

 

 

( i 10.1

)

 

 

( i 2.6

)

Increase in accounts payable/accrued liabilities

 

 

 i 28.4

 

 

 

 i 50.7

 

Other  net

 

 

 i 7.3

 

 

 

( i 2.3

)

Net cash provided by operating activities

 

 

 i 18.3

 

 

 

 i 38.9

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Capital expenditures

 

 

( i 37.9

)

 

 

( i 9.2

)

Proceeds from sale of asset

 

 

 i 21.2

 

 

 

-

 

Proceeds from sale of investments

 

 

 i 0.5

 

 

 

-

 

Net cash used for investing activities

 

 

( i 16.2

)

 

 

( i 9.2

)

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

Borrowing from senior unsecured credit facility - 2024

 

 

 i 35.0

 

 

 

-

 

Repayment of senior unsecured credit facility - 2024

 

 

( i 46.0

)

 

 

( i 21.0

)

Repayment of finance lease obligation and other debt, net

 

 

( i 0.2

)

 

 

( i 0.4

)

Dividends paid

 

 

( i 16.8

)

 

 

-

 

Activity under stock plans

 

 

 i 1.4

 

 

 

 i 4.8

 

Net cash used for financing activities

 

 

( i 26.6

)

 

 

( i 16.6

)

Effect of exchange rate changes on cash and cash equivalents

 

 

( i 4.0

)

 

 

( i 1.1

)

Net (decrease) increase in cash and cash equivalents

 

 

( i 28.5

)

 

 

 i 12.0

 

Cash and cash equivalents at beginning of period

 

 

 i 127.7

 

 

 

 i 103.3

 

Cash and cash equivalents at end of period

 

$

 i 99.2

 

 

$

 i 115.3

 

Supplemental data:

 

 

 

 

 

 

Accrual basis additions to plant, property and equipment

 

$

 i 28.3

 

 

$

 i 7.8

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

5


 

Hexcel Corporation and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

For the Quarter and Six Months ended June 30, 2022, and June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Total

 

 

 

 

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders’

 

(In millions)

 

Par

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance, December 31, 2020

 

$

 i 1.1

 

 

$

 i 849.7

 

 

$

 i 1,996.4

 

 

$

( i 59.6

)

 

$

( i 1,277.4

)

 

$

 i 1,510.2

 

Net loss

 

 

 

 

 

 

( i 14.0

)

 

 

 

 

 

 

( i 14.0

)

Change in other comprehensive (loss)– net of tax

 

 

 

 

 

 

 

 

( i 19.1

)

 

 

 

 

( i 19.1

)

Stock based compensation

 

 

 

 

 i 11.8

 

 

 

 

 

 

 

( i 2.0

)

 

 

 i 9.8

 

Balance, March 31, 2021

 

$

 i 1.1

 

 

$

 i 861.5

 

 

$

 i 1,982.4

 

 

$

( i 78.7

)

 

$

( i 1,279.4

)

 

$

 i 1,486.9

 

Net income

 

 

 

 

 

 

 i 2.2

 

 

 

 

 

 

 

 i 2.2

 

Change in other comprehensive income – net of tax

 

 

 

 

 

 

 

 

 i 5.5

 

 

 

 

 

 i 5.5

 

Stock based compensation

 

 

 

 

 i 8.2

 

 

 

 

 

 

 

 

 

 i 8.2

 

Balance, June 30, 2021

 

$

 i 1.1

 

 

$

 i 869.7

 

 

$

 i 1,984.6

 

 

$

( i 73.2

)

 

$

( i 1,279.4

)

 

$

 i 1,502.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

 

 

 

 

Other

 

 

 

 

 

Total

 

 

 

 

 

 

Paid-In

 

 

Retained

 

 

Comprehensive

 

 

Treasury

 

 

Stockholders’

 

(In millions)

 

Par

 

 

Capital

 

 

Earnings

 

 

Loss

 

 

Stock

 

 

Equity

 

Balance, December 31, 2021

 

$

 i 1.1

 

 

$

 i 878.6

 

 

$

 i 2,012.5

 

 

$

( i 126.5

)

 

$

( i 1,280.2

)

 

$

 i 1,485.5

 

Net income

 

 

 

 

 

 

 i 17.8

 

 

 

 

 

 

 

 i 17.8

 

Dividends on common stock ($ i 0.10 per share)

 

 

 

 

 

 

( i 8.5

)

 

 

 

 

 

 

( i 8.5

)

Change in other comprehensive (loss) – net of tax

 

 

 

 

 

 

 

 

( i 17.6

)

 

 

 

 

( i 17.6

)

Stock based compensation

 

 

 

 

 i 11.3

 

 

 

 

 

 

 

( i 1.4

)

 

 

 i 9.9

 

Balance, March 31, 2022

 

$

 i 1.1

 

 

$

 i 889.9

 

 

$

 i 2,021.8

 

 

$

( i 144.1

)

 

$

( i 1,281.6

)

 

$

 i 1,487.1

 

Net income

 

 

 

 

 

 

 i 44.7

 

 

 

 

 

 

 

 i 44.7

 

Dividends on common stock ($ i 0.10 per share)

 

 

 

 

 

 

( i 8.5

)

 

 

 

 

 

 

( i 8.5

)

Change in other comprehensive (loss) – net of tax

 

 

 

 

 

 

 

 

( i 47.2

)

 

 

 

 

( i 47.2

)

Stock based compensation

 

 

 

 

 i 4.2

 

 

 

 

 

 

 

 

 

 i 4.2

 

Balance, June 30, 2022

 

$

 i 1.1

 

 

$

 i 894.1

 

 

$

 i 2,058.0

 

 

$

( i 191.3

)

 

$

( i 1,281.6

)

 

$

 i 1,480.3

 

 

 

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

6


 

HEXCEL CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

 i 

Note 1 — Significant Accounting Policies

In these notes, the terms “Hexcel,” the Company,” “we,” “us,” or “our” mean Hexcel Corporation and subsidiary companies. The accompanying condensed consolidated financial statements are those of Hexcel Corporation. Refer to Note 1 to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended December 31, 2021 for a discussion of our significant accounting policies.

 i 

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared from the unaudited accounting records of Hexcel pursuant to rules and regulations of the Securities and Exchange Commission (“SEC”) and in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. Certain information and footnote disclosures normally included in financial statements have been omitted pursuant to rules and regulations of the SEC. In the opinion of management, the condensed consolidated financial statements include all normal recurring adjustments as well as any non-recurring adjustments necessary to present fairly the statement of financial position, results of operations, cash flows and statement of stockholders’ equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, 2021 was derived from the audited 2021 consolidated balance sheet. Interim results are not necessarily indicative of results expected for any other interim period or for the full year. These consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in our 2021 Annual Report on Form 10-K.

 i 

Investments in Affiliated Companies

We have a  i 50% equity investment in Aerospace Composites Malaysia Sdn. Bhd. This investment is accounted for using the equity method of accounting.

 

 i 

Assets Held for Sale

In November 2020 we closed our wind energy prepreg production facility in Windsor, Colorado and as a result, certain plant assets to be sold with a carrying value of approximately $ i  i 12.6 /  million have been recorded in “Assets held for sale” in the Condensed Consolidated Balance Sheets as of June 30, 2022 and December 31, 2021. The sale of these assets is expected to occur during 2022.

During the first quarter of 2022, we entered into an agreement to sell our Dublin, California facility. The sale of the facility closed during the second quarter of 2022, and we received approximately $ i 21.2 million in net proceeds from the sale and recorded a gain on the sale of approximately $ i 19.4 million which is included in other operating (income) expense in the Condensed Consolidated Statement of Operations. As a result of the sale of the building, the Company will be relocating certain of its Dublin-based research, technology and laboratory support personnel and equipment to a newly constructed facility in Salt Lake City, Utah.

 / 
 / 

 

 i 

Note 2 — Net Income (Loss) Per Common Share

 

 i 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions, except per share data)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Basic net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 i 44.7

 

 

$

 i 2.2

 

 

$

 i 62.5

 

 

$

( i 11.8

)

Weighted average common shares outstanding

 

 

 i 84.4

 

 

 

 i 84.1

 

 

 

 i 84.3

 

 

 

 i 84.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income (loss) per common share

 

$

 i 0.53

 

 

$

 i 0.03

 

 

$

 i 0.74

 

 

$

( i 0.14

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per common share:

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

 i 44.7

 

 

$

 i 2.2

 

 

 

 i 62.5

 

 

 

( i 11.8

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average common shares outstanding — Basic

 

 

 i 84.4

 

 

 

 i 84.1

 

 

 

 i 84.3

 

 

 

 i 84.0

 

Plus incremental shares from assumed conversions:

 

 

 

 

 

 

 

 

 

 

 

 

Restricted stock units

 

 

 i 0.4

 

 

 

 i 0.3

 

 

 

 i 0.4

 

 

 

 i -

 

Stock options

 

 

 i 0.2

 

 

 

 i 0.3

 

 

 

 i 0.2

 

 

 

 i -

 

Weighted average common shares outstanding — Dilutive

 

 

 i 85.0

 

 

 

 i 84.7

 

 

 

 i 84.9

 

 

 

 i 84.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net income (loss) per common share

 

$

 i 0.53

 

 

$

 i 0.03

 

 

$

 i 0.74

 

 

$

( i 0.14

)

 / 

 

7


 

Total common stock equivalents of  i 0.6 million and  i 0.7 million were excluded from the computation of diluted net income (loss) per share for the quarter ended June 30, 2022 and 2021, respectively, because to do so would have been anti-dilutive. Total common stock equivalents of  i 0.7 million and  i 1.1 million were excluded from the computation of diluted net income (loss) per share for the six months ended June 30, 2022 and 2021, respectively, because to do so would have been anti-dilutive.

 / 

 

 

 i 

Note 3 Inventories

 i 

 

 

 

 

 

 

 

 

(In millions)

 

June 30, 2022

 

 

December 31, 2021

 

Raw materials

 

$

 i 133.8

 

 

$

 i 113.7

 

Work in progress

 

 

 i 38.2

 

 

 

 i 41.0

 

Finished goods

 

 

 i 99.5

 

 

 

 i 91.0

 

Total Inventory

 

$

 i 271.5

 

 

$

 i 245.7

 

 / 
 / 

 

 

Note 4  i Retirement and Other Postretirement Benefit Plans

We maintain qualified and nonqualified defined benefit retirement plans covering certain current and former U.S. and European employees, retirement savings plans covering eligible U.S. and U.K. employees and certain postretirement health care and life insurance benefit plans covering eligible U.S. retirees. We also participate in a union sponsored multi-employer pension plan covering certain U.S. employees with union affiliations.

Defined Benefit Retirement Plans

Net Periodic Benefit Costs

 i 

Net periodic benefit costs of our defined benefit retirement plans for the three and six months ended June 30, 2022 and 2021 were as follows:

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

U.S. Nonqualified Defined Benefit Retirement Plans

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 i 0.3

 

 

$

 i 0.3

 

 

$

 i 0.6

 

 

$

 i 0.5

 

Interest cost

 

 

 i 0.1

 

 

 i -

 

 

 

 i 0.2

 

 

 

 i 0.1

 

Net amortization

 

 

 i 0.2

 

 

 

 i 0.2

 

 

 

 i 0.4

 

 

 

 i 0.4

 

Net periodic benefit cost

 

$

 i 0.6

 

 

$

 i 0.5

 

 

$

 i 1.2

 

 

$

 i 1.0

 

 / 

 

 i 

(In millions)

 

June 30, 2022

 

 

December 31, 2021

 

Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans:

 

 

 

 

 

 

Accrued liabilities

 

$

 i 3.2

 

 

$

 i 2.7

 

Other non-current liabilities

 

 

 i 21.1

 

 

 

 i 21.3

 

Total accrued benefit

 

$

 i 24.3

 

 

$

 i 24.0

 

 / 

 

 i 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

European Defined Benefit Retirement Plans

 

 

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

 i 0.2

 

 

$

 i 0.3

 

 

$

 i 0.4

 

 

$

 i 0.5

 

Interest cost

 

 

 i 0.5

 

 

 

 i 0.6

 

 

 

 i 1.1

 

 

 

 i 1.1

 

Expected return on plan assets

 

 

( i 0.5

)

 

 

( i 0.9

)

 

 

( i 1.1

)

 

 

( i 1.8

)

Net amortization and deferral

 

 

 i 0.6

 

 

 

 i 0.2

 

 

 

 i 1.2

 

 

 

 i 0.5

 

Net periodic benefit cost

 

$

 i 0.8

 

 

$

 i 0.2

 

 

$

 i 1.6

 

 

$

 i 0.3

 

 

8


 

 / 

 

 i 

(In millions)

 

June 30, 2022

 

 

December 31, 2021

 

Amounts recognized on the balance sheet for European defined benefit retirement plans:

 

 

 

 

 

 

Other assets

 

$

 i 6.6

 

 

$

 i 6.9

 

 

 

 

 

 

 

 

Accrued liabilities

 

 

 i 1.2

 

 

 

 i 0.2

 

Other non-current liabilities

 

 

 i 16.1

 

 

 

 i 15.8

 

Total accrued benefit

 

$

 i 17.3

 

 

$

 i 16.0

 

 / 

 

All costs related to our pensions are included as a component of operating income in our Condensed Consolidated Statements of Operations. For the quarter ended June 30, 2022 and 2021, amounts unrelated to service costs were a charge of $ i 0.9 million and $ i 0.1 million, respectively. For the six months ended June 30, 2022 and 2021, amounts unrelated to service costs were a charge of $ i 1.9 million and $ i 0.3 million, respectively.

 

Contributions

We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred. We contributed approximately $ i 0.3 million in the first six months of 2022 to cover unfunded benefits. We expect to contribute a total of $ i 3.2 million in 2022 to cover unfunded benefits.

We contributed $ i 0.3 million and $ i 2.2 million to our European defined benefit retirement plans during the six months ended June 30, 2022 and 2021, respectively. We plan to contribute approximately $ i 0.5 million during 2022 to our European plans.

Postretirement Health Care and Life Insurance Benefit Plans

We recorded $ i 0.5 million and $ i 0.2 million of net amortization gain deferral for the six months ended June 30, 2022 and 2021, respectively.  i Net periodic benefit costs of our postretirement health care and life insurance benefit plans for the six months ended June 30, 2022 and 2021 were immaterial.

 

(In millions)

 

June 30, 2022

 

 

December 31, 2021

 

Amounts recognized on the balance sheet:

 

 

 

 

 

 

Accrued liabilities

 

$

 i 0.3

 

 

$

 i 0.3

 

Other non-current liabilities

 

 i 1.5

 

 

 

 i 1.5

 

Total accrued benefit

 

$

 i 1.8

 

 

$

 i 1.8

 

 

Amounts contributed in connection with our postretirement plans were immaterial for both the six months ended June 30, 2022 and 2021. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute less than $ i 0.3 million in 2022 to cover unfunded benefits.

 

 

 i 

Note 5 –– Debt

 

 i 

(In millions)

 

June 30, 2022

 

 

December 31, 2021

 

Current portion of finance lease

 

$

 i 0.5

 

 

$

 i 0.9

 

Current portion of debt

 

 

 i 0.5

 

 

 

 i 0.9

 

Senior unsecured credit facility

 

 

 i 114.0

 

 

 

 i 125.0

 

 i 4.7% senior notes --- due  i 2025

 

 

 i 300.0

 

 

 

 i 300.0

 

 i 3.95% senior notes --- due  i 2027

 

 

 i 400.0

 

 

 

 i 400.0

 

Senior notes --- original issue discount

 

 

( i 1.1

)

 

 

( i 1.2

)

Senior notes --- deferred financing costs

 

 

( i 2.5

)

 

 

( i 2.9

)

Non-current portion of finance lease and other debt

 

 

 i 1.6

 

 

 

 i 1.5

 

Long-term debt

 

 

 i 812.0

 

 

 

 i 822.4

 

Total debt

 

$

 i 812.5

 

 

$

 i 823.3

 

 / 

 

In June 2019, the Company refinanced its senior unsecured credit facility (the “Facility”), increasing borrowing capacity from $ i 700 million to $ i 1 billion. The Facility matures in  i June 2024.  i The interest rate ranges from  i LIBOR +  i 0.875% /  to a maximum of  i LIBOR +  i 1.50% / , depending upon the better of the Company’s leverage ratio or the credit rating. /  The Facility agreement contains

9


 

financial and other covenants, including, but not limited to customary restrictions on the incurrence of debt by our subsidiaries and the granting of liens, as well as the maintenance of an interest coverage ratio and a leverage ratio.

In September 2020, we amended the Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period.  i On January 28, 2021, we further amended the Facility agreement (the “Second Amendment”) to provide that, from January 28, 2021 through and including March 31, 2022, we would not be subject to a maximum leverage ratio covenant but instead be required to maintain Liquidity (as defined in the Facility agreement) of at least $ i 250 million. Additionally, during such period, the Company was subject to limitations on share repurchases, cash dividends, and its ability to incur secured debt, in each case subject to certain exceptions; the applicable margin and commitment fees would be increased; the incremental facility would not be available; and if the Company’s public debt rating was downgraded to (i) BB or lower by Standard & Poor’s and (ii) Ba2 or lower by Moody’s, we would be required to grant liens on certain of our assets, which liens would be released upon the Company’s public debt rating being upgraded to BB+ or higher by Standard & Poor’s or Ba1 or higher by Moody’s. The Company’s public debt rating as of June 30, 2022 is BB+/Baa3. /  In addition, the Second Amendment provided that the Company would not be subject to an interest coverage ratio covenant until the test period ending December 31, 2021 and revolving commitments under the Facility were reduced from $ i 1 billion to $ i 750 million. As of June 30, 2022, we were in compliance with all debt covenants. As of April 1, 2022, the original terms and conditions to the Facility agreement were reinstated except that the amount of the lender's commitment will remain at $ i 750 million. Share repurchases restrictions that had been in effect per the Second Amendment expired on March 31, 2022.

As of June 30, 2022, total borrowings under the Facility were $ i 114 million, which approximates fair value. The Facility agreement permits us to issue letters of credit up to an aggregate amount of $ i 50 million. Outstanding letters of credit reduce the amount available for borrowing under the Facility. As of June 30, 2022, there were  i no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $ i 636 million. The weighted average interest rate for the Facility was  i 4.2% for the six months ended June 30, 2022.

In 2017, the Company issued $ i 400 million in aggregate principal amount of  i 3.95% Senior Unsecured Notes due in  i 2027. The interest rate on these senior notes may be increased  i 0.25% each time a credit rating applicable to the notes is downgraded. Conversely, such increases would be reversed should the credit rating be subsequently upgraded. The maximum rate is  i 5.95%. The effective interest rate for the six months ended June 30, 2022 was  i 4.11% inclusive of an approximately  i 0.25% benefit of treasury locks. Based on quoted prices the fair value of the senior unsecured notes due in 2027 was $ i 375.6 million at June 30, 2022.

In 2015, the Company issued $ i 300 million in aggregate principal amount of  i 4.7% Senior Unsecured Notes due in  i 2025. The interest rate on these senior notes may be increased by  i 0.25% each time a credit rating applicable to the notes is downgraded. Conversely, such increases would be reversed should the credit rating be subsequently upgraded. The maximum rate is  i 6.7%. The effective interest rate for the six months ended June 30, 2022 was  i 5.07%. Based on quoted prices, the fair value of the senior unsecured notes due in 2025 was $ i 293.9 million at June 30, 2022.

 / 

 

 

 i 

Note 6 Derivative Financial Instruments

Interest Rate Swap and Interest Lock Agreements

At June 30, 2022 and December 31, 2021, we had  i  i no /  interest rate swap agreements outstanding.

The Company had treasury lock agreements to protect against unfavorable movements in the benchmark treasury rate related to the issuance of our  i 3.95% Senior Unsecured Notes. These hedges were designated as cash flow hedges for hedge accounting purposes thus any change in fair value was recorded as a component of other comprehensive (loss) income. As part of the issuance of our 3.95% Senior Unsecured Notes, we net settled these derivatives for $ i 10 million in cash. As a result of settling these derivatives the previously deferred gains recorded in other comprehensive (loss) income will be released to interest expense over the life of the 3.95% Senior Unsecured Notes. The effect of these treasury locks reduced the effective interest rate on these notes by approximately  i 0.25%.

Cross Currency and Interest Rate Swap Agreements

In November 2020, we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a € i 270 million,  i 5-year amortizing, intercompany loan between one of our European subsidiaries and the U.S. parent company. Changes in the spot exchange are recorded to the general ledger and offset the fair value re-measurement of the hedged item. The net difference in the interest rates coupons is recorded as a credit to interest expense. The derivative swaps € i 270 million bearing interest at a fixed rate of  i 0.30% for $ i 319.9 million plus fixed rate interest of  i 1.115%. The interest coupons settle  i semi-annually. The principal will amortize each year on November 15, as follows: for years 1 through 4, beginning November 15, 2021, € i  i  i  i 50 /  /  /  million versus $ i  i  i  i 59.2 /  /  /  million, and a final settlement on November 15, 2025 of € i 70 million versus $ i 82.9 million. The carrying value of the derivative at June 30, 2022 is a

10


 

current asset of $ i 8.1 million and a long-term asset of $ i 15.8 million. The carrying value of the derivative at December 31, 2021 was a current asset of $ i 4.0 million and a long-term asset of $ i 3.4 million.

 

Foreign Currency Forward Exchange Contracts

 

A number of our European subsidiaries are exposed to the impact of exchange rate volatility between the U.S. dollar and the subsidiaries’ functional currencies, being either the Euro or the British pound sterling. We have entered into contracts to exchange U.S. dollars for Euros and British pound sterling through December 2024. The aggregate notional amount of these contracts was $ i 434.5 million and $ i 316.4 million at June 30, 2022 and December 31, 2021, respectively. The purpose of these contracts is to hedge a portion of the forecasted transactions of our European subsidiaries under long-term sales contracts with certain customers. These contracts are expected to provide us with a more balanced matching of future cash receipts and expenditures by currency, thereby reducing our exposure to fluctuations in currency exchange rates. The effective portion of the hedges, losses of $ i 21.6 million and $ i 28.4 million were recorded in other comprehensive (loss) income for the quarter and six months ended June 30, 2022, respectively, and gains of $ i 1.5 million and losses of $ i 3.9 million were recorded for the quarter and six months ended June 30, 2021, respectively. We classified $ i 0.2 million of the carrying amount of these contracts as assets ($ i 0.1 million of which was recorded in prepaid expenses and other current assets) and $ i 29.2 million as liabilities ($ i 10.8 million of which is recorded in non-current liabilities) on the Condensed Consolidated Balance Sheets at June 30, 2022, and $ i 1.9 million of the carrying amount of these contracts was classified in assets ($ i 1.7 million of which was recorded in prepaid expenses and other current assets) and $ i 6.8 million as liabilities (less than $ i 3.9 million of which is in other non-current liabilities) at December 31, 2021. We recognized losses of $ i 3.6 million and $ i 4.3 million in gross margin during the quarter and six months ended June 30, 2022, respectively, and gains of $ i 1.9 million and $ i 3.3 million for the quarter and six months ended June 30, 2021, respectively.

 

In addition, we enter into foreign exchange forward contracts which are not designated as hedges. These are used to provide an offset to transactional gains or losses arising from the remeasurement of non-functional monetary assets and liabilities such as accounts receivable. The change in the fair value of the derivatives is recorded in the statement of operations. There are  i no credit contingency features in these derivatives. During the quarter and six months ended June 30, 2022, we recognized net foreign exchange losses of $ i 0.8 million and $ i 1.0 million, respectively, in the Condensed Consolidated Statements of Operations. During the quarter and six months ended June 30, 2021, we recognized net foreign exchange gains of $ i 0.5 million and losses of $ i 1.1 million, respectively. The net foreign exchange impact recognized from these hedges offset the translation exposure of these transactions. The carrying amount of the contracts for derivatives not designated as hedging instruments was $ i 0.2 million classified in current assets at June 30, 2022, and $ i 0.2 million classified in current liabilities on our Condensed Consolidated Balance Sheet at December 31, 2021.

 i 

The change in fair value of our foreign currency forward exchange contracts under hedge designations recorded net of tax within accumulated other comprehensive (loss) income for the quarters and six months ended June 30, 2022 and June 30, 2021 was as follows:

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Unrealized (losses) gains at beginning of period, net of tax

 

$

( i 8.0

)

 

$

 i 5.6

 

 

$

( i 3.5

)

 

$

 i 10.6

 

Losses (gains) reclassified to net sales

 

 

 i 2.8

 

 

 

( i 1.5

)

 

 

 i 3.1

 

 

 

( i 2.5

)

Decrease in fair value

 

 

( i 16.5

)

 

 

 i 1.2

 

 

 

( i 21.3

)

 

 

( i 2.8

)

Unrealized (losses) gains at end of period, net of tax

 

$

( i 21.7

)

 

$

 i 5.3

 

 

$

( i 21.7

)

 

$

 i 5.3

 

 / 

 

Unrealized gains of $ i 18.4 million recorded in accumulated other comprehensive loss, less taxes of $ i 4.4 million, as of June 30, 2022, are expected to be reclassified into earnings over the next twelve months as the hedged sales are recorded.

 

Commodity Swap Agreements

On occasion we enter into commodity swap agreements to hedge against price fluctuations of raw materials, including propylene (the principal component of acrylonitrile). As of June 30, 2022, we had commodity swap agreements with a notional value of $ i 23.4 million. The swaps mature monthly through June 2024. The swaps are accounted for as a cash flow hedge of our forward raw material purchases. To ensure the swaps are highly effective, all of the critical terms of the swap matched the terms of the hedged items. The fair value of the commodity swap agreements was an asset of $ i 0.2 million ($ i 0.2 million of which was recorded in prepaid expenses and other current assets) and a liability of $ i 3.1 million ($ i 0.9 million of which was recorded in other non-current liabilities) at June 30, 2022, and an asset of $ i 0.9 million ($ i 0.9 million of which was recorded in prepaid expenses and other current assets) and a liability of $ i 2.3 million ($ i 0.8 million of which was recorded in other non-current liabilities) at December 31, 2021.

 / 

11


 

 i 

Note 7 — Fair Value Measurements

The authoritative guidance for fair value measurements establishes a hierarchy for observable and unobservable inputs used to measure fair value, into three broad levels, which are described below:

Level 1: Quoted prices (unadjusted) in active markets that are accessible at the measurement date for assets or liabilities. The fair value hierarchy gives the highest priority to Level 1 inputs.
Level 2: Observable prices that are based on inputs not quoted on active markets but corroborated by market data.
Level 3: Unobservable inputs are used when little or no market data is available. The fair value hierarchy gives the lowest priority to Level 3 inputs.

In determining fair value, we utilize valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs to the extent possible as well as consider our own and counterparty credit risk in our assessment of fair value.

We have  i  i no /  assets or liabilities that utilize Level 1 inputs. However, we have derivative instruments classified as liabilities and assets which utilize Level 2 inputs, and  i one liability that utilizes Level 3 inputs.

For derivative assets and liabilities that utilize Level 2 inputs, we prepare estimates of future cash flows of our derivatives, which are discounted to a net present value. The estimated cash flows and the discount factors used in the valuation model are based on observable inputs, and incorporate non-performance risk (the credit standing of the counterparty when the derivative is in a net asset position, and the credit standing of Hexcel when the derivative is in a net liability position). The fair value of these assets and liabilities was $ i 24.4 million and $ i 32.3 million, respectively, at June 30, 2022 and $ i 10.2 million and $ i 9.3 million, respectively, at December 31, 2021. In addition, the fair value of these derivative contracts, which are subject to a master netting arrangement under certain circumstances, is presented on a gross basis in the Condensed Consolidated Balance Sheets.

Below is a summary of valuation techniques for all Level 2 financial assets and liabilities:

Cross Currency and Interest Rate Swap Agreements — valued using the USD Secured Overnight Financing Rate curves and quoted forward foreign exchange prices at the reporting date. The fair value of the assets were $ i 23.9 million, at June 30, 2022 and the fair value of the assets were $ i 7.4 million, at December 31, 2021.
Foreign exchange derivative assets and liabilities — valued using quoted forward foreign exchange prices at the reporting date. Fair value of assets and liabilities at June 30, 2022 was $ i 0.2 million and $ i 29.2 million, respectively. The fair value of assets and liabilities at December 31, 2021 was $ i 1.9 million and $ i 7.0 million, respectively.
Commodity swap agreements — valued using quoted forward commodity prices at the reporting date. Fair value of the assets and liabilities at June 30, 2022 was $ i 0.2 million and $ i 3.1 million, respectively. The fair value of the assets and liabilities at December 31, 2021 was $ i 0.9 million and $ i 2.3 million, respectively.

Counterparties to the above contracts are highly rated financial institutions,  i none of which experienced any significant downgrades in the three months ended June 30, 2022 that would reduce the receivable amount owed, if any, to the Company.

Liabilities classified as Level 3 — At June 30, 2022 we had a liability for $ i 0.4 million, which represented contingent consideration that was recognized in connection with the Company’s Oxford Performance Materials, Inc. acquisition. This amount was estimated based on certain contractual stipulations which require payments to be made to the seller in the future based upon the achievement of certain results. We used forecasted results which were discounted using an internally derived discount rate. Future amounts payable may differ from this estimate by the difference between the actual and forecasted results.

 / 

 

 i 

Note 8 — Revenue

 

Our revenue is primarily derived from the sale of inventory under long-term contracts with our customers. We have determined that individual purchase orders (“PO”), the terms and conditions of which are taken with a master agreement, create the ASC 606 contracts which are generally short-term in nature. For those sales that are not tied to a long-term agreement, we generate a PO that is subject to our standard terms and conditions. In instances where our customers acquire our goods related to government contracts, the contracts are typically subject to terms similar, or equal to, the Federal Acquisition Regulation Part 52.249-2. This regulation contains a termination for convenience clause (“T for C”), which requires that the customer pay for the cost of both the finished and unfinished goods at the time of cancellation plus a reasonable profit.

 

We recognize revenue over time for those agreements that have T for C, and where the products being produced have no alternative use.  i As our production cycle is typically nine months or less, it is expected that goods related to the revenue recognized

12


 

over time will be shipped and billed within the next twelve months. Less than half of our agreements contain provisions which would require revenue to be recognized over time. All other revenue is recognized at a point in time.

 

We disaggregate our revenue based on market for analytical purposes.  i The following table details our revenue by market for the quarters and six months ended June 30, 2022 and 2021:

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Consolidated Net Sales

 

$

 i 393.0

 

 

$

 i 320.3

 

 

$

 i 783.6

 

 

$

 i 630.6

 

Commercial Aerospace

 

 

 i 227.6

 

 

 

 i 153.7

 

 

 

 i 446.5

 

 

 

 i 301.3

 

Space & Defense

 

 

 i 111.9

 

 

 

 i 106.9

 

 

 

 i 230.1

 

 

 

 i 218.6

 

Industrial

 

 

 i 53.5

 

 

 

 i 59.7

 

 

 

 i 107.0

 

 

 

 i 110.7

 

 

Revenue recognized over time gives rise to contract assets, which represent revenue recognized but unbilled. Contract assets are included in our Condensed Consolidated Balance Sheets as a component of current assets.  i The activity related to contract assets for the six months ended June 30, 2022 was as follows:

 

(In millions)

 

Composite Material

 

 

Engineered Products

 

 

Total

 

Balance at December 31, 2021

 

$

 i 6.8

 

 

$

 i 23.7

 

 

$

 i 30.5

 

Net revenue billed

 

 

 i 0.6

 

 

 

 i 1.4

 

 

 

 i 2.0

 

Balance at March 31, 2022

 

 

 i 7.4

 

 

 

 i 25.1

 

 

 

 i 32.5

 

Net revenue billed

 

$

 i 0.2

 

 

$

( i 2.6

)

 

 

( i 2.4

)

Balance at June 30, 2022

 

$

 i 7.6

 

 

$

 i 22.5

 

 

$

 i 30.1

 

 

Accounts receivable, net, includes amounts billed to customers where the right to payment is unconditional.

 / 

 

 

 i 

Note 9 — Segment Information

The financial results for our operating segments are prepared using a management approach, which is consistent with the basis and manner in which we internally segregate financial information for the purpose of assisting in making internal operating decisions. We evaluate the performance of our operating segments based on operating income, and generally account for intersegment sales based on arm’s length prices. Corporate and certain other expenses are not allocated to the operating segments, except to the extent that the expense can be directly attributable to the business segment.

13


 

 i 

Financial information for our operating segments for the quarters and six months ended June 30, 2022 and 2021 were as follows:

 

 

 

(Unaudited)

 

 

 

Composite

 

 

Engineered

 

 

Corporate &

 

 

 

 

(In millions)

 

Materials

 

 

Products

 

 

Other (a)

 

 

Total

 

Quarter Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

 i 318.1

 

 

$

 i 74.9

 

 

$

 

 

$

 i 393.0

 

Intersegment sales

 

 

 i 18.5

 

 

 

 i 1.0

 

 

 

( i 19.5

)

 

 

 

Total sales

 

$

 i 336.6

 

 

$

 i 75.9

 

 

$

( i 19.5

)

 

$

393.0

 

Other operating (income) expense

 

 

 i 0.3

 

 

 

 i -

 

 

 

( i 19.4

)

 

 

( i 19.1

)

Operating income

 

 

 i 47.2

 

 

 

 i 9.1

 

 

 

 i 7.5

 

 

 

 i 63.8

 

Depreciation and amortization

 

 

 i 28.1

 

 

 

 i 3.5

 

 

 

 i 0.1

 

 

 

 i 31.7

 

Stock-based compensation

 

 

 i 0.9

 

 

 

 i 0.3

 

 

 

 i 1.2

 

 

 

 i 2.4

 

Accrual basis additions to capital expenditures

 

 

 i 14.5

 

 

 

 i 2.7

 

 

 

 i 

 

 

 

 i 17.2

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

 i 240.9

 

 

$

 i 79.4

 

 

$

 

 

$

 i 320.3

 

Intersegment sales

 

 

 i 14.6

 

 

 

 i 0.8

 

 

 

( i 15.4

)

 

 

 

Total sales

 

$

 i 255.5

 

 

$

 i 80.2

 

 

$

( i 15.4

)

 

$

320.3

 

Other operating (income) expense

 

 

 i 2.8

 

 

 

 i 0.2

 

 

 

 i 0.1

 

 

 

 i 3.1

 

Operating income

 

 

 i 24.5

 

 

 

 i 5.9

 

 

 

( i 14.2

)

 

 

 i 16.2

 

Depreciation and amortization

 

 

 i 30.5

 

 

 

 i 3.6

 

 

 

 i 0.1

 

 

 

 i 34.2

 

Stock-based compensation

 

 

 i 0.8

 

 

 

 i 0.1

 

 

 

 i 3.4

 

 

 

 i 4.3

 

Accrual basis additions to capital expenditures

 

 

 i 3.4

 

 

 

 i 0.4

 

 

 

 i 

 

 

 

 i 3.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2022

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

 i 631.9

 

 

$

 i 151.7

 

 

$

 

 

$

 i 783.6

 

Intersegment sales

 

 

 i 35.0

 

 

 

 i 1.3

 

 

 

( i 36.3

)

 

 

 

Total sales

 

$

 i 666.9

 

 

$

 i 153.0

 

 

$

( i 36.3

)

 

$

 i 783.6

 

Other operating (income) expense

 

 

 i 1.2

 

 

 

 i 0.1

 

 

 

( i 19.4

)

 

 

( i 18.1

)

Operating income

 

 

 i 89.8

 

 

 

 i 19.7

 

 

 

( i 15.6

)

 

 

 i 93.9

 

Depreciation and amortization

 

 

 i 56.7

 

 

 

 i 7.1

 

 

 

 i 0.1

 

 

 

 i 63.9

 

Stock-based compensation

 

 

 i 3.5

 

 

 

 i 1.0

 

 

 

 i 8.3

 

 

 

 i 12.8

 

Accrual basis additions to capital expenditures

 

 

 i 24.6

 

 

 

 i 3.7

 

 

 

 i 

 

 

 

 i 28.3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 2021

 

 

 

 

 

 

 

 

 

 

 

 

Net sales to external customers

 

$

 i 478.1

 

 

$

 i 152.5

 

 

$

 

 

$

 i 630.6

 

Intersegment sales

 

 

 i 27.8

 

 

 

 i 1.4

 

 

 

( i 29.2

)

 

 

 

Total sales

 

$

 i 505.9

 

 

$

 i 153.9

 

 

$

( i 29.2

)

 

$

 i 630.6

 

Other operating (income) expense

 

 

 i 15.5

 

 

 

( i 0.5

)

 

 

 i 0.2

 

 

 

 i 15.2

 

Operating income

 

 

 i 31.9

 

 

 

 i 10.6

 

 

 

( i 36.5

)

 

 

 i 6.0

 

Depreciation and amortization

 

 

 i 61.3

 

 

 

 i 7.3

 

 

 

 i 0.1

 

 

 

 i 68.7

 

Stock-based compensation

 

 

 i 1.4

 

 

 

 i 0.3

 

 

 

 i 11.6

 

 

 

 i 13.3

 

Accrual basis additions to capital expenditures

 

 

 i 7.0

 

 

 

 i 0.8

 

 

 

 i 

 

 

 

 i 7.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 / 

 

 i 
(a)
We do not allocate corporate expenses to the operating segments.

 

Goodwill and Intangible Assets

 

Composite

 

 

Engineered

 

 

 

 

(In millions)

 

Materials

 

 

Products

 

 

Total

 

Balance at December 31, 2021

 

$

 i 93.4

 

 

$

 i 174.1

 

 

$

 i 267.5

 

Amortization expense

 

 

( i 0.5

)

 

 

( i 1.3

)

 

 

( i 1.8

)

Currency translation adjustments

 

 

( i 5.7

)

 

 

( i 1.2

)

 

 

( i 6.9

)

Balance at June 30, 2022

 

$

 i 87.2

 

 

$

 i 171.6

 

 

$

 i 258.8

 

 / 

 

At June 30, 2022, the balance of goodwill and intangible assets was $ i 186.5 million and $ i 72.3 million, respectively.

 / 

 

14


 

 i 

Note 10 — Accumulated Other Comprehensive Loss

 

Comprehensive loss represents net loss and other gains and losses affecting stockholders’ equity that are not reflected in the Condensed Consolidated Statements of Operations.  i The components of accumulated other comprehensive loss as of June 30, 2022 and December 31, 2021 were as follows:

 

(In millions)

 

Unrecognized
Net Defined
Benefit and
Postretirement
Plan Costs

 

 

Change in Fair
Value of
Derivatives
Products (1)

 

 

Foreign
Currency
Translation

 

 

Total

 

Balance at December 31, 2021

 

$

( i 61.7

)

 

$

( i 3.1

)

 

$

( i 61.7

)

 

$

( i 126.5

)

Other comprehensive income (loss) before reclassifications

 

 

 i 6.9

 

 

 

( i 20.4

)

 

 

( i 50.5

)

 

 

( i 64.0

)

Amounts reclassified from accumulated other comprehensive
loss

 

 

 i 0.8

 

 

 

( i 1.6

)

 

 

 

 

( i 0.8

)

Other comprehensive income (loss)

 

 

 i 7.7

 

 

 

( i 22.0

)

 

 

( i 50.5

)

 

 

( i 64.8

)

Balance at June 30, 2022

 

$

( i 54.0

)

 

$

( i 25.1

)

 

$

( i 112.2

)

 

$

( i 191.3

)

 

 

(1)
Includes forward foreign exchange contracts, interest rate derivatives and commodity swaps.

 

 i 

The amount of net (gains) losses reclassified to earnings from the unrecognized net defined benefit and postretirement plan costs and derivative products components of accumulated other comprehensive income (loss) for the quarter and six months ended June 30, 2022, were as follows:

 

 

 

Quarter Ended June 30, 2022

 

 

Six Months Ended June 30, 2022

 

(In millions)

 

Pre-tax (gain) loss

 

 

Net of tax (gain) loss

 

 

Pre-tax (gain) loss

 

 

Net of tax (gain) loss

 

Defined Benefit and Postretirement Plan Costs

 

$

 i 0.6

 

 

$

 i 0.5

 

 

$

 i 1.1

 

 

$

 i 0.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivative Products

 

 

 

 

 

 

 

 

 

 

 

 

  Foreign currency forward exchange contracts

 

 

 i 3.6

 

 

 

 i 2.7

 

 

 

 i 4.3

 

 

 

 i 3.1

 

  Commodity swaps

 

 

( i 0.3

)

 

 

( i 0.2

)

 

 

( i 1.1

)

 

 

( i 0.8

)

  Interest rate swaps

 

 

 i 2.5

 

 

 

 i 1.9

 

 

 

( i 5.0

)

 

 

( i 3.9

)

Total Derivative Products

 

$

 i 5.8

 

 

$

 i 4.4

 

 

$

( i 1.8

)

 

$

( i 1.6

)

 / 
 / 

 

 

Note 11 —  i Commitments and Contingencies

We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. While it is impossible to predict the ultimate resolution of litigation, investigations and claims asserted against us, we believe, based upon our examination of currently available information, our experience to date, and advice from legal counsel, that, after taking into account our existing insurance coverage and amounts already provided for, the currently pending legal proceedings against us will not have a material adverse impact on our consolidated results of operations, financial position or cash flows.

Environmental Matters

We have been named as a potentially responsible party (“PRP”) with respect to the below and other hazardous waste disposal sites that we do not own or possess, which are included on, or proposed to be included on, the Superfund National Priority List of the U.S. Environmental Protection Agency (“EPA”) or on equivalent lists of various state governments. Because the Federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”) allows for joint and several liability in certain circumstances, we could be responsible for all remediation costs at such sites, even if we are one of many PRPs. We believe, based on the amount and nature of the hazardous waste at issue, and the number of other financially viable PRPs at each site, that our liability in connection with such environmental matters will not be material.

Lower Passaic River Study Area

Hexcel together with approximately  i 48 other PRPs that comprise the Lower Passaic Cooperating Parties Group (the “CPG”), are subject to a May 2007 Administrative Order on Consent (“AOC”) with the EPA requiring the CPG to perform a Remedial

15


 

Investigation/Feasibility Study of environmental conditions of a  i 17-mile stretch of the Passaic River in New Jersey (the “Lower Passaic River”). We were included in the CPG based on our operations at our former manufacturing site in Lodi, New Jersey.

In March 2016, the EPA issued a Record of Decision (“ROD”) setting forth the EPA’s selected remedy for the lower  i eight miles of the Lower Passaic River at an expected cost ranging from $ i 0.97 billion to $ i 2.07 billion. This estimate did not include any costs related to a future remedy for the upper  i nine miles of the Lower Passaic River. In August 2017, the EPA appointed an independent third-party allocation expert to make recommendations on the relative liability of approximately  i 120 identified non-government PRPs for the lower eight miles of the Lower Passaic River. In December 2020, the allocator issued its non-binding report on PRP liability (including Hexcel’s) to the EPA. In October 2021, the EPA released a ROD selecting an interim remedy for the upper  i nine miles of the Lower Passaic River at an expected additional cost ranging from $ i 308.7 million to $ i 661.5 million.

In October 2016, pursuant to a settlement agreement with the EPA, Occidental Chemical Corporation (“OCC”), one of the PRPs, commenced performance of the remedial design required by the ROD for the lower  i eight miles of the Lower Passaic River, reserving its right of cost contribution from all other PRPs. In June 2018, OCC filed suit against approximately 120 parties, including Hexcel, in the U.S. District Court of the District of New Jersey seeking cost recovery and contribution under CERCLA related to the Lower Passaic River. In July 2019, the court granted in part and denied in part the defendants’ motion to dismiss. In August 2020, the court granted defendants’ motion for summary judgement for certain claims. Discovery for the remaining claims is ongoing. On February 24, 2021, Hexcel and certain other defendants filed a third-party complaint against the Passaic Valley Sewerage Commission and certain New Jersey municipalities seeking recovery of Passaic-related cleanup costs incurred by defendants, as well as contribution for any cleanup costs incurred by OCC for which the court deems the defendants liable.

Summary of Environmental Reserves

Our estimate of liability as a PRP and our remaining costs associated with our responsibility to remediate the Lower Passaic River and other sites are accrued in the Condensed Consolidated Balance Sheets. As of June 30, 2022 and December 31, 2021, our aggregate environmental related accruals were $ i 7.1 million and $ i 2.1 million, respectively. These amounts are included in non-current liabilities with the exception of $ i 0.1 million at December 31, 2021 which was included in accrued liabilities. As related to certain environmental matters the accrual was estimated at the low end of a range of possible outcomes since  i  i no /  amount within the range is a better estimate than any other amount.

These accruals can change significantly from period to period due to such factors as additional information on the nature or extent of contamination, the methods of remediation required, changes in the apportionment of costs among responsible parties and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.

Product Warranty

 i 

We provide standard assurance-type warranties for our products, which cannot be purchased separately and do not meet the criteria to be considered a performance obligation. Warranty expense for the six months ended June 30, 2022, and accrued warranty cost, included in “accrued liabilities” in the Condensed Consolidated Balance Sheets at June 30, 2022 and December 31, 2021, were as follows:

 

 

 

Product

 

(In millions)

 

Warranties

 

Balance as of December 31, 2021

 

$

 i 2.5

 

Warranty expense

 

 

 i 1.2

 

Deductions and other

 

 

( i 0.5

)

Balance as of March 31, 2022

 

$

 i 3.2

 

Warranty expense

 

 

 i 0.5

 

Deductions and other

 

 

( i 0.8

)

Balance as of June 30, 2022

 

$

 i 2.9

 

 / 

 

 

16


 

 

 

 i 

Note 12 — Restructuring

 

We recognized restructuring charges of $ i 0.3 million and $ i 1.1 million for the quarter and six months ended June 30, 2022, respectively, primarily related to severance. Anticipated future cash payments as of June 30, 2022 were $ i 2.8 million.

 

 i 

 

 

 

 

 

Activity for the Quarter Ended June 30, 2022

 

 

 

 

 

March 31,

 

 

Restructuring

 

 

 

 

 

Cash

 

 

 

 

 

June 30,

 

(In Millions)

2021

 

 

Charge

 

 

FX Impact

 

 

Paid

 

 

Non-Cash

 

 

2022

 

Employee termination

$

 i 3.8

 

 

$

 i 0.3

 

 

$

( i 0.1

)

 

$

( i 1.2

)

 

$

 i 

 

 

$

 i 2.8

 

Impairment and other

 

 i 

 

 

 

 i 

 

 

 

 i 

 

 

 

 i 

 

 

 

 i 

 

 

 

 

Total

$

 i 3.8

 

 

$

 i 0.3

 

 

$

( i 0.1

)

 

$

( i 1.2

)

 

$

 i 

 

 

$

 i 2.8

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Activity for the Six Months Ended June 30, 2022

 

 

 

 

 

December 31,

 

 

Restructuring

 

 

 

 

 

Cash

 

 

 

 

 

June 30,

 

(In Millions)

2021

 

 

Charge

 

 

FX Impact

 

 

Paid

 

 

Non-Cash

 

 

2022

 

Employee termination

$

 i 9.0

 

 

$

 i 1.0

 

 

$

( i 0.3

)

 

$

( i 6.9

)

 

$

 i 

 

 

$

 i 2.8

 

Impairment and other

 

 i 

 

 

 

 i 0.1

 

 

 

 i 

 

 

 

( i 0.1

)

 

 

 i 

 

 

 

 i 

 

Total

$

 i 9.0

 

 

$

 i 1.1

 

 

$

( i 0.3

)

 

$

( i 7.0

)

 

$

 i 

 

 

$

 i 2.8

 

 / 
 / 

 

 

17


 

ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

We develop, manufacture, and market lightweight, high-performance structural materials, including carbon fibers, specialty reinforcements, prepregs and other fiber-reinforced matrix materials, honeycomb, adhesives, radio frequency/electromagnetic interference (“RF/EMI”) and microwave absorbing materials, engineered honeycomb and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. We propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are lighter, stronger and tougher, helping to create a better world for us all.

We serve international markets through manufacturing facilities, sales offices and representatives located in the Americas, Asia Pacific, Europe, India, and Africa. We also have a presence in Malaysia where we are a partner in a joint venture which manufactures composite structures for Commercial Aerospace applications.

We are a manufacturer of products within a single industry: Advanced Composites. We have two reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product lines and pultruded profiles. The Engineered Products segment is comprised of lightweight high strength composite structures, RF/EMI and microwave absorbing materials, engineered core and specialty machined honeycomb products with added functionality and thermoplastic additive manufacturing.

The Commercial Aerospace market began to see signs of recovery from the economic impacts of the COVID-19 pandemic in the second half of 2021 which has continued into the second quarter of 2022 with further growth in air travel and customer inventory destocking now largely completed. Despite these improvements, global logistics, supply chains and inflationary pressures still remain a challenge. COVID-19 has had and may continue to have further negative impacts on our operations, supply chain, transportation networks and customers, all of which have and may continue to compress our margins, even after the preventative and precautionary measures that we, other businesses, and governments are taking.

We are also continuing to monitor developments in the ongoing conflict between Russia and Ukraine including the related export controls and resulting sanctions imposed on Russia by the U.S. and other countries. Although we do not presently foresee direct material adverse effects upon our business, the global implications of the Russian/Ukraine conflict are difficult to predict at this time. Factors such as increased inflation, escalating energy costs, constrained raw material availability, and thus increasing costs, and embargos on flights from Russian airlines could impact the global economy and the aerospace industry in particular.

 

Financial Overview

Results of Operations

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions, except per share data)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Net sales

 

$

393.0

 

 

$

320.3

 

 

 

22.7

%

 

$

783.6

 

 

$

630.6

 

 

 

24.3

%

Net sales change in constant currency

 

 

 

 

 

 

 

 

25.9

%

 

 

 

 

 

 

 

 

26.7

%

Operating income

 

$

63.8

 

 

$

16.2

 

 

 

293.8

%

 

$

93.9

 

 

$

6.0

 

 

 

1,465.0

%

As a percentage of net sales

 

 

16.2

%

 

 

5.1

%

 

 

 

 

 

12.0

%

 

 

1.0

%

 

 

 

Net income (loss)

 

 

44.7

 

 

 

2.2

 

 

 

1,931.8

%

 

 

62.5

 

 

 

(11.8

)

 

 

629.7

%

Diluted net income (loss) per common share

 

$

0.53

 

 

$

0.03

 

 

 

1,666.7

%

 

$

0.74

 

 

$

(0.14

)

 

 

628.6

%

 

 

 

18


 

 

Net Sales

 

The following table summarizes net sales to third-party customers by segment and end market for the quarters ended June 30, 2022 and 2021:

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Consolidated Net Sales

 

$

393.0

 

 

$

320.3

 

 

 

22.7

%

 

$

783.6

 

 

$

630.6

 

 

 

24.3

%

Commercial Aerospace

 

 

227.6

 

 

 

153.7

 

 

 

48.1

%

 

 

446.5

 

 

 

301.3

 

 

 

48.2

%

Space & Defense

 

 

111.9

 

 

 

106.9

 

 

 

4.7

%

 

 

230.1

 

 

 

218.6

 

 

 

5.3

%

Industrial

 

 

53.5

 

 

 

59.7

 

 

 

(10.4

)%

 

 

107.0

 

 

 

110.7

 

 

 

(3.3

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Composite Materials

 

$

318.1

 

 

$

240.9

 

 

 

32.0

%

 

$

631.9

 

 

$

478.1

 

 

 

32.2

%

Commercial Aerospace

 

 

192.0

 

 

 

116.4

 

 

 

64.9

%

 

 

376.8

 

 

 

228.9

 

 

 

64.6

%

Space & Defense

 

 

73.9

 

 

 

66.0

 

 

 

12.0

%

 

 

150.5

 

 

 

140.8

 

 

 

6.9

%

Industrial

 

 

52.2

 

 

 

58.5

 

 

 

(10.8

)%

 

 

104.6

 

 

 

108.4

 

 

 

(3.5

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineered Products

 

$

74.9

 

 

$

79.4

 

 

 

(5.7

)%

 

$

151.7

 

 

$

152.5

 

 

 

(0.5

)%

Commercial Aerospace

 

 

35.6

 

 

 

37.3

 

 

 

(4.6

)%

 

 

69.7

 

 

 

72.4

 

 

 

(3.7

)%

Space & Defense

 

 

38.0

 

 

 

40.9

 

 

 

(7.1

)%

 

 

79.6

 

 

 

77.8

 

 

 

2.3

%

Industrial

 

 

1.3

 

 

 

1.2

 

 

 

8.3

%

 

 

2.4

 

 

 

2.3

 

 

 

4.3

%

 

Sales by Segment

 

Composite Materials: Net sales of $318.1 million in the second quarter of 2022 increased by $77.2 million or 32.0% from the prior year quarter. Commercial Aerospace sales increased $75.6 million or 64.9% in the second quarter of 2022 as compared to the prior year quarter primarily due to stronger narrowbody and A350 sales as well as business jet growth. Net sales of $631.9 million for the first six months of 2022 increased 32.2% compared to the same period last year.

 

Engineered Products: For the second quarter of 2022, net sales of $74.9 million decreased $4.5 million or 5.7% as compared to the prior year quarter. The decrease was primarily driven by slightly lower Space & Defense sales which were down $2.9 million or 7.1% in the second quarter of 2022 as compared to the same period in 2021. Net sales of $151.7 million for the first six months of 2022 were relatively flat compared to the same period last year.

 

Sales by Market

 

Commercial Aerospace sales of $227.6 million increased $73.9 million or 48.1% (49.5% in constant currency) for the second quarter of 2022 compared to the second quarter of 2021 led by growth in the A350 and A320neo programs as well as the 737 MAX program. Other Commercial Aerospace, which includes business jets and regional aircraft, increased 75.4% for the second quarter of 2022 compared to the second quarter of 2021. Sales were significantly lower in the prior year period for most programs as channel destocking was still occurring. Sales of $446.5 million for the first six months of 2022, increased 48.2% (49.3% in constant currency) compared to the first six months of 2021 due to stronger narrowbody and A350 sales whereas sales in the prior year period were impacted by channel destocking. Sales of Other Commercial Aerospace, which includes business jets and regional aircraft, increased 72.9% for the first six months of 2022 compared to the same period in 2021.

 

Space & Defense sales of $111.9 million increased 4.7% (7.0% in constant currency) for the second quarter of 2022 compared to the second quarter of 2021 led by growth in Space, CH-53K heavy lift helicopters and a number of overseas programs. Sales of $230.1 million for the first six months of 2022 increased 5.3% (7.0% in constant currency) compared to the first six months of 2021 due to growth in Space and the CH-53K program.

.

Total Industrial sales in the second quarter of 2022 of $53.5 million decreased 10.4% (3.5% in constant currency) compared to the second quarter of 2021 as lower wind energy sales was only partially offset by growth in automotive, recreation and other industrial sales. Total Industrial sales of $107.0 million for the six months of 2022, decreased 3.3% (2.6% increase in constant currency) compared to the first six months of 2021 despite growth in automotive, recreation and other industrial markets which was not enough to offset the negative impact of lower wind energy sales.

 

 

19


 

Gross Margin

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Gross margin

 

$

89.5

 

 

$

61.9

 

 

 

44.6

%

 

$

176.2

 

 

$

115.0

 

 

 

53.2

%

Percentage of sales

 

 

22.8

%

 

 

19.3

%

 

 

 

 

 

22.5

%

 

 

18.2

%

 

 

 

 

Gross margin for the second quarter of 2022 was 22.8% compared to 19.3% in the second quarter of 2021 and was 22.5% and 18.2% for the first six months of 2022 and 2021, respectively. The improvements in the gross margin for both the second quarter and first six months of 2022 compared to the same periods last year was primarily due to the higher sales and greater capacity utilization which led to improved cost absorption.

 

Operating Expenses

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

SG&A expense

 

$

33.5

 

 

$

31.1

 

 

 

7.7

%

 

$

78.2

 

 

$

70.7

 

 

 

10.6

%

Percentage of sales

 

 

8.5

%

 

 

9.7

%

 

 

 

 

 

10.0

%

 

 

11.2

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

R&T expense

 

$

11.3

 

 

$

11.5

 

 

 

(1.7

)%

 

$

22.2

 

 

$

23.1

 

 

 

(3.9

)%

Percentage of sales

 

 

2.9

%

 

 

3.6

%

 

 

 

 

 

2.8

%

 

 

3.7

%

 

 

 

 

Selling, general and administrative expenses were higher for the second quarter of 2022 compared to the same period in 2021, although the current quarter expenses were lower as a percentage of sales. The increase in selling, general and administrative expenses for the current quarter was primarily driven by higher employee compensation reflecting the increase in global headcount. Research and technology expenses were relatively flat compared to the prior year quarter. Selling, general and administrative expenses were higher for the first six months of 2022 compared to the same period in 2021, although lower as a percentage of sales, due to higher employee compensation reflecting the increase in global headcount. Research and technology expenses for the first six months of 2022 were slightly lower compared to the prior year due to lower depreciation expense.

 

Operating Income

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Consolidated operating income

 

$

63.8

 

 

$

16.2

 

 

 

293.8

%

 

$

93.9

 

 

$

6.0

 

 

 

1,465.0

%

Operating margin

 

 

16.2

%

 

 

5.1

%

 

 

 

 

 

12.0

%

 

 

1.0

%

 

 

 

Composite Materials

 

 

47.2

 

 

 

24.5

 

 

 

92.7

%

 

 

89.8

 

 

 

31.9

 

 

 

181.5

%

Operating margin

 

 

14.0

%

 

 

9.6

%

 

 

 

 

 

13.5

%

 

 

6.3

%

 

 

 

Engineered Products

 

 

9.1

 

 

 

5.9

 

 

 

54.2

%

 

 

19.7

 

 

 

10.6

 

 

 

85.8

%

Operating margin

 

 

12.0

%

 

 

7.4

%

 

 

 

 

 

12.9

%

 

 

6.9

%

 

 

 

Corporate & Other

 

 

7.5

 

 

 

(14.2

)

 

N/M

 

 

 

(15.6

)

 

 

(36.5

)

 

 

57.3

%

 

Operating income for the second quarters of 2022 and 2021 was $63.8 million and $16.2 million, respectively. Operating income for the first six months of 2022 was $93.9 million compared to $6.0 million for the same period last year. The increase in operating income for both the second quarter and six months of 2022 over the same periods last year was primarily driven by higher sales and strong gross margins as well as the gain on the sale of our Dublin, California facility and lower restructuring costs.

 

Interest Expense, Net

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

% Change

 

 

2022

 

 

2021

 

 

% Change

 

Interest expense, net

 

$

8.9

 

 

$

9.3

 

 

 

(4.3

)%

 

$

18.0

 

 

$

19.6

 

 

 

(8.2

)%

 

Interest expense for both the quarter and six months ended June 30, 2022 was lower compared to the prior year periods due to lower average debt levels, partially offset by higher interest rates.

 

 

20


 

Provision for Income Taxes

 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

 

2022

 

 

2021

 

Income tax expense (benefit)

 

$

12.7

 

 

$

4.0

 

 

$

17.4

 

 

$

(3.5

)

Effective tax rate

 

 

22.9

%

 

 

58.0

%

 

 

22.8

%

 

 

25.7

%

 

The tax expense for the quarter ended June 30, 2022 was $12.7 million compared to $4.0 million for the second quarter of 2021. The quarter ended June, 2021 included a discrete tax charge of $2.7 million related to the remeasurement of the net deferred tax liability in a foreign tax jurisdiction as a result of an unfavorable tax rate change. Tax expense for the first six months ended June 30, 2022 was $17.4 million compared to a benefit of $3.5 million for the same period of 2021. The tax benefit for the six months ended June 30, 2021 included a discrete tax benefit related to a favorable U.S state tax law change in addition to the discrete tax charge previously mentioned.

 

Financial Condition

Liquidity: Cash on hand at June 30, 2022 was $99.2 million as compared to $127.7 million at December 31, 2021. As of June 30, 2022, total debt was $812.5 million as compared to $823.3 million at December 31, 2021.

 

In September 2020, we amended our Facility to allow for relief from certain terms, including adjusting the maximum leverage ratio covenant for a defined period. On January 28, 2021, we entered into the Second Amendment, which further amended the Facility agreement to provide that, from January 28, 2021 through and including March 31, 2022, we would not be subject to a maximum leverage ratio covenant but instead be required to maintain Liquidity (as defined in the Facility agreement) of at least $250 million. Effective April 1, 2022, the original terms and conditions to the Facility agreement were reinstated except the borrowing capacity which will remain at $750 million. As a result, share repurchases restrictions that had been in effect per the Second Amendment expired on March 31, 2022. The remaining authorization under the share repurchase program at June 30, 2022 was $217 million.

 

As of June 30, 2022, total borrowings under the Facility were $114 million, which approximated fair value. The Facility agreement permits us to issue letters of credit up to an aggregate amount of $50 million. Outstanding letters of credit reduce the amount available for borrowing under the Facility. As of June 30, 2022, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $636 million. The weighted average interest rate for the Facility was 4.2% for the six months ended June 30, 2022.

We expect to meet our short-term liquidity requirements (including capital expenditures) through net cash from operating activities, cash on hand and the Facility. As of June 30, 2022, long-term liquidity requirements consist primarily of obligations under our long-term debt obligations. We do not have any significant required debt repayments until June 2024 when the Facility expires.

 

In 2021, the Company applied for the Aviation Manufacturing Jobs Protection ("AMJP") program, created under the American Rescue Plan Act of 2021, which provides funding to eligible businesses to pay up to half of their compensation costs for certain categories of employees, for up to six months. To qualify for funding, eligible companies must have involuntarily furloughed or laid off at least 10% of its U.S. workforce or have experienced at least a 15% decline in 2020 global operating revenue. In September 2021, the U.S. Department of Transportation announced that it had approved for the Company to receive up to $20.9 million under the AMJP program. The Company received $10.5 million of the offered funds in the fourth quarter of 2021 and anticipates receiving the remaining funds in 2022.

 

On July 25, 2022, our Board of Directors declared a quarterly dividend of $0.10 per share payable to stockholders of record as of August 5, 2022, with a payment date of August 12, 2022.

Operating Activities: Net cash provided by operating activities for the first six months of 2022 was $18.3 million compared to $38.9 million for the same period last year. Working capital was a cash use of $95.1 million for the first six months of 2022 compared to a use of $19.6 million in the same period in 2021 primarily driven by higher inventory and accounts receivable to support higher sales.

Investing Activities: Net cash used for investing activities was $16.2 million and $9.2 million in the first six months of 2022 and 2021, respectively. The first six months of 2022 included net proceeds of approximately $21.2 million from the sale of our Dublin, California facility. Capital expenditures for the first six months of 2022 were $37.9 million compared to $9.2 million in the same period in 2021. The increase in capital expenditures is primarily driven by two ongoing construction projects for the previously announced construction of a research and technology innovation center in Salt Lake City, Utah. and the expansion of Hexcel’s facility in Morocco.

21


 

Financing Activities: Net cash used for financing activities was $26.6 million for first six months of 2022 compared to $16.6 million in the same period in 2021. Borrowings under the Facility during the first six months of 2022 was $35.0 million, while repayments were $46.0 million compared to $21.0 million in the prior year. In the first quarter of 2022, we reinstated our quarterly dividend payment, which had previously been suspended as of early 2020. $16.8 million in dividend payments were made to shareholders during the first six months of 2022.

Financial Obligations and Commitments: The next significant scheduled debt maturity will not occur until 2024, when the Facility matures. Certain sales and administrative offices, data processing equipment and manufacturing facilities are leased under operating leases.

Critical Accounting Estimates

Our Condensed Consolidated Financial Statements are prepared in accordance with U.S. GAAP. In connection with the preparation of our financial statements, we are required to make assumptions and estimates about future events, and apply judgments that affect reported amounts of assets, liabilities, revenues, expenses and related disclosures. We base our assumptions, estimates and judgments on historical experience, current trends and other factors management believes to be relevant at the time our Condensed Consolidated Financial Statements are prepared. On a regular basis, management reviews accounting policies, assumptions, estimates and judgments to ensure our financial statements are presented fairly and in accordance with U.S. GAAP. However, because future events and their effects cannot be determined with certainty, actual results may differ from our assumptions and estimates, and such differences could be material.

We describe our significant accounting policies and critical accounting estimates in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

 

Commitments and Contingencies

We are involved in litigation, investigations and claims arising out of the normal conduct of our business, including those relating to commercial transactions, environmental, employment and health and safety matters. We estimate and accrue our liabilities resulting from such matters based upon a variety of factors, including the stage of the proceeding; potential settlement value; assessments by internal and external counsel; and assessments by environmental engineers and consultants of potential environmental liabilities and remediation costs. We believe we have adequately accrued for these potential liabilities; however, facts and circumstances may change, such as new developments, or a change in approach, including a change in settlement strategy or in an environmental remediation plan, or in our existing insurance coverage, that could cause the actual liability to exceed the estimates, or may require adjustments to the recorded liability balances in the future. For further discussion, see Note 11, Commitments and Contingencies, to the accompanying Condensed Consolidated Financial Statements of this Form 10-Q.

Non-GAAP Financial Measures

The Company uses non-GAAP financial measures, including sales and expenses measured in constant dollars (prior year sales and expenses measured at current year exchange rates); operating income, net income and earnings per share adjusted for items included in operating expense and non-operating expenses; and free cash flow. Management believes these non-GAAP measures are meaningful to investors because they provide a view of Hexcel with respect to ongoing operating results and comparisons to prior periods. These adjustments can represent significant charges or credits that we believe are important to an understanding of Hexcel’s overall operating results in the periods presented. Such non-GAAP measures are not determined in accordance with generally accepted accounting principles and should not be viewed in isolation or as an alternative to or substitutes for GAAP measures of performance. Our calculation of these measures may not be comparable to similarly titled measures used by other companies, and the measures exclude financial information that some may consider important in evaluating our performance. Reconciliations to adjusted operating income, adjusted net income, adjusted diluted net income per share and free cash flow are provided below.

 

 

 

Operating Income

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

(In millions)

2022

 

 

2021

 

 

2022

 

 

2021

 

GAAP operating income

 

$

63.8

 

 

 

$

16.2

 

 

$

93.9

 

 

$

6.0

 

Other operating (income) expense (a)

 

 

(19.1

)

 

 

 

3.1

 

 

 

(18.1

)

 

 

15.2

 

Adjusted operating income (non-GAAP)

 

$

44.7

 

 

 

$

19.3

 

 

$

75.8

 

 

$

21.2

 

 

 

22


 

 

 

Quarter Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2021

 

 

2022

 

 

2021

 

(In millions, except per diluted share data)

 

Net Income

 

 

Diluted Net Income Per Share

 

 

Net income

 

 

Diluted Net Income Per Share

 

 

Net Income

 

 

Diluted Net Income Per Share

 

 

Net (Loss) Income

 

 

Diluted Net (Loss) Income Per Share

 

GAAP net income (loss)

 

$

44.7

 

 

$

0.53

 

 

$

2.2

 

 

$

0.03

 

 

$

62.5

 

 

$

0.74

 

 

$

(11.8

)

 

$

(0.14

)

Other operating (income) expense, net of tax (a)

 

 

(16.3

)

 

 

(0.20

)

 

 

2.2

 

 

 

0.02

 

 

 

(15.5

)

 

 

(0.19

)

 

 

11.0

 

 

 

0.13

 

Other income

 

$

(0.3

)

 

 

 

 

 

 

 

 

 

 

$

(0.3

)

 

 

 

 

 

 

 

 

 

Tax benefit (b)

 

 

 

 

 

-

 

 

 

2.7

 

 

 

0.03

 

 

 

 

 

 

 

 

 

(0.5

)

 

 

(0.01

)

Adjusted net income (loss) (non-GAAP)

 

$

28.1

 

 

$

0.33

 

 

$

7.1

 

 

$

0.08

 

 

$

46.7

 

 

$

0.55

 

 

$

(1.3

)

 

$

(0.02

)

 

(a)
The quarter and six months ended June 30, 2022 included the net gain of $19.4 million from the sale of our Dublin, California facility partially offset by restructuring costs primarily related to severance. The quarter and six months ended June 30, 2021 included restructuring costs primarily related to severance as well as a benefit related to the reduction of a contingent liability.
(b)
The quarter ended June 30, 2021 included a discrete tax charge of $2.7 million related to the remeasurement of the net deferred tax liability in a foreign jurisdiction as a result of a change in tax rate and the six months ended June 30, 2021 also included a discrete tax benefit from the revaluation of deferred tax liabilities related to a favorable U.S. state tax law change.

 

 

 

Six Months Ended June 30,

 

(In millions)

 

2022

 

 

2021

 

Net cash used for operating activities

 

$

18.3

 

 

$

38.9

 

Less: Capital expenditures

 

 

(37.9

)

 

 

(9.2

)

Free cash flow (non-GAAP)

 

$

(19.6

)

 

$

29.7

 

 

Forward-Looking Statements

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements relate to analyses and other information that are based on forecasts of future results and estimates of amounts not yet determinable. These statements also relate to future prospects, developments and business strategies. These forward-looking statements are identified by their use of terms and phrases such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should," "seek," “target,” “would,” “will” and similar terms and phrases, including references to assumptions. Such statements are based on current expectations, are inherently uncertain and are subject to changing assumptions.

Such forward-looking statements include, but are not limited to: (a) the estimates and expectations based on aircraft production rates provided by Airbus, Boeing and others; (b) the revenues we may generate from an aircraft model or program; (c) the impact of the push-out in deliveries of the Airbus and Boeing backlog and the impact of delays in the startup or ramp-up of new aircraft programs or the final Hexcel composite material content once the design and material selection have been completed; (d) expectations with regard to regulatory clearances or the build rate of the Boeing 737 MAX or Boeing 787 and the related impact on our revenues; (e) expectations with regard to raw material cost and availability; (f) expectations of composite content on new commercial aircraft programs and our share of those requirements; (g) expectations regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; (h) expectations regarding sales for wind energy, recreation, automotive and other industrial applications; (i) expectations regarding working capital trends and expenditures and inventory levels; (j) expectations as to the level of capital expenditures and completion of capacity expansions and qualification of new products; (k) expectations regarding our ability to improve or maintain margins; (l) expectations regarding the outcome of legal matters or the impact of changes in laws or regulations or government policies; (m) our projections regarding our tax rate; (n) expectations with regard to the continued impact of the COVID-19 pandemic and the impact of the conflict between Russia and Ukraine on worldwide air travel and aircraft programs, as well as on our customers and suppliers and, in turn, on our operations and financial results; (o) expectations regarding our strategic initiatives and other goals, including, but not limited to, our sustainability goals; (p) expectations regarding the sale of certain of our assets; and (q) the anticipated impact of the above factors and various market risks on our expectations of financial results for 2022 and beyond.

Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results to be materially different. Such factors include, but are not limited to, the following: the impact of the COVID-19 pandemic (including continued disruption in global financial markets and supply chains, ongoing restrictions on movement and travel, employee

23


 

absenteeism and labor shortages, and reduced demand for air travel) on the operations, business and financial condition of Hexcel and its customers and suppliers; reductions in sales to any significant customers, particularly Airbus or Boeing, including related to the timing of pending regulatory clearances for the Boeing 737 MAX and the Boeing 787, as well as due to the impact of the COVID-19 pandemic; our ability to effectively adjust production and inventory levels to align with customer demand; our ability to effectively motivate, retain and hire the necessary workforce; our ability to successfully implement or realize our business strategies, plans, goals and objectives of management, including our sustainability goals and any restructuring or alignment activities in which we may engage; the impact of any government mandated COVID-19 precautions, including mandatory vaccination; changes in sales mix; changes in current pricing and cost levels, including cost inflation, as well as increasing energy prices resulting from the conflict between Russia and Ukraine; changes in aerospace delivery rates; changes in government defense procurement budgets; changes in military aerospace program technology; timely new product development or introduction; industry capacity; increased competition; availability and cost of raw materials, including the impact of supply shortages and inflation; supply chain disruptions, which may be exacerbated by the conflict between Russia and Ukraine; inability to install, staff and qualify necessary capacity or complete capacity expansions to meet customer demand; cybersecurity-related risks, including the potential impact of breaches or intrusions; currency exchange rate fluctuations; changes in political, social and economic conditions, including, but not limited to, the effect of change in global trade policies, such as sanctions imposed as a result of the conflict between Russia and Ukraine; work stoppages or other labor disruptions; our ability to successfully complete any strategic acquisitions, investments or dispositions; compliance with environmental, health, safety and other related laws and regulations, including those related to climate change; the effects of natural disasters, which may be worsened by the impact of climate change, and other severe catastrophic events; the potential impact of environmental, social and governance matters; and the unexpected outcome of legal matters or impact of changes in laws or regulations.

Although we believe that these forward-looking statements are based on reasonable assumptions, you should be aware that many factors could affect our actual results of operations and could cause actual results to differ materially from those expressed in the forward-looking statements. As a result, the foregoing factors should not be construed as exhaustive and should be read together with other cautionary statements included in this and other reports we file with the SEC. For additional information regarding certain factors that may cause our actual results to differ from those expected or anticipated, see the information under the caption “Risk Factors,” which is located in Item 1A of Part I of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. We do not undertake any obligation to update our forward-looking statements or risk factors to reflect future events or circumstances, except as otherwise required by law.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

Except for the continued broad effects of COVID-19 and the Russian/Ukraine conflict on market risk, there have been no material changes in our market risk from the information provided in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

 

ITEM 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures as of June 30, 2022, and with the participation of the Company's management have concluded that these disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. These disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

Our Chief Executive Officer and Chief Financial Officer have concluded that there have not been any changes in our internal control over financial reporting during the three months ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

24


 

PART II. OTHER INFORMATION

 

ITEM 1. Legal Proceedings

The information required by Item 1 is contained within Note 11 on pages 15 through 16 of this Form 10-Q and is incorporated herein by reference.

ITEM 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021, which could materially affect our business, financial condition or future results. There have been no material changes in the Company's risk factors from the aforementioned Form 10-K.

ITEMS 2, 3, 4, and 5 are not applicable, and therefore have been omitted.

 

25


 

ITEM 6. Exhibits

EXHIBIT INDEX

 

Exhibit No.

 

Description

10.1*

 

Form of Performance Based Award Agreement for Executive Officers (2022) (incorporated herein by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022).

10.2*

 

Form of Performance Based Award Agreement for Non-U.S. Executive Officers (2022) (incorporated herein by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022).

10.3*

 

Hexcel Corporation Director Compensation Program

10.4*

 

Separation Agreement for Robert G. Hennemuth

31.1

 

Certification of Chief Executive Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

 

Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32

 

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101

 

 

The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30 31, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Operations, (iii) Condensed Consolidated Statements of Comprehensive (Loss) Income, (iv) Condensed Consolidated Statements of Cash Flows, (v) Condensed Consolidated Statements of Stockholders’ Equity, and (vi) Notes to Condensed Consolidated Financial Statements.

 

104

 

Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and are contained within Exhibit 101.

 

* Indicates management contract or compensatory plan or arrangement

 

26


 

Signature

Pursuant to the requirements 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.

 

 

 

Hexcel Corporation

 

 

 

July 25, 2022

 

/s/ Amy S. Evans

(Date)

 

Amy S. Evans

 

 

Senior Vice President,

 

 

Chief Accounting Officer

 

27



Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘10-Q’ Filing    Date    Other Filings
11/15/25
8/12/22
8/5/22
Filed on:7/25/228-K
7/21/22
For Period end:6/30/22
4/1/22
3/31/2210-Q
12/31/2110-K,  SD
11/15/21
6/30/2110-Q
3/31/2110-Q
2/24/21
1/28/214,  4/A,  8-K
12/31/2010-K,  5,  SD
 List all Filings 


2 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/08/23  Hexcel Corp./DE                   10-K       12/31/22  122:27M                                    Donnelley … Solutions/FA
10/24/22  Hexcel Corp./DE                   10-Q        9/30/22   71:12M                                    Donnelley … Solutions/FA


1 Previous Filing that this Filing References

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 4/25/22  Hexcel Corp./DE                   10-Q        3/31/22   73:8.8M                                   Donnelley … Solutions/FA
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