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

☐ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  No 

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). Yes  No 

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.

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 ☐ No 

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


	(Unaudited)						(Unaudited)
	March 31,			December 31,			June 30,			December 31,
(In millions)	2022			2021			2022			2021
Assets
Current assets:
Cash and cash equivalents	$	112.8		$	127.7		$	99.2		$	127.7
Accounts receivable, net		212.1			160.3			234.2			160.3
Inventories, net		265.9			245.7			271.5			245.7
Contract assets		32.5			30.5			30.1			30.5
Prepaid expenses and other current assets		47.9			39.5			44.3			39.5
Assets held for sale		13.2			12.6			12.6			12.6
Total current assets		684.4			616.3			691.9			616.3

Property, plant and equipment		3,088.7			3,110.0			3,045.4			3,110.0
Less accumulated depreciation		(1,376.9	)		(1,363.9	)		(1,375.1	)		(1,363.9	)
Net property, plant and equipment		1,711.8			1,746.1			1,670.3			1,746.1

Goodwill and other intangible assets, net		264.0			267.5			258.8			267.5
Investments in affiliated companies		45.6			44.6			46.1			44.6
Other assets		147.7			144.9			152.3			144.9
Total assets	$	2,853.5		$	2,819.4		$	2,819.4		$	2,819.4

Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings	$	0.7		$	0.9		$	0.5		$	0.9
Accounts payable		112.5			113.2			103.4			113.2
Accrued compensation and benefits		52.3			54.4			71.3			54.4
Financial instruments		7.8			5.7			20.7			5.7
Accrued liabilities		73.8			73.4			75.3			73.4
Total current liabilities		247.1			247.6			271.2			247.6

Long-term debt		857.5			822.4			812.0			822.4
Retirement obligations		52.4			52.6			48.7			52.6
Deferred income taxes		135.5			140.0			128.6			140.0
Other non-current liabilities		73.9			71.3			78.6			71.3
Total liabilities		1,366.4			1,333.9			1,339.1			1,333.9
Stockholders' equity:
Common stock, $0.01 par value, 200.0 shares authorized, 110.2 shares and 110.1 shares issued at March 31, 2022 and December 31, 2021, respectively		1.1			1.1
Common stock, $0.01 par value, 200.0 shares authorized, 110.3 shares and 110.1 shares issued at June 30, 2022 and December 31, 2021, respectively								1.1			1.1
Additional paid-in capital		889.9			878.6			894.1			878.6
Retained earnings		2,021.8			2,012.5			2,058.0			2,012.5
Accumulated other comprehensive loss		(144.1	)		(126.5	)		(191.3	)		(126.5	)
		2,768.7			2,765.7			2,761.9			2,765.7
Less – Treasury stock, at cost, 26.2 shares at March 31, 2022 and 26.1 shares at December 31, 2021		(1,281.6	)		(1,280.2	)
Less – Treasury stock, at cost, 26.2 shares at June 30, 2022 and 26.1 shares at December 31, 2021								(1,281.6	)		(1,280.2	)
Total stockholders' equity		1,487.1			1,485.5			1,480.3			1,485.5
Total liabilities and stockholders' equity	$	2,853.5		$	2,819.4		$	2,819.4		$	2,819.4

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

For the ~~Quarters~~Quarter and Six Months ended ~~March 31,~~June 30, 2022, and ~~March 31,~~June 30, 2021


								Accumulated																Accumulated
			Additional					Other						Total					Additional					Other						Total
			Paid-In		Retained			Comprehensive			Treasury			Stockholders’					Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)	Par		Capital		Earnings			Loss			Stock			Equity			Par		Capital		Earnings			Loss			Stock			Equity
Balance, December 31, 2020	$	1.1	$	849.7	$	1,996.4		$	(59.6	)	$	(1,277.4	)	$	1,510.2		$	1.1	$	849.7	$	1,996.4		$	(59.6	)	$	(1,277.4	)	$	1,510.2
Net loss	—		—			(14.0	)	—			—				(14.0	)	—		—			(14.0	)	—			—				(14.0	)
Change in other comprehensive income (loss)– net of tax	—		—		—				(19.1	)	—				(19.1	)
Change in other comprehensive (loss)– net of tax																	—		—		—				(19.1	)	—				(19.1	)
Stock based compensation	—			11.8	—			—				(2.0	)		9.8		—			11.8	—			—				(2.0	)		9.8
Balance, March 31, 2021	$	1.1	$	861.5	$	1,982.4		$	(78.7	)	$	(1,279.4	)	$	1,486.9		$	1.1	$	861.5	$	1,982.4		$	(78.7	)	$	(1,279.4	)	$	1,486.9
Net income																	—		—			2.2		—			—				2.2
Change in other comprehensive income – net of tax																	—		—		—				5.5		—				5.5
Stock based compensation																	—			8.2	—			—			—				8.2
Balance, June 30, 2021																	$	1.1	$	869.7	$	1,984.6		$	(73.2	)	$	(1,279.4	)	$	1,502.8


								Accumulated																Accumulated
			Additional					Other						Total					Additional					Other						Total
			Paid-In		Retained			Comprehensive			Treasury			Stockholders’					Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)	Par		Capital		Earnings			Loss			Stock			Equity			Par		Capital		Earnings			Loss			Stock			Equity
Balance, December 31, 2021	$	1.1	$	878.6	$	2,012.5		$	(126.5	)	$	(1,280.2	)	$	1,485.5		$	1.1	$	878.6	$	2,012.5		$	(126.5	)	$	(1,280.2	)	$	1,485.5
Net income	—		—			17.8		—			—				17.8		—		—			17.8		—			—				17.8
Dividends paid on common stock ($0.10 per share)	—		—			(8.5	)	—			—				(8.5	)
Change in other comprehensive income (loss)– net of tax	—		—		—				(17.6	)	—				(17.6	)
Dividends on common stock ($0.10 per share)																	—		—			(8.5	)	—			—				(8.5	)
Change in other comprehensive (loss) – net of tax																	—		—		—				(17.6	)	—				(17.6	)
Stock based compensation	—			11.3	—			—				(1.4	)		9.9		—			11.3	—			—				(1.4	)		9.9
Balance, March 31, 2022	$	1.1	$	889.9	$	2,021.8		$	(144.1	)	$	(1,281.6	)	$	1,487.1		$	1.1	$	889.9	$	2,021.8		$	(144.1	)	$	(1,281.6	)	$	1,487.1
Net income																	—		—			44.7		—			—				44.7
Dividends on common stock ($0.10 per share)																	—		—			(8.5	)	—			—				(8.5	)
Change in other comprehensive (loss) – net of tax																	—		—		—				(47.2	)	—				(47.2	)
Stock based compensation																	—			4.2	—			—			—				4.2
Balance, June 30, 2022																	$	1.1	$	894.1	$	2,058.0		$	(191.3	)	$	(1,281.6	)	$	1,480.3

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

Total common stock equivalents of 0.6 million and 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 0.7 million and 1.1 million were excluded from the computation of diluted net income (loss) per share for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively, because to do so would have been anti-dilutive.

All costs related to our pensions are included as a component of operating income in our Condensed Consolidated Statements of Operations. For the ~~three months~~quarter ended ~~March 31,~~June 30, 2022 and 2021, amounts unrelated to service costs were a charge of $0.9 million and $~~0.2~~0.1 million, respectively. For the six months ended June 30, 2022 and 2021, amounts unrelated to service costs were a charge of $1.9 million and $0.3 million, respectively.

We generally fund our U.S. non-qualified defined benefit retirement plans when benefit payments are incurred. We contributed approximately $~~0.2~~0.3 million in the first ~~three~~six months of 2022 to cover unfunded benefits. We expect to contribute a total of $~~0.7~~3.2 million in 2022 to cover unfunded benefits. ~~We contributed $0.2~~ ~~million to our U.S. non-qualified defined benefit retirement plans during the quarter ended March 31, 2021.~~

We contributed $~~0.1~~0.3 million and $~~1.1~~2.2 million to our European defined benefit retirement plans during the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively. We plan to contribute approximately $0.5 million during 2022 to our European plans.

We recorded $~~0.3~~0.5 million and $0.2 million of net amortization gain deferral for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021, respectively. Net periodic benefit costs of our postretirement health care and life insurance benefit plans for the ~~three~~six months ended ~~March 31,~~June 30, 2022 and 2021 were immaterial.

Amounts contributed in connection with our postretirement plans were immaterial for both the ~~three~~six months ended ~~March 31,~~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 $0.3 million in 2022 to cover unfunded benefits.

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

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. 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 $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 ~~March 31,~~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 $1 billion to $750 million.As of ~~March 31,~~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 ~~borrowing capacity~~amount of the lender's commitment will remain at $750 million. Share repurchases restrictions that had been in effect per the Second Amendment expired on March 31, 2022.

As of ~~March 31,~~June 30, 2022, total borrowings under the Facility were $~~160~~114 million, which approximates 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 ~~March 31,~~June 30, 2022, there were 0 issued letters of credit under the Facility, resulting in undrawn availability under the Facility of $~~590~~636 million. The weighted average interest rate for the Facility was ~~4.5~~4.2% for the ~~three~~six months ended ~~March 31,~~June 30, 2022.

In 2017, the Company issued $400 million in aggregate principal amount of 3.95% Senior Unsecured Notes due in 2027. The interest rate on these senior notes may be increased 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 5.95%. The effective interest rate for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was ~~4.12~~4.11% inclusive of an approximately 0.25% benefit of treasury locks. Based on quoted prices the fair value of the senior unsecured notes due in 2027 was $~~402.2~~375.6 million at ~~March 31,~~June 30, 2022.

In 2015, the Company issued $300 million in aggregate principal amount of 4.7% Senior Unsecured Notes due in 2025. The interest rate on these senior notes may be increased by 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 6.7%. The effective interest rate for the ~~three~~six months ended ~~March 31,~~June 30, 2022 was 5.07%. Based on quoted prices, the fair value of the senior unsecured notes due in 2025 was $~~304.7~~293.9 million at ~~March 31,~~June 30, 2022.

Unrealized ~~losses~~gains of $~~7.4~~18.4 million recorded in accumulated other comprehensive loss, less taxes of $~~1.8~~4.4 million, as of ~~March 31,~~June 30, 2022, are expected to be reclassified into earnings over the next twelve months as the hedged sales are recorded.

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 ~~March 31,~~June 30, 2022, we had commodity swap agreements with a notional value of $~~23.0~~23.4 million. The swaps mature monthly through ~~December 2023.~~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 $~~2.3~~0.2 million ($~~2.2~~0.2 million of which was recorded in prepaid expenses and other current assets) and a liability of $~~0.3~~3.1 million ($~~0.2~~0.9 million of which was recorded in other non-current liabilities) at ~~March 31,~~June 30, 2022, and an asset of $0.9 million ($0.9 million of which was recorded in prepaid expenses and other current assets) and a liability of $2.3 million ($0.8 million of which was recorded in other non-current liabilities) at December 31, 2021.

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

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.

Financial information for our operating segments for the ~~three~~quarters and six months ended ~~March 31,~~June 30, 2022 and 2021 were as follows:

(Unaudited)

Composite

Engineered

Corporate &

(In millions)

Materials

Products

Other (a)

Total

Quarter Ended March 31, 2022

Net sales to external customers

$
313.8

$
76.8

$
—

$
390.6

Intersegment sales

16.5

0.3

(16.8
)

—

Total sales

$
330.3

$
77.1

$
(16.8
)

$
390.6

Other operating expense

0.9

0.1

0

1.0

Operating income (loss)

42.6

10.6

(23.1
)

30.1

Depreciation and amortization

28.6

3.6

—

32.2

Stock-based compensation

2.6

0.7

7.1

10.4

Accrual basis additions to capital expenditures

10.1

1.0

—

11.1

Quarter Ended March 31, 2021

Net sales to external customers

$
237.2

$
73.1

$
—

$
310.3

Intersegment sales

13.2

0.6

(13.8
)

—

Total sales

$
250.4

$
73.7

$
(13.8
)

$
310.3

Other operating expense

12.7

(0.7
)

0.1

12.1

Operating income (loss)

7.4

4.7

(22.3
)

(10.2
)
Depreciation and amortization

30.8

3.7

—

34.5

Stock-based compensation

0.6

0.2

8.2

9.0

Accrual basis additions to capital expenditures

3.6

0.4

—

4.0


	(Unaudited)
	Composite		Engineered			Corporate &
(In millions)	Materials		Products			Other (a)			Total
Quarter Ended June 30, 2022
Net sales to external customers	$	318.1	$	74.9		$	—		$	393.0
Intersegment sales		18.5		1.0			(19.5	)		—
Total sales	$	336.6	$	75.9		$	(19.5	)	$	393.0
Other operating (income) expense		0.3		0			(19.4	)		(19.1	)
Operating income		47.2		9.1			7.5			63.8
Depreciation and amortization		28.1		3.5			0.1			31.7
Stock-based compensation		0.9		0.3			1.2			2.4
Accrual basis additions to capital expenditures		14.5		2.7			0			17.2

Quarter Ended June 30, 2021
Net sales to external customers	$	240.9	$	79.4		$	—		$	320.3
Intersegment sales		14.6		0.8			(15.4	)		—
Total sales	$	255.5	$	80.2		$	(15.4	)	$	320.3
Other operating (income) expense		2.8		0.2			0.1			3.1
Operating income		24.5		5.9			(14.2	)		16.2
Depreciation and amortization		30.5		3.6			0.1			34.2
Stock-based compensation		0.8		0.1			3.4			4.3
Accrual basis additions to capital expenditures		3.4		0.4			0			3.8

Six Months Ended June 30, 2022
Net sales to external customers	$	631.9	$	151.7		$	—		$	783.6
Intersegment sales		35.0		1.3			(36.3	)		—
Total sales	$	666.9	$	153.0		$	(36.3	)	$	783.6
Other operating (income) expense		1.2		0.1			(19.4	)		(18.1	)
Operating income		89.8		19.7			(15.6	)		93.9
Depreciation and amortization		56.7		7.1			0.1			63.9
Stock-based compensation		3.5		1.0			8.3			12.8
Accrual basis additions to capital expenditures		24.6		3.7			0			28.3

Six Months Ended June 30, 2021
Net sales to external customers	$	478.1	$	152.5		$	—		$	630.6
Intersegment sales		27.8		1.4			(29.2	)		—
Total sales	$	505.9	$	153.9		$	(29.2	)	$	630.6
Other operating (income) expense		15.5		(0.5	)		0.2			15.2
Operating income		31.9		10.6			(36.5	)		6.0
Depreciation and amortization		61.3		7.3			0.1			68.7
Stock-based compensation		1.4		0.3			11.6			13.3
Accrual basis additions to capital expenditures		7.0		0.8			0			7.8

(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	$	93.4		$	174.1		$	267.5
Amortization expense		(0.5	)		(1.3	)		(1.8	)
Currency translation adjustments		(5.7	)		(1.2	)		(6.9	)
Balance at June 30, 2022	$	87.2		$	171.6		$	258.8

Goodwill and Intangible Assets

Composite

Engineered

(In millions)

Materials

Products

Total

Balance at December 31, 2021

$
93.4

$
174.1

$
267.5

Amortization expense

(0.5
)

(1.2
)

(1.7
)
Currency translation adjustments

(1.8
)

0

(1.8
)
Balance at March 31, 2022

$
91.1

$
172.9

$
264.0

At ~~March 31,~~June 30, 2022, the balance of goodwill and intangible assets was $~~189.2~~186.5 million and $~~74.8~~72.3 million, respectively.

Note 11 — ~~Commitments~~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 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

1415

Investigation/Feasibility Study of environmental conditions of a 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 8 miles of the Lower Passaic River at an expected cost ranging from $0.97 billion to $2.07 billion. This estimate did not include any costs related to a future remedy for the upper 9 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 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 9 miles of the Lower Passaic River at an expected additional cost ranging from $308.7 million to $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 8 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 ~~March 31,~~June 30, 2022 and December 31, 2021, our aggregate environmental related accruals were $~~7.2~~7.1 million and $2.1 million, respectively. These amounts are included in non-current liabilities with the exception of $0.1 million at December 31, 2021 which was included in accrued ~~liabilities~~liabilities. As related to certain environmental matters the accrual was estimated at the low end of a range of possible outcomes since 0 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

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 ~~three~~six months ended ~~March 31,~~June 30, 2022, and accrued warranty cost, included in “accrued liabilities” in the Condensed Consolidated Balance Sheets at ~~March 31,~~June 30, 2022 and December 31, 2021, were as follows:


	Product			Product
(In millions)	Warranties			Warranties
Balance as of December 31, 2021	$	2.5		$	2.5
Warranty expense		1.2			1.2
Deductions and other		(0.5	)		(0.5	)
Balance as of March 31, 2022	$	3.2		$	3.2
Warranty expense					0.5
Deductions and other					(0.8	)
Balance as of June 30, 2022				$	2.9

1516

Note 12 — Restructuring

We recognized restructuring charges of $~~0.8~~0.3 million and $1.1million for the quarter and six months ended ~~March 31,~~June 30, 2022, respectively, primarily related to severance. Anticipated future cash payments as of ~~March 31,~~June 30, 2022 were $~~3.8~~2.8 million.


			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	$	3.8	$	0.3	$	(0.1	)	$	(1.2	)	$	0	$	2.8
Impairment and other		0		0		0			0			0		—
Total	$	3.8	$	0.3	$	(0.1	)	$	(1.2	)	$	0	$	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	$	9.0	$	1.0	$	(0.3	)	$	(6.9	)	$	0	$	2.8
Impairment and other		0		0.1		0			(0.1	)		0		0
Total	$	9.0	$	1.1	$	(0.3	)	$	(7.0	)	$	0	$	2.8

Activity for the Quarter Ended March 31, 2022

December 31,

Restructuring

Cash

March 31,

(In Millions)
2021

Charge

FX Impact

Paid

Non-Cash

2022

Employee termination
$
9.0

$
0.7

$
(0.2
)

$
(5.7
)

$
—

$
3.8

Impairment and other

—

0.1

—

(0.1
)

—

—

Total
$
9.0

$
0.8

$
(0.2
)

$
(5.8
)

$
—

$
3.8

1617

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 /~~ 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 ~~and this~~which has continued into the ~~first~~second quarter of 2022 with further growth in air travel and customer inventory destocking now largely completed. Despite these improvements, ~~in business~~global logistics, supply chains and ~~market conditions,~~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 ~~monitoring~~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 March 31,									Quarter Ended June 30,									Six Months Ended June 30,
(In millions, except per share data)	2022			2021			% Change			2022			2021			% Change			2022			2021			% Change
Net sales	$	390.6		$	310.3			25.9	%	$	393.0		$	320.3			22.7	%	$	783.6		$	630.6			24.3	%
Net sales change in constant currency								27.4	%								25.9	%								26.7	%
Operating income (loss)	$	30.1		$	(10.2	)		395.1	%
Operating income										$	63.8		$	16.2			293.8	%	$	93.9		$	6.0			1,465.0	%
As a percentage of net sales		7.7	%		(3.3	)%					16.2	%		5.1	%					12.0	%		1.0	%
Net income (loss)		17.8			(14.0	)		227.1	%		44.7			2.2			1,931.8	%		62.5			(11.8	)		629.7	%
Diluted net income (loss) per common share	$	0.21		$	(0.17	)		223.5	%	$	0.53		$	0.03			1,666.7	%	$	0.74		$	(0.14	)		628.6	%

1718

Net Sales

The following table summarizes net sales to third-party customers by segment and end market for the quarters ended ~~March 31,~~June 30, 2022 and 2021:


	Quarter Ended March 31,							Quarter Ended June 30,							Six Months Ended June 30,
(In millions)	2022		2021		% Change			2022		2021		% Change			2022		2021		% Change
Consolidated Net Sales	$	390.6	$	310.3		25.9	%	$	393.0	$	320.3		22.7	%	$	783.6	$	630.6		24.3	%
Commercial Aerospace		218.9		147.6		48.3	%		227.6		153.7		48.1	%		446.5		301.3		48.2	%
Space & Defense		118.2		111.7		5.8	%		111.9		106.9		4.7	%		230.1		218.6		5.3	%
Industrial		53.5		51.0		4.9	%		53.5		59.7		(10.4	)%		107.0		110.7		(3.3	)%

Composite Materials	$	313.8	$	237.2		32.3	%	$	318.1	$	240.9		32.0	%	$	631.9	$	478.1		32.2	%
Commercial Aerospace		184.8		112.5		64.3	%		192.0		116.4		64.9	%		376.8		228.9		64.6	%
Space & Defense		76.6		74.8		2.4	%		73.9		66.0		12.0	%		150.5		140.8		6.9	%
Industrial		52.4		49.9		5.0	%		52.2		58.5		(10.8	)%		104.6		108.4		(3.5	)%

Engineered Products	$	76.8	$	73.1		5.1	%	$	74.9	$	79.4		(5.7	)%	$	151.7	$	152.5		(0.5	)%
Commercial Aerospace		34.1		35.1		(2.8	)%		35.6		37.3		(4.6	)%		69.7		72.4		(3.7	)%
Space & Defense		41.6		36.9		12.7	%		38.0		40.9		(7.1	)%		79.6		77.8		2.3	%
Industrial		1.1		1.1		—			1.3		1.2		8.3	%		2.4		2.3		4.3	%

Sales by Segment

Composite Materials: Net sales of ~~$313.8~~$318.1 million in the ~~first~~second quarter of 2022 increased by ~~$76.6~~$77.2 million or ~~32.3%~~32.0% from the prior year quarter. Commercial Aerospace sales increased ~~$72.3~~$75.6 million or ~~64.3%~~64.9% in the ~~first~~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 increased32.2% compared to the same period last year.

Engineered Products: For the ~~first~~second quarter of 2022, net sales of ~~$76.8~~$74.9 million ~~increased $3.7~~decreased $4.5 million or ~~5.1%~~5.7% as compared to the prior year quarter. The ~~increase~~decrease was primarily driven by ~~higher~~slightly lower Space & Defense sales which were ~~up $4.7~~down $2.9 million or ~~12.7%~~7.1% in the ~~first~~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 ~~$218.9~~$227.6 million increased ~~$71.3~~$73.9 million or ~~48.3% (48.8%~~48.1% (49.5% in constant currency) for the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021 ~~on strengthening narrowbody sales~~led by growth in the A350 and ~~higher A350 sales~~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 2021due to stronger narrowbody and A350 sales whereas sales in the prior year period were impacted by channel destocking. ~~There was also strong growth in~~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 ~~the quarter.~~2021.

Space & Defense sales of ~~$118.2~~$111.9 million increased ~~5.8%~~4.7% (7.0% in constant currency) for the ~~first~~second quarter of 2022 compared to the ~~first~~second quarter of 2021 ~~driven~~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 ~~market,~~and the CH-53K ~~and military jet programs.~~program.

Total Industrial sales in the ~~first~~second quarter of 2022 of $53.5 million ~~increased 4.9% (9.4%~~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 ~~quarter~~six months of 2021 ~~due~~despite growth in automotive, recreation and other industrial markets which was not enough to ~~strength in recreation, consumer electronics and automotive.~~offset the negative impact of lower wind energy sales.

Gross Margin


	Quarter Ended March 31,									Quarter Ended June 30,									Six Months Ended June 30,
(In millions)	2022			2021			% Change			2022			2021			% Change			2022			2021			% Change
Gross margin	$	86.7		$	53.1			63.3	%	$	89.5		$	61.9			44.6	%	$	176.2		$	115.0			53.2	%
Percentage of sales		22.2	%		17.1	%					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 ~~quarter~~six months of 2022 and 2021, ~~was 22.2% and 17.1%,~~ respectively. The ~~improvement~~improvements in the gross margin for both the second quarter and first ~~quarter~~six months of 2022 compared to the same ~~period~~periods last year was primarily due to the higher sales and greater capacity utilization which led to improved cost absorption.

Operating Expenses


	Quarter Ended March 31,									Quarter Ended June 30,									Six Months Ended June 30,
(In millions)	2022			2021			% Change			2022			2021			% Change			2022			2021			% Change
SG&A expense	$	44.7		$	39.6			12.9	%	$	33.5		$	31.1			7.7	%	$	78.2		$	70.7			10.6	%
Percentage of sales		11.4	%		12.8	%					8.5	%		9.7	%					10.0	%		11.2	%

R&T expense	$	10.9		$	11.6			(6.0	)%	$	11.3		$	11.5			(1.7	)%	$	22.2		$	23.1			(3.9	)%
Percentage of sales		2.8	%		3.7	%					2.9	%		3.6	%					2.8	%		3.7	%

Selling, general and administrative expenses were higher for the ~~three months ended March 31,~~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 ~~benefit costs.~~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 ~~than~~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 ~~additional tax credits.~~lower depreciation expense.

Operating Income


	Quarter Ended March 31,									Quarter Ended June 30,									Six Months Ended June 30,
(In millions)	2022			2021			% Change			2022			2021			% Change			2022			2021			% Change
Consolidated operating income (loss)	$	30.1		$	(10.2	)		395.1	%
Consolidated operating income										$	63.8		$	16.2			293.8	%	$	93.9		$	6.0			1,465.0	%
Operating margin		7.7	%		(3.3	)%					16.2	%		5.1	%					12.0	%		1.0	%
Composite Materials		42.6			7.4			475.7	%		47.2			24.5			92.7	%		89.8			31.9			181.5	%
Operating margin		12.9	%		3.0	%					14.0	%		9.6	%					13.5	%		6.3	%
Engineered Products		10.6			4.7			125.5	%		9.1			5.9			54.2	%		19.7			10.6			85.8	%
Operating margin		13.7	%		6.4	%					12.0	%		7.4	%					12.9	%		6.9	%
Corporate & Other		(23.1	)		(22.3	)	N/M				7.5			(14.2	)	N/M				(15.6	)		(36.5	)		57.3	%

Operating income ~~(loss)~~ for the ~~first~~second quarters of 2022 and 2021 was ~~$30.1~~$63.8 million and ~~$(10.2)~~$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 ~~first~~second quarter and six months of 2022 over the same ~~period~~periods last year was primarily driven by higher sales ~~in all markets~~ and strong gross margins as well as the gain on the sale of our Dublin, California facility and lower restructuring costs. Operating loss for the quarter ended March 31, 2021 was due to lower sales in Commercial Aerospace as a result of pandemic-induced build rate reductions and a decline in wind energy sales in the Industrial market as well as higher restructuring costs.

Interest Expense, Net


	Quarter Ended March 31,							Quarter Ended June 30,							Six Months Ended June 30,
(In millions)	2022		2021		% Change			2022		2021		% Change			2022		2021		% Change
Interest expense, net	$	9.1	$	10.3		(11.7	)%	$	8.9	$	9.3		(4.3	)%	$	18.0	$	19.6		(8.2	)%

Interest expense for both the ~~first~~ quarter and six months ended ~~March 31,~~June 30, 2022 was lower compared to the ~~first quarter of 2021~~prior year periods due to lower average debt ~~levels.~~levels, partially offset by higher interest rates.

Provision for Income Taxes


	Quarter Ended March 31,						Quarter Ended June 30,						Six Months Ended June 30,
(In millions)	2022			2021			2022			2021			2022			2021
Income tax expense (benefit)	$	4.7		$	(7.5	)	$	12.7		$	4.0		$	17.4		$	(3.5	)
Effective tax rate		22.5	%		36.8	%		22.9	%		58.0	%		22.8	%		25.7	%

The tax expense for the ~~three~~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 ~~March 31,~~June 30, 2022 was ~~$4.7 million.~~$17.4 million compared to a benefit of $3.5 million for the same period of 2021. The tax benefit for the ~~quarter~~six months ended ~~March 31,~~June 30, 2021 ~~was $7.5 million and~~ included a discrete tax benefit ~~of $3.2 million from the revaluation of our deferred tax liabilities~~ related to a favorable ~~U.S.~~U.S state tax law ~~change.~~change in addition to the discrete tax charge previously mentioned.

Financial Condition

Liquidity: Cash on hand at ~~March 31,~~June 30, 2022 was ~~$112.8~~$99.2 million as compared to $127.7 million at December 31, 2021. As of ~~March 31,~~June 30, 2022, total debt was ~~$858.2~~$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 ~~March 31,~~June 30, 2022 was $217 million.

As of ~~March 31,~~June 30, 2022, total borrowings under the Facility were ~~$160~~$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 ~~March 31,~~June 30, 2022, there were no issued letters of credit under the Facility, resulting in undrawn availability under the Facility of ~~$590~~$636 million. The weighted average interest rate for the Facility was ~~4.5%~~4.2% for the ~~three~~six months ended ~~March 31,~~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 ~~March 31,~~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.

During the first quarter of 2022, we entered into an agreement to sell our Dublin, California facility, and as a result, certain assets to be sold have been recorded in “Assets held for sale” in the Condensed Consolidated Balance Sheets at March 31, 2022. As a result of the sale of the facility, the Company will be relocating certain of its Dublin-based research, technology and laboratory support personnel and equipment to a new Salt Lake City, Utah building. The sale of the facility is expected to occur during the second quarter of 2022.

On ~~April~~July 25, 2022, our Board of Directors declared a quarterly dividend of $0.10 per share payable to stockholders of record as of ~~May 6,~~August 5, 2022, with a payment date of ~~May 13,~~August 12, 2022.

Operating Activities: Net cash ~~used for~~provided by operating activities for the first ~~three~~six months of 2022 was ~~$19.0~~$18.3 million compared to ~~$1.2~~$38.9 million for the same period last year. Working capital was a cash use of ~~$74.3~~$95.1 million for the first ~~three~~six months of 2022 compared to a use of ~~$26.2~~$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 ~~$20.9~~$16.2 million and ~~$4.9~~$9.2 million in the first ~~three~~six months of 2022 and 2021, r~~espectively, reflecting an~~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 ~~from~~ is primarily driven by two ongoing construction projects for the previously announced ~~expansion of Hexcel’s facility in Morocco and the~~ construction of a research and technology innovation center in Salt Lake City, Utah. and the expansion of Hexcel’s facility in Morocco.

Financing Activities: Net cash ~~provided by~~used for financing activities was ~~$25.9~~$26.6 million for first ~~three~~six months of 2022 compared to ~~a use of $13.5~~$16.6 million in the same period in 2021. ~~Borrowing~~Borrowings under the Facility during the first ~~quarter~~six months of 2022 was ~~$35 million.~~$35.0 million, while repayments were $46.0 million compared to $21.0 million in the prior year. In ~~response to the impacts of the COVID-19 pandemic, we announced in 2020 that we had suspended our dividend payments. During~~ the first quarter of 2022, we reinstated our quarterly dividend ~~and a~~ payment, which had previously been suspended as of ~~approximately $8.5~~early 2020. $16.8 million ~~was~~in dividend payments were made to ~~shareholders.~~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

Operating Income

Quarter Ended March 31,

(In millions)
2022

2021

GAAP operating income (loss)

$
30.1

$
(10.2
)
Other operating expense (a)

1.0

12.1

Adjusted operating income (non-GAAP)

$
31.1

$
1.9


		Quarter Ended March 31,											Quarter Ended June 30,										Six Months Ended June 30,
		2022					2021						2022						2021				2022						2021
(In millions, except per diluted share data)	(In millions, except per diluted share data)	Net Income		Diluted Net Income Per Share			Net Loss			Diluted Net Loss Per Share			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)		$	17.8		$	0.21	$	(14.0	)	$	(0.17	)	$	44.7		$	0.53		$	2.2	$	0.03	$	62.5		$	0.74		$	(11.8	)	$	(0.14	)
Other operating expense, net of tax (a)			0.8			0.01		8.8			0.11
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)			—			—		(3.2	)		(0.04	)		—			-			2.7		0.03		—			—			(0.5	)		(0.01	)
Adjusted net income (loss) (non-GAAP)		$	18.6		$	0.22	$	(8.4	)	$	(0.10	)	$	28.1		$	0.33		$	7.1	$	0.08	$	46.7		$	0.55		$	(1.3	)	$	(0.02	)

(a)

The ~~quarters~~quarter and six months ended ~~March 31,~~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.~~severance as well as a benefit related to the reduction of a contingent liability.

(b)

The quarter ended ~~March 31,~~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

Quarter Ended March 31,

(In millions)

2022

2021

Net cash used for operating activities

$
(19.0
)

$
(1.2
)
Less: Capital expenditures

(20.9
)

(4.9
)
Free cash flow (non-GAAP)

$
(39.9
)

$
(6.1
)

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

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 ~~March 31,~~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 ~~March 31,~~June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

The information required by Item 1 is contained within Note 1111 on pages 15 through 16 of thisthis 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.

~~ITEM 5. Other Information~~

~~Colleen Pritchett, President - Aerospace, Americas, is leaving Hexcel at the end of April 2022. The Company has appointed an interim business leader and initiated a search for her successor.~~

ITEMS 2, 3, 4, and 45 are not applicable, and therefore have been omitted.

2325

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 ~~March~~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, ~~(Loss),~~ (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

2426

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

~~April~~July 25, 2022		/s/ Amy S. Evans
(Date)		Amy S. Evans
		Senior Vice President,
		Chief Accounting Officer

2527


Delaware		94-1109521
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)


Large accelerated filer 		Accelerated filer 
Non-accelerated filer 		Smaller reporting company ☐
		Emerging growth company ☐


Class		Outstanding at ~~April~~July 21, 2022
COMMON STOCK		~~84,051,315~~84,102,467



(In millions)	June 30, 2022		December 31, 2021
Raw materials	$	133.8	$	113.7
Work in progress		38.2		41.0
Finished goods		99.5		91.0
Total Inventory	$	271.5	$	245.7



(In millions)	March 31, 2022		December 31, 2021
Raw materials	$	132.3	$	113.7
Work in progress		35.6		41.0
Finished goods		98.0		91.0
Total Inventory	$	265.9	$	245.7


			Page
PART I.	FINANCIAL INFORMATION		3

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)		3

	•	Condensed Consolidated Balance Sheets — ~~March 31,~~June 30 2022, and December 31, 2021	3

	•	Condensed Consolidated Statements of Operations — The ~~quarters~~quarter and six months ended ~~March 31,~~June 30, 2022 and 2021	4

	•	Condensed Consolidated Statements of Comprehensive (Loss) Income ~~(Loss)~~ — The ~~quarters~~quarter and six months ended ~~March 31,~~June 30, 2022 and 2021	4

	•	Condensed Consolidated Statements of Cash Flows — The ~~quarters~~six months ended ~~March 31,~~June 30, 2022 and 2021	5

	•	~~Condensed Consolidated Statements of Stockholders’ Equity — The quarters ended March 31, 2022 and 2021~~	6

	•	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		1718

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		2324

ITEM 4.	Controls and Procedures		2324

PART II.	OTHER INFORMATION		2325

ITEM 1.	Legal Proceedings		2325

ITEM 1A.	Risk Factors		2325

~~ITEM 5.~~	~~Other Information~~		23

ITEM 6.	Exhibits		2426

	SIGNATURE		2527


Hexcel Corporation and Subsidiaries
Condensed Consolidated Statements of Operations

	(Unaudited)					(Unaudited)						(Unaudited)
	Quarter Ended March 31,					Quarter Ended June 30,						Six Months Ended June 30,
(In millions, except per share data)	2022		2021			2022			2021			2022			2021
Net sales	$	390.6	$	310.3		$	393.0		$	320.3		$	783.6		$	630.6
Cost of sales		303.9		257.2			303.5			258.4			607.4			515.6
Gross margin		86.7		53.1			89.5			61.9			176.2			115.0
Selling, general and administrative expenses		44.7		39.6			33.5			31.1			78.2			70.7
Research and technology expenses		10.9		11.6			11.3			11.5			22.2			23.1
Other operating expense		1.0		12.1
Operating income (loss)		30.1		(10.2	)
Other operating (income) expense							(19.1	)		3.1			(18.1	)		15.2
Operating income							63.8			16.2			93.9			6.0
Interest expense, net		9.1		10.3			8.9			9.3			18.0			19.6
Other income							(0.3	)		-			(0.3	)		-
Income (loss) before income taxes, and equity in earnings from affiliated companies		21.0		(20.5	)		55.2			6.9			76.2			(13.6	)
Income tax expense (benefit)		4.7		(7.5	)		12.7			4.0			17.4			(3.5	)
Income (loss) before equity in earnings from affiliated companies		16.3		(13.0	)		42.5			2.9			58.8			(10.1	)
Equity in earnings (losses) from affiliated companies		1.5		(1.0	)		2.2			(0.7	)		3.7			(1.7	)
Net income (loss)	$	17.8	$	(14.0	)	$	44.7		$	2.2		$	62.5		$	(11.8	)
Basic net income (loss) per common share	$	0.21	$	(0.17	)	$	0.53		$	0.03		$	0.74		$	(0.14	)
Diluted net income (loss) per common share	$	0.21	$	(0.17	)	$	0.53		$	0.03		$	0.74		$	(0.14	)
Weighted-average common shares:
Basic		84.3		84.0			84.4			84.1			84.3			84.0
Diluted		84.9		84.0			85.0			84.7			84.9			84.0


	(Unaudited)						(Unaudited)
	Three Months Ended March 31,						Six Months Ended June 30,
(In millions)	2022			2021			2022			2021
Cash flows from operating activities
Net income (loss)	$	17.8		$	(14.0	)	$	62.5		$	(11.8	)
Reconciliation to net cash used for operating activities:
Reconciliation to net cash used by operating activities:
Depreciation and amortization		32.2			34.5			63.9			68.7
Amortization related to financing		0.3			1.5			0.4			2.1
Deferred income taxes		(1.8	)		(8.8	)		(4.1	)		(10.7	)
Equity in earnings from affiliated companies		(1.5	)		1.1
Equity in (earnings) losses from affiliated companies								(3.7	)		1.7
Stock-based compensation		10.4			9.0			12.8			13.3
Merger and restructuring expenses, net of payments		(5.0	)		1.5			(6.0	)		(2.5	)
Gain on sale of asset								(19.4	)		-
Gain on sale of investment								(0.3	)		-
Changes in assets and liabilities:
Increase in accounts receivable		(54.7	)		(42.0	)		(74.5	)		(45.9	)
Increase in inventories		(24.4	)		(7.6	)		(38.9	)		(21.8	)
Increase in prepaid expenses and other current assets		(8.6	)		(6.8	)		(10.1	)		(2.6	)
Increase in accounts payable/accrued liabilities		13.4			30.2			28.4			50.7
Other – net		2.9			0.2			7.3			(2.3	)
Net cash used for operating activities		(19.0	)		(1.2	)
Net cash provided by operating activities								18.3			38.9

Cash flows from investing activities
Capital expenditures		(20.9	)		(4.9	)		(37.9	)		(9.2	)
Proceeds from sale of asset								21.2			-
Proceeds from sale of investments								0.5			-
Net cash used for investing activities		(20.9	)		(4.9	)		(16.2	)		(9.2	)

Cash flows from financing activities
Borrowing from senior unsecured credit facility - 2024		35.0			0			35.0			-
Repayment of senior unsecured credit facility - 2024		0			(14.0	)		(46.0	)		(21.0	)
Repayment of finance lease obligation and other debt, net		(0.3	)		(0.3	)		(0.2	)		(0.4	)
Dividends paid		(8.5	)		0			(16.8	)		-
Activity under stock plans		(0.3	)		0.8			1.4			4.8
Net cash provided by (used for) financing activities		25.9			(13.5	)
Net cash used for financing activities								(26.6	)		(16.6	)
Effect of exchange rate changes on cash and cash equivalents		(0.9	)		(1.7	)		(4.0	)		(1.1	)
Net decrease in cash and cash equivalents		(14.9	)		(21.3	)
Net (decrease) increase in cash and cash equivalents								(28.5	)		12.0
Cash and cash equivalents at beginning of period		127.7			103.3			127.7			103.3
Cash and cash equivalents at end of period	$	112.8		$	82.0		$	99.2		$	115.3
Supplemental data:
Accrual basis additions to plant, property and equipment	$	11.1		$	4.0		$	28.3		$	7.8


(In millions)	Composite Material		Engineered Products		Total		Composite Material		Engineered Products			Total
Balance at December 31, 2021	$	6.8	$	23.7	$	30.5	$	6.8	$	23.7		$	30.5
Net revenue billed		0.6		1.4		2.0		0.6		1.4			2.0
Balance at March 31, 2022	$	7.4	$	25.1	$	32.5		7.4		25.1			32.5
Net revenue billed							$	0.2	$	(2.6	)		(2.4	)
Balance at June 30, 2022							$	7.6	$	22.5		$	30.1


(In millions)	Unrecognized Net Defined Benefit and Postretirement Plan Costs			Change in Fair Value of Derivatives Products (1)			Foreign Currency Translation			Total			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	$	(61.7	)	$	(3.1	)	$	(61.7	)	$	(126.5	)	$	(61.7	)	$	(3.1	)	$	(61.7	)	$	(126.5	)
Other comprehensive income (loss) before reclassifications		2.8			1.0			(15.7	)		(11.9	)		6.9			(20.4	)		(50.5	)		(64.0	)
Amounts reclassified from accumulated other comprehensive loss		0.4			(6.1	)	—				(5.7	)		0.8			(1.6	)	—				(0.8	)
Other comprehensive income (loss)		3.2			(5.1	)		(15.7	)		(17.6	)		7.7			(22.0	)		(50.5	)		(64.8	)
Balance at March 31, 2022	$	(58.5	)	$	(8.2	)	$	(77.4	)	$	(144.1	)
Balance at June 30, 2022													$	(54.0	)	$	(25.1	)	$	(112.2	)	$	(191.3	)