☒ 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 ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“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 byin Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

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

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

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, ~~2016~~2021 for a discussion of our significant accounting policies.

Basis of Presentation

The accompanying ~~Condensed Consolidated Financial Statements~~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~~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, ~~and~~ cash flows and statement of stockholders’ equity for the interim periods presented. The Condensed Consolidated Balance Sheet as of December 31, ~~2016~~2021 was derived from the audited ~~2016~~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 ~~2016~~2021 Annual Report on Form ~~10-K filed with the SEC on February 9, 2017.~~10-K.

Investments in Affiliated Companies

We have a ~~50%~~50% equity ~~ownership~~ investment in ~~a joint venture~~ Aerospace Composites Malaysia Sdn. Bhd. ~~(“ACM”).~~ This investment is accounted for using the equity method of accounting.

Assets Held for Sale

In ~~2016,~~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 $12.6 million have been recorded in “Assets held for sale” in the ~~Company invested a total~~Condensed Consolidated Balance Sheets as of ~~$30.0 million in three new affiliates. In 2017, the Company invested an additional $12 million in two~~June 30, 2022 and December 31, 2021. The sale of these ~~affiliates. The investments are each below a 20% ownership level and the Company accounts for these investments using the cost method.~~assets is expected to occur during 2022.

~~Recent Accounting Pronouncements~~

~~In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update No. 2014-09 (ASU 2014-09), “Revenue from Contracts with Customers”.~~ ~~The update clarifies the principles for recognizing revenue and develops a common revenue standard for all industries. The new standard is effective for~~During the first quarter of ~~2018. Our implementation efforts include the identification of revenue within the scope~~2022, we entered into an agreement to sell our Dublin, California facility. The sale of the ~~standard,~~facility closed during the ~~evaluation~~second quarter of ~~revenue contracts under~~2022, and we received approximately $21.2 million in net proceeds from the ~~guidance~~sale and ~~assessing~~recorded a gain on the ~~qualitative and quantitative impacts~~sale of approximately $19.4 million which is included in other operating (income) expense in the Condensed Consolidated Statement of Operations. As a result of the ~~new standard on our financial statements.~~ ~~We are in the process of assessing the anticipated impact~~sale of the ~~amended standard on our financial statements. We have certain contracts under which we produce products with no alternative use and the Company has an enforceable right to payment. As a result,~~building, the Company will be ~~required~~relocating certain of its Dublin-based research, technology and laboratory support personnel and equipment to ~~record revenue for these contracts over time as opposed to at the time of shipment as we do today.~~

We expect to complete our evaluation by the end of fiscal 2017, which will allow us to determine the impact of the new standard on our consolidated results of operations and financial condition. The Company plans to adopt the new standard on January 1, 2018 using the modified retrospective method.

~~In July 2015, the FASB issued Accounting Standards Update No.2015-11 (“ASU 2015-11”),~~ ~~Simplifying the Measurement of Inventory.~~ ~~The update requires that inventory within the scope of the guidance be measured at the lower of cost and net realizable value. The Company adopted this ASU~~a newly constructed facility in ~~the first quarter of 2017 with no material impact on our consolidated balance sheets, results of operations and financial condition.~~Salt Lake City, Utah.

~~In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-02 (ASU 2016-02),~~ ~~Leases~~. This ASU requires lessees to recognize a right of use asset and lease liability on the balance sheet for all leases, with the exception of short-term leases. The Company will adopt this ASU on January 1, 2019. We are currently evaluating the impact of adopting this guidance on our consolidated balance sheets, results of operations and financial condition.

~~In March 2016, the FASB issued Accounting Standards Update No. 2016-06 (ASU 2016-06),~~ ~~Contingent put and call options in debt instruments.~~ The new guidance clarifies that an exercise contingency does not need to be evaluated to determine whether it relates to interest rates and credit risk in an embedded derivative analysis. The new guidance will be effective for fiscal years beginning after December 15, 2016, including interim periods within those years. We adopted ASU 2016-06 effective for the quarter ended March 31, 2017 with no material impact on our consolidated balance sheets, results of operations and financial condition.

~~In August of 2016, the FASB issued Accounting Standards Update No. 2016-15 (ASU 2016-15)~~ ~~"Classification of Certain Cash Receipts and Cash Payments”~~ which clarifies the classification of certain types of cash flows. The standard is effective for financial statements issued for fiscal years beginning after December 15, 2017. Early adoption beginning in 2016 was permitted. Retrospective application is required. The Company is not early adopting and expects this ASU to have a minimal impact on the Company’s Statements of Cash Flows.

~~In January 2017, the FASB issued Accounting Standards Update No. 2017-04 (ASU 2017-04),~~ ~~Simplifying the test for Goodwill Impairment,~~ which removes the requirement to compare the implied fair value of goodwill with its carrying amount as part of step 2 of the goodwill impairment test. As a result, under the ASU, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount and should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit. The ASU is effective for annual and interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company early adopted ASU 2017-04 effective for the quarter ended March 31, 2017, for use in its fourth quarter annual goodwill impairment testing.

~~In March 2017, the FASB issued Accounting Standards Update No. 2017-07 (ASU 2017-07),~~ ~~Compensation-Retirement Benefits,~~ that amends the presentation of net periodic pension cost and net periodic postretirement benefit cost. This amendment will require an entity to disaggregate the service cost component from the other components of net periodic benefit cost, to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit cost separately as a line item below operating income on our statement of operations. In addition, capitalization of net periodic benefit cost in assets will be limited to the service cost component. This amendment is effective on January 1, 2018. This amendment is required to be adopted (i) retrospectively with respect to the disaggregation of the service cost component from the other components of net periodic benefit cost and the separate reporting of the other components of net periodic benefit cost outside of operating income and (ii) prospectively with respect to the capitalization in assets of the service cost component. We are currently evaluating the impact of this amendment on our financial position, results of operations and cash flows.

~~In August 2017, the FASB issued Accounting Standards Update No. 2017-12 (ASU 2017-12),~~ ~~Targeted Improvement to Accounting for Hedging Activities,~~ ~~which~~ better align hedge accounting with an organization’s risk management activities in the financial statements. In addition, the ASU simplifies the application of hedge accounting guidance in areas where practice issues exist. The ASU is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early ~~adoption is permitted, including interim periods within those years. We expect this ASU to have a minimal impact on our consolidated balance sheets, results of operations and financial condition.~~

Total ~~shares underlying~~common stock ~~options~~equivalents of ~~0.1~~0.6 million and ~~0.2~~0.7 million were excluded from the computation of diluted net income (loss) per share for the quarter ended June 30, 2022 and ~~nine months ended September 30, 2017, as they were~~2021, respectively, because to do so would have been anti-dilutive. Total ~~shares underlying~~common stock ~~options~~equivalents of ~~0.4~~0.7 million and ~~0.5~~1.1 million were excluded from the computation of diluted net income (loss) per share for the ~~quarter and nine~~six months ended ~~September~~June 30, ~~2016, as they were~~2022 and 2021, respectively, because to do so would have been anti-dilutive.

Note 3 — Inventories



(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

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 $0.9 million and $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 ~~did not make any contributions under the provisions of these non-qualified plans in the third quarter of 2017 and we have~~ contributed approximately ~~$0.1~~$0.3 million in the first ~~nine~~six months of ~~2017~~2022 to cover unfunded benefits. We expect to contribute a total of ~~$1.1~~$3.2 million in ~~2017.~~ 2022 to cover unfunded benefits.

We contributed ~~$0.2 million to our U.S. non-qualified defined benefit retirement plans during 2016.~~

~~We contributed $0.9~~ $0.3million and ~~$1.2~~$2.2 million to our European defined benefit retirement plans induring the ~~third quarters of 2017 and 2016, respectively. Contributions to the defined benefit retirement plans were $2.8 million and $4.9 million for the nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively. We plan to contribute approximately ~~$4.6~~$0.5 million during ~~2017~~2022 to our European plans. ~~We contributed $6.0 million to our European plans during 2016.~~

We recorded ~~$0.3~~$0.5 million and $0.2 million of net amortization gain deferral for the ~~quarter and $0.9 million for the nine~~six months ended ~~September~~June 30, ~~2017.~~ 2022 and 2021, respectively. Net periodic benefit costs of our postretirement health care and life insurance benefit plans for the ~~quarters and nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were ~~not material.~~immaterial.


(In millions)	June 30, 2022		December 31, 2021
Amounts recognized on the balance sheet:
Accrued liabilities	$	0.3	$	0.3
Other non-current liabilities	1.5			1.5
Total accrued benefit	$	1.8	$	1.8

InAmounts contributed in connection with our postretirement plans ~~we contributed about $0.1 million during each of~~were immaterial for both the ~~quarters~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. We periodically fund our postretirement plans to pay covered expenses as they are incurred. We expect to contribute ~~approximately $0.5~~less than $0.3 million in ~~2017~~2022 to cover unfunded benefits. ~~We contributed $0.2~~

Note 5 –– Debt


(In millions)	June 30, 2022			December 31, 2021
Current portion of finance lease	$	0.5		$	0.9
Current portion of debt		0.5			0.9
Senior unsecured credit facility		114.0			125.0
4.7% senior notes --- due 2025		300.0			300.0
3.95% senior notes --- due 2027		400.0			400.0
Senior notes --- original issue discount		(1.1	)		(1.2	)
Senior notes --- deferred financing costs		(2.5	)		(2.9	)
Non-current portion of finance lease and other debt		1.6			1.5
Long-term debt		812.0			822.4
Total debt	$	812.5		$	823.3

In June 2019, the Company refinanced its senior unsecured credit facility (the “Facility”), increasing borrowing capacity from $700 million to ~~our postretirement plans during 2016.~~

~~Note 5~~ –– ~~Debt~~

(In millions)

September 30, 2017

December 31, 2016

Current portion of capital lease

$
—

$
0.5

Current portion of Euro term loan

4.2

3.8

Current portion of debt

$
4.2

$
4.3

Non-current portion of Euro term loan

62.4

22.6

Senior unsecured credit facility- revolving loan due 2021

75.0

365.0

4.7% senior notes due 2025

300.0

300.0

Senior notes due 2025 - original issue discount and deferred financing costs

(2.9
)

(3.2
)
3.95% senior notes due 2027

400.0

―

Senior notes due 2027 - original issue discount and deferred financing costs

(5.1
)

―

Other debt

0.2

―

Long-term debt

829.6

684.4

Total debt

$
833.8

$
688.7

~~In February 2017, the Company issued $400 million~~$1 billion. The Facility matures in ~~aggregate principal amount of 3.95% Senior Unsecured Notes due in 2027.~~ June 2024. The interest rate ~~on these senior notes may be increased by 0.25% each time~~ranges from LIBOR + 0.875% to a ~~credit rating applicable to~~maximum of LIBOR + 1.50%, depending upon the notes is downgraded. The maximum rate is 5.95%. The net proceeds of approximately $394.6 million were initially used to repay, in part, $350 million of our Senior Unsecured Revolving Credit Facility (the “Facility”) and the remainder was used for general purposes including share repurchases. The conditions and covenants related to the senior notes are less restrictive than those of our Facility. The effective interest rate for the outstanding period in the first nine months was 3.86% inclusive of approximately a 0.25% benefit of treasury locks. The fair valuebetter of the ~~senior notes due in 2027 based on quoted prices utilizing Level 2 inputs was $410.0 million at September 30, 2017.~~

~~In August 2015,~~Company’s leverage ratio or 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. The maximum rate is 6.7%. The conditions and covenants related to the senior notes are less restrictive than those of our Facility. The effective interest rate for the first nine-months of 2017 was 4.85%. The fair value of the notes due in 2025 based on quoted prices utilizing Level 2 inputs was $323.4 million at September 30, 2017.

As of September 30, 2017, total borrowings under our $700 million Facility were $75 million, which approximates fair value using Level 2 inputs. The Company utilized its Facility at various borrowing levels with $451 million and $524 million representing the highest amounts borrowed within the nine months ended September 30, 2017 and 2016, respectively.rating. The Facility permits us to issue letters of credit up to an aggregate amount of $40 million. Outstanding letters of credit reduce the amount available for borrowing under our revolving loan. As of September 30, 2017, we had no outstanding letters of credit under the Facility, resulting in undrawn availability under the Facility as of September 30, 2017 of $625.0 million.agreement contains

~~The Facility 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 ~~accordance with the terms of~~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 ~~are required~~further amended the Facility agreement (the “Second Amendment”) to ~~maintain a minimum interest coverage ratio of 3.50 (based on the ratio of EBITDA, as defined in the credit agreement,~~provide that, from January 28, 2021 through and including March 31, 2022, we would not be subject to ~~interest expense) and may not exceed~~ a maximum leverage ratio covenant but instead be required to maintain Liquidity (as defined in the Facility agreement) of ~~3.50 (based~~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 ~~ratio~~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 ~~total~~our assets, which liens would be released upon the Company’s public debt rating being upgraded to ~~EBITDA) throughout the term~~BB+ or higher by Standard & Poor’s or Ba1 or higher by Moody’s. The Company’s public debt rating as of ~~the Facility.~~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 ~~contains other~~were reduced from $1 billion to $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 ~~such as customary representations and warranties, additional covenants and customary events of default. The average interest rate on~~to the Facility ~~was 2.36% for~~agreement were reinstated except that the ~~nine months~~amount of ~~2017. The average interest rate was 1.8% for 2016.~~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.

~~In June 2016, we entered into a~~ €~~60 million term loan. The loan has two tranches of which the first tranche for~~ €~~25 million has a rate of Euribor +1.2% and a final maturity date~~As of June 30, ~~2023. The first tranche is repayable in seven equal annual installments, which began on June 30, 2017. The second tranche for~~ €352022, total borrowings under the Facility were $114 million, has a rate of Euribor +1.25% and a final maturity date of June 30, 2024. The first annual amortization payment for the second tranche is due June 30, 2019. There is a zero percent floor on the Euribor. The outstanding amounts at September 30, 2017 and December 31, 2016 were ~~€56.4 million (or $66.6 million) and €25 million (or $26.4 million),~~ which approximates fair value. The ~~term loan~~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 0 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.

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 ~~guaranteed~~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 six months ended June 30, 2022 was 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 $375.6million at 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 ~~Hexcel Corporation.~~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 six months ended June 30, 2022 was 5.07%. Based on quoted prices, the fair value of the senior unsecured notes due in 2025 was $293.9 million at June 30, 2022.

~~As of September~~At June 30, 2017, the Company had agreements to swap $50 million of floating rate obligations for fixed rate obligations at an average of 1.087% against LIBOR in U.S. dollars, which matures in September 2019. The swaps were accounted for as cash flow hedges of our floating rate bank loans. To ensure the swaps were highly effective, all of the principal terms of the swaps matched the terms of the bank loans. The fair value of the interest rate swaps were assets of $0.6 million and $0.7 million at September 30, 20172022 and December 31, ~~2016, respectively.~~

~~In December 2016,~~2021, we swapped €25.0 million of floating rate obligations for fixed rate obligations at a rate of 0.365% against EURIBOR in Euros. The swap amortizes over seven equal annual installments, which began on June 30, 2017 until the final maturity on June 30, 2023. In April 2017, we swapped €35.0 million of floating rate obligations at a rate of 0.59% against EURIBOR in Euros. The swap amortizes over six unequal annual installments beginning June 30, 2019 until the final maturity on June 30, 2024. Both derivatives are accounted for as cash flow hedges of the floating rate Euro term loan. To ensure the swap is highly effective, all of the principal terms of the swap matched the terms of the bank loan. The fair value of thehad 0 interest rate ~~swaps were liabilities of $0.4 million and $0.1 million at September 30, 2017 and December 31, 2016, respectively.~~swap agreements outstanding.

The Company ~~also uses~~had treasury ~~locks~~lock agreements to protect against unfavorable movements in the benchmark treasury rate related to ~~forecasted debt issuances. In September 2016 and February 2017,~~ the ~~Company entered into interest rate treasury lock agreements with notional values~~issuance of ~~$150 million and $100 million for the 2017 note issuance. We accounted for these interest rate treasury locks~~our 3.95% Senior Unsecured Notes. These hedges were designated as cash flow hedges sofor hedge accounting purposes thus any change in fair value was recorded ~~into~~as a component of other comprehensive ~~income and then amortized into interest expense over the life~~(loss) income. As part of the ~~bonds upon issuance. On February 15, 2017,~~issuance of our 3.95% Senior Unsecured Notes, we ~~issued senior notes due 2027 and received $10.0~~net settled these derivatives for $10 million in ~~cash in settlement~~cash. As a result of settling these derivatives the ~~derivatives. The amount~~previously deferred gains recorded in other comprehensive (loss) income will be released to interest expense over the life of the ~~senior notes.~~3.95% Senior Unsecured Notes. The effect of these treasury locks ~~is to reduce~~reduced the effective interest rate on these ~~senior~~ notes by approximately ~~0.25%~~0.25%.

In November 2020, we entered into a cross currency and interest rate swap, which is designated as a cash flow hedge of a €270 million, 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 €270 million bearing interest at a fixed rate of 0.30% for $319.9 million plus fixed rate interest of 1.115%. The interest coupons settle semi-annually. The principal will amortize each year on November 15, as follows: for years 1 through 4, beginning November 15, 2021, €50 million versus $59.2 million, and a final settlement on November 15, 2025 of €70 million versus $82.9 million. The carrying value of the derivative at June 30, 2022 is a

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

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~~pound sterling. We have entered into contracts to exchange U.S. dollars for Euros and British ~~Pound~~pound sterling through ~~March 2020, which we account for as cash flow hedges.~~December 2024. The aggregate notional amount of these contracts was ~~$317.6~~$434.5 million and ~~$423.8~~$316.4 million at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~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, ~~gains~~losses of ~~$9.7~~$21.6 million and ~~$31.7~~$28.4 million ~~respectively,~~ were recorded in other comprehensive (loss) income ~~(“OCI”)~~ for the ~~three~~quarter and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022, respectively, and gainsof $1.5 million and losses of ~~$1.4~~$3.9 million ~~and $10.7 million, respectively,~~ were recorded ~~in OCI~~ for the ~~three~~quarter and ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2021, respectively. We classified $0.2 million of the carrying amount of these contracts as assets ($0.1 million of ~~$13.5~~which was recorded in prepaid expenses and other current assets) and $29.2 million as liabilities ($10.8 million of which is recorded in ~~other assets and $4.3 million in other liabilities~~non-current liabilities) on the Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2022, and ~~$33.9~~$1.9 million of the carrying amount of these contracts was classified in assets ($1.7 million of which was recorded in prepaid expenses and other current assets) and $6.8 million as liabilities (less than $3.9 million of which is in other ~~liabilities~~non-current liabilities) at December 31, ~~2016. During the three and nine months ended September 30, 2017, we~~2021. We recognized ~~net~~ losses of ~~$0.6~~$3.6 million and ~~$11.4~~$4.3 million in gross margin ~~respectively. During~~during the ~~three~~quarter and ~~nine~~six months ended ~~September~~June 30, ~~2016, we recognized net losses~~2022, respectively, and gains of ~~$5.0~~$1.9 million and ~~$13.5~~$3.3 million ~~in gross margin, respectively. For~~for the ~~quarters~~quarter and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, hedge ineffectiveness was immaterial.~~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 ~~re-measurement~~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 no0 credit contingency features in these derivatives. During the ~~quarters~~quarter and six months ended ~~September~~June 30, ~~2017 and 2016,~~2022, we recognized net foreign exchange ~~gains~~ lossesof ~~$4.0~~$0.8 million and ~~$0.8~~$1.0 million, respectively, in the Condensed Consolidated Statements of Operations. During the ~~nine~~quarter and six months ended ~~September~~June 30, ~~2017 and 2016,~~2021, we recognized net foreign exchange gains of ~~$15.4~~$0.5 million and losses of ~~$3.4~~$1.1 million, ~~respectively, in the Condensed Consolidated Statements of Operations.~~respectively. The net foreign exchange impact recognized from these hedges offset the translation exposure of these transactions.The carrying amount of the contracts for ~~asset and liability~~ derivatives not designated as hedging instruments was ~~$0.1~~$0.2 million classified in current assets at June 30, 2022, and $0.2 million classified in ~~other assets and $1.6 million in other~~current liabilities ~~and $1.0 million classified in other assets and $0.3 million in other liabilities~~ on ~~the September 30, 2017 and December 31, 2016~~ our Condensed Consolidated Balance ~~Sheets, respectively.~~Sheet at December 31, 2021.

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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~June 30, 2021 was as follows:

~~We expect~~Unrealized gains of $18.4 million recorded in accumulated other comprehensive loss, less taxes of $4.4 million, as of June 30, 2022, are expected to ~~reclassify $1.7 million of unrealized gains~~be reclassified into earnings over the next twelve months as the hedged sales are recorded.

~~The income tax provisions for the third quarter and nine months ended September~~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, ~~2017 were $13.6 million and $44.3~~ 2022, we had commodity swap agreements with a notional value of $23.4million. 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, ~~tax rate for~~all of the ~~third quarter~~critical terms of the swap matched the terms of the hedged items. The fair value of the commodity swap agreements was ~~16.5% as the quarter benefitted from the impact~~an asset of ~~tax credits identified during the quarter as well as deductions associated with share-based compensation payments. The third quarter provision also included~~$0.2 million ($0.2million of which was recorded in prepaid expenses and other current assets) and a ~~non-recurring discrete tax benefit~~liability of ~~$4.2~~$3.1 million ~~from the reversal~~($0.9 million of ~~provisions for uncertain tax provisions. The income tax provision for the quarter ended September~~which was recorded in other non-current liabilities) at June 30, ~~2016~~2022, and an asset of $0.9 million ($0.9 million of which was ~~$16.1~~recorded in prepaid expenses and other current assets) and a liability of $2.3 million ~~including a net benefit~~($0.8 million of $6.6 million from the release of reserves for uncertain tax positions. The provision for the first nine months of 2017 also included a nonrecurring discrete benefit of $9.1 million from the release of a valuation allowancewhich was recorded in a foreign jurisdiction. The effective tax rate, excluding these benefits, for the nine months of 2017 was 24.2% as compared to 30.5% in 2016, as both periods benefitted from deductions associated with share-based compensation payments in addition to the tax credits identified in 2017.
other non-current liabilities) at December 31, 2021.

Note 87 — 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 ~~do not~~ have ~~any significant assets or liabilities that utilize Level 3 inputs. In addition, we have no~~0 assets or liabilities that utilize Level 1 inputs. However, we have derivative instruments classified as liabilities and assets which utilize Level 2 inputs, and 1 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 ~~approximately $14.1~~$24.4 million and ~~$6.3~~$32.3 million, respectively, at ~~September~~June 30, ~~2017.~~2022 and $10.2 million and $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 ~~Sheet.~~Sheets.

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

•

Cross Currency and Interest ~~rate swaps~~Rate Swap Agreements — valued using ~~LIBOR yield~~the USD Secured Overnight Financing Rate curves and quoted forward foreign exchange prices at the reporting date. ~~Fair~~The fair value ~~was an asset~~ of ~~$0.6 million and a liability of $0.4~~ the assets were $23.9million, at ~~September~~June 30, ~~2017.~~

2022 and the fair value of the assets were $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 ~~September~~June 30, ~~2017~~2022 was ~~$13.5~~ $0.2million and ~~$5.9~~$29.2 million, respectively.

The fair value of assets and liabilities at December 31, 2021 was $1.9 million and $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 $0.2 million and $3.1 million, respectively. The fair value of the assets and liabilities at December 31, 2021 was $0.9 million and $2.3 million, respectively.

Counterparties to the above contracts are highly rated financial institutions, ~~none~~NaN of which experienced any significant downgrades in the ~~nine~~three months ended ~~September~~June 30, ~~2017~~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 $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.

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. As our production cycle is typically nine months or less, it is expected that goods related to the revenue recognized

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. 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	$	393.0	$	320.3	$	783.6	$	630.6
Commercial Aerospace		227.6		153.7		446.5		301.3
Space & Defense		111.9		106.9		230.1		218.6
Industrial		53.5		59.7		107.0		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. 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	$	6.8	$	23.7		$	30.5
Net revenue billed		0.6		1.4			2.0
Balance at March 31, 2022		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

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 quarters and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 were as follows:

(Unaudited)

Composite

Engineered

Corporate &

(In millions

Materials

Products

Other (a)

Total

Third Quarter 2017

Net sales to external customers

$
398.9

$
92.6

$
—

$
491.5

Intersegment sales

16.4

—

(16.4
)

—

Total sales

415.3

92.6

(16.4
)

491.5

Operating income

90.0

12.1

(13.0
)

89.1

Depreciation and amortization

24.8

1.9

0.1

26.8

Stock-based compensation

1.1

0.1

1.0

2.2

Accrual basis additions to capital expenditures

47.4

0.5

—

47.9

Third Quarter 2016

Net sales to external customers

$
398.2

$
102.3

$
—

$
500.5

Intersegment sales

16.2

—

(16.2
)

—

Total sales

414.4

102.3

(16.2
)

500.5

Operating income

88.8

12.9

(12.6
)

89.1

Depreciation and amortization

21.7

1.8

—

23.5

Stock-based compensation

0.7

0.1

—

0.8

Accrual basis additions to capital expenditures

84.4

5.9

0.1

90.4

Nine Months Ended September 30, 2017

Net sales to external customers

$
1,183.7

$
277.9

$
—

$
1,461.6

Intersegment sales

48.6

—

(48.6
)

—

Total sales

1,232.3

277.9

(48.6
)

1,461.6

Operating income

264.0

37.2

(43.8
)

257.4

Depreciation and amortization

70.6

5.6

0.1

76.3

Stock-based compensation

5.7

1.0

8.8

15.5

Accrual basis additions to capital expenditures

208.5

9.5

—

218.0

Nine Months Ended September 30, 2016

Net sales to external customers

$
1,219.3

$
301.5

$
—

$
1,520.8

Intersegment sales

53.2

—

(53.2
)

—

Total sales

1,272.5

301.5

(53.2
)

1,520.8

Operating income

281.2

36.8

(44.9
)

273.1

Depreciation and amortization

63.5

5.4

0.1

69.0

Stock-based compensation

4.9

0.9

7.8

13.6

Accrual basis additions to capital expenditures

221.6

10.9

0.1

232.6

_________________

~~(a)~~

~~We do not allocate Corporate expenses to the operating segments~~


	(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

~~Goodwill and Intangible Assets~~

(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

~~The carrying amount~~At June 30, 2022, the balance of ~~gross~~ goodwill and intangible assets ~~by segment is as follows:~~was $186.5 million and $72.3 million, respectively.

September 30,

December 31,
(In millions)

2017

2016
Composite Materials

$

57.9

$
56.1
Engineered Products

16.1

16.1
Goodwill and intangible assets

$

74.0

$
72.2

~~No impairments have been recorded against these amounts.~~

Note 10 — Accumulated Other Comprehensive ~~(Loss) Income~~Loss

Comprehensive ~~income~~loss represents net ~~income~~loss and other gains and losses affecting stockholders’ equity that are not reflected in the Condensed Consolidated Statements of Operations. The components of accumulated other comprehensive ~~(loss) income~~loss as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 were as follows:

(In millions)

Unrecognized Defined Benefit and Postretirement Plan Costs

Change in Fair Value of Derivatives
Products (a)

Foreign Currency Translation

Total

Balance at December 31, 2016

$

(14.6
)

$

(18.7
)

$

(141.1
)

$

(174.4
)
Other comprehensive (loss) income before reclassifications

(1.1
)

23.1

87.2

109.2

Amounts reclassified from accumulated other comprehensive loss

(0.5
)

8.5

—

8.0

Other comprehensive (loss) income

(1.6
)

31.6

87.2

117.2

Balance at September 30, 2017

$

(16.2
)

$

12.9

$

(53.9
)

$

(57.2
)


(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	$	(61.7	)	$	(3.1	)	$	(61.7	)	$	(126.5	)
Other comprehensive income (loss) before reclassifications		6.9			(20.4	)		(50.5	)		(64.0	)
Amounts reclassified from accumulated other comprehensive loss		0.8			(1.6	)	—				(0.8	)
Other comprehensive income (loss)		7.7			(22.0	)		(50.5	)		(64.8	)
Balance at June 30, 2022	$	(54.0	)	$	(25.1	)	$	(112.2	)	$	(191.3	)

(1)

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

~~(a)~~

~~Includes forward foreign exchange contracts and interest rate derivatives~~

The ~~amounts~~amount of net (gains) losses reclassified to earnings from the unrecognized net defined benefit and postretirement plan costs ~~component~~and derivative products components of accumulated other comprehensive ~~loss~~income (loss) for the quarter ~~were $0.4 million of net gains less taxes of $0.1 million~~ and ~~were $0.7 million of net gains less $0.2 million of taxes for the nine~~six months ended ~~September~~June 30, ~~2017. The amounts reclassified to earnings from the change in fair value of the derivatives component of accumulated other comprehensive loss for the three and nine months ended September 30, 2017~~2022, were net losses of $0.4 million net taxes of $0.1 million and net losses of $10.7 million less taxes of $2.2 million, respectively. The currency translation adjustments are not currently adjusted for income taxes as ~~they relate to indefinite investments in non-U.S. subsidiaries.~~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	$	0.6		$	0.5		$	1.1		$	0.8

Derivative Products
Foreign currency forward exchange contracts		3.6			2.7			4.3			3.1
Commodity swaps		(0.3	)		(0.2	)		(1.1	)		(0.8	)
Interest rate swaps		2.5			1.9			(5.0	)		(3.9	)
Total Derivative Products	$	5.8		$	4.4		$	(1.8	)	$	(1.6	)

Note 11 — ~~Commitments~~Commitments and Contingencies

While it is impossible to ~~ascertain~~predict the ultimate ~~legal~~resolution of litigation, investigations and ~~financial liability with respect to certain contingent liabilities and~~ claimsasserted against us, we believe, based upon our examination of currently available information, our experience to date, and advice from legal counsel, that, ~~the individual and aggregate liabilities resulting from the ultimate resolution of these contingent matters,~~ after taking into ~~consideration~~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.~~flows.

Environmental Matters

We are subject to various international, U.S., state and local environmental, and health and safety laws and regulations. We are also subject to liabilities arising under the Federal Comprehensive Environmental Response, Compensation and Liability Act

(“CERCLA” or “Superfund”), the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, and similar state and international laws and regulations that impose responsibility for the control, remediation and abatement of air, water and soil pollutants and the manufacturing, storage, handling and disposal of hazardous substances and waste.

We have been named as a potentially responsible party (“PRP”) with respect to ~~several~~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 ~~CERCLA~~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 ~~our~~the hazardous waste ~~our existing insurance coverage, the amounts already provided for~~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.~~material.

Lower Passaic River Study Area

Hexcel ~~and a group of~~together with approximately 5148 other PRPs that comprise the Lower Passaic Cooperating Parties Group (the “CPG”)~~. Hexcel and the CPG~~, are subject to a May 2007 Administrative Order on Consent (“AOC”) with the EPA requiring the CPG to perform a Remedial

Investigation/Feasibility Study ~~(“RI/FS”)~~ of environmental conditions inof a 17-mile stretch of the ~~Lower~~ Passaic River ~~watershed.~~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 ~~eight~~8 miles of the ~~river. The ROD calls for capping and dredging of the lower eight miles of the~~Lower Passaic River ~~with the placement of an engineered cap over the entire eight miles,~~ at an expected cost ranging from ~~$0.97~~$0.97 billion to ~~$2.07 billion, according to the EPA. Because the EPA has not yet selected a remedy for the upper nine miles of the Lower Passaic River, this~~$2.07 billion. This estimate ~~range does~~did not include any costs related to a future remedy for the upper ~~portion~~9 miles of the ~~river. Now that it has issued the final ROD,~~Lower Passaic River. In August 2017, the EPA ~~will seek~~appointed an independent third-party allocation expert to ~~hold some combination~~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, ~~liable to perform the work selected through the ROD. At this point, we have not yet determined our allocable share of performing the selected remedy. However, based on a review~~commenced performance of the ~~Company’s position, and as no point within~~remedial design required by the ~~range is a more probable outcome than any other point,~~ROD for the ~~Company has determined that its accrual is sufficient at this time. The accrual balance was $2.0 million as of September 30, 2017 and $2.1 million at December 31, 2016. Despite the issuance~~lower 8 miles of the ~~final ROD, there continue to be many uncertainties associated with~~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 ~~selected remedy, the Company’s allocable share~~U.S. District Court of the ~~remediation~~District of New Jersey seeking cost recovery and contribution under CERCLA related to the ~~amount~~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 ~~insurance coverage. Given those uncertainties, the amounts accrued may not be indicative of the amounts~~Passaic-related cleanup costs incurred by defendants, as well as contribution for any cleanup costs incurred by OCC for which the ~~Company is ultimately responsible and will be refined as events in~~court deems the ~~remediation process develop.~~defendants liable.

~~Omega Chemical Corporation Superfund Site, Whittier, California~~

We are a PRP at a former chemical waste site in Whittier, California. The PRPs at Omega have established a PRP Group, (the “Omega PRP Group”), and are currently investigating and remediating soil and groundwater at the site pursuant to a Consent Decree with the EPA. The Omega PRP Group has attributed approximately 1.07% of the waste tonnage sent to the site to Hexcel. In addition to the Omega site specifically, the EPA is investigating the scope of regional groundwater contamination in the vicinity of the Omega site and issued a Record of Decision; the Omega PRP Group members have been served notice by the EPA as PRPs who will be required to be involved in the remediation of the regional groundwater contamination in that vicinity as well. As a member of the Omega PRP Group, Hexcel will incur costs associated with the investigation and remediation of the Omega site and the regional groundwater remedy, although our ultimate liability, if any, in connection with this matter cannot be determined at this time. The total accrued liability relating to potential liability for both the Omega site and regional groundwater remedies was $0.6 million at both September 30, 2017 and at December 31, 2016, respectively.

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 ~~consolidated balance sheets.~~Condensed Consolidated Balance Sheets. As of ~~September~~June 30, ~~2017,~~2022 and December 31, 2021, our aggregate environmental related accruals were ~~$2.8~~$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 ~~$0.9 million~~ was included in accrued liabilities with the remainder included in non-current liabilities. As of December 31, 2016, our aggregate environmental related accruals were $3.2 million, of which $1.4 million was included in accrued liabilities with the remainder included in non-current liabilities. As related to certain environmental matters the accrual was estimated at the low end of a range of possible outcomes since no0 amount within the range is a better estimate than any other amount. ~~If we had accrued at the high end of the range of possible outcomes for those sites where we are able to estimate our liability, our accrual would have been $16 million higher.~~

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 ~~amount of insurance coverage,~~ and other actions by governmental agencies or private parties, or the impact, if any, of being named in a new matter.

Environmental remediation spending charged to our reserve balance for each of the quarters ended September 30, 2017 and 2016 was $0.1 million and $0.2 million, respectively, and $0.3 million and $0.7 million for the nine months ended September 30, 2017 and 2016, respectively. In addition, our operating costs relating to environmental compliance charged to expense were $2.4 million and $2.6 million for the quarters ended September 30, 2017 and 2016, respectively and $7.1 million and $7.5 million for the nine months ended September 30, 2017 and 2016 , respectively.

Product Warranty

We provide standard assurance-type warranties for ~~an estimated amount of product warranty expense,~~our products, which ~~is provided by product~~cannot be purchased separately and ~~based on historical warranty experience. In addition, we periodically review our warranty accrual and record any adjustments as deemed appropriate.~~do not meet the criteria to be considered a performance obligation. Warranty expense for the ~~quarter and nine~~six months ended ~~September~~June 30, ~~2017,~~2022, and accrued warranty cost, included in “accrued liabilities” in the Condensed Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, were as follows:


	Product				Product
(In millions)	Warranties				Warranties
Balance as of December 31, 2016	$	5.5
Balance as of December 31, 2021					$	2.5
Warranty expense		2.5				1.2
Deductions and other			(1.8	)		(0.5	)
Balance as of June 30, 2017	$	6.2
Balance as of March 31, 2022					$	3.2
Warranty expense		0.2				0.5
Deductions and other			(0.6	)		(0.8	)
Balance as of September 30, 2017	$	5.8
Balance as of June 30, 2022					$	2.9

Note 12 — ~~Stock Repurchase Plan~~Restructuring

~~In October 2015, our Board authorized the repurchase~~

We recognized restructuring charges of ~~$250~~$0.3 million ~~of the Company’s stock (“2015 Repurchase Plan”). On February 9, 2017, our Board authorized the repurchase of $300~~ and $1.1million ~~of the Company’s stock (“2017 Repurchase Plan”).~~

~~In the third quarter of 2017, the Company spent $1.2 million to repurchase our common stock and~~ for the ~~first nine~~quarter and six months ended June 30, 2022, respectively, primarily related to severance. Anticipated future cash payments as of ~~2017 the Company spent $122.0 million to repurchase our common stock. At September~~June 30, ~~2017, the 2015 plan was completed and the Company has $270.7 million remaining under the 2017 Repurchase Plan.~~ 2022 were $2.8 million.

~~Note 13 — S~~u~~bsequent Event~~


			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

~~On October 2,~~2017, we completed the acquisition of Structil SA (“Structil”). This acquisition further enhances our technology portfolio with new adhesive, prepreg and pultrusion technologies. Revenues and earnings from Structil will be consolidated into our results from the beginning of the fourth quarter.

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 ~~core~~honeycomb and composite structures, for use in Commercial Aerospace, Space & Defense, and Industrial markets. ~~Our products~~We propel the future of flight, energy generation, transportation, and recreation through excellence in providing innovative high-performance material solutions that are ~~used in~~lighter, stronger and tougher, helping to create a wide variety of end applications, such as commercial and military aircraft, space launch vehicles and satellites, wind turbine blades, automotive, recreational products and other industrial applications.better world for us all.

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

~~Hexcel has~~We are a manufacturer of products within a single industry: Advanced Composites. We have two ~~segments,~~reportable segments: Composite Materials and Engineered Products. The Composite Materials segment is comprised of our carbon fiber, specialty reinforcements, ~~resins,~~resin systems, prepregs and other fiber-reinforced matrix materials, and honeycomb core product ~~lines.~~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.~~

functionality and thermoplastic additive manufacturing.

~~Net sales for~~The Commercial Aerospace market began to see signs of recovery from the ~~quarter were $491.5 million, 1.8% lower (2.4% lower~~economic impacts of the COVID-19 pandemic in ~~constant currency) than~~ the ~~$500.5 million reported for~~second half of 2021 which has continued into the ~~third~~second quarter of ~~2016. Year to date net sales were 3.5% lower~~2022 with further growth in ~~constant currency driven by declines in both the commercial aerospace~~air travel and ~~industrial markets.~~

~~Commercial aerospace sales of $352.6 million decreased 2.2% (2.5% in constant currency) for the quarter as compared to the third quarter of 2016~~customer inventory destocking now largely completed. Despite these improvements, global logistics, supply chains and ~~decreased 2.8% (2.7% in constant currency) for the nine month period as compared to 2016. The sales declines in certain legacy widebody aircraft (A380, B777~~inflationary pressures still remain a challenge. COVID-19 has had and ~~B747) slightly more than offset the growth of the A350 and the new narrowbody aircraft.~~

Sales to other commercial aerospace, which includes regional and business aircraft customers, were down 6% for the third quarter 2017 and down about 7% for first nine months of 2017 as compared to 2016, driven by lower business jet sales.

Space & Defense sales of $82.7 million increased 1.5% (0.7% in constant currency) for the quarter as compared to the third quarter of 2016. Rotorcraft sales comprise just over half of Space & Defense with strong military performance offset by weaker commercial sales. Space & Defense sales for the first nine months of $247.3 million were 2.6% higher in constant currency than sales for the first nine months of 2016. The increase was driven by U.S. military rotorcraft and the Joint Strike Fighter (“JSF”) program.

Total Industrial sales of $56.2 million for the third quarter of 2017 were 3.8% lower (6.5% in constant currency) than the third quarter of 2016. Wind energy sales were down more than 25% for the third quarter compared to the 2016 quarter. Industrial sales for the first nine months of 2017 were $165.6 million or 15.4% lower in constant currency than the sales for the first nine months of 2016. Wind energy sales (the largest submarket in Industrial) are experiencing a challenging year and were down just over 30% for the first nine months of 2017 as compared to last year. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, as various legacy blades with lower composite content transition to longer, higher efficiency blades with higher composite content.

Gross margin for the third quarter was 27.6% compared to 27.1% in the third quarter of 2016, and 28.0% and 28.2% for the first nine months of 2017 and 2016, respectively, as all periods reflected strong operating performance. As expected, the first nine months of 2017 included about $8 million of costs related to the startup and training for the new greenfield sites in France and Morocco.

Selling, general and administrative expenses for the third quarter and first nine months were slightly lower in constant currency (3% for the first nine months) than the prior year as we maintained tight cost control. Research and technology expenses for the first nine months of $36.5 million was about 7% higher in constant currency than the comparable 2016 period as we continued to invest in innovative composite products and solutions to support our customers and next generation products.

Free cash flow (defined as cash provided by operating activities less capital expenditures) for the first nine months of 2017 was a source of $87 million versus $55 million in 2016. For the first nine months of 2017, working capital generated $5 million as compared to a $38 million use in the first nine months of 2016. The primary driver was an improvement in receivables due to continued strong collections.

Accrual basis additions to capital expenditures were $218 million in 2017 and $233 million in 2016. We expect accrual basis capital expenditures to be in the $270 million to $290 million range in 2017, as wemay continue to ~~expand capacity to meet the planned needs of~~have further negative impacts on our ~~customers.~~

~~Financial Overview~~

~~Results of Operations~~

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions, except per share data)

2017

2016

% Change

2017

2016

% Change

Net sales

$
491.5

$
500.5

(1.8
)%

$

1,461.6

$

1,520.8

(3.9
)%
Net sales change in constant currency

(2.4
)%

(3.5
)%
Operating income

89.1

89.1

(0.0
)%

257.4

273.1

(5.7
)%
As a percentage of net sales

18.1

%
17.8

%

17.6

%
18.0

%

Net income

69.7

68.2

2.2
%

195.9

190.3

2.9
%
Diluted net income per common share

$

0.76

$

0.72

$

2.13

$

2.01

Non-GAAP measures:

Adjusted net income

$
65.5

$
61.6

6.3
%

$
182.6

$

184.0

(0.8
)%
Adjusted diluted earnings per share

$

0.71

$

0.65

$

1.98

$

1.94

~~The Company’s performance measurements include sales measured in constant dollars, net income adjusted for special items~~operations, supply chain, transportation networks and ~~free cash flow,~~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 ~~non-GAAP measures. Management believes these non-GAAP measurements~~taking.

We are ~~meaningful~~also continuing to investors because they provide a view of Hexcel with respect to ongoing operating results. Special items represent significant charges or credits that are important to understanding Hexcel’s overall operating resultsmonitor developments in the ~~periods presented. Such non-GAAP measurements~~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 ~~not recognized~~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 ~~accordance with generally accepted accounting principles and should not be viewed as an alternative to GAAP measures~~particular.

Financial Overview

Results of ~~performance. The following is a reconciliation from GAAP to non-GAAP amounts.~~Operations

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions)

2017

2016

2017

2016

Net income

$
69.7

$
68.2

$
195.9

$
190.3

Accelerated amortization of deferred financing costs

―

―

―

0.3

Discrete tax benefits (a)

(4.2
)

(6.6
)

(13.3
)

(6.6
)
Adjusted net income (Non-GAAP)

$
65.5

$
61.6

$
182.6

$

184.0


	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	%

~~(a)~~

The three months ended September 30, 2017 and 2016 included benefits of $4.2 million and $6.6 million, respectively, related to the release of uncertain tax positons. The nine months ended September 30, 2017 also included a benefit of $9.1 million related to the release of a valuation allowance in a foreign jurisdiction.

For the Nine Months Ended September 30,

(In millions)

2017

2016

Net cash provided by operating activities

$

308.5

$
286.8

Less: Capital expenditures

(221.3
)

(231.8
)
Free cash flow (Non-GAAP)

$

87.2

$

55.0

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 ~~nine months ended September 30, 2017 and 2016~~2021:


	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended June 30,							Six Months Ended June 30,
(In millions)	2017			2016			% Change			2017			2016			% Change			2022		2021		% Change			2022		2021		% Change
Consolidated Net Sales	$		491.5	$		500.5		(1.8	)%			1,461.6	$		1,520.8		(3.9	)%	$	393.0	$	320.3		22.7	%	$	783.6	$	630.6		24.3	%
Commercial Aerospace	352.6			360.6				(2.2	)%	1,048.7			1,079.4				(2.8	)%		227.6		153.7		48.1	%		446.5		301.3		48.2	%
Space & Defense	82.7			81.5				1.5	%	247.3			242.6				1.9	%		111.9		106.9		4.7	%		230.1		218.6		5.3	%
Industrial	56.2			58.4				(3.8	)%	165.6			198.8				(16.7	)%		53.5		59.7		(10.4	)%		107.0		110.7		(3.3	)%

Composite Materials	$	398.9		$	398.2			0.2	%	$		1,183.7	$		1,219.3		(2.9	)%	$	318.1	$	240.9		32.0	%	$	631.9	$	478.1		32.2	%
Commercial Aerospace	277.1			276.0				0.4	%	820.2			828.3				(1.0	)%		192.0		116.4		64.9	%		376.8		228.9		64.6	%
Space & Defense	65.6			63.8				2.8	%	197.9			192.2				3.0	%		73.9		66.0		12.0	%		150.5		140.8		6.9	%
Industrial	56.2			58.4				(3.8	)%	165.6			198.8				(16.7	)%		52.2		58.5		(10.8	)%		104.6		108.4		(3.5	)%

Engineered Products	$		92.6	$	102.3			(9.5	)%	$	277.9		$	301.5			(7.8	)%	$	74.9	$	79.4		(5.7	)%	$	151.7	$	152.5		(0.5	)%
Commercial Aerospace	75.5			84.6				(10.8	)%	228.5			251.1				(9.0	)%		35.6		37.3		(4.6	)%		69.7		72.4		(3.7	)%
Space & Defense	17.1			17.7				(3.4	)%	49.4			50.4				(2.0	)%		38.0		40.9		(7.1	)%		79.6		77.8		2.3	%
Industrial	—			—			N/A			—			—			N/A				1.3		1.2		8.3	%		2.4		2.3		4.3	%

Sales by Segment

Composite Materials: Net sales of ~~$398.9~~$318.1 million in the ~~third~~second quarter of ~~2017~~2022 increased ~~$0.7~~by $77.2 million or 32.0% from the ~~$398.2~~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 ~~a 3.8% decrease in Industrial sales was offset by a slight increase in~~ ~~Commercial Aerospace and Space & Defense sales.~~ ~~Net sales for the first nine months of 2017 declined by 2.9%~~well as ~~compared with the first nine months of 2016. A~~s expected, wind energy sales were down about 30% in the quarter and the first nine months of 2017. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, once the transition from certain blade models with lower composite content to longer blades with higher content in 2018 is completed.

~~Engineered Products:~~business jet growth. Net sales of $92.6 million in the third quarter of 2017 decreased $9.7 million from the $102.3 million for 2016 as driven by a decline in Commercial Aerospace sales, primarily due to the decline in legacy widebody aircraft rates. ~~The decrease of 7.8% in net sales to $277.9~~$631.9 million for the first ~~nine~~six months of ~~2017~~2022 increased32.2% 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 ~~also~~primarily driven by ~~a decline~~slightly lower Space & Defense sales which were down $2.9 million or 7.1% in ~~Commercial Aerospace sales.~~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:~~Commercial Aerospace sales of ~~$352.6~~$227.6 million ~~were 2.2% lower (2.5%~~increased $73.9 million or 48.1% (49.5% in constant currency) for the second quarter asof 2022 compared to the ~~third~~second quarter of ~~2016. Net sales~~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 ~~nine~~six months of ~~2017 declined 2.7% on a~~2022, increased 48.2% (49.3% in constant ~~currency basis to $1,048.7 million as~~currency) compared to the first ~~nine~~six months of ~~2016.~~2021due to stronger narrowbody and A350 sales whereas sales in the prior year period were impacted by channel destocking. Sales ~~declines in certain legacy widebody aircraft (i.e. A380, B777 and B747) slightly more than offset the growth~~ of ~~the A350 and new narrowbody aircraft.~~

~~Sales to other commercial aerospace,~~Other Commercial Aerospace, which includes business jets and regional ~~and business~~ aircraft, ~~customers, were down 6% for the third quarter 2017 and down about 7%~~increased 72.9% for the first ~~nine~~six months of ~~2017 as~~2022 compared to ~~2016, driven by lower business jet sales.~~the same period in 2021.

~~Space & Defense~~: Space & Defense sales of ~~$82.7~~$111.9 million increased ~~1.5% (0.7%~~4.7% (7.0% in constant currency) for the second quarter asof 2022 compared to the ~~third~~second quarter of ~~2016. Rotorcraft sales comprise just over half~~2021led by growth in Space, CH-53K heavy lift helicopters and a number of ~~Space & Defense with strong military performance offset by weaker commercial sales. Space & Defense sales~~overseas programs. Sales of $230.1 million for the first ~~nine~~six months of ~~$247.3 million were 2.6% higher~~2022 increased 5.3% (7.0% in constant ~~currency than sales for~~currency) compared to the first ~~nine~~six months of ~~2016. The increase was driven by U.S. military rotorcraft~~2021 due to growth in Space and the ~~JSF program~~ CH-53K program.

~~Industrial:~~ ~~Sales~~Total Industrial sales in the second quarter of ~~$56.2~~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 ~~third quarter~~six months of ~~2017 were 3.8% lower (6.5%~~2022, decreased 3.3% (2.6% increase in constant currency) ~~than the third quarter of 2016. Wind energy sales were down more than 25% for the third quarter~~ compared to the ~~2016 quarter. Industrial sales for the~~ first ~~nine~~six months of ~~2017 were $165.6 million or 15.4%~~2021 despite growth in automotive, recreation and other industrial markets which was not enough to offset the negative impact of lower ~~in constant currency than sales for the first nine months of 2016. As expected,~~ wind energy sales (the largest submarket in Industrial) are experiencing a challenging year and were down just over 30% for the first nine months of 2017 as compared to last year. However, the Company expects wind energy sales in 2018 to exceed 2016 levels, as various legacy blades with lower composite content transition to longer, higher efficiency blades with higher composite content.sales.

Gross Margin


	Quarter Ended September 30,									Nine Months Ended September 30,									Quarter Ended June 30,									Six Months Ended June 30,
(In millions)	2017			2016			% Change			2017			2016			% Change			2022			2021			% Change			2022			2021			% Change
Gross margin	$	135.6		$	135.7			(0.1	)%	$	409.6		$	429.0			(4.5	)%	$	89.5		$	61.9			44.6	%	$	176.2		$	115.0			53.2	%
Percentage of sales	27.6		%	27.1		%				28.0		%	28.2		%					22.8	%		19.3	%					22.5	%		18.2	%

Gross margin for the ~~third~~second quarter of 2022 was ~~27.6%~~22.8% compared to ~~27.1%~~19.3% in the ~~third~~second quarter of ~~2016,~~2021 and ~~28.0%~~was 22.5% and ~~28.2%~~18.2% for the first ~~nine~~six months of ~~2017~~2022 and ~~2016, respectively, as all periods reflected strong operating performance. As expected,~~2021, respectively. The improvements in the gross margin for both the second quarter and first ~~nine~~six months of ~~2017 included about $8 million of costs related~~2022 compared to the ~~startup~~same periods last year was primarily due to the higher sales and ~~training~~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 ~~new greenfield sites~~second quarter of 2022 compared to the same period in ~~France and Morocco.~~

~~Operating Expenses~~

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions)

2017

2016

% Change

2017

2016

% Change

SG&A expense

$
34.7

$

35.1

(1.1
)%

$

115.7

$

121.1

(4.5
)%
Percentage of sales

7.1
%
7.0
%

7.9

%
8.0

%

R&T expense

$
11.8

$

11.5

2.6
%

$
36.5

$
34.8

4.9
%
Percentage of sales

2.4
%
2.3
%

2.5

%
2.3

%

~~Selling,~~2021, although the current quarter expenses were lower as a percentage of sales. The increase in selling, general and administrative expenses for the ~~third~~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 ~~nine~~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 ~~in constant currency (3%~~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 ~~nine~~six months of 2022 was $93.9 million compared to $6.0 million for the same period last year. The increase in ~~constant currency) than~~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.

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 ~~we maintained tight cost controls. Research and technology~~a result of an unfavorable tax rate change. Tax expense for the first ~~nine~~six months ~~of $36.5~~ended June 30, 2022 was $17.4 million ~~was about 7% higher in constant currency than the comparable 2016 period as we continue to invest in innovative composite products and solutions to support our customers and next-generation products.~~

~~Operating Income~~

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions)

2017

2016

% Change

2017

2016

% Change

Consolidated operating income

89.1

$
89.1

(0.0
)%

$
257.4

$

273.1

(5.7
)%
Operating margin

18.1

%

17.8

%

17.6

%

18.0

%

Composite Materials

90.0

88.8

1.4
%

264.0

281.2

(6.1
)%
Operating margin

21.7

%

21.4

%

21.4

%

22.1

%

Engineered Products

12.1

12.9

(6.2
)%

37.2

36.8

1.1
%
Operating margin

13.1

%

12.6

%

13.4

%

12.2

%

Corporate & Other

(13.0
)

(12.6
)

3.2
%

(43.8
)

(44.9
)

(2.4
)%

Operating income for each of the third quarters of 2017 and 2016 was $89.1 million. The quarter and first nine months of 2017 were favorably impacted from exchange rates by about 40 basis points and 50 basis points compared to ~~the corresponding 2016 periods, respectively. For the first nine months~~a benefit of ~~2017, depreciation and amortization expense was $8~~$3.5 million ~~higher in constant currency than the comparable period for 2016.~~

~~Interest Expense, Net~~

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions)

2017

2016

% Change

2017

2016

% Change

Interest expense, net

$

7.0

$
5.5

27.3
%

$

20.0

$
16.8

19.0
%

~~Interest expense~~ for the ~~third quarter and nine~~same period of 2021. The tax benefit for the six months ended ~~September~~June 30, ~~2017 increased over the comparable period of 2016 due~~2021 included a discrete tax benefit related to a ~~higher average interest rate~~favorable U.S state tax law change in addition to the discrete tax charge previously mentioned.

Financial Condition

Liquidity: Cash on debt outstanding as a result of the Company issuance, in February 2017, of $400 million of 3.95% senior unsecured notes due in 2027. In addition, debt increased as we continue to invest in capacity, while also returning funds to stockholders through stock buybacks and dividends.

~~Provision for Income Taxes~~

Quarter Ended September 30,

Nine Months Ended September 30,

(In millions)

2017

2016

2017

2016

Income tax expense

$
13.6

$
16.1

$
44.3

$
67.5

Effective tax rate

16.5

%

19.3

%

18.6

%

26.4

%

~~The effective tax rate for the third quarter~~hand at June 30, 2022 was 16.5% compared to 19.3% for the third quarter of 2016, and the effective tax rate for the first nine months of 2017 was 18.6% compared to 26.4% in 2016. The quarter benefitted from the impact of tax credits identified during the quarter, while both the quarter and the first nine months’ provisions benefitted from deductions associated with share-based compensation payments. The third quarter provisions in 2017 and 2016 included non-recurring discrete benefits of $4.2 million and $6.6 million from the reversal of provisions for uncertain tax provisions. The provision for the first nine months of 2017 also included a non-recurring discrete benefit of $9.1 million from the release of a valuation allowance in a foreign jurisdiction. Excluding these discrete benefits, the effective tax rate for the first nine months was 24.2%.

~~Financial Condition~~

~~Liquidity:~~ ~~As of September 30, 2017, our total debt, net of cash, was $714.7~~$99.2 million as compared to ~~$653.5~~$127.7 million at December 31, ~~2016.~~ ~~The increase in~~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 ~~first nine months~~Facility agreement) of ~~2017 primarily reflects $122.0 million in stock repurchases~~at least $250 million. Effective April 1, 2022, the original terms and ~~dividends of $31 million partially offset by free cash flow of $87 million.~~ In February 2017, the Company issued $400 million aggregate principal amount of 3.95% Senior Unsecured Notes due in 2027. The interest rate on these senior notes may be increased by 0.25% each time a credit rating applicableconditions to the ~~notes is downgraded.~~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 ~~maximum rate is 5.95%. The net proceeds~~remaining authorization under the share repurchase program at June 30, 2022 was $217 million.

As of approximately $395 million were initially used to repay, in part, $350 million of our Senior Unsecured Revolving Credit Facility (the “Facility”) and the remainder was used for general purposes including share repurchases. At SeptemberJune 30, ~~2017,~~2022, total borrowings under ~~our~~ ~~$700~~the Facility were $114 million, ~~Facility~~ ~~were $75 million.~~which approximated fair value. The Facility agreement permits us to issue letters of credit up to an aggregate amount of ~~$40.0~~$50 million. Outstanding letters of credit reduce the amount available for borrowing under ~~our revolving loan.~~the Facility. As of ~~September~~June 30, ~~2017, we had not~~2022, there were no issued ~~any~~ letters of credit under the Facility, resulting in undrawn availability under the Facility as of ~~September 30, 2017 of $625.0~~$636 million.

The ~~Facility contains financial and other covenants, including, but not limited to, restrictions on the incurrence of debt and the granting of liens, as well as the maintenance of an~~weighted average interest ~~coverage ratio and a leverage ratio. In accordance with the terms of~~rate for the Facility ~~we are required to maintain a minimum interest coverage ratio of 3.50 (based on~~was 4.2% for the ratio of EBITDA, as defined in the credit agreement, to interest expense) and may not exceed a maximum leverage ratio of 3.50 (based on the ratio of total debt to EBITDA) throughout the term of the Facility. In addition, the Facility contains other terms and conditions such as customary representations and warranties, additional covenants and customary events of default. The conditions and covenants related to the senior notes are less restrictive than those of our Facility. As of Septembersix months ended June 30, ~~2017, we were in compliance with all debt covenants and expect to remain in compliance.~~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 ~~September~~June 30, ~~2017,~~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 ~~September 2021~~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 ~~$308.5~~$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 ~~first nine months of 2017, as compared to $286.8 million~~same period in ~~the first nine months of 2016. Working capital generated $4.6 million of cash in the first nine months of 2017 versus a usage of $38.2 million in the first nine months of 2016, as~~2021 primarily driven by higher inventory and accounts receivable ~~collections remain strong.~~to support higher sales.

Investing Activities: Net cash used for investing activities ~~of $233~~was $16.2 million and ~~$265~~$9.2 million in the first ~~nine~~six months of ~~2017~~2022 and ~~2016, respectively, was for capital expenditures and investments.~~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 ~~$221.3~~$37.9 million ~~and $231.8~~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.

Financing Activities: Net cash used for financing activities was $26.6 million for first ~~nine~~six months of ~~2017 and 2016, respectively.~~

~~In 2017, we made additional investments for a total of $12~~2022 compared to $16.6 million in ~~Oxford Performance Materials (“OPM”) and Carbon Conversions Incorporated (“CCI”). OPM produces thermoplastic, carbon fiber reinforced 3D printed parts for aerospace and medical~~

~~applications and CCI is a leader~~the same period in ~~carbon fiber recycling and repurposing. The investment in 2016 represented~~2021. Borrowings under the ~~acquisition~~Facility during the first six months of ~~the remaining 50% of Formax (UK) Limited the initial investment in OPM and a convertible secured loan~~2022 was $35.0 million, while repayments were $46.0 million compared to ~~Luminati Aerospace LLC.~~

~~Financing Activities:~~ ~~Financing activities generated $1.0~~$21.0 million ~~and used $27.3 million of net cash~~ in the first nine months of 2017 and 2016, respectively. The first nine months ended September 30, 2017 reflects $400 million from the issuance of the 3.95% senior notes and $37 million from the issuance of the Euro term loan, offset by the repayment of $290 million of the Facility, and $153 million returned to stockholders from stock repurchases and dividends. The first nine months of 2016 primarily reflects increased borrowings of $63 million from the Facility and $27 million from the Euro term loan less $115 million returned to stockholders from stock repurchases and dividends.

prior year. In the first ~~nine~~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 2017, the Company repurchased $122 million of shares of common stock under the repurchase plans. In October 2015, our Board authorized the repurchase of $250 million of the Company’s stock (“2015 Repurchase Plan”) which was completed in the second quarter of 2017. In February 2017, our Board authorized the repurchase of an additional $300 million of the Company’s stock (“2017 Repurchase Plan”) of which $270.7 million remains under the 2017 Repurchase Plan.2022.

Financial Obligations and Commitments: ~~As of September 30, 2017, the current portion of debt includes $4.2 million related to the Euro term loan.~~

The next significant scheduled debt maturity will not occur until ~~2021,~~2024, when the ~~senior unsecured credit facility~~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~~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, ~~2016.~~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 ~~estimate~~calculation of ~~liability~~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


	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 PRP and our remaining costs associated with our responsibility to remediate the Lower Passaic River in New Jersey and other sites are accrued in the consolidated balance sheets. As of September 30, 2017, our aggregate environmental related accruals were $2.8 million, of which $0.9 million was included in accrued liabilities, with the remainder included in non-current liabilities. Asbenefit related to ~~certain environmental matters,~~ the ~~accrual was estimated at the low end~~reduction of a ~~range~~contingent liability.

(b)

The quarter ended June 30, 2021 included a discrete tax charge of ~~possible outcomes since no amount within~~$2.7 million related to the ~~range is a better estimate than any other amount. If we had accrued at the high end~~remeasurement of the ~~range of possible outcomes, for those sites where we are able to estimate our~~net deferred tax liability our accrual would have been $16 million higher. 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, the amount of insurance coverage and other actions by governmental agencies or private parties, or the impact, if any, of being named in a ~~new matter.~~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

~~Certain~~This report contains forward-looking statements ~~contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” constitute “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”, “could”, “estimate”, “expect”, “intend”, “may”, “plan”, “predict”, “project”, “should”, “would”,~~“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 ~~made publicly available~~provided by Airbus, Boeing and others; (b) the revenues we may generate from an aircraft model or program; (c) the impact of the ~~possible~~ 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; ~~(e)~~(g) expectations ~~of growth in~~regarding revenues from space and defense applications, including whether certain programs might be curtailed or discontinued; ~~(f)~~(h) expectations regarding ~~growth in~~ sales for wind energy, recreation, automotive and other industrial applications; ~~(g)~~(i) expectations regarding working capital trends and ~~expenditures; (h)~~expenditures and inventory levels; (j) expectations as to the level of capital expenditures and ~~when we will complete the construction~~completion of capacity expansions and qualification of ~~capacity expansions; (i)~~new products; (k) expectations regarding our ability to improve or maintain ~~and improve margins in light of the ramp-up of capacity and new facilities and the current economic environment; (j)~~margins; (l) expectations regarding the outcome of legal ~~matters; (k)~~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 ~~realizability of net operating loss and tax credit carryforwards; and (l) the~~continued impact of ~~various market risks, including fluctuations in interest rates, currency exchange rates, environmental regulations and tax codes, fluctuations in commodity prices, and fluctuations in~~ the ~~market price of our common stock, the impact of work stoppages or other labor disruptions~~COVID-19 pandemic and the impact of the ~~above factors~~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 ~~of 2017 financial results~~regarding our strategic initiatives and ~~beyond. In addition, actual results may differ materially from the results anticipated in the forward looking statements due to a variety of factors,~~other goals, including, but not limited to, ~~changing~~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 ~~conditions, increased competition, product mix, inability to achieve planned manufacturing improvements or to meet customer specifications, cost reductions~~risks on our expectations of financial results for 2022 and ~~capacity additions, and conditions in the financial markets.~~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: ~~changes~~the impact of the COVID-19 pandemic (including continued disruption in ~~general economic~~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 ~~conditions; changes in current pricing~~ and ~~cost levels; changes in political, social~~financial condition of Hexcel and ~~economic conditions~~its customers and ~~local regulations; foreign currency fluctuations; changes in aerospace delivery rates;~~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 ~~Vestas;~~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; ~~disruptions~~availability and cost of ~~established supply channels, particularly where~~ raw materials, ~~are obtained from~~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 ~~single or limited number of sources and cannot be substituted by unqualified alternatives; manufacturing capacity constraints; uncertainty regarding the exit~~result of the ~~U.K. from~~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 ~~European Union;~~effects of natural disasters, which may be worsened by the impact of climate change, and ~~unforeseen vulnerability~~other severe catastrophic events; the potential impact of ~~our network~~environmental, social and ~~systems to interruptions~~governance matters; and the unexpected outcome of legal matters or ~~failures.~~impact of changes in laws or regulations.

~~If one or more of~~Although we believe that these ~~risks or uncertainties materialize, or if underlying~~forward-looking statements are based on reasonable assumptions, ~~prove incorrect,~~you should be aware that many factors could affect our actual results ~~may vary~~of operations and could cause actual results to differ materially from those ~~expected, estimated or projected. In addition to~~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 ~~affect~~may cause our ~~operating~~actual results ~~and financial position, neither past financial performance nor our expectations should be considered reliable indicators~~to differ from those expected or anticipated, see the information under the caption “Risk Factors,” which is located in Item 1A of future performance. Investors should not use historical trends to anticipate results or trends in future periods. Further, our stock price is subject to volatility. Any of the factors discussed above could have an adverse impact on the pricePart I of our ~~securities. In addition, failure of sales or income in any quarter to meet~~Annual Report on Form 10-K for the ~~investment community’s expectations, as well as broader market trends, can have an adverse impact on the price of our securities.~~fiscal year ended December 31, 2021. We do not undertake anany obligation to update our forward-looking statements or risk factors to reflect future events or ~~circumstances.~~circumstances, except as otherwise required by law.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk

~~There are~~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 ~~2016~~ Annual Report on Form ~~10-K.~~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 ~~September~~June 30, ~~2017~~2022, and with the participation of the Company's management have concluded that these disclosure controls and procedures ~~are~~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 ~~third quarter of 2017~~three months ended 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 11 on pages 1415 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, ~~2016,~~2021, which could materially affect our business, financial condition or future results. ~~In addition, future uncertainties may increase~~There have been no material changes in the ~~magnitude of these adverse effects or give rise to additional material risks~~Company's risk factors from the aforementioned Form 10-K.

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

~~ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds~~25

Period

(a)
Total Number
of
Shares (or
Units)
Purchased

(b)
Average Price Paid
per Share (or Unit)

(c)
Total Number of
Shares (or Units)
Purchased as Part of
Publicly Announced
Plans or Programs

(d)
Maximum Number (or
Approximate Dollar Value) of
Shares (or Units) that May Yet
Be Purchased Under the Plans or
Programs

July 1 — July 31, 2017

23,200

$
51.63

23,200

$
270,744,906

August 1 — August 31, 2017

---

---

---

270,744,906

September 1 — September 30, 2017

---

---

---

270,744,906

Total

23,200

$
51.63

23,200
(1)

$
270,744,906

~~(1)~~

In October 2015, our Board authorized us to repurchase $250 million of our outstanding common stock, which was completed in the second quarter of 2017. On February 9, 2017, our Board authorized us to repurchase an additional $300 million of our common stock of which $270.7 million remained at September 30, 2017.

~~ITEM 5. Other Information~~

~~Not applicable~~

ITEM 6. Exhibits

EXHIBIT INDEX


Exhibit No.		Description
10.1*
~~10.1~~		~~Credit~~Form of Performance Based Award Agreement dated as of June 9, 2016, by and among Hexcel Corporation, Hexcel Holdings Luxembourg S.à.r.l., the financial institutions from time to time party thereto, Citizens Bank, National Association, as administrative agent for the lenders, Citizens Bank, National Association, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint book managers and joint lead arrangers, Bank of America, N.A. and Wells Fargo Bank, National Association, as syndication agents, and Sumitomo Mitsui Banking Corporation, SunTrust Bank, TD Bank, N.A. and U.S. Bank, National Association, as documentation agentsExecutive Officers (2022) (incorporated herein by reference to Exhibit ~~99.1~~10.1 to the ~~Company’s Current~~Company's Quarterly Report on Form ~~8-K dated June 14, 2016)~~10-Q for the quarter ended March 31, 2022).
10.2*
~~10.2~~		~~Company Guaranty, dated as~~Form of ~~June 9, 2016, by Hexcel Corporation in favor of and~~Performance Based Award Agreement for ~~the benefit of Citizens Bank, National Association, as administrative agent for each of the Lender Group (as defined in the Credit Agreement)~~Non-U.S. Executive Officers (2022) (incorporated herein by reference to Exhibit ~~99.2~~10.2 to the ~~Company’s Current~~Company's Quarterly Report on Form ~~8-K dated June 14, 2016)~~10-Q for the quarter ended March 31, 2022).
10.3*		Hexcel Corporation Director Compensation Program
~~31.1~~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
~~31.2~~		Certification of Chief Financial Officer, Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32
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.~~2002 (furnished herewith)
101
~~101~~		The following ~~materials~~financial statements from the ~~Hexcel Corporation~~Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30 ~~2017,~~31, 2022, formatted in ~~Extensible Business Reporting Language (XBRL):~~Inline XBRL: (i) ~~the~~ 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, ~~and~~ (v) ~~related notes.~~

~~EXHIBIT INDEX~~

~~Exhibit No.~~		~~Description~~

~~10.1~~		Credit Agreement, dated as of June 9, 2016, by and among Hexcel Corporation, Hexcel Holdings Luxembourg S.à.r.l., the financial institutions from time to time party thereto, Citizens Bank, National Association, as administrative agent for the lenders, Citizens Bank, National Association, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as joint book managers and joint lead arrangers, Bank of America, N.A. and Wells Fargo Bank, National Association, as syndication agents, and Sumitomo Mitsui Banking Corporation, SunTrust Bank, TD Bank, N.A. and U.S. Bank, National Association, as documentation agents (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K dated June 14, 2016).

~~10.2~~		Company Guaranty, dated as of June 9, 2016, by Hexcel Corporation in favor of and for the benefit of Citizens Bank, National Association, as administrative agent for each of the Lender Group (as defined in the Credit Agreement) (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K dated June 14, 2016).

~~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.~~

~~101~~		The following materials from the Hexcel Corporation Quarterly Report on Form 10-Q for the quarter ended September 30, 2017, formatted in Extensible Business Reporting Language (XBRL): (i) the Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of ~~Operations, (iii)~~Stockholders’ Equity, and (vi) Notes to Condensed Consolidated ~~Statements of Comprehensive Income, (iv) Condensed Consolidated Statements of Cash Flows,~~Financial Statements.
104		Cover Page Interactive Data File: the cover page XBRL tags are embedded within the Inline XBRL document and ~~(v) related notes.~~are contained within Exhibit 101.

S~~ignature~~* Indicates management contract or compensatory plan or arrangement

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 ~~hereunto~~thereunto duly authorized.


		Hexcel Corporation

~~October 18, 2017~~July 25, 2022		/s/ ~~Kimberly Hendricks~~Amy S. Evans
(Date)		~~Kimberly Hendricks~~Amy S. Evans
		Senior Vice President, ~~Corporate Controller and~~
		Chief Accounting Officer


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


Large accelerated filer☒		Accelerated filer ☐
Non-accelerated filer 		Smaller reporting company ☐
~~Non-accelerated filer~~ ☐		~~Smaller reporting company~~ ☐

Emerging growth company ☐


Class		Outstanding at ~~October 13, 2017~~July 21, 2022
COMMON STOCK		~~89,825,472~~84,102,467


			Page
PART I.	FINANCIAL INFORMATION		3

ITEM 1.	Condensed Consolidated Financial Statements (Unaudited)		3

	●•	Condensed Consolidated Balance Sheets — ~~September~~June 30 ~~2017~~2022, and December 31, ~~2016~~2021	3

	●•	Condensed Consolidated Statements of Operations — The ~~quarters~~quarter and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021	4

	●•	Condensed Consolidated Statements of Comprehensive (Loss) Income — The ~~quarters~~quarter and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021	4

	●•	Condensed Consolidated Statements of Cash Flows — The ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~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	67

ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		1618

ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk		2324

ITEM 4.	Controls and Procedures		2324

PART II.	OTHER INFORMATION		2425

ITEM 1.	Legal Proceedings		2425

ITEM 1A.	Risk Factors		2425

ITEM 2.6.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Exhibits		2426

~~ITEM 6.~~	~~Exhibits and Reports on Form 8-K~~SIGNATURE		25

~~SIGNATURE~~			27

Hexcel Corporation and Subsidiaries
Condensed Consolidated Balance Sheets

	(Unaudited)
	September 30,			December 31,
(In millions)	2017			2016
Assets
Current assets:
Cash and cash equivalents	$	119.1		$	35.2
Accounts receivable, net		245.0			245.6
Inventories, net		313.4			291.0
Prepaid expenses and other current assets		30.0			35.2
Total current assets		707.5			607.0

Property, plant and equipment		2,662.3			2,378.4
Less accumulated depreciation		(836.8	)		(752.8	)
Net property, plant and equipment		1,825.5			1,625.6

Goodwill and other intangible assets		74.0			72.2
Investments in affiliated companies		67.1			53.1
Other assets		63.1			42.7
Total assets	$	2,737.2		$	2,400.6

Liabilities and Stockholders' Equity
Current liabilities:
Current portions of capital lease and term loan	$	4.2		$	4.3
Accounts payable		128.6			137.3
Accrued liabilities		125.0			130.3
Total current liabilities		257.8			271.9

Commitments and contingencies (see Note 11)

Long-term debt		829.6			684.4
Other non-current liabilities		223.1			199.4
Total liabilities		1,310.5			1,155.7

Stockholders' equity:
Common stock, $0.01 par value, 200.0 shares authorized, 107.5 shares and 106.7 shares issued at September 30, 2017 and December 31, 2016, respectively		1.1			1.1
Additional paid-in capital		766.5			738.8
Retained earnings		1,419.1			1,254.7
Accumulated other comprehensive loss		(57.2	)		(174.4	)
		2,129.5			1,820.2
Less – Treasury stock, at cost, 17.7 shares at September 30, 2017, and 15.3 shares at December 31, 2016, respectively.		(702.8	)		(575.3	)
Total stockholders' equity		1,426.7			1,244.9
Total liabilities and stockholders' equity	$	2,737.2		$	2,400.6


								Accumulated
			Additional					Other						Total
			Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)	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
Net loss	—		—			(14.0	)	—			—				(14.0	)
Change in other comprehensive (loss)– net of tax	—		—		—				(19.1	)	—				(19.1	)
Stock based compensation	—			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
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
			Additional					Other						Total
			Paid-In		Retained			Comprehensive			Treasury			Stockholders’
(In millions)	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
Net income	—		—			17.8		—			—				17.8
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
Balance, March 31, 2022	$	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

		September 30, 2017		December 31, 2016
Amounts recognized on the balance sheet:
(In millions)					June 30, 2022		December 31, 2021
Amounts recognized on the balance sheet for U.S. nonqualified defined benefit retirement plans:
Accrued liabilities	$	1.1	$	1.1	$	3.2	$	2.7
Other non-current liabilities		20.3		18.6		21.1		21.3
	$	21.4	$	19.7
Total accrued benefit					$	24.3	$	24.0

(In millions)		Unrecognized Defined Benefit and Postretirement Plan Costs				Change in Fair Value of Derivatives Products (a)				Foreign Currency Translation				Total
Balance at December 31, 2016	$		(14.6	)	$		(18.7	)	$		(141.1	)	$		(174.4	)
Other comprehensive (loss) income before reclassifications			(1.1	)			23.1				87.2				109.2
Amounts reclassified from accumulated other comprehensive loss			(0.5	)			8.5				—				8.0
Other comprehensive (loss) income			(1.6	)			31.6				87.2				117.2
Balance at September 30, 2017	$		(16.2	)	$		12.9		$		(53.9	)	$		(57.2	)

	For the Nine Months Ended September 30,
(In millions)	2017			2016
Net cash provided by operating activities	$	308.5		$	286.8
Less: Capital expenditures		(221.3	)			(231.8	)
Free cash flow (Non-GAAP)	$	87.2		$		55.0

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)		(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs			(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
July 1 — July 31, 2017		23,200	$	51.63		23,200		$	270,744,906
August 1 — August 31, 2017		---		---		---			270,744,906
September 1 — September 30, 2017		---		---		---			270,744,906
Total		23,200	$	51.63		23,200	(1)	$	270,744,906